Active Investor Impact Update

First Quarter 2024

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Making Gender Visible: A Path to Systemic Inclusion

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Governance of Sustainability

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In the News

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SEC Climate Disclosure Rule

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Emerging Markets Banks

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Engagement Highlights

Dear Clients and Partners,

Last month, Boston Common announced an internal organizational change. Our firm has re-established its executive team leadership structure after deciding to amicably part company with former CEO Allyson McDonald. This marks a return to the collaborative leadership model that served us well for many years.

Firm strategy, leadership, and oversight responsibilities are again held by the three of us: Geeta Aiyer, CFA, President; Matt Zalosh, CFA, CIO International Equities; and Kristina Eisnor, Chief Operating Officer. Together, our experienced, close-knit team will handle all executive decisions for the firm.

As we enter our third decade, we remain majority women- and employee-owned, client-centric, investment-focused, impact-driven, and entrepreneurial.

Geeta, Matt, and Kristina

Read the full message from Boston Common’s Executive Team

Making Gender Visible: A Path to Systemic Inclusion

Geeta Aiyer, CFA

“Exclusion and harm on the basis of gender are so pervasive as to be invisible, normalized, and ignored.”

This was the opening sentence in my 2021 piece, “Making Gender Visible.” Three years later, gender-based inequity, violence, and harassment remain intransigently woven into commerce, economics, and social systems. As attempts to undo the progress of recent decades are mounting at the political level, many companies are changing course by either slowing or abandoning efforts designed to aid the transition to a more inclusive economy. The result is a persistent, enormous gender gap, with gender parity still 131 years away.[1]

Public equity investors have a unique opportunity to motivate companies to design for inclusion and create genuinely inclusive systems within their organizations and throughout their value chains. Determined to equip investors with the tools to activate their voice, my company, Boston Common Asset Management, developed Investor Guidance for Prioritizing Gender in 2022. The guidance supplies engaged investors with critical questions and essential tactics for motivating companies to adopt gender-specific approaches using an integrated, full value chain approach.

Underpinning this approach is the understanding that a corporate strategy that prioritizes inclusive gender governance can positively impact each aspect of a company’s value chain.

In a broad range of industries, responsible corporate decision-making can mitigate exploitative supply chains, harmful marketing practices, and unsafe workplaces, all unpriced externalities justified in the name of delivering strong returns to investors. These externalities are far from being “priced in” to a company’s financials, and yet, they relentlessly persist and indeed incur societal costs when left unchecked.

As investors who believe in the power of active ownership to advance social change, we acknowledge our opportunity to use our collective voice on behalf of individuals forced to navigate faulty, unjust systems. We strive to understand the obstacles women encounter across the value chain by going beyond simply counting the number of women in the workplace. Instead, we try to address and shed light on the many obstacles and exploitative systems found throughout corporate value chains, like the shortcomings of social audits, and the risk of Gender-Based Violence and Harassment (GBVH) faced by women farm workers, to name just two. We believe a full value chain approach is required to systematically dismantle gender bias and motivate companies to consider gender as a critical factor in decision-making in workforce diversity efforts, supply chain partnerships, product development, marketing, and community interactions. We will continue our work toward this goal and share the outcomes of our ongoing company dialogues with you in the months ahead.

Five essential questions to ask companies on gender

  1. Commitment: To what extent is the company committed to prioritizing gender?
  2. Full value chain: To what extent does the company address gender across its full value chain?
  3. Key gender themes: To what extent does the company address core gender dimensions?
    • Representation: To what extent are all genders fairly represented across the company?
    • Pay equity: To what extent is the company driving gender pay equity?
    • Benefits: What benefits does the company offer to support employees as they manage their work and life responsibilities?
    • Health & well-being: What does the company do to support the gender-specific health & well-being of its employees?
    • Gender-based violence & harassment: How is the company committed to providing a workplace that is free from gender-based violence and harassment?
  4. Data: What gender data does the company publicly disclose across its value chain?
  5. Stakeholder engagement: To what extent does the company regularly engage with both internal and external stakeholders of all genders regarding specific gender themes?

As pictured in the March 2024 edition of GreenMoney Journal

BCAM

SEC Climate Disclosure Rule

The SEC adopted its first rule mandating public companies to disclose climate-related risks. Boston Common has advocated for mandatory climate disclosure for more than a decade. We have been a part of individual and collaborative discussions and provided written feedback to the SEC and Chairman Gensler. Our feedback highlighted the need for Scope 3 measurement, backward and forward-looking disclosure, assurance on climate accounting practices to facilitate a tiered approach, and US Financial Regulatory System alignment.

This past February, Lauren Compere represented Boston Common alongside other investors and climate policy groups at an SEC meeting with Chairman Gensler to advocate for a strong SEC climate disclosure rule. Lauren advised that, at minimum, we need mandatory corporate disclosure on Scope 1 and 2 emissions with attestation. She also advocated for Scope 3 to be included with safe harbors because Scope 3 emissions represent the most material exposure for many companies.

