'THE DAILY CORPORATE GOVERNANCE REPORT’ (for public company boards, the C-suite and GCs)

? ? ? ? ?Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)?

? ? ? ? ? ? ? (i) DEI/ESG roundup: Taneo's report on the state of sustainability reports at the S&P 500 companies/HBR post on unbundling ESG/Caterpillar latest major U.S. company to adjust its DEI initiatives under pressure from anti-DEI activist/report with latest data on companies adopting emission targets/Bloomberg on how State Street, Vanguard and BlackRock voted on 2024 ESG shareholder proposals/Morningstar global report on asset owners and ESG:

? ? ? ? ? ? ? ? ? ? (a) On Sept. 11, global?CEO consulting and advisory firm Teneo posted on its website its 2024 annual report on the state of U.S. sustainability reports at the S&P 500 companies, "Stand by ESG? The State of 2024 U.S. Sustainability Reports ", based on its analysis of?250 sustainability reports from S&P 500 companies published between January 1 – July 30, 2024. Below are the "top 10 takeaways" from the report:?

? ? ? ? ? ? ? ? ? ? ??? ?"01: The acronym “ESG” is down but certainly not out.?The most common key word in 2024 report titles was “Sustainability” (39%), overtaking last year’s leader “ESG” (24%, down from 35% in 2023). However, the “ESG” acronym appeared 62 times within 2024 Sustainability Reports on average, and most companies that dropped “ESG” from their 2024 report title used it within their 2024 report.

? ? ? ? ? ? ? ? ? ? ? ? ? 02:?Sustainability reports are getting longer, not shorter. The length of 2024 Sustainability Reports increased for the third year in a row, averaging 83 pages (up 20% from an average of 70 pages in 2021). There was a broad range of page lengths in 2024 Sustainability Reports, with the shortest being 15 pages and the longest being 211 pages.

? ? ? ? ? ? ? ? ? ? ? ? ? 03: More companies are now living in a double material world. Almost 80% of companies conducted a materiality assessment – about the same percentage as last year. However, the number of companies that have completed (or were in the process of?completing) “double” materiality assessments tripled from 9% in 2023 to 27% in 2024.

? ? ? ? ? ? ? ? ? ? ? ? ? 04:?CEOs are?increasingly accountable for ESG strategies.?CEOs were noted as ultimately responsible for company ESG strategies 32% of the time – almost double the amount in 2023 (18%). Like last year, CEOs signed a supermajority of 2024 Sustainability Report cover letters with other executives (e.g., Chief Sustainability Officers) also signing cover letters about a quarter of the time.

? ? ? ? ? ? ? ? ? ? ? ? ? 05: [DE]I will?survive. Despite current challenges to these efforts, 94% of companies continued to use the term “DEI” in some form within their ESG reports, a very modest decrease from last year. Among those that adjusted their disclosure practices, most opted to restructure their sections to focus more broadly on themes of belonging and inclusion, rather than removing the DEI section entirely.

? ? ? ? ? ? ? ? ? ? ? ? ? 06: Sustainability reports are being issued with less pomp but with more circumstance. The number of companies issuing press releases with 2024 Sustainability Reports was down significantly (49%) from when we first started tracking this in 2021 (75%). However, ESG microsites are ubiquitous, providing stakeholders with a variety of opportunities to interact with a company’s ESG initiatives.

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? ? ? ? ? ? ? ? ? ? ? ? ? ?07: The EU CSRD and IFRS disclosure frameworks begin to surface.?Mentions of the EU CSRD disclosure framework increased from 0% in 2023 to 13% in 2024, while 5% of companies mentioned the IFRS. SASB and TCFD sustainability disclosure frameworks continue to dominate with approximately 90% prevalence, with the GRI (73%) and UN SDGs (64%) also continuing to be widespread.

? ? ? ? ? ? ? ? ? ? ? ? ? ?08: External assurance increasingly includes “Social” data points.?The percentage of companies obtaining external assurance of at least one ESG data point held steady at 62%.?However, more companies added social data points when getting environmental data assured 32% of the time in 2024, up from 22% in 2023.

