Questioning the credibility of the ‘ESG’ label
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Issue #85: A weekly update on responsible investment.
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\\ Weekly Insights \\
While greenwashing is consistently a concern in the ESG space, this week I saw a particularly large amount of articles discussing challenges related to ‘ESG Labeled Funds’ and their credibility. One particularly good article is by MIT where they evaluate the voting records of some of the US’s largest ESG mandated funds.
What is the research?
The research focused on BlackRock, Vanguard, and State Street — who collectively control 20–30% of the U.S. equity market. With this power, they can vote on ESG measures such as the disclosure of hydraulic fracking, human rights and the treatment of workers, or diversity on corporate boards. If you were investing in one of those funds with an ESG label, would you guess that they are voting in favour of such ESG issues?
What does their voting history say?
The research found the Vanguard Social Index Fund voted against almost all environmental and social resolutions over the time examined. The fund also voted against shareholder resolutions requesting disclosure of board diversity in every single instance since 2006.
Both Vanguard and BlackRock in 2019 voted against proposals requesting disclosure of board diversity and qualifications at Apple, Discovery, Twitter, Facebook, and Salesforce.
Why is this happening?
For one, voting is a very arcane process and it is difficult for retail investors to understand the voting process. On top of this, the marketing of ESG funds is not regulated by the SEC (A great which discussion on this in Bloomberg Green).
What can retail investors do to create greener / more socially active funds?
- Post on social media. “Mounting campaigns on social media can be effective in bringing about change in how fund companies vote.”
- Contact your mutual fund. Individual investors cannot vote on proxies, but they can communicate with the mutual funds that do.
- Crowdsource. There is strength in numbers — by crowdsourcing the preferences of your fellow employees, you might be able to help spur 401(k) administrators to either choose funds that actually vote their ESG values or hold existing funds accountable.
Are you a Venture Capitalist?
Help determine the best practice for ESG in the Venture Community. Spend 5 minutes completing the first VC specific ESG survey here.
\\ Nossa News \\
We had fun speaking at FinTech Alliance’s webinar on Building Trust in ESG!
\\ Companies doing good \\
- Deloitte UK 💛 is partnered with Changing Lives, a UK charity dedicated to helping those facing barriers to education, employment, and housing. Deloitte recently donated £5000 from their 5 Million Futures programme. 1,300 Deloitte colleagues took part in a virtual volunteering initiative as part of this programme. Deloitte has also supported Changing Lives through donating laptops at the beginning of lockdown as well as support packs at Christmas. Such support to local communities is an asset to a company’s CSR and highlights corporations’ role in tackling social issues.
- Vodafone ⚡ is set to eliminate its carbon emissions from its UK operations by 2027; this includes its mobile and fixed networks, data centres, retail outlets, and offices. From July, Vodafone will be powered by 100% #renewable electricity. CEO, Nick Read, “This is a major milestone towards our goal of reducing our own global carbon emissions to net zero by 2030, helping our customers reduce their own environmental footprint and continuing to build an inclusive and sustainable digital society in all of our markets.”
- IKEA 👣 announces its renewables programme for direct suppliers as part of its commitment to becoming climate positive by 2030. ⅔ of the company’s carbon footprint in its supply chain. As part of this programme, all direct suppliers will be powered by 100% renewable electricity. The programme will officially launch next year. It will be introduced first to its direct suppliers in China, Poland, and India — 3 of IKEA’s largest purchasing countries.
- The LEGO Group 🧱 has announced its first prototype bricks made from recycled plastic. This comes after the company announced in December 2020 a set of climate-focused sustainability commitments. They currently have 150 team members dedicated to making their products more #sustainable.
- Oracle 💻 has committed to powering its global operations with 100% renewable energy by 2025. To date, 51 of the company’s offices globally and its European Cloud regions utilise 100% renewable energy. CEO, Safra C. says: “Oracle will always make its biggest impact on the #environment by providing customers with technology that enables them to reduce their carbon footprint, but this new goal reflects the shared values of our customers, partners, and investors.”
\\ ESG jobs \\
With so many ESG jobs popping up, we are trying out a new section!
- Stewardship / Governance Specialist at The Man Group. Read the posting.
- Director — Sustainable Strategist at BlackRock. Read the job posting.
- ESG Investment Strategist at State Street Global Advisors. Read the job posting.
- Plus, PwC says they will hire 100,000 over 5 years in an ESG push.
\\ Top Stories \\
ESG is a Bright Spot but Managers Need to Bridge The Gap Between Marketing and Scientific Reality.
