Investors Back TCFD Reporting (Newsletter 3/5)

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Investor Updates

Majority of Top 50 Global Asset Managers Back TCFD Reporting

In a Squarewell Partners’ study on the 50 top asset managers, respondents were asked questions regarding managers’ approach to ESG and Corporate Governance. The findings show most of the 50 support the TCFD framework, 36 are members of Climate Action 100+, and only one is not a UNPRI signatory. Additionally, many receive research and scores from multiple external providers, and 30 of the managers have developed their own ESG rating system. The majority of the firms are also publishing papers on the importance of specific ESG topics. All that said, chances are at least a few of any company’s top shareholders seek out TCFD reporting and rate or leverage existing ratings when evaluating companies.

PRI Pushes its More than 3000 Plus Asset Managers to Vote on E&S Proposals This Proxy Season

PRI is encouraging its signatories to be more active and vote on E&S shareholder proposals. The organization is tightening minimum requirements to become a signatory to ensure investors integrate sustainability into their investment processes. In the past, U.S.-based PRI signatories have consistently supported fewer E&S proposals at U.S. companies than their non-signatory peers. PRI is set to launch a number of new initiatives targeting stronger assertiveness regarding investor stewardship.

People Moves

  • ING appoints Anne-Sophie Castelnau as Global Head of Sustainability
  • Wells Fargo selects Geneviève Piché for a newly created role, Leader of ESG Solutions for Corporate & Investment Banking

Company Spotlight

Hershey Sets 2030 Targets

Hershey is looking to increase its sustainability chops with new commitments including science-based emission reduction targets, packaging reduction commitments, and a new deforestation policy aimed at ending deforestation across its supply chain by 2030. With an MSCI score of BBB and a Sustainalytics risk rating of Medium Risk, the company is likely striving to pull ahead of higher-performing ESG peers in the food and beverage industry.  

ESG Continues to Be a Top 2021 Board Priority

In the BDO Board Pulse Survey, 25% of board members said sustainability reporting was one of their top three ESG priorities for the next 12-18 months, proving ESG issues are increasingly viewed as an area Boards should have oversight. 35% of directors mentioned they are establishing and tracking DE&I metrics, seemingly as a result of the Human Capital Management 10-K requirements set by the SEC in 2020. And, half of the directors said building a more diverse board and management team were longer-term ESG priorities for their company. While women and underrepresented groups may have a tight grip on their seats, overrepresented groups on the board could be more at risk in the coming years. Last year, only one company IPO’d with an all-male board, and women on IPO boards rose to 24%, a jump from 11% in 2018.

Exxon Accedes to ESG Activists

Exxon Mobil Corp. appointed climate activist investor Jeff Ubben and Michael Angelakis from Comcast Corp to its board. This comes as the energy giant is fighting a proxy battle with Engine No. 1 regarding a lack of focus on climate change matters and spending on projects that generated weak returns. Another investor in Exxon, D.E. Shaw, publicly supported the additions to the board. Recently, the company has also released 2025 greenhouse gas emissions targets. After enduring a massive loss of $22 billion last year, the company’s first loss since the 1999 merger, investors were inevitably on edge.

Citigroup Follows Other Big Banks; Announces Net Zero Targets by 2050

Big news in the banking world this week, Jane Frazer, the first woman to head a major U.S. bank, walked in the door ready to go at Citigroup, immediately announcing a target of net zero greenhouse gas emissions by 2050. A plan will be unveiled within the next year containing 2030 progress for the bank’s energy and power portfolios and a path to achieve net zero by 2030 within its own operations. The announcement comes after carbon neutral commitments made by Bank of America last month and JP Morgan and Morgan Stanley in the second half of 2020.

Gold Star for Board Oversight of ESG Issues at R1 RCM

While CEO letters containing E, S, and G commitments are fairly standard, letters from the board go a step beyond. R1 RCM released a letter signed by all board members endorsing the inaugural ESG report and the company’s decision to align with the United Nations Sustainable Development Goals. Additionally, the letter states the board took direct feedback from shareholders and leveraged internal and external resources to identify potential ESG risks and material issues.

Ratings & Frameworks

ISS Changes

Wondering why your company’s ISS Governance Score went down (again)? Last month, we explained the new cybersecurity requirements that have brought so many scores down. Now, ISS has added new requirements to the Corporate Governance portion that are going to be difficult for most companies to meet. Companies will now lose points if they do not have a Sustainability Committee on the Board, and if they have not included D&I measures in their short or long-term compensation plans. Special grants during the 2020 period of Covid-19 are also getting a special look, with more scrutiny on special grants made to senior executives during 2020, and the lack of disclosure of the percentage of CEOs’ total comp due to special grants.

Ratings Discrepancies

Understanding ESG ratings are important to gauge how investors and other stakeholders may view a company. But what happens when there is a wide gap between scores issued by various rating agencies? Let’s look at GM, below are the company’s scores issued by four raters:

  • MSCI: B (best = AAA, worst = CCC)
  • Sustainalytics: High Risk (best = Negligible Risk, worst = Severe Risk)
  • S&P Global ESG Score: 79 (best = 100, worst = 0)
  • Refinitiv: 85 (best = 100, worst = 0)

As you can see, GM does not perform well based on MSCI or Sustainalytics ratings, but does score high for S&P Global and Refinitiv. Does it matter? The short answer is yes. As mentioned earlier, investors use multiple data points to assess companies’ ESG performance. If a company has poor scores from one or more raters, the company’s ESG standings perceived by investors may suffer, ultimately impacting investment decisions.

News Bites