Vanguard to Vote on E&S Shareholder Proposals (Newsletter 4/30)

Investor Updates

Vanguard Targets Diversity in New Proxy Voting Guidelines

Vanguard may now vote against the election/reelection of directors “if a company’s board is making insufficient progress in its diversity composition and/or in addressing its board diversity-related disclosures.” By progress, the institution does not mean solely a certain percentage of women or ethnically diverse members at the board, but also considers industry expectations and the disclosures and goals provided by the company. The new batch of updates also include the following:

Environmental & Social Oversight Failures: In line with the new factor described above, Vanguard may vote against directors if they identify a lack of board oversight on E&S topics.
Support for Environmental & Social Shareholder Proposals: Vanguard is now openly supporting resolutions seeking more disclosure on climate-related risks and strategies, workforce diversity data, and corporate political activity.

As a common top shareholder of companies in major indices, these changes may impact a large number of U.S. companies (Proxy Insight).

Norges Bank Updates Proxy Voting Guidelines

Norges Bank Investment Management updated its 2021 proxy voting guidelines. The new policy says at large- and mid-cap companies in developed markets, it will not support the re-election of the chair of the nominating committee if the Board does not include at least two members of each gender, a stricter measure than in the previous policy which mandated Board representation from each gender. The institution also added it will not support the reelection of a director, or the entire board, if the company has experienced material failures in oversight, management, or disclosure of sustainability risks.

Proxy Season Briefing

Trend – Racial Audit Proposals Are Not Gaining Meaningful Support from Shareholders

Abbott’s Racial Justice Proposal Garners 40% Support

As You Sow, a shareholder of Abbott Laboratories, was not quite able to garner enough support for a proposal requesting a racial audit at the company, but it certainly got close. The proposal called for the company to close the gap against peers in DEI disclosures including sufficient data on recruiting, hiring, retention, and promoting people of color. A similar proposal at Bank of America failed as well (Proxy Insight).

Only 57% of J&J Shareholders Vote in Favor of Exec Pay

Johnson & Johnson executives received a pay increase, but not without some backlash. ISS and Glass Lewis recommended shareholders vote against pay, and the Office of the Illinois State Treasurer asked other shareholders to vote against the proposal. While non-binding, the low level of support for the proposal does not reinforce the company’s decision. Additionally, a shareholder proposal requesting Johnson & Johnson to conduct a racial equity audit did not pass at the annual meeting (Proxy Insight).

Intel Shareholders Seek Disclosures on Median Pay Gap

Investors at Intel are asking the company for two reports, one on median pay gap by gender and race, and the second on policies and “unwritten” norms possibly promoting a racist culture. The board says shareholders should reject both as the issues are already being addressed, based on the response of an Intel spokeswoman.

Glass Lewis Backs Shell

Shell developed an energy transition plan that will transition the oil and gas company to net zero by 2050 with the actions of reducing oil output, boosting renewable energy and low-carbon fuels, and creating carbon offsets from carbon capture projects. Glass Lewis recommended shareholders vote in support of the plan, and against activist Follow This’ proposal for stricter emission reduction targets.

Company Spotlight

S&P Dow Jones Indices Rebalances S&P 500 ESG Index

S&P Dow Jones Indices announced an April 2021 rebalance of the S&P 500 ESG Index. New constituents include Albemarle, CarMax, Dow, Etsy, Tesla, Walmart, and TransDigm Group, among others. Notable removals were Costco, Facebook, L Brands, and Wells Fargo. According to S&P Global, constituents for indices are selected using S&P DJI ESG Scores, derived from annual Corporate Sustainability Assessments (CSA).

Impactful, Mini Sustainability Report

Weis Markets delivered a well-designed and punchy CSR, starting to touch on a couple of the material topics the company is exposed to, based on the SASB standards for Food Retailers & Distributors. The small-cap company surpassed its 20% emission reduction target for scope 1 and 2 emissions, reducing emissions by over 27% from 2008 levels, breaking down the improvements from electricity, fuel, and fugitive refrigerants in a clean chart. The data was externally verified in accordance with ISO 14064. Data around food waste and landfill diversion metrics are given from both 2019 and 2020. Finally, Weis Markets shares total trucks in its fleet and the percentage meeting higher efficiency standards. While there are still several topics and metrics to include, the food retailer is positioned well for future disclosures.

Ratings & Frameworks

U.S. Companies Increase Sustainability Scores

With ESG in the limelight, Refinitiv noted a lift in sustainability scores. Refinitiv scores companies on a scale of 0 to 100, with 100 being the best score. Average ESG scores for U.S. companies rose by 1.4 points from 2019 to 2020. The article notes the consumer discretionary, industrials, and technology industries had the most ESG disclosures, while the mining industry had the least. A senior ESG analyst at Aberdeen Investments mentioned since the beginning of the year, multiple U.S. companies have reached out for guidance on what to include in their sustainability reports (Reuters).

Featured Article

GCs Hold the Keys to ESG Strategy

In Clermont Partners’ article, the ESG & IR consulting firm calls out the General Counsel’s pivotal role in ESG. In so many ways, GCs are at the heart of a company’s ESG communications. They manage up to board directors, who have a right to be concerned about their oversight responsibilities and their potential personal liability for ESG claims the company makes. And it is usually the GC who ultimately gives the yea or nay to the HR, operations, and communications personnel as to what they can and cannot say in ESG statements. The GCs who take a proactive stance and who commit to the importance of ESG can play an instrumental role in helping their companies share a compelling, transparent, and legally-sound ESG narrative.

Here are four ways GCs can support effective ESG disclosure.

Push through changes to Board Committee charters to address key ESG issues. As specific ESG issues like board oversight, cybersecurity, and board diversity commitments gain new steam, GCs can help ensure the company’s policies in these areas are clearly reflected in the corporate charter.
Upgrade proxy disclosures. Now is the time for GCs to encourage a greater level of transparency and detail in the proxy statement. With COVID-19 continuing to impact businesses (specifically those with more European based operations), using the CD&A to provide robust, thoughtful discussion around the pandemic and its ongoing implications for compensation plans remains imperative. At the same time, counselors can help companies stay in front of forthcoming mandates by starting conversations around how to incorporate specific and measurable environmental and social KPIs into a long-term compensation strategy.
Align 10-K and ESG reporting. If you do use a Materiality Assessment in your ESG report, be very clear on what you mean by materiality. According to securities laws and regulations, companies are prohibited from omitting material information from the 10-K and 10-Q. If your company’s ESG Materiality Assessment seeks to report something other than materiality as defined by the SEC, clarify what you mean (e.g., an assessment of key stakeholder perceptions on materiality). Internal definitions and external reporting on ESG and materiality should always align.
Push for off-season engagement. ESG needs to be a priority even when it is not proxy season. First and foremost, the GC can help keep issues front and center by staying current on ESG news, topics, and mandates. Tools like ESG Infinite give counselors a one-stop shop for the latest ESG updates and resources. Counselors can also play a role in understanding industry materiality reporting and the specific ESG factors that are most critical to their companies. And they can encourage board members and executives to follow suit.

Continue reading the full article here.

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