Tag: Sustainability


Preliminary 2015 Proxy Season Review

Subodh Mishra is Executive Director for Communications and Head of Governance Exchange at Institutional Shareholder Services. This post is based on an ISS white paper by Patrick McGurn, Special Counsel and Head of Strategic Research and Analysis, and Edward Kamonjoh, U.S. Head of Strategic Research and Analysis. The complete publication is available here.

Momentum is the buzzword that best describes the 2015 Proxy Season in the U.S. market. Some issues, such as proxy access, hit the ground running and emerged as ballot box juggernauts. Other topics, such as calls for independent board chairs and heightened scrutiny of human rights, stumbled and lost ground. Some new ideas, such as hybrid climate change risk initiatives aimed at impacting board deliberations on compensation and CAPEX, failed to catch fire. Despite the rising proxy access tide, E&S proposals swamped their governance and compensation cousins in the pre-season family reunion headcount. However, big submission numbers failed to translate into growing support. Just one environmental proposal managed to win majority support in the year’s first six months.

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Corporate Investment in ESG Practices

Matteo Tonello is managing director at The Conference Board, Inc. This post relates to an issue of The Conference Board’s Director Notes series and was authored by Mr. Tonello and Thomas Singer. The complete publication, including footnotes and Appendix, is available here.

Corporate investment in environmental, social, and governance (ESG) practices has been widely investigated in recent years. Studies show that a business corporation may benefit from these resource allocations on multiple levels, ranging from higher market and accounting performance to improved reputation and stakeholder relations. However, poor data quality and the lack of a universally adopted framework for the disclosure of extra-financial information have hindered the field of research. This post reviews empirical analyses of the return on investment in ESG initiatives, outlines five pillars of the business case for corporate sustainability, and discusses why the positive correlations found by some academics remain disputed by others.

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New Investor Guide on Engaging on ESG Issues

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn Securities Regulation and Corporate Governance Monitor blog post by Ms. Ising.

On May 28, 2015, BlackRock and Ceres released a guide for investors on engaging with public companies, asset managers and policymakers on environmental, social and governance (“ESG”) sustainability matters. The guide, titled “21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions,” includes sections written by BlackRock and Ceres as well as AFL-CIO, California Public Employees Retirement System (“CalPERS”), California State Teachers Retirement System (“CalSTRS”), Council of Institutional Investors (“CII”), International Corporate Governance Network (“ICGN”), the Office of New York City Comptroller, New York State Common Retirement Fund, North Carolina Department of State Treasurer, PGGM, State Board of Administration of Florida, TIAA-CREF, T. Rowe Price and UAW Retiree Medical Benefits Trust.

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Corporations and the 99%: Team Production Revisited

Shlomit Azgad-Tromer is a researcher at Tel Aviv University—Buchmann Faculty of Law. This post is based on the article Corporations and the 99%: Team Production Revisited. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein, and The CEO Pay Slice by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

“We Are the 99%” is a political slogan used by the Occupy Wall Street movement, referring to the prevailing wealth and income inequality, and claiming a divergence of corporate America from the public. The article explores the interaction between the general public and the public corporation, and its legal manifestation.

Stakeholder theory portrays the corporation as a sphere of cooperation between all stakeholder constituencies, including the general public. Revisiting team production analysis, the article argues that while several constituencies indeed form part of the corporate team, others are exogenous to the corporate enterprise. Employees, suppliers and financiers contribute together to the common corporate enterprise, enjoying a long-term relational contract with the corporation, while retail consumers contract with the corporation at arm’s length, and other people living alongside the corporation do not contract with it at all. Under this organizational model, the general public may participate in the team forming the corporate enterprise by providing public financing. Indeed, corporate law was developed to protect public investors.

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Shareholder Proposal Landscape

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Institutional investors are increasingly communicating their expectations around governance through direct engagement and letter writing campaigns. Still, some continue to rely on shareholder proposals to trigger dialogue and help ensure a topic is raised at the board level.

