Reporting and Disclosing Corporate ESG & Sustainability Results– Key Resources Roundup

By Kelly Mumford – Sustainability Reporting Analyst Intern – G&A Institute

Sustainability, Corporate Responsibility, and Environmental Social Governance (ESG) – these are some of the key buzz words circulating in capital markets’ circles that have become increasingly more important to both investors and corporate leaders as the risks of climate change to business organizations steadily increase.

We are now at the critical tipping point where it is necessary for all businesses to publicly report on and in various ways amply disclose how climate related risks — and related opportunities – and other issues such as Human Rights and Human Capital Management (HCM) might affect their business. And, to disclose what they are doing to address and mitigate such risks.

A recent institutional investor survey report by the Harvard Law School Forum on Corporate Governance that focused on ESG risk and opportunities found that investors recognize the growing risks of non-financial factors such as climate change, which is at the top of the agenda.

Climate change issues and human capital management were cited in the 2020 survey as the top sustainability topics that investors are focusing on when engaging with their boards.

Regardless of sector, all companies understand the importance of engaging with these topics. With that said, ESG and sustainability topics are playing a more concrete role in the private sector.

The good news is that there are significant resources available to help companies measure and report on sustainability and ESG, promote greater transparency, demonstrate better risk management, talk about improved performance, and in turn better promote the corporate brand value and reputation.

Such corporate disclosure and reporting have been shown to help to create higher shareholder returns and improve corporate economic performance.

With this in mind, standardized frameworks and indices are being used by corporations to provide more accurate and transparent information to their investors as well as all of their stakeholders.

However, as more diverse resources become available (examples are sustainability and responsibility frameworks, indices, and standards) there is also a need for distinctions to be made among them. To group all of these resources together would be inaccurate and misleading as each has unique advantages and distinction for both investors and corporate reporters.

Some of the key resources available in this space include: SASB, MSCI, Sustainalytics, Institutional Shareholder Services (ISS), Dow Jones Sustainability Index (the DJSI), TCFD, CDP, SDGs, and GRI.

To more easily understand their similarities and differences these can be grouped into broader categories. Such categories include: reporting standards, ESG ratings, indices, disclosure frameworks, investor surveys, and international goals. We’ll explain these in this commentary.

ABOUT CORPORATE REPORTING STANDARDS
The leading reporting standards present an effective way for companies to structure and publicly disclose “non- financial” information — such as strategies, actions, performance and outcomes for governance, environmental, and social impacts of the company. (That is, impacts affecting stakeholders, including investors.)

These important disclosures can be identified in the form of “sustainability, corporate responsibility, corporate citizenship” reporting.  Many such corporate reports explain how a company measures ESG performance, sets goals, and manages programs effectively – and then communicates their impact to stakeholders.

Reporting standards help to streamline the process of corporate reporting and allow stakeholders to better identify non-financial disclosures against widely used and accepted standards.

THE GLOBAL REPORTING INITIATIVE (GRI)
This is a long-established, independent organization (a foundation) that has helped to pioneer sustainability reporting. Since 1997 the organization has been working with the business sector and governments to help organizations (corporations, public sector and social sector organizations) communicate their impact and sustainability issues –such as climate change, human rights, governance and social well-being.

The current GRI sustainability reporting standards evolved out of four prior generations of frameworks dating to 1999-2000 (when the first reports were published, using “G1”) — and today is one of the most commonly-used with diverse multi stakeholder contributions to standards-setting.

GRI has been responsible for transforming sustainability reporting into a growing practice and today about 93% of the largest corporations report their sustainability performance using the GRI Standards.

  • Advantage of use for reporters: corporate reporting using the GRI standards helps to create consistent disclosures and facilitates engagement with stakeholders on existing and emerging sustainability issues. Further, use of GRI standards helps to create a more consistent and reliable landscape for sustainability reporting frameworks for both the reporters and their constituencies, especially including investors.

THE SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)
These more recent standards enable business leaders to identify, manage, and communicate financially-material sustainability information to investors. There are now 77 industry-specific standards (for 11 sectors) available for guidance.  These standards for an industry (and many companies are classified in more than one industry) help managers to identify the minimal set of financially-material sustainability topics and associated metrics for companies in each industry.

SASB standards help company managements to identify topics most relevant to their enterprise, and communicate sustainability data more efficiently and effectively for investors.

  • Can be used alone, with other reporting frameworks, or as part of an integrated reporting process. The G&A Institute team in assisting companies with their reporting activities use a hybrid approach, using both GRI and SASB as best practice.

 

ESG RATINGS/ DATA SUPPLIERS
A growing number of independent third-party providers have created ESG performance ratings, rankings and scores, resulting from assessment and measurements of corporate ESG performance over time against peers for investor clients. These ratings often form the basis of engagement and discussion between investors and companies on matters related to ESG performance.

