On September 23, 2020, the Securities and Exchange Commission (SEC) announced amendments to the rule that determines eligibility requirements for a shareholder proposal to be included in the proxy statement of a public company.[i] It took this decision despite vocal opposition from asset managers and asset owners, shareholder advocacy and financial industry organizations.

In our opinion, these amendments to Rule 14a-8 will significantly hinder the ability of shareholders to advocate for positive changes in corporate governance and practices.  While these amendments will affect all resolutions, we are especially concerned that shareholders will find it significantly harder to raise critical environmental, social and governance (ESG) issues with companies.

More specifically, in our opinion, the amendments will greatly hinder the ability of investors to gain access to data that helps them assess corporate ESG performance. Shareholder resolutions are one of the only tools available to concerned shareholders who want to understand what companies are doing in relation to various ESG issues and ultimately to help improve corporate practices. Examples of successful shareholder initiatives in recent years includes:

Ultimately, shareholders are the biggest losers in this change to SEC regulations. Resolutions often raise critical issues and provide companies with important information that can be used by management to prevent future financial and reputational risks related to ESG factors.

The amendments to SEC rule won’t end shareholder engagement, though they will make the process more drawn-out and costly.  Nonetheless, we strongly encourage investors to continue engaging with the companies they are invested in and to work with their asset managers, investment advisors and/or nonprofit intermediaries and actively vote their proxies and support important resolutions on the issues they care about.  The results may prove to be worth the effort.

Rule 14a-8: Before and After [v] [vi]

Download a PDF of SEC Setback for Shareholders.

[i] https://www.sec.gov/news/press-release/2020-220

[ii] https://www.wsj.com/articles/barclays-pledges-net-zero-emissions-by-2050-11585594682#:~:text=Barclays%20PLC%20said%20Monday%20that,Paris%20Agreement%20on%20climate%20change.

[iii] https://www.foodingredientsfirst.com/news/investors-push-food-giants-to-a-path-of-less-antibiotic-resistance.html

[iv] https://www.consumerreports.org/overuse-of-antibiotics/most-fast-food-chains-still-serve-beef-raised-with-antibiotics/

[v] https://www.sec.gov/news/press-release/2020-220

[vi] https://www.foley.com/en/insights/publications/2020/09/sec-amends-rule-14a-8-modernize-shareholder


On April 22, Earth Day, Cornerstone hosted a webinar titled “Every Day Must Be Earth Day: Climate, Coronavirus and Complexity. CEO Erika Karp was joined by Karl Burkart, Managing Director of One Earth, a project of Rockefeller Philanthropy, and former Director of Science & Technology at the Leonardo DiCaprio Foundation. One Earth is dedicated to advancing cutting-edge science to address the climate crisis. The organization funded a breakthrough climate model (published as Achieving the Paris Climate Agreement Goals by Springer Nature) which shows how the world can achieve the ambitious 1.5°C goal through currently available technologies at a lower cost than our current energy system.

In a wide-ranging discussion, Erika and Karl tackled these questions:

In preparation for our call, Karl provided a written assessment of the questions we used to shape our discussion. Below are his responses.


Is the COVID-19 pandemic related to climate change?

There is a large and growing body of scientific literature linking climate change to the spread of vector-borne disease. Studies have focused mostly on insect carriers such as mosquitos (malaria) and ticks (Lyme). There is a general consensus that increased warming will drive increased vector-borne diseases, but no one knows exactly where and by how much.

It’s also possible that vertebrate animals are being exposed to more vector-borne diseases, making them carriers of novel diseases to humans. These ‘zoonotic’ diseases — pathogens that jump between species — include the COVID-19 outbreak, but it’s very hard to make a direct link to climate change. What we do know is that deforestation and encroachment of human activity on wildlands is creating greater risks for both humans and animals, as edge effects increase. We need to retain our current footprint of wildlands (approximately 50% of the terrestrial surface) in order to save biodiversity, preserve priceless carbon sinks, and reduce the risk of future zoonotic diseases.

Climate change will certainly increase risks to public health, and we’re only just starting to learn about the ways this could happen. An emerging body of science is looking at “zombie pathogens” that have been frozen, sometimes for centuries, but are thawing due to climate change. One anecdotal example of this, an outbreak of anthrax in Siberia in 2016, was caused by increased temperatures thawing permafrost and an anthrax-infected reindeer carcass from 1941. Whether this will happen at larger scale is a very controversial topic and the science is new, but it’s clear there are strong linkages.

Will the pandemic-related drop in carbon emissions lead to lasting changes?

It’s hard to talk about the silver lining to such a horrible pandemic, but it is true that emissions will likely drop 5-10% or more as a result of COVID-19. This is essentially exactly what was needed to get us on track to 1.5°C — a net reduction of 56% of global emissions by 2030 (or roughly 6.5% per year).

I myself had a pretty bad carbon footprint due to my travel and speaking engagements, and I’m seeing many of these venues events now going online, including Climate Week, which is normally held in New York concurrent with the UN General Assembly in September. The irony of Climate Week is that you have the whole world gathered in one place talking about solving the climate crisis while emitting enormous amounts of CO2. We’re now being forced to learn how to do many things virtually, with a much-reduced carbon footprint.

