Proponents have filed six proposals about links between executive compensation and various ESG metrics, seven are about investment practices—including an expansion of an idea from last year that employee retirement plans should align with companies’ climate change policies. Just two ask about sustainability metrics.

ESG Pay Links

General ESG links: A proposal at Meta Platforms and from The Shareholder Commons asks for a report on “the feasibility of integrating specific weights or dollar amounts to base and bonus pay calibrated consistent with the costs externalized by Company operations, including costs imposed on the global economy and the environment.”

Climate change: Three other resolutions invoke climate change. At Cummins, the resolution asks for a plan “to link executive compensation to 1.5-degree Celsius aligned greenhouse gas emissions reductions across the company’s value chain, including Scope 1, 2, and 3 greenhouse gas emissions.” At Union Pacific, the resolution is similar but more detailed seeking:

a report assessing the feasibility of integrating the Company’s GHG emissions targets, goals, and other relevant sustainability measures, (as determined by the Board) into the performance goals, metrics, and vesting conditions applicable to senior executives under the Company’s compensation incentive plans.

Zevin Asset Management faces a procedural challenge at UPS that may block a vote but asks for a report on

the feasibility of integrating the UPS' committed GHG emissions targets, goals, and other relevant sustainability measures, (as determined by the Board) into the performance goals, metrics, and vesting conditions applicable to senior executives under the UPS' compensation incentive plans. GHG emissions targets are defined as those goals and targets disclosed by the company in its proxy statement and other public documents. Sustainability measures are defined as the environmental and related considerations, and related financial impacts, that are integrated into long term corporate strategy.

Healthcare: Pursuing its interest in health care disparities (discussed in the Health section above, p. 54), NYSCRF wants Molina Healthcare to “examine and report,”

describing if, and how it plans to introduce objective data driven maternal morbidity reduction metrics into the performance measures of senior executives under Molina’s incentive compensation plans. Maternal morbidity metrics is defined as (1) the rate of major maternal morbidity of Molina’s members and (2) progress made toward eliminating major maternal morbidity and mortality disparities among racial and ethnic groups.

The proposal is new in 2023 and was mentioned in a February 15 press release from NYSCRF. It appears to be the first to suggest an executive pay link to maternal health metrics.

CLIMATE-RELATED CEO PAY INCENTIVES LACK RIGOR AND SPECIFICITY

ROSANNA LANDIS WEAVER
Director of Wage Justice & Executive Pay, As You Sow

MELISSA WALTON
Executive Compensation & Say on Climate Associate, As You Sow

In the last few years, companies have begun to use non-financial metrics more often in CEO pay packages. In 2021, 52 percent of S&P 500 companies reported including ESG metrics in compensation while 69 percent said they will be included in 2022 compensation packages.

Legal costs: SHARE and Mercy Investments are pressing the idea that drug companies should not exclude large legal costs from incentive pay calculations. The proponents contend the impact of harmful behavior punished in the courts is relevant to pay, while companies respond that they need flexibility and discretion to design and administer compensation programs. Last year this resolution earned 35.5 percent at AmerisourceBergen and its highest-ever tally of 47.7 percent at Johnson & Johnson. The proposal is pending at Abbott Laboratories and Bristol-Myers Squib and asks each to adopt a policy

that no financial performance metric shall be adjusted to exclude Legal or Compliance Costs when evaluating performance for purposes of determining the amount or vesting of any senior executive Incentive Compensation award.

“Legal or Compliance Costs” are expenses or charges associated with any investigation, litigation or enforcement action related to drug manufacturing, sales, marketing or distribution, including legal fees; amounts paid in fines, penalties or damages; and amounts paid in connection with monitoring required by any settlement or judgement of claims of the kind described above.

“Incentive Compensation” is compensation paid pursuant to short-term and long-term incentive compensation plans and programs.

The policy should be implemented in a way that does not violate any existing contractual obligation of the Company or the terms of any compensation or benefit plan. The Board shall have discretion to modify the application of this policy in specific circumstances for reasonable exceptions and in that case shall provide a statement of explanation.

Investment Practices

Outside the proxy season a fierce fight continues about the merits of considering ESG factors in public pension funds’ investment approaches. But proposals about this process within proxy season have been scant and instead have looked at corporate behavior, as this report has examined in detail.

Corporate retirement plans: Last year, As You Sow began asking companies about how corporate retirement plans consider climate risk. It has returned with a similar proposition this year at Amazon.com (9.1 percent last year) and Comcast (6 percent) and newly at Netflix, seeking a report on “how the Company is protecting Plan beneficiaries with a longer investment time horizon from climate risk in the company’s default retirement options.” The proposal is slightly different at Campbell’s Soup (8.8 percent last year) and Microsoft (11.2 percent), asking “how the Company’s 401(k) retirement funds manage the growing systemic risk to the economy created by investing retirement plan funds in companies contributing significantly to climate change.”

EMPLOYEES UNAWARE OF CLIMATE RISK IN RETIREMENT PLANS

GRANT BRADSKI
Sustainable Investing Initiative Coordinator, As You Sow

One hundred million Americans have invested more than $10 trillion in retirement savings that likely are not aligned with their values. Many corporations strive to reduce material risk for all stakeholders by becoming more environmentally and socially responsible. But if they do not consider climate-related financial risks, most invest employees’ hard-earned savings in oil, coal-fired utilities and agribusinesses involved in deforestation, which means employees’ savings fuel climate change.

SEC action—The SEC rejected an ordinary business challenge last year from Comcast but Amazon is reiterating that argument for 2023.

Investment stewardship: Paul Rissman would like BlackRock to report on how it might

improve its pension fund clients’ investment returns, by focusing its climate-related investment stewardship and proxy voting to “engineer decarbonization in the real economy,”," mitigating BlackRock’s forecast cumulative loss in global output, due to unabated climate change, of nearly 25% in the next two decades, thereby improving financial returns to BlackRock shareholders.

The proposal is new in 2023. It may be vulnerable to challenge at the SEC because a 2022 proposal asking for a report on the societal impact of BlackRock’s investment stewardship from The Shareholder Commons earned only 3.6 percent, not enough for resubmission—though no challenge has surfaced yet. (Mercy Investments withdrew more general proposals about ESG proxy voting in 2021 and 2020.)

The Shareholder Commons has submitted a proposal at State Street that is more detailed than one it proposed last year, asking for a report on:

1. Conflict of interest between executives of portfolio corporations and Company clients, whose investments could benefit from reductions in the social and environmental costs those corporations externalize,

2. Whether Company stewardship practices could better account for this conflict, and

3. Actions the Company could take to address this conflict including:

a. Assessing systemic impacts on diversified portfolios;
b. Soliciting input from clients;
c. Initiatives to modify executive incentives; and
d. Adopting voting policies that account for portfolio impacts of externalized costs.

The report should account for legal limitations on Company actions, including limitations imposed by fiduciary duty.

Metrics Disclosure

The Episcopal Church has filed what appears to be the only request to produce a sustainability report, at the pet goods and services firm Chewy. It wants an annual report “describing the company’s environmental, social, and governance (ESG) policies, performance, and improvement targets, including a discussion of greenhouse gas (GHG) Chewy emissions management strategies and quantitative metrics.”

Otherwise, one proposal from an individual at CVS Health seeks a report on “documented transgressions of the ESG policies and procedures,” but CVS says the proponent failed to prove his stock ownership and argues it is too long, making an omission likely.