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
In late March, the SEC proposed a set of rules that would require companies to disclose certain climate-related information in their SEC filings. The proposed rules aim to require businesses to report quantitative metrics, such as greenhouse gas (GHG) emissions, and more general, qualitative information, such as climate-related risk oversight processes. As SEC Chair Gary Gensler argued, the proposal is “driven by the needs of investors and issuers” because there are no “clear rules of the road” for corporate climate disclosure.
The SEC has based its proposal largely on existing voluntary frameworks, including the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol, recognizing that many companies have already issued sustainability reports aligned with these standards. Notably, the proposal includes a phase-in period for disclosure requirements based on a company’s filing status and size—Large Accelerated Filers are expected to make the earliest disclosures covering fiscal year 2023 data (filed in 2024). Companies will first be expected to report direct GHG emissions (Scope 1) and indirect emissions from sources such as electricity usage (Scope 2), while an additional year will be granted for companies to disclose all other indirect emissions (Scope 3). The SEC’s comment period is set to end at the end of May, and the proposal is expected to be made effective in December 2022.
THE HEALTHCARE VIEW
With proxy season underway, companies are facing an unprecedented number of ESG-related shareholder proposals. According to a recent report from shareholder advocacy group As You Sow, diversity-related proposals were aimed at a broader set of companies in 2022 compared to 2021, with an increasing number targeting healthcare companies. Danaher and Pfizer received proposals requesting more disclosure around workforce diversity, although both proposals were withdrawn after they reached agreements with As You Sow. Johnson & Johnson received two shareholder proposals requesting that the company conduct a third-party racial equity audit and publicly disclose the results. The company recommended against both proposals, arguing that they have Board and management oversight of their diversity efforts and provide sufficient disclosure through two annual reports with diversity-related information.
A February 2022 report from global law firm Fenwick & West LLP analyzed ESG practices and trends for biotech companies, providing guidance about how to adapt to the changing ESG landscape. The report found that biotech companies were most inclined to disclose information related to social issues, such as diversity and human rights, compared to other ESG topics. Among other key takeaways, Fenwick found that current ESG reporting among biotech companies is limited and there is no consensus on where or what to report. That said, Fenwick’s report indicated that ESG is expected to grow in importance in the coming year amidst increasing pressure to include ESG-focused companies in investment portfolios, as well as standardization in ESG reporting.
IN THE WEEDS
On the heels of the SEC’s climate disclosure proposal, the International Sustainability Standards Board (ISSB) issued their first draft standards for corporate sustainability disclosure. Established during the COP26 conference last November, ISSB is tasked with setting reporting standards to make sustainability information globally comparable and decision-useful for investors. The draft standards—which encompass both general and climate-specific sustainability disclosure requirements—are largely derived from the TCFD and Sustainability Accounting Standards Board (SASB) frameworks. Reflecting the sustainability reporting landscape’s recent consolidation, the Global Reporting Initiative (GRI) announced it would also coordinate with ISSB to make their reporting standards more compatible.
A NOTE ON ESG INVESTING
In an interview with JUST Capital, State Street Global Advisors (SSGA) outgoing CEO Cyrus Taraporevala discussed how the firm incorporates ESG throughout its investing activities, rejecting the “binary” distinction between ESG and non-ESG information. Taraporevala highlighted how during portfolio company engagements, the asset stewardship team coordinates with the firm’s active portfolio managers to consider both financial and ESG-related matters. SSGA’s Global Head of Asset Stewardship, Benjamin Colton, remarked that while ESG data currently lacks consistency, he believes it “is improving, and one of the ways to continue to get more consistency is by having asset managers and asset owners be clear on what their expectations are.” Colton also observed that human capital management has increased in importance for companies this proxy season “because it really is a material issue for all companies.”
ONE BIG THING
On March 17th, the Gilmartin ESG team hosted a webinar with a panel of leaders from three healthcare companies to discuss key topics to consider during the ESG reporting process. Experts with finance, legal, and CSR backgrounds brought a diverse range of perspectives to the conversation. If you were unable to attend, you can read our recap or watch a replay of the conversation.
QUESTIONS ON ESG?
Our dedicated ESG team has deep institutional knowledge and experience in ESG and healthcare, enabling us to assess, inform, and guide healthcare companies at every stage of their ESG journeys. If you are interested in learning more about how to navigate your own internal ESG polices, practices, data, and disclosures, feel free to contact our team today.
MATT BERNER
Managing Director, Head of ESG
PATRICK SMITH
Analyst, ESG
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