There are several major ratings with varying methodology, scope, and coverage that are influencing the capital markets. Keep in mind there are numerous ESG data providers and ratings providing information to investors and stakeholders; however, for the scope of this post not all are mentioned.

INSTITUTIONAL SHAREHOLDER SERVICES (ISS) — ESG GOVERNANCE QUALITYSCORES(R)
ISS is a long-time provider of “corporate governance solutions” for institutional asset owners, their internal and external managers, and service providers. ISS provides a variety of ESG solutions for investors to implement responsible investment policies. The firm also provides climate change data and analytics and develops a Quality Score (for G, S and E) that provides research findings on corporate governance as well as social and environmental performance of publicly-traded global companies for its investor clients.

The ESG Governance QualityScore is described as a scoring and screening solution for investors to review the governance quality and risks of a publicly-traded company.

Scores are provided for the overall company and organized into four categories — covering Board Structure, Compensation, Shareholder Rights, and Audit & Risk Oversight.

Many factors are included in this score but overall the foundation of scoring begins with corporate governance, the long-time specialty of this important provider.

  • ISS Advantage: as a leading provider of corporate governance, the ISS ESG Governance QualityScore leverages this firm’s deep knowledge across key capital markets. Further, these rankings are relative to an index and region to ensure that the rankings are relevant to the market that the public company operates in.

MSCI ESG RATINGS
MSCI has a specific ESG Index Framework designed to represent the performance of the most common ESG investment approaches by leveraging ESG criteria. Indexes are organized into three categories: integration, values, and impact.

MSCI also creates corporate ESG ratings by collecting data for each company based on 37 key ESG issues. AI methodology is used to increase precision and validate data as well as alternative data to minimize reliance on voluntary disclosure.

Consider:

  • MSCI is the largest provider of ESG ratings with over 1,500 equity and fixed-income ESG Indexes. The firm provides ESG ratings for over 7,500 global companies and more than 650,000 equity and fixed-income securities (as of October 2019).
  • Advantages for investors: Focuses on intersection between a company’s core business and industry-specific issues that can create risks and opportunities. ESG ratings gives companies a rated score of AAA-to-CCC, which are relative to industry peers. Companies are rated according to their exposure to risk and how well they manage risks relative to peers. Companies are analyzed on calendar year basis and are able to respond to the profile developed for investors by MSCI analysts.

SUSTAINALYTICS
This organization rates sustainability of exchange-listed companies based on environmental, social, and corporate governance (ESG) performance. The focus is on ESG and corporate governance research and ratings.

What makes them unique: their ESG Risk Ratings are designed to help investors identify and understand material ESG risks at the security and the portfolio level.

The corporate ESG risk rating is calculated by assessing the amount of unmanaged risk for each material ESG issue that is examined. The issues are analyzed varying by industry and depending on industry, a weight is given to each ESG issue.

  • Key: The assessment focuses on most material risks, using a two-dimensional lens to assess what risks the corporation faces and how well leadership manages the identified risks. Absolute ratings enable comparability across industries and companies for investors; corporate governance ratings are integrated into the ESG risk rating, and controversy research is also considered for the risk ratings. The performance is based on both quantitative metrics and an assessment of controversial incidents, allowing for the complete picture to be demonstrated with the ESG ranking.
  • Unique point: Total ESG risk score is also presented as a percentile so it can be compared across industries. This allows for a better understanding of how the industry performs as a whole, so to better assess how well a company is performing relatively.

SOME OF THE LEADING INDICES
Indexes / benchmarks help to make capital markets more accessible, credible, and products or approaches better structured for investors. They allow for performance benchmarks to represent how equity and/or fixed-income securities are performing against peers.

Specialized ESG indices specifically have been gaining in favor over the recent years as investors become more interested in responsible / sustainable investing. This out-performance is evident in the time of the coronavirus crisis with ESG funds inflow exceeding outflow of traditional indexes. Investors see this as a sign of resilience and excellence in risk performance for ESG companies.

It is evident that ESG index funds have been outperforming key core indexes — such as the S&P 500 Index(r). (The new S&P 500 ESG Index has been outperforming the long-established sister fund.)

Also, the growing abundance of ESG data and research has helped to promote the development and embrace of corporate ESG ratings, which in turn allows for the construction of even more such indices.

Because these indexes represent the performance of securities in terms of ESG criteria relative to their peers, it helps define the ESG market and availability of sustainable investing options.

There are now numerous ESG Indices available to investors – to cover them all that would require another blog post. So, for the sake of this brief post only DJSI is mentioned, as it is one of the mostly widely-known and frequently used by global investors.

