Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
Company Moves: ESG Initiatives in the Corporate World
In Andrew Ross Sorkin’s September 7 DealBook column, followed by an interview on CNBC’s “The Squawk Box,” Teneo Chairwoman Ursula Burns and Teneo Senior Advisor Gabrielle Sulzberger discussed the lack of board diversity among private companies. Burns emphasized recent regulatory moves regarding mandates for board diversity, arguing that “it’s a lot better for the firms, for the industry, to get in front of it before being told exactly what to do and how to do it.” According to new research by the Board Diversity Action Alliance, of 843 private companies backed by the top 18 venture capital and private equity firms that have gone public since 2000, only 49 of 4,700 board seats have been held by Black directors.
- Teneo Takeaway: The interview follows the recent approval by the SEC of the Nasdaq’s Board diversity requirements. Expect institutional shareholders to push boards further along on diversity in 2022.
With cyberattacks hitting several American corporations, T-Mobile became the latest to face backlash from a massive data security breach, which exposed the personal data of over 50 million people. The latest breach comes amidst the Biden Administration’s endeavor to join with leading companies on cybersecurity efforts, with several new initiatives launched at and following a August 25 summit at the White House. In recent weeks, Alphabet, Amazon, IBM, Microsoft, and other corporations announced further investments in data protection, improving the cyber workforce, and programs to collaborate with the government.
- Teneo Takeaway: Data privacy and cybersecurity are considered material ESG issues for companies that collect and store sensitive customer data, from credit card information to social security numbers.
On Labor Day, around 8 million Americans lost unemployment benefits when federal relief expired Monday. Companies have emphasized the ability to provide for their workers, focusing especially on lower-income, minority employees, and people with disabilities during the pandemic. Recently, corporations started to lead several initiatives: Amazon announced it would hire 55,000 people in its CEO’s first major hiring push, Walmart is raising its minimum wage for 550,000 employees, and Fidelity plans to hire nearly 10,000 new employees. These developments come as unemployment amongst Black Americans has risen to nearly 9 percent, according to the latest jobs report.
- Teneo Takeaway: Coverage of last week’s disappointing jobs report focused on two distinct themes: uncertainty around what rising Delta case numbers means for opening the economy, and optimism that the expiration of expanded federal unemployment benefits may soon result in more rapid job growth. According to a recent study, a 10 percent increase in unemployment benefits caused a 3.6 percent decline in job applications from March-July 2020, when fewer jobs were available than today. The most recent Job Openings and Labor Turnover Survey report highlighted 10.9 million job openings. As business leaders confront the ongoing uncertainty, executives must continue to communicate and share information to reassure their teams. Additionally, with women and minorities among the hardest-hit in the pandemic era, it is imperative that companies continue to engage and understand these communities to retain talent at this critical time.
ESG Investing: Updates on Investors, ESG Ratings, ESG Rankings and ESG Investment Funds
In an interview with the Financial Times, MSCI CEO Henry Fernandez discussed growth and profitability in the firm’s climate and ESG product lines. Notably, he argues government regulation of ESG ratings is “inappropriate,” arguing regulators should focus on disclosure standards.
- Teneo Takeaway: MSCI’s latest offerings focus on climate risks and climate accounting, which continue to be priorities for investors interested in incorporating environmental issues into their analysis. However, as with its other tools, the methodology behind MSCI’s newer products remains opaque. Expect further debate on the issue in the U.S. as Europe continues to press for ESG rating regulation.
With regulatory scrutiny of asset managers’ ESG funds increasing, Deutsche Bank’s DWS Group is the latest subject in regulators’ responses to greenwashing. In late August, German and U.S. regulators each announced investigations into DWS Group’s sustainable investing and ESG asset claims. The investigation follows the March dismissal of the former DWS global head of sustainability, Desiree Fixler, who claims her release was a result of her vocal objections to DWS’ annual March report –– including how many assets DWS classified as ESG-integrated. The SEC investigation into DWS comes alongside Chair Gensler’s directive to review and consider recommendations for ESG funds’ data, human capital and board diversity disclosure requirements.
- Teneo Takeaway: If institutional investors are going to be required to enhance their focus on ESG, that in turn will result in increased pressure on companies as investors advocate for even more focus on and disclosure of ESG issues.
They Said It: ESG Influencers Speak Out
In Gary Gensler’s speech to the European Parliament Committee on Economic and Monetary Affairs, he said: “Today, investors in our markets increasingly want to understand the climate risks, workforces, and cybersecurity risks of the companies whose stock they own or might buy. Thus, I have asked SEC staff to develop a proposal for climate risk disclosure requirements for the Commission’s consideration … and to pursue similar disclosure requirements with respect to human capital and board diversity … and cybersecurity risk governance, which could address issues such as cyber hygiene and incident reporting.”
Looking Ahead: Upcoming ESG Events & Happenings
- PRI, PRI in Person (Tokyo, Japan) – 14-16 September
- Climate Group, Climate Week NYC (New York) – 20-26 September
- The Economist, Future of Energy Week (Virtual) – 4-7 October
- CSR Europe, The European SDG Summit 2021 (Virtual) – 11-14 October
- United Nations, UN Biodiversity Conference (Kunming, China) – 11 October
- United Nations, UN COP26 (Glasgow, UK) – 1-12 November
- Global Reporting Initiative, GRI Summit (Virtual) – 18 November