Economy and Society: June 25, 2024
ESG developments this week
Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.
In Washington, D.C.
Companies delay emissions data reporting following SEC enforcement pause
With the Securities and Exchange Commission’s (SEC) climate disclosure rule on hold and facing lawsuits, most large-cap companies did not voluntarily report emissions data in their latest 10-K filings:
S&P 500 companies are mostly steering clear of providing greenhouse gas emissions disclosures in their annual reports to the SEC, as rules requiring such climate reporting face an uncertain future.
Only 126 of the 410 companies listed on the S&P 500 stock index that filed their 10-K reports to the Securities and Exchange Commission through May this year discussed pollution from their direct operations and energy usage in those filings, according to a Bloomberg Law review. Even the roughly one-third of companies that did mention so-called Scope 1 and 2 emissions by name in their 10-Ks did not necessarily provide the detailed pollution figures that the SEC’s March 6 rules would require.
S&P 500 companies referencing Scope 1 and 2 in their 10-Ks jumped more than seven-fold between 2020 and 2022, the year the SEC announced plans to require emissions disclosures in the reports. But references have plateaued since then, even as SEC officials signaled a commitment to at least some emissions reporting requirements and brought more scrutiny to climate disclosure discrepancies between companies’ mandatory 10-Ks and their voluntary environmental, social and governance reports.
In the states
Indiana treasurer adds BlackRock to state ESG watchlist
Indiana Treasurer Daniel Elliott (R) announced June 21 that he added BlackRock, the world’s largest asset manager, to “a state watchlist, accusing the firm of making illegal environmental, social or governance (ESG) commitments,” according to the Indiana Capital Chronicle. The decision was related to a 2023 state law banning ESG in state pension investments:
Daniel’s office alleged that BlackRock “prioritizes risky ESG engagement over its fiduciary duty to its clients,” citing the company’s own disclosures to the federal government.
Also in those disclosures, BlackRock has described its commitments as potential threats to its reputation and ability to attract and retain clients, Elliott’s office added….
As described in state law, violators could include companies who promote greenhouse gas emission reductions and corporate governmental changes — including protected classes enshrined in Indiana’s civil rights code — as well as those who divest from companies in industries like weapons manufacturing, fossil fuel production or immigration enforcement. Advertising, client letters and more count as evidence.
ESG lawsuits move through courts
ESG policy discussions are increasingly moving to the administrative and judicial systems, marking a shift from the legislative and executive activity in recent years. State and federal courts will soon decide more ESG-related cases, according to a recent Politico piece:
Judges in at least six states will weigh in on a wide range of environmental, social and governance litigation this year, including restrictions on climate advocacy among shareholders and laws in red states designed to protect fossil fuel interests. Courts are now the crucial testing ground for the future of these practices. …
A federal judge in Texas on Monday dismissed a lawsuit brought by ExxonMobil against shareholder advocacy groups, one of the most prominent ESG cases to go to court. Exxon targeted the groups for previously backing a proposal urging the oil giant to speed up work to curb its greenhouse gas emissions, though they withdrew the proposal and vowed to never raise it again following the lawsuit.
In Oklahoma, a state court blocked the enforcement of one of the most aggressive anti-ESG laws in the country earlier this year. On top of that, two other red states have hit BlackRock with legal complaints over the firm’s ESG practices. And both the SEC and California are facing legal challenges over their attempts to compel companies to report on their carbon footprints.
On Wall Street and in the private sector
Fewer ESG proposals projected to succeed in 2024
Fewer ESG shareholder proposals have received majority support over the past two years, and the number of successful ESG shareholder proposals is expected to drop another 50% this year, according to Sustainable Investments Institute data:
The number of ESG proposals attracting majority support will likely drop to just four votes this year, as the US proxy season winds down, according to data from US non-profit the Sustainable Investments Institute.
Last year, eight shareholder requests received more than 50 percent support – which itself was a precipitous drop from the preceding two years, where close to 40 majority-backed resolutions were registered in each proxy season.
Declining support over the past couple of years, which has coincided with the intensification of the ESG backlash in the US, has been driven by many of the largest asset managers in the country rolling back their support for shareholder proposals.
Morningstar argues European ESG fund fees are not overpriced compared to traditional competitors
Opponents of ESG investing have argued that ESG funds charge higher commissions than their traditional competitors. A new research report from Morningstar Sustainalytics argues that European ESG funds are now priced similarly to conventional funds due to competition in the investment space:
A new report from Morningstar Sustainalytics compared the costs of ESG funds in Europe to their conventional peers across six popular categories, and examined how these costs have evolved over the past decade by investment style.
“Investors have been led to believe that ESG-focused funds are more expensive than conventional funds,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. “While there is undoubtedly a wide range of ESG strategies with various price tags out there, we found that, on average, ESG funds don’t charge more than non-ESG funds. This is mainly due to the proliferation of new products and growing competition in the ESG space in recent years.”
Key takeaways from the report included that ESG funds are generally not more expensive than their conventional peers. The average asset-weighted cost for ESG funds in the six studied categories is 0.83%, compared to 0.90% for conventional funds. A decade ago, these costs were 1.55% and 1.32%, respectively. This decline was attributed to the increasing number of new strategies and heightened competition in the ESG sector.