Is There a Trend of Greenwashing in the Fashion Industry?

By Reilly Sakai – Sustainability Analyst at G&A Institute

Despite being identified by some as one of the top contributors to impact on society’s environmental and social issues, on close inspection we could say that the fashion industry continues in 2020 to lag behind other sectors when it comes to a close review of the industry’s sustainability efforts.

The positives: Some major apparel industry players have or are attempting to create strategies and initiatives to reduce plastic and improve the sustainability of their supply chain.

However, in reviewing industry performance overall, it can be difficult to parse through which initiatives are actually making a difference — and which are simply an example of greenwashing, especially given the lower rate of disclosure of ESG emissions by prominent companies’ reporting.

Solutions? What Steps To Be Taken?

So, we can ask, what steps must be taken now — both at the company and the consumer level?

We can ask this question: Is it possible for an industry that so depends on continuous consumption of its products (clothing) to become more sustainable?

The fashion industry is reported to be responsible for more carbon emission than all international flights and maritime shipping combined — “producing 10 percent of all humanity’s carbon emissions” (source: UNEP, 2018).

The apparel industry is also the second-largest consumer of the world’s water supply — after fruit and vegetable farming, which can be very intensive in terms of water use (source: Thomas Insights, 2019).

And, among the challenges, it’s reported that up to 85% of textiles end up in landfills rather than being recycled or upcycled (UNECE, 2018).

Between 2000 and 2015, clothing sales increased from 50 billion units to over 100 billion units, while utilization of clothing (the average number of times a garment is worn) dropped 36% during the same timeframe (Ellen MacArthur Foundation, 2017).

These figures are nothing to scoff at as various sectors and industries move toward less water use; less waste to landfill; more recycling and re-use, among many measures adopted throughout industries.

Is the Fashion Industry Drive to Sustainability Slowing Down?

And yet, according to the Pulse of the Fashion Industry report from the year 2019, sustainability efforts in the industry appear to be slowing down rather than accelerating to address these issues.

In GRI’s Sustainability Disclosure Database, there are currently 248 organizations that fall in the textiles & apparel sector worldwide. Put that in perspective of the total 14,476 organizations in the database.

That’s less than 2% of reporting organizations in the textile & apparel sector. In the sector, there are just 80 GRI Standards industry reports, vs 4,089 GRI Standards reports in the database as a whole.

Given the rate at which the global fashion industry has been growing (before the coronavirus emergency) – more people, more apparel, more income, etc) — we might conclude that companies in the industry have simply not been doing enough to offset their well-charted detrimental environmental impacts.

So what to do now? We know that the fashion industry is important in terms of global economic impact and employment, and creativity – while also being a top contributor to waste, greenhouse gas emissions, water pollution, and an array of other negative environmental factors.

Incentives For Changing – Lacking

Today, there aren’t major economic or societal incentives in place for apparel companies to make real changes.

It’s going to take a lot of time and effort, not to mention considerable investment, to switch factories in which clothes are produced and polluting or violating human rights and so on (to address key ESG issues).

And it’s also quite difficult to have real transparency at every level of the apparel and footwear global supply chain to help to ensure a more sustainable production process.

Consumer Tastes – May Make a Difference. Maybe.

Moreover, while many consumers are now starting to buy what they believe to be the more sustainable products in many categories including fashion, very few consumers are apparently willing to pay more for them — or have the time or means to investigate every company’s sustainability initiatives and track record before making their purchase (Source: Pulse of the Fashion Industry, 2019).

Since it’s so much quicker and cheaper to do, companies instead may turn to marketing messaging that tells their customers that they are working towards a more sustainable future — without actually doing much or even anything in reality.

What Leading Companies Are Doing – the Positives

There is good news.  The “we are sustainable” message has begun to sell well and customers have been moving to certain apparel brands that are promoting a sustainable vision — without the buyer being able to (at point-of-sale) fact-check a company’s claims. That is the reality of at-market sales.

We can begin by taking a look at Everlane, which touts “radical transparency,” but doesn’t actually divulge the name of the factories in which its garments are produced.  So we don’t know what is going on there.

Patagonia, on the other hand, is considered best-in-class, offering repair and buyback programs in order to promote a circular economy, and has a multitude of policies and systems in place to ensure they’re doing everything they can to protect the environment and people who work at or interact with the company.

Nike, similarly, has done a lot to improve their supply chains over many years, using innovation as a driver for sustainability.

Rather than increasing factory audits to ensure that workers are wearing protective gear, Nike engineered a non-toxic glue so protective gear is no longer needed.\

Nike’s flyknit sneaker vastly reduced the amount of material needed to construct a shoe, meaning lower costs and less waste.

Other brands, from Adidas to Puma, have followed suit.

On the luxury end, Eileen Fisher has been a staple of sustainable clothing for decades, sourcing environmentally friendly materials, offering a buyback program, upcycling old materials into new garments, and sharing the wealth with all of her employees by offering a comprehensive ESOP.

Looking to the Future to Protect the Planet

With our Planet Earth’s environmental situation growing ever more dire, it is critical for the fashion industry — now! —  to encourage and make major changes — but convincing individual corporate leadership that this is a worthwhile investment is no small feat.

Because of the higher costs typically associated with implementing sustainability initiatives (or at least the perception of higher cost), overhauling a company’s entire supply chain is quite challenging.

Many fashion companies do not find it feasible in this competitive pricing environment to raise their prices or cut into their margins, especially when they continue to see the industry growing at such a swift pace year-over-year.

Perhaps more and more companies will consider Nike’s successful approach. That is, increasing spending in R&D as opposed to marketing, which has major potential to decrease costs and increase margins in the long-term, while improving their ESG efforts at the same time.

In my opinion, it’s going to probably take some form of public sector intervention or a mass consumer revolution or some similar dramatic action to influence the bulk of the fashion industry to move toward a truly sustainable future – and one of those things might happen sooner than later.

The leaders in corporate sustainability in the industry will be the major beneficiaries when the tide turns.

* * * * * * * * *

Reilly SakaiReilly Sakai is a sustainability analyst at G&A Institute; she began her work with us as one of our outstanding analyst-interns in grad school. She is completing her MBA program in Fashion & Luxury at NYU Stern School of Business, where she is specializing in Sustainable Business & Innovation, and, Management of Technology & Operations. She has been working with NYU’s Center for Sustainable Business on an independent study that explores environmental sustainability in apparel manufacturing.

