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Springtime in North America – A Time Featuring Corporate-Investor Engagement and Proxy Voting on Critical Issues

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April 20 2021   Spring is in the air!  Proxy Season 2021 getting underway.  So how did we get here?  Some history and springtime news. 

by Hank Boerner – Chair & chief Strategist – G&A Institute

Springtime comes to the USA and and the Northern Hemisphere countries with pretty flowers in bloom, trees budding, the onset of warmer weather.  And…

Asset owners and their managers participating willingly or reluctantly in the peak months of corporate proxy voting season in North America.

Typically, the corporate issuer develops the resolution(s) for voting by the shareholder base – for example, election of slate of nominees for the board and approval of the outside auditing firm.

And then… there are the resolutions prepared by the shareholders, and these are usually not to board and executives’ liking.

Thought you might be interested in some of the history of shareholder activism.  In the earlier days of shareholder activism certain “gadflies” would offer up their resolutions for inclusion in the voting (typically then, by individual investors).

Brothers John and Lewis Gilbert and a few others of similar thinking would gin up their resolution drafts and then face the challenge by the target company could be expected.

Some still around remember the ever-present at annual meeting Evelyn Davis, a Dutch Holocaust survivor with strong feelings and lots to say about how companies she invested in were being managed .

The Gilbert siblings operated “big time” in proxy season; they owned shares in 1,500 companies and attended at least 150 corporate annual meetings each year. T

They were often characterized as showmen (kicking up a storm at companies like Chock Full o’ Nuts and Mattel and other companies’ meetings.) Right after WW II John Gilbert got the SEC on the shareholders’ side; the regulatory agency started to require that companies include relevant shareholder resolutions in the annual proxy statement (of course certain conditions applied then and now).

Over time, this process became more sophisticated as many institutional owners put corporate equities in portfolios and steadily a certain number became activist investors. (

It really helped that the US Department of Labor leveraging ERISA statutes and rules  reminded US institutional investors that their proxy was an asset and voting was a clear responsibility of the fiduciary-owner.

In 1988, Assistant Secretary of Labor Olena Berg reminded pension fund managers of the “Avon Letter” that posited that corporate proxies are a pension plan asset and should be taken seriously and voted on.

One of today’s proxy voting / corporate governance experts with wide recognition and respect is California-based James McRitchie (principal of Corpgov.net).

In a communication to the US SEC in November 2018, he explained that he and other investors engage companies on ESG issues “to enhance their long-term value and to ensure corporate values do not conflict with the long-term interests of a democratic society.”

He suggested: “Corporations should welcome shareholders into the capitalist system as participants in major decision.”

In proxy season 2021, the “crisis stories” of 2020 and earlier years continue as public dialogue at least in the form of shareholder requests / demands / expectations of the companies that are in the portfolio on important societal issues.

Climate change action, racial justice/injustice, diversity & inclusion, inequality – these are high on the list for this year’s voting.

We have selected three Top Stories for you on the themes of 2021 voting. The not-for-profit Ceres organization, long active in ESG proxy voting issues, highlights the focus on science-based emissions reduction plans, and corporate policies aligned with the goals of the 2015 Paris Agreement. There are 136 climate-related shareholder-sponsored resolutions submitted to public companies as of April 2nd for 2021 voting.

The good news is that a number of these have been resolved in investor-corporate dialogues at Domino’s Pizza, Citigroup, JPMorgan Chase, and other firms. Others were withdrawn at Duke Energy, CSX, and Valero.

Climate-related themes for resolutions include “Banking on Low Carbon”, “Carbon Asset Risk”, and “Say on Climate”.

Long-time shareholder activist Tim Smith is Director of ESG Shareowner Engagement at Boston Trust Walden and member of the Ceres Investor Network. Ceres continues to track such resolutions and information is available at www.ceres.org.

The authoritative Pensions & Investments publication shares news about a new website — Majority Action’s “Proxy Voting for a 1.5 C World”.

Four key sectors are in focus: electricity generation, oil & gas, banking, and transportation, with summaries of corporate current emission targets, capital allocations and policy activity relate to climate change. (Reaching net-zero emissions by 2050 is an example of issue in focus.)

The web site offers recommendations for voting against director nominees at companies failing to implement plans “consistent with limiting global warming” by industry/sector.

In banking the web site names Wells Fargo, Goldman Sachs, and JPMorgan Chase. Issues in focus overall include Climate Change, Community Development / Investment, Gender Equality, and more.

Third – the Yield Positive web platform offers excellent background on shareholder resolutions and the current state of affairs following the dramatic events of 2020 – racial inequality highlighted by the killing of George Floyd; worker health and safety protections in the Covid pandemic; climate change issues – with examples of the resolutions coming up for vote in 2021.

These include Home Depot – Report on racism in the company; Target – Report on/end police partnerships; Wells Fargo – report on financing Paris Agreement-compliant GHG emissions cut, and more.

The 2021 spring season of corporate proxy voting and then the voting at company issues to Fall 20231 will be closely followed by business media and of course, the global investing community. We will continue to share news and perspectives about this annual exercise of “shareholder capitalism”.

TOP STORIES – April 2021

It’s Proxy Season 2021: Investors Focus on Climate Action

FYI

 

Barron’s Magazine Heralds the Arrival of Sustainable Investing to the Mainstream In Special Issue This Week – Sustainable Investing Version 2.0 Is Here!

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By Hank Boerner – Chair and Chief Strategist, G&A Institute

The influential Barron’s magazine is published on Mondays by Dow Jones & Company with distribution to almost a half-million retail and institutional investors (300,000+ for print version, the rest digital or combination).

Barron’s says it has been “delivering market-beating stock picks and investment advice to wealthy readers since 1921…”

In Fall 2017, the Barron’s editors picked up the pace on coverage of sustainable investing, adoption of ESG approaches and related topics and positioned its expanding coverage with the statement: “Sustainable Investing is a Powerful Force in Today’s Capital Markets.” T

he October 7, 2017 issue was devoted to sustainable investing and the cover story was “The Top Sustainable Funds” for investors.

Editor Beverly Goodman explained: “As a team of seven writers and I began work on Barron’s first special edition devoted entirely to sustainable investing, we realized something – we could not get people to stop talking about it! CEO’s wanted to tout the strides they are making in labor practices and protecting the environment. Fund managers wanted to talk about how adding ESG criteria to stock picking isn’t that much of a stretch from the multitude of decisions they routinely use.”

And so: Barron’s would now cover this burgeoning style of investing on a regular basis. “We are only in Version 1.0 of sustainable investing – 2.0 is where ESG is not a separate category but a natural part of active management.”

The October 2017 issue’s cover story was about sustainable mutual funds based on data provided by Morningstar using Sustainalytics data – 37% of the 203 funds achieved a “high” or “above average rating” and beat the S&P 500® Index returns. (Only 28% of all large-cap mutual funds managed to do that.)

The Editors Began Steady Coverage of Sustainable Investing

Each of the issues that followed there would be some kind of coverage of sustainable investing. Barron’s followed up with another significant issue in February 2018 naming the sharing the magazine’s first ranking of sustainable companies for investor-readers.

Calvert Research and Management helped with the choices (using data from Sustainalytics, ISS and Thomson Reuters ASSET4) for the “Top 100 Sustainable Companies” rankings.

The top five positions were held by Cisco (#1), salesforce.com, Best Buy, Intuit, and HP (at #5). Said Calvert CEO John Streur: “This list gives people insight into companies addressing future risks and into the quality of management.”

Now – The Mainstream Impact of This Week’s Issue

The editors continued to ramp up coverage in each issue since late-2017. And this week’s issue (dated June 25) positioned Sustainable Investing Version 2.0 for its audience. This week’s content included:

The cover story is about “The New Conscience of Wall Street” – focused on BlackRock CEO Larry Fink and his “Investing With Purpose Theme.” (Subtitle: Larry Fink’s Mission: How the BlackRock CEO is leading a sustainable revolution on Wall Street.”)

One of the articles is a debate between George Serafeim (Harvard B School professor and stalwart advocate for sustainable investment) and Adam Sessel (CEO of Gravity Capital Management): “Does Sustainable Investing Lead to Lower Returns?”

The traditional Barron’s approach to a panel of expert to explore an investing topic is this week’s “ESG Roundtable: Great For the World, Good For Investors” – featuring Erika Karp of Cornerstone Capital; Todd Ahisten, Parnassus Investments; Jon Hale, Morningstar; and Roelfien Kuijpers of DWS Group (the asset management spin off of Deutsche Bank).

There is a “Getting Started in Sustainable Investing” guide for readers, including a Glossary and suggestions for mutual funds “with a purpose”.

