The week in GRC: JPMorgan and State Street exit CA100+ and Gensler says SEC crafting climate rule that holds up in court

– CNBC reported that a US judge in a court filing ordered that Tesla and SpaceX CEO Elon Musk must testify in a probe by the SEC into his 2022 acquisition of Twitter. The SEC is investigating whether Musk, or anyone else, committed securities fraud in 2022 as he began buying stock in Twitter and building a stake ahead of his leveraged buyout of the social media company.

In the order, federal magistrate judge Laurel Beeler wrote that although Musk and his legal team argued the SEC’s subpoena in this matter amounted to harassment of the billionaire, the agency was ‘within its authority’ and its subpoena was ‘definite and seeks relevant information’ to its investigation.

Musk and his attorney did not immediately respond to requests for comment. A spokesperson for the SEC declined to comment ‘beyond the public filings for this matter.’

– Bloomberg (paywall) reported that activist investor Carl Icahn took a 9.91 percent stake in JetBlue Airways Corp with plans to seek at least one seat on the board and the aim of boosting shareholder value following the near-collapse of the company’s deal to buy Spirit Airlines. According to a filing, the investor has already held talks with company leaders ‘regarding the possibility of board representation’.

‘We are always open to constructive dialogue with our investors as we continue to execute our plan to enhance value for all of our shareholders and stakeholders,’ JetBlue said in a statement after Icahn’s stake was disclosed.

Icahn did not respond to requests for comment.

– According to Reuters (paywall), Phillips 66 said it has appointed energy industry veteran Robert Pease to its board after activist investor Elliott Investment Management urged the oil refiner and pipeline operator to overhaul its board. In a letter in November, Elliott criticized Phillips 66 for its refining operations, urging the company to add directors with refining experience.

Phillips 66 said Pease will join the board immediately and that it will work with Elliott to identify a second director that both sides are happy with in the coming months. The board now has 14 directors, including 12 who are independent. To address concerns, Phillips 66 executives had already unveiled a plan to increase returns by cutting costs.

‘We have worked collaboratively with Phillips 66 on the board’s appointment of Bob, who will bring extensive experience in refining and the energy industry more broadly,’ said Elliott partner John Pike and senior portfolio manager Mike Tomkins in a statement.

Pease’s ‘refining experience, leadership and energy expertise will add to the board’s oversight of the company as we advance our strategic priorities and deliver long-term, sustainable value,’ said Greg Garland, executive chair of Phillips 66’s board, in a statement.

– US companies are hiring fewer people for roles related to ESG issues as finance executives assess costs and seek faster returns on investments, The Wall Street Journal (paywall) reported. ESG job departures exceeded arrivals for half the months of last year, marking the reversal of a multi-year trend. Companies had 3,071 ESG departures and 2,897 arrivals in December 2023, according to employment data provider Live Data Technologies. Tech, financial services and consulting companies were particularly active in terms of ESG departures, representative of broader cutbacks in those industries, including layoffs in some cases.

Most companies continue to follow sustainability commitments but are changing how they handle their ESG programs, in some cases adjusting diversity initiatives by dropping legally risky and possibly discriminatory practices. Boards have been placing less pressure on executives to focus on managing ESG risk compared with that of supply chains, cyber-security, generative AI and geopolitical uncertainty, said Alexander Bant, chief of CFO research at consulting firm Gartner.

Ninety-two percent of CEOs stand by their ESG programs, while the remaining 8 percent have scaled them down, according to a Teneo survey from December.  

– The Guardian reported that flight attendants held picket protests at more than 30 major airports across the US on Tuesday as part of the Worldwide Flight Attendant Day of Action. Picket-line events were planned in New York City, Orlando, Miami, San Francisco, Charlotte, Dallas, Atlanta, Chicago, Boston, Cleveland, Las Vegas, Los Angeles, Washington, DC and several other major cities. Around 100,000 flight attendants across three different labor unions were expected to participate.

The protests came as more than two thirds of flight attendants in the US – at United Airlines, Southwest Airlines, Alaska Airlines, Air Wisconsin, American Airlines, Omni and Frontier – are in new union contract negotiations.

– The WSJ reported that SEC chair Gary Gensler said possible lawsuits challenging the agency’s proposed climate disclosure rule would be ‘part of our democracy’ but that the SEC is working to draft a rule that holds up to judicial scrutiny. The SEC has yet to release a final version of climate regulations first proposed nearly two years ago. Gensler suggested that the agency being forced to defend the rule in court is part of the process.

‘That’s part of our democracy. We live in a great democracy,’ he said. ‘That’s what the public wants. I think we’re doing everything according to the law and how the courts interpret the law but, as the courts shift their interpretations, jobs like mine are both more challenging and more interesting.’

– Meta said Broadcom CEO president Hock Tan and philanthropist and former Enron executive John Arnold are joining the company’s board, CNBC reported. Tan has been leading the semiconductor company since 2006, giving him extensive international experience working in computing infrastructure technology.

Meta is investing in developing advanced infrastructure to fuel its growth in AI and the metaverse. Arnold is co-founder of Arnold Ventures and was co-founder and chair of energy company Grid United. He also once worked at Enron, where he oversaw ‘trading of natural gas derivatives,’ according to the Meta announcement.

– Reuters reported that the investment arms of JPMorgan Chase and State Street left a global investor coalition pushing companies to curb climate-damaging emissions, while BlackRock said it had transferred its membership to its international arm, limiting its involvement. The decisions came after the coalition, known as Climate Action 100+ (CA100+) asked signatories to take stronger action over laggards.

A spokesperson for State Street Global Advisors said the new priorities set by CA100+ threatened its ability to act independently. The changes were ‘not consistent with our independent approach to proxy voting and portfolio company engagement,’ the State Street spokesperson said. JPMorgan’s fund arm said it had decided not to renew its membership of CA100+ after ‘significant investment’ in its investment stewardship capabilities over the last couple of years.

BlackRock said it is no longer a member of CA100+ but rather has shifted its membership in the group to BlackRock International. ‘As BlackRock made clear when signing up as a member of CA100+ in 2020, at all times the firm maintains independence acting on behalf of clients, including in choosing which issuers to engage with and how to vote proxies,’ the company said. It also said it would add a new engagement and proxy voting option to give clients a way to prioritize climate goals.

Kirsten Spalding, vice president of the Ceres Investor Network, which oversees the CA100+’s North American efforts, said the group had expected some signatories to leave as it adopted its new priorities and that it would continue its efforts despite the loss of the big asset managers.