Three Takeaways From The 5th Annual GRI Conference in Amsterdam (May 2016)

On Wednesday, May 18th, GRI opened the first day of its 5th Global Conference titled “Empowering Sustainable Decisions”, in Amsterdam, welcoming 1,200 delegates from 77 countries.  Amsterdam is a beautiful city with old buildings, canals, bridges and more bikes than the eye can see!   Sustainability is built into the bricks and mortar that make up the city, and it’s evident everywhere from the lack of plastic, to the right of way for bikes, beautiful greenery, public transit system, and the community like feeling that you can sense among the citizens of the city.  It’s a wonderful culture, the people of the city are present in the moment (not glued to their phones as they walk around), they are in touch with their fellow members of society and they value the environment — something that we all can learn from and aspire to.

As some of you may know (or not?), New York City (which I call home) was originally named New Amsterdam when the Dutch settled the lower part of Manhattan.  There are many signs of this still left in the physical and spiritual nature of our city.  The names of many of our communities, streets, etc. still have these roots (Brooklyn comes from the Dutch Municipality of Breuckelen and some of the hipsters are reviving the original name; Harlem comes from the Dutch Haarlem).

The conference was held at the RAI center in Amsterdam — an amazing space with great plenary and breakout rooms, networking / common space, and even a small sand “beach” in the back near one of the networking drinks spaces that hosted a special GRI GOLD members networking event.  It provided the perfect setting for informative and fruitful discussions on complex topics that are becoming ever more important, sophisticated and mature in their impacts and methodologies.

People came from near and far, and I was lucky enough to meet many people that I have worked with over the years virtually — across the pond — but never got a chance to meet in person.  The discussions were filled with passion and purpose — with various viewpoints being taken into account from business, investor, government, NGOs, and other constituencies represented.

Here are three key takeaways for those of you that were unable to make the conference:

  • Data is King For Transformational Change
    The focus on data was felt throughout the conference as the attendees discussed various new technologies to utilize data, and the issues and complexities that must be addressed to realize the full value of sustainability data. Leading up to the conference, G&A Institute was a member of  ”GRI’s Technology Consortium” which convened the world’s technology leaders to promote a conversation about how sustainability data and information can transform both business and policy decisions. Part of GRI’s Reporting 2025 Initiative, the Consortium, presented their top five recommendations on the future of sustainability data and innovation at the 2016 GRI Global Conference in Amsterdam.
    View the GRI Technology Consortium’s Recommendations
  • SDGs Will Power The Next 15 Years of Sustainability
    The topic of the United Nation’s 17 Sustainable Development Goals (SDGs) were discussed throughout the conference.  A focus area of the discussions concentrated on how business will align with and incorporate SDGs into their sustainability strategies, goal setting, and reporting.  The SDG Compass which was developed in collaboration between GRI, UNGC, and WBCSD is a tool which helps companies to examine the SDGs in ways that they are already familiar with.  One of the most useful parts of the SDG Compass, in my opinion, is the linkages between the various commonly used reporting frameworks (including G4 Indicators, CDP Surveys, and UNGC Principles), and the underlying 169 SDG targets.  This enables companies to examine the SDG targets which are relevant to the G4 indicators they have found to be material, and are currently reporting on.
    View the SDG Compass
  • NEW GRI Standards — Get Ready for Transition from GRI G4 to GRI Standards
    The Transition to Standards project was initiated in November 2015 by the Global Sustainability Standards Board (GSSB).  The original GRI G4 Guidelines are evolving into a set of modular, interrelated GRI Sustainability Reporting Standards (GRI Standards).  The changes mostly involve improving the structure and format of the content from G4. This is intended to make the GRI Standards easier to use and keep up-to-date, and even more suitable for referencing in policy initiatives around the world.  The GRI Standards will include all the main concepts and disclosures from G4, enhanced with a more flexible structure, clearer requirements, and simpler language.  The transition aims to make the GRI Standards more accessible for reporting organizations and policy-makers, and so encourage more consistent, higher quality sustainability reporting, focused on material issues.
    You can provide your feedback on the first set of draft GRI Standards via the consultation platform. You can also join live webinars or attend workshops around the world. To learn more, visit the Transition to Standards page.