There’s been a sharp increase in ESG content over the past year, but most asset managers fell short in delivering their message effectively. Measuring the amount of content asset managers are putting out in tier one media, the volume of Google searches, and the extent of social engagement, a Peregrine found that content dedicated to ESG efforts was up by nearly 150 percent in 2020, compared to the previous year. At the same time, demand was up by more than 140 percent. The communications firm found that the pandemic was a catalyst for investors to focus on a “greener [economic] recovery.”
Institutional Investor.
Global regulators to introduce first oversight of ESG raters.
A global securities watchdog plans to publish its first regulatory guidance for raters of corporate environmental, social and governance (ESG) performance in July to stem growing concern among asset managers about overstated green credentials. The concern over so-called greenwashing has grown as more investments are channelled into climate-friendly funds, giving rise to a burgeoning market for ratings on how different companies deal with ESG challenges. Ashley Alder, chair of the IOSCO body that groups securities regulators from the United States, Europe and Asia says that many countries have no rules for ESG raters. IOSCO is working with the IFRS Foundation on setting up a new body by November to write mandatory global standards for company disclosures on climate change. Reuters.
The Largest U.S. Retirement Plan Will Offer ESG Funds. Why It’s a Big Step for Sustainable Investing.
The federal government’s Thrift Savings Plan will begin offering environmental, social, and governance funds in 2022, the latest sign of the growing acceptance of sustainable investing by retirement plans. The TSP is the U.S. largest retirement plan: It has about $760 billion in assets and covers about 6.3 million federal employees and service members. Lisa Woll, CEO of US SIF, the trade group for the sustainable investment industry, said the group has been in talks with TSP about adding sustainable offerings for more than a decade. “We’re really really pleased. The [participants] can’t get ESG options until they have that platform.” Barrons.
Twilio, Asana to list on Long-Term Stock Exchange as ESG Push Continues.
A Silicon Valley stock exchange that encourages long-term thinking over short-term gains has landed two marquee tech companies to be among its first listings, reflecting the growing popularity of sustainable investing. Twilio Inc., a $67 billion software company, and Asana Inc., a roughly $10 billion cloud software company run by Facebook Inc. co-founder Dustin Moskovitz, are the first two companies to agree to dual list their shares on the Long-Term Stock Exchange. The CEOs of both companies, which also are listed on the New York Stock Exchange, were early investors in LTSE with financial stakes of less than 1.5%. Wall Street Journal.
How to Crack the Toughest Asset Class for ESG [Fixed Income].
Environmental, social, and governance strategies abound in the equity markets — but applying ESG principles in fixed income can be a lot more complicated. With a new report, consulting firm Willis Towers Watson is seeking to help asset owners better integrate ESG into fixed-income portfolios. The study breaks down the risks and rewards of ESG in four sub-sectors of fixed income: corporate credit, sovereign debt, asset-backed and securitized credit, and private debt. Out of the four, corporate credit has seen the most progress in its ESG integration, while private debt may provide the most opportunity for asset owners, according to the study.
Institutional Investor.
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** Schedule a call to speak with Nossa Data
*** Email Team@nossadata.com
\\ Paper Feature \\
Engaging with your investors
Harvard Business Review
Boards can make their biggest impact by bringing that long-term focus to what we call the new TSR — not total shareholder return but talent, strategy, and risk. When a company gets those aspects of the business right, sustainable success will follow. Yet as boards attend to shareholders who favor patient capital, they cannot ignore the interests of others aiming for quick profits. They need a new playbook to manage the inherent tension and complexity that come with an increasingly diverse range of shareholders and stakeholders.
Why Meet with Investors? [As a board member]
Some boards resist talking with investors, reasoning that management has that base covered. We think such a mindset is a mistake. Investors can be an independent source of information, supplying important details that management may not convey but that the board should be aware of.
Engaging with big shareholders can help you identify which are committed for the long haul and which might support activists pushing for a quick profit. It’s an opportunity to build alliances.
What Investors Want to Know
When you meet with investors of any sort, they are likely to ask questions designed to expose your vulnerabilities — operational, financial, and competitive. They will also probe your oversight of the management team. They want to satisfy themselves that you are managing talent, strategy, and risk to enhance shareholder returns, whether for short-term gain or long-term value.
When to Meet with Investors
Creating a relationship with an investor takes time — and you want to solidify it before you need that party’s help. We believe regular meetings are key. Former Xerox CEO and board chair Anne Mulcahy aimed to meet with the top 20 or 30 investors every 18 months to two years. “The intent is to have a regular cadence so that you can actually have relationships,” she says. “It’s both listening and sharing messages that you’d like them to hear.”
\\ Leading Across ESG \\
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Julianne Sloane
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