We are encouraged by the SEC’s issuance of this landmark rule on mandatory climate disclosure that will provide investors with valuable information. Although the final rule does not include Scope 3 emissions even as investor demand for Scope 3 disclosure is growing, the new rule represents significant progress toward supporting investors’ needs for robust climate data.

Governance Of Sustainability: The Key to Building Long-Term Thinking

Strong corporate governance practices set the tone for long-term oriented decision-making by companies by supporting sustainability commitments and creating accountability and incentives for senior management.

Governance of sustainability is the cornerstone of Boston Common’s engagement and stewardship framework and ESG-integrated investment approach.

We see varying degrees of maturity among governance structures across the markets we invest in. Emerging Markets (EM), for example, have demonstrated significant progress and many EM countries have recently established Executive Sustainability Committees, and adopted policies linking ESG-related Key Performance Indicators (KPIs) to performance assessment and executive compensation.

When evaluating portfolio companies, the questions we ask and engage on include:

  • Is board oversight assigned to a person or committee with ongoing director training and sustainability expertise?
  • How are C-Suite and cross-functional Sustainability Committees held accountable?
  • Are explicit targets and metrics linked to performance and compensation?
  • Does the company facilitate internal training and company-wide initiatives?
  • Are there sufficient resources to support sustainability commitments such as external support for training, assessment, and certification?
  • Are commitments integrated into core business strategy including capital expenditure?
  • Is there appropriate disclosure on progress and milestones?

Companies that thoroughly address these elements are well equipped to support sustainability commitments and minimize greenwashing.

Here are a few ways we engaged companies on this topic in 2023 as a part of our climate risk and board & workplace DEI initiatives.

Board & Workplace Diversity – DEI Linked Compensation

With the growing recognition of diversity as a determinant of corporate performance, more companies have developed accountability mechanisms to measure the results of longstanding commitments to DEI. Approaches vary by company, but many include diversity as a strategic pillar and tie DEI performance to variable compensation. In 2023, five of the thirty companies we engaged on this topic linked DEI to executive compensation:

  • Emerson Electric formally added a modifier linking +/- 7.5% of executive compensation to ESG metrics, including GHG emissions targets and representation of women and minorities in leadership. This has been an effective method to increase the caliber of internal DEI conversations.
  • Novartis has a global DEI program that is governed and reviewed. The company links executive compensation to DEI objectives, has set clear diversity goals, and has made significant progress toward achieving them, including a notable increase in the representation of women in senior leadership.

Engaging the highest portfolio GHG emitters on climate risk and transition:

In all our investment strategies, we have engaged the highest GHG (Green House Gas) emitters, as part of our Net Zero Asset Managers (NZAM) commitment. All such portfolio companies now have board oversight of ESG and climate risk, included in their mandates; 67% have ESG KPIs linked to board and executive remuneration.

  • Owens Corning has several ESG KPIs linked to executive compensation— safety, GHG emissions reduction, zero waste to landfill, inclusion, and diversity—which ranks as best among the high emitters we engaged.
  • Mondi linked sustainability KPIs to compensation in 2022 for its executive committee, including GHG emissions reductions, specific waste to landfill reductions, and safety, which accounts for 20% of Mondi’s annual bonus metrics.

Emerging Markets: Banks & Climate Transition

Tony Zou

In early 2020, Boston Common became the first US asset manager to join the Platform for Carbon Accounting Financials (PCAF). The following year, we joined the Net Zero Asset Managers Initiative. As NZAM signatories, we are committed to aligning our investments with net-zero emissions and a 1.5⁰C scenario by 2050.

Our latest climate engagement initiative focuses on banks in Emerging Markets. We reached out to eight banks* and five have already responded to our inquiries on:
  • Assessing and mitigating climate and nature-related risks;
  • Engaging clients on climate transition plans;
  • Setting Net Zero and interim GHG emissions targets (emissions from operations and financed activities);
  • Setting sector-specific policies linked to enhanced due diligence and restrictions;
  • Developing products and services to address financing needs for climate adaptation and mitigation.

*BDO, PingAn, HDFC Bank, Kasikornbank, Itaú Unibanco, OTP bank, Bancolombio, Axis Bank

Engagement Focus Areas:

  • Sustainability Governance: board oversight of sustainability and ESG-linked remuneration.
  • Financed Emissions: assessment, target setting, and implementation including sector restrictions and client engagement.
  • Deforestation and Biodiversity: third-party benchmarking (Global Canopy’s Forest 500), policy & enhanced due diligence, and sector restrictions for key agricultural commodities.

Engagement Findings:

  • Advances in governance of sustainability issues; ESG-linked remuneration is still in its nascent stage.
  • Banks’ climate actions are mostly driven by their country’s climate aspirations.
  • Growing adoption of PCAF (Partnership for Carbon Accounting Financials) methodology among banks to measure financed emissions; few have adopted net-zero targets.
  • Most banks engaged have established ESG due diligence processes for credit underwriting to ensure responsible financing; active client engagement in the post-approval period needs improvement.