For more information on the conference please visit the GRI Conference website:  http://www.griconference.org/

Expect more from us on these topics in the weeks to come…

If you’d like to discuss any of these takeaways in more detail, or anything else related to sustainability please feel free to contact the Institute.

Investors Really Do Care About Sustainability – There’s a Gap Between Them and Corporate Executives

Corporate CEOs, CFOs and others in the C-suite typically ask, “do investors really care about corporate sustainability…or is it a fad, a PR thing?”  MIT Sloan Management Review and The Boston Consulting Group (BCG) set out to explore that question.  The answer is in their recently released report:  “Investing for a Sustainable Future: Investors Care More About Sustainability Than Many Executives Believe.”

An unfortunate note here:  In the survey of more than 3,000 corporate executives and managers in 100+ countries, executives’ and managers’ perceptions are out of synch with the investing world realities, think the study authors.  Co-author David Kiron (who is exec-editor of the MIT publication) thinks there is a communications gap at work here.  “We found that investor relations professionals in companies are not really talking about value of sustainability to the bottom line, even though investors place real value on sustainability performance.”

Data availability is an important driver of increased investor engagement with sustainability.  “Today’s investors,” say the authors, “armed with richer data and more sophisticated analytics, can take a more nuanced and inclusive perspective.”  And, more than 75% of investment community respondents to the survey feel that increased operational efficiency often accompanies sustainability progress.   (Three-quarters of senior managers surveyed at investment firms said a company’s sustainability performance is material, and half said that they would not invest in a company with a poor sustainability track record.)

Alas, on the corporate side, there’s the gap:  only 60% of corporate senior executives agreed with their senior investment owners or prospective owners (the asset managers surveyed) about the importance of corporate sustainability; 90% of senior corporate executives see sustainability as “important,” but only 60% of companies have a sustainability strategy in place…and just 25% have a clear business case [for sustainability], says BCG senior partner Knut Haanaes.

The MIT Sloan and BCG survey results offer corporate executives suggestions on how to meet the needs of the sustainable investor (a universe that is rapidly expanding).  The study authors will be discussing their findings and suggestion on a webinar on May 26th.   Study results are at:http://sloanreview.mit.edu/projects/investing-for-a-sustainable-future/

Highlights of all this are in the story linked below:
Investors Care More About Sustainability Than Many Executives Believe, Study Shows 
(Friday - May 13, 2016)
Source: MarketWired - Sustainability is increasingly important for a growing number of investors, as evidence mounts that companies’ environmental, social, and governance (ESG) performance has an impact on their long-term financial success…

Will We See Mandated Corporate Reporting on ESG / Sustainability Issues in the USA?

by Hank Boerner – Chairman – G&A Institute

Maybe…U.S. Companies Will Be Required…or Strongly Advised… to Disclose ESG Data & Related Business Information

Big changes in mandated US corporate disclosure and reporting on ESG factors may be just over the horizon — perhaps later this year? Or perhaps not…

Sustainable & responsible investing advocates have long called for greater disclosure on environmental and social issues that affect corporate financial performance (near and long-term). Their sustained campaigning may soon result in dramatic changes in the information investors and stakeholders will have available from mandated corporate filings.

We are in countdown mode — in mid-April the Securities & Exchange Commission (SEC), the agency that regulates many parts of the capital market operations and especially corporate disclosure and reporting for investors issued a Concept Release with a call for public comments.

Among the issues In focus are potential adjustments, expansions and updating of mandated corporate financial reporting. One of these involves corporate ESG disclosure. The issue of “materiality” is weaved throughout the release.

Among the many considerations put forth by SEC: expanding corporate disclosure requirements for corporate financial and business information to include ESG factors, and to further define “materiality.” Especially the materiality of ESG factors.

The comment period is open for you to weigh in with your opinion on corporate ESG disclosure and reporting rules — or at least strong SEC guidance on the matter.

SEC has been conducting a “Disclosure Effectiveness Initiative,” which includes looking at corporate disclosure and reporting requirements, as well as the forms of presentation and methods of delivery of corporate information made available to investors. (Such as corporate web site content, which most feel needs to be updated as to SEC guidance.)

The umbrella regulatory framework — “Regulation S-K” — has been the dominant approach for corporate reporting since 1977 has been the principal repository (in SEC lingo) for filing corporate financial and business information (such as the familiar 10-K, 10-Q, 8-K, etc.).

