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CII: Climate Competency & Risk

Shifting Investor Perspectives on Climate Risk & Board Climate Competency

These notes on climate competency are my last post from the Council of Institutional Investors Fall 2017 conference.  Find more at .  As a member of the press, I was excluded from the policy-making meetings. Still, it was a great opportunity to touch base with members of CII and to learn of recent developments and where we may be headed.

The panel discussion on climate risk and board competency hosted by the 50/50 Climate Project and the New York City Comptroller’s Office. From the program:

Following the historic majority votes on climate risk shareholder proposals in 2017, this panel discussion will explore evolving institutional investor viewpoints on climate risk and opportunity. The panelists will also examine how these changing perspectives and other shifts in the capital markets will sculpt investor expectations and engagements around climate risk disclosures and boardroom climate competency at portfolio companies in the 2018 proxy season.

Climate Competency: The Speakers

Climate Competency: High Profile Changes

I may not have the numbers totally accurate, but the direction is clear. There was a sea-change in support for climate competency resolutions at high profile companies. The vote at Exxon-Mobil went from something like 36% in 2016 to 62% in 2017.

At Occidental, it went from something like 49% in 2016 to 79% in 2017. The vote was large credited to BlackRock and Vanguard finally voting to address this growing risk. It was pointed out, change occurred not only on climate but other issues as well. For example, the Say-on-pay withhold at Southern went from something like 7% to 39%.

Are we witnessing a revolution in how large mostly indexed funds will vote going forward? Maybe, but there was little change in voting at less visible companies. Let us hope this year was aimed at real change, not just positive publicity to help investors feel better. See Key Climate Vote Survey Provides Tool.

Climate Competency: What I Heard

Asset owners are updating their policies led by the New York City Comptroller, CalPERS, CalSTRS, and other public pensions. Now mainstream funds are beginning to see climate competency or risk as material. BlackRock is looking at risk.

At the NYC Comptroller, about 1/3 of proxy access targets were chosen because of questionable climate competency. They wrote to 150 companies. 140 did proxy access without proposal. 11 with. Now they are seeking a matrix of board race, gender, etc. and are asking to engage on the board refreshment process. They are reviewing several mechanisms for investor input, wanting to ensure climate competency and diverse boards. Capital allocations are positioning for low carbon future. So far, initiatives have led to positive engagements.

There was discussion around the recently released 5050climate.org Key Climate Vote Survey. Carbon foot printing is an imperfect assessment of risk. NYC Comptroller has engaged with many companies. Hear what the company says. Give them a chance to talk through. We want to be seen as constructive. We don’t want to tell companies to do something that they can’t. We are providing risk profiles on clients to them. At this point, there is no real competition yet between major funds for lowest carbon footprint and highest return. That could be coming.

State Street put out its first paper on topic in early 2016. Their CEO sent out a letter that boards should consider sustainability. They took a deep dive into 50 companies around the globe to determine the role of investors. Is risk analysis robust and integrated into long term strategy? What is the board oversight? Does the company have GHG goals, carbon price disclosure (average and range), and can they articulate how their analysis impacts the allocation strategy? Reports go back to the investment analysts.

Dave Jones has influence over the 1300 insurance companies operating in California. In 2009 the national association put out climate risk survey. We want insurance companies get positive returns on their investments so they can be solvent enough to pay claims. They found insurance companies were not paying adequate attention to risk in portfolio companies that directly rely on burning carbon. In 2016, part of their initiative was to get public disclosure of investments in high carbon companies through a mandatory survey.

Particular concerns are with coal as many of those companies have started going broke. Jones became convinced that most thermal coal would be stranded assets. He has asked insurance firms to stop such investments. However, there is no mandate, other than to report. They also looked at companies putting too many eggs in one basket – like investing in specific geographic areas but also having heavy insurance concentrations in same areas.

His office is sharing best practice with insurance regulators around the world. Washington State is also doing quite a bit in trying to get climate competency in all sectors of the economy by at least reporting GHG.

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Climate Risk – Walden Moves BlackRock

Walden Moves BlackRock, Thanks to Timothy Smith

Walden Moves BlackRock, Thanks to Timothy Smith

Walden Moves BlackRock: Background

A number of investors, led by Walden moves BlackRock on climate Risk. Walden Asset Management and the Center for Community Change, along with the City of Seattle Employees’ Retirement System and First Affirmative Financial Network, filed a shareholder resolution requesting a review of BlackRock’s proxy voting process and record on climate change.

Following extensive engagement and constructive dialogue between BlackRock, Walden and a number of investors, the shareholder resolution was withdrawn. As a result of the dialogue, BlackRock has updated its website to provide fresh insights into the ways it believes climate change creates risks and opportunities for companies. BlackRock also noted that climate risk will be a priority for their engagement with companies and boards throughout 2017 and 2018. Continue Reading →

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International Women’s Day

SSGA: Tired of the Bull During International Women's Day

SSGA: Tired of the Bull? Celebrate International Women’s Day

International Women’s Day and Corporate Governance.