? ? ? ? ? ? ? ? ? ? ? ? ? ?09: Company ESG goals are in a transition phase.?Fewer companies provided an ESG goals progress section in 2024 (36%) than in 2023 (46%). Accordingly, the number of companies signaling that at least one ESG goal was “off-track” dropped from 22% in 2023 to 8% in 2024.

? ? ? ? ? ? ? ? ? ? ? ? ? ?10: Responsible AI enters the ESG chat.?Approximately 21% of companies notes its responsible use of AI within its 2024 Sustainability Report. While this is the first time we have tracked this data point, we expect this trend to significantly grow in the coming years."

? ? ? ? ? ? ? ? ? ? ? ?(b) Below is the headnote summary to this HBR post last Friday, "It’s Time to Unbundle ESG ", followed by excerpts from the body of the text:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Summary: ESG is at an inflection point. It has come to represent a broad and inchoate aspiration for what business should be doing beyond maximizing shareholder value. With ESG advocates on the defensive, business leaders need a new roadmap to determine which factors to incorporate into their business strategies and operations – and their political advocacy – and how they will communicate this to their stakeholders. Leaders should adopt a two-pronged approach: 1) Identify the sustainability issues that have the most potential impact on the bottom line and solve for them; and 2) Identify the most material negative impacts your firm is having on society and solve for them. Both of these require scanning for the biggest opportunities and threats that environmental, social, and governance issues pose to your company’s short- and long-term competitiveness.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"It was never clear exactly why E, S, and G were the right concepts to bring together with (apparently) equal weighting or how they were connected to each other. This awkward bundle would later prove to be a liability to the ESG movement as it went mainstream in the subsequent two decades......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"(W)ithin ESG circles there has been increased discussion about materiality, such as the recent U.S. SEC rule?requiring companies to disclose how climate change will impact a company’s financial performance forecasts that “a reasonable investor” would factor into their decision “when determining?whether to buy or sell” a particular stock. The even newer concept of “double materiality” broadens the scope to include not only financial materiality — how a company’s E, S, and G matters might impact stock prices — but also impact materiality,?which refers to the impact a company’s operations and products have on its stakeholders and broader society.?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"This bundling of financial materiality with impact investing?along with the expansion of materiality to also encompass social impact helped further muddle ESG and made it an easier target for backlash.?The term became so broad as to include both strategic choices that were good for business and efforts that were good for society, though not necessarily connected to the bottom line.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? "The E-S-G triad and double materiality are at the heart of ESG’s current challenges.?ESG encompasses too many varied factors, with some viewing it as merely good business practice to thoughtfully scan risks and opportunities, and others believing it to be an important cure to every form of corporate malfeasance. Some are convinced that ESG performance enhances profitability, while others think it erodes profitability. ESG has almost become a kind of Rorschach test, where people’s varying interpretations seem rooted in their views about capitalism itself. This confusion made it difficult to standardize how to measure ESG and easy for critics to cherry pick weak metrics and for companies to shift the goal posts to avoid accountability, as we have seen with the recent spate of companies quietly retreating from unmet emissions targets. ESG’s big tent became a big problem.

? ? ? ? ? ? ? ? ? ? ? ? ? ? "We believe that more progress will be achieved if E, S, and G were unbundled into their own separate categories. Linkages should be made when they’re merited, such as the need to recognize social justice concerns when constructing or redesigning infrastructure to decarbonize and boost the resilience of our energy and transportation systems (a link often referred to as climate justice). The clarity of measuring many environmental factors has far outpaced social factors.....

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"ESG is at an inflection point.?Like a long list of ancestral acronyms, including CSR and SRI, it has come to represent a broad and inchoate aspiration for what business should be doing beyond maximizing shareholder value. These ideals have sometimes been pitched as win-wins that will increase profits, and at other times as advocating that companies engage in tradeoffs to generate positive but below-market returns in order to improve their social impact....."

