RI ESG Briefing, September 18: SEC’s Jackson slams “misguided” efforts to regulate proxy advisors.

The latest ESG developments


The US SIF: The Forum for Sustainable and Responsible Investment has welcomed the introduction of the Climate Risk Disclosure Act of 2018 by Senator Elizabeth Warren. The bill directs the SEC to issue a rule requiring public companies to report information relating to their climate risk exposure. CEO Lisa Woll – noting the lack of regime to allow “true apples-to-apples comparisons” said the bill would “improve reporting on climate risk which will benefit investors and clarify reporting requirements for corporations”.

Environmental lawyers ClientEarth have reported four major UK companies to the Financial Reporting Council (FRC) over failures to address climate change trends and risks in their reports to shareholders. For the first time, the companies’ auditors are also under scrutiny by the charity. The companies include EasyJet, Balfour Beatty, EnQuest and Bodycote. The law firm says that while the companies do acknowledge their greenhouse gas emissions and indicate efforts to reduce them, none of them clearly confront the risks or trends that climate change or the low carbon transition present to their business. “This makes them outliers among their peers and in potential breach of UK reporting laws,” ClientEarth says.

The weak response of reinsurers to combat climate change is allowing the continued expansion of the coal industry, according to a briefing by the Unfriend Coal campaign. This is despite a growing number of major direct insurers, including AXA and Allianz, who have committed to withdrawing cover and investments from coal projects. Swiss Re has the most progressive policies, announcing earlier this year that it will no longer provide cover and invest in companies who generate more than 30% of their revenue from coal. Hannover Re, SCOR and Munich Re have also announced similar commitments although they contain “major limitations and loopholes” according to Unfriend Coal, such as exceptions for existing projects or projects in developing countries.


The Business & Human Rights Resource Centre and International Service for Human Rights have launched guidance for companies on civic freedoms and human rights. “Shared Space Under Pressure: Business Support for Civic Freedoms and Human Rights Defenders—Guidance for Companies” has been written by former Calvert executive Bennett Freeman and others and is available here.

Prince Charles’ British Asian Trust has co-launched an $11m development impact bond focused on education in India. Other organisations involved in the “Quality Education India” development impact bond (DIB) are the Michael & Susan Dell Foundation, UBS Optimus Foundation, Tata Trusts, Comic Relief, the UK government’s Department for International Development, the Mittal Foundation and British Telecom. The DIB focuses on the quality of education through measuring outcomes of improved literacy and numeracy among school children, rather than the number of children in school. DIBs have a similar model to social impact bonds where investors are paid a return if specific measured outcomes are met.h6. Governance

SEC Commissioner Robert Jackson has flagged up his concerns about “misguided and controversial efforts” to regulate proxy advisors. It follows the SEC withdrawing long-standing guidance this month and Jackson made the point that the “law governing investor use of proxy advisors is no different today than it was yesterday”. He went on: “Regulating proxy advisors has long been a top priority for corporate lobbyists, who complain that advisors have too much power. There is, of course, little proof of that proposition, and the empirical work that’s been done in the area makes clear that that claim is vastly overstated.” The SEC is holding a roundtable on the proxy process in November while Glass Lewis’s response to the latest development is available here. Jackson is keynote speaker at RI Americas 2018 on the topic of shareholder rights.

EdenTree has outlined its views on the FAANGs (Facebook, Apple, Amazon, Netflix and Google (Alphabet)), saying it is often asked by clients about them. The UK-based SRI firm said: “At present only Alphabet, the parent of Google, has been approved for investment in the Amity Funds, with Facebook and Apple excluded owing to multiple ethical concerns. Amazon and Netflix have not formally been screened owing to unattractive valuations, however a view is provided here for completion purposes. Other social media stocks such as Twitter would present similar responsible investment challenges and have not been screened.”

Swiss pharma firm Novartis says staff will only get a bonus if they meet or exceed expectations for ethical behaviour. According to a Reuters report citing company executives, employees now get a one, two or three rating on their values and behaviour, where a three denotes “role model”. The system, the report added, dates back to 2016 but has not been widely reported.

Baillie Gifford Senior Partner James Anderson has hit out at the ‘malignant’ influence of short-sellers hoping to gain from the collapse of electronic car firm Tesla. The investment firm holds a 7.8% stake in Tesla and Anderson, who was part of the government sponsored Kay Review and who chaired the working group that set up the UK Investor Forum, made his comments in an interview with Citywire.

Thomson Reuters have announced the top 100 companies according to the 2018 Diversity & Inclusion (D&I) Index. The index measures the relative performance of more than 7,000 companies across the categories of Diversity, Inclusion, People Development and News Controversy. In this year’s top 100, more than half of the companies are new, while 17 companies have remained on the index for two consecutive years.

Scottish pension funds Lothian and Strathclyde reportedly own shares worth more than £110m in US arm dealers linked to alleged war crimes in Yemen. US non-profit Human Rights Watch (HRW) claims that an air strike on a school bus in Yemen by Saudi forces last month used a smart bomb made by General Dynamics and Lockheed Martin, which the Lothian Pension Fund has £24m and £86m invested, respectively. Link