Investors Want More Corporate ESG Information

For a number of years now, investment community players have urged SEC to look at mandating or offering strong guidance to public company managements to expand disclosure and reporting to substantially address what some opponents conveniently call “non-financial,” or “intangible” information. An expanding base of investors feel just the opposite — ESG information is quite tangible and has definite financial implications and results for the investor. The key question is but how to do this?

Reforming and Updating Reg S-K

In December 2013 when the JOBS Act (“Jumpstart Our Business Startups”) was passed by Congress, SEC was charged with issuing a report [to Congress] on the state of corporate disclosure rules. The goal of the initiative is to improve corporate disclosure and shareholders’ access to that information.

The Spring 2016 Concept Release is part of that effort. The SEC wants to “comprehensively review” and “facilitate” timely, material disclosure by registrants and improve distribution of that information to investors. Initially, the focus is on Reg S-K requirements. Future efforts will focus on disclosure related to disclosure of compensation and governance information in proxy statements.

Asset managers utilizing ESG analytics and portfolio management tools cheered the SEC move. In the very long Concept Release – Business and Financial Disclosure Required by Regulation S-K, at 341 pages — there is an important section devoted to “public policy and sustainability” topics. (Pages 204-215).

ESG / Sustainability in Focus For Review and Action

In the Concept Release  SEC states: In seeking public input on sustainability and public policy disclosures (such as related to climate change) we recognize that some registrants (public companies) have not considered this information material.

Some observers continue to share this view.

The Concept Release poses these questions as part of the consideration of balancing those views with those of proponents of greater disclosure including ESG information:

• Are there specific public policy issues important to informed voting and investment decisions?

• If the SEC adopted rules for sustainability and public policy disclosure, how could the rules result in meaningful disclosures (for investors)?

• Would line items about sustainability or public policy issues cause registrations to disclose information that is not material to investors?

• There is already sustainability and ESG information available outside of Commission (S-K) filings — why do some companies publish sustainability, citizenship, CSR reports…and is the information sufficient to address investor needs? What are the advantages and disadvantages of these types of reports (such as being available on corporate web sites)?

• What challenges would corporate reporters face if ESG / sustaianbility / public policy reporting were mandated — what would the additional costs be? (Federal rule making agencies must balance cost-benefit.)

• Third party organizations — such as GRI and SASB for U.S. company reporting — offer frameworks for this type of reporting. If ESG reporting is mandated, should existing standards or frameworks be considered? Which standards?

The Commission has received numerous comments about the inadequacy of current disclosure regarding climate change matters. And so the Concept Release asks: Are existing disclosure requirements adequate to elicit the information that would permit investors to evaluate material climate change risk? Why — or why not? What additional disclosure requirements– or SEC guidance — would be appropriate?

Influential Voices Added to the Debate

The subject of expanded disclosure of corporate ESG, sustainability, responsibility, citizenship, and related information has a number of voices weighing in. Among those organizations contributing information and commentary to the SEC are these: GRI; SASB; Ceres; IEHN; ICCR; PRI; CFA Institute; PWC; E&Y; ISS; IIRC; BlackRock Institute; Bloomberg; World Federation of Exchanges; US SIF.

The overwhelming view on record now with SEC is that investor consideration of ESG matters is important and that change is needed in the existing corporate reporting and disclosure requirements. You can add your voice to the debate.

For Your Action:

I urge your reading of the Concept Release, particularly the pages 204 through 215, to get a better understanding of what is being considered, especially as proposed by proponents; and, I encourage you to weigh in during the open public comment period with your views.

You can help to ensure the SEC commissioners, staff and related stakeholders understand the issues involved in expanding corporate disclosure on ESG matters and how to change the rules — or offer strong SEC guidance. Let the SEC know that ESG information is needed to help investors better understand the risks and opportunities inherent in the ESG profiles of companies they do or might invest in.

SEC rules or strong guidance on ESG disclosure would be a huge step forward in advancing sustainability and ESG consideration by mainstream capital market players.

Information sources:

The SEC release was on 13 April 2016; this means the comment period is open for 90 days, to mid-July.

Helpful Background For You

Back in 1975 as the public focus on environmental matters continued to increase (all kinds of federal “E” laws were being passed, such as the Clean Air Act and Clean Water Act), stakeholders asked SEC to address the disclosure aspects of corporate environmental matters.

