June 16, 2016
BY EMILY CHASAN, BLOOMBERG BRIEFCompanies making investments in the sustainability metrics that matter most to their
businesses are being rewarded with higher profits, according to new research from professors and .Harvard Business School Calvert Investments
The comes as investors are asking U.S. securities regulators to take a closer research look at material sustainability disclosures they complain are inconsistent and selective.
The Harvard researchers, led by business school professor , George Serafeimstudied more than 2,000 companies over five years in six different sectors. They mapped how companies in each sector were investing in their industry's most and least relevant sustainability issues, using the materiality framework created by the
. Sustainability Accounting Standards Board For example, while greenhouse gas emissions are important for transportation companies, systemic risk management is more material for financial services firms, according to SASB's framework. SASB, a San Francisco non-profit, is chaired by Bloomberg LP founder Michael Bloomberg.
"The capital markets are already evaluating companies," on environmental, social, and governance risks, , chief executive of $13 billion responsible John Streurinvestment manager Calvert, said in an interview. "Companies that have demonstrated expertise in managing their businesses to address these ESG risks are actually achieving positive returns," he added, citing the new research.
The researchers found that firms with good ratings on material sustainability issues in their sector, significantly outperformed firms with poor ratings on those issues in both profitability margins, and stock market returns. There was no significant result for firms that performed well on immaterial sustainability issues, suggesting companies should be careful about where they invest, Streur said.
Securities regulators are facing more pressure to weigh in. The Securities and Exchange Commission's influential investor advisory committee recommended at its June 7 meeting that the SEC develop an analytical framework to help guide companies in sustainability reporting. "It is clear that a significant, and growing number, of investors utilize sustainability and other public policy disclosures to better understand a company’s long-term risk profile," the advisory committee wrote in a draft comment letter. The group said environmental, social, and governance issues should be subject to the same materiality standards as other corporate information.
Sustainability Data in a Material World May Help Profits NUMBER OF THE WEEK
81%Percentage of U.K. energy professionals who believe a Brexit vote on June 23 would be negative for climate change and sustainability, according to a by the Energy reportInstitute. Read more in Bloomberg's
"It is a rare situation where companies get sued for too much disclosure. Companies get sued for not disclosing material information... and then saying something else somewhere else."
— Michael Kinstlick, Head of the Standards
Setting Organization for the Sustainability
Accounting Standards Board in comments to
Bloomberg's June 13 Accelerating Innovation
in ESG Investing conference.
QUOTE OF THE WEEK
The high-yield market is still a challenge for sustainable investors due to a , but there lack of informationare opportunities, says Peter
senior vice president and Schwab,portfolio manager at PAX World
Less than half of U.S. companies have , showing diversity programsthey are not ready to comply with new government pay data disclosure requirements, according to data provider Sustainalytics.
The U.S. Securities and is "hurting Exchange Commission
America" because of its inaction on requiring companies to disclose corporate , political spendingDemocratic Senator Chuck Schumertold SEC Chair this Mary Jo White week.
ENERGY OUTLOOK BY TOM RANDALL, BLOOMBERG NEWS
Corporate Climate Disclosures in SEC Filings
Climate risk is the most ubiquitous sustainability issue affecting U.S. companies with 93 percent of the U.S. equity market affected by it, according to the Sustainability Accounting Standards Board. But only 12 percent of companies report metrics on climate change in their SEC filings, while 26 percent of companies don't mention it at all, according to a review by SASB.
June 16, 2016 Bloomberg Brief Sustainable Finance 2
ENERGY OUTLOOK BY TOM RANDALL, BLOOMBERG NEWSThe World Nears Peak Fossil Fuels for Electricity
The way we get electricity is about to change dramatically, as the era of ever-expanding demand for fossil fuels comes to an end—in less than a decade. That's according to a new forecast by that plots out global power markets for the Bloomberg New Energy Financenext 25 years.
