Top 10 GRI Sustainability Aspects for the Agriculture Sector

Sustainability – What Matters in the Agriculture Sector?

Recent research conducted by the Governance & Accountability Institute attempts to answer important questions for company managements in the Agriculture Sector, by examining the disclosure practices of 26 global peer organizations publishing GRI reports in the sector.

The top 10 Global Reporting Initiative (GRI) aspects that were determined to be material by the managements of reporting organizations in the Agriculture Sector are:

  1. Child Labor
  2. Prevention of Forced and Compulsory Labor
  3. Biodiversity
  4. Public Policy
  5. Water
  6. Non-Discrimination
  7. Anti-Competitive Behavior
  8. Freedom of Association and Collective Bargaining
  9. Occupational Health and Safety
  10. Indirect Economic Impacts

Results:  The complimentary report examining 35 sectors including top 10 GRI aspects, and top/bottom 10 GRI performance indicators can be downloaded here:
www.ga-institute.com/sustainability-what-matters

The full rankings for all 84 GRI performance indicators and all 37 GRI Aspects for each of the 35 sectors examined are available for purchase at:
www.ga-institute.com/getall84

Organizations included in the Agriculture Sector study are:

AGCO Corp, AGRAVIS Raiffeisen AG, Agrium, Becker Underwood, Bunge Argentina, Camposol, Copersucar, Danper Trujillo, First Resources, Golden Agri-Resources Ltd, Grupo Los Grobo, Grupo Viralcool, Incauca, Ingenio Pichichi, inpEV (Instituto Nacional de Processamento de Embalagens Vazias), Jain Irrigation Systems, Kelani Valley Plantations PLC, KWS SAAT, Monsanto, Monsanto Latin America South, Netafim, Nidera Argentina, Novus International, Inc., Olam International Limited, Syngenta, Yara International

 

About G&A Institute (www.ga-institute.com)
G&A Institute is a New York-based, private sector company providing sustainability-focused services and resources to corporate and investment community clients, including: Issue Counseling & Sustainability Strategies; Sustainability Reporting; Materiality Assessments; Stakeholder Engagement; Benchmarking; Investor Relations; Communications; Coaching, Team Building & Training;  Issues Monitoring & Customized Research; Third Party Recognitions.  G&A is the exclusive Data Partner for the GRI in the United States of America, the United Kingdom and the Republic of Ireland.

Editors
On the G&A Institute web site there is additional information available on the Fact Sheet: What Matters Project (www.ga-institute.com/research-reports/sustainability-what-matters/fact-sheet).  The resulting “most important” to “least important” ranking for the 35 sectors is available to media on a case-by-case basis please contact:  Peter Hamilton (phamilton@ga-institute.com).

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CalPERS – Beyond the Headlines About Hedge Fund Exit – Guide for the California System Are Its “Investment Beliefs”

by Hank Boerner – Chairman & Chief Strategist – Governance & Accountability Institute

This week’s capital markets headlines focus on the planned divestment of hedge funds by the USA’s largest public employee retirement system (CalPERS).  The US$300 billion California Public Employees Retirement System announced on September 15th that over the coming months the $4 billion invested through its hedge fund program — CalPERS “Absolute Return Strategies” — would be redirected to other investments.  (CalPERS will exit 24 hedge funds and 6 fund-of-funds.)

No doubt the Street anxiously read the Pension & Investments headline:  “CalPERS Dumping Head Funds.”  Reported the P&I editors:  Theodore Eliopoulos, interim chief investment officer said:  ”Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost and lack of ability to scale at CalPERS size, the ARS program doesn’t merit a continued role…”

The news-behind-the news and a very important context for the story goes back to the 2008 financial crisis.  Everyone’s portfolio took a massive hit as the nation’s bankers and investment houses drove the big yellow CMO bus over the cliff.  The CalPERS managers (with 1.8 public employee members’ short- and longer-term retirement benefits and 1.3 million health plan members in mind) explored ways to be less susceptible to future shocks.  In September 2013, the board adopted the “CalPERS Investment Beliefs,” which today guide the investment office.