The feature about Larry Fink is entitled, “In Defense of Social Purpose” – and his argument for sustainable investing that editors say has “ignited a burning debate about his concept…and him.”

Fink’s words in his CEO letter, says writer Leslie Norton, “…amounted to a Rorschach test for a polarized nation. As the debate rages on over immigration, climate change, guns, income inequality, and other issues, even considering their economic impact on a company looks like a political statement. Yet Corporate America and Wall Street are increasingly doing that…”

To hear CEO Fink tell it, writes Norton, “…short termism is a scourge of corporate thinking and is encouraged by the financial media…” And…ignoring ESG can take a toll…

With this feature there is a neat “Road to Sustainability” chart showing the evolution of SRI from the 1960s to today with many societal issues described along the way to 2018.

Other features include “The Trump Bump: A Silver Lining for ESG Investors” – telling readers that in the month after the November 2016 election results were in, investors’ money flowed into ESG mutual funds and ETFs; the flow into the 275 mutual funds and ETF’s focused on ESG was 10-fold over the prior month!

And, the backlash continues; since November 2016, inflows to ESG-focused mutual funds and ETFs is averaging $700 million per month, which is three times the pace of the prior 12 months. This lifted ESG focused funds to $118 billion to date. 

Looking at fiduciaries, the editors say that $23 trillion is not invested in pension, separately managed accounts and other funds using ESG approaches.

Barron’s editors have selected “The 20 Most Influential People in Sustainable Investing” – the Who’s Who in ESG – you will want to see that list.We are cheered to see our US SIF colleagues Lisa Woll, Tim Smith, Amy Domini, Matt Pasky, and John Streuer in the Top 20!

There is also an interview in the special issue with Jeremy Grantham and how the respected value investor (he’s on the list) is a force in increasing awareness of climate change.

Finally, the Barron’s conference unit scheduled its first “Impact Investing Summit” in San Francisco (last week) and Crystal Kim reports on that event, with focus on the Millennials and their generation’s increasing impact on investing trends.

We at G&A Institute think this is a tipping point moment for investors, as the Barron’s editors position sustainable investing as now a mainstream

# # #

Footnotes:  We prepared a brief about Barron’s coverage in October 2018 on our “G&A Institute’s To the Point!” web platform, and a follow up brief in February 2018.  You can find the in-depth briefs at:

https://ga-institute.com/to-the-point/the-authoritative-barrons-magazine-now-sets-the-pace-sustainable-investing-is-a-powerful-force-in-todays-capital-markets-so-say-the-editors/

https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/

There is information about Morningstar’s focus on sustainable investing mutual funds and ETFs at:  https://www.morningstar.com/articles/745467/morningstar-sustainability-rating.htm

Be sure to check out the special issue of Barron’s at:https://www.barrons.com/this_week

 

 

World’s Largest Asset Manager on Climate Risk Disclosure — the BlackRock Expectations of Public Company Boards and C-Suite

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by Hank Boerner – Chairman and Chief Strategist – G&A Institute

Monday, March 13, 2017 — The world’s largest asset management firm has clear expectations that corporate managements will disclose more on climate risk to their shareholder base…BlackRock speaks out.  Corporate boards and C-Suite – Important News for You….

You all know BlackRock — this the New York City-based “world’s largest asset manager guiding individuals, financial professionals, and institutions in building better financial futures…”

“That includes offerings such as mutual fund, closed-end funds, managed accounts, alternative investments, iShares ETFs, defined contribution plans…”

And — “advocating for public policies that we believe are in our investors’ long-term interests…” “…ensuring long-term sustainability for the firm, client investments and the communities where we work…”

For BlackRock, Corporate Sustainability includes: (1) human capital, (2) corporate governance (3) environmental sustainability, (4) ethics and integrity, (5) inclusion and diversity, (6) advocating for public policy, and (7) health and safety.

In terms of Responsible Investing, the BlackRock approach includes (1) investment stewardship and (2) having a sustainable investing platform (targeting social and environmental objectives AND the all-important financial return).

So it should not come as a big surprise to the boards and managements of literally thousands of public issuers that BlackRock has great expectations regarding the individual company’s (in a portfolio or hope to be) climate change disclosure practices.

What We Are Doing/How We Do it – Shared by BlackRock

Right now the BlackRock managers are sharing with other asset owners & managers their approach to sustainable investing. There are important lessons for corporate managements in these explanations:

As part of the investment process, BlackRock continues to assess a range of factors (that could impact the long-term financial sustainability of the public companies or companies).

Over the past two years, a number of projects have helped BlackRock to more fully understand climate change. BlackRock believes that climate risk (climate risk/change issues) have the potential to present definitive risks and opportunities that could or will impact long-term shareholder value.

The BlackRock team members also contributed to external initiatives such as the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosure (TCFD) and the continued development of the voluntary reporting guidelines of the Sustainable Accounting Standards Board (SASB).

Larry Fink – the influential CEO of BlackRock — sent letters directly to the CEO’s of public companies in 2016 and then again recently (2017) that called attention to the need for the companies to help their investors better understand the ESG factors most relevant to the firm to generate value over time.

That especially includes more robust disclosure and reporting on the issues related to climate risk. (We need to keep in mind that “risk” has a companion — “opportunity,” as represented in the Chinese pictograph for a crisis.)

BlackRock’s Investment Stewardship Team meets with portfolio company managements and votes BlackRock shares at proxy voting time; if an issue is in focus and the C-suite will not make progress on the issue, the team will elevate the concern to the company’s board room. And they “may” in time vote against director nominees and for shareholders proposals that are on the right side of BlackRock’s own concerns.

Company Boards and Executives – for 2017

BlackRock engages with 1,500 companies (on average) every year. As (according to BlackRock) climate risk awareness and its engagement with companies on the issues is being advanced, and as the asset management firm’s own thinking on climate risk continues to evolve, that issue is on the table for the Investment Stewardship Team discussions with company managements in 2017.

Companies “most exposed” to climate risk will be encouraged as part of the discussions to consider reporting recommendations coming from the FSB Task Force.

And, the board will be expected to have “demonstrable fluency in how climate risk affects the business and management’s approach to adapting to and mitigating the risk. Corporate disclosure on all of this will be key to the ongoing relationship with the investor – BlackRock (with US$5 trillion and more AUM).

Other Investment Management Peers

Tim Smith, Director of ESG Shareholder Engagement at Walden Asset Management (Boston)

Tim Smith, Director of ESG Shareholder Engagement at Walden Asset Management (Boston) and long a robust and powerful voice in the sustainable investing movement, applauded BlackRock’s shared information.

“The announcement that climate risk will be a priority in their engagements with public companies is an exceedingly important message being sent by one of your largest shareholders. That they believe climate risk is a priority reinforces the importance of the issues for senior managements of public companies. We’re hopeful that BlackRock’s announcement and engagement on climate risk will result in active support for shareholder resolutions on climate change.”

Walden and others filed their own shareholder resolution with BlackRock asking for a review of the asset manager’s corporate proxy voting process and record on climate change.

BlackRock has been accused by investment peers for its proxy voting practices. For example, Climate Wire reported in 2016 that IF BlackRock and its large institutional investment peers had supported a climate resolution filed with Exxon Mobil (this was part of the not-for-profit Asset Owners Disclosure Project) the resolution would have passed in the final vote by shareholders.

We’ll see what the 2017 BlackRock moves mean in the corporate proxy season getting underway now with continued investor focus on climate change / climate risk / global warming disclosure and reporting demands.

As corporate sustainability consultants and advisors, we at G&A Institute (and as part of our pro bono research work as the exclusive Data Partners for the Global Reporting Initiative (GRI) in the United States) analyzed more than 1,500 report sustainability reports in 2016 — and we are seeing an increase now in 2017 early survey results that corporate disclosure on climate risk issues is definitely on the increase.

We will soon release the results of our team’s analysis of S&P 500(r) on sustainability reporting and related issues. Recall that our analysis last year found that 81 percent of the 500 companies were doing structured sustainability reporting.

There’s more information for you here:

https://www.blackrock.com/corporate/en-us/about-us/investment-stewardship/engagement-priorities

https://www.blackrock.com/corporate/en-us/literature/market-commentary/how-blackrock-investment-stewardship-engages-on-climate-risk-march2017.pdf

Asset Owners Disclosure Project:  http://aodproject.net/

Tim Smith / Walden Asset Management:

http://www.waldenassetmgmt.com/team/smith-timothy

 

 

So Many Positives in 2016 for Sustainability – Corporate Citizenship – CR – Sustainable Investing — The Core of “Trends Converging!” Commentaries. It’s 2017 — Now What?