Call it peak fossil fuels, a turnabout that's happening not because we're running out of coal and gas, but because we're finding cheaper alternatives. Demand is peaking ahead of schedule because electric cars and affordable battery storage for renewable power are arriving , as are changes in China's energy mix. Here are some massive shifts coming soon to power markets.faster than expected
Read the online. Click the image from your desktop for a larger view.
Since 2008, the single most important force in U.S. power markets has been the abundance of cheap natural gas brought about by fracking. Cheap gas has ravaged the U.S. coal industry and inspired talk of a "bridge fuel" that moves the world from coal to renewable energy. It doesn't look like that's going to happen.
The cost of wind and solar power are falling too quickly for gas ever to dominate on a global scale, according to BNEF. The analysts reduced their long-term forecasts for coal and natural gas prices by a third for this year's report, but even rock-bottom prices won't be enough to derail a rapid global transition toward renewable energy.
"You can't fight the future," said the report's Seb Henbest,lead author. "The economics are increasingly locked in." The peak year for coal, gas, and oil: 2025.
Humanity's demand for electricity is still rising, and
investments in fossil fuels will add up to $2.1 trillion through 2040. But that will be dwarfed by $7.8 trillion invested in renewables, including $3.4 trillion for solar, $3.1 trillion for wind, and $911 billion for hydro power.
Already in many regions the lifetime cost of wind and solar is less than the cost of building new fossil fuel plants, and that trend will continue. But by 2027, something remarkable happens. At that point, building new wind farms and solar fields will often be cheaper than running the coal and gas existinggenerators. "This is a tipping point that results in rapid and widespread renewables development," according to BNEF.
By 2028, as rooftop solar is batteries will be as ubiquitous today.
In this discussion of peak fossil fuels, the focus is on electricity generation, not transportation fuels. For cars, peak oil demand will take a bit more time. But the sudden rise of electric cars as well, and that has is on the verge of disrupting oil marketsprofound implications for electricity markets as more cars plug in.
In fact, electric cars couldn't come at a better time for developed economies. Take Germany, for example, where increases in efficiency mean that without electric cars, demand for electricity would be headed toward a prolonged and destabilizing decline. Electric vehicles will reverse that trend, according to BNEF.
The charts show the soaring demand for battery capacity for cars and the difference that EVs will make to power demand worldwide. The adoption of electric cars will vary by country and continent, but overall they'll add eight percent to humanity's total electricity use by 2040, BNEF found.
There Will Be No Golden Age of Gas
Electricity generation is approaching peak fossil fuels.
Renewables to Attract $7.8 Trillion
Over the next 25 years, 68 percent of new electricity capacity will be renewable.
Electric Cars Demand Power
Electric vehicles could boost global electricity demand by eight percent by 2040.
June 16, 2016 Bloomberg Brief Sustainable Finance 3
June 16, 2016 Bloomberg Brief Sustainable Finance 4
Green bonds may shake off their infancy over the next few years and grow exponentially into a $1 trillion conduit for global climate investments, said . Citigroup Incbanker .Michael Eckhart
Market issues linked to the debt including certification, investment guidelines and analytic methodologies still need fine-tuning over the next two or three years, said Eckhart, global head of environmental finance at Citi. Quicker growth for green bonds is the “end game” of a 40-year evolution of clean-energy finance, he said.
Green bonds “will grow very rapidly once the market framework matures, growing first into hundreds of billions post-2020 and then eventually into a trillion-dollar market,” the banker said in an interview in Berlin. Eckhart, helped write the initial voluntary rules that evolved into the Green Bond Principles and will attend the group’s annual meeting in London on July 16.
As yet, there’s no industry definition for what makes a green security. Financial market participants like Eckhart say the emergence of such standards should remain voluntary, taking a cue from market development and not assume a rigid government-defined character, a step taken by China recently. Non-governmental organizations, in part frustrated by the pace of green bond growth, have also offered solutions.