This could be a tipping point when virtual working becomes the standard, rather than the exception. A study in 2018 showed that 70% of people were able to work remotely on occasion. What if that were reversed – with physical officing being the exception rather than the rule? The permanent reduction of carbon emissions implicit in such a transformation of our work lives would be a game-changer. But I think many are rightfully skeptical that this will turn into permanent behavior change. And behavior change is only a piece of the climate change puzzle…

There’s only so much we can do as individuals to help. We need permanent policy shifts. We need to stop subsidizing fossil fuels (at a whopping $4.7 trillion per year according to the IMF) and start subsidizing clean, renewable energy. To make that shift happen, we will need a different kind of behavior change… VOTING. People need to start voting for candidates in much larger numbers at all levels of government of they care about clean air, clean water, and a balanced climate. Perhaps if we get nationwide mail-in voting, this could be the beginning of more civic engagement, which will drive the policy changes needed to solve the climate crisis.

Will the oil market collapse slow the pace of transition to alternative energies?

This is an excellent question and a very complicated subject. In my opinion, COVID-19 is “sinking all boats” — fossil fuel energy and renewable energy. I was in Riyadh for G20 meetings in late February, and prior to COVID-19 breaking out there was already a brewing conflict with OPEC+ nations balancing whether or not to cut production to stimulate falling prices. The fact of the matter is, the oil industry was already heading for a rough year. We supported research by Carbon Tracker, a think tank in the UK that has been analyzing  data from many of the Oil & Gas majors, and they predicted a major decline in the sector in the early 2020s, as more and more people switch to electric and hydrogen modes of transport.

Then COVID-19 hit. The oil markets are now in a freefall, with negative trades for the first time in history. This will put a lot of oil and gas companies out of business, including the oil services industry (companies that manage, build, and maintain the production pipeline). Massive layoffs are happening right now, and when the economy comes back to life, hopefully in a year or two, it will be a huge and difficult ramp-up for the fossil fuel industry. There will be many, many losers and only a few winners. And some of the losers need to lose, like the tar sands in Alberta, which produce 25% more supply chain emissions per barrel of oil than the global average. Then there is increased demand for electric vehicles. Just last month, Tesla had record sales in China.

I’m almost brave enough to predict that COVID-19 will be the beginning of the end of the fossil fuel era as we’ve come to know it. We will have to rebuild our economy, and I think clean economy will win out, with solar and wind power now heading to 4 cents per kilowatt hour (c/kWh) on average and one solar hybrid project last summer bidding below 2c/kWh. Renewables also make the most sense as a stimulus for economic recovery, creating jobs at a ratio of 3 to 1 per dollar invested versus fossil fuels. This is not to say the renewable energy industry isn’t also being pummeled. This was set to be the biggest year in history for solar deployment, and now there are massive layoffs. We’ll just have to see how bad it will be on both sides and hope for a realignment of subsidies to promote a clean future.

What is the impact of the current crisis on social and economic justice?

First let’s consider health. Before COVID-19 hit, there were an estimated 4.2 million deaths per year due to ambient air pollution, according to the World Health Organization. Low-income communities constitute by far the majority of those deaths. And this isn’t the case just in the developing world. A recent study in California shows that black and brown people are exposed to 40% more emissions than white people. This is often due to the location of low-income communities in proximity to fossil fuel plants — land that wealthier (and historically whiter) people didn’t want to build on.

So we need to acknowledge that low-income communities were already struggling with lung disease and other diseases at a higher rate. Now, according to a new study, those same communities are experiencing many more COVID-related deaths than the national average. In Michigan and Illinois, for example, black people make up 41% of Covid-19 deaths, despite being less than 15% of the population. And in Louisiana, nearly 60% of the people who died of coronavirus in the state are black, while the demographic is just a third of the state’s population. Top all that off with the lack of socialized healthcare in the US, and you have a recipe for disaster.

There’s blame to share in many directions, but first let’s point a finger at the fossil fuel industry, and the lack of regulations to protect communities from pollution. Second, let’s look at our healthcare system in the US. Many European countries last month called citizens home who were on visas in the US because they deemed our country as lacking sufficient medical infrastructure. Post-COVID, these two problems have to be addressed to even begin a conversation about social justice. In the global context, I shudder to think about the impacts of so many people losing their jobs and livelihoods. But one thing that does appear to be emerging is a growing movement to tackle climate injustice head-on. I think COVID-19 is going to add fuel to that fire as these great inequalities in our economic system are revealed.

What can people do to move the needle on climate justice?

It shouldn’t take a global pandemic for us to see clear blue skies and breathe in clean fresh air. We deserve better. If anything good can be said of COVID-19, it is this momentary glimpse of what the sky should look like and some space to think about the future we want to create.

So what is the future we want to live in post-COVID? I think that’s the question we all need to be asking. Are we going to let the fossil fuel industry come roaring back to life? Or are we going to finally start to build the clean energy future we all need? We could have an opportunity to start righting the wrongs, provide low-income communities with access to clean energy while providing job training and income opportunities for a clean energy future. This is what a Green New Deal should focus on – pivoting subsidies away from the ailing fossil fuel sector and towards investments in renewable energy, along with a major jobs program to transition coal, oil and gas workers to good, long-term jobs in solar, wind, and energy efficiency.