? ? ? ? ? ? ? ? ? ? ? ? ? (c) As reported in this Bloomberg article last Thursday, "Caterpillar Joins Ford, Lowe’s in Diversity Rethink as Backlash Grows ", Caterpillar has become the latest major U.S. company to adjust its DEI initiatives under pressure from anti-DEI activist Robby Starbuck:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Caterpillar Inc. is introducing new guidelines on external sponsorships and donations as part of a review of some of its DEI initiatives,?after anti-diversity activist Robby Starbuck?told the company he was preparing a social media attack against its policies. The construction and mining equipment maker said it will focus all employee training programs on fostering “high performance,” require senior manager approval for external speakers at company events, and implement new guardrails around its employee resource groups. The changes were communicated in a letter to employees that Starbuck shared on his social media page.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Caterpillar spokesperson Joan Cetera confirmed the contents of the memo and said executives had communicated with Starbuck after he reached out. She refuted Starbuck’s claim that the company had withdrawn itself from a notable ranking by an LGBTQ advocacy group as part of the changes. Caterpillar decided last year to stop participating in the ranking from the Human Rights Campaign, she said.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? "Caterpillar?is joining a string of US firms rethinking their policies on workplace diversity, equity and inclusion. However, its tweaks fall short of some of the more substantial changes made by companies like Tractor Supply Co., which in July said it would retire diversity targets, eliminate DEI roles and withdraw its carbon emission goals after Starbuck started a social media campaign....."

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? As regards the anti-DEI activist Robby Starbuck, note this feature Fortune article last Thursday, "Who’s afraid of Robby Starbuck? The conservative activist claims credit for DEI rollbacks but critics argue his influence is overestimated ", and this Bloomberg article today, "From Megadeth to MAGA: Robby Starbuck Is Having a Moment. " Note also this Sept. 5 FT?article, "Robby Starbuck: the activist pushing US companies to ditch their DEI vows ": see item (iv)(c) from Sept.11/24.

? ? ? ? ? ? ? ? ? ? ? ? ?(d) As reported in yesterday's NY Times DealBook Newsletter (under "Climate Action"), this new report released yesterday, "Net Zero Stocktake 2024 ", by Net Zero Tracker "shows a sharp uptick in companies ?worldwide adopting emissions targets":

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Businesses are expected to invest $100 billion in green projects this year. And a new report?from Net Zero Tracker on Monday shows a sharp uptick in companies and governments worldwide adopting emissions targets.?Here is the latest data?from the group, which includes public policy experts in the U.S. and Europe who audit climate commitments by businesses and governments:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?-- The number of companies with net-zero targets has increased to 1,145 from 929 last year. That’s more than half of the big companies they track.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? -- In the same period, 271 cities adopted the targets, up from 252.....

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Many companies are hesitant.?Holdouts include Tesla?and Berkshire Hathaway,?where Warren Buffettt has rebuffed shareholder pressure to join the climate fight. “A lot of companies are waiting to see what happens in November before taking decisive steps,” Hale (Thomas Hale, a public policy professor at Oxford’s Blavatnik School of Government, and co-lead of Net Zero Tracker,) said.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Many corporate plans still lack credibility, Net Zero says.?The group said that only a few companies, including Alphabet,?earned its highest marks for robust and detailed emissions plans. That’s as regulators vow to crack down on companies for “greenwashing,” or making bogus climate pledges. “Our findings show barely any improvements,” Steve Smith, executive director of Oxford Net Zero, a climate research unit, said of the greenwashing problem."

? ? ? ? ? ? ? ? ? ? ? ? ? ?Note as well this WSJ article yesterday, "America’s Ambitious Climate Plan Is Faltering ", with the sub-title, "Global emissions are at records; the shift away from fossil fuels is slowing amid high costs, surging power demand."