— Brian Parkin, Bloomberg News
Green Bonds May Be Trillion Dollar Market After 2020
Kenya, East Africa’s biggest economy, is in talks with international investors to prepare the sale of the country’s first green bond, Chief Nairobi Securities ExchangeExecutive Officer said. Geoffrey Odundo
Discussions are focused on drafting the regulations needed to trade the securities on the domestic exchange, which may be sold as early as next year, Odundo said in an interview Friday in the capital, Nairobi. The bourse is also learning from experience in South Africa, where the city of Johannesburg in 2014 became the continent’s first seller of the debt, he said.
“We do expect to see the energy space as the immediate issuers of these instruments,” Odundo said. “Discussions are ongoing with various stakeholders, more so the geothermal sector and international investors.”
— Bella Genga, Bloomberg News
Kenya Plans Debut Green Bond to Fund Renewables
Southern Power Co. sold 1.1 billion euros ($1.2 billion) of green bonds in Europe this week — its first sale in the single currency and more than initially planned.
The green bond sale comes as borrowing costs fall toward record lows on European Central Bank stimulus.
The U.S. energy provider, owned by Atlanta-based ., marketed Southern Cosecurities maturing in six years and 10 years, according to a person familiar with the deal who asked not to be identified as they’re not authorized to speak publicly.
The notes will finance renewable energy generation projects including wind and solar, according to the prospectus for the sale.
The company had originally planned to sell $1 billion in the offering.
— Karl Lester M. Yap and Sally Bakewell,
Southern Power Raises $1.2B in Euro Green Bonds
issued the world’s firstObvion NV mortgage-backed green bond, raising 500 million euros ($566 million) on June 9.
The Heerlen, Netherlands-based mortgage broker and unit of
will use Cooperatieve Rabobank UA the proceeds to finance energy-efficient residential housing, according to an e-mailed statement.
“This is the first time that investors are offered the possibility to buy green residential mortgage-backed bonds for their impact investing portfolio,” said Max
, executive director and Bronzwaertreasurer, said in the statement.
Dutch real estate is graded on a scale with seven levels of environmental standards. The debt will be used to either buy homes in the top two tiers or renovate a property to achieve the same level.
The offering was led by Societe and . Obvion Generale SA Rabobank
had initially sought to raise at least 250 million euros.
— Anna Hirtenstein, Bloomberg News
Obvion Debuts Mortgage-Backed Green Bond
Green Bond Issuance By Year
Actual figures for 2016 are 1Q only.
June 16, 2016 Bloomberg Brief Sustainable Finance 5
Sustainable Investors Digging Into High-Yield Market, Says PAX World's Schwab
The high-yield market is still a challenge for
sustainable investors due to a lack of information,
but there are opportunities, says Peter Schwab,
senior vice president and portfolio manager at
Schwab runs a $400 PAX World Management.
million high-yield fund based on environmental,
social and governance (ESG) criteria. Companies
where he sees opportunity range from an oilfield
servicer to a South African diamond miner. He
spoke with Bloomberg's Claire Boston on June 2.
His comments have been edited and condensed.
Q: What is your investment universe?A: We use the BofA BB/B index, which is about $1.1 trillion, with about 750 issuers. Within that, we define what meets our ESG criteria. There are a few sectors that are off limits — things like weapons manufacturers, tobacco and certain coal-related companies. Those only add up to 2.5 percent of the benchmark. Sensitive sectors are mining, energy, chemicals, utilities. We can invest in energy names. Most E&P companies would likely meet our criteria. Roughly 90 percent of what our team screens passes.
Q: What are the criteria?A: On the environmental side, the main thing is coal exposure. Coal miners won’t work. For a utility company, it depends on how much power comes from coal — if it's less than the national average of about 35 percent, it's fine. If it's above that, it's a no-go. A gas-fired company like is fine. It’s a subjective Calpineprocess. If our sustainability team sees that the company is being proactive about minimizing environmental damage, it will probably meet our criteria. On the social side, it's primarily worker safety and employee relations. Governance is a little trickier. The team looks closely at the governance structure with an eye toward reasonable and fair treatment of all stakeholders. Accounting issues and executive compensation are also major governance concerns.
