VEA Vice Chair Nell Minow writes in Huff Post:
1. ExxonMobil’s documented policy of preventing investors from engaging directly with members of its board to discuss company strategy, financial performance, risks and opportunities, and other topics germane to the board. This antiquated policy is out of step with widely recognized best practices for corporate governance and undercuts the board’s ability to gain valuable outside advice and perspectives. [Note: for several days last week the company’s website interface for contacting board members was not functioning and a call to inquire about it was met with a recording explaining due to technical difficulties they were unable to answer the phone, or, apparently, take messages. They did not respond to an email inquiry about these issues, though the website function has been fixed.]
2. Lack of clear and transparent succession planning for retiring board members, particularly given the mismatches we see between the skills and orientation of outgoing directors and the strategic challenges facing the company. For example, ExxonMobil’s outgoing Audit Committee chair lacked relevant financial expertise during a time of regulatory scrutiny and business model transformation, and though his and other board members’ retirement dates were known in advance, no replacements have been nominated for the 2017 annual shareholder meeting nor has the company discussed plans for the directors’ replacements.
3. Board compensation practices that may create perverse incentives as directors approach retirement. ExxonMobil provides that most director equity-based pay does not vest until the mandatory retirement age of 72, an unusual proviso, under which directors can potentially forfeit what can amount to millions of dollars in pay if they leave the board before retirement. As they approach retirement, directors’ time until payout shortens while the value of their equity compensation increases – a dynamic that can compromise director independence and objectivity, as directors nearing retirement may not voice dissenting opinions for fear of putting their impending payout at risk of forfeiture.
ExxonMobil’s own statements acknowledge the realities of climate change and, without being specific, their role and their obligation to respond. “Addressing climate change, providing economic opportunity and lifting billions out of poverty are complex and interrelated issues requiring complex solutions. There is a consensus that comprehensive strategies are needed to respond to these risks. “ It is an encouraging sign that they have added Dr. Susan Avery, Former President and Director of the Woods Hole Oceanographic Institution, to their board of directors. A good next step would be making her available to meet with investors to hear their concerns about strategy and transparency.
5050’s mission is to “help large investors create market-based demand for meaningful climate disclosures and greater climate competency on corporate boards.” These large investors, mostly pension funds, mutual funds, and endowments, are permanent investors with very significant holdings in just about all public companies. They cannot sell the stock if they disagree with management, especially if the price of the stock is discounted by failure to align pay with performance or to create strategies for sustainable growth. All they can do is engage with management and the board to raise their concerns and ask for better answers. Given potential regulatory rollbacks and the government’s reduced role in providing data and research on climate change, institutional investors who understand the quantifiable risks of failure to address climate change are finding that it is cost-effective to assess and respond to these risks rather than wait for corporations or government to act on their own.
Emily Chasen writes in Bloomberg:
Occidental Petroleum Corp.’s shareholders approved a proposal Friday to require the oil and gas exploration company to report on the business impacts of climate change, marking the first time such a proposal has passed over the board’s objections.
The resolution, initiated by a group of investors including the California Public Employees’ Retirement System, received more than 50 percent of the votes at Occidental’s shareholder meeting in Houston on Friday, according to spokesmen for the company and Calpers. Occidental didn’t provide the tally, but said the exact figures will be submitted to the Securities and Exchange Commission in coming days.
“The board acknowledges the shareholders support for this proposal,” Eugene L. Batchelder, chairman of the board for Occidental, said in an e-mailed statement Friday after the vote. “We look forward to continuing our shareholder engagement on the topic and providing additional disclosure about the company’s assessment and management of climate-related risks and opportunities.”
The resolution came close to majority support last year. A crucial factor in exceeding the 50 percent mark was Blackrock, a major shareholder, who switched from voting against the proposal last year to voting for it. One reason might be the concerns that the new administration’s opposition to environmental regulation may mean that investors can no longer rely on the government to take care of the problem.