DOW JONES SUSTAINABILITY INDICES (DJSI)
This is a family of indices evaluating the sustainability performance of thousands of publicly-traded companies. DJSI tracks the ESG performance of the world’s leading companies in terms of critical economic, environmental, and social criteria. These are important benchmarks for investors who recognize that corporate sustainable practices create shareholder value. The indexes were created jointly with Dow Jones Indexes, and SAM, now a division of S&P Global Ratings (which owns the DJSI).

  • This was the first global sustainability index – created in 1999 by SAM (Sustainable Asset Management of Switzerland) and Dow Jones Indices. Today, owned and managed by S&P Global Ratings.
  • Advantage for investors: Combines the experience of an established index provider with the expertise of a sustainable investing analytics to select most sustainable companies for the indexes from across 61 industries. Calculated in price and total return disseminated in real time. This is an important benchmark for many financial institutions.
  • Selection process is based on companies’ total sustainability score from annual SAM Corporate Sustainability Assessment (the important CSA that results in the corporate profile). All industries are included, and the top 10% (for global indices, top 20% for regional indices, and top 30% for country indices) of companies per industry are selected

CORPORATE DISCLOSURE FRAMEWORKS
Disclosure frameworks are used to improve the effectiveness of financial disclosures by facilitating clear communication about certain criteria. There are long-standing frameworks such as created by the Financial Accounting Standards Board (FASB) that establish standards for U.S. corporate financial accounting.

Similarly, there is now a suggested disclosure framework related to the corporation’s financial information but that focuses on climate related risks and opportunities — the Financial Stability Boards’ “Taskforce on Climate-related Financial Disclosures” — or TCFD. (The FSB is an organization of the G20 countries; member participants are the securities and financial services administrators and central bankers of the largest economies.  The U.S. members include SEC, the Federal Reserve System and the Treasury Department.  The FSB considers future regulations that could be considered in the member countries.)

As the capital markets players interest in corporate sustainability and ESG grows, and public policy makers recognize the threat of many ESG issues to the health of their nations, it is not surprising that there would be a specific resource developed for corporate climate-related financial disclosures.

Investors have a heightened awareness of the risks that climate change issues poses to their holdings, so it is now considered to be a best practice for company managements to report and disclose on these risks and responses to address them – using among other resources the TCFD recommendations for disclosure.  Here is what you need to know:

TASKFORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES (TCFD)
Developed by the Financial Stability Board (FSB) to encourage voluntary, consistent, climate related financial disclosures that could be useful to investors. N.Y.C. Mayor/Bloomberg LP founder Michael Bloomberg serves as the chairman and founder of the task force (which has a 32-member board).

The “TCFD” recommendations for corporate disclosure are intended to help both publicly-traded companies and investors consider the risks and opportunities associated with the challenges of climate change and what constitutes effective disclosures across industries and sectors.

This approach enables users of financial information to better assess risk and helps to promote better corporate disclosure. The recommendations call for disclosure around four core areas — governance, strategy, risk management, and metrics and targets.

To keep in mind:

  • The initial recommendations applied to four financial sector organizations (bankers, insurers, asset owners, asset managers). And to four industry categories – oil & gas; food & agriculture; transport; building materials and management.
  • Advantage for companies: following the TCFD recommendations represents an opportunity for companies following the recommendations to bring climate-related financial reporting to a wider audience.

INVESTOR-FOCUSED SURVEYS – CORPORATE RESPONSES
Investor interest surveys — such as those conducted by CDP – can provide an advantage for companies in responding to disclose important ESG data and take part in the movement towards building a carbon-neutral economy.

The information provided to CDP by companies makes up the most comprehensive dataset tracking global climate progress. Investors use these volumes of data on climate change, deforestation, supply chain management and water security to inform decision-making, engage with companies, and identify risks and opportunities.

Corporate response to the annual, global surveys benefits investors and provides companies with ways to inform investor engagement strategies.

CDP
Established by investors 20 years ago as the Carbon Disclosure Project, CDP today is an organization that supports the movement of cities and companies toward greater measurement, management and disclosure of key data and information to promote a carbon neutral economy.

These data helps to manage risks and opportunities associated with climate change, water security and deforestation. More than 2,000 companies in North America and 8,000 globally disclose data through CDP.

Disclosure is key, not only for measuring impact but also for setting goals and targets that enable climate action. CDP has been at the forefront of the disclosure movement to track and measure global progress towards building a more sustainable world.

  • Advantage: reporting to CDP is advantageous because it helps companies get ahead of regulatory and policy changes, identify certain ESG risks, and find new opportunities to manage those risks in a way that is beneficial for both business — and the planet.
  • TCFD Connection: The CDP response questions have been aligned with the TCFD and a good comprehensive CDP response can provide a baseline for a majority of the necessary disclosures for TCFD.

