NYSE ESG Top 5

Week ending May 5, 2023

It’s peak season for publishing new sustainability reports. Something we’ve been thinking about when flipping through the highlights of so many of these reports was captured in the FT this week (in a different context): “I hate it when big numbers are used to impress or bamboozle rather than to make sense of the world.” In CSR reporting, we love to present numbers that can serve as a proof point of our focus in an area - but in many cases those numbers are given without context…and can result in reporting that simply reads as “big number, big number, big number.” Make sure your audience has what they need to put meaning into anything you express quantitatively.

“So…CSR reports and numbers…am I right…?”

Sorry, folks, the writers’ strike has cut deeply into the quality of humor we can offer in this week’s ESG Top 5. We’ll have to stick with two minutes of straight information before the heckling starts.

-Brian Matt, CFA, Head of ESG Advisory, NYSE

[email protected]

1 - Early proxy season shows slight decline in E&S proposal shareholder support

Call us about a quarter of the way through proxy season, but far enough along that we believe we can start to take the pulse of the investor voting community. As with last year, we’ll borrow from Semler Brossy’s weekly reporting on shareholder proposals (latest version here). To date, median support for 18 environmental proposals voted on at Russell 3000 companies stands at 26%, a wash with last year’s 27%. Social proposals are lagging last year’s support totals, at 17% vs. 2022’s 22% (n=33). Two social proposals have received majority support so far, though no environmental proposal has reached that level. Watch for commentary around specific proposal types: proposals for stronger climate transition plans at major US banks have hovered around the 30% support level that generally leads to a company response on the following proxy statement. You’ll also find voting results to track on a number of proposals that touch employee health and safety. Even without an outside proposal on your own proxy, it’s a good idea to keep an eye on voting totals in your sector and broadly throughout the season.

2 - Morningstar: US sustainable funds outflow dwarfed by Europe inflows

A net -$5.2 billion taken out of US sustainable funds as classified by Morningstar represents the second consecutive quarterly decline, with $299b in AUM at the end of the period. However, this outflow contrasts with a $32.2b inflow into European sustainability funds, for a global net of +$29b / $2.7t total AUM (Page 2 of the quarterly report here). Further, diligent ESG Top 5 readers will remember the mention of the iShares ESG Aware MSCI USA ETF in our Mar 31 edition, which saw $4b in outflows while a similar non-ESG fund saw similar inflows on a single day. Morningstar reports that excluding the $6.5b that left this single fund, US sustainable funds would have seen inflows in Q1. With our investor targeting hats on, companies with strong ESG stories might be able to “follow the money” with assets flowing into active equity funds managed by BlackRock, GMO (with a newly-launched Resource Transition Fund), Calvert, and Brown Advisory all seeing >$300mm in inflows (Page 16).

3 - GHG Protocol considering changes to Scope 2 standard - survey feedback

Flying a bit under the radar this week was a webinar from GHG Protocol on Tuesday that’s worth reviewing for anyone involved in managing your Scope 2 emissions. GHG Protocol had previously announced its consultation roadmap for potential changes, and on Scope 2 started by surveying an audience of companies, NGOs, and academics. Page 9 covers the high-level results, but GHGP did gather feedback on whether to lift the dual-reporting requirement for both location-based and market-based Scope 2 emissions, with some respondents noting the inherent confusion in having two values as well as the fact that many companies haven’t reported both methods anyways. You’ll also find a potential peek into the future with some of the possibilities for adding more granular Scope 2 details into the standard, as well as thoughts around adding an emissions impact reporting requirement - which some companies produce but doesn’t fall under the formal standard to date. We’re some time away from formal proposals, but a quick read here might help you future-proof your Scope 2 approach.

4 - McKinsey research: common levers to pull on Scope 3 emissions

Companies without a physical value chain can skip to #5 - but we’ve been in a number of information-sharing discussions that sounded a lot like this McKinsey article that presents the various ways companies in the brick-and-mortar universe are acting on their Scope 3 emissions. We suggest reading this piece as a brainstorm, as the answers may vary for your industry - ideas here range from the tactical (supplier and customer selection and engagement, circularity ideas) to the strategic (considering value chain integration for parts of the value chain that are tough to decarbonize from the outside, portfolio strategies to enter green business segments).

5 - PWC 2023 Trust Survey - company culture now top-ranked challenge on maintaining trust

You may have noticed we never miss a chance to linkdrop the Edelman Trust Barometer (oops, did it again) as we think so much of the value produced by ESG efforts centers on building trust. However, we’re taking a different tack this week with PWC’s latest entrée, which is more focused on the activity companies conduct to build trust. Speaking to the headline, comments from executives mention that corporate culture in a world of hybrid or remote work is an example of conflicting stakeholder priorities even within a single stakeholder group. We especially liked the table “What information do stakeholders want?” as a companion piece to materiality assessments - highlighting how often particular issues show up as important to consumers, employees, and business execs…while no industry filter is presented, you might find this lines up well with your view on priority issues. 

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