Welcome back. Gary Gensler’s Securities and Exchange Commission has been under fire since it unveiled proposed rules around corporate climate disclosures a few weeks ago. Congressional Republicans have slammed the proposals, arguing that they amount to an attempt to implement the Biden administration’s agenda through regulation.
Yesterday Gensler hit back. Climate-related disclosures were already being published by hundreds of listed US companies, he pointed out. What was needed now, he argued, were “clear rules of the road”, to ensure investors could find consistent, comparable information in one place. “We are seeking feedback on every line item,” he concluded. He’ll certainly be getting plenty more of that.
We want to hear from our readers. Is the SEC on the right track with these proposals, or dangerously overreaching? And what are your insights on the push for climate disclosures more broadly — whether through the welter of new European regulations, or the efforts of the fledgling International Sustainability Standards Board? Drop us a line at email@example.com. We’ll feature some of the best responses in an upcoming edition.
Today, we bring you a look at a gathering drive for corporate law reform in the UK, a surge in climate-related resolutions in Japan, and an intriguing move into green investing for IHS Markit founder Lance Uggla. We’ll be back in your inbox on Friday — see you then. (Simon Mundy)
Better Business Act rallies support for stakeholderism
Since the formation of the Muscovy Company in 1555, corporations have had a mandate to prioritise shareholder returns. Now, according to a growing movement of British businesses and politicians, it’s time for a major revamp.
The Better Business Act campaign, with more than 1,000 companies in its ranks and backing from politicians on both sides of the aisle, is calling for an overhaul of the UK Companies Act that would force directors to prioritise the interests of other stakeholders and the environment.
The initiative, which marks its first anniversary this month, is pushing for Boris Johnson’s government to include an amendment to the Companies Act in May’s Queen’s Speech, which will lay out the legislative agenda for the next parliamentary session. The target is Section 172 of the act, which requires directors to pursue the benefit of shareholders, while “hav[ing] regard to” the interests of other stakeholders.
“It’s enlightened shareholder primacy — but it’s still shareholder primacy,” said Chris Turner, the BBA’s campaign director, of the current law.
You can take a look at the BBA’s illustrative draft amendment here. As this helpful primer from law firm Eversheds Sutherland notes, it puts other stakeholders on an equal footing with shareholders in its stipulation of a company’s purpose.
There is a precedent here, of sorts, in the form of benefit corporations and similar alternative structures, under which companies can voluntarily adopt a constitution that prioritises wider stakeholder interests. These can now be found in most US states, as well as countries from France to Rwanda. But under the BBA proposals, the pursuit of wider purpose would be mandatory for all UK companies.
“We’re not looking to create a new legal form, but to change the purpose of the company, to change that paradigm,” said Luke Fletcher, a lawyer at Bates Wells, who helped draft the wording. “It’s in a sense a very limited amendment, but one that would have far-reaching consequences.”
The campaign has drafted in Mary Portas, a high-profile retail consultant and television personality, as its co-chair. In a recent column for the FT, she argued that this legal change could have avoided this year’s debacle at P&O Ferries, which sacked nearly 800 workers to replace them with cheaper agency staff.
That episode attracted full-throated condemnation by lawmakers across the UK political spectrum, raising hopes in the BBA ranks that the zeitgeist is shifting towards far-reaching reform. In a recent book Ed Miliband, shadow climate change secretary and former leader of the opposition Labour party, called for a “fundamental rewriting” of UK company law to eliminate shareholder primacy. And there is growing support for the idea in the ruling Conservative party too, said Danny Kruger, a Tory member of parliament and former aide to Johnson.
“We don’t as a party want to be associated with the caricature of free market fundamentalism that thinks the only responsibility of directors should be to maximise returns to capital,” said Kruger, while conceding that there could be a long road to any legislative change.
Companies backing the campaign include supermarket chain Iceland, drinks producer Innocent, and vegetarian foodmaker Quorn. The BBA recently lost a high-profile backer, however, when Dame Sharon White, chair of retailer John Lewis, disavowed the initiative in a February speech. (John Lewis told me that the public “are already demanding that business takes a stronger social stance and business is responding”.)
And no member of the FTSE 100 index has yet come on board. “The FTSE 100 leaders that we’ve spoken to are personally supportive of the BBA and our principles, but they’d struggle to commit the business publicly to support the act because of perceived shareholder pressure — which I think is quite telling,” Turner said.
Others have offered more profound reasons to resist the BBA agenda. Former FT editor Sir Geoffrey Owen wrote in February that such a legal change would “almost certainly not” be good for society, arguing that the model of strict accountability to shareholders ensures the efficient allocation of capital.
