As the 2023 proxy season begins to wrap up, new trends on shareholder expectations are emerging. This year saw over 500 environmental, social, and governance (ESG) resolutions proposed by shareholders, which is a drop from the record 607 ESG resolutions filed in the United States last year. While the proxy season is not over just yet, this decrease may be due to the overwhelming backlash against ESG in the past year. Many ESG-related shareholder resolutions were regarding audits into diversity, equity, and inclusion (DEI), working conditions throughout the supply chain, and carbon emissions or nature impacts.
In order to effectively address the concerns of shareholders, board directors and senior business executives need to be educated on these topics now more than ever. Our world-class and agenda-setting ESG and Climate & Biodiversity education programs are the perfect place to do just that.
1. Investments in solar technology outpace oil. For the first time in history, solar panel technologies will receive more global investment than oil extraction and processing. In 2022, US $2.6 trillion was invested in energy production, projected to increase to US $2.8 trillion by the end of 2023. The vast majority of the increase is due to investments in renewable energies, carbon capture and storage, electrification, and new fuel sources such as hydrogen. Green energy funding is projected to make up more than half of the US $2.8 trillion in energy investments this year. Despite a slight uptick due to the pandemic, fossil fuel investments have been steadily dropping since 2015 while clean energy investments have nearly doubled in the same time frame. Projects focused on renewable energy sources, boosting energy efficiency, and upgrading power grids attracted the most funding with China and the European Union leading the charge.
2. Insurance companies are not so sure. As momentum shifts towards a low carbon economy, investors are increasingly refusing to insure oil, gas and coal projects. However, last week several insurance companies including Munich Re, Hannover Re, and Zurich Insurance Group backed out of the United Nations’ groundbreaking Net-Zero Insurance Alliance (NZIA). Munich Re was the only institution that shared a reason, citing issues over antitrust regulation. However, activists believe the real reason may be the recent anti-ESG movement in the United States, as all three of the investment firms have large operations in the United States and could be leaving the alliance to protect their American business. This comes on the heels of several banks threatening to withdraw from the Glasgow Financial Alliance for Net Zero (GFANZ) that came out of COP26.
3. The biodiversity crisis is a business crisis. When Patagonia announced it was restructuring and directing all future profit into a climate and nature fund, it placed a spotlight on an often-overlooked environmental issue — biodiversity loss. Our planet is currently undergoing its sixth mass extinction, and the first one that can be directly attributed to human activity. Many companies are not well-versed in nature risk, and Patagonia’s announcement can help jump start those efforts. Despite eye-wateringly large investments in climate mitigation, the market for financing biodiversity was under US $200 billion in 2019 with very little private sector involvement. The public sector has been taking the vast majority of the responsibility for biodiversity loss mitigation, but it is past time for the private sector to step up.
4. Child labour remains a problem in the U.S. Since 2018, child labour in the United States has been on the rise. Widely considered a practice left in the past, the majority of children in the workforce are children who migrated from Central America without their parents, a particularly vulnerable demographic. The industries that see the highest amount of child labour are automobile manufacturers, retail, and food and beverage. The United States is the only developed country on the list of the top 10 countries with the highest number of child labour cases. This worrying trend has spurred a wave of proposed legislation surrounding mandatory human rights disclosure for companies, with the U.S. government launching a new task force and enforcement arm to find and put an end to such illegal labour practices. ISS’ Modern Slavery Disclosure and Performance Score found that U.S. companies score poorly on collective bargaining freedom and treatment of non-regular employees, so companies looking to manage their human rights risks should look into these aspects of their operations.
5. ESG principles still rule. The Forbes Finance Council is made up of financial professionals from leading companies around the world, and 18 of them sat down to discuss how ESG affects financial decisions. For example, in the world of ESG investing, potential investments that fail to take ESG principles into account are passed on more often than not. Fintech leadership also prioritises ESG when deciding which banks to collaborate with, as financial institutions with environmental strategies are seen more favourably. The same applies to diversity, equity, and inclusion (DEI), as one of the primary DEI issues we face today is a gender and race-based wage gap. Finance departments are also always searching for tax credits that companies can take advantage of to receive tax breaks from governments, many of which are ESG related such as clean energy credits. Finally, reducing energy and carbon intensity — a core aspect of ESG — also increases operational efficiency and reduces cost in the process.
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.
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