update july 2021
Schlumberger catalogues up to 150 transition tech
help valuetrue.com, 2025report.com and xglasgow.com to develop grade 3 up esg curriculum - when we refer to grades we start with what teachers of those grade should be free to be curious about
here are references from recent esg paper by sec -us stock market leader - tell us if some of these links future shock you positively of negatively
Washington D.C.
June 28, 2021
Climate, ESG, and the Board of Directors: “You Cannot Direct the Wind, But You Can Adjust Your Sails”
1] Some version of the quote in the speech title has been attributed to numerous individuals going back to at least 1859, but I prefer to highlight the attribution to the incomparable Dolly Parton. See Quote Investigator.
[2] See Who is more powerful – states or corporations?, The Conversation (July 10, 2018).
[3] See Leah Rozin, Understanding the Board’s Role in ESG, NACD BoardTalk (Sept. 22, 2020)The coronavirus pandemic has heightened the perception that ESG factors can affect a company’s risk management and improve its resiliency. UBS, in a statement about sustainable investing after COVID-19, said that, “We expect increased investor focus on ESG considerations after COVID-19, with particular demand for greater corporate transparency and stakeholder accountability.” related content - Strategic Oversight of ESG: A Board Primer, - Environmental Social and GovernanceWEF Strategic Intelligence
[4] See Kellie Huennekens, ESG Disclosure in 2020 Proxy Statements, Nasdaq (May 13, 2020).
[5] See id. (“In terms of director skills, 42% of reviewed companies associated at least one director with expertise in environmental policy, sustainability, corporate responsibility or ‘ESG.’ While this is an increase from last year’s 30%, the nature of this expertise may not be clearly defined.”).
[6] See Ceres and KKS Advisors, Systems Rule: How Board Governance Can Drive Sustainability Performance (2018) (“While most large companies state that they oversee sustainability at the board level, only a minority have formal mandates and demonstrate board-management engagement on sustainability.”).
[7] See Huennekens, supra note 4.
[8] See Ceres, supra note 6, at 5 (“Most boards do not have directors with demonstrable sustainability expertise.).
[9] See Martin Lipton and William Savitt, Directors’ Duties in an Evolving Risk and Governance Landscape, Harvard Law School Forum on Corporate Governance (Sept. 19, 2019).
[10] See As You Sow, Record Breaking Year for Environmental, Social, and Sustainable Governance Shareholder Resolutions (June 24, 2021) (“Eight climate change proposals earned more than 50% and resulted in the two highest votes of the year.”); see also Jackie Cook and Lauren Solberg, Hints of Sea Change in Big Fund Company ESG Proxy Votes, Morningstar (May 12, 2021) (“From the beginning of January, and with about seven weeks of proxy season to go--average shareholder support for ESG resolutions is up by 12% over the same period last year, at 44%.”).
[11] See As You Sow, 98% of Shareholders Want GE to Take Climate Action (May 4, 2021).
[12] See Ceres, In historic votes, shareholders demand strong climate action from the U.S. oil and gas industry (May 12, 2021).
[13] See Interfaith Center on Corporate Responsibility, Shareholders Approve a Climate Lobbying Proposal at Delta, Continuing a Winning Streak that Shows the Importance of Paris-Aligned Climate Policy (June 17, 2021).
[14] See Ross Kerber, Amazon pressed for racial equity review after strong vote tally, Reuters (May 28, 2021).
[15] See Ben Maiden, Almost 40 percent support JPMorgan Chase racial equity audit, Corporate Secretary (May 25, 2021).
[16] See Eleanor Laise, Shareholders fight to rein in risk by demanding transparency into public companies’ political spending, MarketWatch (May 19, 2021).
[17] See Matt Phillips, Exxon’s Board Defeat Signals the Rise of Social-Good Activists, The New York Times (June 9, 2021); Gwen Le Berre, Not-So-Silent Spring: Exxon and the Vote Heard Round the World, Parametric (June 17, 2021).
[18] See The White House, Fact Sheet: President Biden Sets 2030 Greenhouse Gas Pollution Reduction Target Aimed at Creating Good-Paying Union Jobs and Securing U.S. Leadership on Clean Energy Technologies (Apr. 22, 2021).
[19] See, e.g., IOSCO, IOSCO sees an urgent need for globally consistent, comparable, and reliable sustainability disclosure standards and announces its priorities and vision for a Sustainability Standards Board under the IFRS Foundation (Feb. 24, 2021).
