Volume 1:Issue #15
Edited by Francis H.Byrd
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The Way We See It – Commentary from The Altman Group

Francis H. Byrd, Managing Director and Corporate Governance Advisory Practice Co-Leader

Don’t Forget About the Social Responsible Investors

Much of the recent focus of governance commentators has been on old-fashion pure corporate governance issues and on the impact that the elimination of 452 in the election of directors and the prospect of proxy access (in some form) will have on issuers in 2010.

All but forgotten in these conversations is the growing influence of Corporate Social Responsibility (CSR) investors, with their focus on climate change, environmental and social issues.  A recent report by Receco Investment Management and Booz Allen & Company cites the focus on reducing carbon emissions and the increased interest in clean technologies as driving the growth of the Responsible Investment segment of the asset management market toward mainstream status.  The white paper predicts that CSR-related investments will rise to the level of 15-20% of total global assets under management ($26.5 trillion) and generate total revenue (investment management fees) of approximately $53 billion.

Beyond Tree-hugging

As far back as 15 years ago CSR was seen and treated as a separate issue, not only from the practice of investing but from issues of corporate governance as well. CSR-related shareholder resolutions would regularly obtain vote totals in the 2-5% range. Social or environmental proposals gaining 10% or greater shareholder vote would be considered a huge victory by proponents.  The trend among activist institutions – led by the New York City Comptroller’s Office/New York City Retirement Systems/Pension Funds – being lead sponsor and a co-filers on CSR issue proposals with religious and environmental organization has rapidly evolved.  Fast-forward to the present and some CSR-related resolutions, particularly those focused on climate change and carbon emissions receive the support of upward of 40% of shareholders voting at the annual meeting.

A sign of CSR issues as mainstream is the growth and reach of the CERES Coalition.

The CERES Coalition (pronounced “series”) is a national network of investors, environmental organizations and public interest groups focused on sustainability issues such as global climate change.  Several years ago, the only major investor, to serve as an active member of the coalition was the New York City Comptroller’s Office/New York City Retirement Systems/Pension Funds.  After several years New York City was joined by the Connecticut State Treasurer's Office and CalPERS.  There are now as many as 28 public and union funds as CERES coalition members.  This tremendous growth among the activist institutional investor class as members of CERES indicates that many of these funds have revised their proxy voting guidelines to include support for CSR-related proposals.

With respect to engagement, CSR investors are now much more likely to come to the table armed with facts and figures regarding their particular issue along with their trademarked brand of moral suasion.  In 2007, the LBO transaction of utility TXU Corp by a consortium of private equity investors was widely celebrated as a victory by environmentalists who were concerned at the prospect of TXU building of a new generation of coal-fired plants. The expanding list of companies targeted and institutional filers of CSR-related proposals indicates to us that CSR investors are starting to look beyond mega and large-cap companies for adoption of CSR best practices. Boards and senior management need to keep an eye on these issues so as not to be blindsided by CSR shareholder resolutions.

Next week, we will take a more detailed look at how well some these proposals fared in the 2009 proxy season.

 

 
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