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by Hank Boerner – G&A Institute

Welcome to 2017! We are off to the start of a challenging year for sustainability / responsibility / corporate citizenship / sustainable investing professionals.

We are being forewarned: A self-described (by his constant tweeting) “new sheriff is coming to town,” along with the newly-elected members of the 115th Congress who begin their meetings this week. Given the makeup of the new Administration (at least in the identification of cabinet and agency leaders to date) and the members of the leadership of the majority party on Capitol Hill, sustainability professionals will have their work set out for them, probably coming into a more clear focus in the fabled “first 100 days” after January 20th and the presidential inauguration ceremonies.

The year 2016 began on such a hopeful note! One year ago as the year got started I began writing a series of commentaries on the many positive trends that I saw — and by summer I was assembling these into “Trends Converging! — A 2016 Look Ahead of the Curve at ESG / Sustainability / CR / SRI.” Subtitle, important trends converging that are looking very positive…

As I got beyond charting some 50 of these trends, and I stopped my thinking and writing to share the commentaries and perspectives that formed chapters in an assembled e-book that is available for your reading. I’ve been sharing my views because the stakes are high for our society, business community, public sector, social sector…all of us!

* * * * * * * *

The specifics: Throughout the early months of 2016 I was encouraged by:

The Secretary of the U.S. Department of Labor giving American fiduciaries the green light for considering corporate ESG factors in their investment decision-making. Page 7 – right up front in the commentaries!

The Sustainable Accounting Standards Board (SASB) team completing its comprehensive recommendations for 12 sectors and 80 industry components of these for “materiality mapping” and expansion of corporate reporting to include material ESG factors in the annual 10-k filing. These are important tools for investors and managements of public companies. See Page 17.

His Holiness Pope Francis mobilizing the global resources of the worldwide Roman Catholic Church with his 74-page Laudato Si [encyclical] that includes sharp and sweeping focus on climate change, global warming, water availability, biodiversity, and other social issues. Imagine, I wrote, the power that such an institution can bring to bear on challenges, in the world, in the USA, and other large nations…

This is the Pope’s great work: “On Care of Our Common Home.” I explored the breadth of depth of this in my commentaries. That’s on Page 163 – Chapter 44.

President Barack Obama ably led the dramatic advances made in the Federal government’s sustainability efforts thanks in large measure to several of the President’s Executive Orders (such as EO 13693 on March 19, 2015: Planning for Federal Sustainability in the Next Decade).

Keep in mind the Federal government is the largest purchaser of goods and services in the U.S.A. — over time this action will result in positive changes across the government’s prime supply chain networks. Page 50 / Chapter 13.

The European Union’s new rules for disclosure of non-financial information beginning in 2017; As I began my commentary, the various EU states were busily finalizing adoption of the Accounting Directive to meet the deadline for companies within each of the 28 states. The estimate is that as many as 5,000 companies will begin reporting on their CR and ESG performance. Page 27 / Chapter 7.

Here in the USA, Federal regulators were inching toward final rules for the remaining portions of the 2010 Dodd-Frank legislation. Roughly 20% of rules were yet to be completed for corporate compliance with D-F as we entered 2016, according to estimates by the Davis Polk law firm. Page 30 / Chapter 8.

In 2017, one very contentious rule will be in effect — the required disclosure by public companies of the CEO-to-median worker-pay ratio; the final rule was adopted in August 2015 and so in corporate documents we will be seeing this ratio publicized (technically, in the first FY beginning in January 1, 2017). Page 34 / Chapter 9 – What Does My CEO Make? Why It Matters to Me.

Good news on the stock exchange front: member exchanges of the World Federation of Exchanges have been collaborating to develop “sustainability policies” for companies with shares listed on the respective exchanges. At the end of 2015 the WFE’s Sustainability Working Group announced its recommendations [for adoption by exchanges]. Guidance was offered on 34 KPIs for enhanced disclosure. Page 103 / Chapter 27.

The WFE has been cooperating with a broad effort convened by stakeholders to address listing requirements related to corporate disclosure

This is the “SSE” — the Sustainable Stock Exchanges initiative, spearheaded by the Ceres-managed Investor Network on Climate Risk (INCR), and leadership of key UN initiatives as well as WFE member exchanges.

NASDAQ OMX is an important part of this overall effort in the United States and is committed to discussing global standards for corporate ESG performance disclosure.  Notd Evan Harvey, Director of CR for NASDAQ: “Investors should have a complete picture of the long-term viability, health and strategy of their intended targets. ESG data is a part of the total picture. Informed investment decisions tend to produce longer-term investments.”

The United Nations member countries agreed in Fall 2015 on adoption of sweeping Sustainable Development Goals (SDGs) for the next 15 years (17 goals/169 specific targets). This is a dramatic expansion of the 2000 Millennium Goals for companies, NGOs, governments, other stakeholders. Now the many nation-signatories are developing strategies, plans, programs, other actions in adoption of SDGs. And large companies are embracing the goals to help “transfer our world” with adoption of mission-aligned strategies and programs out to 2030.

G&A Institute’s EVP Lou Coppola has been working with Chairwoman of the Board Dr. Wanda Lopuch and leaders of the Global Sourcing Council to help companies adopt goals (the GSC developed a sweeping 17-week sourcing and supply chain campaign based on the 17 goals). Page 56 / Chapter 15.

Very important coming forth as the year 2016 moved to a close: The Report on US Sustainable, Responsible and Impact Investing Trends, 2016 — the every-other-year survey of asset managers in the USA to chart “who” considers ESG factors across their activities. Money managers and institutional investors, we subsequently learned later in 2016, use ESG factors in determining $8.72 trillion in AUM – a whopping 33% increase since 2014. Great work by the team research effort helmed by US SIF’s Meg Voorhes and Croatan Institute’s Joshua Humphreys (project leaders). Background before the report release Page 78.

* * * * * * * *

The above is a very brief overview of the many positive trends that I saw, explored further, and wrote commentaries on through many months of 2016. I worked to weave in the shared perspectives of outstanding thought leaders and experts on various topics. We are all more enlightened and informed by the work of outstanding thought leaders, many presented in the public arena to benefit us.

* * * * * * * *

Sharing Thought Leadership

In developing our commentaries we shared the wisdom of many people who are influential thought leaders and who enthusiastically share their own perspectives with us. These include:

  • Chris Skroupa, Founder of Skytop Strategies and prominent Forbes blogger. His views on Page i.
  • Pam Styles, Founder/Principal of Next Level Investor Relations and NIRI Senior Roundtable member. See Page iv.
  • Secretary Thomas Perez, U.S. Department of Labor on ERISA for fiduciaries. Page 7.
  • Dr. James Hawley of St. Mary’s College of California on the concept of the Universal Owner, based on the earlier work of corporate governance thought leader Robert Monks. Page 9.
  • the team at Sustainable Accounting Standards Board led by Chair Michael Bloomberg, Vice Chair Mary Schapiro, Founder and CEO Jean Rogers, Ph.D., P.E. . Page 17.
  • the team at TruCost.
  • the team at CDP.
  • the team at CFA Institute (the global organization for Chartered Financial Analysts) developing guidelines for inclusion of ESG factors in analysis and portfolio management — the new Guide for Investment Professionals – ESG Issues in Investing. Coordinated by Matt Orsagh, CFA, CIPM; Usman Hayat, CFA; Kurt Schacht, JD, CFA; Rebecca A. Fender, CFA. Page 20.
  • the leadership team at New York Society of Securities Analysts’ (NYSSA) Sustainable Investing Committee (where I was privileged to serve as chair until December 31st). Page 21. We have great perspective sharing among the core leadership team (Kate Starr, Peter Roselle, Ken Lassner, Andrew King, Agnes Terestchenko, Steve Loren).
  • experts respected law firms sharing important perspectives related to corporate governance, corporate citizenship / CSR / disclosure / compliance and related topics: Gibson Dunn on compliance matters. Page 25.
  • the law firm of Davis Polk on Dodd-Frank rulemaking progress and related matters.
  • experts at the respected law firm of Morrison & Foerster on executive compensation and related regulatory matters (in the excellent Cheat Sheet publication). Page 30.
  • the experts at the law firm of Goodwin Procter addressing SEC regulations. Page 146.
  • the skilled researchers, analysts and strategists at MSCI who shared “2016 ESG Trends to Watch” with their colleagues. The team of Linda Eling, Matt Moscardi, Laura Nishikawa and Ric Marshall identified 550 companies in the MSCI ACWI Index that are “ahead of the curve” in accounting for their carbon emissions targets relative to country targets. Baer Pettit, Managing Director and Global Head of Products, is leading the effort to integrate ESG factors into the various MSCI benchmarks for investor clients.Page 100.

