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Governance

Effective management of significant ESG risks and opportunities is an important indicator of good governance that we believe helps protect and enhance long-term company success.

Corporate governance refers to board- and management-level structures, policies, and processes put in place to oversee and guide the  achievement of company objectives. Governance also encompasses how corporate leadership balances the interests of, and is accountable to, multiple stakeholders (e.g., shareholders, customers, employees, suppliers, government, and local communities). As such, effective management of significant ESG risks and opportunities is an important indicator of good governance that we believe helps protect and enhance long-term shareholder value. As an overarching issue, corporate governance engagement is intertwined with our other focus areas of climate risk and equality.

Our Strategy (2022)

We have advocated for leading practice corporate governance reforms for decades because we believe strong oversight, transparency, and accountability mechanisms enhance management of ESG risks and opportunities. These reforms include encouraging companies to adopt policies requiring independent board chairs and annual elections of directors; increasing representation of women and people of color on boards of directors and in senior management; and promoting executive compensation accountability through shareholder approval of pay packages (known as Say-on-Pay).

As the scope and urgency of society’s greatest challenges have evolved, so have the priorities for governance reform. Our current focus is to encourage companies to:

Disclose comprehensive and decision-useful sustainability data, including actionable ESG metrics and goals.

Sustainability reporting enables investors and other stakeholders to understand if and how effectively companies manage and measure ESG risks and opportunities, as well as evaluate progress toward achieving their goals. From a company perspective, robust ESG management and disclosure helps corporate leaders increase operational efficiencies, enhance competitiveness and brand recognition, identify revenue generating opportunities, and respond to an evolving regulatory landscape. We expect inaugural reporting to emphasize the most material and salient ESG factors and subsequent reporting to provide more consistent, comparable, decision-useful information on strategy, management and oversight, and performance over time.

Enhance transparency regarding lobbying policies, oversight, and expenditures, and congruence with corporate positions on ESG risks and opportunities.

Companies continue to play an outsized role in influencing public policymaking, which is why we ask portfolio companies to increase transparency of lobbying activities — both direct activities and those of its trade associations and other third party affiliations.
Misalignment between a company’s ESG objectives and its lobbying activities can pose reputational risks, undermine publicly stated goals, and hinder broader efforts to address systemic issues, such as climate change and inequality. We ask companies to audit direct and indirect lobbying activity to ensure alignment with ESG risks and opportunities and to transparently disclose policies, oversight, and details of corporate lobbying activities and expenditures.