How Is the Sausage Made with ESG Ratings? (Newsletter 8/6)

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Investor Updates

Janus Henderson Sets Diversity Goals and a Plan for Achievement 

On Monday, Janus Henderson announced a new plan focused on improving diversity within its workforce. Highlighted as a top diversity and inclusion priority, the institution aims to specifically improve diverse representation among senior leadership. The new goals are to increase women in senior positions from 24% to 30% by 2023 and increase racial and ethnically diverse managers from 11% to 16%. The action plan is centered around new recruitment strategies, such as exploring partnerships, internships, mentoring, and training for women and ethnically diverse talent. Last year, Janus Henderson noted it increased ethnic diversity by 3% in the U.S. 

Softbank’s Position in Roche Fuels Speculation That It is Trying Its Hand at Activism

On Tuesday, Bloomberg reported that SoftBank Group Corp. had quietly established a $5 billion stake in Roche Holding AG, a Swiss pharmaceutical company. This is at odds with SoftBank’s traditional investments, which have almost exclusively been so-called “unicorns”—privately held startup companies with valuations exceeding $1 billion. Given Roche’s undervalued price, some believe that SoftBank will turn to activist tactics to encourage asset sales or share buybacks, which will inflate the stock price. However, others believe this simply signals a desire from SoftBank to begin exploring additional investment strategies. 

Asset Managers Have Some Catching Up to Do When It Comes to Stewardship

A report from Accenture Asset Management shows that 80% of asset managers believe that stewardship models open doors to provide greater value for investors. But stewardship relies upon shareholder engagement, and that’s where asset managers struggle. Most say their challenges relate to data, research and analysis, and corporate interaction. The good news is 92% of asset managers say this is something they plan to work on, and they’ll do so by using alternative data and relying increasingly on emerging technologies like AI. This would represent a meaningful step toward fully integrating stewardship into the investment decision making process. 


Take a Walk in an ESG Investor’s Shoes

Putnam Investments believes in the value of corporate sustainability for all companies—especially those in which it is invested. As a result, the day to day of investment managers at Putnam is not like that of traditional investors. Typical portfolio managers may spend their time reviewing financial models and speaking with management about companies’ growth strategies. But PMs at Putnam must do this, plus lead dialogues on community health and racial equity, analysis of companies’ environmental risks, and reviews of sustainability reports.  

Deutsche Bank Accused of Misrepresenting Sustainable Investing

Earlier this week, the Wall Street Journal released details revealing Deutsche Bank’s asset management group, DWS, overstated its sustainable investing position. Desiree Fixler, DWS’s former sustainability chief was recently fired for being too vocal and stated the firm misrepresented its ESG capabilities. In its 2020 annual report released in March, the asset manager says half of its assets, $540 billion, went through the ESG integration process; however, it came out that only a small amount of the investments applied ESG integration. Fixler has filed an unfair dismissal case against DWS in a labor court in Germany.

Company Spotlight

Exxon Mulling Over Net-Zero Carbon by 2050

In response to significant investor pressure, Exxon Mobil Corp. is considering a move to achieve net-zero carbon emissions by 2050. Recently, investors have elected three new members to Exxon’s board of directors and criticized Exxon’s previous emissions reductions targets. This scrutiny has led Exxon CEO, Darren Woods, to repeatedly up the ante with regard to the company’s carbon reduction efforts. The jury is still out on just how a company like Exxon would achieve such an ambitious goal, but their efforts to date have focused on carbon capture and storage, as well as low-emissions energy technology. 

Diversity Metrics Take Lead for Executive Pay Packages

Of the 61 metrics used by Fortune 100 companies to tie ESG factors to executive pay, 14 or 23% are related to diversity. The move follows major events in 2020 including the Black Lives Matter protests and the COVID-19 pandemic that shed light on the “S” pillar, and a number of companies have added diversity-related metrics to the compensation plan since. Allstate said it would measure executives’ progress against factors spanning “inclusive diversity and equity strategies” when setting their annual cash bonuses. CVS also said the payouts could be impacted by up to 10% for senior leaders as the company strives to achieve more diverse leadership in 2021. McDonald’s, Starbucks, and Chipotle also tied ESG to their executive compensation packages earlier this year.  

Target Updates on DEI Commitments

In its 2020 Workforce Diversity Report, Target announced progress the retailer previously made on diversity goals across the company. The company highlighted strides towards an increase in black representation across the company and goals to achieve 20% across the enterprise by 2023; although, overall workforce diversity remained stagnant since the 2019 report was issued. Currently, 50% of the broader team and 25% of the leadership team are persons of color. The full report is shown on Target’s Diversity, Equity & Inclusion page within its corporate responsibility website.

Ratings & Frameworks

Regulators Aim to Uncover How the Sausage is Made with ESG Ratings

The International Organization of Securities Commissions (IOSCO) has begun early steps toward unlocking the black box that is the ESG ratings industry. A consultation paper recommends the consideration of formally regulating the sector, similar to steps taken with credit ratings agencies following the global financial crisis. Although IOSCO is far from implementing specific regulations, potential actions could involve the development of an industry code of conduct or a ledger of internal records to ensure data reliability and consistency across different companies. 

Featured Article: Is a High Percentage of Passive Ownership Cause for Alarm? (Only if Your IR Strategy is Passive Too)

Passive investing is nothing new. And it’s in no way a fringe concept. Since its inception 50 years ago, the investment style has been steadily on the rise. As a $16 trillion industry today, passive investing is now double the size of the private equity, venture capital, and hedge fund industries combined. 

Still, many corporate issuers—even those that are heavily passively-owned—struggle to understand the mechanisms of passive investing and what it means for their businesses in general, and their IR strategies in particular. To shed some light on the topic and answer the questions most commonly posed by companies, Clermont Partners dug into the data. Here’s what we learned, what you need to know, and what you can proactively do to make the most of every passive investment dollar in your business. 

Click here to continue reading and learn answers to the five key questions IROs and senior leaders ask about passive ownership, as well as four ways to tailor your IR strategy for passive investors. 

News Bites