[20] See, e.g., Robert Tuttle, Maine Becomes First State to Order Public Fossil-Fuel Divestment, Bloomberg (June 17, 2021); Ross Kerber and Kanishka Singh, NYC pension funds vote to divest $4 billion from fossil fuels, Reuters (Jan. 25, 2021).
[21] See Acting Chair Allison Herren Lee, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021); Office of Information and Regulatory Affairs, Securities and Exchange Commission Agency Rule List – Spring 2021.
[22] For a summary of the evolution of Corporate Social Responsibility, see Mauricio Andrés Latapí Agudelo, Lára Jóhannsdóttir & Brynhildur Davídsdóttir, A literature review of the history and evolution of corporate social responsibility, 4 Intl. J. of Corp. Soc. Resp. 1 (2019).
[23] See Sarah Barker, An Introduction to Directors’ Duties in Relation to Stranded Asset Risks, in Stranded Assets and the Environment (Routledge 2018) (“Historically, debates around the extent to which directors must, and indeed whether they may, have regard to issues associated with climate change was centred on the first sub-set of duties – those relating to trust and loyalty. This debate largely took place within the context of broader discussions of ‘corporate social responsibility’ (or ‘CSR’).The CSR debate focuses on the scope of directors’ duties and to whom they are owed; specifically, whether the ‘best interests of the corporation’ for which a director must govern are limited to profit and shareholder wealth maximisation (to which social or environmental concerns are peripheral; ‘shareholder primacy’ theory), or, at the other end of the spectrum, whether directors’ duties are owed not only to shareholders but to other stakeholders whose interests are impacted by corporate activities (such as employees, the community and the natural environment; ‘stakeholder theory’). Historically, the CSR literature largely framed climate change (and, by implication, risks associated with it) as an ‘ethical’ or ‘environmental’ issue, whose impact on financial risk/return was either negative or immaterial.”) (internal citations omitted).
[24] See Milton Friedman, A Friedman Doctrine -- The Social Responsibility of Business Is to Increase Its Profits, The New York Times (Sept. 13, 1970).
[25] See, e.g., Bank of America/Merrill Lynch, Equity Strategy Focus Point, ESG Part II: a deeper dive (June 15, 2017) (“Prior to our work on ESG, we found scant evidence of fundamental measures reliably predicting earnings quality. If anything, high quality stocks based on measures like Return on Equity (ROE) or earnings stability tended to deteriorate in quality, and low quality stocks tended to improve just on the principle of mean reversion. But ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.”); see also Mozaffar Khan, et al., Corporate Sustainability: First Evidence on Materiality, 91 Acct. Rev. 1697 (2018) (“Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues.”); Gunnar Friede, Timo Busch & Alexander Bassen, ESG and financial performance: aggregated evidence from more than 2000 empirical studies, 5 J. of Sustainable Fin. and Inv. 210 (2015) (finding that a majority of studies show positive correlations between ESG and financial performance); Robert G. Eccles, Ioannis Ioannou, and George Serafeim, The Impact of Corporate Sustainability on Organizational Processes and Performance, 60 Mmgt. Sci. 2835 (2014) (“[W]e provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.).
[26] Business Roundtable, Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’ (Aug. 19, 2019).
[27] See Basel Committee on Banking Supervision, Climate-related risk drivers and their transmission channels (Apr. 2021) (“Climate related financial risks could impact the safety and soundness of individual financial institutions, giving rise to broader financial stability implications within the banking system. . . . There is broad consensus within literature that climate risk drivers can be grouped into one of two categories: Physical risks, which arise from the changes in weather and climate that impact the economy; and Transition risks, which arise from the transition to a low-carbon economy.”); Network for Greening the Financial System, The Macroeconomic and Financial Stability Impacts of Climate Change (June 2020) (“More frequent or severe extreme weather events and/or a late and abrupt transition to a low-carbon economy could have significant impacts on the financial system, with potential systemic consequences.”); Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission, Managing Climate Risk in the U.S. Financial System, Report of the Climate-Related Market Risk Subcommittee, (Sept. 9, 2020) (“A central finding of this report is that climate change could pose systemic risks to the U.S. financial system.”).
