WOKE WEDNESDAY: ESG is transparency gone too far, it's social engineering, and it's more guys named Mike than women running committees

LIVE from cold-back mountain it’s 2023’s second Woke Data Wednesday featuring Matt Moscardi, Lord of Board Sabermetrics, and me, Duke of Sussex.

In today’s licorice-stained bag called January 11, 2023: random woke-y/esg-y headlines that clickbaited me and the lord discusses his data empire 

But first, today’s show is sponsored by ESGauge, your ESG data solutions provider

DAMION1

1. Virginia Governor Says ESG Transparency Has Gone Too Far

1. “Is having world-class transparency and governance a good thing? Yes, it’s a really good thing,” Youngkin, a Republican and the former co-head of Carlyle Group Inc., said during a Bloomberg News editorial board meeting on Monday. But the definition of what’s good for the environment, social goals and governance isn’t one-size-fits all, he added.

2. ESG “means different things to different people. It just does,” Youngkin said. Amid this swirl of criteria, he continued, investment firms are telling companies, “If you don’t do X, then we’re going to penalize you, as opposed to just not invest with you.”

2. ISS Publishes Proxy Voting Guidelines Updates for 2023. Make it a game: how much would Vivek hate this scale of 1-10?

1. Added “non-binary” language

1. Board Gender Diversity

2. As announced in 2021, ISS will recommend a vote against or withhold from the chair of the nominating committee in instances where there are no women on the board for companies in the Russell 3000 or S&P 1500 indices.

3. New for 2023, a one-year grace period will be applied at companies where there are no women on the board but there is at least one director who is disclosed as identifying as non-binary.

2. All companies identified as maintaining a capital structure with unequal voting rights will now be subject to adverse director vote recommendations under benchmark policy. 

1. Generally vote withhold or against directors individually, committee members, or the entire board (except new nominees, who should be considered case-by-case), if the company employs a common stock structure with unequal voting rights

3. Climate Accountability

1. If a company considered to be a significant greenhouse gas (GHG) emitter (which ISS defines as in the Climate Action 100+ Focus Group) does not adequately disclose climate risk disclosure information and does not have either medium-term GHG emission reduction targets or Net Zero-by-2050 GHG reduction targets for at least Scope 1 and Scope 2 emissions, ISS will generally recommend a vote against or withhold from the chair of the responsible committee.

1. This is the first time ISS has defined specifically what it considers to be “appropriate GHG emissions reductions targets.” ISS has indicated that emissions targets should cover 95% of a company’s Scope 1 & 2 emissions.

4. Problematic pay practices

1. The update for 2023 is boring but here’s what stands out:

1. A lot of subjectivity to define problematic pay practices:

1. New CEO with overly generous new-hire package:

1. Sign-on awards that are excessively large or insufficiently performance-based

2. Abnormally large bonus or incentive plan payouts without justifiable performance linkage or proper disclosure

3. Excessive or extraordinary perquisites:

1. Extraordinary relocation benefits (including any home loss buyouts);

2. Excessive amounts of perquisites compensation;

4. Excessive payments upon an executive's termination in connection with performance failure or payments made in connection with an apparent voluntary resignation or retirement;

5. Excessive or extraordinary perquisites or tax gross-ups

6. How much would Vivek hate the words excessive or extraordinary or egregious?

5. Diversity – Racial Equity and/or Civil Rights Audit Guidelines

1. Vote case-by-case on proposals asking a company to conduct an independent racial equity and/or civil rights audit, taking into

Account:

1. ▪ Whether the company adequately discloses workforce diversity and inclusion metrics and goals;

1. A focus on the company’s disclosure of workforce diversity and inclusion metrics and goals allows for quantitative assessments of progress. 

1. Political Activity – Political Expenditures and Lobbying Congruency

1. Current ISS Policy: [none] 

2. New ISS Policy: Generally vote case-by-case on proposals requesting

greater disclosure of a company’s alignment of political contributions, lobbying,and electioneering spending with a company’s publicly stated values and policies,

1. Generally vote case-by-case on proposals requesting comparison of a company’s political spending to objectives that can mitigate material risks for the company, such as limiting global warming.

1. Speaking of Vivek: Are you investing in woke political activism? 5 questions you need to ask

1. *Have I invested in any funds that voted my shares in favor of racial equity audits?

2. *Have I invested in any funds that voted my shares in favor of emissions reduction plans or executive compensation tied to environmental and social goals?

3. *Have I invested in any funds that systematically underweight companies in any of the following sectors: coal, mining, oil and gas exploration, defense, or firearms?

4. *Do you use ESG factors in your external fund evaluation process, internal operations, or client portfolio optimization strategies?

5. *If the answer to any of the above questions is "yes," can you please inform me of alternative investment options so that I may select funds and portfolios that best align with my own values and long-term financial interests? 

6. America must ‘revive’ its shared national identity of ‘excellence’: Vivek Ramaswamy = Make America Great Again

2. Equity, Workplace Well-Being, ESG: Trends To Watch in 2023

1. Making equity actionable

1. Diverse organizations have also been found to be 1.32 times more productive and 21 percent more profitable than their peers. In 2023, we expect this trend to make equity actionable in organizations around the world to rapidly accelerate.