Q: What are ESG's challenges? Within high yield, a lot of companies A:
don't have corporate social responsibility reports, and they're not always asked for this type of information. Some of them are younger and don't have history so there's not a lot to disclose. That's where the team has to use a lot of judgment. Public companies are usually easier because there's more information disclosed.
Q: How do you work within the limits?A: If you can’t buy one company, there may be another in the same business that that meets our criteria and is likely to perform in a similar fashion. We might just have a heaver weighting in that one to help replicate that risk. A recent example would be in the oil service sector. and Weatherford Transoceanboth fell into our index, and Transocean did not pass. So we've been using Weatherford as a proxy. You have to get a little more creative, though it’s not too difficult to execute at our size.
Q: How did you approach Valeant? They originally met our criteria. The A:
headlines about pricing practices last fall were a catalyst to re-evaluate the company and we decided to divest the position. This decision preserved a lot of performance for us by having no exposure to the name. They have since made significant changes to their board and governance practices. We’ll need time to re-evaluate the company as there are still many regulatory risks facing them and several competitors. What’s tricky in a case like that is that it can drive
performance in both directions.
Q: How does mining look? Larger global mining names tend to A:
get in more trouble simply because of the sprawling nature of their operations. One name we like is a South African diamond miner called . They basically have Petraone large mine, which allows them to manage worker safety more effectively.
Q: Why do you prefer the BB/B range?A: The fund has always been positioned as higher-quality. We can own triple-Cs and we do, though not many — they're about 5 percent right now. Triple-Cs don't necessarily have more ESG challenges, but they're sometimes harder to analyze.
is a very good company that’s Ardaghtriple-C because their leverage metrics are very high, but that's because they've been gobbling up a lot of competitors. When they stop doing that, they'll probably migrate up to single-B quickly.
Q: How do you decide when to review?A: At minimum we perform reviews annually, though we will re-review companies as needed. Occasionally companies that have met our criteria in the past will not when re-reviewed. What I like about having a sustainability team is that it's an extra set of eyes on the fundamentals. Our credit and ESG analysis run simultaneously. A lot of ESG issues may impact the equity value of a company and not be a material credit quality problem. Most regular high-yield analysts aren't thinking holistically about this, but I've found it to be very useful.
Grew up: Boston, MassachusettsLives now: New Castle, New HampshireEducation: Union College (BA); Columbia Business School (MBA)Career history: Putnam Investments, Donaldson Lufkin & Jenrette, Goldman Sachs Asset Management, PAX World ManagementRecommended book: by Daniel James BrownThe Boys in the BoatIf you could have another career: Rowing coachBest recent vacation: Hiking Mount KenyaFavorite sports team: Boston Red Sox
June 16, 2016 Bloomberg Brief Sustainable Finance 6
FOCUS: ESGHow One ESG Firm Serenely Watched Valeant’s Drop From the Sidelines BY LAURA COLBY, BLOOMBERG NEWS
Valeant Pharmaceuticals has taken investors on a wild ride. The drugmaker’s stock price climbed tenfold, to a high of $262 a share last August, before cratering to about $24 on June 8, bringing billions of dollars of losses to investors including storied hedge funders
and .Bill Ackman John PaulsonWatching the crash serenely from the
sidelines was , vice Tessie Petionpresident for responsible investment research at .Domini Social Investments
Petion was once a fan of Valeant, because its sales of generic drugs and contraceptives in emerging markets had a positive impact on the health of people in the developing world. Then Valeant went on a buying spree. After acquiring more than 100 companies in five years, it slashed research and development of lifesaving drugs. In October 2014, even as Valeant’s price soared, Domini decided the stock no longer met its criteria. “We saw their focus switch from developing drugs to financial engineering,” Petion, 35, says. “It was a complete strategy shift.”