INTERNATIONAL GOALS – THE SUSTAINABLE DEVELOPMENT GOALS (SDGS)
The United Nations Sustainable Development Goals are unique in that they are a set of widely-accepted international goals. Countries, cities, and companies all over the world and use these goals as a way to inform and inspire action on sustainable development goals. The goals are very broad in aims so it allows for parties to adapt and use the goals that are most relevant. They are non-binding and therefore their implementation depends on local government or corporate polices to be upheld.

These are a United Nations-developed plan to [among the goals] end extreme poverty, reduce inequality, and protect the planet. The SDGs succeeded the Millennium Goals (2000-to-2015) and extend collaborative and independent action out to year 2030 by public, private and social sector organizations.  The goals (17 in all with 169 underlying targets) have been adopted by 193 countries and emerged as a result of the most comprehensive multi-party negotiations in the history of the United Nations.

The SDGs focus on ways to generate impact and improve the lives of all people. The goals are related to themes such as water, energy, climate, oceans, urbanization, transport, and science and technology.

  • The SDGs are not focused on any sector or stakeholder in specific. Instead they serve as a general guidance that can be used at any level.
  • Distinctions: as one of the most widely recognized frameworks for corporate consideration, companies and stakeholders can use the Goals as a way to guide their sustainability initiatives. Many companies recognize them in corporate reports and many align certain aspects of their mission to relevant SDGs.

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AUTHOR’S CONCLUSION
As asset owners and asset managers now expect – and demand – greater corporate disclosure on climate change-related topics and issues, there are numerous resources available for managers to create and inform comprehensive, compelling reports for public access.

It is up to company leaders to identify the category of resources that would best benefit them, whether that be aligning with a disclosure framework, answering a CDP survey, or using ESG ratings. Most leading companies are taking a hybrid approach and utilizing the best features of the most common frameworks to maximize the ROI of their investments in this area.  We’ve identified some of the most-utilized here but there are still many more resources available in each category depending on industry, sector, geography, nature of the business, and other factors.

While the large universe and diversity of sustainability and ESG disclosure and reporting resources might be confusing to make sense of, it is increasingly obvious that investors are relying on ESG factors when making decisions and that the importance of climate change is only growing.

The team at Governance & Accountability Institute are experts in helping corporate clients work with the frameworks, etc. profiled here.  I serve as a reporting analyst-intern at, reviewing literally dozens of corporate sustainability / ESG / citizenship – responsibility – citizenship et al reports each month.

ABOUT KELLY MUMFORD 
Kelly Mumford is a graduate of the Development Planning Unit at the University College London. She graduated with a Master’s of Science in Environment and Sustainable Development (with Merit). Her course focused on environmental planning and management in developing countries and culminated with a month of field work in Freetown, Sierra Leone. She led a group during their research on the water and sanitation practices of a coastal community in the city of Freetown. Her work in preparation for this fieldwork includes a policy brief, published by their partner research organization.

Kelly has been very active in the environmental sector and prior to this interned at Natural Resources Defense Council. She holds a Sustainability Associate Credential from the International Society of Sustainability Professionals and has been an active member of the organization, planning and executing a successful N.Y.C. chapter’s whale watching event. She holds a B.A. in Environmental Studies and a minor in Spanish studies from the University of Delaware. She plans to pursue a career in sustainability, focusing on ESG and leveraging her research experience and knowledge of sustainability reporting.

ADDITIONAL RESOURCES

Will We Ever See SEC Rules / Guidance For Corporate ESG Disclosure and Reporting? The Question Hangs in the Wind…

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

People have questions about corporate sustainability / ESG / responsibility / citizenship disclosure and reporting.  Such reporting has been on a hockey stick rise in recent years.

Should ESG/sustainability etc reporting be regulated?  How? What would be regulated in terms of disclosure and reporting – what should the guidelines for corporate issuers be?  Does this topic become a more important part of the SEC’s ongoing Reg S-K (disclosure) revamping? What information do investors want?  What do companies want to have covered by regulation?  Many questions!

Some answers are coming in the European Union for both issuers and investors with new and proposed regulations.

And in the main will have to come in the U.S.A. from the Securities & Exchange Commission — at some point.

SEC was created with the adoption of the Securities Exchange Act of 1934.  The agency was specifically created by the U.S. Congress to oversee behaviors in the securities and markets and the conduct of financial professionals.

Publicly-traded company reporting oversight is also an important part of the SEC mission. The 1933 and 1934 acts and other subsequent legislation (all providing statutory authority for rulemaking and oversight) provide the essential framework for SEC to do its work.