? ? ? ? ? ? ? ? ? ? ? ? ? (e) As reported in this Bloomberg article last Thursday, "Big Three Money Managers Cut Support for Climate Proposals ", the three biggest US money managers, State Street, Vanguard and BlackRock, which collectively own about 20% of the shares of all companies in the S&P,?reduced their support for ESG proposals?during the 2024 proxy season:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"The three biggest US money managers slashed their support of environmental and social shareholder proposals,?marking a stark turnaround from 2021, when they voted in favor of a record number of such resolutions. State Street Corp.’s investing unit said said ?on Thursday that it supported 6% of environmental shareholder proposals in the first half of the year and 7% of social ones, less than what it did in the same year-ago period. Vanguard Group said ?last month that it didn't back any of those resolutions, while BlackRock?Inc. said it voted for 4% of the proposals in the 12 months ending June, down from 7% a year earlier.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? "Together, the three money managers have immense influence during proxy season because they collectively own about 20% of the shares of all companies in the S&P,?mainly through their enormous index-tracking funds. The so-called Big Three are taking a more circumspect view of such shareholder proposals, said Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics. “It’s clear that the political climate, and the rise of anti-ESG resolutions and legislation, has played at least some role in the decline in proxy voting support,” he said. “But the fact is, even some of the pro-ESG resolutions were badly worded or lacked a clear benefit to shareholders, so it’s not surprising that firms rejected many of these resolutions.”

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? "Total shareholder support for environmental and social resolutions fell to about 19% during the latest proxy season from roughly 22% in the year-earlier period, according to Morningstar.......State Street Global Advisors?said in its report that it supported fewer environmental and social resolutions partly because they had become increasingly prescriptive and niche. The Boston-based asset manager oversees $4.$ trillion. Vanguard rejected?all of the 400 proxy proposals that focused on a range of environmental and social matters because they “didn’t address financially material risks to shareholders at the companies in question or were overly prescriptive in their requests,” according to the asset manager. BlackRock?used similar language to explain why it supported so few environmental and social resolutions. The proposals were?“unconnected to how a company delivers long-term shareholder value,” the asset manager said, adding that many of them were 'over-reaching” and “lacked economic merit.'....."

? ? ? ? ? ? ? ? ? ? ? ? ? ?(f) As regards asset owners and ESG, note this Bloomberg article today, "Asset Owners Find ESG Growing ‘More Material,’ Morningstar Says ":

? ? ? ? ? ? ? ? ? ? ? ? ? ?"For much of the past two years, the pushback against ESG-related strategies has been gaining momentum......Given this backdrop, many may be surprised by the conclusions of a recent global survey conducted by Opinium Inc.?for Morningstar Inc., which shows that about two-thirds of asset owners say ESG has become “more material” for their operations over the past five years. Roughly 42% of the assets under management of those surveyed now include ESG factors in their investment decisions, up 4 percentage points since 2022, Morningstar said.

? ? ? ? ? ? ? ? ? ? ? ? ? ?"And despite GOP-led opposition to ESG in the US, 53% of those surveyed said sustainability considerations go hand-in-hand with the fulfillment of fiduciary obligations.?Morningstar’s third-annual global survey is based on interviews by Opinium with 500 asset owners from 11 countries spread across North America, Europe and the Asia-Pacific region. Together, the participants oversee more than $18 trillion of assets. While Europe is the major driver of interest in ESG, firms in North America said that 37% of their managed assets take ESG factors into account, holding steady from two years ago......

? ? ? ? ? ? ? ? ? ? ? ? ? ?"Thomas Kuh, head of ESG strategy at Morningstar?Indexes, in an interview (said) the survey shows how sustainability-related topics are “strategically important and embedded in mainstream finance”?for many institutional investors, sovereign funds and other asset owners, There’s “a stickiness of interest and understanding around ESG,” making it “material and an integral part of the fiduciary duty for many investors,”?Kuh said.....Morningstar said its main conclusion from the survey is that while there are regional differences in priorities and challenges,?“the overarching trend is a positive move towards more sustainable investing."

