The ESG Update Episode 25: A New Era for Active Ownership
Transcript
This transcript has been edited for clarity.
Dan Carreno, Change Finance:
Welcome to The ESG Update presented by Change Finance. I'm Dan Carreno and my co-host, Brittany Damico, is out today getting some well-deserved R and R. So, I've asked Change Finance’s President and COO, Dorrit Lowsen, to join me today and talk about the most recent proxy voting season and shareholder advocacy writ large. Dorrit, thanks for being on, and how are you?
Dorrit Lowsen, Change Finance:
My pleasure. Thanks for having me, Dan. I am doing great. I'm really excited to talk about this important topic.
Dan Carreno, Change Finance:
Excellent. We always want to be mindful of the fact that there might be some folks listening that are relatively new to the world of sustainable investing. So first I was hoping that maybe we could back up at a high level and you could inform us; what is shareholder advocacy? Why is it important?
Dorrit Lowsen, Change Finance:
I'd be happy to. As a shareholder, as an investor in a company, you have certain rights to express your opinion about how that company is managed. We've really seen a rise in advocacy efforts that focus on social and environmental issues. It used to be pretty typical that you would elect representatives to the board of directors, and most people vote for whoever management proposes for those slots. O the last several years, we've really seen a rise in the number of proposals on proxy ballots that have to do with social or environmental issues. And we've also seen a rise in other forms of shareholder advocacy, such as direct engagement with companies. You can always reach out directly to any company you're invested in. They all have investor relations offices. You can let them know what you're thinking and let them know what's important to you.
Dan Carreno, Change Finance:
I appreciate that framing and the background, and I think that's a good segue into chatting briefly here about an article from Forbes that is titled, “What You Need to Know About the 2021 Proxy Season.” So to put some stats and figures around what you were just referencing Dorrit, this growth in focus on environmental, social and governance shareholder proposals in 2021 saw a record number of resolutions introduced; 467 specifically geared toward environmental, social and governance issues. The top issues have remained pretty consistent over the last few years; climate change, diversity, and political activity. Those continue to be the most popular. The massive shift that occurred between 2020 and 2021 is the degree to which investors are supporting these shareholder proposals and specifically the degree of support that we are starting to see from a large institutional players. For example, we’ve admittedly picked on BlackRock in the past on this podcast about their proxy voting record, but it is good to see that they supported 62.5% of environmental and social proposals. We can compare that to last year where BlackRock voted in support of only 6% of environmental proposals and 7% of social proposals. So, it's a pretty massive shift. And of course, we don't just want to give kudos to the large institutional players. Smaller organizations that have been out there doing this work for a long time, continue to do the work, and we thank them for that. For example, the article talks about the Interfaith Center on Corporate Responsibility and how that organization and its members have continued to file resolutions pushing for positive change. Unfortunately the article mentions that a much larger number of the proposals introduced by ICCR were vacated by the SEC. That may be a bit of a hangover from the Trump Administration and their position on shareholder advocacy. But let me stop there and just see what your take is on this most recent proxy voting season.
Dorrit Lowsen, Change Finance:
I am really excited and really encouraged about the results of this year's proxy season. It is an astonishing turnaround from what we've seen in the past. To cite some other statistics that come from a recent report by As You Sow, they identify 34 environmental or social shareholder proposals that had passed. That is a huge record. Last year, 21 passed, and that was a record. So, we're seeing really substantial growth. And another important thing is this year resolutions passed with much larger majorities compared to last year. I think there were two that exceeded 70% this year. The numbers are huge. Many of them, 17 I believe, exceeded 70% and six hit over 90% support. And some of those passed with supportive management. I think we're really seeing an inflection point in how investors view these proposals. We couldn't see numbers like this without BlackRock and other large institutional investors finally coming to the table and recognizing how important these issues are. And it’s not just out of altruism, but out of economic need. Companies that are poorly positioned when it comes to climate change are not going to be successful in the future. So, these issues are material. It's the same with diversity issues. These issues really are material to company's success. And it's critically important that we as investors start sending that signal much more strongly to companies that we are paying attention to these issues that we believe that they matter. We cannot succeed as investors, as companies, as countries, as a world, if we don't recognize these important issues and drive change. Now, there's one more thing I want to draw attention to in the Forbes article that you referenced. I encourage readers to read all the way to the end, because towards the end of the article, there is a really important piece about changes to shareholder advocacy rules. Specifically, Rule 14a-8. This is the rule that governs who can place proposals on shareholder ballots. It will go into effect next year and it will make it substantially harder for investors to get resolutions on the ballot. It raises the threshold for how much money you need to have invested in the company and for how long you need to hold shares to file a resolution. These changes really, really matter. They matter particularly for social and environmental proposals. I would encourage all of our listeners to reach out to your congressional representatives and ask them to support a resolution overturning these rule changes. I have a favorite tool for that. The tool is Resist Bot. It makes it super easy to reach your congressional representatives. You don't even have to know who they are. You can send a text message or a message through Facebook messenger. It takes two minutes. I would strongly encourage you to ask your congressional representatives to consider legislation in this area.