The Beliefs provide very important context for decision-making, reflect CalPERS values, and acknowledge the awesome responsibility to sustain the ability to pay those millions of beneficiaries when the time comes. For generations, as CalPERs says.

So what are the CalPERs Investment Beliefs?  There are 10; here are highlights:

  • Liabilities must influence the CalPERS asset structure.
  • A long-time investment horizon is a responsibility and an advantage.
  • Investment decisions may reflect wider stakeholder views, provided they are consistent with CalPERS’ fiduciary duty to members and beneficiaries.
  • Long-term value creation requires effective management of three forms of capital: financial, physical, human.
  • CalPERS must articulate its investment goals and performance measures and ensure clear accountability for their execution.
  • Strategic asset allocation is the dominant determinant of portfolio risk and return.
  • CalPERS will take risk only where we have a strong belief we will be rewarded for it.
  • Costs matter and need to be effectively managed.
  • Risk to CalPERS is multi-faceted and not fully captured through measures such as volatility or tracking error.
  • Strong processes and teamwork and deep resources are needed to achieve CalPERS goals and objectives.

In Investment Belief #2 (about the long-time horizon), sustainable & responsible investment leaders were encouraged to see the four subsets:

  • Consider the impacts of actions on future generations of members and taxpayers.
  • Encourage investee companies and external managers to consider the long-term impact of their actions.
  • Favor investment strategies that create long-term, sustainable value and recognize the critical importance of a strong and durable economy in the attainment of funding objecdtives.
  • Advocate for public policies that promote fair, orderly and  effectively regulated capital markets.

There are great lessons learned coming out of the 2007-2008-2009 dark days of the capital markets crisis – in the USA and worldwide.

Effective corporate governance has long had a champion in CalPERS; over the years the system’s (former) annual Target List led the companies selected for attention usually improving their governance policies and practices.  More recently CalPERS has adopted “ESG” approaches (governance being the “G”), and Investment Belief #5 reflects the CalPERS views:

Long-term value creation requires effective management of three forms of capital: financial, physical and human.  Good governance [by companies in portfolio] is key to the overall ESG performance.

And so with this week’s headline about hedge fund investments by CalPERS, which is a tiny part of the system’s vast portfolio, it is I think important for analysts, asset manages (and other asset owners) to better understand the overall policies that guide the nation’s largest state retirement system’s investment strategies.  The CalPERS Investment Beliefs make a very strong case for sustainable investment, and underscore the duty of the fiduciary to look way beyond the immediate corporate financials alone.  (Remember, when Enron collapsed it was a darling of Wall Street and #7 on Fortune’s list of the Fortunate 500. Numbers alone no longer tell the whole story of the enterprise.  ESG performance data and narrative really do matter!)

You can read the complete Investment Belief text and learn more about CalPERS Asset Liability Management Process at: www.calpers.ca.gov/alm

Addition to yesterday’s commentary, above:  On September 17th, CalPERS issued a news release that clarified for everyone their investment policies and put the hedge fund story in perspective.  You can read about “CalPERS Outlines Plan for Financial Markets Principles – Guided by Beliefs, System Will Focus on Risk, Governance and Transparency” — details at:  http://www.calpers.ca.gov/index.jsp?bc=/about/newsroom/news/plan-financial-markets.xml

The DJSI – Analytical Game Changer in 1999 – Sustainable Investing Pacesetter in 2014

by Hank Boerner – Chairman – Chief Strategist, G&A Institute

updated with information provided to me by RobecoSAM for clarification on 17 September 2014.

It was 15 years ago (1999) that an important — and game-changing  ”sustainability investing” resource came in a big way to the global capital markets; that year, S&P Dow Jones Indices and Robeco SAM teamed to create the Dow Jones Sustainability Indices. This is described by the managers as “…the first global index to track the financial performance of the leading sustainability-driven companies worldwide,” based on analysis of financially material economic, environmental and social (societal) factors. Breakthrough, game-changing stuff, no?

