Are Institutions “Greenwashing” ESG Proxy Voting Policies? (Newsletter 4/16)

Regulatory News

SEC Investigating Institutions Possibly “Greenwashing” ESG Proxy Voting Policies

The SEC Division of Examination is investigating proxy voting records of institutions that have published proxy voting commitments ensuring the evaluation of E and S proposals on a case by case basis, which seem to have no procedure, or proof, that this evaluation actually occurs. The agency is also investigating claims by clients who were told they would have the opportunity to vote for ESG proposals on an individual basis but were not actually afforded the right to vote. Additionally, the SEC staff noted circumstances with inconsistencies between the institutions’ disclosures about ESG framework alignment, where the institution was not in full alignment, and fund holdings, where the fund held issuers with low ESG scores, contrasting the firms’ investment approaches.

Possible Executive Order Mandating Climate Emissions Reporting Looks to Be in the Works

At the International Monetary Fund (IMF) seminar last week, Kerry mentioned Biden’s plans to standardize issuer climate reporting, which is set to be formally announced on April 22, 2021, at the Leaders Summit on Climate. Kerry suggested EU rules could be a template for U.S. emissions targets. Specifically, Kerry stated, “President Biden is poised to issue an executive order that will require disclosure also, and Europe has already done that. It is going to change the allocation of capital, suddenly people are going to be making evaluations considering long-term risk to investments, based on the climate crisis.”

Politico obtained a draft of an executive order titled Climate-Related Financial Risk, which notes all sectors will be subject to new regulations. One key takeaway – “Major federal suppliers could be required to publicly disclose their greenhouse gas emissions and climate risk and set science-based targets for reducing them. The SEC already is considering whether to require such disclosures from publicly traded companies. The contracting provision could affect nonpublic companies not subject to SEC oversight.”

This comes as investors representing more than $1 trillion in AUM urge the U.S. to implement targets to reduce GHG emissions. In a letter written to Biden and U.S. policymakers, organized by Ceres and WeMeanBusiness and signed by corporate issuers as well as investors, the group calls on the President to adopt a target of cutting GHG emissions by at least 50% below 2005 levels by 2030. Some of the companies in support are Apple, Ball Corporation, Coty Inc., Lyft, Inc., Mastercard, Nike, and Unilever.

Investor Updates

Invesco Integrates ESG into 100% of Investments by 2023

Invesco published its 2020 Annual Investment Stewardship Report outlining its new commitment to integrate ESG into all investments by 2023. The institution’s current ESG integration is at 75% of investments and its new goal is to integrate ESG into 100% of investments by 2023. The report also gives a detailed description of company engagements, such as case studies, its focus on social equity and climate change, and its proxy voting approach. The top ESG engagement themes addressed by Invesco in 2020 were climate transition, executive compensation, and ESG disclosure.

Nuveen’s View of Key 2021 Proxy Season Issues

Nuveen released a 2021 Proxy Season Preview, which outlines top shareholder proposal themes the firm believes will be key for this proxy season. Key themes Nuveen expects to see:

Climate-related proposals that focus on accountability and outcomes
Diversity and inclusion proposals that go beyond gender
Accountability for COVID-19 responses
Continued scrutiny over companies’ political activities
Heightened focus on ESG integration into executive compensation

The firm expects to see support for more shareholder proposals in 2021, and possibly an increase in votes against Board members who are not keeping up with the demand for more ESG disclosures.

Company Spotlight

Conduent Forms ESG Board Committee

Earlier this week, Conduent Incorporated announced that its Board of Directors has formed a Corporate Social Responsibility and Public Policy Committee as part of the company’s commitment to operating in a socially responsible manner. Its focus areas will include the impact of climate change and other environmental matters, supply chain diversity, employee health, safety and well-being, and diversity, equity, and inclusion, among other critical areas. Dedicated ESG Board Committees are becoming increasingly more popular since this level of oversight and integration allows for better reporting, consistent flows of information between the Board and leadership teams, as well as an added level of commitment from the company’s most senior members.

CSR Reporting Season

This was a big week for companies to publish new CSRs. Below are some highlights from the recently updated reports.

American Axle

Frameworks: CDP, GRI, Partial SASB, Partial TCFD
On page 7, American Axle provides a thorough Environmental Management System (EMS) policy listing certifications across its facilities. Starting on page 11, the company discloses as much information related to the SASB metrics on waste and energy management as it has prepared, noting on the SASB table that it will disclose the rest of the metrics in future reports; however, it does not specify the timing.

LKQ Corp Inaugural Sustainability Report

Frameworks: SASB
From the company’s materiality assessment, the resulting material topics are listed in order of priority with page numbers where more information on each topic is explored further. The layout of the content clearly identifies the most critical topics to the company in order.

Molson Coors Sustainability Report, Our Imprint Report, Sustainable Development Goals Impact Report

Frameworks: CDP, GRI, SASB, TCFD, UNGC, UN SDGs
Molson Coors provides a lot of data and insights within its reports and aligns with all the major frameworks. Within the UN SDG report, a page is dedicated to each goal including the target, what the company is doing, and the company’s 2025 commitments that relate to achieving the goal.

SSR Mining

Frameworks: GRI Core standards, partial SASB standards
Page 14 provides a table with 2020 goals, which ESG topic the goal relates to, and a half or full circle showing whether each has been achieved or is still in process, allowing readers to quickly see the status of the goals. Additionally, the company discloses an in-depth employee health and safety management policy starting on page 33 with OHSAS and ISO certifications, training information, and data on work-related fatalities, injuries, and lost time from injuries.
Goals for 2021: set net zero by 2050 targets and align with CDP and TCFD

Cheniere Climate Scenario Analysis: Transitional Risk Report

Frameworks: GRI, SASB, TCFD
While not a full CSR, Cheniere has released a number of reports, including its transitional risk report as part of its TCFD alignment.

Ratings & Frameworks

How Companies Are Reporting in Alignment with GRI & SASB

Two of the most widely used ESG frameworks, GRI and SASB, released a joint guide on sustainability reporting. The report supports companies using both the GRI and SASB frameworks in their sustainability disclosures, emphasizing GRI is focused on sustainability impacts while SASB is geared towards financial impacts. And, for companies that have already reported in alignment with GRI, SASB is an easier add-on since most of the data has already been collected. The organizations show reporting examples and share interviews from a handful of companies they believe have successfully reported in alignment with the two frameworks, such as GM, Diageo, and Suncor Energy.

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