While Domini’s Social Equity Fund missed some of the biggest gains among S&P 500 stocks last year, it also missed some of the biggest losses. That points to the value of social-investing criteria, says chief executive Carole Laible,officer of 26-year-old Domini, which manages about $1.6 billion for individuals and institutions. “We think there’s not a cost to imposing these standards,” she says. “They help us
select better companies over the long term.”
Once considered a backwater for a few foundations and wealthy clients willing to accept lower profits in exchange for doing good, socially responsible investing is booming. According to US
, an industry group, 925 funds with SIFnet assets of $4.3 trillion used environmental, social, and governance (ESG) criteria to choose investments in 2014, more than four times the $1 trillion held by about 700 funds in 2012.
“Millennials are demanding this as an option,” Petion said in an interview. “It’s a necessity for the younger generation, in a way it wasn’t for the older generations.”
Petion and her researchers sift through
publicly traded companies for Domini’s two stock funds, developing a list of “eligible” businesses that meet their ESG criteria. Then money management firm Wellington Management does the actual financial analysis and builds a portfolio.
Domini has beaten its benchmarks more often than not. After outperforming the S&P 500 in 2013 and 2014, the Domini fund trailed the benchmark last year. In the first quarter of 2016 it was up 1.39 percent, four basis points ahead of the benchmark. Its International Social Equity Fund has outperformed the MSCI EAFE Index the past three years and was up 3.03 percent in the first quarter, vs. 0.04 percent for the benchmark.
Companies May Not Be Ready to Report Diversity Pay Data: Report
Less than half of US companies have diversity programs, showing they are not ready to comply with new government pay data disclosure requirements, according to data provider Sustainalytics.
A proposed Equal Employment rule would Opportunity Commission
require employers to disclose summary compensation data grouped by sex, race and ethnicity. The agency has said the initiative will help root out pay discrimination, but critics argue it's overly burdensome and unlikely to be effective. Sen. (R-Tenn) this Lamar Alexanderweek filed an amendment to a government spending bill aimed at
blocking the rule."If these EEOC rules do go through in
2017 we're going to see a lot of reporting and our research suggests companies are not prepared for this," Darragh
, managing director at GallantSustainalytics said at a Bloomberg ESG Investing event in New York this week.
Companies without diversity programs are unlikely to have invested in pay parity tracking, Gallant said. The energy, information technology, and health care sectors have the lowest investment in diversity programs, among the 1,012 US companies tracked by Sustainalytics.
— Emily Chasan, Bloomberg Brief, with
assistance from Chris Opfer, Bloomberg BNA
Valeant's Debt Pile Grew Bigger With Acquisitions
Half Lack Diversity Programs
*Sample of 1,012 U.S. companies
June 16, 2016 Bloomberg Brief Sustainable Finance 7
ENVIRONMENTGuess What Else Climate Change Hurts? Globalization BY ERIC ROSTON, BLOOMBERG NEWS
When weather catastrophes hit, the big-ticket damages tend to come not from heat waves but from floods, hurricanes, and wildfires.
The economic loss from 300 Indian heatwave deaths in April however is listed as “unknown.” That may not be the case for long, as such deaths are the latest canary in the coal mine — or any mine, rainforest, or valley across the Earth's hot middle, where the building blocks of the developed economies are gouged out of the ground.
Manufacturing these days involves facilities in multiple countries, each of which has a sequential role in taking raw materials a step closer to being finished products. Imported materials may remain unfinished, even after they're exported to the next station on the international assembly line. This “verticalspecialization,” it turns out, may have a blind spot when it comes to climate change, according to new from researchthe Potsdam Institute for Climate
Impact Research. Manufacturing is only as strong as the weakest, or in this case hottest, link in the supply chain.
Sifting through economic, population, and temperature data, andLeonie Wenz
found that the riskAnders Levermannof economic losses from worker heat
stress doubled from 2001 to 2011. The losses percolated down supply chains almost imperceptibly. But while the absolute losses are negligible at this point, Levermann said, the rate of change should be enough to call attention to the growing risks as the world warms.
