ESG on Capitol Hill
Members of the House Oversight Committee held the first of a series of hearings on ESG on Wednesday, which put the attorneys general for Utah and Alabama and the Illinois state treasurer under the spotlight.
Questions from both sides were mainly directed at their own witnesses and boiled down to “Don’t you agree that ESG is [good and sensible/the work of the devil]”, with digressions into the biblical origins of fiduciary duty and the Indo-European roots of the word “woke”.
Studies showing outperformance and underperformance for ESG funds were also trotted out.
Both sides claimed a win. SFOF CEO Derek Kreifels described the hearing as “a major step in the fight against ESG”. Meanwhile, a pro-ESG observer dismissed the Republican case as “political grandstanding”, contrasting it with Democrats’ presentation of “factual information about ESG considerations in investments”.
Perhaps the most useful takeaway from the four-hour session was insight into the points that both parties are looking to emphasise going forward.
Democrat members of the committee got in a number of jabs about Republican opposition to the free market, and much was made of ESG failings at companies involved in the opioid crisis and various oil and chemical spills.
Meanwhile, Republicans emphasised reliance on China for rare earth metals and solar panel manufacturing as well as energy supply stability and independence.
More hearings are planned, but topics and witnesses are as yet unclear.
The week in RI
Climate lobbying is moving rapidly up the agenda for asset owners – but are asset managers stepping up? A survey of members of the Net Zero Asset Managers initiative by Paul Verney suggests many still have work to do to meet expectations.
Asset owners also continue to lead the charge in using their votes to hold oil and gas producers to account. With AGM season in full swing, investors lined up to express their frustration with energy giants including Woodside, Shell and ExxonMobil.
In more positive news, Climate Engagement Canada published a net-zero benchmark to help investors in the jurisdiction engage effectively with corporates. And Ecuador completed the world’s largest debt-for-nature conversion, freeing up funds to protect the Galapagos Islands.
Quote of the week
“I’m always surprised when I see the recommendations from proxy voting advisers, because they are not strong enough”
If you want something done, do it yourself? Caisse des Dépôts does all its voting work in-house, its head of investment management Joël Prohin said this week
Climate, cake and accountability
This week saw a cake thrown at Volkswagen’s annual meeting – an embarrassing lapse in the airport-style security that increasingly seems to be a feature at high-profile AGMs.
It was not the first stunt co-ordinated by climate activists this proxy season, nor was it the most creative.
Re-worked Spice Girls songs were sung by protesters at Barclays’ AGM last week, while those disrupting HSBC’s event a few days later opted for re-purposed renditions of ‘YMCA’ and The Specials’ classic ‘Rudy’.
The repeated interruptions at HSBC annoyed more than just the banking giant’s chair. Representatives of the Midland Clawback Committee, keen to raise concerns about policies they said could slash their pensions by as much 30 percent and disproportionately impact women, were clearly frustrated. Shouts of “you’ve had your turn” were heard.
Climate activists are obviously on the right side of history – but they should perhaps remember that there are others who want or need to hold companies to account, and AGMs are a once-a-year opportunity to do so.
There is also a danger that their actions could give companies the excuse they’re looking for to go fully virtual. The cake at VW was thrown at 80-year-old director Wolfgang Porsche. Disruption at AGMs is nothing new, but the technology to avoid it is – and covid has shown that it works.
If protests escalate, could safety be used as an excuse to ditch in-person events? The AGM is one of the few thin threads of corporate accountability. To see it curtailed would be a loss to shareholders.
India’s ESG wheel in motion
There are seismic changes afoot on the ESG and climate front in India. In the space of a month, regulators have drafted and approved a flurry of measures to make sure that Indian companies start getting a look in with ESG investors.
There is a sense that investors don’t trust local ESG disclosures, so the plan is to make firms start auditing their sustainability reports and create India-specific ESG ratings built on these disclosures.
The kicker is that local ESG funds will have to invest at least 65 percent of assets in firms with verified ESG reports.
It’s too early to tell whether this will have the desired effect on investment flows, but expect to see a lot more business for ESG ratings firms, auditors (and maybe some big market moves).
At the same time, bombshell early reports suggest India could stop building new coal plants. Tim Buckley, a well-known energy and finance analyst, tells RI that ongoing renewable and nuclear capacity additions mean that clean(er) energy will still be sufficient to support the strong GDP growth India is expected to deliver in the next few years.
The move could see India delivering on its (admittedly conservative) climate targets a decade earlier, Buckley adds.
Meanwhile, an adviser to PM Narendra Modi vowed to reclaim ESG from “exclusively Western agencies”. The last step is for India to finally put out its long-awaited taxonomy so we can see what ESG “on its own terms” will look like.
It’s almost exactly a month until our flagship event, RI Europe – and, if we do say so ourselves, we’ve got a great agenda and a fantastic speaker line-up.
Recent additions to the speaker roster include:
– Joanne Kellermann, chair, PFZW
– Morten Nilsson, CEO, Brightwell
– Kelly Christodoulou, senior ESG adviser, AustralianSuper
– Georgia Stewart, CEO, Tumelo
If you haven’t already booked your place, what are you waiting for? Full details are available here. Asset owners qualify for free entry, and we’re also offering discounted rates for NGOs and academics.
Hope to see you in London on 13-14 June!
Today’s letter was prepared by the RI editorial team.