[28] See, e.g., Climate Action 100+, an investor-led initiative representing more than 540 investors, with over $51 trillion in assets under management, committed to improving climate change governance, cutting emissions, and strengthening climate-related financial disclosures); TCFD Supporters (representing a market capitalization of over $12 trillion); Principles for Responsible Investment (PRI) (representing over $90 trillion in assets under management).
[29] See Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles, Amanda S. Blackett, and Kathleen C. Iannon, Wachtell, Lipton, Rosen & Katz, It’s Time To Adopt The New Paradigm (Feb. 11, 2019) (summarizing the views of BlackRock, State Street, and Vanguard, embracing an emphasis on sustainability and ESG issues and their relationship to investment value); Blackrock, Toward a Common Language for Sustainable Investment (Jan. 2020) (“Our investment conviction is that sustainability-integrated portfolios – composed of more sustainable building-block products – can provide better risk-adjusted returns to investors. With the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward.”); State Street Global Advisors, The ESG Data Challenge (Mar. 2019) (“Asset owners and their investment managers seek solutions to the challenges posed by a lack of consistent, comparable, and material information. Investors increasingly view material ESG factors as being critical drivers of a company’s ability to generate sustainable long-term performance. In turn, ESG data has increasing importance for investors’ ability to allocate capital most effectively.”); British Columbia Investment Management Coalition, CEOs of eight leading Canadian pension plan investment managers call on companies and investors to help drive sustainable and inclusive economic growth (Nov. 25, 2020) (“[T[hey call on companies and investors to provide consistent and complete environmental, social, and governance (ESG) information to strengthen investment decision-making and better assess and manage their collective ESG risk exposures.”).
[30] See Ceres, Running the Risk: How Corporate Boards Can Oversee Environmental, Social and Governance (ESG) Issues (Nov. 2019).
[31] See 15 U.S.C. § 78j–1; 17 CFR § 240.10A-3.
[32] See NYSE Listed Company Manual Section 303A.07; see also Nasdaq Listing Rule 5605.
[33] See PCAOB AS 1301.
[34] See FASB, Staff Educational Document, Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards (Mar. 19, 2021).
[35] See, e.g., Commission Statement and Guidance on Public Company Cybersecurity Disclosures, Rel. No. 33-10459 (Feb. 21, 2018) (“Crucial to a public company’s ability to make any required disclosure of cybersecurity risks and incidents in the appropriate timeframe are disclosure controls and procedures that provide an appropriate method of discerning the impact that such matters may have on the company and its business, financial condition, and results of operations, as well as a protocol to determine the potential materiality of such risks and incidents. In addition, the Commission believes that the development of effective disclosure controls and procedures is best achieved when a company’s directors, officers, and other persons responsible for developing and overseeing such controls and procedures are informed about the cybersecurity risks and incidents that the company has faced or is likely to face.”).
[36] See Commission Guidance Regarding Disclosure Related to Climate Change, Rel. No. 33-9106 (Feb. 8, 2010).
[37] See 17 CFR § 229.101(c).
[38] See 17 CFR § 229.407(h).
[39] See Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939) (“Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest.”); see also William M. Lafferty, Lisa A. Schmidt, and Donald J. Wolfe, Jr., A Brief Introduction to the Fiduciary Duties of Directors Under Delaware Law, 116 Penn. St. L. Rev. 837, 840 (2012) (“The fiduciary duties of care and loyalty are applicable to all board decisions.”).
[40] The duty of care focuses on the process by which directors exercise their “business judgment” not on the outcome of the decision. It essentially requires that directors act in good faith and with adequate information. See Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985).
[41] See Lisa Benjamin, The Road to Paris Runs through Delaware: Climate Litigation and Directors’ Duties, 20 Utah L. Rev 313, 356 (2020) (“The duty of care requires that directors make decisions in a carefully considered manner. Courts want to know that directors have considered all material information reasonably available to them, and this now includes climate risks and opportunities based on the best scientifically available information and best industry practice.”).