As Investopedia explains for us, the purpose of the 1934 act is “to ensure an environment of fairness and investor confidence.”  The ’34 act gave SEC broad authority to regulate all aspects of the securities industry and to enforce corporate reporting by companies with more than US$10 million in assets and shares held by 500 or more shareowners.

An important part of the ongoing SEC’s mission, we should say here, is to protect investors and be open to suggestions “from the protected” to improve the complicated regimes that guide corporate disclosure. So that investors have the information they need to make buy-sell-hold decisions.  Which brings us to S-K.

In recent months, the SEC staff has been working on the steps to reform and updates segments of Reg S-K and has been receiving many communications from investors to suggest reforms, updates, expansion of, corporate disclosure.  (Details are below in the news release from SEC in 2019. The SEC proposed rule changes, still in debate, are intended to “update rules” and “improve disclosures” for investors and “simplify compliance efforts for companies”.)

Regulation S-K provides standard instruction for filing forms required under the 1933 and 1934 acts and the Energy Policy and Conservation Act of 1975.

Especially important in the ongoing initiative to update Reg S-K, we believe:  the setting out for SEC staff and commissioners of facts and perspectives so that serious consideration is given to the dramatic sea changes in (1) the growth of sustainable investing and the related information needs; (2)  and, the vigorous corporate response, particularly in the form of substantial sustainability / ESG reports issued.

Most of the corporate reports published in recent years have been focused on the recommended disclosures as advanced by popular frameworks and widely-recognized reporting standards (such as those of GRI, SASB, CDP, TCFD, et al).

Will we see SEC action on S-K rules reform that will draw applause from the sustainable investors? Now, we point out, including such mainstream players as BlackRock, State Street and Vanguard Funds, to name but a few owners found in almost every corporate top holder list.

Ah, Depends.  Political winds have driven changes in rules at SEC. Then again, it is an election year.  (To be kept in mind:  There are five SEC commission members; two are appointed and confirmed Democrats, two are Republicans – and the chair is nominated by the president…right now, a Republican holds that position.)

Investor input is and should be an important part of SEC rule making. (All of the steps taken by the Commission to address such items as corporate disclosure and reporting in adopting or amending the rules have to follow the various statutes passed by the congress related to the issue.  Investor and stakeholder input is an important part of the approach to rule-making.  Sustainable investing advocates have been making their views abundantly clear in this initiative to update Reg S-K.)

The SEC Investor Advisory Committee formally makes recommendations to the agency to help staff and commissioners be aware of investor sentiment and help to guide the process through the advice provided.

Recently the committee voted to make recommendations to the SEC on three topics: (1) accounting and financial disclosure; (2) disclosure effectiveness; and, (3) ESG disclosure.

The committee said they decided that after 50 years of discussion on ESG disclosure it is time to make a move, now that ESG / sustainability are recognizably important factors in investing.  Given the current political environment in Washington, there probably won’t be much movement at SEC on the issue, many experts agree.

But the marker has been strongly set down in the committee’s recent report, one of numerous markers set down by sustainable investment champions.  

Commissioner Hester M. Pierce addressed the Investor Advisory Committee, and shared her perspectives on ESG reporting.  “The ambiguity has made the ESG debate a difficult one…”  She thinks “the call to develop a new ESG reporting regime…may not be helpful right now…”  (She is a Republican nominee, a lawyer in academia.)

We have included her comments in the selection of four Top Stories for you.  Another of the items – the comments of SEC Chair Jay Clayton along the same lines about ambiguity and confusion of ratings etc. (he is also a Republican appointee).

To which sustainable investing proponents might say – if not now, when, SEC commissioners!

While the conversation may at times be focused on “what do investors want,” there is also wide agreement among corporate boards and executives that guidance and standardization in corporate ESG / sustainability et al reporting would be very helpful.

With the current comments of the leadership of SEC we are not quite there yet.

Interesting footnote:  The October 1929 stock market crash helped to plunge the nation into the Great Depression.  The 1932 presidential elections resulted in New York Governor Franklin Delano Roosevelt (a Democrat) moving to the White House in March 1933 and swiftly taking action to address important public policy issues.  He brought him his “brains trust”, experts in various public policy issues that helped to create sweeping reforms and creation of powerful regulatory agencies — such as the SEC.

The story goes that there was so much to do that the financial markets and corporate oversight legislation had to be divided into two congressional sessions – in 1933 and 1934 (the congress met for shorter periods in those days – the members were part-timers).  Thus, the Securities Act of 1933 and the 1934 act.

Regulation overall was then and today is a very complicated topic!