Company Progress Updates

Ping An implemented ESG-related KPIs in the remuneration process for executives and is refreshing its coal policy to expand restrictions from overseas coal projects to include domestic coal development. Ping An is also developing its biodiversity policy.  

Boston Common recommended that Ping An discloses more details on its ESG-linked compensation in its sustainability report and develop sector-specific deforestation policies for high-risk commodities. 

KBank is committed to reducing financed emissions in line with Thailand’s goals (carbon neutrality by 2050 and net-zero by 2065) and take a sector-specific approach to decarbonizing its financed portfolio. KBank incorporates ESG risk factors in its lending processes and its relationship managers employ environmental and social screening tools for commercial credits, and project finance.

Boston Common recommended that KBank validates its decarbonization targets with SBTi within the next 12 to 24 months and implements and publishes its sector-specific guidelines to mitigate risks.

BDO is working with S&P Global to identify appropriate science-based targets and a net zero pathway. The bank committed to limiting coal financing and applied enhanced due diligence, but currently has no timeline to exit coal completely. 

Boston Common recommended that BDO incorporates ESG criteria in the performance evaluation process for executives and assess its portfolio exposure to key agricultural commodities and take a sector-specific approach to manage and mitigate risks. 

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In The News

ESG Investor

US corporate political spending on midterm elections doubled from 2010 to 2014 and doubled again from 2014 to 2018. “These issues have been an investor concern for many years, and an election year brings them front and center,” Lauren Compere told ESG Investor. “Further, in the aftermath of the 6 January 2021 insurrection, broad misalignment in corporate sustainability strategy and political spending and lobbying activity was evident,” she said. “Shareholders deserve visibility – and a say – into how corporations allocate political and lobbying spending.”

The Banker

Despite commitments to sustainability, many banks and financial institutions continue to fund activities contributing to deforestation, such as agriculture and infrastructure projects. Lauren Compere says, “The problem is financial institutions are stuck between what they need to do on climate and what they need to do on biodiversity and more generally, and deforestation is getting lost in the mix.”

Responsible Investor

Two years ago, Boston Common AM signed an investor statement calling on companies with business activities or relationships in Ukraine, Russia and Belarus to take immediate steps to align their operations with enhanced human rights due diligence requirements. This article explores whether investors art effectively holding companies accountable for their ties to Russia. “For Boston Common, the implications of Russia’s invasion of Ukraine for corporates extend beyond the current conflict. ‘Investors increasingly want companies to take a holistic approach to operations and selling products and services in conflict-affected areas more broadly,’ she says. ‘Companies need ongoing processes that monitor and assess the need for a change in their approach if violence, oppression, and conflict escalate in a region, as we have seen in Ukraine/Russia.’”

Engagement Highlights

US Shareholder Proposal Updates

Following Boston Common’s shareholder proposal focused on lobbying disclosure, Ameriprise committed to greater transparency on its direct and indirect lobbying expenditures. The company also committed to disclosing trade association relationships where it has contributed member dues or assessments of greater than $25K, as well as the amount of indirect lobbying expenditures associated with member dues.

Boston Common co-filed a shareholder proposal request asking ConEd to publish a framework to identify and address a lack of alignment between its lobbying activities and stated climate goals. After a period of negotiation, we reached a withdrawal agreement when the company committed to provide enhanced disclosure on its lobbying alignment framework, including escalation strategies used when trade associations are considered misaligned

Child Online Safety

We joined an investor coalition to address the impact of the tech sector on mental health and well-being. The group of investors’ goal is to raise awareness and engage technology companies to develop policies and implement measures to mitigate the potential negative impact of technology on their end consumers’ mental health and well-being.

  • Recently, we had a dialogue with Alphabet following our shareholder resolution focusing on child online safety. Alphabet hired a Child Safety Manager and updated its Google Family website. Boston Common recommended that they include performance targets linked to child online safety goals and progress.
  • We withdrew our shareholder proposal that we co-filed with Apple on child online safety after Apple agreed to provide enhanced disclosure on mandated child risk assessments (Australia and UK) and on how Apple is addressing child safety risks. We continue to engage companies on new regulations like the EU Digital Services Act.

World Benchmarking Alliance Collective Impact Coalition (CIC) for Ethical AI

Boston Common is a co-lead and founding investor of the World Benchmarking Alliance CIC for Ethical AI and participated in a phase two launch event panel discussion. Phase two focuses on asking tech companies to adopt more ambitious ethical AI practices. In 2024, we will engage companies on implementing AI principles, integrating AI risks into human rights impact assessments, and establishing robust governance mechanisms to support the development, deployment, and procurement of AI technology.

Tech Companies’ Responsibility in Restoring Election Integrity

Lauren Compere participated in a panel discussion on disinformation in elections and how investors can call for greater accountability and transparency in the technology sector to advance electoral integrity. Watch the webinar here.

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