AND……..

  • Thanks to Peter Roselle for his continuous sharing of Morgan Stanley  research results with the analyst community. 
  • the perceptive analysts at Veritas, the executive compensation experts who closely monitor and share thoughts on CEO pay issues. Page 36.
  • the outstanding corporate governance thought leader and counsel to corporations Holly Gregory of the law firm Sidley Austin LLP who every year puts issues in focus for clients and shares these with the rest of us; this includes her views on proxy voting issues. (She is co-leader of the law firm’s CG and Exec Compensation Practice in New York City.) Page 39.
  • the Hon. Scott M. Stringer, Comptroller of the City of New York, with his powerful “Board Accountability Project,” demanding increased “viable” proxy access in corporate bylaws to enable qualified shareholders to advance candidates for board service. Pages 40, 45 on.
  • the experts at Institutional Shareholder Services (ISS), a unit of MSCI, which counts numerous public employee pension funds and labor pension systems among its clients; ISS staff share their views on governance issues with the rest of us to keep us informed on their policies and related matters. Page 40.
  • SRI pioneer and thought leader Robert Zevin (chair of Zevin Asset Management) who shares his views on the company’s work to improve corporate behaviors. Page 41.
  • Mark W. Sickles, NACD thought leader, and my co-author of “Strategic Governance: Enabling Financial, Environmental and Social Sustainability” (p.2010) for helping me to better understand and refine my views on the “Swarming Effect” (investor engagement) by institutional investors that influences corporate behavior. Page 44.
  • the experts led by thought leader (and ED) Jon Lukomnik at Investor Responsibility Research Center (IRRC) that, working with Ernst & Young LLP, one year ago in January produced the Corporate Risk Factor Disclosure Landscape to help us better understand corporate risk management and related disclosure. Page 47.
  • CNN commentator and author Fareed Zakaria who shared his brilliant perspectives with us in publishing “The Post American World,” focusing on a tectonic, great power shift. Page 61.
  • The former food, agriculture and related topics commentator of The New York Times, Mark Bittman, who shared many news reports and commentaries with editors over five years before moving on to the private sector. Page 65.
  • our many colleagues at the Global Reporting Initiative (GRI) in the Netherlands, the USA, and in other countries, who shared their views on corporate sustainability reporting and related topics; the GRI framework is now becoming a global standard. (G&A Institute is the Data Partner for GRI in the USA, UK and Republic of Ireland; we are also a Gold Community member of supporters for the GRI.) Page 71.
  • our colleagues at Bloomberg LP, especially the key specialist of ESG research, Hideki Suzuki; (and) other colleagues at Bloomberg LP in various capacities including publishing the very credible Bloomberg data and commentary on line and in print. Page 76 and others.
  • Barbara Kimmel, principal of the Trust Across America organization, who collaborated with G&A Institute research efforts in 2016.
  • we have been continually inspired over many years by the efforts of the Interfaith Center on Corporate Responsibility (ICCR), and past and present leaders and colleagues there, who helped to inform our views in 2016 on shareholder activism and corporate engagement. Chair the Rev. Seamus Finn is on point with his “Holy Land Principles” in recent years. The long-time executive director, Tim Smith (now at Walden Asset Management) has been very generous in sharing news and perspectives long after his ICCR career. Details on Page 77.
  • our colleagues at the U.S. Forum for Sustainable & Responsible Investment (US SIF), and its Foundation, led by CEO Lisa Woll; and our colleagues at the SIF units SIRAN and IWG. The every-other-year summary of Assets Under Management utilizing ESG approaches showed [AUM] nearing $9 trillion before the run up in market valuations following the November elections. Page 78.
  • Goldman Sachs Asset Management acquired Imprint Capital in 2015 (the company was a leader in developing investment solutions that generate measureable ESG impact — impact investing). Hugh Lawson, head of GSAM client strategy, is leading the global ESG activities. GSAM has updated its Environmental Policy Framework to guide the $150 billion in clean energy financing out to 2025. Page 83.
  • the experts at Responsible Investor, publishing “ESG & Corporate Financial Performance: Mapping the Global Landscape,” the research conducted by Deutsche Asset & Wealth Management and Hamburg University. This is an empirical “study of studies” that looked at the “durable, overall impact of ESG integration to boost the financial performance of companies.” A powerful review of more than 2,000 studies dating back to 1970. Page 90.
  • Boston Consulting Group’s Gregory Pope and David Gee writing for CNBC saw the advantage held by the USA going into the Paris COP 21 talks: advances in technology are making the USA a global leader in low-cost/low-pollution energy production. They worked with Professor Michael Porter of Harvard Business School (the “shared value” proponent) on research. Page 95.
  • researchers, analysts and experts at Morgan Stanley Research charted “what was accomplished in Paris in 2015” for us; their report identified five key areas of progress that cheered conference participants; I share these in the “Trends Converging!” work. MS Research in the post-Paris days shared perspectives on the carbon tax concept and the status of various nations on the issue — and the actions of the State of California in implementing “AB 32” addressing GhGs. Page 119.
  • G&A Institute Fellow Daniel Doyle, an experienced CFO and financial executive, sharing thoughts on corporate “inversion” and the bringing back of profits earned abroad by U.S. companies. Page 122.
  • the Council of State Governments (serving the three branches of state governments) is actively working with public officials in understanding the Clean Power Plan of the Obama Administration (the shared information is part of the CSG Knowledge Center). Page 101.
  • Evan Harvey, Director of CR at NASDAQ, has continuously shared his knowledge with colleagues as the world’s stock exchanges move toward guidance or rule making regarding disclosure of corporate sustainability and related topics. Page 104.
  • our former Rowan & Blewitt [consulting practice] colleague Allen Schaeffer, now the leader of the Diesel Technology Forum, explaining the role of “clean diesel” in addressing climate change issues. Page 128.
  • Harvard Business School prof Clayton Christensen, who conceived and thoroughly explained “the Innovator Dilemma” in the book of the same name in 2007, updated recently, characterized new technology as “disruptive” and “sustaining,” now happening at an accelerated pace. We explain on Page 147.
  • the researchers and experts at the Society for Human Resource Management (SHRM) has shared important perspectives and research results dealing with the massive shift taking place in the corporate and business sectors as Baby Boomers retire(!) and the Millennials rise to positions of influence and power. And Millennials are bringing very positive views regarding corporate sustainability and sustainable investing to their workplace! The folks at Sustainable Brands also weighed in on this in recent research and conference proceedings. Page 154.
  • Author Thom Hartman in 2002 explored for us the subject of “corporate citizenship” in his book, “Unequal Protection, the Rise of Corporate Dominance and the Theft of Human Rights.” This work continues to help inform views regarding “corporate rights” in the context of corporate citizenship and beyond. The issue of corporate contributions to political parties and candidates continues to be a hot proxy season debate. Page 160.
  • Author and consultant Freya Williams in her monumental, decade-long research into “Green Giants” shared results with us in the book of that name and her various lectures. Seven green giant [companies] are making billions with focus on sustainability, she tells us, and they outperform the S&P 500 benchmark. Page 170.
  • Speaking of the S&P 500, I shared the results of the ongoing research conducted by our G&A Institute colleagues on the reporting activities of the 500 large companies — now at 81% of the benchmark components. Page 195.
  • And of course top-of-mind as I moved on through in writing the commentaries, I had the Securities & Exchange Commission’s important work in conducting the “Disclosure Effectiveness Initiative,” and a look at Regulation S-K in the “Concept Release” that was circulated widely in the earlier months of 2016. Consideration of corporate sustainability / ESG material information was an important inclusion in the 200-page document. Page 174.

* * * * * * * *

All of the above and more were important contributors in my collected “Trends Converging!” (in 2016) work. I am grateful to many colleagues in the corporate community and in the capital markets community who shared knowledge, wisdom, expertise and more with Lou Coppola and I over the recent years. They have helped to inform our work.

We thank the knowledge and valuable information willingly shared with us by our valued colleagues at RepRisk, especially Alexandra Milhailescu; Measurabl (Matt Ellis); The Conference Board’s Matteo Tonello; Nancy Mancilla and Alex Georgescu at our partnering organization for training, ISOS Group; Bill Baue at Convetit; Herb Blank at S-Networks Global Indexes; Robert Dornau at RobecoSAM Group, managers of the Dow Jones Sustainability Index family; Barbara Kimmel at Trust Across America.

Also, Professor Nitish Singh of St. Louis University, with his colleague VP Brendan Keating of IntegTree, our on-line professor and tech guru for the new G&A on-line, sustainability and CSR e-learning platform.

