In this piece:
Active Investor Impact Update
Second Quarter 2024
8th Annual Impact Report
Boston Common’s Shareholder Engagement work in calendar year 2023 impacted companies worldwide. By leading initiatives and collaborating with stakeholders, we advanced corporate progress on Environmental, Social, and Governance issues. Our efforts, however, were not limited to corporations alone. We also addressed policymakers, advocating for increased standardization and enhanced corporate ESG disclosure practices that support investment decision-making.
Whether engaging portfolio companies or persuading policymakers to use influence responsibly, we convey investor input, urge transparency, accountability, and long-term-oriented action, and offer best practice insights and peer comparisons on ESG issues. Our sustained engagement approach led to meaningful advancements in 2023, evidence of our global role as experts and leaders on ESG issues.
Inside the Report
Finance for Biodiversity Pledge (p. 7)
We developed a biodiversity policy and completed a biodiversity assessment, the findings of which will inform ESG research and engagement priorities in the year ahead.
Ethical AI (Artificial Intelligence) Policy Adoption (p. 8)
We observed notable progress as co-leading founding investors in the World Benchmarking Alliance Ethical AI Collective Impact Coalition (CIC). Since the coalition’s formation in 2022, the number of benchmarked companies with ethical AI principles has increased by nearly 60%.
Governance of Sustainability (p. 11)
Strong corporate governance practices set the tone for long-term-oriented decision-making within companies by creating accountability and incentives for senior management. Companies that thoroughly integrate sustainability governance elements are well-equipped to support sustainability commitments and minimize greenwashing.
Improving the governance of sustainability is integral to our engagement approach, and we find varying degrees of maturity among governance structures across the markets we invest in. See page 11 of the Impact Report for ways we engaged companies on this topic in 2023 as a part of our climate risk and board + workplace DEI initiatives.
Net Zero Emission Targets (p. 18)
As part of our Net Zero Asset Managers Commitment, we engaged the highest relative contributors to carbon emissions across our investment strategies and companies with no climate-related targets. At the end of 2021, 66% of portfolio companies had climate targets aligned with international goals; this increased to 70% in 2022 and 75% in 2023.
PRI (Principles for Responsible Investment) Assessment (p. 18)
In our latest PRI assessment, we were awarded a five-star rating in two core categories—Policy, Governance, and Strategy and Active Fundamental—ongoing validation of the standards we have established over the past two decades.
At a Glance: 2023 Engagement Reach
Unlocking Opportunity: Sustained Dialogue Impacts in Japan
Lauren Compere, Managing Director/ Head of Stewardship & Engagement
As part of our dedicated 15-year sustained dialogue program in Japan, I visited the country again in May. I spoke at several events, participated in industry conferences like RI Japan, and met with management representatives from eight portfolio companies, including Ajinomoto, Daikin, Eisai, Hoya, Keyence, MUFG, Orix, and TDK. In addition to covering core business model concerns with each company, I discussed progress related to the governance of sustainability (board education, ESG KPIs), advancing women in the workplace (DEI workplace programs, employee pipeline), climate (assessment and target-setting), and biodiversity (policy and assessment).
We will explore these topics and more this September in a forthcoming webinar where I will speak to my findings in detail. For now, I will share key takeaways and report on recent progress resulting from our Japanese company engagement efforts.
Lauren Compere
Managing Director/ Head of Stewardship & Engagement
Japan Company and Regulatory Status
I had a unique opportunity to speak to an esteemed group of Japanese women board directors about how boards should grapple with AI governance and ethics. I also helped convene a discussion with Japanese investors on engaging companies on Ethical AI. These events and company dialogues were abundant sources of insights on material sustainability topics. Here is a summary of what I learned:
- Regulators and industry groups are supporting global best practices on governance, sustainability disclosure, exchange listing requirements, and increasing women on boards and in management.
- Focused efforts by regulators will be needed to accelerate the unraveling of cross-shareholdings and increase capital investment to keep Japan attractive to global investors
- Companies are making progress across sustainability issues but need to expand English language disclosure and align it with Japanese disclosure, establish systematic collection of sustainability data, support women in management at every stage, and advance sustainability governance with mandatory board training and performance- and compensation-linked ESG-KPIs.
- Investors must advocate for global best practices on corporate governance and sustainability while supporting the substantial progress of the past few years. They should support regulatory efforts like increasing women in management to at least 30% by 2030.
- Boston Common’s sustained dialogue approach has generated results; the tone of dialogues is collaborative, and companies want feedback on sustainability practices and disclosure.
As these insights indicate, regulators and industry groups like the Asian Corporate Governance Alliance (ACGA) will continue to focus on core governance issues, namely cross-shareholdings, aligning sustainability disclosure with global best practices, and requiring material disclosure in English.
2024 AGM Season
Board & Workplace Diversity – DEI Linked Compensation
As the AGM season wraps up, it’s time to recap our shareholder proposals for the year. Seven of the nine proposals we filed were withdrawn for agreement, as reported in our recently published Annual Impact Report. Alphabet was the one proposal we brought to a shareholder vote in June, where we received 37.2% support from outside investors (14.2% of total votes).
