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Subscribe Now:Apple Podcasts/Spotify/Google Podcasts/PlayerFM. Start with VOTE. ", "Super challenging when companies are managing for the bottom line though. See, e.g., Rakhi Kumar, Nathalie Wallace & Carlo Funk (State Street Global Advisors), Into the Mainstream: ESG at the Tipping Point, Harvard Law School Forum on Corporate Governance, Jan. 13 , 2020, https://corpgov.law.harvard.edu/2020/01/13/into-the-mainstream-esg-at-the-tipping-point/. This is not just a young people thing. Perhaps most significantly, there are open questions as to how shareholder activists can reconcile their relatively short-term investment horizons with ESG theses, which characteristically involve long-term value propositions. Because, as our listeners know and as you know, you've been in the industry a while, so much ambiguity, it's alphabet soup when it comes to all the acronyms there. Examples of investors focusing on topics such as climate change, sustainability and the environment include Follow This, a Dutch organization which describes itself as "a group of responsible shareholders in oil and gas companies.". There are passive investors who take positions in companies and hope for change as it relates to their climate and environmental initiatives, and then there are active investors who take big positions in public companies and try to drive change by taking board seats and demanding action. (go back), 8See RBC Global Asset Management, 2020 Responsible Investment Survey Key Findings, at 5, https://www.rbcgam.com/documents/en/other/esg-key-findings.pdf. ", "I've heard you say that ESG investors should be defined by not what they hold, but what they do. "Invest Divest 2021," Pages 2, 13. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions. Investors are 'looking carefully' at climate change: Sancroft's Judy Kuszewski, When it comes to standards related to sustainability, consistency is key, Gas or renewables? ", "Ultimately, the public markets are a team sport for investors. Activists could potentially harm their campaigns if investors perceive that the integration of ESG themes is disingenuous. Investopedia requires writers to use primary sources to support their work. It's unclear why that should generate enduring alpha for years. ", "The last year and a half has really broke that open as such a key issue, but it's a long time coming. Let's try and measure the amount of carbon and company admits the atmosphere, put a social cost of carbon on that, and then put that in the context of the P&L. The reality is that a lot of these proposals are narrowly passing or narrowly losing. [11] The SEC has signaled that it will likely develop additional requirements for ESG-related disclosures of public companies. A whole host of ESG concerns. They're building financial models in Excel. (go back), 10BlackRock, Inc., Climate Risk and the Transition to a Low-Carbon Economy (Feb. 2021), at 4, https://www.blackrock.com/corporate/literature/publication/blk-commentary-climate-risk-and-energy-transition.pdf. Meanwhile, the current direction of the Biden administration indicates that it is becoming a business risk for companies to not have processes in place to monitor and ameliorate disproportionate effects of their carbon footprint on minority communities. That's BlackRock or Vanguard or State Street or us or a pension fund. Recognizing that public companies are variously situated in their approaches to shareholder activism preparedness and ESG policies and disclosures, the following practical guidance is additionally provided for consideration: 1Derek Brower & Anjli Raval, Climate Activists Hail Breakthrough Victories over Exxon and Shell, Financial Times, May 26, 2021, https://www.ft.com/content/fa9946b9-371b-46ff-b127-05849a1de2da. There is evolving discussion around the particular appropriateness of audit committee oversight of particular ESG-related matters, such as the identification of material ESG factors and oversight of disclosures and disclosure controls and procedures. ", "And you know first hand, this is not necessarily generational. I think what we're getting to across the market today, and for sure where Engine No.1 sits, is trying to show that these are the core factors you should be focused on. ", "Yeah. That campaign went all the way through to the annual meeting in the spring of last year and ultimately we were successful in putting three new directors on the board. The average S&P 500 fund, where probably a lot of people who are listening have their money voted against those proposals, mainly because the big trillion dollar asset managers just tend to take a more traditional, deferential approach. Is it better education? "So, it's such a good point on oftentimes, people talk about this escalation path of, 'First you have a friendly meeting with management and then maybe you'll send a public letter.' Successive editions of sustainability reports issued by companies over a course of several years will provide investors with an ability to compare ESG performance of individual companies over time and to compare companies performance. 2020 was a major year in the United States and worldwide for bringing matters of social justice and public health to the foreground of public interest. ", "And so, I think you don't have to make the strong case anymore that focusing on climate is important for investing. ", "And so, one thing I'm starting to see is, especially in the startup community, folks trying to make it easier for retail investors to vote. ", "It's good to have a concept of putting a price on carbon but 'is it credibly done?' And that in many ways has always been a part of the traditional investor toolkit and increasingly being part of the ESG investor impact investor tool kit as well. And part of the argument we were trying to make in our campaign was the assumptions they were using, or what the world is going to look like a year from now, five years from now, 50 years from now, were not just out of step with what we might think or what other folks focused on climate or sustainability might think, they were out of step with their competitors, out of step with industry organizations or government estimates, with academics. Prior to joining Engine No.1, Michael was a founding member of Bain Capital's social-impact fund and an investor focused on consumer, technology, and industrials for the firms private equity funds. 