12/14/09

Goldman Sachs to Allow Shareowner Advisory Vote on Executive Compensation
    by Robert Kropp

In the wake of an uproar over its plans to award $23 billion in bonuses, TARP recipient also announces that Management Committee will receive equity Shares at Risk instead of cash.

SRI World Group -- Goldman Sachs, the investment bank that received a $10 billion bailout from taxpayers via the Troubled Asset Relief Program (TARP), reversed its long-standing opposition to shareowner resolutions on executive compensation, stating in a press release issued last week that it will allow “an advisory vote on the firm’s compensation principles and the compensation of its named executive officers at the firm’s Annual Meeting of Shareholders in 2010.”

In the release, Goldman Sachs also addressed the issue of excessive executive compensation by announcing that its 30-member Management Committee “will receive 100 percent of their discretionary compensation in the form of Shares at Risk,” instead of cash. Shares at Risk will allow the firm to recapture them in the event that an employee is found to have “engaged in materially improper risk analysis or failed sufficiently to raise concerns about risks.”

Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs, said, “The measures that we are announcing today reflect the compensation principles that we articulated at our shareholders' meeting in May.” Blankfe inreceived compensation valued at nearly $43 million in 2008, although he and six other top executives gave up their bonuses after the firm reported, for the first time, a quarterly loss.

Goldman’s decision came in the wake of an uproar over reports that it had stockpiled $23 billion through the first three quarters of 2009 for the payment of bonuses to its employees, an amount equivalent to an average bonus of $700,000 for each of its employees. In October, the Nathan Cummings Foundation and the Benedictine Sisters of Mt. Angel filed a shareowner resolution at Goldman Sachs, requesting that the Compensation Committee "initiate a review of our company's executive compensation policies and make available, upon request, a summary report of that review by October 1, 2010."

The decision by Goldman Sachs to voluntarily allow a shareowner vote on executive compensation is a first for the US banking industry. In 2008, a shareowner resolution calling for an advisory vote on executive compensation received 46% vote in favor. Because Goldman Sachs received $10 billion in TARP funds, the firm was mandated to allow a shareowner vote on executive compensation in 2009. Because the firm has paid back the money it received from TARP, it would not have been required to implement a vote in 2010.
Regarding the decision, Timothy Smith, Senior Vice President at Walden Asset Management, said, “We commend the Goldman Sachs Board and the top management for their careful study of this governance reform and their adoption of an advisory vote on executive compensation starting at the 2010 stockholders meeting. Goldman Sachs is the first U.S. banking institution to step up and voluntarily decide to implement the advisory vote. The fact that Goldman Sachs, one of the world’s leading and respected financial companies, is supportive of this reform, will send a strong message to Congress, other financial firms plus other companies that are deliberating whether they should put an advisory vote on pay in place.”

Smith added, “Goldman Sachs’ decision brings the Say on Pay issue closer to a tipping point that we believe will result in all companies making this a routine part of their proxy statement.”

And Connecticut State Treasurer Denise Nappier said, “I applaud Goldman Sachs for granting shareholders the opportunity to cast an advisory vote on executive pay — also known as Say on Pay — at its 2010 annual meeting. Annual shareholder input on executive compensation is a corporate governance best practice whose time has come. I am pleased that Goldman Sachs’ board of directors agrees.”

Nappier continued, “As Congress considers whether to require all public companies to have an annual shareholder advisory vote on executive compensation, Goldman Sachs’ action today is a tremendous step that demonstrates its support of this important corporate governance reform. This measure could very well serve as the exemplar for other companies taking similar actions to promote sustainability for not only individual companies but for the broader economy as well.”

12/10/09

Institutional Investors Ask SEC to Clarify That Climate Change is a Material Risk
    by Robert Kropp

Despite regulatory and legislative progress, the failure of companies to disclose risks remains widespread, according to the request for interpretive guidance.

SRI World Group -- A group of 20 major US and Canadian institutional investors, with combined assets under management of more than $1 trillion, has asked the Securities and Exchange Commission (SEC) for interpretative guidance regarding the material risks that companies should be disclosing to investors.

The Climate Risk Petition was submitted to the SEC as a second update to an initial request, entitled Request for Interpretive Guidance on Climate Risk Disclosure, filed with the SEC in September 2007. The first update was filed in June 2008.

In their most recent update, the institutional investors summarized regulatory and legislative developments that, according to the petition, “change the landscape of climate risk disclosure.” A recent regulatory action undertaken by the Environmental Protection Agency (EPA) requires companies that emit large amounts of greenhouse gases (GHGs) to report on their emissions. The EPA also recently issued a finding under the Clean Air Act, that GHGs endanger the human health and welfare of current and future generations.

Another recent rule proposed by the EPA would require large emitting facilities to deploy the best technology available for controlling emissions when constructing new plants or expanding existing ones.

On the legislative front, the passage by the House of a climate change bill, and the Senate’s current deliberations on its version, suggest that “there is strong momentum toward a national cap and trade program that will achieve science‐based reductions in greenhouse gas emissions,” according to the petition.

Despite such signs of progress, and despite developments in climate science strongly suggesting that the impacts of climate change will affect not only individual companies but entire economies as well, “publicly‐traded companies have not responded with the meaningful disclosure investors seek,” according to the petition.

