Activist company

Investors reject Toshiba’s plan to split the company in two

After years of investors advocating for regulatory action on climate reporting, the SEC’s Climate Disclosure Policy is finally here.

SEC Climate Disclosure Policy

At an open meeting Monday hosted by the SEC’s corporate finance division, the Commission voted 3-1 in favor of rules requiring US issuers to report on climate-related risks and opportunities in their annual report.

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Q4 2021 Hedge Fund Letters, Talks & More

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Under the proposal Politics, US issuers will be required to report their Scope 1 and 2 emissions each year within one year and will have an additional two years to improve data quality. Companies will also need to improve their climate-related disclosure in their annual reports, in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), and the metrics and targets used in climate transition plans when a company has one in place. Companies should also disclose where carbon offsets or renewable energy targets are used to achieve decarbonization.

For such a nervously anticipated day, many investors seemed pleased with the rule in its proposed form.

Danielle Fugere, President and Chief Advisor of As You Sow, called the rules are a “watershed moment to meet investors’ demand for accurate climate disclosure,” while New York City Comptroller Brad Lander said in a statement. Press release that the rule will, for the first time, provide shareholders with “necessary and useful data for decision-making and encourage companies to assess the threats that climate change poses to their fiscal health and sustainability”.

Where the story gets murkier is with scope 3 emissions, which stem from a company’s value chain. While some comment letters sent to the SEC earlier this year argued that mandatory reporting of Scope 3 emissions would be premature, many investors wrote letters urging the US regulator to include them in the requirements.

Although the new SEC policy requires issuers to disclose Scope 3 emissions when they are material, the question of what constitutes material is open to interpretation.

McKenzie Ursch, legal counsel at Follow This, told Insightia that while the SEC’s policy is certainly a step in the right direction, he is concerned about the “number of caveats and safe havens that would allow companies to be exempt from this type of declaration”. “

After the vote, an SEC official told the Wall Street Journal that S&P 500 companies would be required to disclose Scope 3 emissions. Companies with a public float of less than $250 million will not be subject to Scope 3 reporting requirements.

“Only time will tell how the SEC will enforce these provisions,” Ursch said. “The exact definition and application of materiality has long remained elusive with the SEC, for ESG matters.”

Elizabeth Levy, head of ESG strategy and portfolio manager at Trillium Asset Management, also told Insightia that while the new rules are a “very significant step in the right direction”, a comprehensive set of disclosures “must include disclosure of Scope 3 emissions, especially from the most affected industries, including fossil fuels and finance, regardless of their size and whether or not they consider Scope 3 emissions.”

Investors expect more companies to step in, not just by disclosing Scope 3 emissions, but by setting reduction targets, even though they are generated outside of the company’s direct control. . More proposals to achieve Scope 3 emissions reporting targets are being filed at US-listed companies than ever before, with United Parcel Services, Chevron, ConocoPhillips and Exxon Mobil all facing calls for full reporting of emissions. issues ahead of their 2022 annual meetings.

A proposal to get Scope 3 emissions reporting at General Electric won 98% support at the 2021 annual meeting of the industry company S&P 500, after being endorsed by management. Barely two months later, the company announcement its intention to set scope 3 emission reduction targets.

Without mandatory Scope 3 reporting, companies can “completely omit” reporting on their top contributions to climate change, Bruce Herbert, CEO of Newground Social Investment, told Insightia.

The final version of the policy, which is expected to be released in the coming months, must leave no room for ambiguity if it is to establish a level playing field for businesses.

Rebecca Sherratt, Publications Editor, Insightia

Investors reject Toshiba split

Efforts to move Toshiba Corp (TYO:6502) past its governance scandals have stalled. It will take time to see who is the biggest loser.

Investors on Thursday rejected management’s plan to split the company in two by splitting the electronics sector, in an unprecedented snub.

Toshiba’s efforts to avoid a leveraged buyout, an outcome preferred by many investors, hang in the balance. Ahead of the meeting, several major shareholders, including Effissimo Capital Management, Farallon Capital Management and Oasis Management, criticized the company’s management. company for proceeding with the split back and forth despite widespread opposition. International institutional investors like Norges Bank and the Florida State Pension Fund, as well as proxy advisor Glass Lewis, have also reportedly sided with a shareholder proposal by activist 3D Investment Partners to consider sell the entire company to a private equity fund.

The rejection of this proposal by the shareholders may not solve the problem. Only two shareholder proposals pushing to sell have received more than 50% worldwide since 2014, according to Insightia data. Both were in the United States

The issue was also made public by the sensational announcement on March 17 by Raymond Zage, independent director and head of the board’s nominating committee, that he would vote against management’s recommendation on the 3D resolution.

“I do not agree with all aspects of the third resolution, but I believe, after further consideration and shareholder feedback, that given the extensive historical interaction with private equity funds , it should not be difficult or time-consuming to obtain preliminary information from indications of the offer and that some level of additional information could be provided to shareholders in order to compare a potential privatization with the potential value of the proposed spin-off plan,” he wrote, noting pointedly that his personal stake was larger “than the rest of the company’s board of directors and senior management combined.”

To be fair, Toshiba’s management has seen so much turnover that executives haven’t had much time to rack up stakes. Its CEO, Taro Shimada, has only been in the job for three weeks and could still prove to be a temporary appointment. His predecessor Satoshi Tsunakawa seemed ill-equipped to lead the breakup, but Shimada pushed on. “Toshiba accepts the shareholder views expressed at the EGM and will do its best to build trust with shareholders and reconsider its strategic options to continuously improve business value,” the company said in a statement. announcing the results of the meeting.

That same week, Olympus CEO Yasuo Takeuchi praised the role Rob Hale of ValueAct Capital Partners has played on its board, proving that activism in Japan can be rewarding. But the chaos at Toshiba and the current ValueAct frustrations at Seven&i offer further evidence that this is a difficult problem to solve.

Josh Black, Editor, Insightia