Investment management firm Fidelity International announced today a new focused sustainable investment approach, targeting four systemic themes, including nature loss, climate change, strong and effective governance, and social disparities, which will drive the firm’s engagement approach towards influencing positive change.

According to Fidelity’s Chief Sustainability Officer Jenn-Hui Tan, the four focus themes were selected “as these present the most significant systemic risks for our economic and social systems.

Tan added:

“Failing to address these issues or looking at each issue in isolation will prevent us from collectively transitioning to a sustainable economy and will negatively impact portfolios.”

Fidelity’s focus on nature loss follows the recent launch in late 2023 by the firm of its Nature Roadmap, outlining the company’s approach to the integration of nature in its sustainable investments and stewardship processes. The firm is also a foundation member and signatory of the Finance for Biodiversity pledge, a collaboration of more than 150 financial institutions representing more than $22 trillion in assets under management, committed to protect and restore biodiversity through their financing activities and investments, sharing knowledge; engage with companies, assess impact, set targets and reporting publicly on these activities before 2025. Under its new sustainable investment approach in 2024, Fidelity said that it will address nature loss issues through its engagement activities, and vote against companies in high-risk sectors that fail to meet expectations on deforestation-related practices and disclosure.

On the climate front, Fidelity said that it will continue to reinforce its approach based on its goals, which include achieving net zero across its investment portfolios by 2050 and halving portfolio carbon footprint by 2030. The firm said that it aims to champion further developments in transition finance, including innovation in sustainable debt instruments, and that it will seek regulatory engagement opportunities encouraging governments to close policy gaps to make green technologies cheaper, and with regulators working to effectively channel transition financing.

Fidelity’s social disparities efforts will focus on the Just Transition, with the firm noting that an unintended consequence of initiatives to decarbonize could be increased inequalities, which could “impede climate action and potentially negatively impact individual companies’ prospects, and investors’ portfolios overall.” The firm said that it will utilize active stewardship in 2024, particularly in its thermal coal engagement programme, to support social transitions in communitie that require it most. Fidelity has committed to phase out investment in thermal coal by 2030 in OECD countries and in the rest of the world by 2040.

In its efforts to target “strong and effective governance,” Fidelity said that it will intensify its dialogue, and utilize voting and shareholder resolutions in situations in which companies’ governance-related actions and efforts are deemed inadequate, with a focus on issues including board effectiveness, corporate culture and behaviour, remuneration and shareholders’ rights and transparency. 

Tan said:

“In 2024, Fidelity will strive to amplify its active ownership approach as a positive force for driving sustainable business practices in the companies we invest in. In parallel we will continue to contribute actively to the development of key regulations such as SFDR and the implementation of regulation coming into force this year such as CSRD, which we think will be essential for encouraging and harmonising sustainable investing across the industry.”

Advisory, broking and solutions company WTW announced the launch of Climate Vista, a new engagement tool aimed at helping boards and senior management to better understand the exposure of their companies to ESG and climate-related risks and opportunities, and to help promote alignment between board members and between boards and management on climate action.

The new tool follows the release last month of a board member survey by WTW and the Nasdaq Center for Board Excellence, in which nearly half of respondents reported a lack of skills and expertise in their organizations for addressing climate issues, despite three quarters agreeing that a coherent ESG strategy helps create organizational value and better financial outcomes.

Hannah Summers, Director, Executive Compensation and Board Advisory (ESG & Climate specialist), at WTW, said:

“Pressure from governments, investors, and civil society will soon impact everything from a company’s credit rating, valuation and cost of capital to its ability to borrow and get insurance. Putting climate governance front and centre on the boardroom table is a critical first step to ensuring business leaders are aware of their responsibilities and equipped to successfully steward their organisations through the transition to net zero, strategically managing the risks and opportunities in a rapidly decarbonising world.”

Key features of the new tool include tailored sessions led by WTW climate experts and board advisers to uncover the current level of understanding by board members of climate issues, perceptions of barriers to action, and the level of climate action ambition. The tool can then be used to address areas of weakness, ground the board in climate risk fundamentals, build momentum to respond to climate risk, and deepen engagement across the business. The tool can be tailored to companies’ geographies and sectors.

Will Bugler, Climate Change Learning and Engagement Lead, Climate and Resilience Hub, WTW, said:

“With a blizzard of regulation and policy coming down the line, the clock is ticking for companies to respond to climate risk. Business leaders have made some progress when it comes to climate and governance risks, but there remains a significant climate skills deficit in the boardroom. Climate Vista is a powerful tool that can help boards understand how climate change presents material financial risks to their business.”