The initial proposal was deemed to have exceeded the commission’s statutory authority.

In 1974 the ERISA legislation had been passed by Congress, and pension funds, foundations and other fiduciaries were dramatically changing the makeup of the investor community, dwarfing the influence of one once-dominant individual investor. After ERISA and the easing of “prudent man” guidelines for fiduciaries, institutional investors rapidly expanded their asset holdings to include many more corporate equities.

And the institutions were increasingly focused on the “E,” “S” and :”G” aspects of corporate operations — and the real or potential influence of ESG performance on the financials. Over time, asset owners began to view the company’s ESG factors as a proxy for (effective or not) management.

While the 1975 draft requirements for companies to expand “E” and “S” information was eventually shelved by SEC, over the years there was a steady series of advances in accounting rules that did address especially “E” and some “S” matters.

FAS 5 issued by FASB in March 1975 addressed the “Accounting for Contingency” costs of corporate environmental liability FASB Interpretation FIN 14 regarding FAS 5 a year later (September 1976) addressed interpretations of “reasonable estimations of losses.” SEC Staff Bulletins helped to move the needle in the direction of what sustainable & responsible investors were demanding. Passage of Sarbanes-Oxley statutes in July 2002 with emphasis on greater transparency moved the needle some more.

But there was always a lag in the regulatory structure that enables SEC to keep up with the changes in investment expectations that public companies would be more forthcoming with ESG data and other information. And there was of course organized corporate opposition.

(SEC must derive its authority from landmark 1933 and 1934 legislation, expansions and updates in 1940, 2002, 2010 legislation, and so on. Rules must reflect what is intended in the statutes passed by Congress and signed into law by the President. And opponents of proposals can leverage what is/is not in the laws to push back on SEC proposals.)

There is an informative CFO magazine article on the subject of corporate environmental disclosure, published September 9, 2004, after the Enron collapse, two years after Sarbanes-Oxley became the law of the land, and 15+ years after the SEC focused on environmental disclosure enhancements. Author Marie Leone set out to answer the question, “are companies being forthright about their environmental liabilities?” Check out “The Greening of GAAP” at: http://ww2.cfo.com/accounting-tax/2004/09/the-greening-of-gaap/

And we add this important aspect to corporate ESG disclosure: Beginning in 1990 and in the years that followed, the G1 through G4 frameworks provided to corporate reporters by the Global Reporting Initiative (GRI) helped to address the investor-side demand for more ESG information and the corporate side challenge of providing material information related to their ESG strategies, programs, actions and achievements.

The G&A Institute team sees the significant progress made by public companies in the volume of data and narratives related to corporate ESG performance and achievements in the 1,500 and more reports that we analyze each year as the exclusive data partner for The GRI in the United States, United Kingdom, and The Republic of Ireland.

We have come a very long way since the 1970s and the SEC Concept Release provides a very comprehensive foundation for dialogue and action — soon!

Please remember to take action and leave your comments here:

http://www.sec.gov/rules/concept.shtml

GRI and RobecoSAM Look at “What Matters” to Investors and Companies in Sustainability Reporting

As the dialogue between company and investor base increasingly focuses on the materiality of corporate information, and the call for greater transparency – “what matters” to both corporate board and C-suite and the institutional investor base?

The mandated reporting on financial and certain business matters is a very different conversation than the discussion about “what is material” in terms of corporate ESG performance (data, narrative, etc.).  As more mainstream asset managers and key fiduciaries (like state pension funds) adopt ESG analytics and portfolio management approaches, investor attention turns to the “what” is available and just how comparable the ESG information may be (company-to-company).

The often-heard complaint is about the lack of comparability in ESG information. The news from GRI and RobecoSAM about “comparability” and “quality” of information is an interesting read for you (it’s our Top Story).   GRI is the global standard for corporate sustainability reporting; RobecoSAM is the manager of the Dow Jones Sustainability Index family (DJSI), a benchmark that continues to gain in popularity among asset owners and managers.  (And is a sought-after badge of recognition among corporate boards and C-suite.)

The two organizations teamed to publish “Defining What Matters: Do Companies and Investors Agree What is Material?”  Top lines:  Yes, there is now general alignment; GRI’s framework with the emphasis on materiality is a basis for corporate disclosure to investors; materiality is a threshold at which topics become important enough to disclose.

