Who Is Responsible for the Accuracy of ESG Data? (Newsletter 2/25/22)

Regulatory News

Auditors Still Not Assuring Majority of ESG Data

According to Reuters, last year, only half of 1,400 companies reviewed by the International Federation of Accountants had their ESG claims verified by an external auditor. This figure raises questions about the reliability of ESG data and the prevalence of greenwashing. The lack of assurance, according to PwC, is due to the variability in ESG disclosures. And EY, one of the largest auditors of ESG data, said the primary responsibility for providing investors with accurate ESG information rests with directors of a company, though auditors play a significant role in holding companies accountable.

Investor Updates

HSBC Commits to 34% Oil & Gas Scope 1,2, & 3 Emissions Cut by 2030

HSBC, Britain’s largest bank, has made a commitment to cut the emissions associated with loans to oil and gas companies by 34% by 2030. The bank has told its top oil and gas clients to make plans to decarbonize by the end of 2022. This includes Scope 1, 2, and 3 emissions, covering all emissions in the value chain. The bank’s recent pledge has drawn scrutiny, however, as its financing restrictions only apply to “on-balance sheet” emissions and still allow HSBC to invest in new oil and gas projects, so long as the total emissions decrease. The bank added that more sector-specific commitments will come in 2023 regarding coal, aluminum, cement, iron, steel, and transportation.

Aviva Stands Behind Climate Disclosures in Proxy Guidelines

Aviva Investors, a UK fund manager with about $357 billion AUM, has produced 2022 proxy voting guidelines, with key ESG updates around sustainability and human rights, among other areas, according to Proxy Insight. Highlights from the 2022 guidelines include:

Will not support the Board Chair or the Sustainability Committee Chair at companies that fail to make sufficient progress in producing investment-relevant climate disclosures, including publication of or commitment to setting science-based targets
May oppose the Board Chair or the Sustainability Committee Chair where Aviva has concerns with company’s biodiversity approach or lack of biodiversity targets and policies
May not support re-election of the Board Chair or the Sustainability Committee Chair if it has concerns about the company’s human rights due diligence approach or failings around fair treatment of employees

Proxy Season Briefing

Rising Opposition to CEO Pay Tied to Excess CEO Pay Increases

Proxy votes against executive pay at S&P 500 companies became more common last year. Among the S&P 500, a record 16 companies had the pay of their CEOs and other top leaders rejected by more than half of investors last year, up from 10 in 2020, and 7 in 2019, according to Reuters. Critics of pay increases have pointed to the pandemic’s negative impact on results and protested any increase in executive compensation while companies are still navigating the crisis. Norwegian Cruise Line more than doubled annual CEO compensation in 2020, despite business falling over the same period. In response, 83% of shareholders voted against the CEO’s pay.

GE’s Compensation Committee Finds Itself in the Hot Seat

After last year’s failed say on pay vote and opposition against several Compensation Committee members, General Electric is under pressure from SOC Investment Group to replace members of its Compensation Committee. The SOC Investment Group, which works with union-sponsored pension funds to hold directors accountable for unethical corporate behavior and exorbitant executive pay, issued a letter to GE’s Governance Committee Chair outlining the group’s concerns. Its three asks are:

Refreshment of the Compensation Committee;
Restoration of the CEO’s original stock price appreciation goals for his new hire performance equity award; and
Support for the group’s shareholder proposal which requests shareholder approval for senior manager pay packages with substantial termination or severance payments

ISS Supports Apple Shareholder Proposal Requesting Greater Transparency on Forced Labor

Proxy advisory firm ISS is urging Apple Inc. shareholders to vote for a resolution demanding greater transparency around supply chain labor standards. The proposal requests that Apple identifies suppliers and sub-suppliers that may be using forced labor, and the actions Apple has taken against such suppliers. The move comes after a third-party human rights watchdog found that some of Apple’s products may be linked to forced labor in Xinjiang, China. According to Apple’s most recent proxy statement, independent third parties audited the company’s suppliers and found no evidence of forced labor. Apple requested to throw out the new proposal, but the SEC declined.

Company Spotlight

Tesla’s New Germany Plant May Lead to Water Stress

Six months ago, Elon Musk laughed off a question suggesting that the new Tesla factory in Germany would deplete too much water from the local supply. Now, it is one of the main reasons that the German Gigafactory is yet to manufacture cars. The Germany location is pivotal for Tesla’s global expansion. In order to supply Europe’s electric vehicle market, which is growing much faster than in the U.S., Tesla needs a base in Europe. Per Bloomberg, the current water supply is sufficient to support the first stage of the factory and the community surrounding it, but once Tesla expands the facility, it will require more water. In Tesla’s 2020 Impact Report, it calls out the risk of water scarcity due to climate change, noting the EV company is actively trying to reduce water usage per vehicle.

More to Know…

Here are the 4 ways companies are disclosing climate risk in the 10-K.

The 3 ESG topics that investors may ask about this year.

The SEC Staff’s climate change reviews are coming to an anticlimactic end.

AllianzGI wants to see pay linked to ESG goals for all companies and strengthens voting rules related to ethnic diversity for companies based in the UK and U.S.

News Bites

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