Note “financially material” – not “intangible” or “non-financial,” as some capital market holdouts initially (and continue to) described the sustainable investing approach.  There were but handfuls of “sustainability-driven” companies in world capital markets for selection for the World benchmark.  1999 — -that year the Global Reporting Initiative (GRI) was assembling its first comprehensive framework for corporate reporting (G#) byond the numbers alone.  Interfaith Center for Corporate Responsibility (ICCR) was a steadily maturing organization mounting proxy campaigns to challenge the risky behavior of major companies that were polluting the Earth.  The Investor Responsibility Research Center (IRRC) was the go-to source for information on corporate behaviors, particularly related to corporate governance issues.  (And CG issues were rapidly expanding – the governance misbehaviors of unsustainable companies such as of Enron, WorldCom, et al, were not yet as evident as when they collapsed three years later.). Robert Monks and Nell Minow were active in Hermes Lens Asset Management, continuing to target poorly managed companies and encouraging laggard CEOs to move on. (Monks’s book, “The Emperor’s Nightingale,” was just out that year.)

Over the next 15 years, the managers of DJSI benchmarks steadily expanded their analysis and company-picking; the complex now offers choices beyond “World” —  of Dow Jones Sustainability Asia Pacific; Australia; Emerging Markets; Europe; Korea; and North America.

A handful of “sustainability-driven” companies have been aboard “World” for all of the 15 years; this is the honors list for some investors:  Baxter International (USA); Bayer AG; BMW; BT Group PLC; Credit Suisse Group; Deutsche Bank AG; Diageo PLC; Intel (USA); Novo Nordisk; RWE AG; SAP AG; Siemens AG: Storebrand; Unilever; United Health Group (USA).  Updated:  And Sainsbury’s PLC.

Though the DJSI indices have been availble to investors for a decade-and-a-half, it is only in the past few years that we hear more and more from corporate managers that senior executives are paying much closer attention.  “The CEO wants to be in the DJSI,” we frequently hear now.

Each year about this time the DJSI managers select new issues for inclusion and drop some existing component companies.  Selected to be in the World:  Amgen; Commonwealth Bank of Australia; GlaxoSmithKline PLC.  Out of the DJSI World:  Bank of America Corp; General Electric Co; Schlumberger Ltd.

DJSI managers follow a “best-in-lcass” approach, looking closely at companies in all industries that outperform their peers in a growing number of sustainability metrics.  There are about 3,000 companies invited to respond to RobecoSAM’s “Corporate Sustainability Assessment” — effective response can require a considerable commitment of time and resources by participating companies to be considered.  Especially if the enterprise is not yet “sustainability-driven.”  We’ve helped companies to better understand and respond to the DJSI queries; it’s a great exercise for corporate managers to better understand what DJSI managers consider to be “financially material.”  And to help make the case to their senior executives (especially those wanting to be in the DJSI).

updated informationRobecoSAM invites about 2,500 companies in the S&P Global Broad Market Index to participate in the assessment process; these are enterprises in 59 industries as categorized by RobecoSAM, located in 47 countries.

The new G$ framework from GRI, which many companies in the USA, EU and other markets use for their corporate disclosure and reporting, stresses the importance of materiality — it’s at the heart of the enhanced guidelines.  The head of indices for RobecoSAM (Switzerland), Guido Giese, observes:  “Since 1999, we’ve heled investors realize the financial materiality of sustainability and companies continue to tell us that the DJSI provides an excellent tool to measure the effectiveness of their sustainability strategies.”

Sustainability strategies — “strategy” comes down to us through the ages from the Ancient Greek; “stratagem”…the work of generals…the work of the leader…generalship…”  Where top leadership (and board) is involved, the difference (among investment and industry peers) is often quite clear.

At the S&P Dow Jones  Index Committee in the USA, David Blitzer, managing director and chair of the committee, said about the 15 years of indices work: “Both the importance and the understanding of sustainability has grown dramatically over the past decade-and-a-half…the DJSI have been established as the leading benchmark in the field…:”

The best-in-class among the “sustainability-driven” companies that we see in our close monitoring as GRI’s exclusive Data Partner in the USA, UK and Ireland, the company’s senior leadership is involved, committed and actively guiding the company’s sustainability journey.  And that may be among the top contributions to sustainable investing of DJSI managers over these 15 years.

