In the Loop: Standards, shareholder proposal overload, and cage fights

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Double standards

Next week we’re expecting announcements on two major, long-awaited and global efforts on industry standards.

After much discussion, including more than 1,300 comment letters, the International Sustainability Standards Board (ISSB) is preparing to publish its first standards next week – a landmark moment in the world of corporate reporting.

The ISSB was launched in 2021 by the IFRS Foundation with the aim of creating a global baseline for corporate sustainability standards. Next week sees the publication of the body’s general (IFRS S1) and climate-related (IFRS S2) disclosure drafts, which were signed off by the ISSB board in February.

Also next week, the Voluntary Carbon Markets Integrity Initiative (VCMI) is due to finalise an integrity code on the credible use of voluntary carbon credits by corporate buyers.

The code aims to establish industry standards on the type of emissions that companies will be allowed to offset, and follows a provisional code that was released for market feedback last year.

As always, we’re keen to hear your views on these major developments. Will they meet expectations? What are the implications for investors? Send your thoughts our way here.

The week in RI

This week the EU’s standard setter, EFRAG, launched a call for candidates for three advisory bodies to opine on the development and maintenance of sustainability reporting standards for the financial sector, as part of the EU’s wider European Sustainability Reporting Standards.

In other regulatory news, RI reported this week that the UK’s financial reporting regulator, the FRC, is to lose its head of stewardship, Claudia Chapman, just months ahead of the government’s planned review of the regulatory framework for stewardship.

Also this week, it emerged that big US public pension funds are split on the climate proposal calling for Japanese banking giant Mizuho Financial Group to issue and disclose a transition plan to align its lending and investments with the Paris Agreement.

Finally, our bonds expert Dominic Webb took stock of the social bonds market and whether it can bounce back from its post-covid slump.

Quote of the week

“ESG has broken everyone’s brains. The EU thinks it can solve the climate crisis through enforced fund disclosure and the US right thinks it’s an Illuminati plot to impoverish Americans and make them eat bugs”

Financial regulation expert and prolific tweeter Sean Tuffy responds to reports that House Financial Services Republicans have dubbed July ‘ESG month’

Shareholder proposal overload?

“At what point will there be shareholder proposal overload…?” asked Republican commissioner Mark Uyeda this week. Given his political persuasion the question is not surprising, but it is interesting.

The last two proxy seasons have seen an explosion in the number of ESG-related shareholder resolutions, facilitated by a much more supportive environment at the SEC for them since President Biden took office.

Amazon alone faced 18 ESG-themed resolutions this proxy season.

Yet while filing is up, support is down. The commissioner also reported that average backing for environmental and social proposals dropped from 37 percent in 2021 to 20 percent in 2023. Moreover, only 3 percent achieved majority support this year compared to 23 percent in 2021.

The biggest US asset managers’ wariness of them is no secret and the anti-ESG backlash is doing support levels no favour either.

Earlier this year, T Rowe Price said that in 2022 the increase in the volume of proposals “resulted in a decrease in their overall quality”.

But could the sheer number of proposals itself be an issue, dividing support and giving stewardship teams an increasingly demanding workload over a relatively short period?

Would fewer, better-supported proposals drive more change? Is there room for more collaboration on proposals? Or should we simply disregard Uyeda’s concerns as politically driven antipathy to shareholder rights?

MDBs in the spotlight

Multilateral development banks (MDB) have long faced calls by investors to “take on much higher risks” and make E&S-themed investments in emerging markets more attractive for capital allocation.

A slew of announcements this week suggests these calls have been heeded. UN Secretary-General António Guterres yesterday proposed an annual $500 billion SDG stimulus to strengthen the capital base of MDBs.

At the other end of the spectrum, Barbados announced a new $10 million Blue Green bank, which will include investment guarantees to help reduce the cost of private-sector financing.

On the MDB side, three banks launched an impact investment vehicle for essential health services, in partnership with the World Health Organisation. Earlier, a group of 10 MDBs committed to applying Paris-aligned lending rules to all financing operations and reporting their compliance with the rules.

At the same time, stakeholders continue to ratchet up pressure on MDBs.

Green central bank network the NGFS this week called for “some form of common finance reporting standards” for blended finance transactions, while the PRI said that existing MDB mandates and operating models, such as the World Bank’s, should be revised to align with global challenges.

Out and about

Next week, RI’s Gina Gambetta will be moderating a session at London Climate Action Week on how the industry can accelerate action by increasing the connectivity of climate and nature target-setting, disclosure standards and planning frameworks.

Hosted by High-Level Climate Champions at its ‘The Race is On: Net Zero & Nature Positive for Climate Action’ event, Gina will be joined by TNFD’s Thomas Viegas, Jane Madgwick from the Global Commons Alliance and Mahesh Roy from IIGCC.

Sadly in-person registration is full, but you can still watch virtually.

Musk vs Zuckerberg

The news that Elon Musk and Mark Zuckerberg have agreed to a cage fight left the RI news desk scrambling for an ESG angle. Aside from being a walking, tweeting, governance risk, Musk has repeatedly expressed his upset with the treatment of Tesla by ESG ratings and index providers.

Musk has joined some Republican politicians in referring to ESG as the work of Satan, most recently referring to it as “the devil” in response to an article which mentions Phillip Morris receiving a higher ESG score than Tesla from a provider… who uses a sector-relative assessment method.

Zuckerberg is himself no stranger to a governance concern, with Meta shareholders delivering a sharp rebuke to members of its board over executive pay.

At its 2023 AGM, 41 percent of independent shareholders voted against chair of the compensation, nominating and governance committee Peggy Alford while more than a quarter opposed Zuckerberg himself. This all came to nothing due to Zuckerberg holding a voting majority, even though a majority of independent shareholders supported a resolution calling for one share one vote.

This testosterone-fuelled dispute is as embarrassing as it is funny, and we look forward to seeing two men in the prime of their wealth fight it out in Las Vegas.

Given governance concerns at both Tesla and Meta, perhaps the G in ESG should be changed to Grappling?

Today’s letter was prepared by the RI editorial team