Energy News in Brief
Billions in Proven Shale Oil Reserves Suddenly Became Unproven
Proven reserves — gas and oil resources that are among the best measures of a company’s ability to reward its shareholders and repay its debts — are disappearing across the shale patch. This year, 59 U.S. oil and gas companies deleted the equivalent of 9.2 billion barrels, more than 20 percent of their inventories, according to data compiled by Bloomberg. It’s by far the largest amount since 2009, when the
Securities and Exchange Commissiontweaked a rule to make it easier for producers to claim wells that wouldn’t be drilled for years.
Tata Inks Biggest India Green Energy Deal Valued at $1.4 Billion
agreed to Tata Power Company Ltd.buy a 1.1 gigawatts solar and wind portfolio from Welspun Renewable
in India’s biggest clean Energy Pvtenergy deal, valued at $1.4 billion.
Germany Needs Emissions-Free Car Fleet by 2030, Official Says
All new cars registered in Germany need to be emissions free by 2030 at the latest to help meet pollution reduction goals, a senior government official said.
Germany’s pledge to cut carbon by 80 percent to 95 percent by 2050 will be in jeopardy unless the country radically reduces transportation pollution, said Deputy Economy Minister . Rainer Baake
Exxon Climate Probes Called Assault on Free Speech
Attempts by attorneys general to probe companies such as for Exxon Mobil their work on climate change are a dangerous attempt to stifle free speech, participants said at a Heritage
discussion June 10. “The Foundationcriminalization of views is something we consider very seriously in Texas,” state Attorney General , who has Ken Paxtoncome to Exxon's defense in the probes, said at the forum.
Apple Plans to Sell Excess Rooftop Solar Energy From New Headquarters
. plans to sell excess Apple Incelectricity generated by solar panels on the roof of its new headquarters in Cupertino, California, joining Google parent in efforts to trade Alphabet Inc.on the energy market.
Cheapest Solar in Africa Comes to Zambia Through World Bank Plan
, and First Solar Inc. Enel SA Neoen won contracts to develop two SAS
photovoltaic power projects in Zambiathat will provide Africa’s cheapest solar power, the first winners of a -World Bankorganized auction program to promote wider use of renewable energy in developing nations.
Blackstone Sells WindMW StakeBlackstone Group LP agreed to sell
its majority interest in , WindMW GmbHthe owner of one of Germany’s largest offshore wind farms, to China’s Three
. Gorges Corp
India: Manufacturing's Hottest Link
Source: Wenz et al; Science Advances
The graphic shows the percentage dependency of each nation on supplies from India.
June 16, 2016 Bloomberg Brief Sustainable Finance 8
SOCIALSchumer to SEC Chief on Political Spending Rule: 'You Are Hurting America'
The U.S. Securities and Exchange is "hurting America" Commission
because of its inaction on requiring companies to disclose corporate political spending, Democratic Senator Chuck
told SEC Chair Schumer Mary Jo White this week.
In comments at a Senate Banking Committee hearing June 14, Schumer said shareholders should know what companies spend in their bids to influence the political system and policies.
A "cascade" of undisclosed money is "poisoning our politics," Schumer said, adding that establishing an SEC rule on political spending disclosure is more important than anything else before the agency.
"The agency is “aiding and abetting” dark money in politics, he said. White responded that a political spending rule is not currently on the agency's agenda.
A spending law enacted for 2016 forbids the SEC from proposing or adopting the rule, but Senate Democrats have pushed the SEC to do background preparations on the rule.
The SEC has faced pressure to craft a political disclosure rule since the Supreme Court’s 2010 Citizens United decision cleared the way for unlimited corporate spending in elections. A 2011 rulemaking
petition written by a group of law professors that asked the SEC to force businesses to disclose political
expenditure, has received more than 1.2 million comment letters from the public.
