Shareholder Proposals Demand More Environmental & Social Disclosures (Newsletter 1/28/22)

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Investor Updates

The SEC Proposes Companies Explain Gaps Between CEO Pay & Performance

In reevaluating the pay-versus-performance measure, the SEC proposed a rule asking companies to share how top executives’ pay meets performance, which don’t always seem to match up. The proposed requirement also asks for comments on disclosures that were raised in 2015 which called for companies to provide a table in their proxies containing executives’ total compensation with total shareholder return of the company and its peers. While the proposal will go through public consultation before it can take effect, this comes at a time when investors, employees, and regulators are seeking greater transparency from companies on overall compensation methods.

Source: Reuters

EPA Issues New Rules to Target Power Plant Pollution

The EPA is implementing new rules for power plants that will limit air pollution and wastewater generation. The rules will impose stricter air-quality standards for mercury and other toxic pollutants to reduce pollution and improve the health of communities located near plants. Some utilities have welcomed the changes, citing the potential for increased investment and improved visibility from regulators. Other utility companies have voiced criticism, saying the regulations could be too costly for older coal- and gas-fired plants, potentially causing them to close.

Proxy Season Briefing

Netflix to Eliminate Supermajority Requirement for Board Changes Following Investor Demand

Netflix is eliminating the supermajority requirement for board changes and will allow shareholders to call special meetings. Five times since 2013, investors have supported a resolution at the annual shareholder meeting to get rid of the supermajority requirement, but only now has the company supported the proposal. Netflix had previously cited stability as the main reason for keeping the supermajority requirement in place. The company said it now feels the business environment is stable enough and the company is mature enough to ease the rule.

McDonald’s Asks SEC to Omit Racial Audit from Annual Proxy

McDonald’s is fighting a shareholder proposal for a racial audit in its annual proxy. The company is asking the SEC to omit the proposal, citing pending lawsuits by Black franchisees and employees. McDonald’s stated that issuing the racial audit requested in the proposal would “harm its legal defense in multiple pending lawsuits.” The company is involved in multiple lawsuits, including one by 238 current and former Black franchisees claiming that unfair treatment and racism have steered them to low-volume restaurants.

JPMorgan Vs. Activists and Nuns

JPMorgan is facing 4 shareholder proposals related to climate change. The proposals are a plea to the large bank to stop financing and lending to fossil fuel companies. The parties filing the proposals include Boston Trust and the Sierra Club, as well as the Sisters of Mercy. JPMorgan is petitioning the SEC in response and noting that the proposals are related to the bank’s “ordinary business” operations.

ESG Ratings & Reporting

GRI CEO Now Says He Expects to Work with ISSB

At the end of 2021, the International Financial Reporting Standards Foundation announced a consolidation of the Value Reporting Foundation (which includes SASB) and the Climate Disclosure Standards Board (which includes CDP) under the International Sustainability Standards Board (ISSB). TCFD was noted as a participating member in the working group. At the time, GRI stayed out of it. Now, GRI’s CEO Eelco van der Enden says GRI will “cooperate with” the ISSB on setting ESG standards, but that he believes GRI still has its own place in ESG reporting.

TNFD Partners with SASB, CDP, and GRI

Launched in June 2021, the Taskforce for Nature-related Financial Disclosures (TNFD) has announced it will work with a group of knowledge partners to aid it in developing a risk management and disclosure framework for nature-related risks. These groups include SASB, CDP, GRI, and the Science Based Targets Network, among others. TNFD has plans to release a beta version of their framework in March and to launch a finalized version in 2023.

Company Spotlight

Morningstar Releases ESG Top-Performers Watchlist

Morningstar has created an ESG top performers watchlist using Sustainalytics ESG Risk Rating scores. The list takes into account two risk assessment factors: exposure to ESG risks and management of ESG risks. Morningstar claims these ratings are a concrete measure of a company’s long-term durability and sustainability. Morningstar finds that the biggest ESG risk is in energy and utilities, with the smallest in technology and real estate. The watchlist includes names such as Microsoft, Adobe, Home Depot, Lowes, Nike, PepsiCo, Visa, Mastercard, and Berkshire Hathaway.

Adient Releases Best-In-Class 2021 Sustainability Report

Adient has recently released their 2021 sustainability report. The report is in alignment with TCFD, GRI, CDP, and the UNSDGs. It notably includes science-based targets, or short- and long-term emissions targets that align with the goal of limiting global warming to 1.5 degrees Celsius above pre-industrial levels. The company lists ESG priorities derived from a materiality assessment, including climate action, sustainable materials sourcing and circular economy, employee health and safety, human rights, diversity, equity, and inclusion, and governance. Each priority is tied to a specific goal and an action plan. The report is comprehensive in the topics it covers, disclosing the impacts of Adient’s operations, as well as how ESG risks and opportunities might impact their business strategy.

Investor Updates

Net-Zero Asset Owner Alliance Asks for Greater Emissions Reductions

Made up of 69 institutional investors with over $10 trillion in AUM, the UN-convened Net-Zero Asset Owner Alliance has doubled down on its commitments to reduce portfolio emissions. Released in January 2021, the alliance’s initial Target Setting Protocol asked asset owners to reduce portfolio emissions by between 16 and 29 percent by 2025 for corporate bonds, real estate, and listed equities. One year later, the alliance is setting out to reduce absolute emissions of portfolios by between 49 and 65 percent by 2030.

Companies Feeling the Heat

Climate Lawsuit Against Major Oil Companies Moves Past Appeals Court

federal appeals court in Virginia heard a landmark case Tuesday that seeks to hold major fossil fuel companies accountable for their role in climate change. Cases about consumer protection, including landmark lawsuits involving alleged corporate misinformation campaigns by tobacco companies, have historically been tried in state court. The case was brought by the city of Baltimore against some of the biggest oil and gas companies in the world, and it hinges on alleged disinformation by the corporations. The Baltimore city government argues that the companies must help pay for the costs of climate change, because they misled the public about how their products contribute to global warming.

Featured Article: What to Know About State Street CEO’s Letter

CEO of State Street, Cyrus Taraporevala, recently published his annual Proxy Voting Agenda Letter, which serves as a sneak preview of State Street’s 2022 Proxy Voting Guidelines. The letter is intended for Boards of Directors and highlights State Street’s commitment to investment stewardship, which the firm views as a key part of its fiduciary duty to clients. The article features the most important takeaways, including setting climate goals, board diversity, and more. Click here to read how State Street’s new priorities may impact you.

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