Top Stories

SEC’s Investor Advisory Committee Makes Disclosure Recommendations  (Source: Cooley PubCo)

SEC Chair Warns of Risks Tied to ESG Ratings 
(Source:  Financial Times)

In addition, see:

Titles Matter to Provide Context and Direction – For Corporate Leaders and the Providers of Capital

May 14 2020

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

Shorthand terms in business and finance do matter – the “titling” of  certain developments can sum up trends we should be tuning in to.  Some examples for today: Sustainable Capitalism  – Stakeholder Primacy – Sustainable Investing – Corporate Sustainability – Corporate ESG Performance Factors – Environmental Sustainability – Corporate Citizenship…and more.

These are very relevant and important terms for our times as world leaders grapple with the impacts of the coronavirus, address climate change challenges, as well as addressing conditions of inequality, have/have not issues, questions about the directions of the capital markets, ensure issuer access to long-term capital…and more.  And, as influential leaders in the private, public and social sectors consider the way forward when the coronavirus crisis begins to wind down.

For investors and corporate sector leaders, the concept of shareholder primacy was more or less unchallenged for decades after World War II with the rise of large publicly-traded corporations – General Electric! — that dominated the business sector in the USA and set the pace other companies in the capital markets.

But as one crisis followed another – the names are familiar — Keating Five S&L scandal, Drexel Burnham Lambert and junk bonds, Tyco, Enron, WorldCom, Adelphia Cable, Arthur Andersen, the Wall Street research analysts’ debacle (Merrill Lynch et al), Lehman Bros and Bear Stearns, Turing Pharmaceutics, on to Wells Fargo, Purdue Pharma and its role in the Opiod crisis – over time, increasing numbers of investors began to seriously adjust they ways that they evaluate public companies they will provide vital capital to in both equities and fixed-income markets.

Investors today in this time of great uncertainty are focused on: which equity issue to put in portfolio that will stand the test of time; whose bonds will be “safe”, especially during times of crisis; which corporate issuer’s reputation and long-term viability is not at risk; where alpha may be presented as portfolio management practices are challenged by macro-events.

This is about where the money will be “safer” overall, and provide future value and opportunity for the providers of capital – because there is great leadership in the board room and executive offices and resilience in crisis is being demonstrated.

As we think about this, the questions posed in context (virus crisis all around) are:  Why has sustainable investing gone mainstream?  What can savvy boards and C-Suite leaders do to exert leadership in corporate sustainability?  Where is sustainable capitalism headed?  How do we identify great leadership in the corporate sector in times of crisis?

Our choice of featured stories up top for you this week provide some interesting perspectives on these questions.

And, we’ve tried to illustrate the embrace of sustainability as a fundamental organizing principle today of great corporate leaders.  As well as explaining the continuing embrace of sustainable investing approaches of key providers of capital as a strategic risk management discipline — and proof of concept of acceptance of stakeholder primacy / sustainable capitalism in the 21st Century.

The other stories we’ve curated for you this issue of our newsletter help to broaden these perspectives that are offered up in these challenging times from thought leaders.

As the ancient blessing/curse goes:  May we live in interesting times.

Featured Stories – The Two Critical Halves of Sustainable Capitalism, Issuers and Providers of Capital…

Concept: A well-structured sustainability committee not only serves a critical coordinating function, but also steers sustainability right to the heart of the company and the company’s strategy. Let’s take a look at how boards at some of the world’s leading companies have tackled this…

How Can Boards Successfully Guide a Transition to Sustainable Business?
Source: Sustainable Brands – The UN’s Sustainable Development Goals are set to unlock $12 trillion in new business opportunities by 2030. Yet many companies are still stuck in the past. Over the next decade, businesses can either adapt and thrive or deny and, says the organization…

The evidence suggesting that boardrooms should prioritize sustainability is growing rapidly. On the one hand, there are increased risks associated with not prioritizing sustainability. On the other hand, the figures show the huge opportunities sustainability offers businesses. As a result, more and more, sustainability is positioned at the top of boards’ agendas.

Boards must put sustainability at the top of their agenda to thrive
Source: GreenBiz – Amidst the global COVID-19 crisis, there have also been glimmers of hope. A significant one is its impact on climate change. It’s estimated that global carbon emissions from the fossil fuel industry could fall by 2.5 billion…

During a recent CECP CEO Roundtable, current and former CEOs gathered virtually and shared insights from their perspectives on the business landscape. In these informative discussions, one executive noted that leadership, more so than having the right systems in place, is and will be integral as we navigate uncharted territory:

Pivoting with Moral Leadership
Source: CECP – During a recent CECP CEO Roundtable, current and former CEOs gathered virtually and shared insights from their perspectives on the business landscape. In these informative discussions, one executive noted that leadership, more so…