Progress on gender diversity in boardrooms and executive suites is slow in North America and many other parts of the world. Ahead of today’s International Women’s Day (March 8) SHARE and SSGA have taken dramatic action. The Women Corporate Directors Foundation can also take credit on this International Women’s Day.Where are the others? Post a comment to let us know.

International Women’s Day: SHARE

In recognition of International Women’s Day, the Shareholder Association for Research & Education (SHARE) announced efforts to tackle gender diversity and gender-related pay gaps across corporate Canada.  Continue Reading →

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Report from CII Winter Meeting: ESG

CIIEven in Washington, the numbers are impressive. The Council of Institutional Investors, who met in Washington DC this week, represents 23 trillion (with a t) dollars, mostly made up of retirement and other savings of working families. Compare that to the entire budget of the US government, less than two trillion a year. Like most industry group meetings in Washington, this one had presentations on what to expect from Congress and the regulatory agencies and how millennials will change the way the members do business, plus snack breaks and wireless sponsored by firms trying to sell products and services to the attendees. But the a two and a half day session featured repeated agenda topics on climate change and what are called ESG issues, suggesting that pension funds may step in where governments have failed. Continue Reading →

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Investor Stewardship Group: 1 Share, 1 Vote

Investor Stewardship Group logoInvestor Stewardship Group Launches Stewardship Framework for 2018

The Investor Stewardship Group (link), a collective of some of the largest U.S.-based institutional investors and global asset managers, along with several of their international counterparts, announced the launch of the Framework for U.S. Stewardship and Governance, a historic, sustained initiative to establish a framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.one share one vote

My own impression is that this group has been carefully constructed, probably stemming from many discussions at ICGN and CII. They have certainly started with an impressive group. Although most of the principles are relatively ‘safe,’ I am delighted to see their position that “shareholders should be entitled to voting rights in proportion to their economic interest.” That one recommendation alone is huge. I hope they continue to build on their initial consensus items.

Internet Roadblock

Of course, the internet changes everything. Companies used to go public to raise money for factories, staff, etc. Now, they raise funds from private equity funds and scale all the way because they can build out through the internet with coding and algorithms. They go public only when founders and initial supporters want to cash out a portion of their investment. Continue Reading →

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Climate Competency Needed in Boardrooms

Rich Ferlauto on Climate Competency

Rich Ferlauto on Climate Competency

Large institutional investors, concerned about portfolio risks stemming from the effects of global warming, are calling for climate-competent boards and directors as part of their fiduciary responsibility to preserve and enhance the long-term value of their investment assets.

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 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. Continue Reading →

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Commonsense Principles: Ground Floor

Commonsense Principles of Corporate Governance. JPMorgan Chase CEO Jamie Dimon and a group of influential leaders in business and finance have joined to develop a set of "commonsense" principles that institutional investors and governance advisers are mostly applauding. (Photo by Mark Wilson/Getty Images and used by Washington Post)

JPMorgan Chase CEO Jamie Dimon and a group of influential leaders in business and finance have joined to develop a set of “commonsense” principles that institutional investors and governance advisers are mostly applauding. (Photo by Mark Wilson/Getty Images and used by Washington Post)

The so-called Commonsense Principles of Corporate Governance are posted here mostly for my future reference, since I don’t know how long others will keep them on the internet. The authors are no radicals, but are a group of 13 executives from the country’s largest public companies and institutional investors… very much mainstream CEOs. Almost half hold both CEO and chair positions, a practice many investors consider bad corporate governance. The Commonsense Principles are supposed to “provide a basic framework for sound, long-term oriented governance” at public companies. Continue Reading →

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SHE Index to Promote Gender Diversity

Index to Promote Gender DiversityIndex to Promote Gender Diversity: From the Press Release

Index to Promote Gender Diversity announced by State Street Global Advisors (SSGA), the asset management business of State Street Corporation (NYSE: STT). Check out the SPDR® SSGA Gender Diversity Index ETF (Ticker: SHE). SHE seeks to track the performance of the SSGA Gender Diversity Index, which comprises listed US large capitalization companies with the highest levels within their sectors of gender diversity on their boards of directors and in their senior leadership.

I view this as a very positive development but also see it as an opportunity to take action by requesting that SSGA also vote its proxies to promote gender diversity. Continue Reading →

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Investing for the Long-Term: #CIIFall2015

Amy Borrus

Amy Borrus, CII

This was an interesting session from the Council of Institutional Investors Fall 2015 Conference in Boston. Please feel free to post corrections, counterpoints and additional relevant material on topic of Investing for the Long-Term, using the site’s comment feature. Find more posts from the conference on this site or Twitter by searching #CIIFall2015.

Investing for the Long-Term

Mark Grier, Vice Chairman, Prudential Financial
Ronald O’Hanley, President & CEO, State Street Global Advisors
Moderator: Theresa Whitmarsh, Executive Director, Washington State Investment Board Continue Reading →

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