Brief Updates on Corporate Audit Committee and Auditor Oversight

Guest post by Daniel L. Goelzer
Board Member, Sustainable Accounting Standards Board and Co-Founder, The Audit Blog

When it Comes to the Ability to Deal with Risk, Boards are More Confident, But Less Well-Informed, Than Management

A new study from the Institute of Internal Auditors (IIA) raises questions about how well-informed boards are about the risks facing their company and whether directors tend to be unrealistic about the company’s ability to handle those risks.

In OnRisk 2020: A Guide to Understanding, Aligning, and Optimizing Risk, the IIA concludes that “Boards are significantly overconfident when it comes to addressing the thorniest issues facing organizations today. Board members have greater confidence in their organizations’ ability to manage key risks than members of management.”

The IIA attributes this over-confidence to the “incomplete or misleading” nature of the information concerning risk that boards receive information from management, along with the failure of directors to ask critical questions.

Sustainability Reporting Continues to Grow—Both Inside and Outside SEC Filings

Two recent reports provide snapshots of the growth of public company sustainability or ESG disclosure:

  • From NACD: ESG Risks Trickle Into Financial Filings, an October 21 item in BoardTalk, the blog of the National Association of Corporate Directors, analyzes ESG disclosure in the Risk Factors and MD&A sections of Form 10-K filings of companies in the Russell 3000 index.

This research found that, in 2019, 66 percent of companies in the Russell 3000 Index discussed ESG risks in their Form 10-K.

  • Separately, a report issued by the Governance & Accountability Institute found that, while 60 percent of the Russell 1000 published sustainability reports in 2018, only 34% of the smallest half of the Russell 1000 issued such a report.

The “second 500” sectors with the highest percentages of companies that release a sustainability report are Utilities (82%, Materials (63%), and Consumer Staples (53%).

The analysis is at: https://www.ga-institute.com/press-releases/article/flash-report-60-of-russell-1000R-are-publishing-sustainability-reports-ga-2018-institutes-in.html

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Note:  These items are highlights from the Audit Blog. Daniel Goelzer is co-founder; see https://medium.com/the-audit-blog

Recent posts on the blog include –
• The Impact of Disclosing Engagement Partner Identity: No Clear Answer (Dan Goelzer, November 7, 2019)
• Would Auditing Improve if the PCAOB Brought More Enforcement Actions? (Dan Goelzer and Tom Riesenberg, September 16, 2019)

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Daniel Goelzer is a retired partner of the Baker McKenzie Law Firm (in Washington DC offices) and Board Member, SASB, serving as Chair of the Service Sector Committee. He was Acting Chair and Board Member, PCAOB for almost a decade (appointed by the SEC as founding member).

Contact information:
Daniel L. Goelzer – Bethesda, MD 20816

301.775.8692 (cell)
dangoelzer@gmail.com
@dgoelzer (Twitter)

Purpose – This Was the Buzzword of 2019 for The Corporate Sector & Investment Community. The “Purpose” Debate Will Continue in 2020

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

Another in the series about The Corporate Citizen and Society

As 2019 draws to a close — we look back at a year with a lively discussion about The Corporate Citizen and Society…and “Purpose” discussions…

The year 2019 began with an important challenge to corporate leaders from Larry Fink, chairman and CEO of the world’s largest asset manager, BlackRock (with more than US$6 trillion in AUM). 

The very influential investor writes each year to the CEOs of companies that his firm invests in on behalf of BlackRock clients. There are literally hundreds of publicly-traded companies in the BlackRock portfolio (managed and indexed funds).

At the start of 2018, CEO Fink wrote that every company needs a framework to navigate difficult landscapes and it must begin with a clear embodiment of the company’s purpose (in the business model and corporate strategy).

He explained to the many CEOs: “Purpose being not a mere tagline or marketing campaign; it is a reason for the company’s being – what is does every day to create value for its stakeholders.”

Then (in January 2019) Larry Fink explained in his start-of-the-year letter to CEOs as he expanded on the theme, Purpose is not the sole pursuit of profits but the animating force for achieving them.  And, profits are in no way inconsistent with purpose; in fact, profits and purpose are inextricably linked.

This 2019 communication to CEOs pointed out that the world needs their leadership (especially) in a polarized environment. Stakeholders are pushing companies to tackle social and political issues as governments fall short of doing that.

And (very important) Millennials, now outnumbering the Baby Boomers in the workforce, represent a new generation’s focus – on various expressions of, and clear demonstrations of corporate purpose.

The January 2019 letter of course created a buzz in the corporate sector and in the capital markets as people thought about the meaning and weighed in on all sides of the issue.  What many agreed with was that there were now clear signals that the half-century doctrine for the corporate sector of “shareholder primacy” was giving way to “stakeholder primacy.”

