Earnings Calls Include Fewer ESG Mentions, but Talk of AI Is Rising

Touting corporate ESG bona fides used to be the “in” thing during earnings calls. But following powerful backlash from Republican politicians, mentions of companies’ environmental, social and governance efforts has dwindled.

What’s the new favorite? Artificial intelligence.

That was the conclusion from FactSet Research Systems Inc., drawn from scanned transcripts of the earnings calls of all S&P 500 corporations that conducted them from March 15 through June 9. ESG mentions peaked in 2021’s fourth quarter, at 156, and have dwindled through four of the past five quarters, per FactSet. In calls for the just-completed Q1 2023, the count dipped to 74, its lowest level since Q2 2020 (57), which was before trumpeting ESG gained popularity—and before the GOP in red-led states cracked down on it.

Artificial intelligence has been a staple of mainly tech-company calls for years. That has accelerated with advances in the area, according to FactSet. For S&P 500 companies in earnings calls going back to 2010, AI mentions hit a record in Q1 2023, totaling 110. The previous record was 78, in the prior quarter. That tally far eclipses the five-year average of 57 and the 10-year average of 34.

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AI does not face the political problems ESG does. ESG principles are under fire in GOP-controlled states (where the party runs the legislature and holds the governor’s office), and companies have found that proclaiming dedication to climate control is a liability.

In May, Florida’s Republican governor, Ron DeSantis, who is running for president, signed a bill that forbids ESG factors in the state’s investment decisions. He reasons that an ESG focus, particularly on environmental issues, comes at the expense of managements’ fiduciary duties, as that focus could slight money-making opportunities in favor of green ideology.

It is a common notion among Republican politicians, as seen by 25 states joining in a January suit, Utah v. Walsh, against the Department of Labor’s new rule permitting ESG analysis in retirement plans. Many Democrats strongly disagree. Senate Majority Leader Chuck Schumer, D-New York, for instance, has defended the DOL rule, saying, “It’s about looking at the biggest picture possible for investors to minimize risk and maximize returns.”

Although there is scant evidence that companies are reversing their ESG efforts, the downshift on mentioning the concept at annual shareholder meetings is noticeable. The reticence is known as “green hushing,” which the Corporate Governance Institute defines as “steps to stay quiet about … climate strategies.” A report on the subject by the organization added: “If somebody asks about their climate goals, they decline to answer. If nobody asks, they don’t do anything.”

The iShares Global Clean Energy exchange-traded fund is down 5.2% this year, while the S&P 500 is up 13.8%.

Investments in AI, on the other hand, have not upset anybody (although controversy bubbles about the possibility of AI applications endangering humanity). The Wall Street consensus is that will turbocharge the economy and stocks. Small wonder that more and more earnings calls feature mentions of AI. The Global X Robotics & Artificial Intelligence ETF is ahead 42.6% in 2023.

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Tags: AI, Artificial Intelligence, Chuck Schumer, climate strategy, Corporate Governance Institute, earnings calls, environmental, ESG, FactSet, Governance, green hushing, Ron DeSantis, social

Norway’s $1.4 trillion wealth fund voted for shareholder resolutions urging Chevron and ExxonMobil to adopt stricter greenhouse gas reduction targets. However, it also backed another oil and gas giant, Shell—without explanation—on a climate-related proposal.

The uncharacteristic move by the pension fund’s manager, Norges Bank Investment Management, supported Shell’s recommendation to vote against a proposal requesting the company align its existing 2030 reduction target covering Scope 3 greenhouse gas emissions with the goal of the Paris Agreement on climate change.

The pension fund’s vote went against the recommendation of U.K.-based Institutional Investors Group on Climate Change, which voted in support of the proposal. The group stated that “there is insufficient evidence that Shell’s current strategy is aligned with a 1.5°C warming pathway” and that “it lacks sufficient mid-term ambition in its reduction of oil and gas production and/or increase of low carbon targets.”

According to the IIGCC, Shell “does not disclose which scenarios it has filtered out or its method for eliminating outlying values” regarding its methodology to prove it is aligned with the Paris agreement. “This makes it challenging to confirm validity of the approach.” The group also stated that Shell “provides insufficient disclosure to show that its strategy will lead to a global reduction in emissions in line with 1.5°C,” adding that “it is unclear how its oil and gas production will develop by 2030 or if its low carbon activities will grow to represent a significant part of their 2030 energy mix.”

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Norges Bank Investment Management did not explain on its website why it voted against the shareholder proposal; it only publishes explanations when it votes against a recommendation made by a company’s management. When asked for a comment, a representative for the pension fund said it does not provide further comment than what is in the voting records published on the website.

The Shell vote was especially surprising in light of the pension fund’s vote in support of climate-related shareholder proposals at both Chevron and ExxonMobil. One vote supported Chevron’s adoption of medium-term Scope 3 GHG reduction targets. The pension fund explained on its website that it went against Chevron management’s recommendation to vote against the proposal because “the board should account for material sustainability risks facing the company, and the broader environmental and social consequences of its operations and products.”

The pension fund also stated that Chevron’s sustainability disclosures “should be aligned with applicable global reporting standards and frameworks to support investors in their analysis of risks and opportunities.” When a firm’s disclosure does not meet the fund’s needs as an investor, it stated, “we will consider supporting a well-founded shareholder proposal calling for reasonable disclosure.”

However, the global fund manager also added that it “will not support a shareholder proposal that appears to impose a strategy or prescribe detailed methods, unrealistic timeframes or targets for implementation.”

The pension fund again countered Chevron brass when it supported a proposal to recalculate the company’s GHG emissions baseline to exclude emissions from material divestitures. It also went against management’s recommendation to vote down a proposal to publish a tax transparency report and voted against electing CEO Michael Wirth as chairman, explaining that it does not believe the roles of CEO and chair should be held by the same person.

“The board should exercise objective judgment on corporate affairs and be able to make decisions independently of management,” stated the pension fund’s online rationale.

Like Chevron, ExxonMobil management also recommended against a proposal to adopt medium term Scope 3 GHG reduction targets and to recalculate its GHG emissions baseline to exclude emissions from material divestitures. Again, the pension fund went against management’s recommendation and voted for the proposals, as well as a proposal for a commission-audited report on reduced plastics demand.