NEW: Wachtell discusses proposed Department of Labor rules that would limit Employee Retirement Income Security Act-governed investment based on Environmental, Social, & Governance factors rather than solely on stockholder returns, noting that ESG funds have demonstrated superior performance, and speculating that the proposed rules would increase demand for ESG-related data to support investment decisions in DOL Proposes New Rules Regulating ESG Investments.
Tulane Law’s Professor Ann Lipton notes that the Department of Labor approved inclusion of private equity investments in 401(k) plans and proposed new rules that discourage Employee Retirement Income Security Act-regulated retirement plan investment based on Environmental, Social, & Governance factors by requiring that investments be based “solely on pecuniary factors that have a material effect on the return and risk of an investment” in Private Equity In, ESG Out.
FTI Consulting reports, based on communications with companies and investors, that attempts to address “Social” considerations under an Environmental, Social, & Governance framework have contributed to business risk and caused reputational damage in Time to Rethink the S in ESG.
The New York Times reports that the Department of Labor has proposed rules governing investments under the Employee Retirement Income Security Act preventing investments based on Environmental, Social, & Governance factors that “subordinate return or increase risk for the purpose of nonfinancial objectives” in Labor Dept. seeks to Restrict Social Goals in Retirement Investing.
Davis Polk discusses a proposed Department of Labor rule proposed rule governing investments under the Employee Retirement Income Security Act requiring that only “pecuniary factors” be used to evaluate investments, to the exclusion of Environmental, Social, & Governance factors that sacrifice return or increase costs or risk in Department of Labor Proposes Investment Duties Rule Affecting ESG Investments.
The Need for Employee Buy-in for ESG to Work examines the relationship between Environmental, Social, & Governance considerations, employee satisfaction, and financial value, finding that neither ESG practices nor employee satisfaction alone improve financial value, but the combination of ESG practices and employee satisfaction had a large effect on financial value.
Wachtell’s Kirby Smith and Leo E. Strine, Jr. propose the use of compensation committees having responsibility for a company’s entire workforce rather than just senior management, tasked with ensuring that workers are fairly compensate in How A Reconceived Compensation Committee Can Help Tackle Inequality.
The Board Director Training Institute of Japan’s Nicholas Benes discusses possible means of effecting sustainability-oriented corporate governance, noting potential limitations of Environmental, Social, & Governance as insufficiently tied to incentives, and proposing inventive-based reforms in Redesigning Corporations: Incentives Matter.
Wachtell discusses how corporate directors should incorporate Environmental, Social, & Governance and stakeholder-oriented considerations into board decision-making processes in A Framework for Management and Board of Directors – Consideration of ESG and Stakeholder Governance.
Is Stakeholderism Bad for Stakeholders? responds to recent academic arguments that corporate focus on stakeholder interests will harm stakeholders and that shareholder value maximization remains the proper purpose of the corporation, asserting that objections are not inherently harmful to stakeholders, and depend on proper implementation of stakeholder-oriented reforms.
How Corporate and Securities Laws Affect Social Responsibility and Corporate Purpose discusses the role of state corporate law and federal securities regulation in promoting the role of corporates social responsibility and environmental, social, and governance concerns, and advocates for ways in which the law can better accommodate corporate promotion of such concerns.
UCLA’s Professor Stephen Bainbridge discusses research in Environmental & Social Voting at Index Funds, which supports the conclusion that passively managed index funds, despite touting commitments to Environmental, Social, and Governance objectives, do not meaningfully participate in ESG activism in ESG Voting by Index Funds.
How Committed Are Active-Investment Managers to ESG? examines active fund managers’ commitments to Environmental, Social, and Governance principles based on compliance with voluntary commitments to the United Nations 2006 Principles for Responsible Investment, concluding that only certain funds improve ESG while many others use their commitment to the Principles for Responsible Investment to attract capital without notable changes to ESG, and suggest the need of metrics to assess compliance, greater investor oversight of investment managers, and greater transparency by investment managers.
Wachtell discusses Environmental, Social, and Governance-related scenario analysis disclosures and the need to take precautions to ensure that such disclosures are not misleading, providing examples of such disclosures in ESG Disclosures and Litigation Concerns.
Schulte Roth & Zabel discusses the EU regulation on Sustainability-Related Disclosures, scheduled to take effect in March 2021, and related legislation that establishes a framework for classifying financial products as “sustainable investments,” in New ESG Disclosure Obligations.
Is Managerial Entrenchment Always Bad and Corporate Social Responsibility Always Good? examines simultaneous adoption of managerial entrenchment and corporate social responsibility governance provisions, finding evidence that in the absence of entrenchment provisions, market discipline reduces managers’ incentives to invest in long-term relationships with stakeholders and increases incentives to spend company resources generously on symbolic CSR activities.
ShareAction explores the role and influence of proxy advisors, analyzing their recommendations on Environmental, Social, & Governance shareholder resolutions compared to asset managers’ voting decisions in Another Link in the Chain: Uncovering the Role of Proxy Advisors in Investor ESG Voting.