Dan Carreno, Change Finance:
Shifting gears for a second here, I know that Change Finance recently published it's 2021 Shareholder Advocacy Report. Before we dig into a couple of specific data points that are in that report, could you give us a summary of how Change Finance thinks about advocating for change.
Dorrit Lowsen, Change Finance:
Sure. We've been talking about social and environmental advocacy, and of course, that's the focus here at Change Finance. We try and use all of the tools available to us. That means we file shareholder resolutions, we vote our proxies in accordance with our views on social environmental issues, and we use direct engagement on a regular basis by reaching out directly to companies. Sometimes we do that independently. Sometimes we lead coalitions. Sometimes we support coalitions formed by other investors. It’s really important to note that even if you are small and you feel like maybe your voice won't matter to the company, you can collaborate. We have been involved in collaborations representing billions or even trillions of dollars worth of investment capital.
Dan Carreno, Change Finance:
Could you give us an example of an engagement effort from the report
Dorrit Lowsen, Change Finance:
Sure. We've talked about BlackRock already a couple of times, and we engaged with BlackRock in what we might think of as a meta-engagement. We engaged with them about their engagements. We asked them to vote their shareholder proxies in alignment with the statements that their CEO, Larry Fink, has been making for the last several years. He said that climate change is the most significant issue facing us today. And yet, through last year's proxy season, BlackRock continued to vote against virtually all resolutions that had to do with climate change. So, we felt as investors in BlackRock that there was a conflict between their behavior and their public statements. And their influence is critically important in seeing more of these resolutions pass. So, we reached out and had a conversation with leadership from their stewardship team and expressed our views on the matter. And now we see that a year later, there is a significant difference in how they're voting. Of course, we are not the only people pressuring BlackRock, but every voice helps.
Dan Carreno, Change Finance:
We also formed a coalition of BlackRock’s clients, financial advisory firms with approximately $4 billion in assets under management, and issued a letter saying that their rejection of climate-critical shareholder resolutions is unacceptable. We thought it was really important for the organization to hear from their bread and butter clientele who are financial advisors across the country. We hope that was eye opening.
Dorrit Lowsen, Change Finance:
I think that that's a really important point. I want to emphasize that investor voice and customer voice can align on these matters and collaboration is a great path forward.
Dan Carreno, Change Finance:
How about in the shareholder resolution category? Any highlights there that you'd like to share?