“The passing of this resolution is a sign of progress. It is a first in the United States. The vote at Occidental demonstrates an understanding among shareowners that climate change reporting is an essential element to corporate governance. I believe that we will see many more companies move in this direction. This vote shows that investors are serious about understanding climate risk.” – Anne Simpson, CalPERS Investment Director, Sustainability
IRRCi has an excellent new paper on the metrics used in the fast-growing field of ESG investing.
Recent years have seen a surge of investor interest in integrating environmental, social and governance (ESG) information into financial analysis and investment decisionmaking.
Signs of this trend include continued growth in the volume of managed assets
that incorporate ESG research, increasingly sophisticated investor tools, more ESG information providers, more ESG information gathering frameworks, more indices incorporating ESG data, and the use of ESG factors across asset classes, including fixed income and alternatives. According to data collected by the Global Sustainable Investment Alliance, ESG investment strategies, broadly defined, currently account for USD 22.9tn in managed assets worldwide, up from USD 13.3tn in 2012.
The report outlines the “typology” of ESG investing with “six prevailing types” of approaches.
Within this dimension, the two key differentiators for distinguishing approaches to ESG integration are:
a) the degree to which functions and responsibilities related to ESG integration
are centralized in an organization, and
b) the extent to which a firm or investment team has processes in place to
The report also examines the scope of research and the difference between “top-down” (the development and execution of an investment thesis based on a general view (as opposed to a view derived from fundamental analysis) of how ESG factors may create investment risks and opportunities) and “bottom-up” (the integration of ESG factors into security-specific fundamental analysis in the context of security valuation and selection) applications.
Harvard Management Company’s head of natural resources Colin Butterfield said that Harvard is “pausing” investments in some fossil fuels at a Business School event Monday [April 24, 2017].
During the discussion on the effects of climate change on investments, Butterfield said that Harvard’s natural resources portfolio will not likely invest in the fossil fuel industry in the future because those funds do not perform that well financially.“What I can tell you is, from my area, I could honestly say that I doubt—I can’t say never, because never say never—but I doubt that we would ever make a direct investment with fossil fuels,” he said. “But that’s more of an Investment Committee decision, and I cannot talk on their behalf.”Butterfield added that Harvard does indirectly invest in fossil fuels through outside funds. Members of the Harvard Corporation indicated in October that the University was moving away from investments in coal because they were not profitable.
Source: Harvard ‘Pausing’ Investments in Some Fossil Fuels | News | The Harvard Crimson
Linda Lowson writes on the Harvard Law School Forum on Corporate Governance and Financial Regulation:
President Trump views environmental and financial deregulation as main tools to stimulate economic growth and job creation. The EOs issued to date have focused upon Environmental Protection Agency (EPA) rules and the repeal or revision of the Dodd-Frank Act. CCSFR is governed by securities laws worldwide, and in the U.S., Securities & Exchange Commission (SEC) regulation, which implements and enforces the U.S. securities laws, is the controlling authority. CCSFR is not legally impacted by EPA rules or the Dodd-Frank Act. The SEC has not yet issued any final or proposed rules on CCSFR, but the “materiality” principle inherent throughout the SEC regime applies to all issuer SEC filings. The SEC issued an “Interpretative Release” on Climate Change Guidance in 2010, which identified four main areas of climate-related risk that issuers should consider, but this release does not have the force of law.
Neither President Trump nor his Cabinet or agency officials have mentioned CCSFR, even in the context of the 2015 Paris Climate Agreement, and the substantive linkage between CCSFR and economic growth/job creation is attenuated at best. The new SEC Chair appointee, Jay Clayton (Senate confirmation pending), in his March 2017 nomination hearing testimony to the Senate Committee on Banking, Housing and Urban Affairs, supported the 2010 SEC Climate Change Guidance in response to a direct query from Senator Jack Reed: “public companies should be very mindful of that guidance as they are crafting their disclosure.”