Wachtell responds to The Illusory Promise of Stakeholder Governance — a critical analysis of stakeholder primacy proposed in the Business Roundtable’s 2019 Statement that questions its efficacy and warns against its adoption — in Professor Bebchuk’s Errant Attack on Stakeholder Governance.
Cooley discusses a recent report by Morningstar — Proxy Voting by 50 U.S. Fund Families — on institutional investor voting on Environmental, Social, and Governance-related proposals, noting that support has increased over a five-year period but the largest funds have consistently voted against such proposals in How do the largest fund families vote on shareholder proposals related to ESG?
The Illusory Promise of Stakeholder Governance critically examines stakeholder primacy proposed in the Business Roundtable’s 2019 Statement, distinguishing between two versions of “stakeholderism” — “enlightened shareholder value” and “pluralistic” — and conducts economic and empirical analyses of their expected consequences, concluding that stakeholderism will not benefit stakeholders, but would impose substantial costs on shareholders, stakeholders, and society (disagreeing with academics signatories of the Corporate Governance for Sustainability Statement).
NEW: Wachtell discusses board legal obligations, and adjustment to board functions, communications, and engagement in response to increasing investor concern over Environmental, Social, & Governance, stakeholder interests, and sustainable long-term investment strategies in Spotlight on Boards.
NEW: FTI Consulting discusses issues of likely importance to companies in connection with anticipated adoption of Environmental, Social, & Governance-related practices in Top 10 ESG Trends for the New Decade.
Wachtell discusses the relevance of corporate income tax to Environmental, Social, and Governance disclosure, noting the likelihood of tax arbitrage — shifting profit among jurisdictions — as a focus, and possible governance risks that may arise in response to aggressive tax planning in Tax and ESG.
Morrow Sodali’s John Wilcox discusses approaches to defining corporate purpose and corporate culture in the evolving governance environment that increasingly emphasizes Environmental, Social, and Governance, sustainability, and stakeholder interests in Corporate Purpose and Culture.
Wachtell suggests that Environmental, Social, and Governance considerations will increasingly impact M&A activity, discussing their relevance to due diligence and communications regarding transactions, as well as differential concerns between acquirer and target concerns, and the relationship between ESG performance and cost of capital in The Coming Impact of ESG on M&A.
Stewardship and Collective Action: The Australian Experience discusses collective action of investors in promoting corporate stewardship utilizing Australian stewardship codes, and suggests considerations for development of policy guiding investor participation in corporate governance in other jurisdictions.
Eric Scheiner and Jennifer Quinn Broda of Kennedys discuss risks that companies may assume in efforts to satisfy or failure to meet corporate social responsibility objectives having potential implications for D&O insurers and policyholders in Potential D&O Risks Arising from Corporate Social Responsibility.
Wachtell discusses BlackRock’s recent announcements regarding its commitment to sustainability as a key focus of its investment strategy in Sustainability in the Spotlight.
The CFA Institute discusses the results of surveys addressing how finance professionals and investors believe investments can support environmental, social, and governance objectives without undermining their monetary value in Sustainable Value for Money: How to reconnect finance with the needs of society.
McKinsey discusses socioeconomic risks attributable to climate change, and considerations for companies and governments Integrating climate risk into decision-making in Climate risk and response: Physical hazards and socioeconomic impacts.
Cooley discusses a McKinsey study of the economic effects of climate change as a possible impetus supporting increased focus of financial investors on issues of sustainability in McKinsey looks at socioeconomic impact of climate risk.
BlackRock discusses the ways in which it is accelerating integration of sustainability into technology, risk management, and investment in Sustainability as New Standard for Investing.
Cooley discusses BlackRock’s recent announcements regarding its commitment to sustainability as a key focus of its investment strategy in BlackRock puts sustainability at the center of investment strategy, expects more transparency in sustainability disclosure.
BlackRock discusses the economic consequences of climate change and its commitment to making sustainability the center of its investment strategy in A Fundamental Reshaping of Finance.
The Role of ESG in the Financial Performance of Banks finds a positive correlation between the return on assets and Environmental, Social, & Governance performance for European banks.
ISS discusses the link between Environmental, Social, & Governance performance and financial performance, presenting evidence that firms with favorable ESG performance ratings are more profitable, less volatile, good allocators of capital, and less cyclical, in ESG Matters.
Morningstar discusses “encouraging” findings from proxy votes of large asset managers in 2019 demonstrating support for shareholder-proposed sustainability resolutions, while noting that the largest fund providers were significantly less supportive of such resolutions, in How Can Fund Providers Protect the Future for Worker-Investors?
State Street discusses the results of a global survey of Environmental, Social, & Governance investing, noting factors affecting adoption and barriers to adoption of ESG factors by institutional investors Into the Mainstream: ESG at the Tipping Point.