— Kim Chipman, Bloomberg News and Rob
Tricchnielli, Bloomberg BNA
Social News in Brief
Burger King’s Shareholders Reject Pledge to Add Women to Board
Shareholders of Restaurant Brands , owner of International Inc. Burger King
and , rejected a proposal Tim Hortonsthat would require a clear plan to add women to the company’s all-male board.
OceanRock Investments Inc.’s motion was defeated at Thursday’s annual meeting in Oakville, Ontario, according to the Canadian Press. The Vancouver-based investor became a shareholder when Miami-based Burger King acquired the Canadian doughnut chain Tim Hortons in 2014 for about $11 billion. The combined company is based in Canada.
Before the tieup, Tim Hortons had three female directors.
Little Headway Made as Women Take 27 Percent of Open Board Seats
The lip service paid to diversity by many large U.S. companies has done little for actual progress toward putting women on their boards, a new study shows.
Women were named to about 27 percent of open board seats at companies in the S&P 500 Index in 2015, according to a report by . That Catalystleaves women with 19.9 percent of board seats at S&P 500 companies, inching up from 19.2 percent in 2014.
“Companies have been espousing equality for a long time," but women didn’t even increase their representation on boards by 1 percentage point, said Jan Combopiano, Catalyst’s senior vice president for research.
Sturm Ruger, Smith & Wesson Climb Following Orlando Massacre
Shares of gunmakers, including Sturm and Ruger & Co. Smith & Wesson
jumped following the Holding Corp.massacre at an Orlando, Florida, nightclub that left about 50 people dead.
Shares of gun manufacturers typically increase after a mass shooting as investors speculate that tougher gun-control laws may be enacted, spurring sales before any new measures take effect. The National Instant Criminal
, which is Background Check Systemused to vet consumer gun purchases and is a gauge of firearm demand, jumped more than 25 percent for the three months through January, Smith & Wesson said in March.
Political Spending at S&P 500 Companies
Source: 2015 CPA-Zicklin Index of Corporate Political Disclosure and Accountability*includes national governors associations and super PACs
Companies in the S&P 500 index have improved their voluntary political spending reporting over the past decade, according to a CPA-Zicklin last year, but disclosures vary.analysis
— Emily Chasan, Bloomberg Brief
June 16, 2016 Bloomberg Brief Sustainable Finance 9
GOVERNANCECompanies Using Deals With Activists to Protect Directors BY CHE ODOM, BLOOMBERG BNA
Corporations may be settling with activist shareholders and granting them board seats more quickly than in the past, in part because it helps entrench the company's directors.
According to a review by Bloomberg BNA, common provisions in recent settlement agreements include those that prevent the activist from acquiring or transferring shares for a period of time, require the activist's representative on the board to vote for board proposals, and prevent the activist and its nominee from making public comments about the company, its officers or the board.
While the company in question had to make concessions to the activist, the settlement's defensive clauses help it to secure the position of remaining board members and co-opt the activist's director nominee into voting with them.
Some companies are taking the opportunity to “load up a proposed settlement agreement with every defensive feature that can be found,” said , a partner and Derek Borkcorporate attorney at Thompson Hine LLP.
“Attempts by companies to overreach in settlement agreements have been around
as long as activism,” Bork told Bloomberg BNA. “I believe the trend is growing as more companies and their legal advisers become more aware of the defensive devices that are being used in the market.”
Over the last few months, several companies, including Avon Products
, ., Inc. Team Health Holdings Inc Sysco, ., Corp. Yahoo Inc Yum! Brands Inc.
and , have signed Vaalco Energy Inc.settlement pacts with shareholder activists.
Governance News in Brief
Boards, General Counsels More Confident on Cyber Risks
Corporate boards and general counsel this year have greater confidence in their companies' ability to address the hot-button issues of cyber-risk preparedness, regulatory compliance and shareholder activism.
That's according to an FTI Consulting and Inc. NYSE Governance Services
survey this month. The increase in confidence probably derives from the increased familiarity board members have had with these issues in recent years, National Association of
President Corporate Directors Peter told Bloomberg BNA. Directors, Gleason
however, are concerned that all the time spent on oversight cuts into time for strategy, which is “what really drives growth in a company,” Gleason said.
