Dramatic Change of Direction For The Business Roundtable With Issuance Of “Purpose Statement” Signed By The CEOs Of America’s Largest Companies

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

The Business Roundtable (BRT) is an organization of CEOs of the largest companies in the U.S.A. — firms that generate a combined US$7 trillion in revenues, employ 15 million people, invest $ 147 billion annually in R&D, and provide healthcare and retirements benefits for tens of millions of Americans.

Member companies operate in every one of the 50 states and through the organization the nation’s top business leaders work to influence major societal issues — tax policy, infrastructure needs, trade and other issues..

This universe of large companies is where many institutional and retail investors place their bets on the economic future and enjoy some of the fruits of the efforts of the enterprises they invest in. 

Investors provide much of the capital that make the wheels go ‘round for the BRT companies.  Consider: investors in the BRT member companies received almost $300 billion in dividends.

And so investors have been a priority concern for the CEO members for the almost half-century existence of the Business Roundtable. 

The BRT’s long-term guiding philosophy seemed to many to have been rooted in the period four decades ago when influential economists such as Dr. Milton Friedman of the University of Chicago advised the CEOs that their primary duty was to look out for the shareholders first…and all else would fall in place.

Professor Friedman famously set out the agenda for major company CEOs and boards in his essay in The New York Times magazine in September 1970: A Friednzan Doctrine.

“When I hear businessmen speak eloquently about the ‘social responsibilities of business in a free-enterprise system’…the businessmen believe that they are defending free enterprise when the declaim that business is not concerned merely with profit but also promoting desirable social ends, that business has a ‘social conscience’ …” he began.

In doing this, he explained, those running companies believe they “have responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers…”

Only people can have responsibilities, the professor said. A corporation or business as a whole cannot be said to have responsibilities, even in this vague sense.

He concluded his 3,000 word anti-CSR screed with this: “…the doctrine of social responsibility taken seriously would extend the scope of political mechanism to every human activity. It does not differ from the most explicitly collectivist doctrine…” (Read: Communism; this was written in the days of the Cold War.)

Dr. Friedman saw corporate social responsibility as a “fundamentally subversive doctrine and that business had one and only one social responsibility: to increase profits so long as it stays within the rules of the game…”

In fact, the business managers / owners are, or would be if anyone else took them seriously, “preaching pure and unadulterated socialism.”

We Are In a New Era

We are almost 50 years away from the 1970 essay by the good professor.

The game has changed. The world has changed. The nature of the former Russia-USA standoff of the Cold War era has changed. Attitudes in the business (corporate) community have changed (witness the BRT “purpose statement”). Institutional investor attitudes have changed (see: sustainable investing). A vast array of stakeholders have entered this discussion since the 1970s.

So What Is The Purpose of The Corporation in the 21st Century – in 2019?

In 1997, the Business Roundtable issued its statement of the purpose of the corporation:  “The paramount duty of management and of boards of directors is to the corporation’s stockholders.”

No more.  This week, the Business Roundtable moved beyond the long-term “shareholder primacy” operating principle, releasing its revised “Statement on the Purpose of a Corporation” — representing a dramatic course change in the principle operating philosophy of this powerful, CEO-led organization.

The almost 200 CEO signatories pledged to: 

–invest in employees;

–deliver value to customers;

–deal fairly and ethically with suppliers;

–support communities in which they work; and, –generate long-term value for shareholders.

Each of stakeholders is essential, the Purpose Statement reads.  We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.

Jamie Dimon, CEO of JPMorgan Chase is the current head of the BRT and played an important role in the dramatic shift of attitude in the official stance of the organization.  He sees this as “an acknowledgement that business can do more to help the average American.”

Adding color to this critical public re-positioning:  “Society gives each of us a license to operate. It’s a question of whether society trusts you or not,” Ginni Rometty, CEO of IBM told Fortune.

On its web site, BRT states “as leaders of America’s largest corporations, BRT CEOs believe we have a responsibility to help build a strong and sustainable economic future in the United States.”

We can say here that it appears that ESG and Sustainability basic principles are now “officially recognized” by the members of the CEO association — and have been enshrined in the declaration of the purpose of the U.S. large corporation.

The Purpose Statement does touch on numerous concerns of the sustainable investor – a good step forward for this powerhouse organization.

Perspective: This new BRT direction is about ESG / Corporate Sustainability / Corporate Responsibility / Corporate Citizenship — the issues and topic areas we deal with every day here at G&A Institute!

The BRT was created two years after the Milton Friedman essay appeared in The New York Times magazine (October 1972). Institutional investors were flooding into the equities market with relaxation of “prudent man/prudent investor” rules or guidelines of that the day. Large publicly-traded companies were the crown jewels of cities and towns (think: IBM, Hudson Valley, NY; GE, Connecticut; GM, Detroit).

The CEOs of that day — the predecessors to today’s BRT leadership — were operating in very different societal environments than in the 21st Century.

Congratulations to the CEOs who signed on to the new Purpose — no doubt the conversations with institutional investors will be centered in some ways on the new “official” BRT perspectives in the days ahead.

For the record, note that the BRT released its first sustainability report — “SEEing Change” — in April 2008 with 32 companies contributing to the report. The tally was 155 companies involved by 2017, with goals being set for E and S improvements.

We are following the discussion kick-started by the Purpose Statement and will have more to perspectives to share in the weeks ahead.

Our Top Story is the excellent Fortune feature on all of this by veteran business writer Alan Murray. It’s a great summary of the dramatic move by the CEO signatories this week.Click here to read the Business Roundtable’s “Statement on the Purpose of a Corporation” and see the list of corporate CEO signatories. 