And, Executive Director Judith Young and Institute Founder James Abruzzo, our colleagues at the Institute for Ethical Leadership at Rutgers University Business School; Matt LePere and the leaders at Baruch College / City University of New York; and, Peter Fusaro, our colleague in teaching and coaching, at Global Change Associates.

And thank you, Washington DC Power Players!

Very important: We must keep uppermost in mind the landmark work of our President Barack H. Obama (consider his Action Plan on Climate Change, issued in December 2015) with the Clean Power Plan for the USA included. His Executive Orders have shaped the Federal government’s response to climate change challenges.

And there is U.S. Senator Bernie Sanders, again and again hitting the hot button sensitive areas for the middle class — like income and wealth inequalities and Wall Street reform — that raised the consciousness of the American public about these issues.
.
Former Secretary of State Hillary Rodham Clinton and her views (published in The New York Times) in her “How to Rein in Wall Street” op-ed.

And I thank my G&A Institute colleagues for their support and continued input all through the writing process: EVP Louis Coppola; Ken Cynar, our able editor and news director; Amy Gallagher, client services VP; Peter Hamilton, PR leader; Mary Ann Boerner, head of administration.

So many valuable perspectives shared by so many experts and thought leaders! All available to you…

* * * * * * * *

And Now to 2017!

And so what will happen in these many, many areas of forward-momentum in addressing society’s most challenging issues (like global warming) with “deniers and destroyers” lining up for key Federal government positions in the new administration and in the 115th Congress?

I and my colleagues at G&A Institute will be bringing you news, commentary and opinion, and our shared perspectives on developments.

If you would like to explore the many (more than 50) positive trends that I saw as 2016 began and proceeded on into the election season, you will find a complimentary copy of “Converging Trends!” (2016) at:http://www.ga-institute.com/research-reports/trends-converging-a-2016-look-ahead-of-the-curve.html

* * * * * * * *

Please do share with us your own thoughts where you think we might be headed in 2017, and your thoughts on the 2016 trends and their future directions — for 2017 and beyond. Do tune in to the many experts that I included in the various commentaries as they adjust to the New Normal of Washington DC.

I plan to share the individual commentaries with updates in 2017. Do Stay Tuned to G&A Institute’s Sustainability Update blog (you can register here to receive notice of new postings). You can sign on to receive the latest post at: http://www.ga-institute.com/sustainability-update-blog.html (Sharing insights and perspectives for your sustainability journey.)

Best wishes from the G&A Institute team for the New Year 2017!

 

 

Big News Out of the U.S. Department of Labor For Fiduciaries — Opportunity to Utilize ESG Factors in Investment Analysis and Portfolio Management

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by Hank Boerner – G&A Institute Chairman

Back in the late-1960s and early 1970s, as allegations of older worker retirement abuses gained wide media attention, members of the U.S. Congress focused on “retirement security” issues. After high-profile committee hearings, the Congress passed the Employee Retirement Income Security Act of 1974, signed into law by our 40th CEO, President Gerald Ford. The U.S. Department of Labor was assigned to develop and oversee the operating rules-of-the road for retirement plan fiduciaries — including public employee pension systems; corporate retirement plans; endowments; foundations; trusts.

Over the next 30 years the Department of Labor’s operating arms for regulating “ERISA” — especially including the Employee Benefits Security Administration — tweaked the rules & regulations with such actions as clarifying letters (such as to the Pacific Coast Roofers Pension Plan and the Northwestern Ohio Building Trades and Employer Construction Industry Investment Plan) and a series of “interpretive bulletins” to clarify the rules for fiduciaries.

The passage of ERISA was a great boon for many Americans. The law opened the door for institutional investors to dramatically expand their investments in other than the traditional “prudent man” vehicles of old, like U.S. Treasury notes, bills and bonds and municipal bond issues. Trillions’ of dollars flowed into the equities market after the 1970s and trading volume (at exchanges) soared.

Many of us benefited directly and indirectly from ERISA, including individuals opening 401-k plans made possible by the legislation. The portfolios of public pension funds in particular soared in total value. (CalPERS, the California public employee plan, has US$300 billion in AUM; $150 billion of these assets are in public equity.)

The financial good times rolled, in large measure due to ERISA!

Periodically, the ERISA officials (working under the political appointees of various U.S. Presidents) would issue guidance. The cottage industry of law firms, accounting firms, pension consultants, actuaries and other ERISA-focused professionals grew by leaps and bounds. And, from the early 1980s on, there was steadily growing embrace of new approaches to investing, and new products ginned up with retirement “security” in mind.

Game Changer: The Emergence of Sustainable Investing

The new approaches included embrace of ESG performance for greater analysis [by asset owners and asset managers], and greater focus on and inclusion of ESG-related products offered by financial services firms for fiduciaries’ portfolios (mutual fund, indexes, benchmarks, etc). The latest survey by the Forum for Sustainable & Responsible Investing (US SIF) established a high water mark: a total of US$6.2 trillion in Assets Under Management were managed using ESG approaches as we entered 2014; that’s $1 in $6 in U.S. equity markets. The US SIF was in the vanguard in getting the Department of Labor guidance clarified regarding ESG investment.

Emblematic of the changes taking place as the Department of Labor prepared its latest guidance, S&P Dow Jones Indices (part of McGraw Hill Financial) busily announced three new climate change index series — two focused on carbon efficiency, and a fossil fuel free index. “Climate change and its impact present a challenge from an investment perspective,” said the index company.

2008 ERISA Guidance — Chilling Effect for ESG

In October 2008, in the waning days of President George W. Bush’s Administration, the Department of Labor issued its Interpretive Bulletin Relating to the Fiduciary Standard in Considering Economically Targeted Investments (“ETIs” in government-ese). The regulators’ guidance was interpreted by many investors as saying that only financial risk and return could be considered by the tens of thousands of fiduciaries in the USA overseeing pension funds, etc. “Other” considerations, such as a company’s ESG performance, were not acceptable.

Never mind that sustainable investing was growing significantly in importance in the U.S. and global capital markets. Never mind that the collapse of the stock market in 2008, thanks to the reckless behavior of the big bank holding companies, and look-the-other way regulators. The dives of stock prices would drive investors to the safety offered by sustainable investing products and instruments. Never mind that a growing army of stakeholders saw sustainable investing — that is, investing with collateral interests as well as the traditional financials — was becoming mainstream.

October 2015 ERISA Guidance – Encouraging!

Institutional investors (asset owners) and professional asset managers began engaging with Department of Labor officials soon after President Barack Obama took office to discuss DoL guidance for plan fiduciaries. Since 2009, of course, ESG-focused investments have soared in volume. One after another academic studies have been published to provide evidence that sustainable investment has clear financial payoff as well as “collateral” benefits. (Think:  Who would not encourage company managements to lower their environmental liabilities, create more “green” products that consumers want, improve policies and actions involving the diversity of their enterprises, avoid regulatory costs including fines, and more, more, more in terms of becoming a more sustainable company attractive to a greater number of investors?)

In late-October, the DoL’s Employee Benefits Security Administration issued an updated Interpretive Bulletin — this time, clearly stating that terms like socially responsible investing, sustainable & responsible investing, ESG investing, impact investing, and economically targeted investing (ETI), while not uniform in meaning…are related to any investment that is selected in party for its collateral benefits apart from investment return to the investor.

The Bulletin is being distributed via the Federal Register now to explain to fiduciaries that the 2008 Bulletin is officially withdrawn and replaced with language that reinstates the language dating back to 1994 (setting out the basic advice that fiduciaries should act prudently to diversify their plan to minimize the risk of large losses).

Highlights of the new DoL ERISA guidance:

• In updated terms, guidance includes plan consideration of ESG factors such as environmental, social or corporate governance (ESG) — these do not need special scrutiny (as the 2008 guidance implied). The 2015 Bulletin specifically refers to such current terms-of-art as sustainable & responsible investing.

• Fiduciaries should not be dissuaded from pursuing [such] investment strategies as those that consider ESG factors, even when they are used solely to evaluate the economic benefits of investments and identify economically superior instruments and investing in ETIs [where they are economically equivalent].

• When a fiduciary prudently concludes that such an investment is justified solely on the economic merits of the investment, there is no need to evaluate collateral goals as “tie breakers.” And, setting aside the 2008 advice, there is no need for considerable documentation as to why (for example an ESG investment) was chosen.

• The Labor Department does not believe ERISA (the 1974 law and subsequent rules & regulations, and opinions) prohibits a fiduciary from addressing ETIs or incorporating ESG factors in investment policy statements or integrated ESG-related tools, metrics and analyses to evaluate an investment’s risk or return or choose among otherwise equivalent investments.

