Don’t Forget The “S” In ESG Controversies

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While the climate crisis is often the first thing we think of when environmental, social, and governance (ESG) investing is the topic, the environment isn’t the only concern of socially conscious investors in the US. In fact, ESG controversies these days are swirling around worker rights — the “S” or “social” focus of investments. Yes, concerns about carbon emissions are very important, but so, too, is how companies behave about paying workers a fair, living wage. Working conditions in companies has become a mechanism to screen potential investments.

Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution! US Republican legislators seem to be particularly concerned about efforts to address climate change through ESG funds. For example, Texas Comptroller Glenn Hegar (R) concluded earlier this year that several companies are in violation of a new state law. Those companies who invest with ESG in mind are accused of “boycotting” the directive that requires fossil energy industry investment. If found culpable, BlackRock and 9 European firms may be prohibited from conducting significant business with Texas state agencies.

Republican governors including Florida’s Ron DeSantis have targeted ESG, describing the investing approach as “ideological,” as reported in an exposé by Bloomberg. It’s an interesting perspective, considering that many of these same Republicans rode into office on the coattails of Donald Trump, whose populace message resonated with blue collar workers.

A beneficiary of sustainable investing that Republicans may have overlooked is the US worker. The majority of US citizens surveyed by JUST Capital, a nonprofit research group, say paying workers a fair, living wage should be the top focus of the biggest US companies. The next topics of concern that emerged in this survey are creating jobs, acting ethically at the leadership level, protecting worker health and safety, and supporting workforce retention, advancement, and training.

In fact, it’s common to click on a newspaper and to see articles about many of these issues: workers demanding safe working conditions, satisfactory wages, the right to unionize, privacy assurances, or job protections.

• Just this week, Amazon suspended at least 50 workers who refused to return to the shop floor due to health and safety concerns following a fire at the JFK8 fulfillment center in New York City. This site is the company’s only unionized warehouse in the US.
• In August, a federal judge ordered Starbucks to reinstate 7 employees in Memphis who were fired earlier this year after leading an effort to unionize their store.
• Members of the Philadelphia Museum of Art Union, American Federation of State, County, and Municipal Employees Local 397, affiliated with AFSCME District Council 47, voted for union representation in a landslide with a 89% “yes” vote in August, 2020. Since then, the PMA Board of Trustees and executive management have refused to come to an agreement with the PMA Union.
• Retail workers at a Home Depot store in northeast Philadelphia filed a petition on September 20 with the National Labor Relations Board to form a union. Their request covers 274 employees organized as Home Depot Workers United. If successful, this will be the first store-wide, door-to-door union within the company.
• A broad coalition of progressive advocacy groups and unions representing 24 million workers on Wednesday doubled down on its demand for Senate Majority Leader Chuck Schumer to hold a vote on landmark labor reform legislation before next month’s pivotal midterm elections.

More than a dozen Democratic-controlled states have rejected Republican attempts to stall ESG investing, saying the ESG controversies are politically motivated and that the anti-ESG initiatives will cost taxpayers in the long run. The dilemmas facing US workers have become all the more stark as energy price hikes, inflationary cost of living increases, and the possibility of job loss hover in the background.

As part of that thinking, Lazard Asset Management said it has worked with a team at the Massachusetts Institute of Technology to create a Living Wage Calculator to examine wage issues at a discount retailer. Assessing worker-related issues is relevant to the long-term financial productivity of businesses, said Nikita Singhal, co-head of sustainable investment and ESG at Lazard.

As Bloomberg outlined, there are signs investment firms are taking notice of worker issues, too:

• In June, KKR & Co., one of the world’s largest private equity investors, sold a garage-door manufacturer. As part of the deal, roughly 800 employees received an average cash payout of $175,000.
• Trillium Asset Management and New York City pension funds started pressing Starbucks Corp. and Apple Inc. last month to allow for an independent review of the companies’ labor practices.
• Two Sigma, a quantitative hedge fund, has invested in companies like Penn Foster Inc., which provide workers with computer skills and other specialized training.
• Calvert Research and Management, one of the oldest socially responsible investors, said it has pressured utilities such as Xcel Energy Inc. to accommodate workers who may be adversely impacted by the shift to cleaner fuels.

The Interrelationship of ESG Controversies

So, what does this have to do with environmental and governance elements of ESG investments?

The Uber Files Project is a good example of how ESG controversies and advocacy are interrelated.

The International Consortium of Investigative Journalists reveals how ride-hailing juggernaut Uber stormed into markets around the world, how it used stealth technology and evasive practices to thwart regulators and law enforcement in at least six countries, and how it deployed a phalanx of lobbyists to court prominent world leaders to influence legislation and help it avoid taxes.

The investigation found that the Uber held undisclosed meetings with politicians to ask for favors, including dropping probes and changing policies on workers’ rights; that the company used Russian oligarchs as conduits to the Kremlin; and that it discussed the public relations benefits of violence against its drivers as it engaged in international power struggles with taxi drivers and legislators opposed to its expansion.

As Uber fought to set up shop in cities around the globe, it saved millions of dollars in taxes by routing profits through Bermuda and other offshore jurisdictions. Documents show that Uber sought to deflect attention from its tax liabilities by helping authorities collect taxes from its drivers. Leaked internal documents reveal that from 2014 to 2016 Uber executives held more than 100 meetings with public officials from 17 countries as well as representatives of European Union institutions. They included 12 meetings with representatives of the European Commission that haven’t been publicly disclosed.

Sometimes the Shareholders Speak & Activists’ Concerns are Dismissed

It is sometimes the case that activists’ calls to scrutinize companies for their inequitable business practices are not supported by shareholders.

Corporations routinely oppose shareholder proposals, believing that their insider knowledge prevails when making decisions about the overall health of operations. Votes on 3 of the 13 proposals at the 2022 Tesla Meeting of Stockholders did not follow board recommendations, according to preliminary tallies.

Amazon shareholders voted down a May proposal calling for an independent audit of working conditions at the company’s warehouses. As the AP related, the proposal’s defeat came despite calls from activist groups and unions to improve labor conditions at the warehouses where customer orders are sorted, packaged, and shipped. Many of the resolutions focused on workers’ rights and issues such as further disclosure of the company’s lobbying and taxes. The resolutions are nonbinding, but usually pressure corporate boards to take action.