The Top Story

America’s CEOs Seek a New Purpose for the Corporation
Source: Fortune – For more than two decades, the influential Business Roundtable has explicitly put shareholders first. In an atmosphere of widening economic inequality and deepening distrust of business, the powerful group has redefined its mission…

How Do We Get Board Room Attention For Our Corporate Sustainability Efforts? And Help Directors Understand and Support The Corporate Effort?

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

Those questions and more are often raised by managers trying to get the board room and C-suite attention – and support and resources needed — to launch or advance their company’s sustainability journey.

Here at G&A Institute our team has ongoing conversations with corporate managers about ESG / corporate sustainability and related topics.  What often comes up:  the “G” is challenging.  The questions raised include…

What metrics can we apply to show “governance progress” in our reporting?  Governance – that’s clearly a board room responsibility. What is measurable…and then reportable to be part of the ESG profile of the company?

How can we get the board’s attention to be able to keep them updated and involved in our company’s sustainability efforts? 

If we are staring out, how can we get the board’s attention to be able to help them understand the importance of corporate sustainability (we hear this from managers trying to get the program going and needing resources to be allocated).

What information does the board need to understand the whole topic area? (Corporate Sustainability / Sustainable Investing et al.)

Some answers to these and other questions are at hand in the advice from the World Business Council for Sustainable Development (the WBCSD) in the form of a commentary by the organization’s associate of redefining value, Johanna Tahtinen.  She offers perspectives and advice on Ethical Corporation’s platform.

To move from “nice to have” to “need to have”, she cites a McKinsey & Company report that found that a quarter of assets under management (globally) are now invested considering ESG factors, and what was a niche practice is now large and fast-growing.  Good for the board to know.

And, the World Economic Forum (WEF), the Davos meetings organizer, in its third Global Risk Report identified ESG as “…clearly becoming part of the everyday business realty and well as a fiduciary duty.  Good for the board to consider.

Governance metrics are a starting point and focus area for many investors, creating expectations for companies to integrate ESG “meaningfully into governance structures, management processes and disclosure”.  Clearly in the board room list of duties and responsibilities to address.

The influential WBCSD, Johanna Tahtinen explains, recently launched a project on governance and oversight to elevate ESG-related issues to the board room by supporting stronger decision-making, risk management and business resilience.

Good governance – assuring that this a high-priority in the board room – sends strong signals to the capital markets.  How do we know that? 

A recent study by WBCSD and Big 4 accounting firm PwC shows that investors (generally) have more confidence in the information reported and that governance metrics are a starting point and focus area for many investors today.

For the board room audience — the report put ESG in the risk category — it is all about risk, said Paula Loop, Leader-Governance Insights Center at PwC. She talked in February 2019 about risks, common misperceptions and the three stages of ESG with FEI Daily (the publication of Financial Executives International).

Her comments are of real value for you in assembling your board room presentation – check here:
https://www.financialexecutives.org/FEI-Daily/February-2019/ESG-in-the-Boardroom-A-Q-A-With-PwC%E2%80%99s-Paula-Loop.aspx

The advice for managers and senior executives for communicating the importance of ESG  to the board room from WBCSD includes:

  • Integrating material ESG information into the corporate reporting processes and decision-making.
  • Using consistent and comparable standards and metrics.
  • Making sure the board of directors understands the importance of ESG.

You’ll find details on these and more information in the Top Story.

The Top Story

From nice to have to need to have: how companies can push ESG up the boardroom agenda
Source: Ethical Corporation – Johanna Tahtinen of the World Business Council for Sustainable Development explains how boards can improve governance systems to meaningfully integrate ESG 

For the Board Room and C-Suite –Questions and Advice From the Harvard Business Review About Corporate ESG and Sustainability

Corporate managers & executives: is your board “sustainability/ESG fluent”? And if not – why not?

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

Attorney Silda Wall Spitzer and John Mandyck, CEO of Urban Green Council, writing in Harvard Business Review explain that while “some” board members have become increasingly “sustainability/ESG fluent” many companies [still] don’t expect their directors to understand sustainability or ESG and don’t provide board room education on the subject matter.

Those enterprises are at a competitive disadvantage, the authors believe. 

An important game-changer for the board room and C-suite to understand is the profound influence of ESG as investment professionals (institutional asset owners and their management firms) increasingly use ESG data, ratings, rankings, and scores to analyze their portfolio holdings (and screening prospective investments).

These ratings, rankings, scores and comprehensive ESG profiles provide a foundation of corporate ESG data and information from the independent ratings agencies that the asset owners and managers use to refine their models and apply to portfolio management policies and practices.

The HBR authors explain the basics of this for the publication’s broad management audience – those men and women at the top of the corporate pyramid who should be aware of, understand and be focused on their company’s ESG strategies, actions and outcomes (or current lack thereof!).

The company’s sustainability scores provided by third party organizations are based on corporate disclosure and performance in three main categories (environmental, social, governance).

Here at G&A Institute we see the leaders in large-cap space embracing sustainability / ESG as evident by the results of our annual survey of the S&P 500 Index® companies’ sustainability & responsibility reporting. 

From the rate of about 20 percent eight years ago, we now find 86% of the 500 large-cap firms are now publishing such reports — many using very innovative and robust approaches.

We’re seeing that the mid-cap and small-cap companies are catching on to the trend and beginning their own sustainability journey that will result in still broader disclosure and reporting.  But not all mid- and small-caps are on board yet. 

This is an area of tremendous opportunity for leadership by companies who make the first move in their sectors and differentiate themselves from their industry and investment peers.

In our conversations with managers at companies just starting out on their sustainability journey (or contemplating same), we explain that there is already a “public ESG profile” of the company “out there” and being studied by investors.

