How This Proxy Season Will Change Corporate Reporting (Newsletter 6/11)

Investor Updates

Institutions Become More Vocal on Voting

This week, Bloomberg called out the louder stance some of the biggest institutions are taking this proxy season. BlackRock and Vanguard are now posting voting rationale. Neuberger Berman is disclosing how it voted or plans to vote on environmental and social proposals, and in some cases why. So far in 2021, there have been 169 environmental and social proposals, with about 29 securing majority approval.

Vanguard Announces Approach to E&S Proposals

Vanguard has endorsed the TCFD framework and explains its approach to Say on Climate:

Evaluate Say on Climate proposals on a case-by-case basis through a materiality lens.
Likely to support management Say on Climate proposals where the company has identified climate change risk as material to its business and is seeking shareholder input on its climate plan.
May vote for shareholder proposals requesting disclosure of material climate-related risks and opportunities, which enhance decision-making or address gaps in the company’s current practices.

Additionally, Vanguard shared further details in its approach to diversity, equity, and inclusion proposals:

Will vote for increased DEI disclosures if the company does not already provide reasonable DEI information, but may not support proposals if the company already reports sufficient DEI disclosures.
Will support a proposal on board oversight of DEI or a third-party DEI audit if the board does not oversee significant risks or if the risks noted may have a financial or long-term impact to shareholders.
Plans to engage with management teams to understand oversight of risks to long-term investors where the company does not have board-level oversight of DEI risks.

Fidelity Launches New Sustainability Funds

Fidelity launched three new sustainable multi-asset funds – Fidelity Sustainable Multi Asset Conservative, Balanced, and Growth funds. At least 70% of the net assets of each fund will invest in securities with sustainable characteristics, based on MSCI ratings. Nick Peters will be the lead portfolio manager and Ayesha Akbar will be the co-portfolio manager, however, the funds are said to be managed with a team-based approach.

Proxy Season Briefing

Delta Confronted with Climate-Related Lobbying Proposal

BNP Paribas Asset Management has filed a proposal asking Delta Air Lines to develop a report that outlines how its lobbying activities are aligned with Paris Agreement goals and how the company will mitigate risks if misalignment occurs, a similar proposal was filed against United Airlines. Delta is also facing a shareholder proposal that would give investors the right to act by written consent.

Walmart’s Proposals Fail to Achieve Majority Support

Shareholder proposals urging racial justice reporting, lobbying disclosures, and a pandemic advisory council failed to obtain majority support at Walmart, only winning 12.7%, 22.2%, and 11.5% support respectively, according to Proxy Insight.

Shareholders Pass Climate Proposal at Booking Holdings

A majority of Booking Holdings’ shareholders supported a proposal from As You Sow urging the company to report an annual climate transition report. Interestingly, Booking Holdings went carbon neutral in 2020 according to its sustainability report. One concern is that the company has recently relied heavily on carbon offsets, and it has not yet set Science-Based Targets initiative (SBTi) approved targets.

2021 Proxy Season Developments

Perkins Cole summarized some of the biggest takeaways from this proxy season. Here are a few interesting highlights from the findings:

Climate proposals have attracted much more support; for example, a proposal requesting a plastic waste report only saw 6% support in 2019 but received 81% approval in 2021.
Partial ESG reporting inside proxy filings. Many companies published updated CSRs after proxy season, and in an effort to prove progress to investors, companies are including a preview of ESG metrics and updates within or alongside proxy filings.
Diversity shareholder proposals related to EEO-1 data and board diversity grew by 60%.
Say-on-pay votes for companies in the S&P 500 and Russell 3000 are down with an increase in failed votes. Two indicators that may be related are the actions companies took during COVID-19 and ISS recommendations to vote against say-on-pay proposals.

Company Spotlight

Developing an Internal ESG Task Force

Principal Financial’s CEO credited the success of the company’s sustainability programs thus far to its ESG task force. On the sustainability webpage, Principal has an ESG strategy section that lists the members of the task force, which includes the CMO, Chief Inclusion Officer, VP of Enterprise Work Services, ED Investment & Client Solutions, and the Director of Principal Foundation and Community Relations. Both ESG task forces and ESG steering committees are becoming more common. Extended Stay America and Parex Resources are two companies that disclose ESG Steering Committees.

Showcasing Diversity Initiatives

Alkermes’ Diversity, Inclusion & Belonging video on its corporate website is a smart way to show off the company’s diversity programs. The video touches on employee resource groups and how Alkermes integrates diversity throughout the organization, including the supply chain. Dropbox and Walmart also post videos on DEI featuring CNOs.

Regulatory News

G7 Supports Mandatory Climate Risk Disclosure

G7 Finance Ministers and Central Bankers, a group of ministers from seven wealthy democracies, declared their support for mandating that banks and companies disclose their exposure to climate-related risks, particularly those based on TCFD. Additionally, they called for greater collaboration in measuring the effect companies are having on the environment and climate.

Washington & California Push Insurers to Report TCFD Aligned

The Insurance Commissioners of Washington and California are requesting insurance companies start reporting climate risks in alignment with TCFD. Companies are already required to report climate risks annually through an industry-specific survey in California, Washington, Connecticut, Minnesota, New Mexico, and New York. Last year, eight insurance companies reported TCFD disclosures, including AIG, Allianz, Assurant, Axa, QBE, Swiss Re, Travelers, and Zurich.

Ratings & Frameworks

IIRC & SASB Form Value Reporting Foundation

The IIRC and SASB merger is officially complete and now operates under the Value Reporting Foundation. The newly formed organization provides additional resources for companies to consider applying to corporate sustainability reporting, including Integrated Thinking Principles, Integrated Reporting Framework, and SASB.

News Bites

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