Boards and advisers need to learn how to approach shareholder proposals on ESG issues
ESG matters have been in the spotlight this proxy season, and look set to be prominent in discussions at the upcoming Society for Corporate Governance’s national conference in San Francisco, which starts later this month.
ExxonMobil last week found itself the latest energy company to have a majority of shareholder votes urging it to produce reports on how it will be affected by action taken to limit climate change, despite the board opposing the proposal (CorporateSecretary.com, 6/2). The vote follows victories for similar proposals at recent shareholder meetings of PPL Corporation (CorporateSecretary.com, 5/25) and Occidental Petroleum (CorporateSecretary.com, 5/24).
Boards and their in-house advisers are having to learn how to approach such shareholder proposals on ESG issues. ‘Environmental groups want more disclosure [around these issues], meaning that [tackling them] gets elevated to the corporate secretary and general counsel level,’ Darla Stuckey, president and CEO of the Society, tells Corporate Secretary. ‘That push has caused some corporate secretaries to get involved with what their ESG groups are doing, and looking to see what they would have to do if [ESG-related disclosure] is included in integrated reporting.’
In opposing such motions, boards often argue that they already produce detailed disclosure on how climate change will affect the company. Such disclosures are often not included in a company’s Form 10K, however, and therefore do not need to be certified. Incorporating ESG disclosures into regulatory filings would raise a series of challenges and questions for corporate secretaries and in-house counsel. Stuckey also notes that it would be expensive to produce the types of reports requested in some shareholder proposals.
‘I think ESG is very popular because investors are making it popular,’ Society senior vice president and general counsel Granville Martin says.
OTHER TOPICS
In addition, Stuckey points to the Investor Stewardship Group (ISG) and its principles as a likely theme for discussion at the conference. The ISG is a collective of some of the largest US and global asset managers, which has developed a corporate governance framework including principles such as ‘institutional investors are accountable to those whose money they invest’. The framework is due to be implemented by members of the group as of January 1, 2018.
Other themes to be addressed in San Francisco include board composition – who is on the board and why – and executive compensation (CorporateSecretary.com, 4/13).
Martin expects a great deal of interest among attendees regarding the future of the SEC. Many observers expect the commission to move in a more deregulatory direction than it has since the financial crisis. But the new chair, Jay Clayton, has only recently been installed and two more commission members are needed to fill vacant spots at the table, so much uncertainty remains.
In the meantime, there are questions in the industry about the fate of measures such as the CEO pay ratio rule, which is scheduled to go into effect next year, and the conflict minerals rule.
Then-acting SEC chair Michael Piwowar – who is giving the opening address at the Society’s conference – in January ordered a reconsideration of the pay ratio rule. He also directed SEC staff to reconsider whether 2014 guidance on the conflict minerals rule ‘is still appropriate and whether any additional relief is appropriate.’
‘It’s clear the SEC is scrutinizing rules that were recently completed or are ready to be completed,’ Stuckey says. ‘Many people are ready for answers on things such as the pay ratio rule,’ Martin adds.
Among other items of interest on the conference agenda, Stuckey points to a session with John Thornton, executive chair of Barrick Gold, which recently launched an initiative whereby all of its employees are given shares in the company. Other speakers include economist Dr Dambisa Moyo and Preet Bharara, former US attorney for the Southern District of New York.
The conference will also see the public launch of a Society initiative to boost diversity among its membership.
Society for Corporate Governance 2017 national conference
June 28 to July 1, San Francisco
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