Key:  Companies should conduct a materiality assessment for their ESG disclosures and reporting, and (says RobecoSAM’s Christopher Greenwald, head of sustainable investing research) what investors want is consistent data on the most material issues…and the research paper is intended to help both investors and companies in understanding how to connect sustainability priorities with long-term corporate strategy.

The research paper will be discussed at the upcoming GRI conference in Amsterdam (starting May 18).  G&A Institute EVP Lou Coppola will be participating in various sessions of the conference discussing (among other things) sustainability research findings by the G&A team.   Watch for news from Amsterdam in the coming days.

If you’d like to discuss with a member of the G&A team how we can assist you in your own materiality processes please contact us at info@ga-institute.com.

Check out the story link below for details of the research effort by RobecoSAM and the Global Reporting Initiative.

New RobecoSAM study reveals GRI Standards fit for investmentgrade disclosures 
(Wednesday - May 04, 2016)
Source: GRI and RobecoSAM - International sustainability standard setter GRI and RobecoSAM, the investment specialist focused exclusively on Sustainability Investing (SI), have today released the research publication Defining What Matters: Do companies and…

Examining the Bloomberg Average ESG Disclosure Scores– Higher For S&P 500® Companies That Disclose/Publish Sustainability Reports With Relevant ESG Data

At G&A Institute we continue to look at the S&P 500® universe of companies in two groups: those companies that have published in some form a sustainability, corporate responsibility, citizenship or some related titling to publicly disclose important data and narrative on their ESG strategies, actions, performance and achievements. And, a second group, those companies that do not disclose / report on ESG factors.

This is an important corporate universe, representing more than 80% of the available market coverage and is the best single gauge of large-cap U.S. equities. Some US$7 trillion in Assets Under Management benchmarked to the S&P 500, including $1.0 trillion in index products.

When our team started tracking the ESG / CR / Sustainability reporting practices of these leading U.S. companies, we determined that just under 20% of companies had published data and narratives in 2011.That meant that 8-out-of-10 large-caps in the universe did not report. In 2012, we saw a dramatic shift: 53% — more than half of the 500 — were reporting. That increased to three-quarters of companies in 2014 and edged up to 81% reporting by 2015. And the non-reporters steadily declined to now only 19% of the 500 leading companies.

We partnered with Bloomberg LP as we continued our analysis to see if the reporting companies were favored with higher disclosure scores in the Bloomberg LP ESG dashboard resource, and if non-reporters were assigned a lower score. “The Bloomberg” is accessed by more than 325,000 professional users around the world and the ESG Dashboard is among the fastest-growing resources available to users.

Result: “Average Bloomberg ESG Disclosure Scores” assigned to reporting companies were higher for E, S, G and ESG combined scores. E and S score differences were pronounced – reporters were assigned higher averages. Makes sense:  large-caps disclosing and doing structured reporting on their sustainability journey are providing this very important global investment information service provider (Bloomberg LP) with information needed to help investors evaluate risk and opportunity – and make important portfolio management decisions.

Our thanks for Hideki Suzuki, Senior Corporate Governance Analyst at Bloomberg for his collaboration with G&A. As he observes: “ESG investment space continues to evolve.  We are moving beyond disclosure. Bloomberg provides performance assessment tools based on quant data provided by companies. For that to be meaningful and actionable by investors, we need quality data from companies that is aligned with company FY end and scope of disclosure covering what is covered in their financial statement disclosure.”

Sounds like the S&P 500 large-cap reporting companies have gotten the message! You can read the details of the Bloomberg – G&A Institute analysis via the link below:

FLASH REPORT: G&A Institute and Bloomberg LP Partnered to Examine Bloomberg ESG Disclosure Scores For S&P 500 Companies Reporting VS Not Reporting on Sustainability
(Wednesday - April 27, 2016)
Source: Governance & Accountability Institute, Inc. - Continuing the in-depth analysis of S&P 500 (r) companies’ sustainability reporting activities, Governance & Accountability Institute teamed with Bloomberg LP to analyze the data, scores and perceptions presented to investment professionals using the Bloomberg Professional information platform which features ESG data and assigns disclosure scores for public companies.