In the Industry: Q4 2021 Impact Digest

Accountability continues to be top of mind across the impact investing industry and shareholder advocacy and regulatory moves drive greater board diversity.

Accountability continues to be top of mind across the impact investing industry, and we continue to see just why that push for transparency and follow-through is so meaningful. In response to pressure from shareholders and regulators alike, companies across industries are making moves to be more socially and environmentally conscious. Despite the volatility and challenges of the past two years, investors have maintained their commitment to impact investing. That brings more (and more committed) investors to use their voices to drive meaningful change.

In the News

Wall Street Journal

Newest Class of Corporate Directors Is the Most Diverse Yet, but Gains Are Uneven

Hundreds of companies trading on the Nasdaq Inc. stock exchange may be forced to add diverse directors for the first time or explain why they haven’t after U.S. regulators approved Nasdaq’s proposed new listing requirements. Of the more than 3,000 companies listed with Nasdaq, more than a third lack a racially diverse director, and more than one in 10 have no women on their boards. About 8% had neither a woman nor a person of color on the board. While the Nasdaq rule requires only disclosure and an explanation of any lack of diversity, regulations in several states have been proposed or are set to take effect, including a requirement for companies based in California to have one diverse director by the end of 2021.

Bloomberg

HSBC Says It Will Phase Out Financing of Thermal Coal by 2040

London-based multinational bank HSBC will end all financing of thermal coal by 2040, according to a December 2021 announcement. In European Union (EU) and Organisation for Economic Co-operation and Development (OEDC) countries, the funding will end by no later than 2030. In the EU and OEDC, any clients in which thermal coal makes up more than 40% of their total revenues stand to lose financing unless the money is to be used for clean energy and infrastructure. The bank intends to reduce its overall involvement in thermal coal financing by at least a quarter by 2025 and by half by 2030. This policy change comes after a shareholder resolution filed earlier this year urging the bank to cut its support to the fossil fuel industry in a move coordinated by ShareAction, a U.K. nonprofit.

Bloomberg

Black Women Hold Record Share of S&P 500 Boardroom Seats

An unprecedented number of new Black female directors supported a record increase in the overall number of women directors. As of the end of 2021, 168 Black women hold 231 spots of the more than 5,500 seats at S&P 500 companies. Etsy Inc., Caesars Entertainment Inc. and HP Inc. were among companies adding Black women to their boards. The number of S&P 500 seats held by Black women has increased by more than 25% this year, following a 16% gain in 2020, an increase of twice the rate for women overall. While this progress is heartening and demonstrates the power of legislative and shareholder pressure, there is still much work to be done. Black women hold only 4% of S&P 500 board seats.

Reuters

State Street Calls for Women on Corporate Boards Worldwide

Major asset manager State Street will expect all portfolio companies worldwide to have at least one woman on their boards, expanding a policy previously focused only on developed markets. State Street said it is prepared to cast proxy votes against board leaders where companies do not meet diversity expectations. The firm’s $3.9 trillion under management positions it to substantially influence ESG policies for companies in which it invests. State Street also said the company expects boards in most developed countries to have women represent at least 30% of their directors by next year and called for other steps to support diversity, including disclosing directors’ racial or ethnic demographics.

New York Times

It’s Not ‘Woke’ for Businesses to Think Beyond Profit, BlackRock Chief Says

BlackRock founder and CEO Larry Fink has once again made a compelling case for his approach to social and environmental issues in his annual letter to the companies in which his firm invests. Fink argues that ESG factors are financially material and worth consideration on those merits alone. “Stakeholder capitalism is not about politics,” Fink’s letter states. “It is not ‘woke.’ It is capitalism.” Fink’s annual letters have drawn significant attention in recent years, as well as criticism that these letters are more for public relations than creating change, and that BlackRock is not pushing companies hard enough, particularly on environmental issues.

Research & Reports

Morgan Stanley

Sustainable Investing Sentiment Weathers Economic Uncertainty

In the wake of economic uncertainty and market volatility during the pandemic, 79% of individual investors expressed interest in sustainable investing, according to a Morgan Stanley Institute for Sustainable Investing report. Demand for sustainable investments waned by a small margin since Morgan Stanley’s last survey in 2019, when 85% of investors stated their interest. Investors who may be on the fence about impact investing may be convinced by the strong performance during the economic volatility throughout the pandemic. In 2020, sustainable U.S. equity funds outperformed traditional peer funds by a median total return of 4.3 percentage points in 2020, and sustainable U.S. taxable bond funds beat their non-sustainability counterparts by a median total return of 0.9 percentage point.

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