Economy and Society: June 4, 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.
On Wall Street and in the private sector
Exxon corporate board candidates win reelection despite pushback from ESG supporters
This newsletter reported last week that some Exxon shareholders—including CalPERS, the largest public pension fund in the country—announced they would vote against the board of directors in the company’s shareholder meeting on May 29. But despite the announcements, management’s slate of candidates was reelected by wide margins:
ExxonMobil shareholders reelected the company’s board of directors by a wide margin at its annual meeting on Wednesday, affirming their support for the company even as some large shareholders registered a protest vote.
Exxon’s 12 directors were reelected by an average of 95% of shareholders, with support ranging from 87% to 98%, depending on the director. The company didn’t release details on which directors received the most and least votes. Last year, directors received average support of 96%, with a range of 91% to 99% of support, Exxon said. …
Exxon faced a rebellion from some large shareholders, including the California Public Employees’ Retirement System (Calpers), over its decision to sue two climate-focused funds. Calpers voted against all 12 directors, while other funds had said they would only vote against certain directors, including CEO Darren Woods and lead independent director Jay Hooley.
Around the world
European disclosure rule may force more than 40% of ESG-labeled funds to change names
The European Securities and Markets Authority recently published rules governing whether investment funds could identify as ESG-focused. A new study suggests that more than 40% of European funds may have to change their names to meet the new compliance guidelines:
More than 40% of investment funds in the EU using ESG or sustainability-related labels may be required to change names or sell assets in order to meet new anti-greenwashing rules, according to a new analysis released by sustainability technology platform Clarity AI. …
Under the new rules, funds using ESG, sustainability, or impact terms, or environmental terms such as “green,” “environmental,” or “climate,” will be required to meet investment thresholds including having at least 80% of assets in investments used to meet the sustainability characteristics of the fund, and to follow the exclusion criteria for Paris Aligned Benchmarks (PABs). PAB exclusions include companies involved in controversial weapons, production of tobacco, those with more than 10% of revenue from oil production or refining, 1% from coal, or 50% from gas fuels production, and those with most revenues coming from emissions-intensive energy generation. …
The study found that 44% of the funds contained investments that breached the PAB exclusion criteria, with the fossil fuels criteria as the most common problem area, including more than 1,000 funds invested in companies that breached the 10% revenue from oil rule. Additionally, nearly 500 were invested in companies involved in the production of controversial weapons, 60 in companies involved in tobacco production, and 67 in companies in companies with emissions-intensive electricity generation.
China targets corporate ESG disclosure rules by 2030
The Chinese Ministry of Finance announced that it is seeking public comment on rules for corporate sustainability disclosures. The Ministry hopes to have basic standards ready by 2027 and nationwide mandatory reporting starting in 2030.
China aims to establish a national standard for corporate sustainability disclosure by 2030 as part of efforts to improve economic sustainability, tackle climate change and catch up with its global peers when it comes to environmental, social and governance (ESG) reporting.
The Ministry of Finance has started seeking public opinion on a set of draft guidelines that aims to monitor such disclosures by companies and push ESG development in China, according to a notice on its website.
“At present, most disclosures of sustainable information by Chinese enterprises are voluntary, and they rely on inconsistent standards, which is not conducive to the verification, rating and supervision process, and for the supporting role sustainability disclosures play in investment decision-making and economic development,” the ministry wrote in a statement published on Monday that explains the background to the draft guidelines.
ESG costs hurt Asian asset managers
Asset owners in Asia are requiring asset managers in the region to keep pace with their North American and European counterparts in offering ESG investment options. Smaller regional asset managers may struggle with the costs associated with ESG compliance, according to the Financial Times:
Local Asian asset managers are finding it harder to meet the rising costs of building out environmental, social and governance teams and complying with increasingly onerous sustainable investing policies that are putting a further squeeze on profit margins.
Asset owners in the region are increasingly requiring ESG capabilities as a “minimum requirement”, but trying to keep pace with large European and US fund firms is a growing challenge for smaller firms from the region.
Regional fund managers are at risk of losing market share to global fund firms due to their laggard ESG capabilities, however, according to a 2022 report by KPMG and Quinlan & Associates. “Non-adherence to rapidly evolving ESG standards will leave regional asset managers open to sizeable reputational risks, and create challenges with respect to capital raising, especially from offshore investors,” the report warned.
In the spotlight
ESG mentions down 60% in American corporate earnings calls
A recent Bloomberg analysis shows that mentions of ESG and ESG-related issues in corporate financial calls have dropped this year, especially among American companies:
Bloomberg scrutinized transcripts of financial presentations by the 100 biggest European and American traded companies during the latest results season, and found a sharp drop in references to environmental, social and governance issues.
Climate change and related terms generated 269 mentions in the US so far this quarter — more than 60% fewer than a year earlier. In one specific example, a year ago at JPMorgan Chase & Co.’s annual meeting, Chief Executive Officer Jamie Dimon cited “climate complexity” as an issue facing his bank, speaking of “the inextricable links between economic growth, energy security, and climate change.” In this year’s address Dimon focused on wars, geopolitics, technology and artificial intelligence, with climate change only mentioned during the question and answer session.
For European companies, climate change has been mentioned 671 times so far in the current results season, around a tenth less than a year ago.