Cautionary guidance: In issuing the October 2015 Bulletin the DoL staff reminds fiduciaries that section 403 and 404 of ERISA do not permit fiduciaries to sacrifice the economic interests of the plan participants in receiving their promised benefits in order for the plan to pursue collateral goals. BUT — the DoL has “consistently recognized” that fiduciaries MAY consider collateral goals as tie-breakers when choosing between investment alternatives that are otherwise equal with respect to risk and return over the appropriate time horizon.

ERISA does not direct investment choice where investment alternatives are equivalent and the economic interests of the plan’s participants and beneficiaries are protected if the selected investment in economically equivalent to competing instruments.

Setting the Record Straight

The 2008 guidance appeared to say that investing with collateral goals in mind should be rare, and had to be documented to demonstrate compliance with ERISA’s “rigorous standards.” The 2015 guidance sets the record straight: “Plan fiduciaries should appropriately consider factors that potentially influence risk and return — ESG issues may have a direct relationship in the economic value of the plan investment. These issues are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”

Again, underscoring for the record: The Department does not believe ERISA prohibits a fiduciary from addressing ETIs or incorporate ESG factors in investments….

We could say that investors encouraging such actions as fiduciaries divesting fossil fuel companies because of concerns about “stranded assets” left in the ground (and not be counted as reserves) can breathe easier with the new DoL guidance.

John K.S. Wilson, head of corporate governance and engagement at Cornerstone Capital Group noted in response to the guidance: “An important purpose of this Interpretive Bulletin is to clarify that plan fiduciaries should appropriately consider factors that potentially influence risk and return. Environmental, social and governance issues may have a direct relationship to the economic value of the plan’s investments. Collateral benefits include environmental protection, social equity and financial stability, which Cornerstone considers necessary outcomes for the mitigation of long-term macroeconomic investment risk.” (Wilson is the former director of corporate governance at TIAA-CREF, where he oversaw voting of proxies at the CREF portfolio (8,000 companies.)

Sending a Clear Signal to Plan Fiduciaries

We see the Interpretive Bulletin as sending a clear signal to U.S. fiduciaries that considering ESG factors is recognized as an important part of the fiduciary’s duty in evaluating risk and return. As Social Finance commented in its reaction — “US DOL Announced ERISA Guidance to Unlock Impact Investments.” Over time — the guidance will (unlock ESG investing’s power. that is)!

You can read the U.S. Department of Labor Interpretive Bulletin summary at: http://www.dol.gov/opa/media/press/ebsa/EBSA20152045.htm

# # #

Congratulations to US SIF chief executive officer Lisa Woll and her colleagues in continuing the long engagement with the Department of Labor to get clear guidance on ESG investing. Sustainable investing champions involved in the long engagement with the Department of Labor include Adam Kanzer (Domini Fund); Jonas Kron (Trillium); Meg Voorhes (SIF); Tim Smith (Walden Asset Management).

The Role of Individual Investors in Prompting Governance Reform via the Proxy Process

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guest commentary by Tim Smith – Walden Asset Management

We have all read a great deal about the concern that companies, the [US] Chamber of Commerce and SEC Commissioner Gallagher have about the “highjacking” of the proxy process.

Particular anger is aimed at John Chevedden, Bill Steiner  and James McRitchie who file multiple resolutions on governance reforms — like majority vote, annual election of directors, changing different classes of shares with unequal voting rights, right for shareholders to call a special meeting and separate Chair and CEO, among others.

Mr. Chevedden is criticized for some of the language in his resolution texts as well as his seeming unwillingness to change false and misleading statements in the whereas clauses . In fact, 4 companies sued him this year to block resolutions he submitted either for himself as a shareholder or for colleagues like James McRitchie.

But it seems much of the frustration is not aimed at him but at the strong positive votes for such reforms  supporting many of these proposals . On many governance issues he coordinates and files, votes are in the 30 to 40 % range AND as you will see below many get well over 50%. Few are low level vote getters.

So while questions can be raised about the style of Mr. Chevedden’s engagements, few can argue that they don’t touch a nerve and get a positive investor response .

That leaves one questioning why SEC Commissioner Gallagher sees this as an abuse and believes there should be an increase in the value of shares held for a proponent to US$200,000 or “even better $2 million.”  Of course, such a change would virtually wipe out the role of small individual investors in the proxy process.

Another way to view it is that these are valuable governance reforms being tested by individual shareholders who could certainly brush up on the facts in their whereas clauses and open up engagement with companies — but nevertheless add real value to an ongoing debate about best governance practices and actually stimulate numerous reforms by companies .

Why is a resolution filed by a major pension fund or investment firm on the same topic any more meritorious than one by an individual shareholder?

The votes seem to indicate that proxies are voted on the issue — not the proponent.

********

–Timothy Smith, Senior Vice President and Director of Environmental Social and Governance Shareowner Engagement Walden Asset Management .

Boston, MA 02108 – Tel: 617-726-7155

tsmith@bostontrust.com

********

FYI – Samples of Votes With Over 50% – Companies Receiving Resolutions from John Chevedden:

 

Costco Wholesale Corporation (COST)
Simple Majority Vote
James McRitchie
65%

Brocade Communications Systems, Inc. (BRCD)
Special Meeting Kenneth Steiner 60%

Allergan, Inc. (AGN)
Independent Board Chairman
John Chevedden
50%+

BorgWarner Inc. (BWA)
Simple Majority Vote
John Chevedden
79%

Brink’s Company (BCO)
Annual Election of Each Director
William Steiner
78%

Bristol-Myers Squibb Company (BMY)
Simple Majority Vote
Kenneth Steiner
85%

Chipotle Mexican Grill, Inc. (CMG)
Simple Majority Vote
James McRitchie
75%

Duke Energy Corporation (DUK)
Special Meeting
John Chevedden
60%

iRobot Corporation (IRBT)
Simple Majority Vote
James McRitchie
82%

PPL Corporation (PPL)
Special Meeting
William Steiner
59%

NextEra Energy, Inc. (NEE)
Simple Majority Vote
Myra K. Young
73%

Alexion Pharmaceuticals, Inc. (ALXN)
Pill
John Chevedden
91%

Ferro Corporation (FOE)
Simple Majority Vote
Kenneth Steiner
99%

Neustar Inc (NSR)
Annual Election of Each Director
John Chevedden
86%

Staples Inc. (SPLS)
Independent Board Chairman
John Chevedden
50%+

Does the Draft EU Directive for Mandatory Sustainability Reporting Apply to US Companies? AND – Stock Exchanges Move One Big Step Closer Towards GLOBAL Mandatory Reporting As Well

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By Louis D Coppola @ G&A Institute..

I received an overwhelming response to the post on March 17, 2014 concerning the European Unions moves to make Sustainability / CSR reporting mandatory.  For those of you that have not read my original post you can take a look here:

https://ga-institute.com/Sustainability-Update//2014/03/17/european-union-moves-closer-to-make-sustainability-csr-reporting-mandatory-in-all-28-member-countries/

A question that came up a lot was whether or not this would apply to US companies operating in the European Union with more than 500 employees.  This is a great question and although I had heard through the grapevine that it would apply, I did not feel certain enough to state that fact because I could not find an official statement or clause that I had found in draft directives.  I had only heard this from other practitioners, in other articles etc that it would impact US companies.

Then I received an email from Carly Greenberg and Tim Smith at Boston Trust thanking me for the post, and calling my post “informative”.  I am very fond of Tim Smith and a real fan of his tremendous work in driving SRI over his entire 40+ year career with ICCR and now with Walden Asset Management – I sometimes refer to him as one of the Godfathers (Hey – I’m Italian and from NY so.. forgive me )  of SRI so I was very humbled to get this email and I knew that I had to find the answer to this question.  I consider myself lucky that over my relatively short career in Sustainability (14 years) Tim and I have crossed paths, shared panels, and discussed issues in some depth.  He has truly impacted the field more than almost anyone (and continues to today), and has impacted my career / thoughts etc dramatically.  (Thanks Tim!)

EUREKA! – I did find the copy of the draft directive itself and after reading through it with a fine toothed comb I came across a clause which I believe to be the smoking gun which was under section 3 “LEGAL ELEMENTS OF THE PROPOSAL” (the bold part is the important part):

The Accounting Directives regulate the information provided in the financial statements of all limited liability companies which are incorporated under the law of a Member State or European Economic Area (EEA). As Article 4(5) of the Transparency Directive refers to Article 46 of the Fourth Directive and to Article 36 of the Seventh Directive, the amendements proposed to these provisions will also cover companies listed on EU regulated markets even if they are registered in a third country.