The Power of the Purse / The Power of the Portfolio – Looking At Consumers and Investors in the United States of America

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Facts:  The U.S. has the largest consumer market in the world (estimated spending is at US$12.5 trillion, or 26 percent of the global total consumer marketplace, and three times the size of the #2 consumer market, China).  “Personal” consumption accounts for 70% of US GDP.

Facts:  The US has the world’s largest investment base — for domestic bonds, that is $40 trillion of the $100 trillion worldwide bond market, and $20 trillion for domestic equities, roughly one-third of the $64 trillion entire global equities market.

Question: Imagine if the consumers and investors (of course, with much overlap here) in this nation of 331 million (third largest population in the world behind China and India) enthusiastically “dived into what living more sustainability means”.

Answer: It is happening, of course, from the American grassroots to grasstops — even if the President of the United States is withdrawing the nation from the historic Paris Agreement on Climate Change and denying the impacts of global warming et al. 

Our Top Story for you this week is from CNBC (NBC-TV Network), with commentary from Alicia Adamczyk about a new series to be telecast: “CNBC Make It”, examining different facets of consumerism and finance and how these related to climate change and sustainability. (CNBC carries investing and market news throughout the day and has popular program hosts through the day and evening. The original name: Consumer News and Business Channel.)

The series can reach a quarter million viewers and more on CNBC in prime time and content is especially geared to younger age cohorts. Every day, volumes of content are shared on the CNBC web platform.  As the editors say — Influencing tomorrow’s leaders! Who will be among the most influential consumers and investors in the USA. 

Why is this media effort important?  Consider: A 2019 survey told that us 72 per cent of Americans now say global warming is a personally important issue.  And 44% support a carbon tax, according to another survey.

State and local governments (especially New York State and City and California) have been launching comprehensive sustainability initiatives. Plastic bags for taking shopping items home are going the way of the extinct Dodo bird in New York State, for example.

On the investing front, 85% of individual investors in the USA and 95% of the Millennials expressed interest in “impact investing” and making their portfolios more sustainable (source: Morgan Stanley Institute for Sustainable Investing).

A doff of the cap to CNBC editors for their informational and educational efforts to help advance personal and institutional sustainability and sustainable investing.  You can learn more about their work at the link in our Top Story (there are links on the CNBC web platform to interesting sustainability topics).

And a short note on the future: This Coronavirus Crisis will pass and the world will get back to work. Investors and consumers will be looking at what companies are doing during and after the crisis to demonstrate their corporate citizenship. We may have an interruption in the trend, but the sustainability journey continues.

Top Story

More and more Americans want to live more sustainably—we’re diving into what that means
Source: CNBC – Over the past few years, sustainability has become one of the biggest buzzwords in personal finance, with consumers rethinking exactly where and how they spend their money.

The Impacts of Climate Change on Human Health in the United States

Guest Commentary by Anita Fernandes

Scientists and researchers from around the globe have warned that climate change is the greatest threat to human health in history.

In fact, the United Nation’s Intergovernmental Panel on Climate Change (IPCC) has concluded that all life on our planet is under existential threat.

From hurricanes and floods to drought and catastrophic wildfires, there’s no denying that climate change is affecting us right now. However, climate change also poses long-term problems particularly to sustainability issues that impact our economy, society and health.

In focus: The Impacts of Climate Change on Human Health in the United States

1. Temperature-related illnesses
Rising temperatures have direct and indirect effects on human health. Higher temperatures lead to an increase in the incidence of heatstroke, hyperthermia and dehydration-related deaths. High temperatures pose a greater risk to those with existing health problems such as cardiovascular, respiratory and kidney conditions.

It is difficult to calculate heat-related morbidity and mortality but researchers predict that future warming will result in an increase of from 2,000-to-10,000 deaths annually in each of 209 US cities.

This may seem like inordinately inflated figures until we consider that the 2003 European heat wave was responsible for approximately 70,000 premature deaths.

Higher temperatures are also linked to the spread of infectious diseases due to the increased populations of vectors such as mosquitoes and ticks.

Since the 1990s, the number of cases of Lyme disease (spread through deer ticks) has more than doubled in the US and affects approximately 300,000 Americans annually.

2. Extreme weather events
Weather extremes such as heat waves, droughts, tornadoes and hurricanes pose a significant threat to human health. Extreme heat was a rare occurrence in the USA just 50 years ago but now, extreme summer heat occurs about 7 per cent of the time.

We have also seen increases in concurrent droughts as well as heavy downpours and as the climate continues to warm, the number of fatalities will rise dramatically in the US.

Extreme weather events also have a significant impact on the country’s economy. For instance, hurricanes Harvey, Irma and Maria in 2017 cost over US$300 billion in damages.

Hospitals that are affected by hurricanes are forced to grapple with recovery costs in the following year — which is likely to have a negative impact on their operating performance.

Extreme weather events also cause damage to roads and bridges which disrupts access to hospitals and health care services.

3. Air pollution
Climate change impacts air quality and conversely, air quality impacts climate change. Hotter summers pose a serious health risk as the increased temperature results in stationary domes of hot air that trap air pollutants in the lower atmosphere.

These “stagnation events” have become more prevalent especially in cities as data shows that 83% of US cities have experienced an increase in stagnant days.

This also increases the risk of ground-level ozone — which is a dangerous air pollutant that causes chest pain and coughing and can worsen asthma, bronchitis and emphysema.

People with a history of these respiratory problems are at a higher risk of pneumonia and other pneumococcal diseases. Increased CO2 coupled with higher temperatures increases the growth rate of plants such as ragweed that are linked to allergies and asthma episodes.

Pneumonia information (“What you need to know”) is at: https://www.everydayhealth.com/pneumonia/guide/

4. Food and water shortages
Increased water temperatures brought on by climate change affects the habitat range for fresh water and can increase marine algae that produce toxins. Furthermore, flooding compromises human waste water treatment and can compromise drinking water leading to water shortages.