Bears watching:  On 8 April 2020 the European Commission published a consultation paper on its renewed sustainable finance strategy (the “Sustainability Strategy”). The Sustainability Strategy is a policy framework forming a key part of the European Green Deal, the EU’s roadmap to making the EU’s economy sustainable, including reducing net greenhouse gas emission to zero by 2050. Despite the inevitable recent shift of focus to measures dealing with the COVID-19 crisis, this remains a top EU priority and the outcome of this consultation may significantly affect :

European Commission Consultation on the Renewed Sustainable Finance Strategy
Source: National Law Review – The Sustainability Strategy is a policy framework forming a key part of the European Green Deal, the EU’s roadmap to making the EU’s economy sustainable, including reducing net greenhouse gas emission to zero by 2050. Despite the…

Confluence: Coronavirus Crisis, Climate Change, Global Warming, Sustainable Investing, Corporate Sustainability & Citizenship…Shaping These Times

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

Over the past several weeks we have been witnessing an important confluence of events, a critical convergence of forces — something we might call reaching a critical inflection point for the sustainability and well-being of our planet, people, plants, and yes, profits going forward. Consider:

The COVID-19 infection has now touched just about every sovereign state on Earth, shutting down the largest economy, that of the United States of America, as well as the economies of many European nations…and of course important parts of the world’s second largest economy, China.

As this was happening, the public conversations about the impacts of climate change and global warming on people, flora and fauna, and planet continued, with the worldwide observance of the 50th Earth Day. Attention on climate change has doubled down even in the face of a frightening disease and resulting economic turmoil.

Numerous conversations among science and climate experts, in media channels, among public sector leaders, and other stakeholders, focused on the possible links between the coronavirus (and other serious infections) and climate change.

Questions are raised:  What new diseases might emerge…what new vectors might we see, moving from tropics to temperate climes and carrying unfamiliar diseases.  What fate awaits humanity as in some countries we see systematic destruction of rain forests (the “lungs of the Earth”) and as populated cities continue to push farther into wilderness areas?  Do we know the effects, short- and long-term, on human, as the arctic tundra warms and releases microbes and other organisms stored there in colder climes for millennia?

As the world’s capital markets were being impacted by the virus crisis and shutdowns of entire economies, the focus on sustainable and impact investing has intensified.

(On one conference call this week, a lecturer pointed to ESG investing trends and explained, look at the more resilient and sustainable companies for opportunity in the crisis and as we emerge. The ESG leaders will be more attractive for investors.)

Early results showed that sustainable investments (especially ESG mutual funds and ETFs) were performing with more resilience than more traditional instruments in the slowdown and in the ongoing adjustments of institutional investors’ portfolios in response to the crisis. (The outflow of ESG ETFs and mutual funds were small than for traditional peers.)

The focus on the corporate sector intensified as the three important sectors of 21st Century economies struggled to adjust to the widespread effects of the virus crisis – that is, public sector (governments), private sector (corporate and business) and social sector (institutions, NGOs, foundations, charities, others, as first defined as the social sector by management guru Peter F. Drucker).

There is considerable public discussion now about what the “new normal” might look like as we emerge from the terrible effects of the coronavirus.  The confluence / convergence of recent events as outlined here will help to shape society in the near term — moving into the post-crisis period.

The G&A Institute team has been monitoring and sharing perspectives on the above and more in our usual communications channels. In these newsletters, in our Resource Guides, on our Sustainability Update blog.

You can check out our blog posts here.

We are offering perspectives in the ongoing series, “Excellence in Corporate Citizenship on Display in the Coronavirus Crisis”  — #WeRise2FightCOVID-19.

We offer here several features along the lines of the above themes of confluence / convergence of factors for you:

Featured Stories

Why we cannot lose sight of the Sustainable Development Goals during coronavirus
Source: World Economic Forum – Our world today is dealing with a crisis of monumental proportions. The novel coronavirus is wreaking havoc across the globe, upending lives and livelihoods.

An Earth Day CEO summit shows how dramatically corporate values have changed
Source: Fortune – This week marks the 50th anniversary of those nationwide environmental celebrations and “teach-ins” that came to be called Earth Day. From the largest 1970 gathering, in Fairmont Park in Philadelphia, to smaller marches and…

The Covid-19 crisis creates a chance to reset economies on a sustainable footing
Source: The Guardian – New Zealand climate minister says governments must not just return to the way things were, and instead plot a new course to ease climate change

50 years later, Earth Day’s unsolved problem: How to build a more sustainable world
Source: MSN/Washington Post – We haven’t quit the fossil fuels scientists say are warming the atmosphere and harming the Earth. Humans use more resources than the planet produces. Society has not changed course.