Perhaps, being studied by a good portion of the company’s current shareowner base, depending on the size of the company (the market cap), geography, sector or industry classification, or other factors.

The often- scattered and diverse elements of the existing ESG public profile come from the company’s financial filings, regulatory filings (such as for environmental data), financial and other analyst reports, the company’s web site postings, ESG “brochure-type” reports — and a host of ratings and scores created by the ESG ratings providers and used by investors.

There are more than 200 such ESG / sustainability ratings organizations of varying size and type.  The major influencers for institutional investors include ESG raters such as MSCI, Sustainalytics, and Institutional Shareholder Services (ISS), and ESG data providers such as Bloomberg and Thomson Reuters.

What directors and executives of all public companies need to understand is that important decisions about their companies are being made in large measure now by the foundational work of these organizations and their many peers around the world.

And if the company does not tell the story of its sustainability journey, others will (and are).

Potential Impacts:

The work of the ESG ratings firms also can affect company-customer relationships; employee recruitment and retention; business partnerships and collaborations; relations with civic leaders and the communities the company operates in; for global players, the countries they operate in; the stock exchanges their issues trade on; their insurers and re-insurers views of the enterprise…and other aspects of corporate finance.

While “ESG” and “sustainability” may be seen as touchy-feely and “non-financial” concepts in some board rooms and C-suites, the material ESG issues are really about the company’s risk management profile, the quality of leadership at the top, competitive advantage, sustainability in the traditional investment view (the company has lasting power and is a long-term value proposition), and more.

As for being “non-financial”, the HBR authors point to a Harvard B-School study that found that $1 invested in a company focused on ESG resulted in $28 return vs. $14 for those companies not yet focused on ESG.  What director would not want to brag about this kind of achievement that is real and financial? It’s time to stop thinking of ESG as being touchy feely and squishy!

The HBR commentary is good basic overview for directors to help them understand the role of the board in overseeing and helping to shape the strategies and actions that will comprise their company’s sustainability journey. 

Author Silda Wall Spitzer is the former First Lady of New York State and co-founder and CEO of New York Makers, which curates NYS-made gifts and events that “define New York State”.  She is a former private equity director. Information at: https://newyorkmakers.com/

Co-author John Mandyck is CEO of Urban Green Council; its mission is to transform buildings in New York City and around the world through research, convening, advocacy and education. More information at: https://www.urbangreencouncil.org/aboutus

This Week’s Top Stories

What Boards Need to Know About Sustainability Ratings
(Friday – May 31, 2019) Source: Harvard Business Review – Corporate boards of directors must tackle questions about sustainability in a new and urgent manner. If they don’t, they will hear from investors about their lack of action. In just the latest indication of the investor… 

S&P 500® Index Companies’ ESG/Sustainability, Responsibility Reporting Hits 86% For Year 2018 – Latest G&A Institute Research Results…

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

The G&A Institute’s S&P 500 Index(r) analysis for the constituent companies’ 2018 reporting is complete.

For the eighth year, the G&A Institute research team has examined the ESG, Sustainability, Responsibility & Citizenship disclosure and reporting practices of the S&P 500® Index companies — and determined for year 2018 that 86 percent of the almost 500 public companies were publishing reports in various formats for public viewing.

This is a 1% increase over the 85% reporting trend determined by G&A researchers for year 2017. When the research effort began eight years ago (for 2010 reporting, in the 2011 examination) the number of companies among the 500 was just below 20%.

In the beginning of January each year, the current team of G&A analysts begin their examination of the prior year’s reporting trends. 

The S&P 500 companies (not always an exact number) are closely examined to determine public disclosure and reporting practices for activities that may be branded “corporate sustainability, or responsibility or citizenship, or even environmental” that appear in print, web or hybrid versions.

The initial results are double checked by other analysts and by EVP Louis Coppola, the architect of G&A’s research efforts since 2011.  G&A Institute Senior ESG Analyst Elizabeth Peterson assists as team leader in the coordination of the analysts’ research (she has been involved in the effort for several years now).

G&A’s team report analysts who contributed to the research this year are: Minalee Busi, Jessica Caron, Emilie Ho, Jess Peete.

The S&P 500 Index research results are widely cited by investors, analysts, company managers and other stakeholders in their own work and have become a standard reference for those citing the dramatic increase in corporate sustainability reporting. 

Institutional investors cite the results in urging non-reporting companies to begin reporting to shareholders on their sustainability journey.

You can see the full report in the news release that is linked as the Top Story this week.

FLASH REPORT: 86% of S&P 500 Index® Companies Publish Sustainability / Responsibility Reports in 2018
(Thursday – May 16, 2019) Source: Governance & Accountability Institute, Inc. – Highlights from Governance & Accountability Institute, Inc. Research: “Sustainability reporting” rose dramatically from 2011, when roughly 20% of companies published reports, to 72% just three years later in 2013. From 2013 to…

Trump Administration Continues Attempts to Unravel U.S. Environmental Protections Put in Place Over Many Years – Now, Shareholder Proxy Resolution Actions on Climate Issues Also In Focus For Investors…

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

We should not have been surprised: in 2016 presidential candidate Donald Trump promised that among his first steps when in the Oval Office would be the tearing up of his predecessor’s commitment to join the family of nations in addressing climate change challenges. 

In late-December 2015 in Paris, with almost 200 nations coming to agreement on tackling climate change issues, the United States of America with President Barack Obama presiding signed on to the “Paris Agreement” (or Accord) for sovereign nations and private, public and social sector organizations come together to work to prevent further damage to the planet.

The goal is to limit damage and stop global temperatures from rising about 2-degrees Centigrade, the issues agreed to. 

