Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
A record number of environmental and social investor proposals were filed this annual-general-meeting season – both in absolute numbers and those making it to a vote. By May 16, according to data compiled by the Washington, D.C.-based Sustainable Investments Institute, investors had filed about 600 such proposals – about 100 more than in last year’s pivotal season. The number of proposals “tightly focused” on climate change alone rose to 113 from 85 in 2021 and 68 in 2020, according to the institute. Six of 17 shareholder proposals that won a majority vote (so far) are tied to racial justice. And issues directly tied to workers like safety were on 65 ballots going into the season, Proxy Preview found.
- Teneo Takeaway: The record number of E&S proposals submitted is likely due to the more favorable E&S shareholder proposal results in 2021 as well as the SEC’s No-Action process encouraging more proposals to go to a vote. However, large asset managers like BlackRock have signaled that they are not willing to support proposals that are overly prescriptive on companies.
Sustainability-focused hedge fund Engine No. 1 has supported 83% of shareholder resolutions on ESG topics at top U.S. companies this year, seeking to arm investors with more information. Compared with 2021, when it became known for pushing boards to name directors with strong climate credentials, this year Engine No. 1 has shied away from that emphasis to back data transparency and technology initiatives that it says will help its holdings tackle climate change.
- Teneo Takeaway: The hedge fund supported ESG proposals at a much higher rate than most of the large asset managers – clearly aligning with their stated strategy and purpose of their fund – though Engine No. 1 has not launched a proxy campaign since its successful contest at Exxon Mobil in 2021.
BlackRock said that clients representing 25%, or about $530 billion, of its $2.3 trillion in eligible index equity assets have agreed to take part in BlackRock Voting Choice, a proprietary offering to enable more institutional clients to participate in voting decisions where legally and operationally viable. In June, the asset manager will expand the institutional pooled fund ranges eligible for the program in the U.K and is also expanding Voting Choice to Canadian and Irish institutional pooled funds.
- Teneo Takeaway: BlackRock continues its push to provide clients with the option to vote proxies pursuant to either their own views, or pursuant to the proxy policies of a third party such as ISS or Glass Lewis. While BlackRock did not provide a breakdown of how many clients selected the latter option, its move may end up giving more power to proxy advisory firms if clients frequently choose to vote with their recommendations.
In a landmark agreement, EU lawmakers mandated that starting in 2026 companies operating in the EU must have at least 40% of the “underrepresented sex” among non-executive directors. The policy also requires that at least a third of companies’ senior roles be filled by women. Originally proposed in 2012, the landmark deal was reached after key members states dropped their objections, having initially preferred a national approach to promote gender equity in corporate leadership.
- Teneo Takeaway: Regulatory bodies around the world continue to push corporate diversity. Unlike this example from the EU, rules around disclosure are more common than mandating quotas. Japan is the next country expected to require that large companies disclose the wage gap between genders.
French President Emmanuel Macron and Michael Bloomberg, UN Special Envoy for Climate Ambition and Solutions, announced a new Climate Data Steering Committee that will create and design an open-data public platform to collect, aggregate, and standardize net-zero climate transition data based on private sector climate commitments. The Steering Committee will include members from global organizations like the United Nations, OECD, Financial Stability Board, and International Monetary Fund; government representatives from developed and developing countries; and data service providers. The committee will also work with leading nonprofit climate data organizations.
- Teneo Takeaway: The Climate Data Steering Committee committed to deliver a collective design and roadmap at the UN General Assembly this upcoming September for an open climate data platform that will consolidate, standardize, and open net-zero data by COP27. This marks another global effort for data standardization to help companies understand their climate risks accurately, compile reporting, and stick to net-zero commitments.
They Said It: ESG Influencers Speak Out
In the FT, Barbados Prime Minister Mia Mottley proposed a new financial architecture that can help the world better respond to climate change: “G7 countries should set the market convention by adopting Barbados-style natural disaster clauses in all of their government bonds … we need a new and separate balance sheet on which the costs of addressing external problems sit, instead of on the balance sheets of the most vulnerable countries. This global balance sheet could be funded through the issuance of new climate instruments where part of the return is a verifiable amount of greenhouse gases reduced or removed, or measurable climate adaptation achieved.”
Looking Ahead: Upcoming ESG Events
- ESG Performance Metrics in Incentive Plans, The Conference Board (New York) – 30 June
- Global Energy Independence Day, 10 July