Key Governance Developments - June 2021

Investor pressure grows on companies to embrace sustainability policies

Investors are pushing for transparency regarding the climate, environmental and social impact of companies' activities, notably in the US where there is no general requirement to make corporate sustainability disclosures, although the SEC is currently conducting a consultation on future rules. Institutions are starting to flex their voting rights muscle to push for policy change - after the success of activist hedge fund firm Engine No. 1 in getting three directors elected to the ExxonMobil board, Legal & General Investment Management has revealed that it has removed four more companies from its portfolios for failing to engage on ESG compliance. Social responsibility issues are also gaining a higher profile, with a co-founder of UK fashion firm Boohoo facing a vote against her re-election to the board, backed by proxy advisers, over labour rights abuses in the company's supply chain.

Investors to sue SEC over Trump rule change restricting AGM resolutions

A group of investors is to sue the Securities and Exchange Commission over rules introduced under the Trump administration that will make it more difficult to file shareholder resolutions on sustainability and other issues at companies' annual meetings from next year. The case has been brought by shareholder activist group As You Sow, the Interfaith Center on Corporate Responsibility and individual investor James McRitchie. SEC commissioners voted 3-2 along party lines last September to approve changes including raising the threshold value of shares investors must own to file resolutions, and the level of support needed to resubmit them.

Best source: Reuters

Legal & General divests from companies with poor climate engagement

Legal & General Investment Management has divested from Commercial Bank of China, US utility PPL, insurer AIG, and Chinese dairy company China Mengniu Dairy. The UK’s largest asset manager says the companies failed to respond adequately to corporate engagement or breached LGIM’s red lines on involvement in the coal sector, their carbon disclosures, or links to deforestation. The asset manager has already divested from nine other companies, including ExxonMobil.

Best source: ESG Clarity

US investors call on SEC to demand extensive corporate ESG disclosure

Institutional investors, fund groups, the Sustainability Accounting Standards Board and the Principles for Responsible Investment network have called on the US Securities and Exchange Commission to introduce robust climate change and ESG reporting requirements for companies. Oil companies and banks have pushed back, saying the SEC should allow them greater discretion and that companies themselves are best placed to assess which information is most important or material for their investors. A consultation launched by the SEC ended on June 14, and the regulator says it may propose new rules on ESG disclosure in October.

Best source: Reuters

Engine No. 1 claims third seat on ExxonMobil board

After winning a third seat on the board of ExxonMobil with a mandate to push for action on climate change, the founder of investment firm Engine No. 1 says strong corporate climate strategies make good business sense. Chris James argues that the debate should not be ideological and that companies should consider their impact on communities and the environment.

Best source: The Guardian

Boohoo co-founder faces shareholder vote over labour abuse

Institutional Shareholder Services and Glass Lewis have recommended that shareholders vote against the re-election of one of Boohoo’s founders, Carol Kane. Evidence of labour abuse in Boohoo's UK supply chain was revealed at a time when executive director Kane was in charge of the fast-fashion company. Chairman and co-founder Mahmud Kamani was re-elected in 2019 and does not face a shareholder vote.

Best source: Financial Times (subscription required)

Shareholders put pressure on oil majors to embrace climate shift

ExxonMobil shareholders defied the group's management at its annual general meeting on May 26 to elect three board members proposed by hedge fund manager Engine No 1. The firm, which launched an activist campaign in December demanding more aggressive efforts to cut carbon emissions, successfully argued that ExxonMobil’s focus on oil and gas development constituted an existential risk. A large majority of shareholders at another major oil group, Chevron, have also voted for a resolution calling on the company to reduce substantially scope 3 emissions arising from the use of its products.

Best source: FInancial Times (subscription required)

See also: The Guardian

See also: S&P Global

Dutch court orders Shell to make bigger reductions in emissions

A Dutch court has ordered Shell to reduce its emissions by 45% from 2019 levels over the next decade, requiring the oil producer to double its planned emissions cuts of 20% between now and 2030. The lawsuit, filed by Friends of the Earth Netherlands, is the first time a large petroleum company has been ordered by a court to comply with the Paris Agreement targets to curb climate change. The Anglo-Dutch company was told it had a duty of care under human rights law and that its emissions reduction policy should cover its suppliers and customers.

Best source: Fast Company

See also: The Guardian

Shareholders criticise Deutsche management over bonuses at virtual AGM

Deutsche Bank’s executive management have come under criticism at the bank's virtual annual general meeting, with Alexandra Annecke, a fund manager at Union Investment, complaining about the glaring disparity between rising bonuses and suspended dividends. Andreas Thomae, a senior portfolio manager at Deka Investment, pointed out that in a year in which the bank earned just €1bn before tax, variable remuneration increased by 29%. Deutsche Bank has paid no dividend for two years and in the previous four distributed only the statutory minimum, although CEO Christian Sewing says it plans to pay shareholders €5bn a year from 2022.

Best source: Handelsblatt (subscription required, in German)

HSBC shareholders vote to phase out financing of coal

HSBC shareholders have voted in favour of the bank ending its financing of coal-fired power plants and coal mining within the EU and other OECD countries from 2030, and worldwide from 2040. The resolution, drawn up jointly with responsible investment NGO ShareAction and backed by investors representing 99.7% of the equity capital represented at the bank’s AGM, also calls on the bank to develop and implement a sustainability strategy to support customers in reducing their greenhouse gas emissions to zero. CEO Noel Quinn says the bank is already a leader in sustainability.

Best source: Börsen-Zeitung (subscription required, in German)

Deutsche Bank accelerates €200bn sustainable financing target

Deutsche Bank is bringing forward its target date for providing a cumulative total of €200bn of sustainable financing by two years, to the end of 2023, as part of its strategy to align its business more closely with environmental, social responsibility and governance criteria. The targets include requiring larger suppliers and vendors to have an external ESG rating, ensuring women hold at least one-third of senior management positions by 2025, and reducing fuel use by Deutsche's company car fleet by 30% by the same date.

Best source: Deutsche Bank