How Investors Approach Companies Not Committed to Net Zero (Newsletter 6/4)

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Investor Updates

State Street Appoints New ESG Leader

State Street appointed Karen Wong in a newly established role of Global Head of ESG and Sustainable Investing, where she will lead ESG, including ESG investment strategy, ESG integration, and asset stewardship. Wong comes from Mellon Investments Corporation, where she led the ESG efforts from 2014 onward and replaces Rakhi Kuhmar who left for Liberty Insurance late last year.

Investors Look to Engage with Management Before Selling Companies Not Committing to Net Zero

At the PIMCO 2021 Investment Summit, PIMCO investors discussed sustainable investing and transitioning to net zero. One key takeaway was centered on engagement with companies. Instead of fully excluding companies from investment opportunities for not meeting specific criteria, they are signaling a stronger shift to engagement with management teams to better understand company-specific or industry-specific issues.

BMO Establishes Energy Transition Group

BMO Capital Markets formed an Energy Transition Group to support clients interested in pursuing energy transition opportunities leading to a net zero future. The group will include the firm’s existing Sustainable Finance Advisory and Impact Investing platforms. Aaron Engen, Vice Chair, Investment & Corporate Banking, and Jonathan Hackett, Managing Director and Head, Sustainable Finance will co-head the newly formed group.

Regulatory News

SEC Relaxes Proxy Advisor Rules

The SEC announced its decision to not recommend enforcement actions against proxy voting advisers and may overturn amendments to proxy rules made last year, which had stated that proxy voting firms’ recommendations should be regarded as solicitations and as such should meet a higher standard of scrutiny over alleged errors in their reports. This means continued opacity in the factors contributing to ISS ratings, and a great sales pitch for their Corporate Solutions group.

Proxy Season Briefing

Amazon Wins Race-Related Shareholder Proposal

At 44% support, New York State Common Retirement Fund’s proposal for a racial equality audit at Amazon fell short. Further, two proposals asking for reports on the company’s employee promotions as well as gender and racial pay gaps received 18% and 26% support respectively (Proxy Insight).

McDonald’s Encounters Investor Backlash over Governance Failings

Shareholders are unhappy with McDonald’s Board composition, as current Board members are perceived to have failed to adequately investigate the former CEO’s misconduct and mismanaged his dismissal. As a result, Board Chair Enrique Hernandez Jr. and Compensation Committee Chair Richard Lenny received 70.2% and 79.5% support respectively at the company’s May AGM, which while falling short of a majority no-vote indicates the displeasure of many shareholders (Proxy Insight).

GM Investors Urge ESG Metrics in Compensation

proposal filed at General Motors requests the company report on GHG emissions targets as a component of executive compensation, essentially asking the company to consider including GHG emissions targets in executive compensation.

United Airlines’ Investors Support Lobbying Proposals

A refiled shareholder proposal at United Airlines requesting political contributions and expenditures received majority support with 67.9% of votes. Similarly, another proposal asking the company to disclose how lobbying activities align with the Paris Agreement and how the company intends to mitigate risks from misalignment had 65.4% votes in its favor (Proxy Insight).

Company Spotlight

Shell to Increase Decarbonization Efforts

A court in The Hague ordered Shell to reduce its emissions 45% by 2030 based on 2019 levels, ruling that Shell’s current GHG reduction target of 20% by 2030 did not align with the Paris Agreement. Interestingly, Shell has already released climate targets outlining a series of targets in the company’s path to net zero by 2050 and answered commonly asked climate-related questions in the FAQ.

ESG’s Role in IPOs

In thredUP’s S-1 filing, the secondhand retailer dedicated a section to ESG. As a sustainability-driven company, including ESG in the filing proves ESG integration from the get-go. The section provides quantitative environmental data, lists goals and policies, confirms Board oversight of ESG from the Nominating and Governance Committee, and states the Board will be 36% female from the start.

Companies Tying Exec Pay to Diversity

This week, the Wall Street Journal covered the more than one-third of S&P 500 companies that added diversity targets to executive compensation. While most companies include gender and race in the diversity objectives tied to compensation, it is not yet common to see recruitment, retention, and supplier diversity considered within the targets. Additionally, companies are establishing new Board committees or adding responsibility to existing committees for overseeing diversity goals and programs throughout the company, such as, Marriot’s Inclusion and Social Impact Committee and Kraton Corporation’s Compensation Committee.

Featured CSR: Crown Holdings

Crown Holdings released a short-form, interim 2020 sustainability report to update stakeholders on the company’s fulfillment of multiple ESG goals it previously set in 2016 and to announce “Twentyby30,” the new 20 goals to meet by 2030. The report lays out the goals that the company has met or surpassed, lists the goals for 2030, matching each to UN SDGs, and provides quantitative data supporting the actions the company has taken to reduce environmental impacts. They end with an updated SASB table.

Ratings & Frameworks

Moody’s Releases ESG Scores

Moody’s Investor Service announced new ESG issuer profiles and credit impact scores for corporate issuers, covering global pharma, medical device companies, electric and gas utilities, and U.S. state and local governments. In January 2021, Moody’s published ESG scores for sovereign issuers.

News Bites