Reduced rainfall leads to diminished flow in rivers and streams which subsequently results in an increased concentration of harmful pollutants in these waters.

Similarly, climate changes in the American Southwest has resulted in less precipitation which has resulted in more severe and longer periods of drought. Crops fail to mature due to the lack of precipitation, which can lead to food shortages and food insecurity.

5. Mental health effects
Studies show that visits to the emergency department for mental illness and attempted suicides increase with higher temperatures. Furthermore, extreme heat poses greater risks to the physical and mental health of people with mental illnesses.

Disasters such as flooding and prolonged droughts can result in severe and even chronic mental health disorders including anxiety, depression and post-traumatic stress disorders. Increases in extreme heat also increase the risk of death for people with mental illnesses.

# # #

Guest author Anita Fernandes has been writing extensively on health and wellness for over a decade. She has expertise in nutrition, fitness, public health, and weight loss and has contributed content to a variety of leading digital health publishers.

Anita has a unique perspective on healthy living and lifestyle, as she has battled and overcome eating disorders and obesity. She shares her experiences in an effort to help others overcome the physical and mental health problems that can sometimes seem insurmountable.

Getting Serious About SASB: Company Boards, Execs and Their Investors Are Tuning In. What About Accounting Firms?

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

February 26, 2020

The importance of the work over the recent years of the Sustainable Accounting Standards Board in developing industry-specific ESG disclosure recommendations was underscored with the recent letters to company leadership from two of the world’s leading asset management firms.

Corporate boards and/or executive teams received two important letters in January that included strong advice about their (portfolio companies’) SASB disclosures. 

BlackRock CEO Larry Fink explained to corporate CEOs his annual letter:  “We are on the edge of a fundamental reshaping of finance. Important progress in improving disclosure has been made – many companies already do an exemplary job of integrating and reporting on sustainability but we need to achieve more widespread and standardized adoption.” 

While no framework is perfect, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics. 

In 2020, BlackRock is asking companies that the firm invests in on behalf of clients to publish a disclosure in line with industry-specific SASB guidelines by year end (and disclose a similar set of data in line with the TCFD’s recommendations). 

In a thought paper, BlackRock explained that disclosures intended for investors need to focus on financially material and business relevant metrics and include supporting narratives. The recommendations of the TCFD and the SASB (standards) are the benchmark frameworks for a company to disclose its approach to climate-related risks and the transition to a lower carbon economy.

Absent such robust disclosure, investors could assume that companies are not adequately managing their risk. Not the right message to send to current and prospective investors in the corporation, we would say.

State Street Sends Strong Signals

Separately, State Street Global Advisors (SSgA) CEO Cyrus Taraporevala in his 2020 letter to corporate board members explained:  “We believe that addressing material ESG issues is a good business practice and essential to a company’s long-term financial performance – a matter of value, not values.” 

The asset management firm [one of the world’s largest] uses its “R-Factor” (R=“responsibility”) to score the performance of a company’s business operations and governance as it relates to financially material and sector-specific ESG issues.

The CEO’s letter continued:  The ESG data is drawn from four leading service providers and leverages the SASB materiality framework to generate unique scores for 6,000+ companies’ performance against regional and global industry peers. “We believe that a company’s ESG score will soon effectively be as important as it credit rating.”

The Sustainable Accounting Standards Board

About SASB’s continuing progress:  Recommendations for corporate disclosure centered on materiality of issues & topics were fully developed in a multi-party process (“codified”) concluding in November 2018 for 77 industry categories in 11 sectors by a multi-party process.

The recommendations are now increasingly being used by public companies and investors as important frameworks for enhanced corporate disclosure related to ESG risks and opportunities. 

To keep in mind: A company may be identified in several sectors and each of these should be seriously considered in developing the voluntary disclosures (data sets, accompanying narrative for context).

Bloomberg LP (the company headed by Mayor Michael Bloomberg, now a presidential candidate seeking the Democratic nomination) is a private company but publishes a SASB Disclosure report. (Bloomberg is the chair of SASB as well as the leader of his financial information firm.)

The company published “robust” metrics using the SASB on three industry categories for 2018: Internet & Media Services; Media & Entertainment; Professional & Commercial Services.

Bloomberg LP is privately-owned; this was an example for public company managements. The report explained:

“The nature of our business directs us to consult three industries (above). We provide a distinct table for each…containing topics we have identified as material and against which we are able to report as a private company. Quantitative data is followed by narrative information that contextualizes the data table and is responsive to qualitative metrics.”

Solid advice for company boards and executives beginning the expansion of disclosure using the SASB.

SASB Guidance

SASB provides a Materiality Map for each sector (SASB uses its SICS® – The Sustainability Industry Classification System) and provides a Standards Navigator for users. There is also an Engagement Guide for investors to consider when engaging with corporates; and, an Implementation Guide for companies (explaining issues and SASB approaches).

The fundamental tenets of SASB’s approach is set out in its Conceptual Framework: Disclosures should be Evidence-based; Industry-specific; Market-informed.  The recommended metrics for corporate disclosure include fair representation, being useful and applicable (for investors), comparable, complete, verifiable, aligned, neutral, distributive.

Accounting and Audit Professionals Advised: Tune In to SASB

Separate of the BlackRock and SSgA advice to companies and investors, accounting and auditing professionals working with their corporate clients are being urged to “tune in” to SASB.

Former board member of the Financial Accounting Standards Board (“FASB”) Marc Siegel shared his thoughts with the New York State Society of CPAs in presenting: “SASB: Overview, Trends in Adoption, Case Studies & SDG Integration”.  The Compliance Week coverage is our Top Story in the newsletter this week.

Marc Siegel is a Partner in E&Y’s Financial Accounting Advisory Service practice, served a decade on the FASB board (managers and shapers of GAAP) and was appointed to the SASB board in January 2019.

He was in the past a leader at RiskMetrics Group and CFRA, both acquired by MSCI, and is recognized as a thought leader in financial services – his views on SASB will be closely followed.

With the growing recognition of the importance of SASB recommendation for disclosure to companies and the importance of SASB’s work for investors, he encouraged the gathered accountants to get involved and assist in implementing controls over ESG data, suggesting that SASB standards are a cost-effective way for companies to begin responding to investor queries because they are industry-specific. 

