Climate Change and Corporate Governance
PRI and the 50/50 Climate Project Webinar on Investor Engagement on Climate-Competent Boards
A webinar sponsored by PRI (Principles for Responsible Investment) and the 50/50 Climate Project featured speakers from some of the most active investors working with portfolio companies to improve strategic focus on sustainability and climate change and is now available for replay.1 Nell Minow, Vice Chair of ValueEdge Advisors, co-founder of GMI Ratings and The Corporate Library, moderated the panel that originally streamed on January 18, 2017, and included:
- Anne Simpson, Investment Director, Sustainability, California Public Employees’ Retirement System (CalPERS)
- Kirsty Jenkinson, Managing Director and Sustainable Investment Strategist, Wespath Investment Management
- Rakhi Kumar, Managing Director, Head of Corporate Governance, State Street Global Advisors
- Michelle Edkins, Managing Director, Global Head of Investment Stewardship, BlackRock
- Edward Kamonjoh, Executive Director, The 50/50 Climate Project
Participants discussed what it means to be “climate competent” and techniques for engagement. State Street Global Advisors’ letter to portfolio company boards says:2
[A]s part of our stewardship review, we classify companies according to how they have: 1) identified material environmental and social sustainability issues; 2) assessed and, where necessary, incorporated the implications into their long-term strategy; and 3) clearly communicated their approach to sustainability and its influence on strategy. We also include a list of questions that boards can use as a starting point to begin to work with management to focus on ESG issues.
More on Shareholder Initiatives and Climate Change
In a significant step forward, possibly in response to shareholder pressure, Exxon announced that Dr. Susan K. Avery had been elected to its board, effective February 1, 2017. Avery is an atmospheric scientist and the former president and director of the Woods Hole Oceanographic Institution.
Rich Ferlauto wrote about the importance of climate-competent boards in Pensions & Investments:3
Despite the anticipated rollback of climate related governmental policies such as the Environmental Protection Agency’s Clean Power Plan and limits on methane emissions by the Trump administration, investors still need to understand the risks that climate change poses to their portfolios. Unequivocal disclosures and boards equipped to manage and govern climate risk will be more important than ever. Now, however, it appears investors will not be able to rely on federal regulatory standards or policy interventions to manage climate risk related to greenhouse gas emissions and the emphasis on fossil fuel production. They will be left to their devices to understand the very real financial impacts that climate issues could have on their portfolios.
Regime change in Washington does nothing to affect the science and reality of increased climate risk and the need for long-term strategic planning that accounts for potentially crippling financial, ecological and technological disruptions at the companies most susceptible to climate risks.
Evan Harvey, Nasdaq’s Director of Corporate Responsibility, called on boards to prioritize sustainability across three critical areas:4
- Environmental (“Issues we readily associate with sustainability”) – Emissions, carbon usage, recycling, waste water, water usage, etc.
- Social (“How you treat people”) – Benefits, programs, human resources, policies that attract a diverse and innovative talent pool, etc.
- Corporate Governance (“The structure of your corporation”) – Rules, checks & balances to ensure shareholder needs are being met, etc.
Sustainability is everything that helps your company sustain itself – its people, its profits – well into the future. It’s a long-term approach. Anything you can’t see in a financial statement that contributes to that long-term mission is sustainability.
In January 2017, more than 600 businesses with more than $1 trillion in annual sales signed an open letter that demanded President Donald Trump’s administration uphold U.S. commitments to low-carbon policies and urged the President to keep the United States in the Paris Climate Agreement – which Trump has threatened to quit. Some of the first companies to sign the letter were eBay and Starbucks, with others like SolarCity, Tesla and Johnson & Johnson now on the list. The letter states:
We want the U.S. economy to be energy efficient and powered by low-carbon energy. Cost-effective and innovative solutions can help us achieve these objectives. Failure to build a low-carbon economy puts American prosperity at risk. But the right action now will create jobs and boost U.S. competitiveness. We pledge to do our part, in our own operations and beyond, to realize the Paris Agreement’s commitment of a global economy that limits global temperature rise to well below 2 degrees Celsius.