As the purpose discussion rolled on, in August 2019 the influential Business Roundtable issued a revision of its Statement on the Purpose of a Corporation, signed by 181 of the CEOs of the largest of American companies (firms both publicly-traded and privately-owned). 

Important step forward: the CEOs publicly committed to lead their companies for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.

The Roundtable’s Principles of Corporate Governance has been issued since 1978; from 1997 on this endorsed the principle of shareholder primacy (that corporations existing principally to serve shareholders).  The new statement, said the BRT in summer 2019, outlines a modern standard for corporate responsibility. 

The team at G&A Institute looked at the companies whose CEOs are members of the Business Roundtable (almost 200 in all), examining their public disclosures and structured reporting on “walking-the-talk” of “purpose” and “responsibility to stakeholders” 

What are the companies doing — and how are they telling the story of the doing — the walking the talk?

Our approach was to analyze the means of disclosure and reporting “on corporate purpose” and the focus on any related content of sustainability / responsibility / ESG / corporate citizenship reporting by the BRT member companies.  (The good news to share:  there’s plenty of relevant information on purpose in the leadership corporate reporting. You can read through the respective corporate reports to divine the meaning and expressions of purpose in the pages.)

The analysis is available on the G&A Institute web site – see this week’s Top Story for the headline and link to our Resource Paper. There are relevant links there as well.

What will the purpose of the corporation discussion be in the new year, 2020?  Stay tuned to the perspectives shared that we’ll have in our G&A Institute Sustainability Highlights newsletter and on this blog.

Best wishes to you for the holiday season from all of us at G&A!

BlackRock CEO Larry Fink’s 2019 letter: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

G&A Institute Releases Analysis of The Business Roundtable Companies’ ESG Reporting Practices
Source: Governance & Accountability Institute

Highlights:

 Governance & Accountability Institute’s research team examined the ESG / sustainability reporting practices of the BRT signatory corporations to examine trends and create a baseline for tracking progress and actions going  forward.  G&A released these initial benchmark results in a resource paper available on our website.

Where Are U.S. Companies on Climate Change Risk Disclosure? New Survey Results from DFIN Are Available…

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

Another in the About the Climate Change Crisis series

Climate Change and Corporate Reporting – the two terms are increasingly coupled now as many more investors and stakeholders are requesting information from publicly-traded companies about their awareness of, and strategies & actions for addressing the many risks posed to the enterprise by climate change.

Important sea change:  many more investors are now asking companies for information about their preparation for climate change and some, demanding a report if none has been issued.

Response:  Many more companies and especially large-cap companies are now disclosing relevant data and information about their climate change / risk management strategies, plans, actions taken, goals set, and results of their efforts to reduce, mitigate and eliminate climate change risks.

The GRI Standards and the SASB Standards are available to provide managers with excellent disclosure guidelines and reporting frameworks for such reporting — and in the dozens of corporate reports that our G&A Institute analyst team examine each week, we are seeing a steady rise in more robust reporting on issues surrounding climate change. 

A new addition to such disclosure and structured reporting are the “TCFD” recommendations for disclosure – these are recommendations of the influential Task Force on Climate-Related Financial Disclosure.

Briefly, why TCFD is important:  The central bankers and top financial regulators of the G-20 nations created the Financial Stability Board (FSB) after the 2008 financial crisis to explore potential regulations for expanded corporate reporting (to prevent unpleasant surprises, which financial market players dread!).

Former Mayor Michael Bloomberg was appointed to head a task force (with 32 members) to develop specific suggestions for public companies’ disclosures on climate change that are financially-related. 

The task force’s report (with recommendations) was made public in 2017.  Companies began responding in their reporting over the following months. At G&A we are seeing the tempo of such reporting increasing as more companies follow the TCFD recommendations.

So where are we?  An important report – “The State of Climate Risk Disclosure: A Survey of US Companies” – was just published by our partners DFIN, in collaboration with the writing team of Richard Mahony and Diane Gargiulo  and research from The Society for Corporate Governance (“The Society”).  The report looks at the evolution of climate-risk disclosure and the state of readiness of corporations to disclose this information.

In partnership with The Society, DFIN conducted a survey of its members on these issues. The results confirmed many of the observations made by the TCFD in its recent update, while also providing new insights into how companies are addressing the challenges associated with climate risk disclosure. (This builds on the earlier report published by DFIN as the TCFD was being released – “Preparing for Climate-Risk Disclosure: Practical Suggestions for Public Companies”.)

The members of The Society for Corporate Governance were surveyed to benchmark what their companies are doing – looking at climate risk, by type; market cap of respondents; frequency of board room discussions on climate risk; use of reporting frameworks; investor queries to the company on climate risk; self assessment of the TCFD (recommendations) implementation; organization structure for climate risk disclosure; and, impediments to TCFD implementation.