As the largest economy, of course the United States of America has a key role to play in addressing climate change.  Needed: the political will, close collaboration among private, public and social sectors — and funding for the transition to a low-carbon economy (which many US cities and companies are already addressing).

So where is the USA? 

On June 1st 2017 now-President Trump followed through on the promise made and said that the U.S.A. would begin the process to withdraw from the Paris Agreement on climate change, joining the 13 nations that have not formally ratified the agreement by the end of 2018 (such as Russia, North Korea, Turkey and Iran).  

Entering 2019, 197 nations have ratified the Agreement.

A series of actions followed President Trump’s Paris Agreement announcement – many changes in policy at US EPA and other agencies — most of which served to attempt to weaken long-existing environmental protections, critics charged.

The latest move to put on your radar:  In April, President Trump signed an Executive Order that addresses “Promoting Energy Infrastructure and Economic Growth”.

[Energy] Infrastructure needs – a bipartisan issue – are very much in focus in the president’s recent EO.  But not the right kind to suit climate change action advocates. 

Important: The EO addressed continued administration promotion and encouraging of coal, oil and natural gas production; developing infrastructure for transport of these resources; cutting “regulatory uncertainties”; review of Clean Water Act requirements; and updating of the DOT safety regulations for Liquefied Natural Gas (LNG) facilities.

Critics and supporters of these actions will of course line up on both sides of the issues.

There are things to like and to dislike for both sides in the president’s continuing actions related to environmental protections that are already in place.

And then there is the big issue in the EO:  a possible attempt to limit shareholder advocacy to encourage, persuade, pressure companies to address ESG issues.

Section 5 of the EO“Environment, Social and Governance Issues; Proxy Firms; and Financing of Energy Projects Through the U.S. Capital Markets.” 

The EO language addresses the issue of Materiality as the US Supreme Court advises.  Is ESG strategy, performance and outcome material for fiduciaries? Many in the mainstream investment community believe the answer is YES!

Within 180 days of the order signing, the Secretary of the Department of Labor will complete a review existing DOL guidance on fiduciary responsibilities for investor proxy voting to determine whether such guidance should be rescinded, replaced, or modified to “ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets”. 

(Think of the impact on fiduciaries of the recommendations to be made by the DOL, such as public employee pension plans.) 

The Obama Administration in 2016 issued a DOL Interpretive Bulletin many see as a “green light” for fiduciaries to consider when incorporating ESG analysis and portfolio decision-making.  The Trump EO seems to pose a direct threat to that guidance.

We can expect to see sustainable & responsible investors marshal forces to aggressively push back against any changes that the Trump/DOL forces might advance to weaken the ability of shareholders – fiduciaries, the owners of the companies! – to influence corporate strategies and actions (or lack of action) on climate change risks and opportunities.  Especially through their actions in the annual corporate proxy ballot process and in engagements. 

You’ll want to stay tuned to this and the other issues addressed in the Executive Order.  We’ll have more to report to you in future issues of the newsletter.

Click here to President Trump’s April 10, 2019 Executive Order.

Facts or not?  Click here if you would like to fact check the president’s comments on withdrawal from the Paris Agreement.

We are still in!  For the reaction of top US companies to the Trump announcement on pulling out of the Paris Accord, check The Guardiancoverage of the day.

At year end 2018, this was the roundup of countries in/and not.

For commentaries published by G&A Institute on the Sustainability Update blog related to the above matters, check out it here.

Check out our Top Story for details on President Trump’s recent EO.

This Week’s Top Stories

Trump Order Takes Aim at Shareholders Pushing Companies to Address Climate Change
(Wednesday – April 77, 2019) Source: Climate Liability News – President Trump has ordered a review of the influence of proxy advisory firms on investments in the fossil fuel industry, a mot that…

Davos 2019: The Conversation in Switzerland Ripples Out to The Rest of the World – News, Commentaries, Reports, Initiatives, For Your Consideration

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

Davos, Switzerland –  January 2019: The Conversation in Switzerland Ripples Out to The Rest of the World – News, Commentaries, Reports, Initiatives, For Your Consideration

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

The world leadership gathering in Switzerland in winter every year – we see this in the “Davos meetings” in the news report datelines – are part of the World Economic Forum’s (WEF) broad thought leadership activities.  This gathering is the WEF’s annual meeting (there are regional meetings as well).

Heads of state, CEOs, invited societal thought leaders, leading academics and journalists, politicians of all persuasions, NGOs, heads of multilateral heads (Christina Lagarde, International Monetary Fund)…they were all gathered there again this year.

WEF bills itself as “the international organization for public-private cooperation”; it was created in 1971 as a not-for-profit, to operate in a non-partisan, independent forum for leaders of society.  The annual meeting provides the opportunity for sharing ideas on a wide range of issues and topics. And then the broadcast of these out to the world.
This year, the broad themes of discussion included “4th Industrial Revolution”, “Geostrategy”, “Environment”, and “Economics”.

“Shaping” (taking actions as private-public partnerships) was the theme of numerous initiatives such as “Shaping The Future of Environment and Natural Resource Security”.

A slew of reports are typically issued each year; in 2019 one was “Seeking a Return on ESG: Advancing the Reporting Ecosystem to Unlock Impact for Business and Society”.

These reports and other information are available for you on-line at: https://www.weforum.org/agenda

Naturally, with the wise men and women of our global society gathered in the snowy reaches of Davos and presenting their views over several days, there was the usual flow of headlines and news stories out to the rest of the world.

Our team, led by Editor-in-Chief Ken Cynar closely monitors the Davos and other WEF meetings (the annual and regionals) to bring you relevant highlights. This week after the conference wrapped up, Ken Cynar selected this week’s Top Story pick.