[42] See Lafferty, supra note 38, at 847 (“The duty of loyalty includes a director’s obligation to act in good faith. Although the duty of good faith was once considered a free-standing duty under Delaware law, more recent decisions treat the concept of good faith as a part of the duty of loyalty. A director violates the duty of good faith when that director intentionally acts with a purpose other than that of advancing the best interests of the corporation, where the fiduciary acts with the intent to violate applicable positive law, or where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.”); Peter A. Atkins, Marc S. Gerber, Edward B. Micheletti, and Robert S. Saunders, Skadden, Directors’ Fiduciary Duties: Back to Delaware Law Basics (Feb. 19, 2020) (“Particular attention has been focused on oversight of compliance with law and related company protocols in highly regulated mission-critical aspects of a company’s business. As applied there, this duty will be breached if directors (a) consciously fail to implement a board-level system to monitor reasonably company compliance with applicable law and related company protocols, or (b) having implemented such a system, consciously ignore red flags signaling material company noncompliance with such law and protocols.”).
[43] See Barker, supra note 23 (“[I]t is at least theoretically possible that a claim under the second (or ‘red flags’) limb of the Caremark test may arise for consideration in a stranded assets risk context. In particular, such a claim may be constructed where a corporation suffers significant harm (such as legal costs, damages awards or loss in stock value) due to a failure to comply with … emissions regulations: for example, due to the technical inability of a company in an emissions-intensive industry to adapt to more stringent emissions controls (as starkly illustrated in the recent ‘Dieselgate’ scandal involving automotive giant VW); … or securities law obligations: regarding the disclosure of climate-related risks. This could include for example, the 2015 settlement between the New York Attorney General (NYAG) and Peabody Coal relating to the selective disclosure of forward-looking demand scenarios, and inconsistency between Peabody’s stated position on the potential climate risks and its internal analysis; or the current Securities & Exchange Commission (SEC) and NYAG investigations into ExxonMobil’s climate risk disclosures and failure to revalue its proven reserves despite a collapse in the price of oil.”) (internal citations omitted).
[44] See Nurlan Orazalin, Do board sustainability committees contribute to corporate environmental and social performance? The mediating role of corporate social responsibility strategy, 29 Bus. Strat. and the Env. 140 (2020) (finding that “the presence of a sustainability committee improves the effectiveness of CSR strategies”).
[45] See Ceres, supra note 29, at 3.
[47] See World Economic Forum, Integrated Corporate Governance: A Practical Guide to Stakeholder Capitalism for Boards of Directors, 6 (June 2020).
[48] See BlackRock, Our 2021 Stewardship Expectations (2021).
[49] See, State Street, CEO’s Letter on Our 2021 Proxy Voting Agenda (January 11, 2021).
[50] See Matteo Tonello, 2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020), Harvard Law School Forum on Corporate Governance (Feb. 11, 2021) (“In March 2020, ISS announced the launch of a new specialty voting policy on climate-related factors. Under the new policy, the proxy advisor will recommend adverse votes on the re-election of board members in situations where the company appears (based on signals such as inadequate disclosure, norm violations, or the assessment of sector-specific materiality metrics) to have ‘failed to sufficiently oversee, manage or guard against material climate-change related risks.’ In November 2020, Glass Lewis followed suit with a similar revision to its voting policies for S&P 500 companies, where the inadequate disclosure of environmental issues will first be noted as a concern in research reports and then, starting in 2022, trigger a recommendation to vote against the governance committee chair.”).
[51] See Ceres, supra note 29, at 6.
[52] See id.
[53] See Jeffrey Karpf, Sandra Flow, and Mandeep Kalra, Board Composition and Shareholder Proposals, Harvard Law School Forum on Corporate Governance (Jan. 28, 2020).
[54] See Comment Letter from Vanguard (June 11, 2021).
[55] See Tensie Whelan, U.S. Corporate Boards Suffer from Inadequate Expertise in Financially Material ESG Matters, NYU Stern School of Business (forthcoming) (Jan. 11, 2021) (“We reviewed 1188 individual Fortune 100 board member credentials to determine whether companies with material ESG risks and opportunities had relevant expertise on their boards. We found that very few sectors and very few companies were adequately prepared at the board level for issues that were already affecting their performance -- for example one property and casualty insurance company has no environmental expertise on the board in a year experiencing $100 billion in damage caused by climate change-heightened extreme weather events.”).
[56] See Ceres, Lead from the Top: Building Sustainability Competence on Corporate Boards (2017).
[57] See Rajesh K. Aggarwal and Carola Schenone, Incentives and Competition in the Airline Industry, 8 Rev. of Corp. Fin. Studies 380 (2019).
[58] See Emily Glazer and Theo Francis, CEO Pay Increasingly Tied to Diversity Goals, Wall Street Journal (June 2, 2021).
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