The report offers practical steps for companies to take and lessons of the early adopters.  Society members offering value-added perspectives include Val Smith at Citi; Michael Rubio at Chevron; and, Steve Lippman at Microsoft (these sharings are of interest for IROs, corporate secretaries & governance professionals, sustainability leaders at companies, and other professionals involved in the corporate sustainability journey).

Click here to access the survey looking at the evolution of corporate climate-risk disclosure.

The Society for Corporate Governance is comprised of governance professionals and business executives responsible for supporting boards and exec management. 

DFIN is a leading global risk and compliance solutions company providing expertise to public companies.  G&A Institute partners with DFIN to serve corporate client needs with a range of sustainability services including climate change disclosure and reporting.

The G&A Institute team has developed a Resource Paper about the TCFD and what it means for company managements and investment professionals. Click here to download it.

Click here to view G&A’s published a backgrounder on the TCFD as the recommendations were made public in August 2017 (now on G&A’s Sustainability Update blog).

For more information about the TCFD and related disclosure appropriate for your company, contact us at: info@ga-institute.com.

Top Story

The State of Climate Risk Disclosure: A Survey of US Companies
Source: DFIN Solutions
The State of Climate Risk Disclosure: A Survey of US Companies published by DFIN, in collaboration with the writing team from Gargiulo + Partners and research from the Society for Corporate Governance (Society), looks at the evolution of climate-risk disclosure and the state of readiness of corporations to disclose this information.

Also from Governance & Accountability Institute:
G&A’s Climate-Related Corporate Risk Disclosures Resource Guide
Task Force on Climate-related Financial Disclosures | TCFD Organized by the Financial Stability Board of the G-20

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Capitalism – Needing Reinventing? Is Corporate Sustainability / Responsibility / Citizenship’s Focus on ESG Part of the Mix of Reinvention?

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

There are many voices raised now, joining in the public dialogues on corporate sustainability, corporate citizenship, corporate responsibility, ethics, good governance…and more.

The perspectives offered fit into the commentary stream on the future of capitalism — and how to make it work for everyone.

There are rigorous companion dialogues going on – and rapidly growing in number — related to the role of sustainable investing as more asset owners and their internal and external managers adopt new approaches, many focused on the analysis of corporate ESG performance and related outcomes.  We see this as further reinventing of capitalism. Do you?

On Corporate Purpose – How, What, Why and more – another public dialogue dramatically expanding since the release of The Business Roundtable’s revised statement on purpose in summer.

There are more voices being added to the expanding public dialogues on all of the above and more, which is what our newsletter’s Top Story focuses on.

A fascinating range of voices will be raised by Fast Company as the publishers spotlight “15 voices” working at the forefront of trying to reinvent our economic system…and together, the pursuit of important structural reforms and ideas to bring about “fairness” (much needed, we can argue, in 2019!).

The first voice “raised” by Fast Company is that of Darren Walker, Ford Foundation president who says in his essay “capitalism is in crisis” and explains why in his essay — “How to Save Capitalism From Itself”. 

As the editors of Fast Company explain, the voices to be raised in the future (that you will want to follow via Fast Company essays) include:

Zeynep Ton, MIT b-school prof who founded the Good Jobs Institute;

Josh Silverman, CEO of Etsy (the artisanal marketplace) whose company’s social-impact initiatives are held to the same standard as financial reporting;

Fashion icon Eileen Fisher (champion of the B Corp movement);

Barry Lynn, founder of Open Markets Institute (who favors more regulation to address today’s monopolies);

Rachel Lauter, ED of Fair Work Center..and others!

Keep in mind Fast Company is a must-read for many GenXers and Millennialls – and so you will want to keep up with the publication’s voices no matter what generation you belong to.

The Ford Foundation’s CEO essay is at: https://www.fastcompany.com/90411391/ford-foundations-darren-walker-how-to-save-capitalism-from-itself

Top Stories

Capitalism is dead. Long live capitalism
Source: Fast Company – For capitalism to thrive, the system needs to evolve to be fair, inclusive, and sustainable. Fast Company highlights companies and innovators leading the change.

And of importance, the public dialogue – and action! – on the SDGs:

Protecting Our Future: Moving from Talk to Action on The Sustainable Development Goals
Source: Forbes 

How an Italian Energy Company Revolutionized Sustainable and Impact Investing in Structured Credit
Source: Forbes 

First SDG-linked bond in the European market raises 2.5 billion euros
Source: UN Global Compact 

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

The Business Roundtable 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 top business leaders work to influence major societal issues (tax policy, infrastructure needs, trade and other issues).

This 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.  And, 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 guiding philosophy traces back to the period four decades ago when influential economists such as Milton Friedman of the University of Chicago advised the CEOs that their duty was to look out for the shareholders…and all else would fall in place.

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” — 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 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 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, the organization 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.”

ESG and Sustainability basic principles are now “officially recognized” by the members of the CEO association and 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.

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…

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…