? ? ? ? ? ? ? ? (ii) Vanguard and TRowePrice on directors who receive low shareholder support for re-election (with reference to the recent director election at Ralph Lauren): At the 2024?virtual only AGM held on Aug.1 of NYSE-listed Ralph Lauren Corporation (which has a dual-class share structure),?one of its "Class A" directors, Darren Walker?(head of the $16bn Ford Foundation), received only 47 per cent support from shareholders but will remain on the Ralph Lauren board, as reported in this?Current Report ?filed by the company with the SEC:

? ? ? ? ? ? ? ? ? ?"As shown in the table above, Mr. Walker received more withheld votes than for votes for his election. The Company believes that the withheld votes for Mr. Darren Walker, who is a highly valued member of our Board’s Nominating, Governance, Citizenship & Sustainability Committee, are primarily reflective of shareholder views regarding the Company’s dual-class capital structure and not because of any specific objection to Mr. Walker. Mr. Walker has been a member of the Board since 2020."

? ? ? ? ? ? ? ? ? ?The low support for the Ralph Lauren director is discussed in this FT article on Sunday, "Governance watchdogs take fright as ‘zombies’ stalk US boardrooms ":

? ? ? ? ? ? ? ? ? ?"Darren Walker,?the head of the $16bn Ford Foundation.....failed to win a majority of shareholder support for his re-election at apparel company Ralph Lauren, where he has been a board director for four years. He remains on the board. This vote tally added Walker to a dubious list of “zombie” board members — people who have failed to win at least 50 per cent support from shareholders and yet remain at their company’s top table. At the end of August, there were 35 zombie board directors at 27 US-based Russell 3000 companies, according to the Council of Institutional Investors, a lobbying group for pension funds.....

? ? ? ? ? ? ? ? ? ?“My view is that the 50 per cent mark, when it comes to director elections, is not a huge ask,” said Donna Anderson, global head of corporate governance at TRowePrice,?which manages $1.6tn. “It should be pretty hard to hold on to your seat if more than 50 per cent of shareholders vote the other way.” “It just is so fundamental,” she said.?“It is the principle of the thing.” Vanguard,?the world’s second-largest money manager, said?“zombie directors can be indicators of weak shareholder accountability”. “We view them as a serious governance concern,”?a spokesman said.?“If a board chooses to retain a zombie director, we believe it is crucial that they provide clear disclosure to investors regarding the rationale.”

? ? ? ? ? ? ? ? ? "Walker received just 47 per cent support from Ralph Lauren shareholders at the company’s August 1 annual meeting.?In a regulatory filing, the company said it believed the low vote was due to its dual-class structure,?“and not because of any specific objection to Mr Walker”. In a statement to the Financial Times, New York-based Ralph Lauren?said Walker?“has been a valuable and additive member” of the board. “We remain confident in the value that he brings to the company and we look forward to his continued service on our board,” it said......."

? ? ? ? ? ? ? (iii) press release of the day:?eBay Inc.?announced yesterday in this press release the appointment of a new Chief Legal Officer, General Counsel and Secretary, as follows:

? ? ? ? ? ? ? ? ? ? "eBay Inc., a global commerce leader that connects millions of buyers and sellers around the world, today announced the appointment of?Samantha Wellington?as Senior Vice President, Chief Legal Officer, General Counsel and Secretary. In this role, Samantha will oversee all global aspects of eBay's legal department, including?Government Relations, intellectual property, employment, litigation, regulatory and corporate work across our financial services, marketplaces, and product and technology organizations. Samantha will report directly to?Jamie Iannone, eBay's Chief Executive Officer,?and will join the company on?October 7, 2024.

? ? ? ? ? ? ? ? ? ? ? "Samantha joins eBay with a distinguished career in legal and business affairs, most recently serving as TriNet's Executive Vice President of Business Affairs, Chief Legal Officer, and Secretary....Prior to TriNet, she spent 12 years at Oracle, where she held a number of senior legal positions. Samantha replaces?Marie Oh Huber, who left eBay in June after nine years as General Counsel. "

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