Internationally, we know developing countries are going to be hard hit by the pandemic and one initiative, Sunfunder, is working to bring energy access to rural areas of Africa where it’s needed most. There is a risk of default for many community solar projects across Africa due to the pandemic, which would be a horrible loss to the people there, derailing more than a decade of progress to bring clean, affordable energy in the region. So these are the types of efforts that need to be supported now more than ever.

One thing we do at One Earth is to identify key initiatives that are strategically important in creating a green future and achieving the 1.5°C goal of the Paris Climate Agreement. If you’re interested, please feel free to visit our website OneEarth.org and sign up for a monthly briefing of projects around the globe that are working towards a green, and sustainable future.

Editor’s Note: From an investment perspective, there are numerous ways to deploy capital in support of climate justice. Cornerstone Capital Group works with to clients to identify their financial goals and impact interests, and recommends appropriate investment solutions. Our recommendations reflect rigorous research into investment opportunities to understand their risk and return profile, their environmental, social and governance characteristics, and the degree to which an investment facilitates access to the products, services and systems needed to achieve the United Nations Sustainable Development Goals. If you would like to explore how Cornerstone may be able to serve you, click here.



On March 19, 2020, Cornerstone Capital Group held a conference call addressing concerns about the current coronavirus pandemic and its impact on the markets, the economy, and importantly, the changes in how we think about the infrastructure of our society over the longer term. Cornerstone’s Erika Karp, Craig Metrick and Michael Geraghty were joined by two equity managers on the Cornerstone platform: Cathie Wood of Ark Investment Management, and Garvin Jabusch of Green Alpha Advisors. The full call replay can be accessed here.

Managing Portfolio Risk Through Integrated Analysis

The participants on the call focused on the benefits of integrating environmental, social and governance (ESG) factors into the investment process in an effort to de-risk long term portfolios and identify critical growth opportunities.  Both Ark and Green Alpha look at multiple risk factors at a systemic level to minimize exposure to threats such as climate change. This extends to investing in methods to address risk — such as pandemic crisis. In their view, by focusing on innovation and the future while considering all stakeholders instead of only shareholders, investors may experience better long-term returns with lower volatility.

Kicking off the discussion, Erika highlighted that “sustainable investing is a proxy for quality. It’s a proxy for innovation and a proxy for resilience. And that is precisely what we need right now.” She asked whether, when we emerge from this current crisis, we would be forever changed:

“We have to think about issues like distance learning, telecommuting, distributed health systems. We have to think about supply chain logistics. We have to think about surge capacity. We have to think about virtual entertainment, emergency service centralization, obviously food safety, water quality, hygiene standards. We have to think about mental health provision. We have to think more proactively and in an innovative way about investing. Going forward to attack these challenges, we remind everyone that impact and sustainable investing is just investing.  But a more conscious, predictive way to invest.  Impact investing is the new cornerstone of capitalism.”

Michael Geraghty, Cornerstone’s market strategist, discussed the volatility of the markets under the current coronavirus situation. He doesn’t believe the markets will stabilize until the virus is either contained or a vaccination is developed and made available to the public. Michael notes, however, that this is a short-term shock to the system and not a structural one. That’s not to say that this pandemic won’t have a profound effect on the economy or the markets near term.  The consumer accounts for 70% of U.S. Gross Domestic Product (GDP). If consumers are staying home and hunkering down, a cut in rates by the Federal Reserve and a payroll tax cut by the Federal government won’t have a strong impact on consumer behavior.

Craig Metrick noted that Cornerstone focuses on long term investment objectives while creating an investment plan which is designed to achieve social and environmental impact. He then interviewed Cathie and Garvin as to their views on the longer-term implications of the current crisis.

Investing in Disruptive Innovation and Strong Governance

Ark Investment Management focuses on investing in disruptive innovation over a five-year time frame.  Its five core themes are: DNA sequencing, robotics, artificial intelligence, energy storage and blockchain technologies. Cathie Wood noted that the companies her firm invest in are not typically in any indices. Other managers are selling these names while buying names in the indices, such as the S&P 500, giving firms like hers an opportunity to buy these innovative company stocks at lower valuations. Over the long haul, she believes these investments should outperform older economy names that still dominate the indices.

Garvin Jabusch noted that a recession is already priced into the markets and his firm is looking for companies that will perform well out of the downturn.  Bottom-up analysis is key, in his view. He looks for companies that are good stewards of capital, are innovative and create solutions that will make the economy more productive. Green Alpha is a long term buy and hold manager. The firm focuses on innovative companies that can help de-risk the economy such as those engaged in decarbonization, biotech and electrification.

Summing up the discussion, which included a very lively Q&A, Erika noted: “When it comes to ESG analysis, the “G,” governance, is first among equals. Because if we’re talking about a well-governed company, then by definition it is looking at environmental and social issues. And if a company is not looking at environmental and social issues, it is by definition not well-governed. It’s tautological.”

Ark Investment Management and Green Alpha are two of the strategies included in the Cornerstone Capital Access Impact Fund. Click the link to view standardized performance and the Fund’s top ten holdings:  https://cornerstonecapitalfunds.com/quarterly-commentary

You should carefully consider the investment objectives, risks, and charges and expenses of the Fund before investing. The prospectus contains this and other information about the Fund, and it should be read carefully before investing. You may obtain a copy of the prospectus by calling 800.986.6187. The Fund is distributed by Ultimus Fund Distributors, LLC. Cornerstone Capital Group is the adviser to the Fund. Investing involves risk, including loss of principal. Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for both investment and non-investment reasons and therefore the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities of companies with certain focused ESG practices may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria.