Nabors Directors Stay on Board After Being Voted Off Four Times
In a signal of disapproval, a majority of shareholders in Nabors Industries Ltd.voted to oust three directors in a June 7 election, and the directors tendered their resignations. But, they’ll be keeping their jobs.
To avoid having the three directors decide on their own resignations, Nabors’ board created a specially appointed governance and nominating committee with other directors, and that panel suggested they stay on.
Caterpillar Amends Bylaws to Allow CEO/Chairman Separation
Caterpillar Inc. said in SEC filing June 10, that its board removed a mandate that its chief executive and chairman positions be combined, among other revisions.
Activists on Track to Win Record Board Seats This Year
Shareholder activists are on track to win a record 62 board seats this year, up from 58 seats in 2015, according to a Bloomberg analysis of 12 of the largest activist firms for campaigns that started after 2010.
— Emily Chasan, Bloomberg Brief
Analysis: Activist Returns
Source: Bloomberg Intelligence; Note: Includes targets of 33 activists since 2010.
Activist investors' reputation for focusing on the short term is well deserved. When they achieve quick victories and exit within nine months, median excess returns for activists are about seven times higher, than if they go on for over nine months. — Gregory Elders, Bloomberg Intelligence
June 16, 2016 Bloomberg Brief Sustainable Finance 10
CALENDAR TO SUBMIT AN EVENT, E-MAIL ECHASAN1@BLOOMBERG.NET
Global ESG Indexes
Source: Bloomberg. For a live version of this chart run on your terminal or click on the image above. G # SF.BRIEF 20
Green Bond Indexes
Source: Bloomberg. For a live version of this chart run on your terminal or click on the image above. G # SF.BRIEF 21
Low Carbon and No Carbon Indexes
Source: Bloomberg. For a live version of this chart run on your terminal or click on the image above. G # SF.BRIEF 22
June 16, 2016 Bloomberg Brief Sustainable Finance 11
DATE(S) EVENT ATTENDEES OF NOTE LOCATION
June 18-22 Institute of Management Accountants Billy Beane, Oakland A's; Rick Arpin, MGM Resorts International Las Vegas
June 22Bloomberg: Advancing LGBTi Rights Diversifying the Business Case
Randy Berry, Special Envoy, U.S. Department of State, Erika Karp, Founder and CEO, Cornerstone Capital Inc.
June 20-24 Governance Week 2016 Gary Kelly, CEO Southwest Airlines New York
June 22-23 RI Europe 2016: Investing in the future Joren Hooijer, EC; Helen Mountford, New Climate Economy London
July 20-21 Impact Capitalism Summit See website for details. Nantucket
Aug. 2-3 Corporate Sustainability Management Conference See website for details. Milwaukee
Aug. 31 Women in Green Forum Rose Mckinney-James, MGM Resorts; Natalie Mindrum, United Airlines Los Angeles
Sept. 6-8 PRI In Person 2016 See website for details. Singapore
Sept. 18 Impact Investing Conference See website for details. Denver
Sept. 21-23 World Energy Engineering Congress See website fro details. Washington D.C.
Sept. 22-23 RobecoSAM Forum See website for details. Zurich
Oct. 5-6 Bloomberg Sustainable Business Summit Michael Bloomberg, Founder Bloomberg LP, Former NYC Mayor New York
Oct 9-12 Sustainatopia See website for details. Boston
Oct. 10-11 The Future of Energy Summit (BNEF) See website for details. London
Oct. 18 High Water Women's Investing for Impact Symposium See website for details. New York
Nov. 1-2 The Future of Energy Summit (BNEF) See website for details. Shanghai
Nov. 9-10 Impact Capitalism Summit See website for details. London
Nov. 9-11 The SRI Conference See website for details. Denver
Feb. 14-16 GreenBiz 17 See website for details. Phoenix
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