Nearly half of board members report lacking skills and expertise in their organizations for addressing climate issues, even as most acknowledge that a strong ESG strategy can lead to better financial outcomes, according to a new survey by advisory, broking and solutions company WTW and the Nasdaq Center for Board Excellence.

For the study, the Fostering Corporate Governance and Enhancing Board Effectiveness Survey, WTW and Nasdaq surveyed 349 board members across 44 countries.

The survey found that most board members recognized value in sustainability-focused initiatives, with 75% of respondents agreeing that “a coherent environmental, social and governance (ESG) strategy helps to create sustainable organizational value and stronger financial outcomes,” and “alignment with the organization’s business strategy” scoring as the most common factor influencing board members to prioritize ESG themes, cited by 85%.

Additional factors influencing the prioritizing of ESG factors included ethical reasons, by 78% of respondents, followed by long-term value creation, reputation and risk mitigation, while regulatory compliance placed only 6th, cited by 71%.

By ESG focus area, top priorities cited by respondents included human capital at 82% followed by governance at 70%, while only half ranked environmental and climate in their top-three priorities.

Despite acknowledging the value of a strong ESG strategy, many board members said that their organization’s don’t focus enough on sustainability issues, with fewer than two-thirds of (62%) of respondents agreeing that their boards have dedicated sufficient time and resources to governance of their ESG priorities.

Similarly, board oversight of ESG issues appears to be evolving, with an expectation for more specialist responsibilities in the future. While more than half of respondents reported that oversight of ESG governance is performed by a combination of the full board and other committees, 61% of these respondents also said that they expect to see a dedicated ESG or sustainability committee in the next three years, although 71% also acknowledged that some ESG oversight will continue to be a full board matter.

In addition to evolving oversight, boards also appear to expect to invest in ESG-related skills and education. While 48% of respondents reported lacking skills and expertise for addressing climate issues, only 18% expected this skills gap to remain in three years.

Kenneth Kuk, Senior Director, Work & Rewards at WTW said:

“Board members are evolving their ESG agenda from reacting to stakeholder pressure to proactively linking ESG to business strategy. As a result, we are seeing greater interest in addressing skills and resource gaps and more emphasis on oversight of emerging risks.”

Click here to access the study.

By: Anuj Saush, ESG Center Leader, The Conference Board

The answer to the question of whether the board of directors have a critical role to play in a company’s ESG success is a resounding “Yes.” Now, companies must determine how to best use the board’s decision-making, oversight, and advisory capacity to build a more sustainable organisation.

It’s not a straightforward path – for instance, hiring directors who specialise in sustainability can be counterproductive if the rest of the board defers to them too much. Rather, directors should have a clear understanding of their various roles related to ESG and deep knowledge about their industry, as that combination unlocks effective oversight and advancement of ESG-related risks and opportunities.

Incorporating ESG and stakeholder perspectives into existing board processes involves mapping the board’s current roles and responsibilities by taking inventory of the board’s current approach to and knowledge of ESG issues and stakeholder views. Once that inventory has been taken board responsibilities can be allocated among several board committees to avoid overburdening a single committee. Either the Board as a whole or a board committee should oversee coordination of the board’s ESG engagement, ensuring corporate governance documents are up to date and handling committee rotation and committee chair succession.

Management should also set reasonable expectations around board members’ understanding of and fluency on ESG topics, as there are hundreds of areas of focus across all three categories. Board members cannot and should not be expected to have deep expertise in all of these areas. That said, the board should have a solid grasp of the depth and breadth of all internal and external ESG-related communications, as well as how management affirms that these communications are accurate and consistent.

A combination of direct board engagement and data are the best ways to keep the board informed about sustainable development. This engagement can be achieved through board discussions of the company’s purpose, by integrating ESG into the company’s overall strategy, and incorporating ESG topics into board level discussions of compliance and risk management.

It is not a one and done. As the board’s involvement in and support of the company’s ESG agenda progresses, it’s crucial that the approach is not a series of distinct single actions but rather, a fluid and continuous process.

Boards of directors already play a vital role in developing a company’s purpose, which gives meaning to the company’s existence. In turn, the ESG agenda ensures the company’s sustainability. Beyond building culture, boosting strategy, and raising value, ESG safeguards a company from various risks. When boards support management in efforts to make ESG a priority, it signals to employees, customers, and other stakeholders that the company’s purpose extends beyond profit and includes all stakeholders.