Yet the campaign has won the support of the UK’s Institute of Directors, which boasts more than 20,000 corporate directors among its members. No less significant was a poll of the general UK public, commissioned by the B Labs non-profit group (which runs the voluntary B Corp certification scheme, for purpose-driven companies). Nearly three quarters of respondents said that companies should have a legal responsibility to society and the environment.
While some worry that a diluted focus on shareholders could lower investor returns, research from Alex Edmans at London Business School, among others, suggests a positive relationship between companies’ pursuit of purpose and their profitability. And as Sarah Murray pointed out in a Moral Money Forum report, investors have not been scared to invest in US benefit corporations that have gone public. Benefit corporation Lemonade had one of the best-performing initial public offerings of 2020 (although its share price has since slumped badly).
Having enlisted the support of impact investment groups such as Tribe Capital, Turner said the BBA was now targeting mainstream money managers, whose support could be crucial to getting any legislative change over the line. “People often say: ‘This makes directors’ jobs harder, doesn’t it?’” said Turner. “The answer is yes, it does — but directors’ jobs should be hard, because they hold a great deal of responsibility.” (Simon Mundy)
Climate resolutions poised to have their moment in Japan
Corporate Japan is set to face a record number of climate-related resolutions during this year’s annual shareholder meeting season.
A group of NGOs today announced that they had submitted climate resolutions to four major Japanese corporations: megabank group SMBC, trading powerhouse Mitsubishi Corporation, and two utility companies — TEPCO and Chubu Electric Power.
The resolution against Mitsubishi Corporation, filed by Market Forces, Kiko Network, and Ayumi Fukakusa of Friends of the Earth Japan, demands that the trading house disclose short-term and medium-term greenhouse gas emission reduction targets that are aligned with the Paris agreement. It also asks the company to include a wider scope of emissions, known as scope 2 and 3, and report all three categories separately.
Representatives from other climate groups, 350.org Japan and the Rainforest Action Network — alongside with Kiko Network and Market Forces — filed the resolution against SMBC, demanding more transparency on the bank’s business plans. The group said that the Japanese bank “continues to provide significant funding to facilitate fossil fuel expansion” and needed to manage its “exposure to transition risk”.
Calling for climate actions through shareholder resolutions is still new in Japan. In 2020, Kyoto-based Kiko Network brought the first such resolution against Mizuho Financial Group. Only four climate resolutions were brought in 2021. On the other hand, 28 US corporations faced climate resolutions last year, up from 14 in 2020, according to law firm Sullivan & Cromwell.
Meanwhile in Japan, the targets of these resolutions were widening from financial institutions to trading houses and electronic power companies as pressure to act on climate change builds, said Fukakusa of FoE Japan. Given that it is still an early stage of the proxy season and four resolutions have already been recorded, many specialists in the field expect more actions to follow.
However, it was still not easy to pass a climate resolution in Japan, said Yasuko Suzuki of Kiko Network. So far, no climate resolution has obtained majority support from shareholders. But is the year 2022 a turning point for corporate Japan? We’ll know more when Mitsubishi Corporation and SMBC hold their shareholder meetings in late June. (Tamami Shimizuishi, Nikkei)
PE firm General Atlantic adds Uggla to climate fund
The giant pools of money in private equity are trying to figure out climate investing. We wrote last month about the coalition of private equity firms and pension funds that are trying to write standards for environmental and social disclosures.
Meanwhile, fundraising for clean energy is galloping ahead. General Atlantic, which has scored previous wins at Alibaba, has named Lance Uggla, founder of analytics group IHS Markit, as chief executive of the firm’s climate growth equity venture (check out a handy FT profile of Uggla here). The firm’s BeyondNetZero fund is looking to raise $4bn. It has already invested in a vertical-farming company and a recycling business.
Speaking to Moral Money in New York last week, Uggla said the fund would look for young companies that did not have “start-up risk”. The fund would look at opportunities in areas such as reducing and storing emissions, and energy efficiency.
“It was a no-brainer,” Uggla said of his decision to join General Atlantic. He said he was excited to join forces with Bill Ford, GA’s chief executive, and Lord John Browne, BP’s former chief executive.
Well known in London circles for merging IHS with Markit, Uggla earlier this year closed the sale of IHS Markit to S&P Global for $44bn.
General Atlantic was founded by Chuck Feeney in 1980, and it was the first major US investor in China’s Alibaba. It was also an early investor in Adyen, a Dutch payments start-up.
Uggla said he hoped he could bring his business skills to the global warming crisis. Though he was a pioneer in financial data, it remains to be seen how well Uggla can do in a sector further from his usual sphere of influence. (Patrick Temple-West)
Don’t miss our colleague Leslie Hook’s gripping dispatch from the edge of Uganda’s Lake Albert, where French oil company TotalEnergies is pursuing a $10bn oil development. While the Ugandan government says the project will help it tackle energy poverty, activists say it threatens the environment and human rights.
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