That selection presents the comments of Hans Vestburg, CEO, Verizon Communications, on the theme of The Fourth Industrial Revolution and a Sustainable Earth.  CEO Vestburg (he’s originally from “high latitudes” Sweden and became CEO in August 2018) is strategically positioning his giant telecomm enterprise to balance market leadership, promising advances in technology (such as 5G networks) and challenges presented by climate change, population growth — and helping society achieve a sustainable and equitable future.

Hans Vestburg said at Davos: “Perhaps it because of my roots in a land so beautiful (Sweden) and yet so vulnerable…I’ve long had an interest in the potential link between technological advancement and environmental sustainability.”  CEO Vestberg helped to lead the U.N. Sustainable Development Solutions Network, as example.

He sees the coming generation of high speed, highly-interactive technologies as a possible resource to help society buy time against catastrophic worldwide climate change (think of 3D printing, 5G networks, the Internet of Things, 4IR networks, autonomous devices).

Consider this, said the CEO of Verizon to the Davos leadership gathering:  “If we and our partners throughout industry, government and academia can collaborate imaginatively on way to maximize the sustainability benefits of these emergent technologies from the very start, the next few crucial decades could see cascading gains in momentum against both materials wastage and emissions.”

We think you’ll find his comments intriguing – and most welcome from the CEO of a prominent U.S. corporation with commitment to address critical issues related to climate change, and willing to speak up!

This Week’s Top Story

Want a Sustainable Earth? Bring on the Fourth Industrial Revolution
(Wednesday – January 23, 2019) Source: World Economic Forum – When I became CEO of Verizon back in August, one of my commitments was to accelerate our company’s progress in Fourth Industrial Revolution (4IR) technologies, drawing upon our longstanding role as a world leading…

There Were Many Positive Developments for Sustainability Professionals in 2018 and Much Promise for What’s To Come in 2019 – We Are Watching For You

There were many positive developments and trendlines in 2018 that we believe were encouraging for corporate sustainability & responsibility managers, sustainable investing champions, NGO managers and members, and other stakeholders.  The analyses and wrap-ups are beginning to appear now in the many media outlets and platforms that we monitor.  We bring you some highlights in this first newsletter of the exciting new year, 2019!

One of the most compelling and sweeping of essays to kick off the year was the commentary of Andrew Winston in the Harvard Business Review – “The Story of Sustainability in 2018:  We Have About 12 Years Left.”

Author Winston came to broad attention with the publication of his books, “Green to Gold” and “Green Recovery”, and the recent “The Big Pivot”.  In his end-of-year HBR commentary, the author begins with the important 2018 sustainability themes that he sees as having lasting impact, and his belief that the year just ended brought “incredible clarity” about the scale of our challenges and opportunities.”

Clarity:  the world’s scientists sound a “final” alarm on the climate — citing the Intergovernmental Panel on Climate Change/IPCC report on where we are; that is, dear reader, in a global, universally-perilous state with just a dozen years left for bold, collective action on carbon emissions.

Clarity:  the key elements of the government of the United States of America told a similar story in the U.S. National Climate Assessment released at Thanksgiving time (with the White House attempting to bury on a slow Friday after holiday) – climate change inaction could knock off 10% of this, the world’s leading economy’s enormous GDP.  The U.S. GDP was US$19.39 trillion in 2017, said sources including the World Bank.

Clarity:  Business must dramatically change how it operates and companies must push well past their comfort zones.

There’s lots of information for you regarding the threats and challenges posed by dramatic climate change.  And, Andrew Winston points out the positive developments as well, by corporate leaders at organizations such as Unilever, Salesforce, Nike, Kroger, and Danone (which became the world’s largest B Corporation in 2018).

We present Winston’s wrap up for you in this week’s Top Story:

The Story of Sustainability in 2018: “We Have About 12 Years Left” 
(Wednesday – January 02, 2019) Source: Harvard Business School – We have about 12 years left. That’s the clear message from a monumental study from the Intergovernmental Panel on Climate Change (IPCC). To avoid some of the most devastating impacts of climate change, the world must slash carbon…

State of Corporate Sustainability, GreenBiz Releases Latest Update — Top Lines: (1) We are making progress and (2) There are still challenges

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

It’s now three-quarters of the way through the year 2018 – what is the state of the Sustainability Profession?  John Davies, writing in GreenBiz (he’s VP & Senior Analyst), shares some interesting highlights gained through the firm’s recent report with us this week.

Among the major themes:  (1) Companies large and small see advances – progress – more companies are communicating what they are doing.  (2) Serious concerns, challenges, barriers are still ahead (look at what is happening to the US SEC and the dismissal of sound science by policymakers).

The Greenbiz report on the state of the profession is always eagerly awaited (every-other-year) and the latest (the 2018 report) is available for you (the link is in the Top Story).

GreenBiz presented results of its research on such items as gender pay equity trends; the embedding of the sustainability role(s) throughout the organization; more professionals coming in to the firm from outside vs. being promoted from within; and, the corporate sustainability programs becoming more sustainable.

There is also an interesting collection of news items we’ve selected for you that describes the range of activities within industries as companies of all sizes as the “corporate sustainability wave” gains momentum.  It’s below the Top Story for you.

This Week’s Top Story

The State of the Sustainability Profession, 2018
(Tuesday – September 25, 2018) Source: GreenBiz – That’s a significant change from 2011, when the Governance & Accountability Institute found just under 20 percent of S&P 500 companies were publishing such reports.

