Alison Hirsh, Chief Strategy Officer and Assistant NYC Comptroller for Pensions, explains why companies must give workers “a voice on the job” to protect long-term returns.
Over the past 12 months, sustainable investing has been caught up in the culture wars raging across America. Republican politicians like Florida Governor Ron DeSantis have railed against BlackRock, the world’s largest asset manager, for daring to integrate ESG factors into how it invests a portion of its US$8 trillion AuM.
Proponents of the anti-ESG agenda argue that asset owners and managers disregard their fiduciary duty to prioritise risk-adjusted returns by considering issues like climate and work-force related risks in their investment decisions. But according to Alison Hirsh, Chief Strategy Officer and Assistant Comptroller for Pensions at the New York City (NYC) Office of the Comptroller, anti-ESG rhetoric is “a lot of noise” and simply serves as a reminder for trustees to do the work of a fiduciary and prove a point that these issues are financially material.
“The notion that incorporating ESG is anything other than a core part of our fiduciary duty is simply wrong,” says Hirsh. “We would be abdicating our fiduciary responsibility if we weren’t active shareholders – its Republicans that are costing pensioners money.”
Earlier this month, NYC public pension funds joined their New York State counterparts in filing shareholder proposals at Walmart, CVS Pharmacy, Netflix and DoorDash, calling for the companies to respect the rights of their workers to organise and collectively bargain.
“We fundamentally believe in effective human capital management policies,” says Hirsh. “By effective, I mean policies that respect workers, pay them fairly and give them the right to organise, create the necessary conditions for companies’ stability, protect their bottom line and protect our investment in those companies.”
For those reasons, engaging with US companies on workforce-related issues is a fiduciary priority for the NYC Comptroller and the city’s five pension funds, which have approximately US$242 billion in AuM, constituting the fourth largest public pension plan in the US.
Obligations and priorities
NYC Comptroller Brad Lander is a trustee on all five systems, serving as the custodian of all NYC public pension funds’ assets (responsible for managing all their accounts) and is delegated to serve as investment advisor to all five pension boards, explains Hirsh.
“Our work around corporate governance and our ESG programme are delegated to the office as part of our investment advisory authority. But everything the office does, is done in close consultation and requires the explicit approval from the trustees of the five pension funds,” explains Hirsh.
Each autumn, the NYC Comptroller’s corporate governance team brings a set of shareholder recommendations to NYC pension funds’ proxy committees to flag issues that it believes require attention based on its fiduciary obligations and the investment priorities of each of the five boards, explains Hirsh.
The five boards also established and voted on the NYC Comptroller Corporate Governance Principles and Proxy Voting Guidelines. These provide guidance for NYC pension funds proxy committees on how to vote on shareholder proposals.
When it comes to proactive engagements, such as the filing of shareholder proposals or director elections, those actions require a vote by the five funds’ proxy committees, explains Hirsh. Companies are identified to introduce shareholder resolutions to prioritise engagement. The proxy committee of each pension board then holds a vote to approve those shareholder resolutions.
All five NYC pension boards agree on the impact of human capital management on the long-term returns and stability to the investee companies in their portfolios, with over half of trustees representing labour union members.
The proposals at Netflix and DoorDash urge the companies to adopt and disclose a non-interference policy to uphold workers’ freedom of association and collective bargaining rights, while those at CVS Pharmacy and Walmart call on the companies to initiate a third-party assessment of their adherence to their commitment to workers’ rights contained in their human rights policies.
Hirsh hopes that an agreement with all companies will be reached, similar to the one secured with Apple and its shareholders in January, which investors believe should set a standard for remedying workforce-related disputes.
“Hopefully, it set a pattern for companies in all sectors understanding that it’s best practice to carry out independent analysis to assess adherence to workforce policies, because disregarding them is a problem from a fiduciary standpoint,” says Hirsh.
NYC Comptroller and a coalition of investors filed a shareholder proposal against Starbucks on the rights of workers to organise in September last year. Hirsh says the coffee chain is one of several companies which claim to adhere to international human rights policies, which include freedom of association, only to engage in “union busting”.
By pursuing such practices, Starbucks creates reputational risks that can negatively impact the profitability of the company, which is a serious concern to investors, she says.
After years of membership decline, requests for the National Labor Relations Board (NLRB) to hold union elections soared last year, up 58% compared with 2021 levels. Unfair labour practice charges have increased by 16% from 11,082 to 12,819 over the same period.
“In the wake of the pandemic, there has been a real resurgence in labour organising and workers standing up for their rights,” says Hirsh. “As shareholders and investors, we can’t ignore that.
“All of society benefits when workers have a voice; the economy benefits but we as investors benefit too. If workers are organising at companies and management is engaging in pretty ruthless anti-union tactics, they risk regulatory action.”
This year, the US Securities and Exchange Commission (SEC) seeks to provide investors with a revised version of its 2020 rule on human capital management disclosures, after stakeholders argued that the SEC’s principle-based approach allowed companies to obscure workforce-related issues.
Retail giant Amazon continues to grapple with warehouse and delivery workers organising, with CEO Andy Jassey found to be in violation of US labour laws after remarks he made about how employees would be “better off without a union”.
Earlier this month, a federal judge in Michigan granted the NLRB’s request for a nationwide cease-and-desist order against Starbucks to stop it firing workers for attempting to unionise.
A Starbucks spokesperson said in a statement that the ruling was “unwarranted” as the company acted within the law. “As a result, we will be seeking further review of the court’s opinion and order while the merits of the case are fully adjudicated,” the spokesperson said.
Controversies like these create “real uncertainty” and are a cause for concern from an investor’s perspective, says Hirsh.
“There is more of an understanding among investors and the general public that being an effective steward of capital and an effective corporate citizen requires that workers have the right to freedom of association and, therefore, a non-interference policy at companies is essential.”
“Agreement without a fight”
Awareness among investors of human rights risks continues to increase, which is reflected in the volume of shareholder proposals on the ballot on a variety of workforce-related issues this year.
In January, members of the Investor Alliance for Human Rights (IAHR) announced a series of proposals filed for the 2023 proxy season at big tech companies, including Alphabet (Google), Amazon and Meta (Facebook).
Hirsh would prefer to avoid escalating engagement on workforce-related issues via proxies but admits that it is a necessary tool given the dual-class share structure of large US companies, adding to their reluctance to come to the table to discuss human rights issues.
“Our corporate governance team vastly prefer successful engagement, similar to what we were able to do with Apple, over filing shareholder proposals and having them on the ballot – they’re a blunt instrument,” she says, adding that the shareholder structure of many US companies makes it hard to pass proxies.
“We prefer to get to a place of agreement without a fight.”
The NYC Comptroller has been vocal about the unwillingness of Amazon and Starbucks to talk about human capital management and freedom of association, says Hirsh.
Last year, the NYC Comptroller led city and state pensions funds in a “vote no” campaign calling on Amazon shareholders to oppose the re-election of directors Judith McGrath and Daniel Huttenlocher for failing to provide independent oversight of workforce issues at the company.
“That represented a real escalation with Amazon because the board had ignored health and safety issues at the company,” she says.
When asked why the management at Starbucks and other companies are so reluctant to discuss workers’ rights with shareholders, Hirsh argues that it’s an issue of perspective.
“Management at some of these companies are fearful of workers having a voice on the job because they perceive that it will lead to a lack of control, as opposed to realising that the profits of a company are entirely reliant on an effective and productive workforce,” she says.
A work environment that “cycles through people and throws them out like their widgets” rather than engaging with workers to create a positive and productive atmosphere will add “enormous additional costs” and hurt profits, she says.