2. ESG is more important than ever

1. Investors, regulators and organizations will continue to prioritize ESG indicators to better assess risk and return, while also leveraging it to demonstrate value and impact.

3. The return to office = a return to people

3. The House of Representatives will have more guys named 'Mike' than women chairing committees under the new Republican majority

1. House Republicans have announced a new slate of committee chairs for the new Congress.

2. Six of the committees will be chaired by a man named Mike or Michael.

3. Meanwhile, just three committees will be chaired by women, down from seven during the last Congress.

4. Netflix Revokes Some Staff’s Access to Other People’s Salary Information

1. For years, director-level executives at Netflix could look up colleagues’ compensation. But late last year, Netflix stopped letting them do so, some of the people said. Directors are senior managers with titles that rank below the C-suite and vice president roles.

2. Netflix co-Chief Executive Reed Hastings has long championed transparency as key to the company’s culture.

3. The pay-transparency change was made in part because the number of directors had ballooned in recent years as the company kept growing, some of the people said. Some executives felt they should be paid more based on their title because colleagues at similar levels received higher compensation, even if their roles were different, some of the people said.

5. We boycott your “boycott”: Kentucky threatens to divest from 11 banks over ESG policies

1. Kentucky State Treasurer Allison Ball announced that, after a review of their energy and climate policies, the listed banks — which included BlackRock, the largest asset manager in the world, JPMorgan Chase, Citigroup and HSBC among others — were found to be in an active boycott of fossil fuel companies. The Kentucky state government could begin divesting from the firms if they didn't reverse their boycotts.

6. Wharton's Majoring in Woke Capitalism. Some Are Taking an Elective in Dissent.

1. One of America’s storied Ivy League executive training grounds is elevating a view of capitalism that shuns the very enterprises from which its namesake made his fortune: The nation’s first business school was founded in 1881 by Joseph Wharton, an industrialist who made a killing in mining and manufacturing, the sorts of “dirty” industries that ESG proponents disfavor

1. In 2023, the University of Pennsylvania’s Wharton School will offer a new major called Environmental, Social and Governance Factors for Business. 

2. Now, the school that bears his name will have the distinction of becoming the first prominent institution to offer an ESG degree. 

1. “By creating a major [in ESG] at Wharton you are helping to legitimize it,” said another graduate.

2. In addition to the ESGB major, graduate students will likewise be able to major in one of its social sub-components, Diversity, Equity, and Inclusion (DEI).

3. Wharton leaders invoke Joseph Wharton’s call, in founding the school, for it to help solve “social problems incident to our civilization” in justifying the new ESG emphasis. 

4. Wharton’s accelerating push into ESG has coincided with the 2020 appointment of [black woman] Erika H. James as dean of the school. James has made promoting ESG on campus one of her top strategic priorities.

5. One recent Wharton graduate said that “indoctrination” in ESG/DEI-related subjects is baked into business schools before students ever enter them. “It starts right in the applications,” he says, which, in his experience applying to top business schools, is embodied in essay prompts like “How are you going to change the world?” He believes such leading questions naturally lend themselves to emphasizing ESG. “Never do they ask, how are you going to preserve the status quo? Or, how are you going to protect the American system, capitalist system?”

1. He added that when major investment banks came to campus to recruit students, “the whole Wall Street recruiting process was chock full of DEI stuff,” as well as “blatant discrimination in my opinion.”

2. Vivek Ramaswamy, author of “Woke, Inc.” and co-founder of Strive Asset Management, which has created several “depoliticized” investment vehicles, told RCI that “The inclusion of the ESG/DEI major goes hand-in-glove with affirmative action: the latter lowers the overall quality of students that Wharton admits, which necessitates intellectually lightweight ‘majors’ like ESG and DEI.”

3. Another critic, Andy Puzder, former CEO of CKE Enterprises and onetime Trump administration nominee to head the Department of Labor, told RCI: “I don’t think there is anything wrong with majoring in ESG or DEI, but I suspect it will be much like majoring in gender studies.

7. 2023 ESG Data Predictions from CSRHub

1. More standards, little compliance.

1. Expect almost monthly announcements of new ESG reporting standards by NGOs, government regulators, and industry bodies. However, don't expect any standard to win (at least during 2023).

2. The haves will continue to have more.

1. Large companies have hired ESG reporting staff and are buying ESG reporting tools. Eighty-one percent of Russell 1000 companies published a sustainability report.

2. The data gap between big and small companies is driven partly by the rising cost of reporting. The cost to hire experienced ESG managers, produce a complete ESG report that references several major standards, get the report assured by an outside entity, and integrate it into a company's financial reports can exceed $1 million and could reach in some cases more than $3 million.

3. More new tools and data sets-and more new versions for the existing ones! In 2023 we expect some new tool ideas.

1. But much of the activity may be from established software players launching look-alike products for the ESG space.

MATT1

Boomerang Stats:

• Boomerang CEOS: 1,137 former CEOs sitting on the board of their companies where they were CEO where there ISN’T a founder or family member on the board

• Average influence: 22%

• Examples include: Dick’s Sporting Goods (Ed Stack), Hertz Global (Mark Fields), Caesar’s (Gary Carano)

• Founderangs: 416 founders who were CEOs but aren’t anymore

• Average influence: 51%