Investors that submit proposals generally view them as an invitation to a discussion, preferring to reach agreement with the targeted company without the proposal going to a vote. If agreement cannot be reached, they generally believe that votes on shareholder proposals provide management with valuable insights into investor views.

The EY Center for Board Matters recently had conversations with 50 institutional investors, investor associations and advisors on their corporate governance views and priorities for the 2015 proxy season.

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Shareholder Proposals on Social and Environmental Issues

Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to an issue of The Conference Board’s Director Notes series authored by Melissa Aguilar and Thomas Singer. The complete publication, including footnotes, is available here.

Political spending and climate change, key topics during the 2014 proxy season, are expected to feature heavily again in 2015 shareholder proposals. This post reviews the content of the social and environmental proposals voted on most frequently by shareholders of Russell 3000 companies during the 2014 season, including the topics that received the highest average shareholder support. The complete publication provides examples of proposal text and sponsor supporting statements, as well as board responses and related corporate disclosure.

Nearly 40 percent of all shareholder proposals submitted at Russell 3000 companies that held meetings during the first half of 2014 were related to social and environmental policy issues, up from 29.2 percent in 2010, as documented in Proxy Voting Analytics (2010-2014). Social and environmental policy proposals now represent the second-largest category of the subjects in terms of both the number submitted and the number voted, narrowly behind corporate governance.

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ESG Risks and Opportunities Facing Investee Companies

The following post comes to us from Rakhi Kumar, Head of Corporate Governance at State Street Global Advisors, and is based on an SSgA publication; the complete publication is available here.

As part of our active ownership process, State Street Global Advisors (“SSgA”) considers environmental, social and governance (“ESG”) matters while evaluating and engaging with investee companies. SSgA believes that ESG factors can impact the reputation of companies and can also create significant operational risks and costs to businesses. Conversely, well-developed corporate social responsibility (“CSR”) programs [1] can generate efficiencies, enhance productivity and mitigate risks, all of which impact shareholder value.

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Nanotechnology and the S&P 500

The following post comes to us from Heidi Welsh, Executive Director at the Sustainable Investments Institute (Si2), and is based on a Si2 report.

Corporations globally have been investing $9 billion annually in nanotechnology, yet less than one-tenth of S&P 500 companies report to shareholders and other stakeholders on their involvement in nanotechnology. Although it has the potential to revolutionize industries like healthcare, information technology and energy systems, nanotechnology’s promise is tethered to unique environmental, health and safety (EH&S) issues that are not yet fully understood. Investors eyeing rapid growth and minimal regulation are engaging companies in discussions about nano-related EHS risks and recently forced a vote on the first nano-related shareholder resolution.

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Delaware Public Benefit Corporations 90 Days Out: Who’s Opting In?

The following post comes to us from Alicia E. Plerhoples at Georgetown University Law Center. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On August 1, 2013, amendments to the Delaware General Corporation Law (DGCL) became effective, allowing entities to incorporate as a public benefit corporation, a new corporate form that requires managers to produce a public benefit and balance shareholders’ financial interests with the best interests of stakeholders materially affected by the corporation’s conduct.

In my paper, Delaware Public Benefit Corporations 90 Days Out: Who’s Opting in?, I present empirical research on the companies that adopted the Delaware public benefit corporation form within the first three months of the effective date of the amended DGCL.

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Speaking of Corporate Social Responsibility

The following post comes to us from Hao Liang and Luc Renneboog, both of the Department of Finance at Tilburg University, Christopher Marquis of the Organizational Behavior Unit at Harvard Business School, and Sunny Li Sun of the Department of Global Entrepreneurship and Innovation.

Linguists suggest that obligatory future-time-reference (FTR) in a language reduces the psychological importance of the future. Applying this to a corporate context, we theorize in this paper that companies with strong-FTR languages as their official/working language would be less future orientated and hence perform worse in future-oriented activities such as corporate social responsibility (CSR)—firms’ environmental, social, and governance engagement—compared to those in weak-FTR language environments.

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