ESG

Miners Feel Green Pressure Too

Mining giants Alcoa Corp and Rio Tinto plan to fine-tune a technology that could turn aluminum smelters carbon-free for the first time. Another initiative under way in Sweden could see hydrogen replace coking coal in manufacturing steel. Like many other companies experiencing this, the key driver is to turn green stems from a primary stakeholder group—customers. It comes as no surprise, as the next generation Millennials want to ensure that their products are cleaner and greener than before. More and more companies are producing stand-alone sustainability and corporate citizenship reports to show their constituents exactly the harmonization of business strategy and sustainability, while also setting intermittent shorter term and longer-term goals across the Environmental and Social spectrums to reduce greenhouse gas emissions, injury rates, and boost diversity and inclusion. Sarah Chandler, Apple’s senior director of operations and environmental initiatives, said, “We wholeheartedly reject the notion that you can’t protect the environment while protecting your bottom line.”

Shareholders for Change

New industry body Shareholders for Change (SfC), has announced plans to put one large company on notice for aggressive tax evasion methods in the coming months. This group, which consists of smaller institutional investors from Italy, Austria, Spain, Germany and France, aims to engage on a number of important ESG issues. While the group of investors only manage roughly $22bn in assets, they hope their initiatives will promote change in governance practices, while also giving a voice to the smaller investors of the world.

“We want to cover ESG topics that are not as much in the spotlight, including human rights, workers’ rights and also aggressive tax evasion,” said Tommy Piemonte, head of sustainability research at Germany’s Bank für Kirche und Caritas, one of the founding members of SfC.

While change is the central goal, the group also realizes that size matters. Mauro Meggiolaro, among other representatives, pointed out that many of the shareholder engagement platforms have become too big and bureaucratic, leading to smaller investors losing their voices. By banding together, Shareholders for Change looks to unite smaller institutional investors and highlight issues that pose financial risks to the investment communities.

Big Oil Collaborates on Reducing Methane Emissions

Exxon Mobil, Chevron, Cheniere Energy, Inc., Equinor ASA and Pioneer Natural Resources Co., among others, have recently formed a methane emissions consortium focused on reducing greenhouse gas pollution and advancing technology to more adeptly fight and manage global emissions from their value chains.

The Collaboratory to Advance Methane Science (CAMS) will pursue focus on scientific research and solutions to reduce methane emissions, one of the most potent GHGs from oil and gas drilling through the refining and petrochemical processes. In partnership with the Gas Technology Institute (GTI), CAMS plans to branch out and enlist companies across the natural gas value chain and aggregate diverse expertise “to deliver factual data that can be used to inform regulations and policy development.”

Exxon Mobil has pledged to stem its methane emissions from its U.S. onshore activities and, two months ago, committed an effort to reduce methane emissions (CH4) by 15% worldwide by 2020.

DFA Updates 2018 Proxy Voting Policies

Dimensional Fund Advisors (DFA) has released updated proxy voting guidelines for US companies for 2018.  The updated policy document is available in the policies section on the Governance Gateway.

There are minimal changes from 2017, including:

Executive Compensation Practices: DFA will no longer leverage ISS pay-for-performance analysis and will evaluate CEO peer group pay rank with the company’s “different time horizon” annualized TSR, effectively scrapping the three-year time horizon.

Overboarding Limits:  Removed the section considering overboarding to be six or more boards (two if a current CEO).

E&S Issues: DFA will seek direct communications with a company when it believes a social or environmental issue may have material economic ramifications for shareholders.  If the company is unresponsive to the concerns raised, they may vote against or withhold from individual directors, committee members or the entire board.

The amendments to compensation analysis are significant as they represent a move away from a more rigid adherence to broad-based, third-party analysis in favor of a more nuanced and customized approach.  Not only does this allow DFA to fairly evaluate a company’s compensation structures on its own merits as suitable for the company, but also creates greater opportunities for direct engagement and meaningful dialogue.

State Street Guidance For Gender Diversity on Boards

SSGA has issued guidance for enhancing gender diversity in the board room.  Citing studies conducted by McKinsey, MSCI and Peterson Institute for International Economics, SSGA’s conviction is that “all other things being equal, companies with gender-diverse boards also have stronger long-term financial performance.”  Already applied to US companies, SSGA will expand their review of board diversity to broader indices and broaden their scope of review to include companies in Canada, Europe and Japan starting in 2018.

The Russell 3000 has one of the lowest percentages of gender representation on boards on any index at just 20%.

Continuing to engage with companies on the issue of board gender diversity, SSGA encourages boards to set expectations for senior management to enhance gender diversity within their ranks and the broader organization.