And we call your attention to:
Sustainable Brands Delivers Insight on How to Build Better Sustainability Metrics
(Friday – September 28, 2018) Source: Sustainable Brands – Sustainable Brands® reveals program, networking and activity highlights for its upcoming conference: New Metrics 2018. Nearly 400 business executives will convene October 29-31 at the Loews…

INSTITUTIONAL INVESTORS LAUNCH ALLIANCE FOCUSED ON HUMAN RIGHTS

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

ICCR Provides Leadership for Investor Collaboration To Advance Corporate Sector and Investor Action on Human Rights Issues

The recently-launched Investor Alliance for Human Rights provides a collective action platform to consolidate and increase institutional investor influence on key business and human rights issues.

For nearly 50 years, the Interfaith Center on Corporate Responsibility (ICCR) has been engaging with corporate managements and boards, coalescing with asset owners and managers and waging campaigns on key E, S and G issues.

ICCR has become a major influence for investors at corporate proxy voting time, and in ongoing investor-corporate engagements.

Consider:  The member institutions have AUM of US$400 billion and influence many other investors (depending on the issue in focus at the time).

ICCR has 300-plus institutional investor members, many (but not all) are faith-based organizations. A good number of member institutions are leaders in making available sustainable & responsible investment products and services. (See representative names in references at end.)

Key issues in focus for ICC members include:

  • Human Rights (key: human trafficking, forced labor, fair hiring practices)
  • Corporate Governance (board independence, CEO comp, lobbying)
  • Health (pharma pricing, global health challenges)
  • Climate Change (science-based GhG reduction targets)
  • Financial Services (risk management for financial institutions, responsible lending)
  • Food (antibiotics in food production, food waste, labor)
  • Water (access, corporate use of water and pollution)

HUMAN RIGHTS IN FOCUS FOR NEW ALLIANCE

On the last issue – Human Rights – ICCR has long been involved in various Human Rights issues back to its founding in 1971 and has been organizing the Investor Alliance for Human Rights since late-fall 2017.  Here are the essentials:

  • Investor Alliance participants will have an effective “Collective Action Platform” for convening, information sharing, and organizing collaboration on action to make the case to corporate decision-makers and public sector policymakers (and other stakeholders) on the need for urgency in addressing human rights issues.
  • The umbrella of a formal alliance will help individual participants to build partnerships and develop collaboration within their own universes of connections (such as NGOs, other investors, community-based organizations, trade groups, corporate leaders, multi-lateral organizations, and other institutions and enterprises).
  • Among the work to be done is the encouragement and support of building Human Rights criteria and methodology into asset owner and manager guidelines, investing protocols, models, and to integrate these in corporate engagements and proxy campaigns, as well as to guide portfolio management. (Buy/sell/hold decision-making.)
  • All of this will help to expand investor reach and influence and strengthen advocacy for best practices in Human Rights by both companies and investors. Leveraging of broader investor influence is key in this regard.

The Alliance will provide participants with a “rapid response” resource to assure that the “investor voices” are clearly heard in corporate board rooms and C-suites, in public sector leadership offices, and in media circles when there are threats posed to effective actions and reforms in Human Rights issues.

The Alliance is outreaching to NGOs, faith-based institutions, academics, media, labor unions, multi-lateral global institutions, trade and professional associations, corporate managements and boards, and of course to a wide range of asset owners and managers.

# # #

The key player at ICCR for the Alliance is David Schilling, a veteran staff member who is Senior Program Director – Human Rights & Resources. (email:  dschilling@iccr.org)

David joined ICCR in 1994 and has led initiatives on human rights in corporate operations in Africa, Asia and Latin America, often visiting factories and meeting with workers on the ground.

David is currently Chair, Advisory Board of the Global Social Compliance Program; member, International Advisory Network of the Business and Human Rights Resource Centre; member, RFK Center Compass Education Advisory Committee; UNICEF CSR Advisory Group; and, Coordinator (with ICCR member institutions) of the Bangladesh Investor Initiative (a global collaboration in support of the “Accord for Fire and Building Safety”.

# # #

ICCR stresses that it sees its work “through a social justice lens.”  For more than two decades members and staff have worked to eradicate human rights abuses in corporate operations and across global supply chains, such as forced child labor in cotton fields in Uzbekistan.

The organization has an Advisory Committee of Leaders in Business and Human Rights (formed in late-2016).  Members include representatives of Boston Common Asset Management; Shift; Landesa; The Alliance for a Greater New York; Oxfam America; Mercy Investment Services; International Corporate Accountability Roundtable; and Global Witness.

# # #

ICCR has a long history in Human Rights progress.  The organization came together as a committee of the mainstream Protestant denominations under the  umbrella in 1971 to organize opposition to the policies and practices of “Apartheid” in South Africa.

Over time, the U.S. corporations operating in South Africa stopped operations there.  More than 200 cities and municipalities in the United States of America adopted anti-Apartheid policies, many ending their business with companies operating in South Africa.

Protests were staged in many cities and on many college & university campuses, and U.S. and European media presented numerous news and feature presentations on the issue.

In time, the government of South Africa dismantled Apartheid and the country opened the door to broader democratic practices (the majority black population was formerly prohibited to vote).

Over the years since the Apartheid campaign, ICCR broadened its focus to wage campaigns in other societal issues, including:

  • Focus on fair and responsible lending, including sub-prime lending and payroll lending.
  • Putting climate change issues on the agenda for dialogue with corporations, including the demand for action and planning, and then greater disclosure on efforts to curb GHG emissions.
  • Encouraging investment in local communities to create opportunities in affordable housing, job development, training, and related areas.
  • Promoting greater access to medicines, including drugs for treatment of AIDS in Africa, and affordable pricing in the United States.
  • Promoting “Impact Investing” – for reasonable ROI as well as beneficial outcomes for society through investments.
  • Promoting Islamic Finance.
  • On the corporate front, requesting greater transparency around lobbying by companies to influence climate change, healthcare and financial reforms, both directly and through trade associations and other third-party organizations.
  • Opposing “virtual-only” annual corporate meetings that prevent in –person interaction for shareholders.