On April 1, Head of Research and Corporate Governance John Wilson hosted a panel discussion to address current topics in corporate governance, such as:

John was joined by Catherine Jackson, Founder of Jackson Principled Governance, a firm that brings the investor and sustainability perspectives into the boardroom to help prudent boards identify, understand and manage their ESG risks and opportunities; Karina Litvack, a corporate governance and sustainable investment expert with a 25-year career in finance and sustainable business practice (and current board member of energy firm Eni); and Timothy Smith, Director of ESG (Environmental, Social and Governance) Shareowner Engagement at Walden Asset Management.

Here is a replay of that video discussion.

I have a great investment opportunity for you. I have identified 60 corporations that have begun employing a novel method for sourcing products that leads to a 50% cut in overhead. There’s just one catch: The method these businesses employ has been linked to producing and maintaining racist procedures in the criminal justice system, gender pay inequity, and producing large but unforeseen consequences. So, how much would you like to invest?

The answer is clear if you are vetting investments by ESG criteria. If this is all the information you have, you simply cannot invest in those companies, at least not in a way that is commensurate with your ESG goals.

But this is the situation social impact investors are in when it comes to the introduction of artificial intelligence (AI) to business practices. By “artificial intelligence” I mean the set of tools computer scientists and engineers are developing that are meant to mimic or replace the kind of reasoning human beings instantiate when engaged in task-specific behaviors (e.g. judging the appropriate sentence for a person found guilty of a particular crime, recognizing where the street ends and the sidewalk begins, and determining whether a particular financial transaction is sufficiently anomalous to warrant further investigation).  The details are complicated but we need not concern ourselves with them here. All we need to know are two facts:

  1. Artificial intelligence has been linked to each of those ethically problematic results, and many more.
  2. Artificial intelligence is increasingly incorporated into businesses practices in virtually every industry.

ESG investors have three options. The first is to snub those businesses that employ AI. But that would ultimately result in leaving the investment game altogether. That is not going to happen. The second is to ignore the problem, or pretend it doesn’t exist, and go on investing as though it were not happening. But that amounts to giving up on ESG analysis. It is the path of despair and forfeit.

The third and only viable option is to insist that companies meet certain criteria with regards to their use of artificial intelligence. Just as there are criteria for how businesses source their raw materials, there ought to be criteria for how businesses use one of the most powerful tools any business has ever seen. But what should those criteria be?

ESG investors should insist that businesses incorporate ethical oversight of the creation and use of AI in their business practices, preferably by an independent party, in three ways.

First, businesses need a review board to vet AI that is either developed in-house or acquired from an AI company. That board would investigate, for instance, whether the data fed into the algorithm was checked for bias, whether there is a space for human deliberation and decision in between the output of an algorithm and an action, and whether the inputted data or the output violate people’s right to privacy.

Second, the business needs a review board – perhaps the same one that performs the initial review – to systematically monitor the impacts of the use of that technology. What are the unintended consequences? Are they ethically acceptable?  What do our stakeholders think of these impacts?

Third, the findings at both stages must be communicated to the developers of the AI so that appropriate alterations can be made.

ESG investors are in a crucial position. They have the responsibility – given their own identity-defining goals – to integrate AI ESG criteria into their investment strategies. And they have the power to push corporations to develop and incorporate new sustainable and ethical practices where they are desperately needed.

Executive Summary

Access our full report here.


This article originally appeared in FA Magazine Online on August 24, 2018. 

The amount of data in the world has been rising exponentially for many years, and in the years to come people will rely more on it, interact with it more often and give more of it to the companies that provide us with products and services. Data collection will be more frequent, more pervasive and more likely to happen without the participation or even the awareness of the subject. And while this growing universe of data will enable new and useful services to improve our lives, the opportunities to use data for purposes we neither intend nor want will grow as well.

In particular, many people fear the loss of privacy as data analytics allow more accurate portraits of individuals’ lives and personal characteristics. While this kind of profiling can lead to improved services, it could also enable discrimination, undue political influence or deliberate efforts at social control and manipulation. Data-driven innovation will reach its full potential only if consumers trust companies with their personal data.

Investors should be concerned about two kinds of uncertainty as they consider the future of data privacy: first, how much privacy will consumers demand? And second, how much will government regulation impact the collection of data?

For many years, the tech industry has enjoyed greater public trust than other industries. But trust in tech companies is declining. In the wake of the Facebook/Cambridge Analytica scandal, many of the social media giant’s data-sharing practices have come under greater scrutiny. Most people now say that they do not trust social media sites to guard the privacy of their data.

To date there has been little consumers can do to prevent the collection of their data, at least in the United States. This isn’t because consumers are happy to share personal data: Polls show that consumers feel resentful yet powerless to prevent the unwanted digital intrusion. As data collection becomes more pervasive, either consumer ambivalence may evolve into outright opposition, or consumers may simply accept the lack of privacy as a fact of modern life.

The second uncertainty concerns the regulation of data. The European Union has enacted its General Data Privacy Regulation (GDPR), which requires companies that do business with European Union citizens to only collect data with the specific consent of users. The regulation, if fully implemented as intended, could hinder many forms of data collection, especially fast-growing passive data collection, which takes place without specific user participation (e.g. location data on your smartphone). While many countries (and the state of California) are adopting similar legislation, the U.S. government continues to take a narrower approach to data regulation that restricts data gathering only when there is evidence of specific harms. The future of data may be decided in part on which regulatory regime prevails globally.

