Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
The $632 billion asset manager Federated Hermes has bowed to client demands and withdrawn its sponsorship of the State Financial Officers Foundation — a Republican group of state financial officers that has dismissed ESG as a “scam” and threatened to remove state retirement assets from financial companies that do not support fossil fuel industries. Pension funds clients in Denmark, Norway, Australia and the UK communicated objections about the involvement with SFOF to Federated Hermes, long known as a champion of environmentally friendly investment strategies. Going forward, these funds have asked Federated Hermes to review their memberships and sponsorships to ensure these organizations are committed to the goals of the Paris climate agreement.
- Teneo Takeaway: It’s clear that despite conservative objections, most corporations are focused on adhering to client and shareholder guidance and the widespread perception on the risks of climate change. Given increasing climate disclosure rules especially in Europe, expect to see more institutional investors – such as Norway’s sovereign wealth fund – influence companies they have invested in to align with their ESG ambitions.
In response to several states – including Texas, Florida and West Virginia – blacklisting financial firms due to their “woke” climate and ESG initiatives, 14 state treasurers condemned their actions, saying the laws will reduce competition and have “real costs that ultimately impact their taxpayers.” The state treasurers argued that poor working conditions, discrimination and harassment, poor governance and climate change are all material threats to business and that the blacklisting states’ decisions to retaliate against firms operating under that model is financially irresponsible and shortsighted. In the treasurers’ views, there will be two kinds of states moving forward: “states focused on short term gains and states focused on long term beneficial outcomes for all stakeholders.”
- Teneo Takeaway: The response from Democratic state treasurers highlights the growing politicization of ESG. Most large state pension funds and institutional investors view many ESG issues, like climate, as a financially material issue for companies.
California is expected to join Colorado, Washington, New York City and others with the passage of a new pay transparency bill that will require employers to disclose pay scale in job postings. Currently, the state only requires employers to disclose the pay range for a job if an applicant asks for it after an initial interview. The new law would also require unprecedented reporting on hourly rates broken down by race and gender.
- Teneo Takeaway: Pay transparency laws are popping up throughout the country and the trend is expected to continue. While it is too soon to know if these laws serve to reduce gender or race-based wage disparities, research indicates that such laws make it easier to attract talented workers and have a positive impact on employees’ feelings of trust, fairness and job satisfaction
Unilever CEO Alan Jope reaffirmed the company’s commitment to its sustainability agenda at Tuesday’s Clinton Global Initiative during NYC Climate Week, alongside the UN General Assembly. He called the populist "anti-sustainability" and "anti-woke" movement "incredibly dangerous for the world." The CEO noted Unilever is committed to realizing its Climate Transition Action Plan, which it unveiled in March 2021, and which later garnered near-unanimous support in a shareholder vote. He credited BlackRock – whose CEO, Larry Fink, also participated in the panel – with leading the support at Unilever and for pushing companies to focus on decarbonization, sustainability and social justice causes. During the panel, Jope also called for more consistent reporting of sustainability metrics.
- Teneo Takeaway: Companies will likely be pressed by many investors to ensure that they are continuing their focus on material ESG issues.
The International Organization of Securities Commission (IOSCO) issued a statement in support of international audit and assurance standard setters work towards high-quality global assurance and ethics standards “that are profession-agnostic and can support limited, and ultimately, reasonable assurance of sustainability-related information.” IOSCO’s board issued a set of considerations to the International Auditing Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) to guide their work. The considerations highlighted the importance of profession-agnostic standards, promoting transparency and addressing challenging issues. The board also noted that stakeholders will need to “adapt to new sustainability-related reporting standards and to enhanced expectations among increasingly sophisticated users of sustainability-related information across financial markets.”
- Teneo Takeaway: IOSCO is planning a second global roundtable in the coming months to discuss further the messages from its factfinding activities to help consider how it can best support global enhancements in assurance of sustainability-related reporting.
Vanguard issued its Investment Stewardship 2022 Semiannual Report focused on good governance practices that “safeguard and promote shareholder value over the long term.” The report covers voting and engagement activities on behalf of Vanguard’s internally managed equity funds for the six months ended June 30 and provides insight into how the investor maintains focus on long-term shareholder value. Vanguard Investment Stewardship Officer John Galloway said the semiannual report found that “in the U.S, we saw a significant increase in the volume of shareholder proposals during the 2022 proxy season and an evolution in the nature of certain proposals’ request for company action.”
- Teneo Takeaway: Both the Vanguard and BlackRock annual stewardship reports reiterate their emphasis on material ESG issues that they believe are likely to have a financial impact on the company over the long-term.
They Said It: ESG Influencers Speak Out
Earlier this month, Patagonia founder Yvon Chouinard transferred the family’s voting rights and full company ownership – valued at about $3 billion – to a special trust and a nonprofit created to preserve its independence and ensure that all company profits are used to combat climate change and protect undeveloped land. In an interview with The New York Times, Chouinard said: “We are going to give away the maximum amount of money to people who are actively working on saving this planet. … For us, this was the ideal solution.”
Looking Ahead: Upcoming ESG Events
- Fortune Global Sustainability Virtual Forum, Fortune (Virtual) – September 29
- Reuters IMPACT, Reuters (London) – October 3-4
- ESG Impact, CNBC (Virtual) – October 6
- 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
