The ESG Enforcers Come to Town
(Brendan Smialowski/Getty Images)
Gary Gensler, Biden’s nomination for SEC Commissioner, had his confirmation hearing with the Senate Banking Committee on Tuesday. Pressed on corporate disclosure relating to ESG issues, he was unequivocal: Disclosure requirements will be based on the concept of materiality, and he interprets that as the “total mix of information” that reasonable investors believe is material to their investment decision making.
And yesterday, Acting SEC Chair Allison Herren Lee – who at the beginning of the week had said at a conference that voluntary ESG disclosure wasn’t cutting it – announced the creation of a Climate and ESG Task Force in the Enforcement division, which will “proactively identify ESG-related misconduct.” In its annual examination priorities, the areas it believes “present potential risks to investors and the integrity of the U.S. capital markets,” the SEC’s Division of Examinations underscored the point. The Division is “enhancing its focus on climate and ESG-related risks,” and examining ESG products and Registered Investment Advisor (RIA) proxy voting policies and practices “to ensure voting aligns with investors’ best interests and expectations,” and “to review fund advertising for false or misleading statements.”
Clearly, the SEC isn’t playing around. Yet with universal measurement standards on ESG performance still a work in progress, and the current overall state of disclosure on many key ESG issues leaving a lot to be desired, this creates an interesting tension.
Take human capital. When addressing whether companies should be required to disclose workforce diversity, Gensler identified human capital as “a very important part of the value proposition in so many companies.” Yet in our recent analysis of the state of disclosure, we found that actual performance data on common human capital metrics (workforce demographics, compensation levels, diversity policies, pay equity status, and more) were either Never, Rarely (<25% of the time) or Occasionally (25%-50%) available, even when the metric itself was part of an established reporting framework.
If you want to know more about our analysis of the state of disclosure, or any of the company performance data we have, please email me at martin.whittaker@justcapital.
This Week in Stakeholder Capitalism
Apple opens all of its U.S. stores for the first time since the pandemic began.
Ariel Investments announces a new initiative to scale sustainable minority-owned businesses and close the racial wealth gap.
Best Buy lays off 5,000 workers and plans to close more stores as buying habits move online.
Citigroup’s new CEO Jane Fraser announces a plan to achieve net-zero carbon emissions by 2050 on her first day.
FedEx commits to carbon-neutrality with all its operations by 2040.
Johnson & Johnson will begin rolling out their single-shot COVID-19 vaccine this week. In a rare partnership between the two competitors, Merck will help manufacture the shot to ramp up production.
Mastercard issues a $600 million sustainability bond that will support initiatives for both carbon reduction and internal inclusivity efforts.
Nasdaq amends its push for more diverse boards within the companies listed on its exchange, adjusting timelines and adding less stringent rules for the smallest firms on its list.
Netflix has partnered with The Change Company to expand black homeownership across the U.S. It also announced the creation of a $100 million creative equity fund – including a $5 million training and mentorship program for female filmmakers – to improve diversity on film following the release of its diversity and inclusion study analyzing Netflix content.
What’s Happening at JUST
Friday March 12 at 1PM ET: Martin Whittaker will join Karen Wawrzaszek, Principal at SBSB Financial Advisors and an expert on ESG, for a discussion on how issues of gender pay equity, family leave benefits, and more are entering the ESG conversation thanks to COVID-19, and how the pandemic has drastically increased the pace of ESG investment. Sign up to listen here.
Our editorial director, Rich Feloni, spoke to Synchrony CHRO DJ Casto in a comprehensive Q&Aabout the ways COVID-19 has transformed for the long term. The financial services company has cut 40% of its real estate square footage, offices have been converted to “hubs,” and each of its 16,500 employees will permanently work from home at least part-time. Synchrony is also keeping its enhanced childcare reimbursement, which it upped from 10 to 60 days over the past year.
“Only by applying the intersectional lens can we see the full picture of what’s happening in our economy and within our organizations. As we enter into the second year of the new decade, we need to catalyze wholesale change and remember that ensuring equity for women of all races and ethnicities isn’t just the right thing to do — it’s the economically smart thing to do.”
– Pipeline Equity CEO Katica Roy writing in Fortune about her organization’s research, which found that for every 10% increase in intersectional diversity across race/ethnicity and gender, there’s a 1-2% increase in revenue
“The investments we’re making in flexibility, in new benefits offerings, the trade-off is we’re reducing the amount of space that we have and that overhead cost. I would hope our shareholders would want us to continue to invest in our employees in a way that’s going to allow them to be more productive, more innovative, more creative – which hopefully they see in the total shareholder return in the longer term.”
– Synchrony CHRO DJ Casto to JUST Capital
“Companies spend millions on employee benefits, and many have no idea whether they generate financial health impact. If employees are such a critical input, companies need to know as much about them and their lives as they do their customers.”
– Financial Health Network CEO Jennifer Tescher in a LinkedIn article about our collaboration on the Worker Financial Wellness Initiative
Must-Reads of the Week
CNBC shares helpful data visualizations from our research partner Amy Glasmeier at MIT demonstrating how a proposed $15 minimum wage would only provide a living wage for single adults in about half of states, and would not provide a living wage for a typical family of four (two adults working full-time and two children) in any U.S. state.
The Nation reminds us that the federal minimum wage has not increased by “a single penny” since 2009, and shares that “had the federal minimum wage kept pace with workers’ productivity since 1968 the inflation-adjusted minimum wage would be $24 an hour.” Explore additional data insights on this theme over on CEPR.
MarketWatch shows how an increase in the minimum wage would drive increased consumer spending by billions of dollars to the benefit of small businesses.
Insider shows that billionaires increased their wealth by $1.3 trillion over the pandemic, a 44% increase since March 2020. Elon Musk and Jeff Bezos gained $158 billion and $76 billion respectively. Under a new Ultra-Millionaire Tax Act proposed in Congress on Monday, Musk would owe $4.6 billion and Bezos would owe $5.7 billion from 2020.
Echoing our own research, the Wall Street Journal shows that U.S. corporations have begun to reveal more workforce diversity details, with many publicly sharing gender and race breakdowns for the first time.
Axios reports how the Business Roundtable has thrown its weight behind vaccines, creating a “Move the Needle” campaign to speed the process along and help out the Biden administration.
Chart of the Week
This week we take a look at how companies that prioritize worker investment and training outperform their competitors overall.