2020 saw a record influx of investor capital in ESG-themed funds, bolstered by the moral prospects of ESG investing in light of the COVID-19 pandemic and positive financial results reported by media organizations and researchers. Our idea was, 'What if we could stay on those two ends of the spectrum, a pure passive product (that's VOTE) or a pure active product (that's NETZ)?' Our listeners will remember episode one with Spencer Glendon, and we're talking about trillions of dollars of risk, not just in the companies and their assets themselves, but in the investment in these companies themselves. It's passive investing with a twist on ESG, not by changing what it holds, but by changing what it does. An activist could believe in a specific ESG value thesis, for example, that a carbon transition plan is necessary for a given company to enjoy sustainable growth. The State Street R-Factor is a rating of large companies for their management of environmental, social and governance risks. A new report published by the new Climate Institute and Carbon Market Watch found that 25 of the world's most valuable companies, including Alphabet, Amazon, and Nestle, are making climate-related promises that they aren't even close to keeping. This post is based on a Sidley memorandum by Mr. Liekefett, Ms. Gregory, Mr. Wood, Derek Zaba, Beth E. Berg, and Rebecca Grapsas. Liekefett and Holly J. Gregory are partners and Leonard Wood is an associate at Sidley Austin LLP. This is an active, in the fact that you are taking positions, but you're also, as an investment committee, looking at those companies where there is opportunity for them to transform themselves into companies that have sustainability for the future and don't degrade the environment. So, can you give us the ExxonMobil as a case study for what you wanted going in, and what you're trying to achieve by taking position there? And that one thing you can see with Exxon versus its peers, historically, was that as other companies are starting to reckon with the energy transition and try to understand how they are going to be able to create value even as the world works to decarbonize, that Exxon was behind. (go back), Posted by Kai H.E. Most prominently, ESG-conscious investors are looking into how boards and management teams oversee environmental and social performance, how ESG oversight is allocated among board committees, and whether a board has sufficient expertise in environmental issues and social issues. Is it more rules? The metaverse is a shared virtual environment with aspects of online gaming, augmented reality, and more that people can access via the Internet. It has emerged as one of the most effective activist investors to come on the scene in decades, and it's putting pressures on companies across industries. ", "So, you see it in there's a great Morgan Stanley report that comes out every year, a survey asking, 'How important is sustainable investing to you? Liekefett, Holly J. Gregory, and Leonard Wood, Sidley Austin LLP, on, Harvard Law School Forum on Corporate Governance, on Shareholder Activism and ESG: What Comes Next, and How to Prepare, by Oliver Hart and Luigi Zingales (discussed on the Forum, The Illusory Promise of Stakeholder Governance, Companies Should Maximize Shareholder Welfare Not Market Value, Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee, https://www.ft.com/content/fa9946b9-371b-46ff-b127-05849a1de2da, https://www.ft.com/content/8e9f8204-83bf-4217-bc9e-d89396279c5b, https://www.morningstar.com/articles/1017056/sustainable-equity-funds-outperform-traditional-peers-in-2020, , https://www.blackrock.com/corporate/literature/publication/our-2021-stewardship-expectations.pdf, https://www.sec.gov/files/potential-recommendations-of-the-esg-subcommittee-12012020.pdf, https://www.washingtonpost.com/climate-environment/2021/03/17/biden-climate-change-economy, , https://corpgov.law.harvard.edu/2020/01/13/into-the-mainstream-esg-at-the-tipping-point/, https://www.rbcgam.com/documents/en/other/esg-key-findings.pdf, https://www.blackrock.com/corporate/literature/publication/blk-commentary-climate-risk-and-energy-transition.pdf, https://www.ga-institute.com/research-reports/flash-reports/2020-russell-1000-flash-report.html, https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. In contrast, shareholders who solicit proxies for their own proposals have a comparatively free hand to make proposals on the topics of their choice and to say want they want to say about their proposals. [2] It was reported that sustainable equity funds finished 2020 with a clear performance advantage relative to traditional equity funds. It was further noted that in the same period, three out of four sustainable equity funds beat their Morningstar Category average and 25 of 26 ESG equity index funds followed by Morningstar beat index funds tracking the most common traditional benchmarks in their category. [3], Institutional investors have intensified engagement with public companies to advocate for ESG- oriented policies and disclosures. The observation is incorrect, however, insofar as part of the G in todays ESG thinking focuses on the governance of environmental and social aspects of a business. These are the core factors and core investment that companies should be making if they're trying to generate long-term returns for their shareholders. It has also launched two ETFs that help retail investors like us participate in its efforts. And understand what it will take to actually create value to that transition for companies who are entirely in traditional energy, entirely in renewable energy, those trying to transition or mix between the two.

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