Accountants, he advised, can help clients by putting systems in place to collect and control the data and CPA firms can use SASB standards as criteria to help companies that are seeking assurance for their expanding sustainability reporting.

This is an important call to action for accounting professionals, helping to generate broader awareness of the SASB standards for those working with publicly-traded companies and for internal financial executives.

The G&A Institute team has been working with corporate clients in recent years in developing greater understanding of the SASB concepts and approaches for industry-specific sustainability disclosure and helping clients to incorporate SASB standards in their corporate reports. 

We’ve also been closely tracking the inclusion of references to “SASB” and inclusion of SASB metrics by public companies in their reporting as part of our GRI Data Partner work. ‘

The G&A Institute analyst teams examine and assess every sustainability report published in the USA and have tracked trends related to how companies are integrating SASB disclosures into their reporting. 

What began as a trickle of SASB mentions in corporate reports several years ago is now increasing and we are capturing samples of such inclusions in our report monitoring and analysis.

Over the past four+ years we’ve developed comprehensive models and methodologies to assist our corporate client teams incorporating SASB disclosures in their public-facing documents (such as their sustainability / responsibility / citizenship reports, in Proxy Statements, for investor presentations and in other implementations).

Our co-founder and EVP Louis Coppola was among the first in the world (“early birds”) to be certified and obtain the SASB CSA Level I credential in 2015.

If you’d like to discuss SASB reporting for your company and how we can help please contact us at info@ga-institute.com

There’s information for you about our related services on the G&A Institute web site: https://www.ga-institute.com/services/sustainability-esg-consulting/sasb-reporting.html

Top Story

Benefits of sustainability reporting: takeaways for accounting 
Source: Compliance Week – According to former Financial Accounting Standards Board (FASB) member Marc Siegel, companies are being asked for sustainability information from many sides and are facing a bumpy road because they are under pressure due to pervasive… 

The Circular Economy is Coming Our Way. Here Are Some Things to Think About for Your Product Development and Product Delivery…

February 13, 2020

by Hank Boerner – Chair and Chief Strategist, G&A Institute

During your travels, or even going about your usual business and personal activities, do you recall the days when… 

For example, experienced pilots remember having to use cockpit instruments (going “IFR”) when flying over large cities because the “smog” (usually thick yellow) eliminated visibility below. 

That was caused by belching smokestacks as dirty coal was burned for industrial use or for generating electric power. Con Ed in New York City was a prominent “smokestacker” in those days.

Or, you may have seen deep and wide gouges in our good Earth where giant machine scoopers were pulling a variety of minerals out for manufacturing products.  The American west and south (and north and east!) are filled with these gaping holes. Wonderful vistas?

As a young pilot, up there as the “Eye in the Sky” on weekends as a hobby to build flight hours, flying and broadcasting beach traffic to WGBB and WGSM (radio) below, I often had to fly in and out of the yellow mists IFR. With choking effects as the cockpit air filled.

Or as you traveled past a flowing river you may have seen thick flows of rubber or petroleum-based factory discharges…don’t worry, downstream the ocean will take it away, we were told.

(I remember seeing the US Royal plant outflow into the Connecticut River, with the rocks in the river all rubber-covered! The river flowed south to Long Island Sound and out to the Atlantic Ocean. Where the junk disappeared. Or did it!

In many countries, especially in Europe and North America, the good news is we have been moving far away from those days. In the U.S., the Clean Water Act, the Clean Air Act, RCRA, Superfund/CERCLA, and a host of other environmental regulations helped to make this one of the cleanest (relatively) countries by the end of the 20th Century.

That’s the good news!

And as the linear model of many years in old-line production methods continues to recede in many factories – that is, the traditional  take, make, use, dispose – and that model moves farther into the past (as described by Tom Tapper of “Nice and Serious” writing for Sustainable Brands), the “circular model” has been steadily emerging. The positive effects are being felt all along the value chain.

So what does this mean for branded company leadership?  Whose brand out there in the consumer or B-to-B marketplaces signals “we hold these values dear” or “look to us for sustainability leadership” or “corporate and societal responsibility is at our core”?

Tom Tapper cites examples of products and practices new and old from such firms as Unilever, CIG, Haagen-Dazs, Coca Cola, Stella, and Aesop, with a focus on their distinct product delivery (packaging, bottles, capsules, other means).  

He offers us his perspectives in a sometimes whimsical but always firmly- grounded style on what to expect in the coming years in brand marketing.

In a circular economy, the author sees five trends to watch:

  • We’ll be thinking of Bottles as “objects of desire”.  (Remember the classic, dark brown 1890’s voluptuous-evoking stylized Coca-Cola bottle of yesteryear?  And whatever happened to the little plastic Pez dispensers!) These were ions of yesteryear.
  • Product and Story. Or, as story.  The quality of and qualities of the product will be the main story told by marketers.  (The smart brand marketing leaders have been doing this for years!)  The drive to reduce plastics use, as example, gives smart marketers new ways to talk about product and packaging that has plastic workarounds (in product and packaging). Not that plastic will go away; it will be “different” in many ways.
  • “Hermit Crab Branding”.  If the brand does not have that beautiful bottle or packaging to offer consumers, they can offer stickers in packs to enable consumers to do their own packaging customizing. Or to cover over the branding on a competitor’s bottle. That is thinking like the Hermit Crab, which live in other sea critters’ cast-off shells.
  • The Coming of Dispenser Wars.  Push here for soap – the product dispenser becomes the competitive battleground, thinks author Tom Tapper. Will consumers want “memorable refill experiences”? Will marketers entertain the customer as he/she refills their containers?  (With music, sounds?) Maybe.  Non-branded containers may become the choice of the merchant (more profit!), like store brands are today.
  • Refill Truck Revolution.  Push here for the soap. If individual product packaging and products in bottles as today’s primary delivery modes recede into the past, will a fleet of electric vehicles someday be visiting your neighborhood to bring you “a premium refill experience”?  Filling your vat when you run low?

So the opportunities inherent in the coming of the Circular Economy, Tom Tapper tells us, present challenges for us as well, especially in that we have to discard the old ways and adapt to change, as in the relationship of the brand and product to the buyers. 

