Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
Teneo’s ESG and Governance Teams published a memo on the state of U.S. sustainability reporting, providing insights and examples to help companies decide what to disclose and how. Overall, our team analyzed 200 sustainability reports from S&P 500 companies published from January 1 – June 30, 2022. In short, we consider it imperative for companies to stay sharply focused on the ESG topics most crucial to their businesses and stakeholders. Large investors continue to strongly believe specific ESG factors can have a material impact on a company’s long-term financial health. In our annual proxy review, we found “anti-ESG” shareholder proposals continued to have poor support – less than 3% on average, with most failing to meet the 5% threshold for resubmission.
ESG in the News
The world’s largest asset manager, BlackRock faces sustained pressure on ESG issues from all sides of the political spectrum. The company had responded to criticism from Attorneys General from 19 conservative states saying it continues to invest in fossil fuels and does not ask companies to set specific emissions targets. In response, New York City Comptroller Brad Lander sent a letter to BlackRock CEO Larry Fink expressing “growing concern that BlackRock is backtracking on its climate commitments.” Mr. Lander urged BlackRock to address the contradictions between its climate commitments and investment actions by taking specific actions that would “signal to investors that BlackRock is taking seriously the long-term implications of climate change.”
- Teneo Takeaway: BlackRock and other large institutional investors find themselves in the middle of a political maelstrom heading into the mid-term elections. Ultimately, it is likely that asset manager client views will carry the day.
BlackRock has hired a new chief financial officer and several new vice chairs in a reshuffle to focus on outreach and sustainability after coming under fire over its approach to environmental, social and governance investing. In 2023, Martin Small will replace current CFO Gary Shedlin, who will become vice chair. Larry Fink and president Rob Kapito wrote in a staff memo that Mark McCombe, who has been managing relations with Texas state officials regarding ESG, will focus full time on “broader engagement . . . with a wider range of stakeholders.” Jessica Tan, formerly head of corporate strategy, will take over BlackRock’s sustainable investing unit, now rebranded as Sustainable and Transition Solutions. Mark Wiedman – known as a possible Fink successor – will become head of the U.S. and Canada and chief of a new Global Client Business.
- Teneo Takeaway: ESG investing suffers from a perceived lack of clarity. Greater transparency from asset managers as to what "ESG" means to them may be a potential benefit to this debate in both the political and economic environment.
The $228 billion Florida State Board of Administration pension fund voted in favor of 42.3% of social-related shareholder resolutions and 29.4% of environmental-related shareholder resolutions during the fiscal year ended June 30, according to a September report included with materials for its investment advisory council. The SBA, which oversees $180 billion in Florida Retirement System assets, supported 50.1% of all shareholder resolutions at Russell 3000 companies, per the information from Michael McCauley, senior officer for investment programs and governance. Florida Governor Ron DeSantis – one of the SBA’s three trustees along with the state’s CFO and Attorney General – has campaigned heavily against ESG; the board passed an August 23 resolution that all decisions related to the investment management of the Florida Retirement System will not include ESG considerations. The board's support for ESG-related shareholder resolutions declined 46.5% for environmental resolutions, 43% for social resolutions, and 15.4% for governance related resolutions from the previous year.
- Teneo Takeaway: The data indicates that pension plans in states like Florida, who have historically been strong supporters of ESG shareholder proposals, may have to rethink their proxy policies for 2023 to better align with their state's regulatory initiatives.
The World Benchmarking Alliance announced the creation of The Collective Impact Coalition, the first multi-stakeholder coalition on ethical artificial intelligence. The coalition aims to raise awareness of the importance of responsible and ethical AI, increase understanding of leading best practices, and improve companies’ commitment to ethical AI. The coalition already has 39 supporting members, representing $6.3 trillion of assets under management. In 2021, the WBA conducted a benchmarking of 150 of the most influential technology companies, finding only 20 had publicly committed to follow ethical AI principles.
- Teneo Takeaway: In the coming months, the coalition’s financial institutions will engage with technology companies in their respective portfolios to highlight that the lack of transparency and commitment to ethical AI is a major concern for investors.
Institutional Shareholder Services ESG, the responsible investment arm of ISS, launched its Biodiversity Impact Assessment Tool to support investors seeking to “align with rapidly evolving voluntary and statutory biodiversity frameworks across the globe, and to help investors measure the impact of their investment portfolios on biodiversity.” Developed by a team of biodiversity and modelling experts in partnership with the environmental sustainability consultancy Quantis, ISS ESG’s Biodiversity Impact Assessment Tool leverages a bottom-up assessment of a company’s business activities and supply chain to demonstrate the impact of operations on biodiversity. The new tool aims to help companies navigate the various biodiversity-related transparency and regulatory frameworks across the globe.
- Teneo Takeaway: Biodiversity is quickly moving up the priorities list for some investors. The new ISS ESG tool will help investors address imminent and evolving biodiversity reporting requirements.
They Said It: ESG Influencers Speak Out
Søren Skou, CEO of Danish shipping company AP Møller-Maersk, wrote a Financial Timesopinion piece on America’s enhanced ESG leadership following passage of the Inflation Reduction Act: “With the IRA the Americans have put themselves at the forefront of the race to become world leader in green energy production and have given the renewables transition a much-needed boost … For years, Europe liked to think of itself as the global frontrunner in the struggle against climate change. But the US is now in the driving seat … The U.S. government has sent a clear signal with its commitment to partnerships with businesses who are ready to invest in a green future. Europe, China, the Middle East, India and others should follow suit with their own ambitious investment plans.”
Looking Ahead: Upcoming ESG Events
- Innovation Summit Las Vegas, Schneider Electric (Las Vegas, NV) – October 12-13
- WSJ Pro Sustainable Business Forum, The Wall Street Journal (Virtual) – October 13
- VERGE 22: The Climate Tech Event, GreenBiz (San Jose, CA) – October 25-27
- The Deal’s ESG and Sustainability Forum, IMN (New York, NY) – November 2
- Fortune Impact Initiative, Fortune (Atlanta, GA) – November 29-30
