An increasing number of institutional investors have begun to include environmental and social (E&S) considerations within their established risk-return analysis framework. Pledges by asset managers State Street Global Advisors and BlackRock indicate that these firms may focus more efforts towards taking voting action in favor of shareholder proposals that address material E&S issues. Investors will likely articulate their concerns much more often by voting against specific directors, committee members or entire boards. Vanguard has generally been less vocal on E&S topics, but on April 1 released an update on the 2020 Proxy Season recognizing the impact of Covid-19 and at the same time reminding companies that “climate change presents a pressing and concerning risk to long-term shareholder value.”
If a company has not yet assembled an environmental, social and governance (ESG) task force, it may now want to consider its creation. Once the task force is assembled, companies may want to invest time in understanding the company’s shareholder composition, including which reporting standards and frameworks, as well as data providers and ESG rating organizations, their investors use.
Consider prior engagement feedback as well as potentially engaging in additional off-season outreach to specifically discuss ESG matters with significant investors or other key stakeholders. With this information in hand, the ESG task force can then be in position to develop investor-focused ESG disclosure and appropriately embed oversight of ESG matters within the board and committee agendas.