Climate gets personal as board members risk popularity

The bulk of this year’s shareholder meeting season is now well behind us, but serious action is going on both publicly and behind closed doors this month.

Microsoft, for example, is facing a shareholder petition on its tax payments around the world. The technology giant will hold its annual meeting next month. Tech rival Oracle has already asked its shareholders to vote against a similar tax transparency petition.

And tensions flared outside Procter & Gamble’s annual meeting yesterday. I report on some of the details below and delve into the climate-related pressures that companies are likely to face in next year’s proxy season, for which activists and directors are already gearing up.

Kenza writes about how a company’s environmental, social and governance performance can affect how willing employees would be to invest in their company’s share plans.

And stay tuned for more this week from us at the World Bank and IMF meetings. (Patrick Temple-West)

Entries are now open for the FT’s Responsible Business Education Awards to select excellent research, teaching and student projects in business schools. Submissions are accepted until the end of October in three categories: academic research with evidence of societal impact; teaching cases and innovative pedagogies around sustainability; and student projects with third parties with societal impact.

Investors support escalating climate pressure on board members

Like teenagers, businesspeople want to be popular too, from corporate executives cultivating Twitter followers to board members operating behind the scenes.

For oil and gas companies and other big carbon-emitting businesses, board directors could find themselves increasingly unliked among shareholders in the months ahead.

With only a few big shareholder meetings left this year, US companies and shareholders are already starting early preparations for the 2023 proxy season. And while votes against board members have been rare so far, there are signs that opposition to directors over climate concerns could become more frequent.

Shareholder advisory Institutional Shareholder Services on Monday published its annual survey on what investors care about in the upcoming annual meetings season. Half of shareholders polled said ISS should consider recommending votes against directors at oil and gas and other heavily emitting companies that do not have realistic scope 1 and 2 emissions targets (these emissions are controlled by a company). And 79 per cent of shareholders said board directors should be booted out if the businesses fail to report in line with the Task Force on Climate-related Financial Disclosures (TCFD).

The results suggest that when a company’s emissions information is deemed lacking “ISS may go further than the policy they adopted last year” and recommend voting “against the entire board”, said Lyuba Goltser, a partner at Weil, Gotshal & Manges.

It is more than a mere embarrassment for companies when their board directors receive tepid investor support. Activist investors scour board votes for signs of weakness that can be exploited. As we saw at Exxon last year, activists can score significant wins when companies shrug off shareholders’ climate concerns. Next year’s annual meetings season is poised for more fireworks.

Meanwhile, environmentalists continue to use companies’ annual meetings as platforms for theatrics to agitate for change. Outside Procter & Gamble’s annual meeting on Tuesday, demonstrators marched and even climbed flag poles to pressure the company on forest conservation. (The Cincinnati Enquirer has the pictures here.) In 2020, two-thirds of P&G shareholders supported a petition demanding more disclosure for pulp and palm oil use.

P&G’s response to pressure on this issue has been “a masterclass in industry spin”, Jennifer Skene, a climate policy manager at the Natural Resources Defense Council, said in a statement.

Despite votes against chief executive Jon Moeller holding the company’s chair from Norway’s sovereign wealth fund and some US pension funds, P&G said all of its directors were elected with more than 90 per cent support.

Still, this one-two punch — shareholder pressure from within and activist pressure outside — is a pressure tactic certain to be seen at company meetings again and again in the months ahead. (Patrick Temple-West)

Social issues weigh heavily on employee share schemes

In January we flagged employee activism as a top ESG theme to watch in 2022, following high-profile union battles and investor votes for more diversity on boards in 2021.

It turns out that a company’s ESG performance can even affect how much its employees put into share plans. According to a report by the Amundi Asset Management Institute and academics at Paris’s HEC business school, employees invest less in their company’s own stock in the wake of negative news reports about ESG issues — at least when these incidents relate to social issues close to home.

“Our main takeaway is that employees care about their working conditions, but less on average about the environment or things that don’t affect them directly,” François Derrien, an HEC finance professor who co-authored the paper, told Moral Money. He said executives should take employee attitudes towards share plans seriously because waning participation in these schemes could be a prelude to stronger protest behaviours, such as “quitting, working less hard or posting critical blog posts online”.

Derrien and his two colleagues crunched data on the investment decisions of 380,000 employees at 22 of the top French companies by market capitalisation, in employee stock funds managed by Amundi between 2015 and 2018. When the number of negative news reports as measured by ESG data science company RepRisk doubled in a given year, employees invested an average of just €123 in their company’s stock — compared with the average investment in the study of €500 — and were 46 per cent less likely to invest in it at all.

News reports accusing a company of overwork, low pay, employee suicides, spying, discrimination against unionised staff or harassment in any country all had a statistically significant impact on investments by employees, it found.

But negative stories about the company’s wider approach to social issues abroad — including reports of human rights violations such as child labour — had little impact. Poor governance, including executive remuneration issues and corruption, also had no significant effect. This could suggest employees are primarily motivated by loyalty and self-interest rather than altruism when it comes to their share investments, the academics write, describing this as “home bias”.

In the cases the study examined, negative stories on a company’s social impact had no long-term effect on overall share price, the report suggests.

Environmental issues actually had a positive effect on investments — perhaps because employees perceive criticism about their employer to be overly harsh, the report suggests. For companies in oil and gas, mining, construction, manufacturing, transport and public utilities, nearly half of the sample, an increase in environmental problems — including pollution incidents — actually made employees more likely to invest. (Kenza Bryan)

Smart read

• Don’t miss this FT account of the extraordinary stand-off between Unilever and its subsidiary Ben & Jerry’s over ice cream sales in the occupied Palestinian territories. It’s a powerful case study of the tensions that can arise over questions of business sustainability — complete with tales of lawsuits, board directors going unpaid, and allegations of “anti-Semitic ice cream”.

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