How uncertainties regarding consumer demand for privacy and regulatory restrictions play out may be very significant for investors, since data-driven industries are increasingly important to portfolios. The most well-known tech names, Facebook, Amazon, Netflix and Alphabet (formerly Google)—The “FANG” stocks—by themselves make up 15 percent of the S&P 500. While data is central to these companies’ business models, companies in many other industries are also expecting improvements in data quality and quantity to improve their ability to compete—for example, the retail, telecommunications and financial services industries.

Which companies will thrive depends on the direction of data privacy demand and regulatory evolution. Heightened restrictions on data gathering could affect the ability of data-driven companies to execute on their long-term business plans. On the other hand, companies with less exposure to data and data-driven innovation may be relatively more competitive in a data-restricted environment. And If data flows more freely because privacy protection never becomes a priority, data competency could become a significant competitive advantage for companies in a variety of sectors.

Investors should be concerned that the governance of the companies in their portfolio is sufficiently prepared to manage the uncertain future of data privacy. Investors should ask about a company’s exposure to data privacy concerns, the level of stakeholder trust and how adaptable its governance structures to different future scenarios:

1. Exposure: What kind of data does the firm collect? How important is it to business strategy? Does the company share data with external business partners?

2. Trust: Do consumers have confidence that their data will be protected? Are employees engaged and satisfied with their work? Is trust stable or rising over time or is it declining?

3. Governance: Is data privacy part of strategic planning? Do boards have competency in this area? Are there proper incentives for balancing data privacy with growth objectives? Are companies monitoring stakeholder trust?

Who owns consumer data? Do consumers trust companies with their data? Will consumers embrace new technologies that reveal more information about them to companies? Are companies ready to respond to changing attitudes about consumer data?

These are core questions that investors need to consider about data privacy, the option to shield our personal data from public view or corporate use and sale. Currently, companies have largely unfettered access to the data they gather about consumers, even as technologies make it possible to know more about consumers’ online (and offline) activities. By some estimates, the number of devices connected to the internet will rise from 8 billion today to 100 billion by 2030. As devices proliferate and data-mining tools become more sophisticated, companies have increasing access to information such as our physiological traits, personal habits, location, political beliefs, lifestyle habits and purchasing behavior.

Such data may give rise to products and services that we can only imagine at present. But these potential advances come at the cost of diminished consumer privacy and the risk that our data will be used for purposes society may neither intend nor desire, such as discrimination, employee surveillance, social engineering, or unfair political influence.

Both consumer attitudes and the regulatory environment reflect deep ambivalence about the role of data in the modern economy. Studies show that many consumers do not support collection of their data, but feel powerless to prevent it. Although data flows globally, the regulations that govern it are regional and inconsistent: e.g., new EU regulations strengthen consumers’ control over the use of their personal data, while the US regulatory environment remains permissive.

Even as society struggles with the tradeoff between innovation and control, investors have demonstrated a keen interest in companies with strategies to monetize this growing pool of data. Companies have always sought competitive advantage through better information. The accelerating supply of personal data has raised the importance of data access and analytics to corporate performance, which in turns drives demand for even more data. At the center of this trend are the FANG stocks, for whom data does not merely support their business model but lies at the core of their strategy. Most of The FANG companies did not exist 20 years ago, but now make up nearly 15% of the S&P 500, having been favored by investors in the form of valuations far outstripping the rest of the index.

We believe that the ambiguity of the current circumstances is unsustainable. While the exact future of data privacy is not possible to predict with confidence, investors should be concerned that companies whose business models rely on increasing quantity and scope of consumer data are at risk if the public ambivalence turns to opposition.

To better understand that risk, we consider four potential operating environments that companies may face:

1. Low demand for privacy, low regulation: Consumer acceptance of data collection and use grows, and regulators prioritize the free flow of information over privacy. Technological innovation grows quickly, but the risk of unintended negative social consequences, such as discrimination, rises. In this scenario, companies that have high exposure to data would be best positioned to take advantage of the opportunities.

2. Low demand for privacy, high regulation: Overreaching regulations lead to dissatisfaction among companies and consumers, as market demands go unmet. Trust is difficult to obtain because the system lacks legitimacy. Companies with low exposure to data issues will avoid the regulatory risks associated with this scenario. New entrants will struggle to grow while managing compliance costs.

3. High demand for privacy, low regulation: Regulators fail to effectively respond to consumer concerns about data privacy. Technological innovation accelerates, as does the risk of unintended consequences. Lack of trust in the system creates challenges for new companies and products to gain acceptance, and consumers may take steps to restrict access to data on an individual basis. Companies that achieve high trust of employees and consumers are best positioned to navigate the instability of this scenario. In this scenario, new business models may emerge to help consumers protect their own privacy.

4. High demand for privacy, high regulation: Regulators restrict data gathering in response to consumer privacy concerns. Technological progress slows, but the system creates a high degree of trust that enables new companies and new technologies to achieve consumer acceptance with relative ease. Unintended consequences are kept to a minimum. Because no one positioning dominates this scenario, individual company management and governance to establish trust and engagement will take on particular importance.

