Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
Vanguard Group is planning a trial in 2023 to give retail clients more say over how their shares are voted at corporate meetings. The firm becomes the latest large money manager to begin giving clients additional voting options, after BlackRock and Charles Schwab began pilot programs of their own in recent months. Next year, Vanguard will test its strategy to give individual investors in several equity index funds more options about how their shares are voted – including following company management recommendations, opting not to vote, or choosing to rely on guidance from a third party. Currently, Vanguard’s stewardship team helps oversee voting policies for about 30 million investors.
- Teneo Takeaway: Vanguard’s plan to expand retail clients’ voting options joins the push by large asset managers to provide clients with additional voting options to vote pursuant to their own views.
Institutional Shareholder Services announced the launch of Vote Preference, a suite of flexible solutions enabling asset managers to offer voting choices directly to their underlying clients. Overall, the solutions allow asset managers to automate the display and vote execution of their underlying clients’ respective share percentages. These new tools will provide a full audit trail of communications and vote history to ensure accurate and timely record-keeping and reporting. ISS Communicator will also help asset managers gain additional, individually personalized collaboration tools. “ISS Vote Preference leverages innovative and proprietary technology to deliver flexible solutions that enable asset managers to keep pace with increasingly sophisticated and varied shareholder democracy requirements,” said Lorraine Kelly, Head of Investment Stewardship Solutions at ISS.
- Teneo Takeaway: ISS is looking to help asset managers who seek to provide greater voting options to their institutional and retail clients. Note that the voting options ISS provide include not only its benchmark policy, but also more progressive policies that typically recommend voting against management at a higher rate.
U.S. Republican lawmakers recently sent a letter to major corporate law firms warning of possible antitrust violations that their clients may commit if they pursue collusive ESG initiatives. The letter advised the firms to preserve documents relevant to their clients’ ESG practices in preparation for increased congressional oversight powers “to scrutinize the institutionalized antitrust violations being committed in the name of ESG.” The members cited a “collusive effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad.”
- Teneo Takeaway: Now that Republicans have gained control of the House of Representatives, we expect the party to attempt to fulfill their campaign promises around ESG oversight. However, any regulatory initiatives will be somewhat limited with Democrats retaining control of the Senate and President Biden’s veto power.
At COP27, the International Sustainability Standards Board announced further steps towards its goal to provide better information for economic and investment decisions and implementation of baseline sustainability-related financial disclosures. ISSB, along with more than 20 partner organizations, formed the Partnership Framework for Capacity Building in Developing and Emerging Economies, which will focus on supporting implementation of IFRS Sustainability Disclosure Standards across all economic settings so that all market participants can access its benefits. ISSB board chair, Emmanuel Faber, noted that the group is “working collaboratively towards the implementation of effective sustainability disclosures for capital markets, which will empower market participants with the right information to support better economic and investment decision making.” ISSB also announced that CDP will incorporate IFRS S2 Climate-related Disclosures requirements into its global environmental disclosure platform, which will help encourage the early adoption of IRFS S2 disclosures.
- Teneo Takeaway: The announcements reiterate ISSB’s commitment to accelerating readiness for jurisdictions to adopt ISSB standards, especially in developing and emerging market countries. The CDP also indicated it will include the ISSB disclosure framework in its annual survey, including Scope 3 emissions data.
Nasdaq released its ESG trends and insights report covering the second quarter of 2022. The data show earnings calls continue to evolve as a crucial way for executives to communicate their ESG strategy and progress on key initiatives, and for investors to receive information directly from the company’s strategy setters. Key datapoints indicate 78% of Russell 3000 constituents and 88% of MSCI USA ESG Leaders discussed ESG topics on the latest quarterly earnings calls. Sell-side analysts are going deeper during Q&A, with questions spanning several ESG topics from supply chains to carbon credits and compliance. In total, 20% of Russell 3000 constituents and 30% of MSCI USA ESG Leaders were asked about ESG topics on these earnings calls. More than two and a half times as many companies received questions about ESG from the first quarter to the second quarter of 2022.
- Teneo Takeaway: Sell-side analysts may increase the volume and depth of questions around ESG topics, given the growing importance to their key investor clients. As more corporates begin discussing their ESG strategy on earnings calls, companies that approach the data on both an aggregate and sector level will be best positioned to differentiate themselves.
They Said It: ESG Influencers Speak Out
Al Gore, a former U.S. Vice President, wrote a WSJ opinion piece that defended ESG investing: “Since all businesses affect social and environmental issues, for good or ill, all investment must consider risk, return and impact as part of fiduciary duty … We acknowledge that sustainable investing is hard. Not everything is a win-win. And not all businesses that are sustainable are good investments, because the fundamentals of finance still apply. Yet we believe sustainable investing is the best investment approach and will increasingly be recognized as such. Banning consideration of ESG factors would not only lead to poor investment outcomes; it would constitute a clear dereliction of fiduciary duty.”
Looking Ahead: Upcoming ESG Events
- COP27, United Nations (Sharm El-Sheikh, Egypt) – November 6-18
- Fortune Impact Initiative, Fortune (Atlanta, GA) – November 29-30
- Bloomberg Sustainable Business Summit, Bloomberg (New York, NY) – December 7