Anuj Saush is the Center Leader, ESG Center, Europe at The Conference Board.

The European Parliament announced today that it has formally adopted new legislation mandating gender balance rules for corporate boards, marking the last major step for the passage of the new requirements into law.

The new law is aimed at ensuring that gender balance is established in the corporate boards of large listed companies across the EU, and that board position appointments are transparent, and that candidates are assessed objectively.

According to a recent survey by the European Institute for Gender Equality (EIGE), while women account for approximately 60% of university graduates in the EU, they are significantly under-represented on corporate boards, accounting for only 31.5% of total board members and 8% of board chairs.

Under the new proposed law, listed companies will be required to have the underrepresented sex holding 40% of non-executive director positions or 33% of all director positions by mid-2026.

The new rules also rules will also require companies to report annually on the gender representation on their boards, as well as on the measures they have in place to reach the targets.

In a statement issued following the adoption of the law by the EU Parliament, European Commission President Ursula von der Leyen, Vice-President Věra Jourová and Commissioner Helena Dalli said:

“This is a long-awaited moment, a moment to be celebrated as a breakthrough in gender equality.

“After ten years since its proposal by the European Commission, we will now have an EU law to break the glass ceiling of listed companies boards.

“There are plenty of women qualified for top jobs and with our new European law, we will make sure that they have a real chance to get them.”

Investment giant BlackRock is working to begin enabling individual investors to control their own proxy voting choices, the firm announced today, as part of a series of extensions it unveiled to its BlackRock Voting Choice initiative.

The announcement follows the introduction of the BlackRock Voting Choice program last year, beginning with certain institutional clients, including pension funds, insurance companies and corporations, in certain accounts managed in the US and UK. BlackRock has been working to expand the program, with nearly half of the firm’s $3.8 trillion of index equity assets under management now eligible. Interest has been strong, with BlackRock reporting today that clients representing 25% of Voting Choice eligible assets have enrolled in the program.

BlackRock Chairman and CEO Larry Fink, in a letter published today from to clients and CEOs today, said:

“One year after its launch, I am convinced that Voting Choice has the power to transform the relationship between asset owners and companies. And, if widely adopted, it can enhance corporate governance by injecting important new voices into shareholder democracy.”

Fink highlighted a series of moves the firm is taking to continue expanding the program, including an “industry-first” initiative to begin offering the program to individual investors. BlackRock said that it is working with digital investor communication platform Proxymity to build a solution to enable individual investors in some UK index funds to exercise choice in how their portion of votes are cast for the upcoming 2023 proxy season.

Fink wrote:

“As I’ve said before, my hope is that in the future, every investor – ultimately including individual investors – has access to voting choice, if they want it.”

Other expansions to the program unveiled today included providing a broader array of voting policies for clients to choose from with the including the addition of the Glass Lewis Governance-Focused Policy to the series of currently available Institutional Shareholder Services (ISS) policies, and the extension of eligibility to Voting Choice clients representing another $90 billion of assets in certain institutional pooled funds that implement Systematic Active Equity (SAE) strategies.

Sandy Boss, Global Head of BlackRock Investment Stewardship, said:

“We believe clients should be able to choose if they wish to direct and exercise their preferences around voting themselves – in the same way that many do for other investment decisions, such as asset allocation and portfolio construction. BlackRock, through product innovation and technology, has helped democratize access to financial markets for millions, offering lower cost and greater choice. Now we are doing this for proxy voting too.”

The U.S. Securities and Exchange Commission (SEC) voted on Wednesday to reverse portions of controversial rules, adopted during the Trump administration, that had been seen by shareholder advocates as limiting the independence and effectiveness of proxy advisors, and putting too much power in companies’ hands in the shareholder advisory process.

While the new amendments were welcomed by shareholder advisory firms, some expressed concerns that the SEC didn’t go far enough to reverse the Trump-era rules.

In July 2020, the SEC approved amendments to its rules governing proxy solicitations that affected the role of proxy advisor services. The rules required proxy advisory firms to make their advice available to the companies that were the subject of the advice at the same time (or before) as it was sent to shareholders, and that the proxy voting service provide the ability for shareholders to access any written statements provided by the issuing companies regarding the voting advice given.

Additionally, the rules classified proxy voting advice as a “solicitation,” subjecting the providers of such services to more stringent filing and disclosure rules.

