Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
Republican attorneys general from 21 U.S. states wrote a letter on Tuesday to the leading proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, seeking answers by month’s end on how they determined voting recommendations on ESG issues. Continuing a widespread campaign by the political right against financial groups using ESG factors in investment decisions, they questioned how the firms determine “appropriate” emissions targets, why the firms engage in “climate change advocacy” and if focusing on board diversity targets violated duties to clients. While Glass Lewis has yet to respond to these allegations, ISS said it would respond to the questions and that its only agenda is to serve clients, emphasizing the "state attorneys general letter reveals a fundamental misunderstanding of market forces at work.”
- Teneo Takeaway: Proxy advisory firms are no stranger to critique over their influence on voting outcomes, but the letter from “red state” Attorneys General argue that proxy advisory firms are in direct violation of the law – quite a different tone than previous critiques from corporates and other regulators.
Strive Asset Management, a vocal critic of ESG investing, launched a proxy voting advisory and consulting arm as an alternative to incumbents ISS and Glass Lewis. The activist investor claims that Strive Proxy Voting will be the only strictly pro-fiduciary proxy service, suggesting that others are advancing “progressive social and political agendas.” ISS and Glass Lewis control 97% of the market for voting advice, which Vivek Ramaswamy, co-founder and executive chairman of Strive, said “is a big reason why you see politicized policies being advanced in corporate America’s boardrooms – because of the conformity of following ISS and Glass Lewis recommendations generally, both of whom have been very closely tied to an environmental and social agenda that finds its way into many proxy votes.”
- Teneo Takeaway: In a response statement, ISS said its “sole agenda is to provide our clients with tools and policy options to enable them to vote their shares in accordance with their distinct views.”
As of January 1, 53 of the Fortune 500 companies are now led by women. This is the first time in the list’s 68-year history that women make up more than 10% of Fortune 500 CEOs. All five new CEOs were promoted from within their organizations. Several of the new CEOs who make the 10.6% milestone possible are in historically male-dominated industries such as the materials and manufacturing industries.
- Teneo Takeaway: As the Fortune 500 ranks the largest businesses in the U.S. by revenue, gender diversity in corporate leadership is inching up. A good sign. At the same time, concentrated efforts in recent years to transform the pipeline and talent criteria of CEO succession planning still warrant attention to ensure continued progress.
A study commissioned by non-profit The Sunrise Project found that efforts by U.S. Republican state officials to bar financial institutions from winning business because of their ESG stances could have cost taxpayers as much as $708 million in higher interest payments over the past 12 months. The higher costs were primarily attributed to reduced competition to underwrite government bonds in six states. A backer of the study, Andrew Begar, CEO at shareholder advocacy group As You Sow, said that “legislators will face the backlash of their constituents for flushing hundreds of millions of dollars down the toilet for their own political games.”
- Teneo Takeaway: Regardless of the projected financial losses to taxpayers, Republicans seem set on their campaign against ESG.
Nicolai Tangen, the CEO of Norway’s $1.3 trillion oil fund, penned an opinion piece in the Financial Times about the need for “boards to sharpen up” on several key environmental, social and governance issues. Tangen wrote the fund plans to “vote against board members if we see material failures in disclosing, managing or overseeing climate risk.” Norges Bank is keenly focused on managing excessive CEO pay, seeing it as an exemplar of corporate greed. Tangen also noted the fund has “long called for separation of the role of CEO and chair.” He is encouraged by a 15% decline in the last 10 years in the share of US public companies with a CEO holding both roles, which now sits under 35%. Finally, Norges Bank will increasingly vote against boards that fail to have at least 30% of each gender; Tangen argued “a broad range of perspectives, competences and backgrounds … is crucial for board quality.”
- Teneo Takeaway: Beginning this year, Norges Bank plans to file its own shareholder proposals. Tangen is doing all he can to put boards on notice that ESG will and should continue to be a focus, noting companies must understand that integrating ESG risks into decision-making enables “good risk management and long-term value creation.”
At the World Economic Forum, BlackRock CEO Larry Fink addressed the misconceptions and major polarization in regards to BlackRock’s ESG investing, as well as his outspoken support of stakeholder capitalism. “I’m taking this very seriously. We are trying to address the misconceptions. It’s hard because it’s not business anymore, they’re doing it in a personal way. And for the first time in my professional career, attacks are now personal. They’re trying to demonize the issues,” he said. Fink also noted that BlackRock is doing everything it can to change the narrative and said he plans to write a letter to business leaders this quarter that will focus on the “concept of hope.”
- Teneo Takeaway: Despite the personal attacks on its CEO and political bludgeoning, BlackRock’s recent Investment Stewardship Global Principles Report highlights the asset manager’s continued commitment to managing sustainability risk and opportunities related to climate, diversity and other ESG issues – though the term “ESG” does not appear once in the document.
They Said It: ESG Influencers Speak Out
In a CNBC interview, billionaire hedge fund manager Paul Tudor Jones said ESG is incorrectly characterized and social issues should get more of a hearing: "Certainly, by what the American public tells us, it should be SGE … so much of ESG is politicized because the environmental part of the bucket seems to drive, or they would like to believe that the environmental part of it drives it, when in actuality the most important thing by a wide margin is how we pay and treat our workforce.”
Looking Ahead: Upcoming ESG Events
- The World Economic Forum Annual Meeting, WEF (Davos, Switzerland) – January 16-20, 2023
- Greenbiz 23, Greenbiz (Scottsdale, AZ) – February 14-16, 2023
- Aspen Ideas: Climate, Aspen (Miami, FL) – March 6-9, 2023