Dorrit Lowsen, Change Finance:
We were really excited to file a resolution at Salesforce this year. We asked Salesforce to reincorporate as a public benefit corporation. A public benefit corporation is a corporation that has a mission intwined in its legal structure. It's different from a standard corporation because the standard corporation is one whose sole mission is to realize financial value for its shareholders. This can lead to short-term decision-making. It leads to cutting corners in manufacturing. It leads to offshoring jobs. All of the things that we have seen lead to increased inequality in the country, but it also leads to cutting corners where environmental issues are concerned. If it's cheaper to dump waste or pump carbon into the air than it is to mitigate those risks, then that's what the company will do because that has an immediate impact on bottom line. A public benefit corporation embraces the idea of stakeholder primacy. What we just discussed was shareholder primacy. Stakeholder primacy says we have to consider the impact on all of our stakeholders. Yes, our shareholders are certainly stakeholders, but also our employees and communities that we operate in. All of these are stakeholders. public benefit corporations have a legal responsibility to consider all of those stakeholders. It gives companies cover to make longer-term decisions. So, we asked Salesforce to become a public benefit corporation. We believe that stakeholder capitalism and stakeholder primacy is the way of the future. We believe that it is a more successful and durable form of capitalism. But we also believe that Salesforce is already a leader. Salesforce already has strong commitments around a number of these issues. That kind of transition is easier for Salesforce. They can be a leader, but they don't have to be the very first. We were really excited to see Veeva become a public benefit corporation earlier this year. It demonstrates that it's possible, and that it remains consistent with delivering value for shareholders while also delivering value for all of the other stakeholders that are affected by a company's business. We encourage Salesforce to think about making this change. We'll encourage other large corporations to think about making this change as well. I think we're just at the beginning
Dan Carreno, Change Finance:
Are there any other notable public benefit corporations that you would like to highlight?
Dorrit Lowsen, Change Finance:
You're talking to one right now. Change Finance is a public benefit corporation. We have been since very early in our life. That means we have built our mission to drive change through finance right into our DNA. That gives us the legal responsibility to do that. It's part of our duty to our shareholders and to our stakeholders.
Dan Carreno, Change Finance:
As we're talking about Change Finance, I noticed at the end of the Advocacy Report that there is some information about the ESG profile of the company. Any highlights from that section that you would like to share?
Dorrit Lowsen, Change Finance:
Sure. Well, we are majority women led company. We have a majority of women on our board of directors, and a majority of women on our senior management team and on our investment team. I am really excited that we are a part of the Net Zero 2030 commitment. That means we have pledged to be net zero by 2030. I think we'll get there much, much sooner. Maybe as soon as this year. When we think about net zero, we think not just about the emissions from our direct operations, the electricity we use running the computers for example, but also the carbon footprint of our funds. We're starting to think about how we become net zero all across the board. That's something I'm really, really excited about. I hope you'll stay tuned for more over the coming months. In addition to that, we're a certified B Corp. We are members of USSIF, and we’re committed to the Racial Justice Investing Group. We participate in the Intentional Endowment Network and FAIRR, which focuses on sustainable agriculture, particularly sustainable agriculture is as relates to meat production.
Dan Carreno, Change Finance:
I appreciate you giving us some insights into the report. We are running short on time here, so we will wrap it up. But before we do, as usual, we will just take a minute here to sit around the campfire. Dorrit, we'll start with you the next time that you're sitting around the campfire with friends, family, and colleagues, what are you going to be chatting about?
Dorrit Lowsen, Change Finance:
I have been telling everybody about recently is a fascinating book I read it's called “The Making of Biblical Womanhood.” It's a really interesting review by a historian who is herself an evangelical Christian. It’s about how the biblical texts that evangelicals base their ideas about the role of women in society on. Where they come from. How they've evolved over time. How their interpretation has evolved over time. She is a historian and an evangelical. She does a really interesting textual and historical analysis. I think it's a fascinating read, gives us some real insight into American culture today.
Dan Carreno, Change Finance:
Thanks for sharing. And for my campfire chat this week, I wanted to quickly talk about what I think is one of the most under-appreciated TV shows out there right now, which is on the Apple+ streaming service and is called For All Mankind. And it's one of these alternative history shows where the whole premise is what would a world have been like if Russia had landed on the moon before the US. It is just outstanding. Everything from the production value to the acting. It’s one of the best TV shows I've ever watched. Admittedly, I am a bit of a science geek, so I love this type of stuff. But if you feel the same way, I can't recommend it enough. We'll wrap it up there. Dorrit, thank you again for coming on and for sharing some of the perspectives on the proxy voting season and the Change Finance Advocacy Report. If anyone who's listening wants to find the articles that we referenced or our report, you can always find that www.change-finance.com. The podcast library is under the insights tab and all the links will be provided within the podcast transcript. And of course, if you have questions or feedback for us, you can always get in touch through the website. Thank you so much for tuning in, and we will be back soon with another episode of The ESG Update.