Welcome to the latest edition of Gilmartin Group’s ESG newsletter. With a special focus on the healthcare sector, this newsletter sheds light on the latest trends in the rapidly evolving ESG space, covering developments with companies, investors, regulators, and policymakers.
In The Spotlight
BlackRock Chairman and CEO Larry Fink released his annual letter to investors at the end of March. The letter was largely focused on economic challenges related to retirement in the U.S., but the letter also highlighted Fink’s thoughts on climate change and the energy transition.
Fink strategically avoided the term ESG, after stating in 2023 that he would no longer use it due to its politicization. Instead of launching a targeted defense of ESG investing practices, Fink focused on what he calls “energy pragmatism,” which balances the need for decarbonization with energy security. For example, Fink highlighted how Germany is one of the countries most committed to fighting climate change, but it realized the need to build additional natural gas facilities because it could not rely on gas from Russia after the war in Ukraine broke out in 2022.
Interestingly, Fink also pointed to Texas’ energy challenges, noting that while the state’s grid runs on a relatively high percentage of renewable energy, the state is still threatened with devastating brownouts because the grid is stretched so thin. In February, BlackRock helped organize a summit in Houston to bring together investors and policymakers to find a solution. Between the lines, we can see that Fink is taking the high road in dealing with Texas – shortly before his letter was published, the Texas State Board of Education pulled $8.5 billion from the firm over its ESG investing approach. Despite pushback from other red states, BlackRock experienced a 16% increase in its managed assets in 2023, and the firm’s Alterra climate fund is set to reach $250 billion in AUM in 2030.
The Healthcare View
A recent Business Insider report investigated the negative impacts of real estate private equity deals on U.S. hospitals. The article focuses on Medical Properties Trust (MPT), a real-estate investor that has purchased approximately $16 billion of hospital real estate over the last 20 years. The report describes how hospitals owned by other for-profit investors sold the land underneath their facilities to MPT, who required the hospitals to pay rent. Since many of these hospitals were already burdened with debt, the sale-leaseback deals thrust them into even deeper financial trouble.
Business Insider found that at least 13 hospitals closed or declared bankruptcy after their land was sold to MPT, including certain hospitals that served low-income communities. For example, MPT announced earlier this year that its largest tenant, a hospital chain serving over 2 million people, was unable to pay its rent.
Although MPT argues that they “help hospitals serve patients better around the world” through their deals, critics decry the sale-leasebacks as “uneconomic transactions” that have “bankrupted hospitals.” At the end of last year, MPT was issued a subpoena by members of the Senate Budget Committee as part of a bipartisan investigation into private equity’s influence on the healthcare industry.
Business Insider’s investigation was written by Bethany McLean, who is known for investigating the downfall of Enron and co-authoring The Smartest Guys in the Room about the scandal. In McLean’s view, “MPT’s hospital investments represent a breathtaking schemethat has decimated healthcare in communities across America.”
A Note on Proxy Season
Investor interest in climate action has been strong this proxy season, according to an analysis by the sustainable investing-focused non-profit Ceres.
Voting results for Ceres-tracked companies show that 263 climate-related resolutions have already been filed by investors, reflecting a positive trend compared to this time last year.
“A majority vote at this early stage in the season is one indication of a promising outlook for the 2024 proxy season,” said Rob Berridge, senior director of shareholder engagement at Ceres. “It’s clear that investors are continuing to rally behind key climate-related shareholder proposals, reflecting the sustained commitment to informed, responsible investment stewardship practices and driving corporate action in the face of the rapidly intensifying climate change and nature loss.”
So far, 56 proposals have been withdrawn by investors in return for a climate commitment, where a company agrees to reduce or offset its emissions. This demonstrates a continued dialogue between investors and companies around climate issues. For example, New York City Employees’ Retirement System (NYCERS) withdrew its climate-related resolutions targeting JPMorgan and Citigroup after the banks agreed to regularly disclose their clean energy to fossil fuel financing ratios.
Resolutions involving GHG reduction goals and climate transition plans make up 28% of all shareholder resolutions that Ceres has examined so far this proxy season.
In the Weeds
Following legal challenges by several U.S. states and business groups, the SEC announced that it has paused the climate disclosure rules that it published in March. The final rules are now pending a review by the U.S. Court of Appeals for the Eighth Circuit, and the SEC claims that it will “continue vigorously defending” its new climate disclosure requirements.
Michael Littenberg, head of ESG at Ropes & Gray, explains that while some companies may delay efforts to adhere to the SEC ruling, “it’s not pencils down on climate disclosure more generally.” Notably, companies are already collecting climate-related data to comply with similar disclosure rules in California and the E.U.
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Authored by: Patrick Smith, ESG, Gilmartin Group & Tamsin Stringer, ESG, Gilmartin Group