Who’s Talking About Diversity in the Proxy? (Newsletter 8/20)

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Investor Updates

New York State Common Retirement Fund Turns up the Heat on Energy Companies

The New York State Common Retirement Fund, which has AUM of $255 billion, is currently assessing whether 42 oil and gas companies, including Marathon Oil, Hess, and ConocoPhilips, are ready for a low carbon transition. After evaluating the 42 companies, which have over 10% of their revenues originating from crude oil and gas production from shale, the fund may restrict investments, should those companies fail to present viable adaptation plans. These movements by the retirement fund form part of the New York State Comptroller’s Climate Action Plan, which aims to transition the retirement fund’s full portfolio to have net zero GHG emissions by 2040.

Marathon

Proxy Season Findings: Increasing Investor Support for E & S and Greater Issuer Disclosure

EY released a 2021 proxy season study summarizing the notable ESG developments from this season. Key takeaways from the report include:

  • Investors supported environmental and social shareholder proposals in record-breaking numbers. For meetings through June 30, 2021, of environmental and social shareholder proposals that were voted on, 20% earned more than 50% support, compared to 12% of such proposals in 2020 and 3% in 2016.
  • An increased number of companies discussed climate risk and DEI in their proxy statements. Nearly 80% of Fortune 100 companies included climate risk initiatives or commitments in their proxy and almost 90% of Fortune 100 companies disclosed workforce diversity initiatives or commitments related to workforce diversity, as compared to 61% last year.
  • Top E and S topics this season were Diversity, Equity, and Inclusion, climate, and political lobbying.
EY graph

Company Spotlight

Women Now Hold at Least 30% of Board Seats Within the S&P 500

Following investor pressures and regulations pushing for gender diversity across corporate boardrooms, women now hold at least 30% of seats on a majority of S&P 500 boards for the first time, according to Bloomberg. As of July, 251 companies in the index had 30% (or higher) female directors on the board. With the recent passing of the Nasdaq rule requiring increased female, racial, and LGBTQIA representation, corporate boards will continue to diversify.

SM Energy Amps up Its ESG Disclosure Game

SM Energy has released a plethora of new ESG materials addressing climate risk, environmental impacts, human rights, as well as a number of other significant ESG topics. The latest materials include a 2021 SASB Report, ESG Performance Highlights, and CEO letter, which nicely supplement the company’s 2021 CDP Questionnaire and TCFD Report, both published last month. SM Energy’s ESG Performance Highlights breaks up the company’s ESG performance into three separate one-pagers on the E, S, and G topic areas. Among other items, the company highlights its Scope 1 and 2 emissions and Total Recordable Incident Rate (TRIR).

Cologix Publishes Inaugural ESG Report

In its first-ever ESG Report, Cologix, a leading data center company, discloses aligned with SASB’s Software and IT Services Standards. Despite being the company’s first time aligning with SASB, Cologix’s SASB index provides data for several standards that are often avoided by software and IT services companies, including:

  • (1) Number of data breaches, (2) percentage of breaches involving personally identifiable information (PII), (3) number of users affected by these breaks
  • Number of (1) performance issues and (2) service disruptions; (3) total customer downtime

While Cologix is a private company, its alignment with SASB shows the company’s commitment to transparency within its ESG practices. Alignment with ESG frameworks may become a more popular practice for private companies to adopt, especially if going public is in the cards.

PepsiCo Shares Ambitions to Become Net Water Positive

PepsiCo announced its goal to become net water positive by 2030. By treating and reusing water, the food and beverage giant has already saved enormous amounts of water, cutting demand by 50% at one of its global facilities. As part of the pathway, it will improve water-use efficiency at all manufacturing facilities and replenish more water than it uses by putting water back into local high-risk watersheds. Efforts will also include restoring water in aquifers and supporting conservation projects for land to absorb more water. This comes after PepsiCo reported over 28 billion liters of water consumption in 2020, a 3% increase from the previous year.

PepsiCo
Source: PepsiCo

Woodside & BHP Consider Investments in Hydrogen & Ammonia…When Customers Are ‘Ready’

In an interview about the Woodside Petroleum and BHP asset merger, Woodside CEO Meg O’Neill was asked about the company’s new ESG strategy. In her response, O’Neill said the strategy was unchanged as there will be no additional emissions created from the merger, and the increase in financial capital available will allow Woodside to invest more in new energy, such as hydrogen and ammonia. O’Neill remarked that this needs to be a customer-led movement in order for Woodside to invest more in the space. Customers are currently testing new energy uses. For example, in Korea, Woodside is using hydrogen as a fuel source for transportation, in Japan, the company is testing ammonia going into powerplants, and in Tasmania, it is using hydrogen for the domestic market and ammonia for exports.

ESG Ratings & Reporting

ISS & Glass Lewis Welcome Feedback on Voting Policies

Each year ISS collects feedback from institutional shareholders, corporate issuers, corporate directors, and advisors to inform its proxy vote recommendation policies, which are updated in November. This year, ISS has two surveys open, the Benchmark Policy Survey focusing on governance and compensation, and a new Climate Policy Survey covering climate issues. Topics addressed in the surveys include ESG-related metrics tied to executive compensation, third-party racial audits, say-on-climate, poor risk oversight of E & S issues, emission reductions for high-impact companies, and net zero by 2050 emissions goals. The deadline for both surveys is Friday, August 20th at 5:00pm EST.

Glass Lewis is also seeking feedback in a more informal manner, asking market participants to submit comments to guidelinescomments@glasslewis.com, recommending feedback is sent by Tuesday, August 31st to ensure it is considered.

Switzerland Sets Timeline for Climate Change Disclosures

Switzerland announced a timeline for mandated climate disclosures from major companies. The disclosures will encompass both financial risks and impacts of business activities on the environment. The country said rules would apply to financial companies, such as banks and insurers, and public companies with over 500 employees, over 200 million Swiss francs (or $21.9 million) in total assets, or 40 million francs in turnover. A bill is expected to be prepared by the finance ministry mid-2022. 

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