This report:

Download the full report here.

This report was prepared by Cornerstone Capital Group for the Investor Responsibility Research Center Institute.

Barron’s, August 8: Elon Musk’s plan to take Tesla (TSLA) private raises a number of corporate governance questions that the auto maker should answer, writes John Wilson, head of corporate governance and research at Cornerstone Capital, an investment adviser with more than $1 billion in assets focused on responsible investing. Read full article here.

Elon Musk wants to take Tesla private at $420 per share, an amount that would value the company somewhere in the neighborhood of Ford and FiatChrysler combined.  His plan would also enable current public shareholders to retain their shares in an unspecified vehicle or fund that would limit sales to every six months.  Such a deal would force investors to make a choice:  accept an immediate cash premium over their investment or make a substantial bet on the vision of its founder.

The markets and some analysts have cast doubt on whether this plan, which would be the largest leveraged buyout in history, will even take place.  Even so, the announcement raises important governance questions that will be particularly salient for investor decisions about whether to accept the buyout, but also matter if the company remains public.

Question 1: What rights would remaining public shareholders have in the newly private company?

 The stated purpose of the transaction would be to insulate the company from the “wild swings” and “perverse incentives” of the public markets, yet the plan also envisions retaining current investors. This raises concerns that the company values external investment capital but not the accountability that comes with accepting public funding.  Investors should closely scrutinize how their voting rights would change under the new structure, especially since the six-month lockup would prevent orderly exits in the case of a major negative event.

Question 2: How will the company assure investors that the board will hold the CEO accountable for strategy, execution and performance?

Analysts and investors have questioned the independence of the Tesla board, which includes close business associates and the brother of Elon Musk.  These concerns increased with the 2016 acquisition of Solar City, a troubled company in which Musk held a major stake.  Though the transaction raised numerous potential conflict of interest concerns, the board appeared to do little to exercise oversight of the deal, failing even to convene an independent committee to study the purchase.

More recently, there is little indication of any board concern over Musk’s erratic public behavior, one example of which was an uninvited intervention into the rescue of a Thai soccer team from a flooded cave, and crude remarks about one of the rescuers.  Musk eventually apologized, but investors concerned about “key man risk” should expect the board to demonstrate the same concern.

This is especially true in the context of the method the company selected to disclose this information about plans for a possible buyout (tweet and email).  Was the disclosure approved by the board?  Was it reviewed by counsel? Who did Musk consult before choosing to communicate material information through social media?

With an exit from the public markets, the board may become the sole entity that can exercise oversight over management. Shareholders should expect that the board can demonstrate by its actions that it has the qualifications and the independence to ensure management accountability.

Question 3: Why will a private Tesla be more empowered to execute a long-term strategy than a public Tesla?

Companies adopting governance policy changes that reduce shareholder accountability commonly cite the need to empower management to think for the long term by insulating the company from short-term market pressures.  Most companies also understandably resent short sellers with an incentive to “attack” the company.

While there is often merit to these concerns, shareholders should carefully consider whether they apply in the case of Tesla. Although the company has never made a profit, investors have entrusted the company with a rich valuation even relative to future estimates for profitability.

Investors raise concerns not so much about the company’s strategy but about its failure to deliver on its current production targets for the Model 3.  The core investment issues about Tesla are not long-term vision but the short-term mundane details of manufacturing and supply chain management.

The discipline of the public markets is particularly well-suited to driving management to resolve precisely these kinds of concerns. In particular, institutional investors will insist that the board be able to explain why it thinks it has the ideal management team in place given the company’s current circumstances and how it will ensure that this continues to be true.

If the company believes that its long-term vision is being hampered by investor pressure, shareholders should ask it to articulate how that vision would be better served without shareholder accountability, and what assurances Tesla can provide shareholders that it will manage concerns about production.

Question 4: How will the company address concerns about social responsibility?

Tesla was founded as a mission-related company.  Its goal of mass electrification and automation of transportation has implications for climate change, mobility, urban planning and many other social and environmental issues.  Tesla’s sustainability narrative is a major part of its outsized appeal to investors, employees and customers.  However, the company has also been criticized for certain aspects of its corporate social responsibility.

The company has attracted scrutiny of its safety practices, but has provided far less assurance about its safety practices relative to others in the auto industry. These concerns heighten regulatory risk and reinforce concerns about the quality of its manufacturing capabilities.

Moreover, the manufacture of batteries raises numerous sustainability concerns, including the use of conflict materials, the local environmental impact of battery manufacture, and the working conditions for production and supply chain workers, especially in developing countries.

Tesla investors are engaging with the company on these issues, which have the potential to undermine both the company’s brand and investor confidence in its operational management.  Investors should consider how the absence of these outside voices may impact the company’s commitment to improvement in these areas.

Question 5: What risks or benefits should shareholders consider when locking up capital for six months?

The six-month lock-up envisioned in Musk’s plan lies between the liquidity and orderly price discovery of the public markets and the stability of the private markets, where companies can be assured of their investor base.  A six-month lockup would not allow the investor to respond in a timely fashion to material market events, while potentially exposing the company to widespread periodic selloffs if the company’s circumstances change materially.

Because the proposed structure is highly unusual, shareholders should examine the company’s disclosure about its evaluation of the risks and opportunities related to their approach.  Investors need to assess whether the loss of liquidity and the other risks that investors may encounter are adequately compensated by the $420 share offer.   Shareholders will be interested in which of these issues were considered by the company in setting the deal’s price.