Progress is always about adapting to change.  Risk and opportunity. Welcoming and forbidding.

Just consider for a moment the work involved in the disappearance of those old belching smokestacks and smog over our heads and junk flowing into rivers from outflow pipes and deep gouges in the Earth.  Pilots don’t need to wear smoke masks anymore as they pass over U.S. cities.

We are certainly more productive as a society today than ever before!  U.S. industry is booming, turning out various goods.

And that presents many challenges as well – which the coming of the Circular Economy could help us deal with.

We’re reminded here of the favorite quote of the late Lee Iacocca (he was a leader of both Chrysler and Ford Motor Company.  Lead, follow or get out the way – good advice today: the Circular Economy is coming our way.

Top Stories for This Week

What Will a Circular Economy Mean for Branding?
Source: Sustainable Brands
While a circular economy will present huge challenges to most brands’ conventional business models, there are huge opportunities for those who embrace and adapt to this change — while those who drag their heels with incremental changes will undoubtedly fall behind.

The Year 2020: Off To Great Start For News About Sustainable Investing

by Hank Boerner – G&A Institute Chair & Chief Strategist

January 2020 — Here we are now in a new year, and new decade (already, the third decade of the 21st Century) and much of the buzz is all about (1) climate change and the dramatic impacts on business, finance, government and we humans around the globe; and (2) many investors are moving their money to more sustainable investments.

Oh, of course, there are other important conversations going on, such as about corporate purpose, corporate stewardship, human rights, the circular economy, worker rights, supply chain responsibility, reducing GHG emission, conserving natural resources, moving to a greener and lower carbon economy, workplace diversity, what happens to workers when automation replaces them…and more. 

But much of this is really part of sustainable investing, no?  And corporate purpose, we’d say, is at the center of much of this discussion!

The bold names of institutional investors/asset management are in the game and influencing peers in the capital markets – think about the influence of Goldman Sachs, BlackRock (world’s largest asset manager), State Street/SSgA, The Vanguard Group, and Citigroup on other institutions, to name here but a handful of major asset managers adopting sustainable investing strategies and approaches.

This week’s Top Story is about Goldman Sachs Group Inc’s pivot to “green is good”, moved by Reuters news service and authored by Chris Taylor.  The GS website welcome is Our Commitment to Sustainable Finance

The company announced a US$750 billion, 10-year initiative focused on financing of clean energy, affordable education and accessible healthcare, and reduction of or exclusion of financing for Arctic oil-gas drilling.

Head of GS Sustainable Finance Group John Goldstein explains the company’s approach to sustainable financing and investment in the Reuters story. 

Our other Top Story is from Morningstar; this is an update on the investors’ flows into sustainable funds in 2019…what could be the leading edge of a huge wave coming as new records are set. 

For 2019, net flows into open-end and ETF sustainable funds were $20.6 billion for the year just ended – that’s four times the 2018 volume (which was also a record year). There’s always information of value for you on the Morningstar website; registration is required for free access to content.

And the commentary on the January 2020 letter from BlackRock CEO Larry Fink to the CEOs of companies the firm invests in – we’ve included a few perspectives. 

We’d say that 2020 is off to an exciting start for sustainability professionals, in the capital markets, and in the corporate sector! Buckle your seat belts!

Top Stories for This Week

Green is good. Is Wall Street’s new motto sustainable?   
Source: Reuters – If you have gone to Goldman Sachs Group Inc’s (GS.N) internet home page since mid-December, it would be reasonable to wonder if you had stumbled into some kind of parallel universe. 

Sustainable Fund Flows in 2019 Smash Previous Records   
Source: MorningStar – Sustainable funds in the United States attracted new assets at a record pace in 2019. Estimated net flows into open-end and exchange-traded sustainable funds that are available to U.S. investors totaled $20.6 billion for the… 

BlackRock’s CEO’s 2020 Letter to Corporate CEOs – Explaining the World’s Largest Asset Manager’s Perspectives and Actions on the Global Climate Change Crisis

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

The big news this week for sustainability professionals:  The publication of the much-anticipated annual letter to corporate chief executive officers by Larry Fink, Chair and CEO of BlackRock –– the world’s largest asset manager (with almost US$7 trillion in Assets Under Management). 

Every year CEO Fink as fiduciary for his firm’s clients communicates BlackRock’s positions on key issues — and signals the steps ahead as BlackRock enhances its sustainable investing actions as influential global fiduciary.

This week the 2020 annual letter to corporate CEO’s describes what is headlined as “A Fundamental Reshaping of Finance”.   The focus is on climate change – a defining factor in companies’ long-term prospects, explains Mr. Fink.

 About the impact of climate change on investors:  “Awareness is rapidly changing, and I believe we are on the edge of a fundamental re-shaping of finance.”  Consider some quotes from the letter:

 “In the near future – and sooner than most anticipate – there will be a significant re-allocation of capital.”

 “Climate risk is investment risk.”

 “As I have written in past letters [to CEOs in 2019, 2018] a company cannot achieve long-term profits without embracing purpose and considering the needs of considering the needs of a broad range of stakeholders.  Ultimately, purpose is the engine of long-term profitability.”

 “Every government, company, and shareholder must confront climate change.”

Separately the BlackRock CEO wrote to the firm’s investor clients; he communicated to the corporate CEOs what he is saying to clients about BlackRock actions that will affect them. 

Consider: sustainability will be integral to BlackRock’s portfolio construction and risk management; certain investments will be exited (those presenting high sustainability-related risk, such as coal producers).  There will be new investment products that screen fossil fuels and strengthen BlackRock’s commitment to sustainability and transparency in its investment stewardship activities.

“Over time,” CEO Larry Fink posits, “companies and governments that do not respond to stakeholders and address sustainability risks will encounter growing skepticism from the markets, and in turn, a higher cost of capital. Companies and countries that champion transparency and demonstrate responsiveness…by contrast, will attract investment more effectively, including higher-quality, more patient capital.”

BlackRock was a founding member of the Task Force on Climate-related Financial Disclosures (the TCFD) and is a signatory of the UN Principles for Responsible Investing (PRI) as well as the Vatican’s 2019 statement advocating carbon pricing regimes.