Less than 34% of S&P 500 companies made any mention at all of climate change in annual reports filed in 2008, and only 5.5% of reports “identified at least one risk posed by climate change and articulated a strategy for managing and mitigating that risk.”

Furthermore, although 97% of high emitting utilities companies made reference to climate change in their annual reports, only 35.5% identified specific risks and included strategies for mitigating that risk.

Although “existing disclosure rules provide the mandatory framework for disclosure of material risks and opportunities companies face in connection with climate change,” the petition concluded, the failure of companies to comply with disclosure rules remains widespread. The petition asks “that the Commission act promptly to clarify that existing disclosure requirements apply to climate change.”

Among the 20 signatories to the petition are the State Treasurers of Oregon, Vermont, California, Maryland, and North Carolina; the State Controllers of California and New York; the Attorney General of New York; the California Public Employees' Retirement System (CalPERS); Ceres; and Pax World Management.

03/10/09

Investors Want More Disclosure of Climate Risk Data from Corporations
    by Robert Kropp

CDP survey of signatory investors finds that integration of climate risk considerations into investment decisions is growing.

SRI World Group -- Investors that are signatories of the Carbon Disclosure Project (CDP), a nonprofit organization which acts as an intermediary between shareholders and corporations on climate change issues, want the companies in which they invest to do more than just disclose climate and carbon information. The CDP signatories, who manage $55 trillion in assets, want companies to take such additional actions as adopting emissions reductions targets and developing low carbon solutions as well.

This was among the findings of a survey of institutional investors by the CDP. Among the 80 respondents were asset managers, pension funds, insurers and socially responsible investment funds. Mercer, a global provider of consulting and investment services, analyzed the survey results and compiled the report. The report, entitled "Investor use of CDP data," is posted on the CDP website.

While 77% of institutional investors surveyed by the CDP indicated that they factor climate change information into their investment decisions, only 11% of respondents have yet to fully incorporate CDP data into financial analysis. However, more than 80% of the respondents who do factor climate change information into investment decisions indicated that climate change is an important factor, and responses indicate that investors expect CDP data to increase in significance and applicability.

Jane Ambachtsheer, Mercer's global head of SRI, told SocialFunds.com, "While a majority of investors haven't yet adjusted their model to their formal investment decision- making framework, 64% of survey respondents did say they intended to use CDP data more in the future."

Ambachtsheer continued, "Even if a majority is not yet using CDP data in a systematic way, the fact that 77% of respondents do use the data indicates that it is part of their toolkit."

According to the report, "As climate change regulation matures and expands around the globe, members of the investment community will be increasingly compelled to analyze climate risks and opportunities in detail."

The report concludes with a number of recommendations for investors to consider. Investors are advised to utilize training to ensure that CDP data is leveraged in a meaningful way, to encourage their service providers to incorporate CDP data, and to hold companies to a standard of disclosure that utilizes standardized and comparable metrics.

One of the sponsors of the CDP report was the Calvert Group, a fund company that includes a number of prominent SRI funds. Rebecca Henson, Senior Analyst at Calvert, told SocialFunds.com, "Calvert co-sponsored the CDP report because we have been involved in climate risk integration, and this report helps us gauge how other investors worldwide are becoming more sophisticated in their integration of climate risk data."

"Considering the reputation of CDP around the world, we also considered it important that companies be made aware that investors are becoming more sophisticated," Henson continued. "Even with the economy in the state that it is at present, the report indicates that investors are increasingly incorporating climate risks and opportunities into their investment decisions."

Ambachtsheer of Mercer presented the report to an audience of corporate representatives at CDP's Spring Workshop for companies that reply to the CDP. In her presentation, she noted additional investor actions that indicate an ongoing emphasis on climate risks and opportunities despite the current economic crisis.

In February, a group of 35 investors with over $3 trillion in assets called on Congressional leaders to pass strong legislation to advance a clean energy, low-carbon economy. Among the investors' recommendations were the adoption of a mandatory national climate policy to reduce greenhouse gas emissions, and a low-carbon fuel standard to reduce reliance on oil and greenhouse gas emissions.

In December 2008, 152 global investors worth over $9 trillion called on world leaders to negotiate a strong and binding successor to the Kyoto Protocol. Among the recommendations was that governments agree upon a binding global target for reducing greenhouse gas emissions.

At the workshop, Ambachtsheer informed companies that corporate engagement was the leading area in which investors were using CDP data. Investors find that CDP information helps fuel discussions with management and leads to engagement via dialogue or shareowner resolutions with non-responding companies outside the CDP process.

"The workshop provided companies with an opportunity to understand exactly what investors are doing with the information that the companies are trying so painstakingly to provide," Ambachtsheer said.

"Having companies and investors in the same room was helpful. We found that companies would like to receive more information from investors as to how climate risk factors play into their buy/sell decisions," continued Ambachtsheer.

Ambachtsheer noted that the CDP currently has 475 signatory investors with a combined $55 trillion of assets under management.

"Investor involvement in the CDP has been overwhelming, even without a clear regulatory framework," she said. "Imagine the investor response when there is a clear regulatory framework."