Based on this clause, any company that trades on at least one of the many stock exchanges in the European Union (most global companies) which you can see in this list taken from a Wikipedia article number over 100+:

Economy Exchange Location Founded Listings Link
European Union European Union Euronext Amsterdam 2000 1154 Euronext
GXG Markets Horsens 1998 GXG
Albania Albania Tirana Stock Exchange Tirana 1996 TSE
Armenia Armenia Armenian Stock Exchange Yerevan 2001 12 NASDAQ OMX Armenia
Austria Austria Vienna Stock Exchange Vienna 1771 99 WB
Azerbaijan Azerbaijan Baku Stock Exchange Baku 2000 BFB
Belarus Belarus Belarus Currency and Stock Exchange Minsk 1998 BVFB
Belgium Belgium Euronext Brussels Brussels 1801 213
Bosnia and Herzegovina Bosnia and Herzegovina
– Bosnia and HerzegovinaFederation of Bosnia and Herzegovina Sarajevo Stock Exchange Sarajevo 2001 SASE
– Republika Srpska Republika Srpska Banja Luka Stock Exchange Banja Luka 2001 BB
Bulgaria Bulgaria Bulgarian Stock Exchange Sofia 1914 BFB
GuernseyJerseyChannel Islands Channel Islands Stock Exchange Guernsey 1987 1000 CISX
Croatia Croatia Zagreb Stock Exchange Zagreb 1991 ZB
Cyprus Cyprus Cyprus Stock Exchange Nicosia 1996 HAK
Czech Republic Czech Republic Prague Stock Exchange Prague 1861 29 PX
Denmark Denmark Copenhagen Stock Exchange Copenhagen 1620 172 OMX Nordic Market
GXG Markets Horsens 1998 GXG Markets
Estonia Estonia Tallinn Stock Exchange Tallinn 1920 OMX Baltic Market
Faroe Islands Faroe Islands Faroese Securities Market Tórshavn 2004 VMF
Finland Finland Helsinki Stock Exchange Helsinki 1912 130 OMX Nordic Market
France France Euronext Paris Paris 1724 1301 Euronext Paris
MATIF Paris 1986 MATIF (Euronext)
Georgia (country) Georgia Georgian Stock Exchange Tbilisi 1999 261 SSB
Germany Germany Berliner Börse Berlin 1685 Börse Berlin
Börsen Hamburg und Hannover Hamburg/Hanover BÖAG
Börse München München 1830 Börse München
Börse Stuttgart Stuttgart 1861 Börse Stuttgart
Deutsche Börse Group Frankfurt Deutsche Börse Group
Eurex Frankfurt 1998 EUREX
Frankfurt Stock Exchange Frankfurt 1585 FWB
Gibraltar Gibraltar Gibraltar Stock Exchange Gibraltar 2006 GibEX
Greece Greece Athens Stock Exchange Athens 1876 ATHEX
Hungary Hungary Budapest Stock Exchange Budapest 1864 52 BET
Iceland Iceland Iceland Stock Exchange Reykjavík 1985 11 OMX Nordic Market
ICEX
Republic of Ireland Ireland Irish Stock Exchange Dublin 1793 ISE or ISEQ
Irish Enterprise Exchange Dublin 2005 IEX
Italy Italy Borsa Italiana Milan 1808 BIt
Kazakhstan Kazakhstan Kazakhstan Stock Exchange Almaty 1993 KASE
Latvia Latvia Riga Stock Exchange Riga 1816 OMX Baltic Market
Lithuania Lithuania Vilnius Stock Exchange Vilnius 1993 OMXV
Luxembourg Luxembourg Luxembourg Stock Exchange Luxembourg (city) 1927 Bourse de Luxembourg
Republic of Macedonia Macedonia Macedonia Stock Exchange Skopje 1995 MSE
Malta Malta Malta Stock Exchange Valletta 1992 Borza Malta
Moldova Moldova Moldova Stock Exchange Chişinău 1994 BVM
Montenegro Montenegro Montenegro Stock Exchange Podgorica 1993 MNSE
Netherlands Netherlands Euronext Amsterdam Amsterdam 1602 Euronext Amsterdam
Norway Norway Oslo Stock Exchange Oslo 1819 Oslo Børs
Poland Poland Warsaw Stock Exchange Warsaw 1817 439 WSE
Portugal Portugal Euronext Lisbon Lisbon 1769 66 Euronext Lisbon
OPEX Lisbon 2003 OPEX
Romania Romania Bucharest Stock Exchange Bucharest 1882 70 BVB
RASDAQ Bucharest 1996 1486 BVB
Sibiu Stock Exchange (futures) Sibiu 1997 BMFMS
Russia Russia Moscow Interbank Currency Exchange Moscow 1992 MICEX
Russian Trading System Moscow 1995 RTS
Saint Petersburg Stock Exchange Saint Petersburg 1811 SPBEX
Serbia Serbia Belgrade Stock Exchange Belgrade 1894 BELEX
Slovakia Slovakia Bratislava Stock Exchange Bratislava 1991 BSSE
Slovenia Slovenia Ljubljana Stock Exchange Ljubljana 1989 61 LJSE
Spain Spain Bolsa de Valores de Barcelona Barcelona Bolsa de Barcelona
Bolsa de Valores de Bilbao Bilbao Bolsa de Bilbao
Madrid Stock Exchange Madrid 1831 Bolsa de Madrid
Mercado Oficial Español de Futuros y Opciones Madrid 1989 MEFF
Bolsa de Valores de Valencia Valencia Bolsa de Valencia
Sweden Sweden Nordic Growth Market Stockholm 2003 NGM
Stockholm Stock Exchange Stockholm 1863 289 OMX Nordic Market
Switzerland Switzerland SIX Swiss Exchange Zürich 1850 SIX Swiss Exchange
Bern eXchange Bern 1888 BX
Turkey Turkey Borsa Istanbul Istanbul 1985 417 BIST
Ukraine Ukraine PFTS Ukraine Stock Exchange Kiev 2002 PFTS Stock Exchange
Ukrainian Exchange Kiev 2008 UX
United Kingdom United Kingdom London Stock Exchange London 1801 2800 LSE
PLUS Markets London 2004 [N 1] PLUS Markets

 

If you are a publicly traded company and trade on any of the exchanges above you will be affected by this directive.

Also, it is interesting to see that NYSE and NASDAQ both are represented in some ways on this list above. For example NYSE and Euronext are owned by the same parent company – The IntercontinentalExchange Group (ICE).  Euronext has connections to the markets in Belgium, France, the Netherlands, Portugal, and the UK.

The NASDAQ OMX seems to have its name (both OMX and NASDAQ) associated with several exchanges above including Armenia, Denmark, Estonia, Finland, Iceland, Sweden etc.

I’m not sure how these connections tie into this directive, but I think its interesting to point them out as the world becomes more global and exchanges become truly global how do regulations like the EU directive, with the clause above effect these global exchanges?  And what does that mean going forward?

It gets even more interesting when you look at the fact that the NYSE and the NASDAQ are both signatories of the Sustainable Stock Exchanges Initiative (SSEI): http://www.sseinitiative.org/.

The initiative comes from a collaboration between PRI, UNEP, UNCTAD, and UNGC and many of the partners in the initiative already have listing requirements for Sustainability reporting (ex, JSE , BM&F Bovespa).

To become a partner exchange SSEI asks that the exchange publicly endorses the following statement:

We voluntarily commit, through dialogue with investors, companies and regulators, to promoting long term sustainable investment and improved environmental, social and corporate governance disclosure and performance among companies listed on our exchange.

They have also both done their own GRI Sustainability Reports:

NASDAQ: http://www.nasdaqomx.com/digitalAssets/84/84295_2012nasdaqomxsustainabilityreportv2.pdf

NYSE: https://www.nyx.com/sites/www.nyx.com/files/14977_2012_cr_report_130803.pdf

AND

BREAKING NEWS out of Boston (Mar 26th, 2014) – as I write this article CERES, BlackRock (the largest asset manager in the world) and other major institutional investors released their recommendations for listing requirements on exchanges titled:

Investor Listing Standards Proposal: Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting

These standards will be sent directly to the World Federation of Exchanges (WFE – the trade group for exchanges) who has launched a Sustainability Working Group to discuss and debate sustainability disclosure issues with member exchanges (virtually all global exchanges in the world).

Here’s what NASDAQ had to say:

“We need a joint solution that will help bring more consistent and comparable information to all markets, and will not leave any one exchange at a competitive disadvantage for taking leadership in this space,” NASDAQ OMX CEO Robert Greifeld said, speaking of the sustainability disclosure engagement process. NASDAQ OMX and Ceres have been working together for almost two years on this issue. 