CEO Larry Fink is one of the signatories of The Business Roundtable’s statement on corporate purpose.  BlackRock has just joined the Climate Action 100, a coalition of almost 400 investment manager managing US$40 trillion in AUM. 

There’s a volume of important information for both corporate boards and executives and sustainable investing professionals in the 2020 Larry Fink letter to CEOs of companies in BlackRock’s portfolio.

We can expect going forward in 2020 that many business & financial media will pick up on the BlackRock letter and capital market and corporate sector leaders will weigh in with their perspectives.

We are now a long way from the Professor Milton Friedman school of “shareholder primacy” advanced by the professor, in his books such as “Capitalism and Freedom” (1962) and his September 1970 essay proclaiming “shareholders first” in The New York Times.

Link to the letter.

Top Stories – Start of 2020 Coverage of the BlackRock / Larry Fink Missive

Fortune Magazine’s Coverage:
BlackRock CEO Larry Fink puts climate change at the center of megafund’s investment strategy

Barron’s Coverage for 400,000 Reader-Investors:
BlackRock CEO Larry Fink say’s it’s time to tackle global warming – starting with coal

Bloomberg News:
BlackRock puts climate at center of $7 trillion strategy

Hello to Year 2020 and the Start of the Third Decade of the 21st Century – Climate! Climate! Climate! is The Dominant Theme of News & Commentary!

It is a favorite pursuit of journalists and commentators at each year-end and the start of the new calendar year to look back and look forward to identify “top stories” and significant trends of the year past.  And to look ahead at “what might be” in the new year.  We present a few of these musing for you in this first newsletter of the year 2020.

Writing in the Harvard Business Review, author Andrew Winston (best-seller “Green to Gold”) in reviewing “big themes” of 2020 in sustainability, explains that “changing climate” has always been included in yearly wrap-ups.  After 2019, it is to be a permanent “big story”.

The 2019 weather headlines were about heat in Europe; floods in the USA; fires in Australia and the USA; vicious storms in the Caribbean and in Africa…all of this becoming our norm now. (As we write this in 2020, the Australian nation is in crisis, personal, business, national, as fires consume millions of acres, destroy homes and businesses, kill wildlife, and tragically, humans are dying as fires spread.)

There are eight “fascinating developments” of 2019 presented for you in our Top Story from the HBR/Andrew Winston, starting with the global climate protest movement – and a few forecasts for 2020.

We also present three other 2019/2020 selections from Eco-Business, AdAge and Food Drive on the themes of look back/look ahead.

Our G&A Institute Sustainability Update blog has been featuring commentaries about climate change over the years; we presented a new running series focused on climate as we approached the end of 2019 —  “About The Climate Change Crisis” — here are the first posts of many to follow:

Click here to sign up and receive alerts whenever news and commentary posts appear on G&A’s Sustainability Update Blog.

Top Stories

The Top Sustainability Stories of 2019   
Source: Harvard Business Review – The list of extreme, tragic, and very costly weather events this year — record heat in Europe, hail in June in Mexico, record floods in Nebraska, endless Australian bush fires, and epic destruction from storms in Mozambique and…

Here’s a Look-Ahead into 2020

5 Trends That Will Shape Sustainability & Business in 2020   
Source: Eco-Business – As a world in climate crisis enters a new decade, Eco-Business highlights five major trends that will shape society and business in the coming year.

Ideas About Sustainability That Stuck With Us In 2019 … And What They Might Mean For 2020   
Source: AdAge – 2019 saw a marked increase in the roles that corporate responsibility—and particularly sustainability—played in major marketers’ overall business plans. And that trend is likely to accelerate in 2020. Here are some things that…

2020 Will Be the Year Sustainability Goes from Buzzword to Necessity   
Source: Food Drive – Everybody wants sustainable products, and retailers are putting pressure on manufacturers to deliver goods that satisfy consumers’ new preference for green and clean options.

Tune In To This Important Report – Today And In Time to Come: The Fourth Official “Climate Science Special Report” Issued by the U.S. Government’s “Global Change Research Program” – Projected the Critical Impacts of Climate Change on the American Society in the 21st Century

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

Another in the About the Climate Crisis series

November 7, 2019


In November 2018 the government of the United States of America published the fourth climate change assessment by key U.S. government agencies — this is the “Climate Science Special Report” as prepared by the U.S. Global Change Research Program of the Federal government.

The contents are of significance if you are an investor, a company executive or board member, an issue advocate, officer holder or civic leader, consumer — or other type of stakeholder.

There are volumes of data and descriptions for a range of “high probability” outcomes in this the 21st Century.

The foundation of the report: Literally hundreds of studies conducted by researchers around the world that clearly document increases in temperatures at Earth’s surface as well as in the atmosphere and oceans — and projections of what that means to the planet and its occupants.

What is clear: Human activities are the primary driver of climate changes observed in the three-plus centuries of the modern industrial era (i.e., GHG emissions, deforestation, land-use changes).

Think about the impacts of these events and developments on your business and personal life:

  • we can expect many more superstorms;
  • and more drought in more areas of the U.S., Africa, other parts of the globe;
  • greatly increased risk of forest fires;
  • more floods;
  • melting glaciers melting resulting in steadily rising sea levels;
  • the news of still more melting glaciers; ocean acidification; 
  • death of species;
  • increasing atmospheric water vapor (thus, more powerful rainstorms, especially accompanying superstorms)…and more.

And — what about a potential drop of 10% in the U.S.A. Gross Domestic Product by end of this century? What impact will that have on you? On your children and their children?

The impacts of climate change will be felt in such activities as human health, agriculture and food security, water supply, transportation, energy, trade, migration, and ecosystems…becoming increasingly disruptive in coming years.

These are some of the subjects explored in depth in the “Climate Science Special Report” released the day after Thanksgiving 2018 by the U.S. Global Change Research Program.

(The Trump Administration released that day to hide the report, critics immediately charged; the report directly and emphatically challenges the “climate change is a hoax” claim of the administration. Friday after the Thanksgiving holiday is usually a very slow news day.  However, the release of the report resulted in broad media coverage on “a slow day”.)

