The statement made headlines both for its message, as well as the gravitas of its signatories. With 189 of the largest companies in the U.S. formally acknowledging that change is necessary, it may seem as if the model of shareholder primacy (which many observers have claimed led to short-termism) that has dominated since the 80s might finally be collapsing under its own weight. But it bears asking, what significance can be given to such a statement that lacks clear accountability or implementation plans? And indeed, what motivated such a move?
There are myriad reasons to be skeptical of the impact of this statement. Chief among them is the “agency problem,” that top management responsible to many is responsible to none, thereby reenforcing managerial opportunism. In this regard it is a ‘back to the future’ moment to decades ago when top managers were mostly free from shareowner pressures and push backs.
Unsurprisingly, investors, academics, and lawyers have all raised their own set of concerns, revolving around issues such as fiduciary duty implications and implementation clarifications. Further adding to the lack of clarity, a number of the signatories are also members of the Council of Institutional Investors, a lobbying organization which issued a heated denunciation in response to the statement.
As seen below, Truvalue Labs’ data shows that the ESG profile of the signatories largely mirrors the makeup of the S&P 500 ESG profile, indicating that simply being a signatory does not seem to necessarily denote improved sustainability performance.
|Business Roundtable Signatories||S&P 500|
Insight Score denotes long-term ESG performance. Momentum Score denotes ESG trajectory over a trailing twelve month period. The comparison above shows the ESG profile of the signatories does not signal a departure from the S&P 500.
Company-issued statements and reports on ESG issues are notoriously self-serving and routinely suffer from sins of omission. To truly pull back the curtain on how companies are performing on ESG issues, Truvalue Labs’ data proves useful. By uploading the list of signatories to Truvalue Platform, one can do a deep dive on the sustainability profile of each company.
Walking the Walk
For example, one of the signatories, Ball Corporation, looks to be walking the walk in addition to talking the talk. As a NYSE-listed container and packaging company, Ball Corporation sits at a healthy 78th percentile among industry peers in regards to their Insight Score (or long-term ESG performance), and tellingly, at the 91st percentile among industry peers in regards to their Momentum Score (or ESG trajectory over a trailing twelve-month period).
So what is underpinning this performance? As Truvalue Platform has unearthed, two recent episodes positively impacted Ball Corporation’s sustainability performance. Firstly, the company signed a 15-year virtual power purchase agreement from a new wind power project in Oklahoma. Secondly, Ball Corporation recently debuted an “infinitely recyclable” aluminum cup that is positioned as an alternative to plastic, and is rolling out at university stadiums across America (including CU Boulder, Vanderbilt, and others). Game day has never been so green.
It’s worth mentioning that, as a Business Roundtable signatory, Ball Corporation should ostensibly be focused on expanding the definition of what a “key stakeholder” is. And until a new definition for that new stakeholder group is made explicit, we can only make assumptions about how these new moves are adequately addressing them. A 2016 article in the Sloan Management Review called on firms to specifically name what stakeholders (aside from shareowners) the firm considers material, or critical to its operations and strategies. Still, it remains a safe assumption that Ball Corporation’s ESG-friendly actions are moving broadly in the direction that the Business Roundtable has in mind.
Missing The Mark
A deep dive into the ESG profile of another signatory proves a darker tale. Bayer, the pharmaceutical giant based out of Germany, sits at a middling 47th percentile among industry peers for their Insight Score, but has a directionally-challenged 30th percentile among industry peers for their Momentum Score. Long a rich topic for ESG issue exploration, earlier this year we published a research brief on Bayer’s cloudy sustainability outlook after merging with Monsanto.
Much of Bayer’s ESG headache stems from a chemical called Glyphosate, which is commonly found in herbicides and has been linked to serious health issues (having been explicitly linked to cancer by the World Health Organization in 2015). Recently, regulatory bodies have been springing into action to ban Glyphosate. Austria, Montreal, several municipalities in France, and most recently, Germany, have all banned the chemical.
The Glyphosate controversy has made its way stateside, as well. Recently, a judge awarded a $2B verdict to a couple that successfully sued Bayer, blaming Bayer’s Glyphosate-based weed killer, Roundup, for their cancer. The awarded amount has since been reduced to $86.7 million, however, Bayer’s legal challenges persist, with nearly 20,000 plaintiffs in the US bringing suit relating to Glyphosate’s cancer-causing effects. Bayer itself acknowledges that it is facing a “challenging environment” as a result.
Time to Dive Deep
It would be convenient to take company proclamations of “doing better” at face value, however, ultimately actions speak louder than words. With tools like Truvalue Platform that exist to help investment managers strip away potentially greenwashed veneers, it’s possible to dive deep into a company’s ESG profile and uncover the real story. Only then can the Business Roundtable signatories, and the corporate world more generally, be held to account for the broader consequences of their actions.