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Commentary

Commentary

02/19/20 [UPDATED] ESG

NEW: 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.

02/17/20 [UPDATED] Executive Compensation

NEW:  Willis Towers Watson reports that the use of retention requirements precluding corporate executives from selling equity awarded under incentive plans immediately upon vesting has nearly doubled over the past decade in CEO Stock Incentives Increasingly Tied to Stock Ownership and Retention.

Are CEOs Encouraged to Take Too Much Risk? investigates the relationship between CEO compensation is related to health and safety violations, non-compliance with labor laws, and other workforce-related violations, finding evidence suggesting that CEO risk-taking incentives are positively related to the frequency and the severity of workplace violations.

02/17/20 [UPDATED] ESG and the Business Roundtable Statement

NEW: Fasken Martineau observes that although the Business Roundtable’s 2019 Statement proposing a shift away from shareholder primacy has been criticized as likely to undermine corporate effectiveness, Canadian corporations have effectively functioned under such a system for some time in Shareholder Governance, “Wall Street” and the View from Canada.

Wachtell’s Martin Lipton discusses the need to prioritize companies’ long-term growth and sustainability, and a framework for corporate governance promoting those priorities in Embracing the New Paradigm.

Wachtell’s Martin Lipton responds to arguments by the Council of Institutional Investors opposing a shift away from shareholder primacy proposed by the Business Roundtable’s 2019 Statement in Wachtell Lipton Discusses Purpose, Stakeholders, ESG, and Sustainable Long-Term Investment.

Veritas Executive Compensation’s Frank B. Glassner discusses the implications of the Business Roundtable’s 2019 Statement for corporate sustainability reporting in A Common-Sense Approach to Corporate Purpose, ESG and Sustainability — which is strikingly similar to Morrow Sodali’s John C. Wilcox’s October 26, 2019 discussion of the implications of the Business Roundtable’s 2019 Statement for corporate sustainability reporting, also titled A Common-Sense Approach to Corporate Purpose, ESG and Sustainability.

Seiden Krieger Executive Search’s Steven A. Seiden discusses considerations for recruitment of corporate directors in view of the Business Roundtable’s 2019 Statement. Recruiting ESG Directors.

02/17/20 [UPDATED] Disclosures

NEW:  Reuters reports that a study of corporate disclosures on management of social and environmental risk required under the European Union’s 2018 Non-Financial Reporting Directive revealed “big gaps between many companies’ words and action,” in Sustainability disclosures by European companies generally poor: study.

ESG Performance and Disclosure: A Cross-Country Analysis examines the relationship between ESG factors, disclosure, and financial performance across countries with varying policies imposing ESG disclosure requirements, finding correlation between quantity of disclosures and quality of data, and no relationship between ESG and risk-adjusted returns, but a small effect on volatility.

The U.S. Chamber of Commerce discusses proposed guidelines for Environmental, Social & Governance disclosures in ESG Reporting Best Practices.

Ernst & Young discusses corporate disclosures relating to human capital and culture in How and Why Human Capital Disclosures are Evolving.

Davis Polk discusses best practice guidelines for Environmental, Social & Governance disclosures proposed by the U.S. Chamber of Commerce. Chamber of Commerce Releases Best Practices for Voluntary Environmental, Social & Governance (ESG) Disclosure.

02/14/20 [UPDATED] Board Diversity

NEWS:  Cooley reports findings that California’s California’s SB 826 board gender diversity statute has led to significant gains in board diversity, and discusses other states that have introduced similar legislation in Will other states follow California in adopting board gender diversity mandates?

Reuters reports Goldman Sachs’ announcement that from June 30, it will only help take companies having at least one diverse member company, citing superior performance of such companies after going public, in Goldman Sachs to companies: Hire at least one woman director if you want to go public.

Spencer Stuart discusses key takeaways from the 2019 U.S. Spencer Stuart Board Index finding that boards have increasingly added new directors with diversity of gender, age, race/ethnicity and professional backgrounds, but that board turnover remains low, with new directors representing only 8% of all S&P 500 directors. 2019 U.S. Spencer Stuart Board Index.

Deloitte discusses the latest statistics on global boardroom diversity, efforts to increase gender diversity in 66 countries, and political, social, and legislative trends. Women in the Boardroom: A Global Perspective.

Keith Paul Bishop discusses a study of negative effects of California’s SB 826, imposing gender quotas on the boards of publicly traded companies headquartered in California. Business Professors Find “Large Negative Stock Market Reaction” To California’s Board Quota Law.

The New York City Comptroller calls on boards of directors to adopt a policy requiring that searches for director and officer candidates include qualified female and racially/ethnically diverse candidates, and candidates from non-traditional environments such as government, academic, or non-profit. NYC Comptroller Boardroom Accountability 3.0.

Davis Polk’s Betty Moy Huber and Paula H. Simpkins report findings from the 2019 U.S. Spencer Stuart Board Index that S&P 500 companies are accelerating the addition of women and minority directors. Spencer Stuart Shows How Boards Are Transforming.