NASDAQ OMX Vice Chairman Meyer “Sandy” Frucher stressed, “What we hope comes out of this process is strong support by exchanges around the globe to move together to create a more uniform approach to sustainability reporting.

“We committed last year, at the urging of institutional investors within Ceres’ Investor Network on Climate Risk, to provide thought leadership for our listed companies on sustainability reporting guidance,” Frucher continued. “To provide us with greater clarity on what investors want in such guidance, INCR, with support from the Principles for Responsible Investment, launched a global consultation among investors, and presented us with a proposal that we are now discussing with other exchanges.”

Here’s what BlackRock had to say:

“Cross border collaboration by stock exchanges will help shift public companies towards more comparable and meaningful disclosure of ESG (environmental, social and governance) risk factors,” said Gwen Le Berre, Vice President of Corporate Governance and Responsible Investment at BlackRock, the world’s largest asset manager with $4.3 trillion in assets under management. “This will enable investors to more accurately value companies and make better informed investment decisions.”

 

Here is the full release which has many other quotes from very important people in very important places demonstrating their commitment to moving this forward:

http://www.ceres.org/press/press-releases/world2019s-largest-investors-launch-effort-to-engage-global-stock-exchanges-on-sustainability-reporting-standard-for-companies

To read the release on the WFE launching its Sustainability Working Group, visit: http://www.businesswire.com/news/home/20140325006381/en/World-Federation-Exchanges-WFE-Launches-Sustainability-Working#.UzL2styt-_Y

The following exchanges came together to initially launch the WG:

  • BM&FBOVESPA
  • Borsa Istanbul
  • Borsa Malaysia
  • CBOE
  • CME
  • Deutsche Börse
  • InterContinental Exchange/NYSE
  • Johannesburg Stock Exchange
  • NASDAQ OMX
  • National Stock Exchange of India
  • Shenzhen Stock Exchange

So when you take all of this into account, why are you still reading this article, and why haven’t you already started working with me to get started on Sustainability reporting? 😉

That was a joke of course, but seriously – one way or another you will be affected – so get in front of these coming regulations/mandates because if you are not, you will be scrambling to get in compliance, and in a position of weakness compared to any competitors that are already doing it.  If you are already reporting, kudos to you, and you will be in a position of strength against your competitors – you have strategically positioned yourself well in the new global environment.   Just make sure you are covering all your bases and your reporting is in-line with whats expected and global standards.

This is not to mention the additional pressures for disclosure and transparency coming from:

  • Key Customers
  • Employees
  • Suppliers
  • NGOs
  • Investors
  • Government
  • Community
  • and other Stakeholders

Which I could write a whole additional book about.

I think its clear to see that the question is not SHOULD you start reporting, its HOW will you get started as quickly as possible.  Your window of opportunity to be prepared is closing, and the time is now to move on this if you have been questioning whether or not to get started.

At G&A we continue to watch these trends shaping the global markets.  We position ourselves at the intersection of corporations and the capital market.  We monitor the groups that shaping corporate valuation and reputation in today’s modern global marketplace.  If you have any questions or would like to talk more about these topics please reach out to me at lcoppola@ga-institute.com.

Best,

Louis D Coppola

For your reference here is a copy of the EU draft directive in full:
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52013PC0207

And Here is the EU portal for non-financial disclosures:
http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm

 

 

The Corporate Proxy Season is Underway – ESG Issues Are in Focus

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by Hank Boerner, Chairman, G&A Institute

It’s a new year and the 2014 corporate proxy season is really underway, and the topics in focus are reflective of asset owners’ and managers’ concerns about key societal issues. Managements taking no action on the issues, deciding the wrong actions, or boards and managers ignoring the facts regarding key topics of concern to the asset owners could lead to greater risk, lost opportunities, and dramatic hits on corporate reputation — and share price valuations.

And all of that that could affect the value of the investors’ holdings. Since many of the shareowners are fiduciaries (think of SRI mutual funds, public employee pension funds, state trust funds), the growing consensus is that as fiduciaries, asset owners have a duty to be vocal, to actively engage with corporate management, and to take strong stands on key ESG issues. And, in some cases, to bring those issues to the electoral process at proxy time so all shareholders can have their say. Of course, there is usually negative press resulting for some companies.

“Proxy season” used to be those times of year when certain gadflies showed up to (in the view of management and board) ” harass” the assembled corporate leadership. (Such pioneer proxy luminaries as the Gilbert Brothers and Evelyn Davis come to mind.)

Today, the proxy  season is actually a year-round engagement, with advocates such as the Interfaith Center on Corporate Responsibility (ICCR) institutional members active in dialogue with corporate managements and board members on various E-S-G issues. One sea change of a decade ago or more was the linking of traditional corporate governance concerns with environmental and social or societal issue concerns, and working through the barriers to getting their resolution to the proxy statement and to vote.

Linking “good governance” practices with progress (or lack of) on supply chain issues, or product stewardship, marketing practices, protection of natural resources, or lobbying and political spending, now helps advocates avoid the “no action” letter from the SEC that allowed corporate managements to ignore the shareholder’s resolution. (In the past, the usual practice of SEC staff was to advise the company protesting the draft resolution that “no action” would be recommended to the commissioners if the company ignored the draft.)

So what is in store for 2014 corporate proxy voting — what are the issues in focus? Sustainable & responsible investing (SRI) advocates are raising issues with companies about public policy and climate. (As we write this, every US state is in the grip of a cold wave, that is being linked to climate change by experts.)  For two decades now, investors have engaged company managements about climate change.

Now, coalitions of shareholders are involved in a larger collective effort — “Raising the Bar” — in response, they say, to the expanding and alarming scientific evidence of our changing climate. And, as long-term advocates like Tim Smith of Walden Asset Management point out, the resulting significant environmental and economic impacts on the corporate enterprise. Investor interests are very concerned about climate change.

A number of companies — AEP, Chevron, Conoco, ExxonMobil — have received draft resolutions by coalition shareowners urging boards and managements to re-examine their opposition to regulation and legislation intended to address climate change. That includes their lobbying on climate change issues and disclosing more about those actions to their owners.

It’s not just direct company actions in focus — the shareowners include the corporation-funded efforts of the US Chamber of Commerce , the oil lobby (American Petroleum Institute) and the National Association of Manufacturers in the lobbying and advocacy on issues…

Beyond climate change, other proxy resolutions call for companies to re examine their state-level lobbying, especially through such groups as ALEC (the American Legislative Exchange Council), which operates primarily with corporate contributions and promotes conservative public policy issues with :”model” legislation which often moves from state-to-state. (An example is the “Stand Your Ground” laws adopted by a number of states.)

The companies in focus include Microsoft, Pfizer, Time Warner Cable, and UPS. Among the prime movers in this initiative: State of Connecticut Retirement Plans, Zevin Asset Management, Sisters of Charity of the Incarnate Word, and Walden Asset Management clients.

Some companies are responding to shareowner concerns — Coca-Cola, John Deere, Dell, P&G, GE, GM, Unilever, and Wal-Mart have reduced their involvement or quit ALEC,according to information provided by Walden Asset Management.

Other concerns: ICCR’s David Schilling advises that an issue now in focus is the garment industry’s pricing policies, following the Rana Plaza tragic fire in Bangladesh (killing 1,000+ people). The “Accord for Fire and Building Safety” addresses pricing practices and the almost 300 institutional members of ICCR and other shareholder advocates are focused on current pricing models, outsourcing, and prevailing wages in developing countries.

And, from Green Century Capital Management we hear that more than 40 institutional investors representing US$270 billion in AUM are urging the other invesotrs, major palm oil products, consumers, and major shareholders in such companies as food marketers Kellogg and financiers HSBC to support an effort to not contribute to further deforestation or support human rights violations. “Fueling deforestation is bad business for any company seeking to position itself as a responsible, sophisticated global player,” says Lucia von Reusner, Green Century’s shareholder advocate.

Ceres helps to mobilize business and investor leadership on climate change. Rob Berridge, director of shareholder engagement, says investors Ceres works with are asking corporate managements to actively address forced labor, deforestation, habitat destruction, and accelerating GhG emission, and to develop and operate palm plantations more responsibly.

Consumer-facing brand companies — Uniliver, Kellogg, Dunkin Donuts, HSBC — are facing high-profile consumer campaigns on palm oil issues. Some companies are saying in response that they will purchase of finance palm oil that has been certified by the Roundtable on Sustainable Palm Oil (RSPO).

There is much more action to come in the days ahead as the peak of proxy voting nears — we’ll bring you news and commentary and insight on trends in this space.  Stay Tuned to the 2014 ESG-focused proxy campaigns.