Fundfire, June 11: Endowments and foundations that have placed bets on environmental, social and governance (ESG) investing are experiencing the pay-off…“What we’ve seen with ESG strategies, whether they be individual strategies or separate pools, is that they’ve been performing in line or better than non-ESG strategies over time,” says Craig Metrick, a managing director of institutional consulting and research at Cornerstone Capital Group. “ESG strategies tend to do well in down markets. [E]SG strategies have a longer time horizon, lower turnover and can be higher in quality as well, which will help in certain markets.”

Full article here (subscribers only).

Citizen activists are taking to the streets to demand government accountability and action on issues they care about passionately, with groups ranging from #metoo to #neveragain, Black Lives Matter, and the alt-right. Against this backdrop, some of the largest shareholders in the world are now joining long-time shareholder advocates to call for improved corporate governance, equality and environmental stewardship. How will this heightened partisanship and conflict affect relations between companies and shareholders?

Cornerstone Capital Group recently convened our panel of corporate governance experts for a live webinar on hot topics in corporate accountability, sustainability and shareholder engagement. Our Head of Research and Corporate Governance, John Wilson, moderated a discussion with Catherine Jackson of Jackson Principled Governance, independent board director Karina Litvack, and Tim Smith, Head of ESG Shareholder Engagement at Walden Asset Management. Below are the key questions addressed, with video replays of each discussion.

How are shareholders helping to reshape the conversation around gender equality in the boardroom and the workplace?

Accountability and Action on the Slate? Corporate Governance in This Activist Age: Gender Diversity

How are climate competencies becoming a matter of corporate governance?

Accountability and Action on the Slate? Corporate Governance in This Activist Age: Climate Competencies

Some of the largest asset managers in the world have made a new commitment to advocacy on issues such as firearms and climate change—How does their participation change the conversation?

How is the political landscape in the U.S. and Europe influencing the conversation around corporate political activities?

How is the changed political landscape in the U.S. and Europe influencing the conversation around corporate political activities?

Accountability and Action on the Slate? Corporate Governance in This Activist Age: The Asset Manager Role

Some of the largest asset managers in the world have made a new commitment to advocacy on issues such as firearms and climate change—How does their participation change the conversation?

How are climate competencies becoming a matter of corporate governance?

How are shareholders helping to reshape the conversation around gender equality and overall diversity in the boardroom?

This article originally appeared in FA Magazine on May 11.

Do efforts to bring greater diversity to company boards still matter? Some advocates for greater equality in corporations say investors should turn their attention away from “counting women and people of color” to addressing problems that directly affect people’s lives, such as sexual harassment, pay disparities and work/life balance.

But it would be a mistake to divorce the enduring gaps in diversity on corporate boards from broader concerns facing the workplace. As of 2017, 22 percent of board seats were held by women, an increase of only 5 percent over the past 10 years, while women comprise only 6.2 percent of S&P 500 CEOs. 17 percent of board seats are held by people of color (African-American, Hispanic/Latino, or Asian), only a slight increase from 15 percent in 2004. The proportion of non-white CEOs is actually declining.

This is not simply a concern for those who aspire to occupy seats on corporate boards. Companies that draw leadership from a narrow talent pool may be poorly equipped to solve emerging problems of concern for their workforces. Boards that lack diverse perspectives are prone to “group think” or blind spots on issues outside of their members’ experience.

Many companies have claimed that while they were open to women and people of color, they could not find qualified candidates—often reflecting a narrow set of criteria, such as having been a CEO in a related field. Companies that expand their board search criteria to include a range of backgrounds also discover talented and experienced women and people of color. And of course, women and people of color may bring personal experiences that make them more aware of the concerns of an increasingly diverse workforce.

Many larger, established companies now have diverse boards. For those that do not, the problem may not be an unwillingness to consider non-traditional board candidates. Over half of new independent board members are women or members of underrepresented groups. The slow pace of change more likely results from low turnover: in 2017, approximately half of S&P 500 companies added no new board members. While many individual directors continue to bring valuable insights and institutional memory for many years, failing to bring in new talent creates risks that skills grow outdated and that emerging issues go unrecognized. Higher turnover would create opportunities to refresh the board with new perspectives.

To address this, good governance advocates are calling on companies to adopt mechanisms to increase board turnover, such as term limits and more stringent evaluation of director performance. Some investors are also asking boards to explain how the mix of skills and backgrounds, including demographic diversity, positions their company to meet the challenges facing it.

The Role Of Investors

Important emerging social concerns, including sexual harassment, pay disparities and gaps in representation, are also matters of corporate governance. Corporate leadership that responds effectively to the growing demands for fairness and equality will be at an advantage in attracting and getting the most out of talent. Through thoughtful proxy voting and corporate engagement, investors can encourage diverse, continually refreshed boards and management teams that will be best positioned to provide this kind of leadership.

First, investors should use their votes to signal concerns about board diversity. Voting against entire boards that lacks diversity is one recent trend that sends a strong message—but can be disruptive to the smooth running of a company. Investors can also vote against members of the nominating and governance committee or just the chair of this committee. Investors can also support shareholder proposals that call for greater diversity on the board or at all levels of the company.