Influential Authors: The Global Change Program

The program is a mandated collaborative effort of more than a dozen Federal departments of the United States of America government — such as NOAA, NASA, US EPA, and executive branch cabinet offices of Commerce, Agriculture, Energy, State, Transportation, and Defense; plus the Office of Management & Budget (OMB – this is part of the Office of the President).

The many experts gathered from these departments of the U.S. government, plus a universe of university-based experts, reported (in more than 1600 pages of related content) on the “state of science relating to climate change and its physical impacts.”

The CSSR (“Climate Science Special Report”) serves as a foundation for efforts to assess climate-related risks and inform decision-makers…it does not include policy recommendations.

The results are not encouraging – at least not in November 2018 and here in October 2019 as we look out to the rest of the 21st Century, given the s-l-o-w pace of actions taken to date to address climate change challenges.

Highlights of The Report:

NOAA — The National Oceanic and Atmospheric Administration — is the lead agency working with NASA and other Federal governmental bodies to develop the report.

The collaborative effort analyzes a wide body of scientific research and observations of current trends in climate change — and projects a number of major trends out to the end of this 21st Century.

The focus of the work is on impacts to human welfare, societal, economic, and environmental elements of climate change.

Each of the 15 chapters of the report focuses on key findings; authors have assigned a “confidence statement” for scientific uncertainties. (There are numerous statements of “Confidence Levels” and “Likelihoods” for various trends and events.)

There are 10 regional analyses of climate change — such as the Northeastern region of the U.S., and sprawling Southern Great Plains. The report was 18 months in preparation and the final report is the sixth draft developed over that time.

Chapters include such themes as: Physical Drivers of Change; Climate Models, Scenarios and Projections; Droughts, Floods and Wildfires; Extreme Storms; Changes in Land Cover; Sea Level Rise.

Some takeaways to consider:

1. This period is now the warmest in the history of modern civilization. Since the publication of the last Assessment, 2014 became the warmest year on record globally; 2015 was even warmer and 2016 surpassed that; 16 of the warmest years on record occurred during the last 17 years.

2. Thousands of scientific and technical studies have documented changes in surface, atmospheric and oceanic temperatures.

3. Land and sea ice glaciers are continuing to melt; there is acceleration in ice sheet loss with up to 8.5 feet of global sea rise possible by 2100. (Think about that impact on major population areas on the edge of the seas, such as New York, Boston, Miami, Liverpool, Hamburg, Naples and Bari, Lisbon, Rio de Janeiro, Hong Kong, and Shanghai, and more.)

4. Ice melts and then Sea levels continues rising; global average sea level has risen 7-to-8 inches since 1900, half of that since 1993.

5. Related: the incidence of daily tidal flooding is accelerating in more than 25 Atlantic and Gulf coast cities – watch out New Orleans and Houston.

6. Heat waves are more frequent and cold waves are less frequent.

7. Forest fires have steadily increased since the early 1980s (look at the disaster in California in recent years – and in 2018 and 2019!).

8. Carbon dioxide (CO2) concentration has passed 400 PPM — a level that last existed some 3 million years ago, when both global average temperatures and sea level were higher than today.

9. Since 1980, extreme weather events for the U.S. has exceeded costs of US$1.1 trillion.

There are hundreds of references to scientific studies throughout the report.

The various findings, the authors point out, are based on a large body of scientific, peer-reviewed research, evaluated observations and modeling data sets.

In this report, we should note, experts and not politicians and speak to us in clear terms that we can all understand.

Important Key Findings:

  • Global climate is projected to change over this century (and beyond) – the report is complete with “likelihoods”) and with major effort, temps could be limited to 3.6°F / 2°C or less – or else.
  • Without action, average global temperatures could reach to 9°F / 5°C relative to pre-industrial times – disaster at the end of the 2100s.
  • Human activity continues to significantly affect the Earth’s climate and is the dominant cause of climate warming. Aerosols are a key activity with profound and complex roles.

There are 12 Reporting Findings with important results here: https://nca2014.globalchange.gov/highlights#section-5683

Related to this:  The TCFD Scenario Testing Recommendations

Formed after the 2008 financial crisis, The Financial Stability Board (organized by the central banks and treasury ministries of the G20 nations) appointed a Task Force on Climate-related Financial Risk Disclosure (the “TCFD”), which in Fall 2017 strongly recommended that the financial sector companies and (initially) identified four business sectors begin to examine the effects of climate change on their businesses, and as part of the analysis test scenarios against (to begin with) 2-degrees Centigrade (3.5°F) temp rise — and increase scenario testing from there over time.

This important assessment (the Federal government’s 2018 report described here) should be a valuable resource for investors, bankers, insurance carriers and public and private company boards and managements in their analysis and scenario planning (alternative scenarios are suggested in the TCFD report).

And these assessment can be especially useful for publicly-traded company managements who are being urged by investors and stakeholders to begin scenario testing and disclose the results.

This will be an important issue in the engagements of investors/companies and in the 2020 corporate proxy season – and beyond.

There are various scenarios in the Assessment that can be referenced by companies in their own scenario testing.

Report Authors:

A wide range of experts helped to prepare the report; these included: U.S. Army Corps of Engineers; the U.S. national laboratories; scientists at such universities as Illinois-Urbana-Champaign, Maryland, Texas Tech, Pennsylvania State, North Carolina State, Iowa State; Rutgers-NJ, California-Davis, and, Alaska. In all, more than 300 experts contributed to the report.

The full report is available at:

https://science2017.globalchange.gov/downloads/CSSR2017_FullReport.pdf

The Exec Summary at: https://science2017.globalchange.gov/downloads/CSSR2017_PRINT_Executive_Summary.pdf

Important Notes:

The U.S. Global Change Research Program, based in Washington, D.C., is a Federal program mandated by the U.S. Congress – the first branch of government identified in the U.S. Constitution, Article One — to coordinate Federal research and investments in understanding the forces shaping the global environment both human and natural, and their impacts on society.

The USGCRP was established in 1989 and mandated by the U.S. Congress in 1990…to understand, assess, predict, and respond to human-induced and natural processes of global change.

There are 13 Federal agencies involved that conduct or use research on global change. Among these there are Interagency Working Groups to implement and coordinate research activities (within and across the agencies).

The critical guidance: Thirteen Agencies, One Vision: Empower the Nation with Global Change Science.

