This spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
BlackRock’s Investment Stewardship team released updated 2024 proxy voting guidelines for U.S. securities summarizing the asset managers philosophy and approach to engagement and voting, as well as outlining governance best practices. The guidelines are divided into eight key themes, including board and directors, executive compensation, and material sustainability-related risks and opportunities – among others. The manager underscored its focus on financial resilience as the overarching theme across its 2024 stewardship program with continued emphasis on promoting long-term financial value creation. However, BlackRock also reiterated its position that board diversity promotes diversity of thought and avoids ‘group think,’ and “encouraged boards to aspire to meaningful diversity of membership … to at least 30%” in the U.S. The asset manager also outlined its position that material sustainability-related risks and opportunities are critical for businesses, with robust disclosure – aligned with ISSB and TCGC frameworks – essential for investors to “effectively evaluate companies’ strategy and business practices.” Notably, BlackRock highlighted its position to “not tell companies what to do” when it comes to evaluating climate risk and said it views Scope 3 emissions “differently than Scope 1 and 2 given methodological complexity, regulatory uncertainty, concerns about double-counting, and lack of direct control by companies.”
- Teneo Takeaway: BlackRock's updated proxy guidelines reinforce its focus on long-term financial value creation and carefully lay out support for sustainability disclosures and the incorporation of climate and natural capital risks. While not mentioning ESG, the guidelines continue to indicate that BlackRock is an advocate for many “ESG” principles, including incorporating climate risks into company’s long-term strategies as material to the board’s fiduciary responsibilities.
New startup Shareholder Vote Exchange provides a platform for investors to sell their rights to vote in shareholder meetings. Andrew Shapiro, a board adviser to Shareholder Vote Exchange, said that only about 30% of shares held by individual investors are used to vote and “many retail investors throw their votes away because they don’t want to read the proxy or because they feel their votes don’t matter.” Critics argue the platform is ripe for abuse, with the possibility that some votes could end up in the hands of those who want the company to fail. So far, about 200,000 proxy votes, a small percentage of votes cast in annual U.S. meetings, have been traded on Shareholder Vote Exchange.
- Teneo Takeaway: In addition to pass-through voting being launched by the big 3 institutional investors, a platform such as Shareholder Vote Exchange will potentially complicate the retail investors’ voting landscape. While the impact of these new ways for shareholders to vote still remains to be seen, companies should maintain vigilance on the uptake.
A new report completed by more than 320 U.S. based C-suite executives found that many employers have “deepened their commitment to Inclusion, Equity and Diversity (IE&D). Most executives (57%) said their organizations have expanded their IE&D commitments and level of activity in 2023. Notably, 59% also indicated backlash toward corporate diversity programs has increased since the U.S. Supreme Court’s decisions to roll back affirmative action college admissions policies in June 2023. Nearly three-quarters of C-suite leaders said they expect a degree of challenge in handling “potentially divisive social and political beliefs among employees and/or navigating pressure for the company to take a stance on social issues.”
- Teneo Takeaway: Despite political headwinds, C-suite leaders continue to place a large emphasis on inclusion initiatives. Read more about Teneo’s view on increasing pressure on corporate diversity and inclusion initiatives: Teneo ‘23 & ESG Series: Under Pressure – DE&I.
Exxon Mobil has filed a lawsuit against U.S. and Dutch activist investors to try to stop a shareholder climate resolution from going to a vote at its annual investor meeting in May. Arjuna Capital and Follow This' nonbinding resolution urged the company to accelerate its plan to reduce its carbon emissions, expand the scope of emissions it measures into Scope 3, and include robust targets and timetables. Similar motions proposed in 2022 reached 27.1% and only 10.5% in 2023. Exxon’s complaint argues that the proposal violates SEC rules for investor petitions that prevent shareholder proposals from being resubmitted year after year if they do not garner increasing support over a period of time. Exxon also cited an SEC rule that prevents shareholders from attempting to “micromanage” business decisions. In response to the lawsuit, Natasha Lamb, co-founder and chief investment officer at Arjuna Capital, said “Investors face economy-wide risks from climate change … We have a fundamental right and duty to voice concern over climate risk, its impacts on the global economy and shareholder value.”
- Teneo Takeaway: The lawsuit will likely have major implications for future shareholder proposals if the court allows Exxon to sidestep the SEC and omit it. The complaint also echoes corporate moves in the early 2010s to sue shareholder proponents over technical grounds. This practice was largely frowned upon by major investors at the time.
Tesla CEO Elon Musk’s $56B pay package was rejected by a Delaware judge, calling the compensation “an unfathomable sum” that was unfair to shareholders and negotiated by a board beholden to Musk. In Chancellor Kathaleen McCormick’s ruling, the judge said the board was “swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8B question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” Tesla’s board argued that the company was paying to ensure one of the world’s most dynamic entrepreneurs continued to dedicate his attention to the company. Several Tesla investors have jumped on the decision to highlight the need for an updated corporate structure with new independent board directors who can properly negotiate a new pay package for CEO Elon Musk.
- Teneo Takeaway: The $56B stock option-based compensation package would have been around six times larger than the combined pay of the 200 highest-paid executives in 2021. The Delaware Court’s ruling could have broader repercussions for highly-paid executives, especially for companies that have been receiving low-level of shareholder support combined with scrutiny around governance practices.
China has published its National Biodiversity and Action Plan (NBSAP), which includes steps to promote the inclusion of biodiversity-related information in China’s legally mandated environmental disclosures. The launch follows the Taskforce on Nature-related Financial Disclosures announcement that 320 organizations have signaled their intention to adopt TNFD recommendations and is part of China’s effort to align with the Kunming-Montreal Global Biodiversity Framework. The PRC has also relaunched its stalled voluntary carbon offset market, which will offer funding to projects with the potential to curb emissions. The relaunch of China’s carbon offset market reflects China’s goal to become more self-reliant when it comes to sustainable finance, among other self-resiliency targets.
- Teneo Takeaway: China’s NBSAP will attempt to align with global standards, including the UN’s 2030 agenda for sustainable development, and advance the country’s Beautiful China Initiative, a plan President XI Jinping has said will “accelerate the advancement of modernization featuring harmony between humans and nature.”
They Said It: ESG Influencers Speak Out
Speaking at the World Economic Forum, JPMorgan CEO Jamie Dimon said his firm isn’t retreating from its diversity efforts: “I’m going to start by telling you that I’m a full-throated, red-blooded, patriotic, unwoke, capitalist CEO … I’m not woke anything … We're hiring great kids from [HBCUs] who wanna work, give a damn, want a job, wanna work hard, and wanna get ahead. God bless 'em—and they’re gonna get a chance at JPMorgan regardless of color.”
