Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
The U.S. Securities & Exchange Commission proposed a climate-related disclosure rule for U.S. publicly traded companies and certain foreign issuers. The rule – an effort to standardize company ESG disclosures and provide investors with comparable information – would require companies to report qualitative and quantitative data relating to environmental and climate-related risks, as well as the company’s strategy around and management of those risks.
- Teneo Takeaway: The SEC is anxious to provide leadership on climate disclosure but almost certainly wants its final rule to align with existing global disclosure initiatives to avoid concerns that it is forcing U.S. companies to adhere to multiple standards. See our latest Insights paper for more information.
The International Sustainability Standards Board launched a consultation period on two proposed rules that would require public companies to disclose climate-related risks. One sets out general sustainability-related disclosure requirements, and the other specifies climate-related disclosure requirements. The proposals build upon the recommendations of the Task Force on Climate-Related Financial Disclosures and incorporate industry-based disclosure requirements derived from SASB standards. ISSB will accept feedback on the proposals until July 29 and aims to issue the new standards by the end of the year.
- Teneo Takeaway: The ISSB was established last fall under the oversight of the International Financial Reporting Standards Foundation (IFRS), which sets accounting rules for the financial statements of public companies in 166 jurisdictions, including the EU.
The SEC proposed new rules and amendments to enhance disclosure and investor protection in IPOs and mergers by special-purpose acquisition companies (SPACs). If adopted, SPACs would have to provide more investor disclosures, especially about their ownership and performance forecasts. Past enthusiasm for SPACs has dimmed over threat of regulatory scrutiny and after dozens of newly-public companies missed forecasts, often by substantial margins. Over 600 SPACs raised about $160 billion in 2021; so far this year only 50 SPACs have raised about $10 billion. These rules are designed to protect investors and ensure greater due diligence. SEC Chairman Gary Gensler said that “the current crop of SPACs implicate and raise questions about investment companies.”
- Teneo Takeaway: Critics of the proposed rule argue that the SEC is overstepping its mandate, as the agency is not responsible for due diligence and evaluation of potential investments, and that the enhanced disclosure requirements will significantly reduce the stream of companies going public.
Climate Action 100+ released their second round of net zero company benchmark assessments. The exercise reviewed 166 companies and their progress on key indicators essential to limiting global warming to 1.5C. The investor-led initiative noted overall progress in reducing GHG emissions, but found that this progress was insufficient to align with the Paris Agreement
- Teneo Takeaway: Stakeholders, including investors, nonprofits, and activists, are beginning to scrutinize companies’ net zero targets and plans intended to meet them. Useful plans and disclosures include interim signposts and clear allocation plans.
A new study found that high-growth private companies lag their public counterparts in board diversity. Of the 500 companies included in the study, 40% lacked female directors, and 78% lacked a woman of color. These numbers are an improvement from 2019, when 60% of high-growth startups surveyed did not have a woman on their boards. Lack of diversity at the board level is not an issue only private companies face, a recent survey of Black and Latinx Fortune 500 directors indicated that many held the sentiment that people of color continue to be underrepresented on corporate boards.
- Teneo Takeaway: While many board diversity rules target public, or soon-to-be-public, companies, changing the makeup of private businesses is just as crucial. Private companies can be more purposeful in selecting board members in the lead-up to an IPO to avoid a scramble to add diverse directors to the board as a public offering approaches.
Shareholders are focusing on boardroom tenure as an avenue to boost company effectiveness and diversity. Regular refreshing of directors is seen as a way to help improve board diversity and open up seats for board members who are female and/or from diverse backgrounds. Increasing turnover may speed up the shift to more diverse representation. Less than 10% of S&P 500 board seats change hands in a given year; among the new directors to the S&P 500 in 2021, 43% were women and almost half were people of color.
- Teneo Takeaway: Proxy advisory firms have cited long or unbalanced board tenure as a potential reason to vote against some directors and have opposed re-election of board chairs to signal concern regarding board gender makeup. ESG raters, like MSCI and Sustainalytics, penalize companies for falling short of 30% female directors. Turnover is necessary to keep a board from losing effectiveness as those who serve too long may get complacent or have outdated expertise.
The California State Teachers’ Retirement System will be implementing a new approach to corporate engagement for the 2022 proxy season. According to a statement, they intend to oppose the election of directors in companies that have moved “too slowly” to achieve board diversity or address climate change – and plan to vote for shareholder proposals demanding meaningful net zero actions. Specifically, CalSTRS plans to vote against the entire board of directors of companies that do not have at least one woman on the board. They also plan to vote against directors of the largest global 1,900 companies if they have not published a report on climate change that aligns with the TCFD or have not disclosed scope 1 or scope 2 emissions.
- Teneo Takeaway: Blue state pension systems are increasingly basing investment and voting decisions with ESG in mind, wielding valuable stakes to influence corporate governance. New York’s state pension fund moved last month to sell $238M of stock and debt of 21 oil and gas companies.
A.P. Moller – Maersk has joined with the World Business Council for Sustainable Development (WBCSD), Smart Freight Center, and 25 global companies to co-develop guidance that helps quantify the impact of end-to-end GHG logistics emissions from supplier to final customer by the end of 2022. The plan is to launch the guidance during Davos 2023. Supported by the World Economic Forum and McKinsey, the consortium will build upon the Smart Freight Centre’s Global Logistics Emissions Council (GLEC) Framework 2.0, the globally recognized methodology for accounting and reporting of logistics emissions. Along with that, it will complement the WBCSD’s Pathfinder Framework, guidance for accounting and exchange of product life cycle emissions.
- Teneo Takeaway: Maersk continues to advance net zero shipping and cleaner freight opportunities around the world. The company’s partnership with the WBCSD comes on the heels of its Memorandum of Understanding with Egypt’s government to develop large-scale green fuel production, as well as its deal with Einride to develop electric trucks using Einride’s digital road freight operating system.
They Said It: ESG Influencers Speak Out
In his annual letter to shareholders, BlackRock CEO Larry Fink wrote: “the war in Ukraine … will inevitably slow the world’s progress toward net zero in the near term. Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy in many parts of the world. During the pandemic, we saw how a crisis can act as a catalyst for innovation … I remain optimistic for the future and continue to believe that our collective actions today can make a meaningful difference in the years to come.”
Looking Ahead: Upcoming ESG Events
- Global Sustainable Business Summit, Bloomberg (London) – 31 March
- Asia Energy Transition Conference, S&P Global (Virtual) – 30-31 March
- Bloomberg Green Summit, Bloomberg (Virtual) – 27-28 April
- 7th Annual Global Conference on Energy Efficiency, IEA (Sønderborg) 7-9 June
- Global Energy Transition 2022, Reuters (New York) – 14-15 June