Tying Executive Pay to KPIs & BlackRock Sets Disclosure Expectations (Newsletter 2/19)

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Investor Updates

The Details on Transitioning to a Lower-Carbon Economy

BlackRock published a report with more details for companies and expectations regarding climate risks after the initial Larry Fink letter left many companies scrambling for more answers on how to achieve net zero GHG emissions by 2050. Directives include:

  1. Begin making internal process and policy shifts that will position the company for a lower-carbon economy, and be ready communicate the company’s risks associated with the transition.
  2. Report Scope 1 and Scope 2 emissions now, and if your company is in a high emitting industry, add Scope 3 to that list.
  3. Don’t rely on buying carbon offsets as a long-term strategy.
  4. And, share near-, mid-, and long-term targets to achieve net zero emissions and the operating plans that support these.

The report concluding with a thinly veiled threat to support climate-related shareholder proposals to ensure companies tow the line.

If an $8 trillion AUM isn’t enough to encourage net zero emissions targets, this week Bill Gates shared his plans for achieving net zero emissions, while promoting the release of his new book, How to Avoid a Climate Disaster. He went as far to divest just about all oil and gas companies from his direct holdings and the Gates Foundation’s endowments, which has taken years to do. While he gives a pat on the back to anyone buying carbon offsets, something he personally does, he too emphasized the action is a near-term band-aid and not a solution that will get the world to net zero emissions by mid-century.

Sustainable Funds

T. Rowe Price launched its first sustainability-themed investment fund, The Global Impact Equity Fund (TPGEX), that targets companies that contribute to one of the strategy’s “impact pillars” – climate and resources, social and quality of life, and sustainable innovation and technology. It is a growth oriented fund, all cap focused on companies that can benefit from new business models, regulatory changes, product, service or manufacturing innovations. Maria Elena Drew, the firm’s Director of Responsible Investing, is on the fund’s Investment Committee – which also includes growth managers, Harishankar Balkrishna, Scott Berg, Richard N. Clattenburg, Ryan S. Hedrick, Eric C. Moffett, Tobias F. Mueller, Jason Nogueira, and Melanie A. Rizzo.

People Moves

  • Wilmington Trust promotes Steve Norcini to Head of Sustainable Investing, a new position at the firm.
  • Vanguard appoints first Head of ESG Strategy for Europe and the UK, Fong Yee Chan, while JPMorgan hires politician Chuka Umunna to oversee European ESG efforts.

Company Spotlights

Tying Executive Pay to ESG

Apple stated in its proxy filing that it will modify executive cash bonus payouts by up to 10% based on if the executives act in line with the company’s environmental and social values in 2021. Last July, Apple disclosed a 2030 target to remove all carbon emissions from the entire business, extending to its supply chain.  

Similarly, McDonald’s is tying 15% of executive bonuses to meeting diversity and inclusion targets throughout the company. The fast-food chain disclosed EEO-1 worker demographics and expressed serious goals. It plans to have 35% of U.S. senior management from underrepresented groups by 2025 and 50% women in senior roles worldwide, each currently at 29% and 37% respectively.

Barron’s Top 100 Sustainable Companies 2020

Barron’s released it’s list of top 100 sustainable companies for 2021, provided by Calvert Research & Management, now part of Eaton Vance. Only half of the top 10 performers in 2020 remained in the top 10 for 2021, with new entrants including Ecolab (#3), Robert Half International (#7), V.F. Corp (#8), Verizon Communications (#9), and ON Semiconductor (#10). On the other hand, the companies that dropped out of the top 10 are Texas Instruments (#46), HP (#45), Cisco Systems (#31), W.W. Grainger (#28), and Avnet (#33). Below are additional highlights from the list –  

  • Containers & Packaging – all dropped from 2020 rankings
    • Ball Corp (#21, previously #16)
    • Avery Dennison (#32, previously #20)
    • AptarGroup (#76, previously #48)
    • Sonoco Products (#91, previously #64)
  • Newly added this year
    • Eastman Chemicals (#27)
    • Lowe’s (#58)
    • Waste Management (#62)
    • New York Times (#79)
    • Woodward (#95)
    • Etsy (#98)
  • Big Movers from last year
    • Xylem (#17, previously #61)
    • Eversource Energy (#42, previously #94)
    • Oshkosk (#85, previously #37)
    • Adobe (#65, previously #25)

This year, company responses to COVID-19 were included in the research, which spans to 230 performance indicators and evaluates the largest 1,000 companies by market value. The article calls out room for improvement when it comes to diversity. In the top 10, only one CEO is female, Best Buy (#1), and two additional females are in the top 20, Clorox (#11) and Williams-Sonoma (#16). And, in the top 20 all CEOs are Caucasian.

Disclosing Mid- and Long-Term Targets

In a press release, Kimco Reality shared a factsheet containing the company’s 5-year, 10-year, and 30-year ESG goals. The release outlines the company’s KPI’s towards aligning with Paris reduction targets, improving diversity of employees in management, providing employee development programs, and setting satisfaction rate goals for employees and tenants.

Ratings & Frameworks

Free ESG Scores

S&P Global announced free access to S&P Global ESG Scores for over 9,000 companies – joining peers, MSCI and Sustainalytics. The top 10% to 20% highest scoring companies are selected for the Dow Jones Sustainability Indices. Scores range from 0 (worst) to 100 (best) and are based off of over 1,000 data points comprised of a variety of criteria including E, S, and G scores, peer comparisons, performance changes, and material ESG criteria by industry. Find your score here.

Back in late 2019, S&P Global acquired the ESG Ratings Business from RobecoSAM, including the SAM Corporate Sustainability Assessments (CSA), reinventing S&P Global’s ESG scoring system.

News Bites