While the SEC at the time presented the rules as providing investors with greater transparency and complete information, many shareholder advocates opposed the rule as negatively impact shareholders, making the ability to provide proxy advice more costly and less efficient, while impacting the independence of the advice.

In Wednesday’s vote, the SEC rescinded the rules requiring advisors to provide their advice to subject companies in a timely manner, and to ensure shareholders are aware of company responses to their advice. The solicitation rule, however, was left in place.

SEC Chair Gary Gensler, said:

“I am pleased to support these amendments because they address issues concerning the timeliness and independence of proxy voting advice, which would help to protect investors and facilitate shareholder democracy. It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.”

Advisory firm Institutional Shareholder Services (ISS), a vocal critic of the 2020 rules, applauded the change, but expressed disappointment that they were not reversed entirely, particularly on the solicitation issue. In a statement published after the SEC action, ISS said:

“Today’s action misses the mark by failing to address the most critical defect; namely, the reclassification of proxy advice provided in a fiduciary capacity as proxy solicitation. We firmly believe the Commission’s decision to regulate a form of independent investment advice as though it were a solicitation of a specific outcome in a shareholder vote exceeds the agency’s statutory authority, is contrary to law, and is arbitrary and capricious.”

ISS said that it will continue taking legal action against the rules, with oral court arguments scheduled later this month.

Consulting and advisory firm Boston Consulting Group (BCG) and leading business school INSEAD announced the release of ‘The BCG-INSEAD Board ESG Pulse Check,’ a study examining the role corporate boards are playing in overseeing ESG. While the report found that approaches for this rapidly emerging area are still developing, and while directors recognize the need to prioritize and increase focus on sustainability topics, it also revealed that most directors report not being highly effective at integrating ESG into strategy, and many lack the tools for ESG oversight.

The report was a product of a multi-year initiative by BCG and INSEAD, which included pulse check surveys and interviews to study the role boards play in overseeing ESG. The survey included responses from over 120 respondents with an average of 7 years of board experience, and serving on an average of two boards. Respondents spanned multiple regions, including Europe, Asia Pacific and the Americas, and represented a broad range of company sizes, with over half under $1 billion revenues, and 11% over $10 billion.

According to BCG and INSEAD, the study found that ESG issues are moving higher on boards’ agendas, as directors recognize the materiality of these risks to company performance and value, and increasingly, the opportunities created by an emerging and dynamic ESG landscape for organizations to build a competitive advantage. Stakeholders are also driving increased ESG awareness at the board level, with around three quarters of directors reporting that engagement with shareholders on ESG has intensified, nearly two thirds expect to see institutional investors put forward ESG-related proposals at the next AGM, and over half also cited regulators, customers and employees as driving ESG concerns.            

Despite the increased ESG focus, many respondents indicated that boards often lack the necessary tools for effective ESG oversight, with around 70% of directors reporting being only moderately or not at all effective at integrating ESG into company strategy and governance. Similarly, while over 90% of directors identified ‘strategic reflection’ as the appropriate board approach to aligning company strategy with ESG, less than half reported being effective at that role.

Report co-author David Young, a BCG Managing Director and Senior Partner, said:

“Directors have significant skepticism about whether companies they oversee can deliver on ambitious ESG targets. That makes it more critical than ever that boards enhance their governance of ESG issues, focusing on the matters that are truly material and connected to advantage and value creation for the company.”

Asked to identify the major roadblocks to effective board oversight of ESG, the directors’ top response was ‘lack of knowledge, data or capabilities, cited by 44% of respondents. Other top responses included complexity and ambiguity management (43%), lack of board commitment (30%), and inability to translate ideas into action (26%). In terms of the key threats to companies’ achieving ESG goals, the ability of the organization to execute took top spot at 43%, followed by costs increases, organizational culture, and management commitment, each cited by at least 30% of respondents.

Ron Soonieus, a senior BCG advisor, Director in Residence at the INSEAD Corporate Governance Centre, and a coauthor of the report, said:

“It is critical for boards to move from a compliance mindset when it comes to ESG to bringing a true strategic lens to those issues. However, many have not yet remade the board agenda to make time for that critical strategic thinking.”

The study also took a deeper look into boards’ management and oversight of climate-related issues, which was cited by boards across multiple sectors as a top area of ESG concern. While 42% or respondents said that their companies have made net zero commitments, only slightly over half of these have published a plan too hit that target, and even fewer have included climate change implications in their financial statements.