Another approach is to focus engagement with companies on policies and practices that are likely to increase representation and improve corporate governance. Some questions to consider include:

  1. How does the board ensure it is choosing the most qualified directors from the widest possible pool of talent, including women, people of color, and individuals with the widest possible range of skill sets and backgrounds?
  2. Why does the board believe that the current composition of directors possesses the right skills and experiences to meet the challenges facing the company today and into the future?  What gaps exist?
  3. How does the board provide for its continual refreshment with outside perspectives and allow for the replacement of directors who are underperforming or whose skills are no longer optimal to meet the company’s needs?

What Asset Owners Can Do

Asset owners who engage asset managers rather than investing directly can also get involved. Those with sufficient resources may choose to bring proxy voting and shareholder engagement in house. Others with separately managed accounts may establish proxy voting guidelines for managers who are voting on their behalf. All can raise questions with their asset managers about how issues of diversity are addressed through portfolio selection, proxy voting and corporate monitoring, and even use these as part of the overall criteria for manager selection and retention.

FA Magazine, May 11: Cornerstone Capital Group’s John Wilson writes, “Do efforts to bring greater diversity to company boards still matter? Some advocates for greater equality in corporations say investors should turn their attention away from “counting women and people of color” to addressing problems that directly affect people’s lives, such as sexual harassment, pay disparities and work/life balance…” Read John’s full article here.



On April 18, Cornerstone Capital Founder and CEO Erika Karp delivered a “TED”-style talk at Big Path Capital’s Impact Capitalism Summit, held in Chicago. She spoke on the unprecedented confluence of trends driving the integration of environmental, social and governance considerations into the analysis of investment opportunities. In the video, Erika states her belief that investment professionals who do not systematically incorporate such considerations into their investment decisionmaking process are “breaking a fiduciary duty and should not be in the market.”

FA Online, April 26: Cornerstone’s Head of Impact Strategy, Katherine Pease, published this editorial regarding sexual and gender-based violence.

This editorial was originally published in FA Online, April 26, 2018.

There was a time when I regularly quoted a well-known statistic that one third of women and girls experience sexual assault from an unknown or known perpetrator in their lifetimes. At the time, that percentage seemed pretty high. And then #metoo happened. The more I heard stories from women—personal stories or stories circulated through social media and then the mainstream media—the more I realized that it was the rare woman or transgender person who I knew or knew of who hadn’t experienced sexual or gender-based violence.

So here we are, in a time where social media has finally made evident the extent of the problem. How did we get here? How is it that the systematic cover-up of violence and abuse in society and in companies is so pervasive?

In a recent article published by Cornerstone Capital Group (where I work), my colleagues Emma Currier and Sebastian Vanderzeil noted that sexual and gender-based violence may present a material risk to companies and industries in three key areas:

Simply put, violence and harassment in the workplace is bad for business. When allowed to run rampant, it can lead to greater turnover and lower performance. It can also create tension with the communities in which businesses work when management is perceived to be complicit with perpetrators and noncompliant with local customs and laws. And, as we have seen with the Weinstein empire and others, when it comes to companies that fail to create inclusive cultures and address harassment, consumers are quick to abandon brands, a phenomenon that is growing thanks to the prevalence of social media.

But there is something that can be done. Shareholders and investors can insist that the companies in which they are invested disclose critical information that will bring to light corporate practices and cultures related to sexual and gender-based violence. Unfortunately, this is easier said than done due to the current state of reporting by companies on matters related to an array of issues that are important to women and others who experience marginalization. Consistent with broader corporate negligence around gender equality, there is a serious gap in corporate reporting on sexual harassment and violence, a gap that currently makes it very difficult to evaluate corporate behavior.

Given this urgent need for more disclosure, In the short run, investors should demand that companies disclose:

  1. Sexual harassment claims and companies’ specific steps to resolve the claims
  2. Initiatives to support victims in reporting sexual and gender-based violence

A handful investors are already taking significant steps toward aligning their investments with companies that disclose their practices related to equity and opportunity in the workplace. This is being made possible in part because of new efforts to systematically improve disclosure and reporting practices among corporations. For example, EquiLeap, an Amsterdam-based organization, measures gender equality in public companies against an extensive proprietary Equileap Gender Equality Scorecard, which looks at 19 different data points, including recruitment, training and promotion, the gender composition of management and workforce (gender balance being the ideal), fair wages and equal pay, family leave policies, work-life balance and supply chains. It also includes alarm bells to mark, and if necessary, to exclude companies that have cases taken against them or have been judged to be guilty of gender discrimination and/or harassment. The Equileap Scorecard is inspired by the UN’s Women’s Empowerment Principles, and looks at the workplace from a rights-based perspective rather than purely from a diversity prospective, which most gender-lens investment strategies focus on.

At Cornerstone Capital Group, we are also embedding a robust gender analysis into our investment review process given our clients’ interest in gender lens investing approaches that reflect their values and indeed that have the ability to change how corporations behave.

But we can’t do it alone or even with the limited number of investors who are committed to gender lens investing. We will only be successful in making the needed change that #metoo has given voice to if many more investors ask hard questions of their investment managers and the companies in which they are invested. Collectively we must demand more of companies and we must act to ensure that they take the basic step of disclosing the information that investors need to make informed decisions. Because if not now, when?

Katherine Pease is Managing Director and Head of Impact Strat