Proxy Campaigns – Governance in Focus:

ICCR members are very active at proxy voting time.  Among the “wins” in 2017:

  • Getting roles of (combined) Chair & CEO split – 47% support of the votes for that at Express Scripts and 43% at Johnson & Johnson; 39% at Chevron.
  • More disclosure on lobbying expenditures – 42% support at Royal Bank of Canada and 41% at First Energy; 35% at Cisco and 25% at IBM.

# # #

Notes and References:

Information on the new Alliance is at: http://iccr.org/iccr-launches-new-alliance-amplify-global-investor-influence-human-rights

ICCR’s web site is at: www.iccr.org

And at http://iccr.org/our-issues/human-rights/investor-alliance-human-rights

The Alliance initiative is supported with funding from Humanity United and Open Society Foundations.

Influence and Reach:  The ICCR member organizations include the AFSCME union fund, Walden Asset Management, Boston Common Asset Management, Oxfam, The Maryknoll Fathers and Brothers, and Maryknoll Sisters, American Baptist Churches, Mercy Investments, Christian Brothers Investment Services (CBIS), Wespath Investment Management, Everence Financial, Domini Social Investments, Church of England Ethical Investment Advisory Group, Gabelli Funds, Trillium Asset Management, Calvert Group, Clean Yield, The Nathan Cummings Foundation, and other institutional investors.

 

 

 

 

 

Critical Development for CDP Responders in 2018 & 19: CDP Introduces Additional Alignment With FSB Task Force on Climate-Related Financial Disclosures Recommendations

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

Corporate ESG Data, Data, Data – it’s now everywhere and being digested, analyzed and applied to corporate equity analytics and portfolio decision-making.

Whether your public company participates in the annual round of organizing responses to the ever-more comprehensive queries from leading ESG / sustainability / CR rating agencies or not, there is a public ESG profile of your company that investors (asset owners, managers and analysts) are examining and applying to their work.

If you don’t tell the story of your firm’s progress in its sustainability journey, someone else will (and is).  And if you have not embarked on the journey yet…and there is not much to disclose and report on…you are building the wrong kind of moat for the company.  That is, one that will ever-widen and impair access to capital and affect the cost of capital.  And over time, perhaps put the company’s issues on the divestiture list for key investors.

This sounds a bit dramatic, but what is happening in the capital markets these days can be well described as a dramatic shift in focus and actions, with corporate ESG strategies, actions, programs, achievements, and disclosure becoming of paramount importance to a growing body of institutional and retail investors.

Consider these important developments:

  • The influential Barron’s editors, reaching hundreds of thousands of investors every week, beginning in Fall 2017 made coverage of corporate sustainability and sustainable investing a mainstay of the magazine’s editorial content.
  • Morningstar, the premier ranker of mutual fund performance, added sustainability to the analysis of funds and ETFs with guidance from Sustainalytics, one of the major ESG rating firms (and Morningstar made a significant investment in the firm).
  • SustainableInvest, headed  by Henry Shilling, former leader on sustainability matters for Moody’s Investor Service, noted that in 2Q 2018 as the proxy season was ending, 2018 voting was notable for the high level of “E” and “S” proposals, some achieving majority votes in shareholder voting at such firms as Anadarko Petroleum, Kinder Morgan and Range Resources.  Assets in 1,025 sustainable funds analyzed added $14 billion during 2Q and ended in June at US$286 billion; more than $1 billion was new net cash inflows, demonstrating investor interest in the products.

Significant:  according to the Harvard Law School Forum on Corporate Governance and Financial Regulations, two-thirds of investor-submitted proxy resolutions focused on having the company follow through on the 2-degrees scenario (testing) were withdrawn and company boards and managements agreed to the demand for climate risk reporting.

The FSB TCFD Impact on Corporate Sector and Financial Services Sector

The Financial Stability Board, an organization founded by the central bankers and financial leaders of the G-20 nations, created a Task Force on Climate-related Financial Disclosures (“TCFD”) to develop climate-related financial disclosures for adoption by financial services sector firms and by publicly-traded companies in general.

The 32-member Task Force, headed by Mayor Michael Bloomberg, announced financial recommendations for companies and investors in June 2017.

The essence of the recommendations:

  • Corporate boards and managements should focus on the risks and opportunities present and in the future taking into account a global temperature risk of 2-degrees Centigrade (3.5-F), and in the future, 4-C and even 6-C global temperature rises.

The risks (presented are not just to the affected companies but to the financial sector institutions investing in the company, institutions lending funds to the company, carriers insuring the company, etc.).

The risks and opportunities related to climate change should be thoroughly analyzed using the scenario testing that the company uses (an example would be projecting future pricing, regulations, technologies, and “what ifs” for an oil and gas industry company).

The company should consider in doing the scenario testing and analyzing outcomes the firm’s corporate governance policies and practices; strategies for the long-term; risk management policies and resources; establishing targets; and, putting metrics in place for measuring and managing climate risk.  Then, the next step is disclosing this to investors and other stakeholders.

Key Player:  CDP and its Wealth of Corporate, Institutional and Public Sector Data

The CDP – formerly known as the Carbon Disclosure Project – was founded almost two decades ago (2000) as a United Kingdom-based not-for-profit charity at the urging of the investment community, to gather corporate “carbon” data.

