It’s proxy season. Are you talking about ESG?
published 3.18.21
Investors want to know - what is your understanding of and commitment to environmental, social, and governance (ESG) issues? Don’t go another season without acknowledging ESG.
BlackRock’s and State Street Global Advisors’s CEO Letters and 2021 proxy voting guidelines for the U.S. and other major markets continue to drive home the necessity for companies to publicly demonstrate ESG integration and the evaluation of climate and social justice risks.
The SEC Investor Advisory Committee encouraged the SEC to develop a framework for ESG reporting and SEC filing.
2020 ended with a 50% increase in assets held in sustainable funds, as greater importance was placed on resilience during a crisis and long-term growth.
The pandemic accelerated– and further validated–ESG investing. Companies with strong ESG integration have (see here, here, and here) and will experience less volatility in the broader market.
Expect investors to ramp up their engagement with you. They want to understand your approach to ESG risks AND opportunities. Be sure to reference your ESG oversight and progress on material ESG issues in your corporate comms—starting with the proxy!
While each industry and, in fact, every company will have unique, nuanced ESG strategies, below are five topics you’ll highly want to consider summarizing and referencing in your 2021 proxy.
Corporate Governance
Investors are looking for ESG oversight at the board level. Whether it's the audit or nominating and governance committee (or even a committee solely focused on ESG), ensure there is a clear discernible mandate for ESG risks, strategy, and engagement. Describe the board’s line of sight for helping your company govern environmental and social issues and uphold commitments to stakeholders.
Workforce + Board Diversity
Moving forward, robust disclosure is the expectation—not the exception. At minimum, publish your EEO-1 data. It’ll serve as a baseline of comparability for investors. Then, supplement EEO-1 data with promotion, retention, and recruitment data across gender, race, ethnicity, and age for employees at all levels. To paint a complete picture, include a narrative about your company’s human capital strategy, diversity, equity, and inclusion (DEI) goals, and overall HCM targets. You’re helping investors get a sense of upward mobility and retention at your firm. For board diversity, specifically disclose data across gender, race, and ethnicity for your board and efforts towards diverse director recruitment.
Human Capital Management (Beyond Diversity)
2020 reinforced the impact of social issues on business continuity, long-term value creation, and innovation. Investors want to know how you are responding to complex and evolving social issues, particularly those tied directly to your talent—pay equity, health and safety, racial justice, retraining and development, and workforce adaptation. Take the opportunity to disclose any goals or policies you have in these areas to demonstrate an understanding and alignment with the most relevant issues in your industry.
Climate Risk (+ Environmental Disclosures)
Investors are looking beyond the basics of physical climate risks. For starters, include your company’s relevant climate change or environmental policies. Then, go further. Demonstrate how climate and other sustainability risks are integrated in your business strategy. Identify specific challenges and how you will overcome them. The inclusion of hard targets with progress metrics is always a best-in-class practice if you’re at that stage.
Carbon Emissions
Describe your company’s approach to reducing its carbon footprint internally at manufacturing facilities, physical locations, distribution centers, data centers, and within its supply chain. This means that if you aren’t yet accounting for your company’s carbon footprint (Scope 1, 2 and 3 GHG Emissions), put it in the budget. Investors are looking for capital expenditures as a key indicator of how a company is positioning itself for the future and how credible its intentions are. Best-in-class disclosures include quantifiable, forward looking, science-based reduction goals and targets. You’ll also want to include references to renewable energy sources, alignment with the Paris Agreement, and climate-related scenario analyses.
To learn more about our work helping companies design and communicate ESG strategies to boards, investors, and other key stakeholders, drop us a line.
by Sam Hartsock
Co-Founder