02/14/20 [UPDATED] ESG & Standardization

NEW:  Lene Powell discusses the European Securities and Markets Authority’s Strategy on Sustainable Finance, which proposes to embed Environmental, Social, and Governance factors in its work relating to transparency, risk analysis, investing, and convergence of national practices on taxonomy and supervision of ESG factors in ESMA lays out strategy on ESG factors.

Wachtell discusses the World Economic Forum’s draft of a proposed standardized Environmental, Social, and Governance  disclosure framework — Toward Common Metrics and Consistent Reporting of Sustainable Value Creation — in Accelerating ESG Disclosure — World Economic Forum Task Force.

Wachtell discusses State Street’s announcement of its intent to take voting action against board members at companies that lag in Environmental, Social, & Governance performance in Wachtell Lipton Discusses State Street’s Voting Push on Financially Material ESG Matters.

Clear Gottlieb reports that the SEC chose not to include specific disclosure requirements on climate change or other Environmental, Social, & Governance issues in proposed amendments to Management Discussion and Analysis regulations in SEC Maintains the Status Quo on Climate Change Disclosures.

State Street announces its intent to take voting action against board members at companies that lag in Environmental, Social, & Governance performance according to a standardized measuring system in CEO Letter to Board Members Concerning 2020 Proxy Voting Agenda.

Commissioner Allison Herren Lee of the Securities and Exchange Commission objects to the Commission’s failure to address disclosure around climate change risk in its recent proposed amendments to Regulation S-K disclosure requirements in Statement by Commissioner Lee on “Modernizing” Regulation S-K: Ignoring the Elephant in the Room.

Davis Polk reports that SEC Chairman Jay Clayton issued a January 30, 2020 statement supporting proposed amendments to financial disclosure requirements, noting that the statement includes additional, unrelated Discussion of Environmental and Climate-Related Disclosure Efforts, which is summarized in SEC Chairman Releases Statement on Proposed Changes to Financial Reporting and Discusses Climate-Related Disclosure.

Cooley discusses possible reporting frameworks for sustainability disclosure in World Economic Forum and Big Four propose new sustainability reporting framework.

BlackRock discusses the need to achieving a common understanding of what is expected from financial products with “sustainable investment” themes in Towards a Common Language for Sustainable Investing.

Wachtell discusses BlackRock’s endorsement standards developed by the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures  BlackRock Nudges Companies Toward a Common Standard (SASB + TCFD).

Tulane Law’s professor Ann Lipton discusses standardization of metrics used to quantify “sustainability” or corporate compliance with Environmental, Social, and Governance initiatives in What is ESG Anyway?

02/14/20 Climate Change Disclosure

NEW:  Columbia Law School’s Millstein Center discusses demographic and regional differences in directors’ and investors’ expectations around climate-related issues and disclosure and how boards and companies are engaging on climate issues internally and externally in The Results Are in: Global Investor-Director Survey on Climate Risk Management.

Cooley discusses statements by SEC Commissioners regarding the issue of climate disclosure, noting that the debate should be understood in the context of increased investor interest in sustainability disclosure, and challenges created by the absence of common standards for Environmental, Social, & Governance reporting, in SEC debate on climate disclosure regulation gets heated.

Cleary Gottlieb reports that the SEC chose not to include specific disclosure requirements on climate change or other Environmental, Social, & Governance issues in proposed amendments to Management Discussion and Analysis regulations in SEC Maintains the Status Quo on Climate Change Disclosures.

Commissioner Allison Herren Lee of the Securities and Exchange Commission objects to the Commission’s failure to address disclosure around climate change risk in its recent proposed amendments to Regulation S-K disclosure requirements in Statement by Commissioner Lee on “Modernizing” Regulation S-K: Ignoring the Elephant in the Room.

Davis Polk reports that SEC Chairman Jay Clayton issued a January 30, 2020 statement supporting proposed amendments to financial disclosure requirements, noting that the statement includes additional, unrelated Discussion of Environmental and Climate-Related Disclosure Efforts, which is summarized in SEC Chairman Releases Statement on Proposed Changes to Financial Reporting and Discusses Climate-Related Disclosure.

McKinsey discusses socioeconomic risks attributable to clime 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.

02/12/20 [UPDATED] Shareholder Primacy, Employee Board Representation

NEW:  Long-Term Stock Exchange’s Michelle Greene summarizes concerns that have led to current sentiment questioning the “shareholder primacy” doctrine and proposing corporate consideration of stakeholder interests, and proposed strategies for stakeholder engagement and involvement, particularly of employees, in corporate governance in Let’s Get Concrete About Stakeholder Capitalism.

Glass Lewis discusses employee participation in corporate strategy and decision-making through ownership of company stock and representation on the board of directors, with examples of those practices in Germany, in Worker Participation: Employee Ownership and Representation.

Worker Representation on U.S. Corporate Boards advocates inclusion of employee representatives on corporate boards of directors, proposes reforms, and discusses considerations for implementation of employee board representation.

Labor in the Boardroom examines possible consequences of including employee representatives on corporate boards by comparing production, wage, and financial metrics at companies before and after abolition of a German law requiring that one-third of stock corporations’ board seats be elected by employees, where stockholders solely controlled newly incorporated stock corporations.