Guest essay by Eric Worrall
It is never enough; despite recent moves to green their portfolios, major Hedge Fund manager Chris Hohn has accused Blackrock and Vangard of not doing enough. But this push for more climate action is just the tip of a much larger threat which I believe is hanging over the heart of Corporate America.
Chris Hohn blasts BlackRock and Vanguard over climate change
Billionaire hedge fund manager calls on big asset managers to challenge companies on global warming
Attracta Mooney, Investment Correspondent OCTOBER 25, 2020
Billionaire hedge fund manager Christopher Hohn has accused BlackRock and Vanguard of acting like sheep when it comes to climate change, arguing that large asset managers are taking “insufficient and ineffective action” on global warming.
His letters are the latest example of the intense scrutiny facing the $89tn asset management industry over its role in tackling climate change. Many large fund managers, which have immense sway over the world’s biggest businesses, have warned that global warming could hit investment returns.
But Sir Christopher accused “most asset managers” of “total greenwash”, arguing they were far too complacent about the risks of global warming.
“The asset management industry is a joke in respect to what they are actually doing [around climate change],” he said. “They talk but they don’t actually do anything effective.”
Read more: https://www.ft.com/content/2ea426f2-b338-4921-882b-7c99076489fe
The reality is Blackrock and other big companies are completely onboard with the green agenda. Their biggest obstacle to an activist attack on American business is President Trump.
The path to greener investment is not assured, with other companies still shrugging off asset managers’ new threat. “Our companies are not worried,” says Charles Crain at the National Association of Manufacturers, whose members include ExxonMobil.
In the US there is a growing pushback against investors acting as climate warriors. Asset managers are gearing up for a row with the Trump administration over a new proposal that threatens investors’ ability to incorporate ESG principles into pension portfolios. At the same time, many well-known asset managers are still reluctant to vote against management, meaning the vast majority of climate resolutions do not pass.
Read more: https://www.ft.com/content/78167e0b-fdc5-461b-9d95-d8e068971364
ESG (Environmental Social and Governance) is fully on the Democrat agenda. In August 2020 the US Congressional Committee on Financial Services, led by Maxine Waters, made a number of policy recommendations which should send a chill down the spines of anyone who likes a return on their investments.
H.R. ____: ESG Disclosure Simplification Act of 2019 (Rep. Vargas): This bill requires public companies to disclose certain ESG metrics, which the SEC is required to establish in a rule. The bill also requires public companies to disclose annually in their proxy statements a description of the company’s views on the link between ESG metrics and long-term business performance, as well as the process the issuer uses to determine such impacts. In addition, the bill includes a sense of Congress that the ESG metrics that the SEC establishes are automatically deemed material to investors. Finally, this bill creates a Sustainable Finance Advisory Committee within the SEC, which would make recommendations to the SEC on which ESG metrics public companies should be required to disclose; would submit a report to the SEC within 18 months that identifies challenges and opportunities for investors in sustainable finance; and would periodically recommend policy changes that would encourage the flow of capital toward sustainable finance.
H.R. ____: Shareholder Protection Act of 2019: This bill requires public companies to submit quarterly reports to both the SEC and investors detailing the amount, date, and nature of the company’s expenditures for political activities. If the political expenditure was made in support of (or opposition to) a particular candidate, or was made to a trade association, then the company must disclose the candidate and/or trade association. The bill also requires public companies to disclose in their annual reports any political expenditures over $10,000 in the previous year, as well as the nature and amount of any political expenditures the company plans to make in the upcoming year.
H.R. ____: Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019: This bill requires public companies to annually identify — and rank by severity — any human rights risks or human rights impacts in their value chains. Companies must also disclose any actions they have taken to avoid or mitigate the human rights risks and impacts identified in the annual report, or, if no action was taken, an explanation for why the company took no action.
H.R. ____: To require issuers required to file an annual or quarterly report under the Securities Exchange Act of 1934 to disclose the total amount of corporate tax such issuer paid in the period covered by the report, and for other purposes: This bill requires public companies to disclose (in their 10-Qs and 10-Ks) their total pre-tax profits, and total amounts paid in State, Federal, and foreign taxes. The bill also requires companies to disclose a number of specific tax- related items for each of its subsidiaries, as well as on a consolidated basis, such as total accrued tax expenses, stated capital, and total accumulated earnings.
H.R. ____: Climate Risk Disclosure Act of 2019 (Rep. Casten): This bill requires public companies to disclose in their annual reports information relating to the financial and business risks associated with climate change. The bill also requires the SEC to establish, in consultation with other relevant Federal agencies, climate-related risk disclosure metrics and guidance, which will be industry-specific, and will require companies to make both quantitative and qualitative disclosures.
Read more: https://financialservices.house.gov/uploadedfiles/hhrg-116-ba16-20190710-sd002_-_memo.pdf
In my opinion, putting all these required actions under the aegis of shareholder disclosure would create an enormous financial risk and burden for US companies.
Defining ESG (Environmental Social and Governance) as automatically “material” for investors would mean companies would be liable for disclosure failures; they could be sued for making misleading ESG statements, or not revealing an ESG issue.
But ESG itself is not well defined, it pretty much means whatever activists want it to mean. The definition changes every time someone discovers a new claim for grievance. So even if a company does their absolute best to comply with such laws, there would always be room to launch a vexatious activist lawsuit, based on a new imaginative interpretation of ESG issues.
Large companies would struggle. Many small companies in my opinion could be wiped out by compliance costs and constant legal harassment.
Activists have already attempted to punish companies on ESG issues, but for now the law mostly does not favour frivolous ESG lawsuits or even activist shareholder resolutions. President Trump has been especially active blocking this kind of abuse.
Maxine Water’s legislative proposals could change all that.
I suspect in the scenario Maxine Water’s proposed laws are passed, companies would find it easier to simply up their payments of danegeld to try to buy activists off. Of course activists would still likely launch the occasional lawsuit, to remind companies who was in charge.
Strengthening the hand of activists demanding payoffs would in my opinion likely have a chilling effect on US business confidence.
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