Congratulations and Happy Anniversary to RobecoSAM and S&P Dow Jones Indices (a unit of McGraw Hill Financial).  Well done!  You continue to set the pace for investors and corporates in sustainable investing.

Bolded Wall Street Names Advancing Sustainable Investing — Add Morgan Stanley

by Hank Boerner – Chair, G&A Institute

In recent weeks our conversations with asset owners and managers have been very encouraging — a host of brand name Wall Street houses have been tuning in to sustainable investing and a good number have been putting in place frameworks, models, methodologies, approaches to incorporate more analysis of corporate ESG performance in their portfolio management.  The terminologies are still in formation mode, so we hear about corporate ESG performance, corporate responsibility, triple bottom line…and the emerging favorite for many managers, sustainable investing.

Thanks to our colleague, Erika Karp of Cornerstone Capital (she was a 25-year UBS top manager before starting her own firm), we have settled on “sustainable investing” as the go-to term for conversations with asset owners, asset managers, analysts, and more frequently now, corporate investor relations officers (IROs).

The bolded names of Wall Street have been focused on sustainable investing for some time now, including Goldman Sachs, UBS, State Street, MSCI, Thomson Reuters, and Wellington (which acquired the venerable SRI complex, Domini Social Funds).  The bold name owners have adopted sustainable investing strategies and policies, including CalPERS, CalSTRS, TIAA-CREF, New York State Common Fund, Norges Bank (for the Norway Sovereign Wealth Fund) and more.

A recent bold name to add to the mainstream Wall Street roster:  Morgan Stanley, which late last year launched the MS Institute for Sustainable Investing.  Chairman/CEO James Gorman in announcing the move, said: “…the institute will build on Morgan Stanley’s ongoing work to advance market-based solutions to economic, social and environmental challenges…”

Positioning the sustainable investing concept for the mainstream market, Chairman Gorman noted that M-S will “operate from the foundational principle that sustainable investment can only achieve significant scale by attracting a broad range of private sector capital…”  (C’mon in — this is the new new thing for the capital market player!)

Among its strategic objectives, the M-S Institute will seek to drive capital toward investments that promise sustainable economic growth.  A goal has been set to raise US$10 billion in total client assets through Morgan Stanley’s Investing With Impact Platform over the next five years by developing new products and solutions to enable clients to meet the demand for sustainable investment.

In coordination with MS Investment Management’s Long Only and Alternative Investment Partners businesses, new products were created with positive sector and/or environmental impact as a core part of the underlying investment strategy.

We’ve been having discussions here in New York City with Peter Roselle, VP / Financial Advisor of Morgan Stanley Wealth Management, The Pelican Bay Group.  He’s an enthusiastic evangelist for his company’s sustainable investing initiatives and brought to our attention two of the first products for clients:

  • Sustainable ESG Large Cap Core Strategy – this seeks returns from a large-cap core strategy with low turnover, constructed from stocks selected from the Dow Jones Sustainability Index family (DJSI), which is managed by Dow Jones (USA) and RobecoSAM (Switzerland).
  • Sustainable ESG Covered Calls Strategy – this seeks to generate income utilizing a call writing strategy on a portfolio of US blue chip issues…again, using the Dow Jones Sustainability Indexes.  Stocks selected must display a high degree of corporate sustainability.

(Note the DJSI was launched in 1999 and was the first global corporate sustainability benchmark. The DJSI managers look at the world’s leading companies through the prism of economic, environmental and social issue criteria.  The component companies are rebalanced each year – watch for the fall announcement.)

The addition of the bold name “Morgan Stanley” is a welcome and affirmative sign of the rapidly-rising interest in sustainable investment in the mainstream capital market houses.  The firm announced in mid-year that wealth management client assets under management toped US$2 trillion. (During the awful year 2008, as the market downturn reached for the bottom, client assets under management were $546 billion).

For information about the Morgan Stanley products described here, you can talk with Peter Roselle, who has been keeping the G&A Institute team up to date on developments:  Peter Roselle, CPM and CFP, Morgan Stanley Wealth Management, The Pelican Bay Group.  email: Peter.Roselle@MS.com.  NYC phone:  212-603-6171,

 

 

 

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