Timing:  soon after the start of meetings of the “Conference of the Parties” (or “COP”), organized by the United Nations as the Climate Change Conferences. (The “UNFCCC”.)

In the mid-1990s, the Kyoto Protocol emerged that legally-bound nations to their pledge to reduce Greenhouse Emissions (GHGs).  The U.S.A. did not sign on to the global protocol during the tenure of President George W. Bush, and the agreement reached in Paris at the COP meeting in 2015 was finally agreed to by President Barack Obama.

And then began the process of withdrawal under President Donald Trump.  The U.S.A. is now the prominent holdout (among the community of 197 nations signed on) in the global effort to address global warming before the danger point is passed.  In Paris, the COP agreed that the threshold was 2-degrees Centigrade.

Today, a growing universe of investors and many other stakeholders are increasingly focused on the role of carbon emissions in the framing of questions about what to do as scientists charted the warming of Earth’s climate.

And so — ESG / environmental data is critical to the mission of determining “what to do” and then implementing measures to address climate change challenges.

The Critical Role of CDP 

CDP over almost two decades since its founding has become the premier repository of corporate data related to climate change – with more than 6,000 companies’ data collected and shared in organized ways with the investment community.  (That includes the ESG data of half of the world’s public companies by market cap.)

The CDP emissions data focused has broadened over 16 years to now include water, supply chain, forestry (for corporates) and environmental data from more than 500 cities and some 100 states and regions available to investors.

Key user base:

  • 650-plus institutional investors with US$87 trillion in Assets Under Management.
  • Corporate Supply Chain members (such as Wal-Mart Stores) that collect data from their suppliers through CDP—a universe of 115 companies with over $3.3 trillion in combined purchasing power.

When the TCFD recommendations were being developed, CDP announced a firm commitment to align with the task force recommendations.

Following their release of the Task Force recommendations in July 2017, CDP held public consultations on a draft version of the TCFD-aligned framework. The current 2018 Climate Change questionnaire that corporations received from CDP is fully aligned with the TCFD recommendations on climate-related disclosures related to governance, risk management, strategy, and metrics and targets.

The TCFD recommendations are already aligned with the majority of CDP’s longstanding approach to climate change disclosure, including most of the recommendations for climate-related governance, strategy, risk management as well as metrics and target disclosure.

However, this year CDP has modified some questions and added new ones — the most impactful being on climate-related scenario analysis to ensure complete alignment.

Some modifications include:

The Governance section now asks for more information about oversight of climate change issues and why a company doesn’t have board-level oversight (if applicable). CDP also requests information about the main individual below the board level with the highest responsibility — and how frequently they report up to the board.

Next, in the risks and opportunities section, CDP now asks for the climate-related risk & opportunity identification, and assessment process.

As in past years, questions are posed in the Business Strategy module to allow companies to disclose whether they have acted upon integrating climate-related issues into their strategy, financial planning, and businesses.

CDP has also added a question for high impact sectors on their low carbon transition plans, so data users can gauge and further understand the sustainable and strategic foresight that these companies aim to achieve.

CDP also added a new question on scenario analysis, explaining that scenario analysis is a strategic planning tool to help an organization understand how it might perform in different future states.

A core aim of the TCFD recommendations is for companies to improve their understanding of future risks and develop suitable resilience strategies.

Finally, the TCFD recommendations highlighted five (5) sectors as the most important. In 2018, CDP rolled out sector-specific questions for the four non-financial sectors that the TCFD highlighted (they are energy, transport, materials, and agriculture).

TCFD also highlighted the financial sector – looking forward, in 2019, CDP is planning to release a financial sector-specific climate change questionnaire.

The TCFD resources for investors and corporate managers are embodied in three documents – (1) the Main Report; (2) an Implementation Annex; (3) the Technical Supplement for Scenario Analysis.  These are available at:  www.fsb-tcfd.org

G&A Institute Perspectives:

Our team has been assisting corporate managers in organizing the response to the CDP annual survey and we’ve tracked over the years the steady expansion of information requested of companies.

Our advice to companies not reporting yet:  get started!  The CDP staff members are very cooperative in assisting new corporate reporters in understanding what data are being sought (and why) and providing answers to questions.

CDP’s founding CEO Paul Simpson cautions:  “Big companies:  get better at telling those who hold the purse strings how climate risks could affect your bottom line.”

And so, our mission at G&A includes helping corporate issuers tell a better sustainability and ESG story, including the story told in the data sets communicated to 650-plus institutional investors by CDP!

CDP data is everywhere, we advise clients, including for example being part of the volumes of ESG data sets that Bloomberg LP shares on its terminals (through the terminal ESG Dashboard).

On the supply chain side, we point out that more than US$3 trillion is the collective spend of companies now addressing their supply chain sustainability factors and environmental impacts (customers see suppliers as part of their own CDP footprint).  Corporate leaders in this effort include Apple, Honda and Microsoft, CDP points out.

Resources:

CDP’s Technical Notes on the TCFD are available at: https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/guidance_docs/pdfs/000/001/429/original/CDP-TCFD-technical-note.pdf?1512736184

The “A” List of CDP naming the world’s business leaders on environmental performance (160 firms) is at: https://www.cdp.net/en/scores-2017

The CDP USA Report 2017, focused on key findings on Governance, ESG and the Role of the Board of Directors is available at: https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/891/original/CDP-US-Report-2017.pdf?1512733010

There’s an excellent interview with CDP CEO/Founder Paul Simpson at: http://www.ethicalcorp.com/disruptors-paul-simpson-atypical-activist-who-woke-c-suites-climate-risk

You can check out Henry Shilling’s SustainableInvest.com at: https://www.sustainableinvest.com/second-quarter-2018-sustainable-funds-investing-review/