Governance and Opportunity
As the virus runs rampant around us, resilience is becoming a corporate buzzword. The extreme pain of many sectors- such as hospitality, travel and our creative industries reliant on physical human interaction – is only too clear. But the extremity of the pandemic, and its global reach also offers a critical window of opportunity for businesses and boardrooms to re-think their operations and in doing so, raise the bar on better corporate governance.
Whether you think we are seeing an environmental wave or a continuation of the steady march of publicity for environmental, social and governance (ESG) concerns in the wake of the pandemic, institutional investors are increasingly in this spotlight, calling for concrete action to combat climate change. Among other things, they are clearly well aware that over half the world's working population is now made up of millennials.
Even before the pandemic, Morgan Stanley noted that 95% of millennials expressed interest in sustainable investing. "This trend also extends to adoption: 52% of the general population and 67% of millennials take part in at least one sustainable investing activity, such as investing in companies or funds that target specific environmental or social outcomes" the bank said. The days of separating corporate 'marketing' from daily business are almost completely over, and the short-term decisions made during a crisis must have that long-term view if they are to lead to resilience.
Stakeholders and Sustainability
US companies have seen a record number of shareholder proposals around ESG in 2020. The world's largest consumer group, Procter & Gamble, took centre stage earlier this week for a demonstration of stakeholder power. It saw a notably big rebellion from its top institutional shareholders around how it uses palm oil and forest pulp in products. Black Rock, which has a 6.6% stake, was among the investors taking part in the revolt, but it was Boston-based Green Century Capital Management, "an eco-conscious investment firm with $825m of assets under management" that put forward the proposal.
These votes may not be binding, but in terms of adverse marketing, Bounty paper towels and Charmin toilet paper brands being named and possibly shamed in the respected business media has enormous reach in an internet-driven information world. This is particularly true when P&G's rivals in the consumer industry sector – in the FT piece in the link Kimberley-Clark and Unilever are mentioned – are cited as acting differently around palm oil.
Interestingly, there was also a diversity disclosure motion at P&G from As You Sow, the not-for-profit shareholder advocacy group, which had flagged its intent last month. It's not just the E in ESG that is being increasingly highlighted.
ESG activism is not limited to the United States, or to niche groups, or to special interests. Oceanwood Capital, a London-based hedge fund, describes itself as "a European-focused investment manager specialising in catalyst-driven investment opportunities across the capital structure." It recently wrote to the UK government asking it to redirect public transport policy towards railways rather than short-haul flights and cross-channel ferry transport. The airline sector is being ravaged in this pandemic, while awareness of the UK's role in COP26, now in November 2021, is steadily rising.
This week has also seen the largest global collaborative engagement campaign leveraging investors to collectively ask companies to set science-based targets with clear methodological guidance from SBTi. the Science Based Targets Business Ambition for 1.5° C campaign. It includes 137 global financial institutions holding nearly US$20 trillion in assets. Over 1,800 of the global companies with the highest emissions, such as Tesla - and Rio Tinto, mentioned in the last Governance Watch, have been contacted as part of this new campaign organised by the CDP, a non-profit which specialises in environmental reporting.
While responsible investment has been around for a long time, the pressures of the pandemic have concentrated minds on resilience as well as financial returns. With that in mind, businesses mindful of both will want to note the concerns that are now coalescing to address the SDGs, the Sustainable Development Goals set by the United Nations.
Amid the context of Latin America and looking to COP26, Canning House, a not-for-profit and non-governmental organisation, launched a series around the SDGs last week, with a webinar I was delighted to be asked to moderate. H.E Fiona Clouder, the UK's regional COP26 Ambassador for Latin America and the Caribbean, kicked off a diverse panel of expertise ranging from global public health and disaster resilience to the role of institutional investors. As these are the pandemic waters being navigated by every busines the circularity of the concerns expressed is worth noting from the standpoint of governance and best practice.
Governance and Pay
In this year of devastation, both human and economic, the issue of pay is becoming one of survival. Just as the environment and social issues around supply chains and human rights have a moral component in the growing concerns about them, so does executive pay.
An in-depth study out earlier this month from Autonomy, the think-tank and the High Pay Centre looks for the first time at the possible options for applying a maximum wage cap and the benefits it could create for lower as well as middle income earners. The authors write: “Britain operates a starkly unequal labour market (the 9th most unequal in the OECD), and the Covid pandemic is revealing its true extent. As the UK economy buckles and growth crawls to a halt, the government – and business leaders – need to consider mechanisms by which existing cash in the labour market can be more equally distributed, so as to save livelihoods and industries. Wage caps are a powerful instrument to do this.”
Alongside the study, Autonomy released new polling by Survation which shows public support for the introduction of a maximum wage cap of £100,000. The polling found that 54% of the public support the introduction of a maximum wage. When asked in a follow up question what would be the fairest maximum wage, the most popular option was a cap of £100,000 which was supported by 31%.
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