Teneo US ESG Overview 10.6.22

Our bi-weekly spotlight explores key ESG-related market developments and their implications for companies and investors.

Teneos’ ESG and governance teams have published a summary of the state of sustainability reporting in the United States, providing information and examples to help companies decide what to disclose and how. In total, our team analyzed 200 sustainability reports of S&P 500 companies published from January 1 to June 30, 2022. In short, we consider it imperative that companies remain strongly focused on the most crucial ESG topics. for their activities and their stakeholders. Major investors continue to firmly believe that specific ESG factors can have a significant impact on a company’s long-term financial health. During our annual proxy review, we found that anti-ESG shareholder proposals continued to have weak support below 3% on average, with most failing to meet the 5% threshold for resubmission .

ESG in the news

The world’s largest asset manager, BlackRock, faces sustained pressure on ESG issues from across the political spectrum. The company had replied to criticism from attorneys general in 19 conservative states that he continues to invest in fossil fuels and does not ask companies to set specific emissions targets. In response, New York City Comptroller Brad Lander sent a letter to BlackRock CEO Larry Fink, who is increasingly worried about BlackRock backtracking on its climate commitments. Mr. Lander urged BlackRock to resolve the contradictions between its climate commitments and its investment actions by taking specific actions that would signal to investors that BlackRock takes the long-term implications of climate change seriously.

• Teneo Takeaway: BlackRock and other major institutional investors find themselves in the middle of a political maelstrom as the midterm elections approach. In the end, the opinions of the asset managers’ clients are likely to prevail.

BlackRock hashiringa new chief financial officer and several new vice presidents in a reshuffle to focus on outreach and sustainability after coming under fire for his approach to environmental, social and governance investments. In 2023, Martin Small will replace current chief financial officer Gary Shedlin, who will become vice president. Larry Fink and President Rob Kapito wrote in a memo that Mark McCombe, who manages relations with Texas state officials regarding ESG, will focus full-time on broader engagement…with a wider range of stakeholders. Jessica Tan, formerly head of corporate strategy, will take over BlackRocks’ sustainable investing unit, now renamed Sustainable and Transition Solutions. Mark Wiedman, known as a possible successor to Fink, will become head of the United States and Canada and head of a new global client business.

• Teneo Takeaway: ESG investing suffers from a perceived lack of clarity. Greater transparency from asset managers about what “ESG” means to them could be a potential benefit for this debate in the political and economic environment.

The Florida State Board of Administration’s $228 billion pension fundvotein favor of 42.3% of social-related shareholder resolutions and 29.4% of environmental-related shareholder resolutions during the fiscal year ended June 30, according to a September report included with the documents for its investment advisory board. The SBA, which oversees $180 billion in Florida Retirement System assets, backed 50.1% of all shareholder resolutions at Russell 3000 companies, according to information from Michael McCauley, head of investment programs and the governance. Florida Governor Ron DeSantis, one of three SBA trustees, along with the state’s Chief Financial Officer and Attorney General, has campaigned intensively against ESG; the Board of Directors passed a resolution on August 23 that all decisions related to the management of Florida Retirement System investments will not include ESG considerations. Board support for ESG-related shareholder resolutions decreased by 46.5% for environmental resolutions, 43% for social resolutions and 15.4% for governance-related resolutions compared to compared to the previous year.

• Teneo Takeaway: Data indicates that pension plans in states like Florida, which have historically been strong supporters of ESG shareholder proposals, may need to rethink their proxy policies for 2023 to better align with initiatives regulations in their state.

The Global Benchmarking Alliance announcement the creation of The Collective Impact Coalition, the first multi-stakeholder coalition on ethical artificial intelligence. The coalition aims to raise awareness of the importance of responsible and ethical AI, increase understanding of leading best practices, and improve business commitment to ethical AI. The coalition already has 39 supporting members, representing $6.3 trillion in assets under management. In 2021, the WBA conducted a comparative analysis of 150 of the most influential tech companies, only 20 had publicly committed to following ethical AI principles.

• Teneo to go: In the coming months, the coalition’s financial institutions will engage with technology companies in their respective portfolios to highlight that the lack of transparency and commitment to ethical AI is a major concern for investors.

Institutional Shareholder Services ESG, the responsible investment arm of ISS, spear its Biodiversity Impact Assessment Tool to support investors seeking to align with rapidly evolving voluntary and statutory biodiversity frameworks around the world, and to help investors measure the impact of their biodiversity investment portfolios. Developed by a team of biodiversity and modeling experts in partnership with environmental sustainability consultancy Quantis, ISS ESG’s biodiversity impact assessment tool is based on a bottom-up assessment of activities a company’s business and supply chain to demonstrate the impact of operations on biodiversity. The new tool aims to help companies navigate the various biodiversity-related transparency and regulatory frameworks around the world.

• Teneo Takeaway: Biodiversity is rapidly moving up the list of priorities for some investors. The new ISS ESG tool will help investors meet looming and evolving biodiversity reporting requirements.

They said it: ESG influencers speak out

Sren Skou, CEO of Danish shipping company AP Mller-Maersk, wrote a FinancialTimesopinion piece on Americas strengthened its ESG leadership following the passage of the Inflation Reduction Act: with the IRA, Americans placed themselves at the forefront of the race to become the world leader in the production of green energy and gave the transition to renewable energy a much-needed boost. For years, Europe has liked to think of itself as the world leader in the fight against climate change. But the US is now in the driver’s seat The US government has sent a clear signal by committing to partnering with companies willing to invest in a green future. Europe, China, the Middle East, India and others are expected to follow suit with their own ambitious investment plans.

Looking Ahead: Upcoming ESG Events

• Las Vegas Innovation Summit, Schneider-Electric (Las Vegas, Nevada) October 12-13
• WSJ Pro Sustainable Business Forum, The Wall Street Journal (Virtual) October 13
• VERGE 22: The Climate Tech event, GreenBiz (San Jose, CA) October 25-27
• The ESG and Sustainable Development Deals Forum, IMN (New York, NY) November 2
• Fortune Impact Initiative, Fortune (Atlanta, Georgia) November 29-30