Report co-author Sonia Tatar, Executive Director of the INSEAD Corporate Governance Centre, said:

“More and more companies are making net zero commitments. And directors have a critical part to play in ensuring those pledges come with concrete plans and execution as they steward businesses for a sustainable economic performance that drives greater good for society and the environment.”

Click here to access the BCG and INSEAD report.

Singapore-based financial services group DBS announced today the launch of a Board Sustainability Committee (BSC) to provide added governance and oversee the bank’s sustainability agenda. According to DBS, the BSC is the first of its kind by a Singapore bank.

The new committee is chaired by DBS CEO Piyush Gupta, and its members include current DBS board members Chng Kai Fong, Judy Lee, and Tham Sai Choy.

The bank outlined some of the material ESG matters that the BSC will oversee, including DBS’ strategies and targets related to its sustainability pillars – responsible banking, responsible business practices, and creating impact beyond banking, as well as sustainable development goals, climate-related matters, sustainability disclosures, stakeholder engagement and governance on sustainability matters.

DBS CEO Piyush Gupta said:

“DBS takes our role in building a sustainable future very seriously. That is why our commitments to driving the transition to a net-zero world were made only after we had some line of sight towards a viable course of action that is constructive and impactful. This included first establishing a clear handle on our financed emissions, mapping out viable transition pathways for different industry sectors, and developing a taxonomy that guides conversations with customers in their transition. In line with these efforts, it was timely to establish a Board Sustainability Committee to oversee the complex and extensive work being done as we further weave ESG into the fabric of our business.”

The U.S. Securities and Exchange Commission (SEC) announced Wednesday the adoption of new proxy voting rules that could make it easier for activist or dissident shareholders to gain seats on companies’ boards of directors, with the introduction of “Universal Proxy Cards” enabling shareholders voting by proxy to pick their preferred candidate slate, in the same manner as shareholders voting in person.

Under the prior rules, shareholders voting by proxy, for example by mail or electronically, could vote only for specific slates of candidates proposed by a company or by other shareholders, while those voting in person could vote for individual directors. With the new rules, all shareholders are provided with a universal proxy card, listing all board candidates proposed by all parties, whether proposed by management or by investors.

Calling the new rule “an important aspect of shareholder democracy,” SEC Chair Gary Gensler said:

“These amendments address concerns that shareholders voting by proxy cannot vote for a mix of dissident and registrant nominees in an election contest, as they could if voted in person. Today’s amendments will put these candidates on the same ballot. They will put investors voting in person and by proxy on equal footing.”

The adoption of the new rule was passed in a 4-1 vote, with Commissioner Hester M. Peirce dissenting. In a statement explaining her vote, Peirce, appointed by former President Trump, argued that while universal voting makes sense, the new rules make it too easy for frivolous shareholder activists to find their way onto the proxy card. Peirce wrote:

“I might have been able to support the rule if I felt we had explored thoroughly the potential that the rule could afford activists without a demonstrated commitment to the company an opportunity to meddle in the company’s affairs.  I do not believe we have done this work so I cannot support the rule.”

Corporate governance groups welcomed the adoption of the new rule, noting the improved ability for shareholders to have input on the makeup of the boards of the companies they invest in. ISS Governance Solutions Business Head, Lorraine Kelly said:

“Today’s adoption by the SEC of a universal proxy rule represents a significant milestone in efforts by institutional investors and others who champion shareholder rights to ensure corporate elections are fair, transparent, and efficient. As an integral part of the proxy voting ecosystem, we are pleased to see the adoption of this new rule that will mandate inclusion of management and dissident nominees in a single proxy card in contested elections to afford shareholders voting by proxy the ability to support what they believe to be the optimal board composition.”

The SEC on Wednesday also proposed amendments to Trump-era rules regarding proxy voting advisors, addressing investor concerns that the rules impede the independence and effectiveness of proxy advisors.

In July 2020, the SEC approved amendments to its rules governing proxy solicitations that affected the role of proxy advisor services. While the SEC presented the rules as providing investors with greater transparency and complete information, many shareholder advocates opposed the rule as negatively impact shareholders, making the ability to provide proxy advice more costly and less efficient, while impacting the independence of the advice.

The new proposals would rescind the July 2020 rule amendments. Opening up the proposal to a 30-day comment period, Gensler said:

“Proxy advice voting businesses play an important role in the proxy process. Their clients deserve to receive independent proxy voting advice in a timely manner. I am pleased to release these proposals to the public and encourage the public to share their feedback at sec.gov.”