ESG round-up: Tesla sees strong support for worker rights proposals

The latest developments in sustainable finance: UK investor group 30% Club to expand ethnic minority engagement to FTSE 250; GFANZ calls for feedback on Paris alignment guidelines.

Worker rights proposals at Tesla have drawn substantial support, with one on anti-harassment and discrimination attracting the strongest backing. Forty-six percent of shareholders backed the proposal at the EV maker’s AGM this month, which called on the company to report on efforts to prevent harassment and discrimination against “protected classes of employees”. The proposal was filed by New York State Common Retirement Fund. Proposals on the right for employees to join unions and another on the company’s use of mandatory arbitration attracted 32 percent and 37 percent, respectively. Support for the resolutions is more impressive given that Tesla’s CEO Elon Musk owns around 15 percent of the company’s shares.

UK investor group 30% Club is set to expand its ethnic minority engagement programme to companies in the FTSE 250 following a successful roll-out with FTSE 100 companies which saw an increase in the numbers of ethnic minority directors. The £11.7 trillion group, which includes Aviva Investors, Federated Hermes and LGIM, warned in March that it would vote against directors at companies lagging on representation – but Therese Kieve, head of its racial equity workstream, told Citywire Selector that further escalation had not been necessary. Currently 128 of the FTSE 250 has at least one board member from an ethnic minority background, but there are only 16 CEOs and five chairs.  

GFANZ has opened a consultation on draft guidelines for measuring the alignment of investment, ending and underwriting with the goals of the Paris Agreement. The 140-page document covers benchmarks, emissions metrics and scope, baselines and alignment measurement and metrics, as well as a discussion of portfolio alignment measurement for private equity firms and a series of use cases.

The US muni regulator has released a summary of the comments received in its recent consultation on ESG practices in the market. Respondents identified a lack of ESG standards and uniform practices as one of the main challenges for the market, highlighting gaps in sustainability disclosures and inadequate risk disclosures. In the report, the Municipal Securities Rulemaking Board (MSRB) cited feedback from a “public policy organisation” that many municipal bonds “are labelled as green, sustainable, or ESG based on frameworks that do not include environmental performance standards grounded in climate science or environmental justice performance standards”. Some respondents also raised concerns over the regulatory compliance challenges, with one dealer industry association warning: “We are beginning to see order priority granted to ‘ESG investors’ on some transactions… We believe this trend has the potential to be an even more troublesome enforcement issue than retail order periods. There is no standard definition of ESG investor, and issuer definitions may not be adequate to distinguish among customers.”

New research published by three academics has cast doubt on the idea that negative screening of so-called “sin stocks” has an effect on firms. The research, written by Bob Eccles, Shivaram Rajgopal and Jing Xie, from the University of Oxford, Columbia University and Hong Kong Polytechnic University respectively, found that “institutional ownership and valuations related to sin stocks are not different from those of other stocks after controlling for differences in fundamentals between sin and non-sin stocks”. However, the cost of new debt is higher for companies in these industries and they are subject to more ESG proposals at their AGMs, which are also more frequently passed. The researchers say their findings show “evidence for the oft-stated hypothesis that negative screening hurts sin stocks depends on the design the researcher uses”.

Climate stress tests are more likely to be a “communication tool” which highlights possible risks than “an active policy tool justifying capital changes”, according to the South Africa Reserve Bank. The central bank made the statement in a working paper published this month, titled A climate change modelling framework for financial stress testing in Southern Africa.