Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
Earlier this week, BlackRock CEO Larry Fink published his annual letter to CEOs where he emphasized the importance of human capital management, stakeholder capitalism, company carbon transformation and announced the launch of BlackRock’s Center for Stakeholder Capitalism. Fink suggests that stakeholder capitalism – a clear sense of purpose, consistent values, and recognition as well as engagement of key stakeholders’ perspective – is a fiduciary obligation and critical to a company’s long-term success. Fink also reiterated that BlackRock will not pursue divestment from fossil fuel companies.
- Teneo Takeaway: Fink’s thesis seems to toe the line between those who think BlackRock CEO’s push for ESG has been too “woke” and those who argue the behemoth investment manager isn’t doing enough. The pragmatic approach comes in the wake of a successful activist investor campaign against Exxon and threats from at least two states to no longer use BlackRock investment products, seeing them at odds with the states’ economic welfares.
The SEC sent letters to several companies, including Morgan Stanley, Ford, Nissan and Toyota, reminding them that the SEC’s 2010 climate disclosure guidance requires companies to disclose the effects of climate-related legislation and regulation, if material to their businesses. The SEC has increased the frequency of agency letters while continuing its work on new rules that may mandate climate disclosure in annual 10-K reports. More letters are expected for publication ahead of the regulators proposed rule changes. The SEC is also preparing to force more transparency from big private companies.
- Teneo Takeaway: To date, the SEC has not released any mandatory climate risk reporting. However, the SEC has expressed concern with perceived “greenwashing” in companies’ ESG reports, and the letters may hint at what companies can expect from new climate disclosure rules, which the agency is expected to release before the end of the year.
Exxon pledged to reduce or offset carbon emissions from its operations to zero by 2050. The plan includes emission reduction goals for major facilities and assets while maintaining profitability through the energy transition. Exxon is under major pressure to respond to climate change from the public and shareholders. Last year, Exxon lost three seats on its board of directors to activist hedge fund Engine No.1, which argued the company needs to act faster to invest in clean energy. Like its peers, Exxon’s new plan will not cover Scope 3 emissions.
- Teneo Takeaway: Exxon has invested heavily in projects to cut carbon emissions, including carbon capture and storage, hydrogen, and biofuels. While some may criticize the oil giant’s unwillingness to include Scope 3 in its net zero plan, others may view this announcement as a positive indicator for the market readiness trajectory for some of its decarbonization investments.
A group of Alphabet Inc. shareholders submitted proposals around human rights and governance risks ahead of its annual meeting this summer. Demands outlined in the proposals included appeals for more transparent algorithms, audits on operational impacts to people of color, and a report on how the company’s lobbying aligns with the Paris agreement. State Street, a large investor in Alphabet Inc., in its annual letter to board members said that companies will need to disclose more specifics about their carbon transition plans in 2022 or face opposition to individual board members.
- Teneo Takeaway: As with other high-profile activist proposals, those submitted ahead of Alphabet’s annual meeting come out of small investment shops, and the success of those proposals will hinge on the support of larger investment managers.
They Said It: ESG Influencers Speak Out
In his annual letter to CEOs, BlackRock’s Larry Fink wrote, “delivering on the competing interests of a company’s many divergent stakeholders is not easy. As a CEO, I know this firsthand. In this polarized world, CEOs will invariably have one set of stakeholders demanding that we do one thing, while another set of stakeholders demand that we do just the opposite. That is why it is more important than ever that your company and its management be guided by its purpose. If you stay true to your company's purpose and focus on the long term, while adapting to this new world around us, you will deliver durable returns for shareholders and help realize the power of capitalism for all.”
Looking Ahead: Upcoming ESG Events
- The Real Deals & The Drawdown, ESG Conference (London, UK) – 26 January
- Sustainability Week Asia, The Economist (Virtual) – 14-17 February
- 17th Symposium Energy Innovation, World Energy Council (Graz, Austria) – 16-18 February