The Governance Aspects:

The USGCRP is steered by the Subcommittee on Global Change Research of the National Science and Technology Council’s Committee on the Environment, overseen by the White House Office of Science and Technology.

Executive Cabinet offices involved: U.S. Departments of State; Health and Human Services; Defense; Commerce; Agriculture; Energy; Transportation; Interior.

Federal Agencies: NASA; US EPA; National Science Foundation; Smithsonian Institution; U.S. Agency for International Development (USAID); the White House (OMB and NSTC).

Interesting:
Positioning statement (on the web site): Earth’s climate is now changing faster than at any point in the history of modern civilization, primarily as a result of human activities. Global climate change has already resulted in a wide range of impacts across every region of the country and many sectors of the economy that are expected to grow in the coming decades.

This Fourth assessment (known as “NCA4” to insiders) developed by USGCP is a state-of-the-science synthesis of climate knowledge, impacts and trends across U.S. regions to inform decision-making and resilience-building.

It is the most comprehensive and authoritative assessment to date on the state of knowledge of current and future impacts of climate change on society in the U.S.

You can access the full report at: https://nca2018.globalchange.gov/

Reporting requirements for the Assessment comply with Section 106 of the U.S. Global Change Research Act of 1990 and other federal requirements.

There is regional information from Global Change at: https://www.globalchange.gov/explore

The current report takes into consideration the findings of the Intergovernmental Panel on Climate Change (IPCC) – of which the United States is a participating country.

IPCC issued its Fifth Assessment Report (“AR5”) in 2014 and issued a Special Report (“SR15”) – Special Report on Global Warming of 1.5-degrees C – in October 2018.

The latest IPCC report and related information is at: http://www.ipcc.ch/

There are scholarly assessments of the Fourth Climate Change Assessment at: https://scholar.google.com/scholar?q=fourth+climate+change+assessment&hl=en&as_sdt=0&as_vis=1&oi=scholart

We will be sharing more thoughts on IPCC in separate commentaries.

Note:  This originally was drafted for G&A Institute’s “To the Point!” management briefs (now archived) in November 2018 and updated here in November 2019.

About the Climate Crisis — The Hoax? It’s On Us!

November 8, 2019

By Larry Checco

The U.S. National Park Service markers show that in the 1940s and 1950s, about the time I was born, a glacier — Exit Glacier, just outside of Seward, Alaska — covered almost an entire valley in hundreds of feet, and megatons of ice and snow.

Today, Exit is melting at the rate of one-foot-per-day and receding back into the Harding Icefield from whence it came …millennia ago.

If you think that climate change is a hoax, then I suggest you visit Alaska.

My wife Laurie and I did recently and were in awe of the variety of its wildlife, the grandeur and majesty of its mountains and landscapes, the diversity and friendliness of its indigenous and transplanted inhabitants.
And we were greatly saddened by the dangers they all face.

Fact is, 2019 has been the driest and hottest year in Alaska’s recorded history. Anchorage, where half the state’s nearly 700,000 people reside, recorded a record-breaking 90 degrees F this past July 4th holiday.

Two-and-a-half times larger than the State of Texas, Alaska encompasses some three million lakes, 3,000 rivers, 1,800 islands, and 100,000 glaciers. You’ve got to experience it to believe it. And best to do it sooner rather than later.

It seems everything in Alaska is being affected by global warming— glaciers, vegetation, fisheries, wildlife, as well as native inhabitants who are fearful of losing their subsistence way of life, which they so cherish.

The heat and dryness accounted for more than 150 forest fires throughout the state during our two-week visit. One fire crossed the only road from Homer to Anchorage and forced our tour bus to follow an official pilot car through the smoke and small flame breakouts.

Alaska’s permafrost is thawing, which is buckling its roads (and Alaska doesn’t have many) and sinking some of its villages, making them uninhabitable.

Our tour of Denali was cut short because a rockslide the previous day took out some of the road.

None of this put us in any real danger, but they were real-life demonstrations of the force and influence of Mother Nature. And maybe, just maybe, we humans have something to do with it.

We saw in the wild, and from the safety of our tour bus, plenty of brown (grizzly) and black bears, moose, elk, caribou, big-horned sheep and more, and were told by our guide that many of their migration patterns have changed because of the increase in temperature.

We did not get to Alaska’s Arctic Circle region, where polar bears struggle to survive, but we were informed that polar bear specialists almost unanimously agree that predicted declines in summer sea ice due to rising CO2 emissions from fossil fuel use are now the biggest threat to polar bears.

Yet, in addition to rolling back some of our most important environmental regulations–including those related to clear air and clean water–the Trump Administration recently opened Alaska’s remote Arctic National Wildlife Refuge (ANWR) to oil and natural gas drilling, ending more than four decades of heated debate on the matter, and placing a large swath of Alaska’s pristine landscape at risk.

Some species live and learn, meaning they adapt to changing environments so as to live another day. Other species just live. I fear we homo sapiens fall into the latter category.

But there may be hope for us yet. Our trip to Alaska also exposed my wife and me to the wisdom of those who came before.

Ten Universal Values

The following Ten Universal Values are from the Alaska Native Knowledge Network, which includes Aleuts, Athabascans, Cup’ik, Tlingits, and several other Alaskan native tribes.

I think these principles are worth incorporating into our techno-driven, often mind-numbing lives:Show respect to others: Each person has a special gift.

  • Share what you have: Giving makes you richer.
  • Know who you are: You are a reflection of your family.
  • Accept what life brings: You cannot control many things.
  • Have patience: Some things cannot be rushed.
  • Live carefully: What you do will come back to you.
  • Take care of others: You cannot live without them.
  • Honor your elders: They show you the way in life.
  • Pray for guidance: Many things are not known.
  • See connections: All things are related.

If we can bring find the ways for ourselves to abide by these values there still may be time to turn things around. Let’s hope so.

There is no Planet B.

Contents Copyright © 2019 by Larry Checco – All Rights Reserved

Photo Gallery:

Larry with wife, Laurie. Glaciers are melting at a rapid rate in Alaska

Being escorted through a fire zone.

A grizzly, which most Alaskans call brown bears.

Laurie Checco with a sign offering good advice.

Larry in Homer, Alaska.