"We are prepared to use our proxy voting power to ensure companies are identifying material ESG issues and incorporating the implications into their long-term strategy." - Cyrus Taraporevale, CEO of State Street Global Advisors ($1.3 Trillion AUM)
ESG is critical to CEO and Board agenda item...
In Larry Fink's CEO 2019 Letter, he laid down the gauntlet for a more purpose-driven approach to corporate governance. In 2020, BlackRock took it one step further, saying, "Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability related disclosures and the business practices and plans underlying them."
CEOs and corporate boards can no longer ignore global demands for more sustainable and ESG inclusive corporate strategies. The pressure coming from institutional investors is overwhelming, and somewhat predictably led to the steady stream of sustainability proclamations emanating from the corporate chieftains in Davos 2020. In addition, activists are tailoring their message to the ESG-focused priorities of institutional investors. They have made sustainability a key component of their efforts, and have significant leverage given the massive role index-based investors have over corporate management. Companies which ignore this will find themselves firmly on the defensive.
In 2019, Harvard Business Review's ranking of the "Top 100 CEOs" announced that it was raising the weighting of ESG ratings from 20% to 30% of the overall score, reflecting the fact that "a rapidly growing number of funds and individuals now focus on far more than bottom-line metrics when they make investment decisions." The change in ESG weighting had an instant and significant impact: Amazon CEO Jeff Bezos who had been the #1 ranked CEO very year since 2014, fell completely uot of the Top 100.
...driven by shareholder expectations.