Investors With Radically Different ESG Views Got in a Room Together. Here’s What Happened Next.

Two ex-CalPERS colleagues, some BlackRock critics, and an M&A advisor walk into a room . . .

Illustration by II

Illustration by II

On Wednesday, an unlikely group of investors gathered in Berkeley for what turned out to be a passionate discussion about shareholder engagement on climate change.

The panel was convened to discuss how company boards can make sense of institutional investor expectations. The group included former CalPERS colleagues Anne Simpson, who now heads up Franklin Templeton’s sustainability efforts, and Matt Cole, the CEO at Strive, the asset management firm founded by Republican presidential candidate Vivek Ramaswamy.

Also joining them were BlackRock critics Tariq Fancy, the firm’s former sustainable investing CIO, and Giuseppe Bivona, CIO at Bluebell Capital Partners, which is taking on the asset management giant in an activist campaign. The group was rounded out by Ethan Klingsberg, an M&A partner at law firm Freshfields.

A major concern echoed across the panel is the outsized power that the largest asset managers hold when it comes to corporate governance. “My biggest concern is that we have five constituencies,” Bivona said. “Two leading proxy advisors and three dominant asset managers. They effectively control the outcome of any annual general meeting.”

Climate change specifically shows where the current model of corporate governance is flawed, according to the panelists. Klingsberg put it bluntly: “If we want to fix some climate change, pass some laws. Don’t go to BlackRock.”

The problem, he explained, is that corporations have significant lobbying power and have been able to push legislature to make changes that would benefit them. That puts the responsibility on corporations to self-govern on ESG issues or on their shareholders to pressure them to change.

Absent the passage of new laws, Klingsberg said there is a way that shareholder activism can be more effective. Professional independent board directors are sensitive to how they perform in terms of votes they get. If ISS recommends against a measure, “that means something to these directors.”

Fancy, meanwhile, said he is hopeful that risk management — which plays a necessary role in fiduciary duty — will push asset managers to improve on climate change. “I think a lot of the ‘E’ stuff is actually more objective,” he said. “I don’t think it makes sense to tell people to not manage risk.”

But an exchange between ex-CalPERS colleagues Simpson and Cole showed that it’s not that simple. During the panel, the two sparred over whether shareholders should push companies to disclose emissions.

Cole’s view is that shareholders asking boards to sign onto treaties like the Paris Agreement can constrain a company’s value. Strive opposes environmental shareholder proposals like climate disclosures and emissions reporting, and has specifically engaged with Chevron on this issue.

“I believe we are constraining companies in America,” Cole said. “And when you do it creates short term demand destructions. Then you create opportunities for the private markets to create outsize returns. You don’t actually solve the problem versus changing the law.”

Simpson pushed back on this view. She, like Fancy, argued that the risks posed by climate change — which disclosures and emissions reporting can reveal — need to be managed by investors.

“When I was at CalPERS and had the role of building the strategy there, we used sustainable investment; we didn’t try to invest in ESG products,” she said. “We were saying we’re universal owners and need to generate those returns. The model for us was economic. The stewardship of all three [elements of ESG] is where risk arises.”

Simpson also believes that shareholder proposals pushing for climate disclosures can set boundaries on corporations and push them to set climate goals, such as carbon reduction targets. She pointed out that other energy companies, including ExxonMobil, already report Scope 3 emissions — and it hasn’t hurt their bottom line.

“If you’re going to say it’s legal duty, I would reference fiduciary duty instead, which means to be prudent, loyal, and act with care,” Simpson said to Cole.