Source: Global Climate Change and Sustainability Financial Reporting: An Unstoppable Force with or without Trump
Lucy P. Marcus writes:
US President Donald Trump may seem like a dream come true for business. A businessman himself – as he so often reminds us – Trump is eager to please companies with extensive deregulation. But, if companies aren’t careful, they will come to regret what they wished for.
Just as Trump governs by id, he wants to allow business leaders to manage their companies the same way. It is certainly tempting for some. Indeed, companies are lining up to take advantage of rollbacks of data privacy, environmental rules, worker protections, banking regulations, consumer rights, and rules regarding conflict minerals. Many are keen to see how far they can push an administration that, so far, seems willing to agree to just about anything.
But, contrary to Trump’s rhetoric, this approach is not really pro-business. By pursuing radical deregulation, the Trump administration is practically begging businesses to harm consumers, the environment, and, in the long run, themselves. Indeed, as the consequences of companies’ actions are exposed, public trust in those businesses – not to mention in the government that was supposed to regulate them – will be decimated. Boards of directors’ risk committees should be sounding the alarm.
Source: Why Companies Should Refuse Trump’s Deregulation by Lucy P. Marcus – Project Syndicate
Candy Telani Anton invites participants to the 16th Responsible Business Summit:
The expectation on business to act responsibly, tackle social and environmental problems, and deliver positive societal impact is only increasing. It’s a tough ask. The sheer complexity of the sustainability issues business has to wrestle with is astounding. No single person or company can do this alone but, if you want to last, you can’t just sweep them under the carpet and walk away. So to make a real difference, we need to align the core business strategy [commercially and financially] to macro social needs and come together [internally and externally] to co-create alliances towards the same goal. If we are to deliver social purpose and impact, and gain trust we need to drive positive social transformation and improve company’s reputation. That’s what Ethical Corporation’s Responsible Business Summit will deliver on. We’re doing things differently and we really want to move your business towards the genuine impact you are looking for. Our agenda topics will help you to overcome obstacles and uncover the potential for responsible strategies and opportunities to drive social purpose, profit and change with quantified impact and empirical justification.
General Electric CEO Jeff Immelt says President Donald Trump’s imagination is at work if he doesn’t believe in climate change science or the Paris agreement that President Barack Obama signed onto before leaving office.And Immelt is calling on other companies to step up to fill the void that the administration is leaving behind.
“Companies must be resilient and learn to adjust to political volatility all over the world,” Immelt wrote Wednesday in an internal company blog post obtained by POLITICO. “Companies must have their own ‘foreign policy’ and create technology and solutions that address local needs for our customers and society.”
Source: GE CEO Immelt knocks Trump on climate – POLITICO
In Sunday’s New York Times, Gretchen Morganson writes about the importance — and opportunities — of shareholder initiatives and engagement on the environment and other issues. She quotes VEA Vice Chair Nell Minow:
Say that the new leaders at the Securities and Exchange Commission and the Environmental Protection Agency relax their agencies’ oversight, as anticipated. That would mean shareholder votes in favor of holding executives accountable on executive pay, climate change issues and other governance matters are especially important.
“There’s never been a better time to address these issues, whether as an institutional investor or an individual,” said Nell Minow, vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on how to reduce risk in their portfolios. “If you are worried that your company is lobbying to weaken environmental rules, for example, then it’s really a fabulous opportunity for you to join in with the institutions and other economic forces making it clear to companies that they can’t get away with it.”
Norway’s second largest pension fund has decided to withdraw investments from companies linked to the controversial Dakota access pipeline project, which is backed by Donald Trump. Pension fund for the public sector KLP has announced that it will sell shares worth £55m from four companies, which own part of the project and are building the pipeline “due to an unacceptable risk of contributing to serious or systematic human rights violations”. The Sami Parliament in Norway, which represents the indigenous Sami people, convinced the pension fund to divest in an act of international solidarity between indigenous people, according to the Guardian.
Source: Indigenous people ‘convince Norwegian pension fund to ditch investment in Dakota pipeline’ | The Independent