Alphabet’s dual share-class structure continues to limit shareholder democracy, but the voting results underscore widespread investor support for additional disclosure on the child safety risks of Alphabet’s YouTube platform. This effort, like the others under our Ethical AI initiative, aims to motivate technology companies to develop and implement policies that will diminish the negative impacts of their technologies. Doing so will help protect the mental health and well-being of billions of users and society while significantly mitigating risks to the companies and threats to long-term value. The potential benefits are enormous and widespread.
We continue to build sustained dialogues to monitor the progress of withdrawal agreements by encouraging companies to offer enhanced lobbying disclosure (Cummins and Ameriprise), deepen climate lobbying alignment (Con Ed), assess child online safety risks through Children’s Rights Impact assessments (Apple, Alphabet), enhance scope 3 emissions disclosure (TJX), and deliver on SBTi (Science Based Targets Initiative) commitments through robust and transparent climate transition planning (Home Depot).
Portfolio Company Updates
In The News
BCAM’s President Geeta Aiyer Honored as an AAPI Champion
The Asian Community Fund (ACF) at the Boston Foundation announced it will honor Boston Common’s President, Geeta Aiyer, as an AAPI (Asian American and Pacific Islander) Champion at its gala on Oct. 3, 2024, in Boston. The Asian Community Fund is Massachusetts’s first and only philanthropic fund dedicated to galvanizing, convening, and supporting the AAPI community.
BCAM’s Head of Engagement, Lauren Compere on Unilever’s Green Commitments
In April, Lauren Compere was quoted in a Bloomberg piece about Unilever dialing back its green commitments: “It sounds like they are being cautious and possibly scared by greenwashing investigations. They may be ditching goals they couldn’t meet. But it’s a shame because Unilever has been a leader in plastics, and it’s a business and reputational risk.”
From the Commons
Engagement Highlights
Public Policy Engagement
In April, we joined the Asian Corporate Governance Association (ACGA) in an open letter to the FSA and the TSA to advocate for a more robust corporate and regulatory focus on unraveling cross-shareholdings in Japan to unlock new capital and investment potential for Japanese companies. This letter provides recommendations on divesting strategic shareholdings to advance governance practices and help companies achieve sustainable long-term growth.
Biodiversity and Nature Action 100
As part of our priority focus on biodiversity and the Nature Action 100, we led or were part of outreach to five portfolio companies: Colgate Palmolive, Home Depot, Mondelez, Lowes, and Weyerhaeuser. We hope to establish dialogues with each company on reviewing and assessing alignment with the TNFD framework.
Lauren Compere in Japan
As part of a dedicated fifteen-year sustained dialogue program in Japan, Lauren traveled to Japan in May to meet with 8 of our Japanese holdings issues, including Ajinomoto, Daikin, Eisai, Hoya, Keyence, MUFG, Orix, and TDK, to gain insights into advancements on material sustainability topics and progress related to governance of sustainability, advancing women in the workplace, governance, climate, biodiversity, and other core business model concerns. See her blog, “Unlocking Opportunity in Japan,” for an in-depth look.
NZAM Commitment
Under our Net Zero Asset Managers (NZAM) commitment, we contacted 15 companies that have yet to adopt climate targets or have been assessed as having misaligned targets relative to the Paris Agreement. Our outreach goal was to assess progress on broadening GHG emissions disclosure, engaging suppliers, adopting renewable energy targets, and setting science-based targets.
Carrier Global and Mondelez have set near-term and long-term net-zero targets and aligned with a 1.5°C business ambition. Home Depot also received SBTI validation. We will continue to urge Home Depot to enhance disclosure and publish a roadmap for achieving its SBTi targets.
Continued Dialogues under FSDA
We continued dialogues under the Finance Sector Deforestation Action (FSDA) with Mondelez and Mondi.
While Mondi’s approach to deforestation is robust, it relies heavily on external certifications such as the Forest Stewardship Council. Our dialogue focused on human rights risks related to deforestation, traceability to the forest level, changes in sourcing regions, and commitments related to degradation and conversion. Mondi has integrated Indigenous people’s rights into its human rights approach.
We continue to recommend that it explicitly name environmental human rights defenders, broadly define supply chain human rights impact assessment and human rights due diligence, and prioritize a formal stakeholder process as it now operates in Alberta, Canada.
Invest with us
This piece is intended as an editorial review of a survey of risk considerations and does not constitute investment advice, a solicitation, or an offer to buy or sell any security. Past performance does not guarantee future results. All investments involve risk, including the risk of loss of principal.
Company developments described in this report occurred during the period of our engagement but should not be assumed to have resulted from Boston Common’s activities. Where we believe our engagement contributed to a development, we describe the basis for that assessment.
References to third-party research, publications, and data sources are provided for informational purposes only. Boston Common Asset Management does not warrant the accuracy or completeness of third-party information cited herein. Readers should consult original sources and qualified professional advisors before making any investment decision.
