2017 was a year that many expected to be a disaster, from the perspective of sustainability. The year started off with the election of a climate-skeptic president who appointed someone who denies climate science to lead the Environmental Protection Agency (EPA), followed by announcements that the Administration intended to roll back the Clean Power Plan and withdraw from the Paris Agreement on climate change. The new cabinet is also 75% white and male, and you have to go back to the Reagan Administration to find one less diverse. The Administration also halted a rule that would have obliged large companies to report on pay by race and gender.
There may be no better way to illustrate the fact that the world is not only driven by public policy in Washington DC than what has actually happened. 2017 saw the launch of the “We Are Still In” coalition, a group of businesses and investors (including Pax), city and county leaders, state and tribal leaders, and higher education institutions that has committed to reducing emissions at levels compatible with the Paris Agreement.
While the regulatory pressure for reducing greenhouse gas emissions may have abated nationally, investors kept up the pressure on companies. For the first time in 2017, shareholder proposals filed with large oil companies asking for them to report on the impact of climate change on their future businesses passed—largely because many of the largest investors, including BlackRock and Vanguard, as well as many large pension plans—see climate change as a significant, possibly existential risk at such companies. Pax World co-filed one of those shareholder proposals, at Occidental Petroleum. We also filed three others with UPS, ConocoPhillips, and Dominion Resources, asking that the companies assess what climate change means for them and establish incentives to reduce emissions, or adopt renewable energy targets.
Investors also launched a new engagement platform, the Climate Action 100+, that asks the world’s largest greenhouse gas emitters to strengthen governance on climate change, reduce emissions and improve climate-related financial disclosures. Pax is also a member of that initiative.
“To put it bluntly, national policies aimed at relieving regulatory pressure on climate change have done nothing to assure investors that climate change is not a risk; a growing number of investors, large and small, see it as a significant source of risk that companies must accommodate.”
Similarly, national rollbacks of policies supporting gender equality have not diminished financial pressure for companies to advance it. 2017 was also the year that some of the world’s largest investors began making their wishes for more gender-diverse boards known through their proxy voting: State Street reportedly voted against some directors at 400 companies that had no women on their boards of directors, joining Pax and other investors and asset owners who have voted this way for years. Other large investors have also begun voting for shareholder proposals to diversify boards.
And while the Trump Administration’s Equal Opportunity Employment Commission dropped an Obama-era proposal requiring corporate reporting on pay by gender and race, Great Britain instituted a gender pay reporting requirement. If reporting on pay by gender, race and other demographics becomes the norm elsewhere, U.S. companies that take advantage of Trump’s policy stance, risk being seen as backward and uncompetitive. That is part of the reason that Pax World filed seven shareholder proposals asking for gender pay equity reporting in 2017; as a result, six companies enhanced their pay equity disclosure. Notably, at Oracle Corp., our proposal received favorable votes by nearly 39% of the votes cast—and considering that Larry Ellison owns over 26% of Oracle’s shares, that constitutes a majority of all the other shareholders.
“If there ever was a time when most of what corporations did was driven by public policy, it is over now.”
The drivers of action are legion, and include investors, customers, stakeholders, workers, and, well, any interested citizen. Rolling back regulation may be popular in the short term, but when the regulations in question are aimed at solving real-world problems that have significant economic and financial costs, expect the rollbacks to have limited impact.
Political headwinds are no fun, but they’re not showstoppers either. If anything, the political sentiment of the current administration has stimulated action by us and other investors to keep the terms of sustainability firmly in the conversations and decisions of corporate boards and executive suites.
The statements and opinions expressed are those of the author of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security.