Today: Huge Financial Flows as the U.S.A. Aids the Business Community and Workers, Families…How Is the Flow Facilitated?

April 28, 2020 –   #WeRise2FightCOVID-19  Excellent in Corporate Citizenship on Display in the Coronavirus Crisis – #18

Introduction
These are the times when actions and reactions to crisis helps to define the character of the corporation and shape the public profiles of each of the corporate citizens. For the managements of companies, these are not easy times.

Important decisions are to be made, many priorities set in an environment of unknown unknowns — and there are many stakeholders to be taken care of.

The Good News 
Corporations are not waiting to be part of the solution – decisions are being made quickly and action is being taken to protect the enterprise.  This is no easy task while protecting the corporate brand, the reputation for being a good corporate citizen, watching out for the investor base and the employee base — and all stakeholders.

What are companies doing? How will the decisions made at the top in turn affect the company’s employees, customers, hometowns, suppliers, other stakeholders?  Stay tuned to our series.

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

The government of the United States of America is directing hundreds of billions’ of dollars toward individuals, families, business enterprises, and local and state governments to aid in the response to the coronavirus emergency.  How do the much-needed funds reach the intended recipients?

As the U.S. Congress, the Federal Reserve System and the Treasury Department (and other agencies) make the moves to provide continuing financial support for small businesses, laid off and furloughed employees, and major industries like airlines, the ramping up of the enabling technologies to facilitate the financial flow is a herculean task.

Take the first round of financial aid to small business, with funds channeled from the Small Business Administration (SBA) through big banks, regional banks, community banks, credit unions, and other qualified lenders.

As U.S. banks and credit unions faced the “instant” onslaught of a huge volume of applications for financial aid, FIS (working with a growing number of financial institutions) leveraged its “Real-Time Lending Platform” to digitize and automate the lending process. The platform is now processing a high volume of loans and can be scaled to meet demand as needed.

FIS created a COVID-19 Online Resource Center to provide its clients with options and information to “adapt and rebound” to virus emergency challenges. Link:  https://www.fisglobal.com/response-center

About the Company
FIS is a leading provider of technology solutions for merchants, banks and capital market firms worldwide.  The company has more than 55,000 people “globally dedicated to advancing the way the world pays, banks and invests by applying its scale, deep expertise and data-driven insights”.  FIS is a Fortune 500 enterprise and is included in the S&P 500® Index. (FIS:NYSE)

FIS is now using its technology platforms to enable U.S. banks and credit unions to provide loans and other economic relief to small businesses and merchants under the Small Business Administration (SBA) “Paycheck Protection Program” (that is within the CARES ActCoronavirus Aid, Relief and Economic Security Act).

The PPP authorizes lenders (in the first round) to provide up to $349 billion in funds to U.S. small business and merchants that are impacted by COVID-1. Loans can be forgiven in time if used for payroll costs and certain other expenses; all funds must be used by June 30th.

FIS is also waiving minimum monthly service charges for April for U.S. and U.K. merchants and providing free virtual terminal access for U.S. merchants and retailers enrolled in the Worldpay from FIS IQ online portal (for remote processing).

The company is also providing online grocery shopping for SNAP benefit recipients (SNAP is a U.S. Department of Agriculture program – the Supplemental Nutrition Assistance Program).

Using FIS technology, SNAP benefit recipients in a piloted program (rolled out in Washington State, Oregon and Nebraska) can use their Electronic Benefit Transfer (EBT) cards to make online purchases of groceries through authorized retailers – such as Walmart and Amazon.

FIS government agency clients in the states of Arizona, Florida, Idaho and California were next in line for the program. (Typically, EBT users have to make their purchases at brick & mortar retailers.)

In 2017 CEO Gary Norcross became a signatory of CEO Action for Diversity and Inclusion, a network of 500-plus CEOs in 85 industry categories.

Talk About Overload
In the context of describing FIS’ involvement in the Federal aid programs, consider the complexity of banks, credit unions and lenders managing the load of loan applications.  In FY 2019, SBA managed just $28 billion in loans.  That was for 52,000 loans totaling $23 billion under the flagship 7A program and 6,000 loans for $5 billion under the SBA 504 program.

As of April 24, 2020 the volume is:  38,984 loans totaling $7,967,174,888 under just the SBA Disaster Assistance Nationwide National Economic Injury Disaster Loan program!

And no doubt there is more Federal financial aid to be on the table as the coronavirus continues.

* * * * * * * *

G&A Institute Team Note
We continue to bring you news of private (corporate and business), public and social sector developments as organizations in the three societal sectors adjust to the emergency.

The new items will be posted at the top of the blog post and the items today will move down the queue.

We created the tag “Corporate Purpose – Virus Crisis” for this continuing series – and the hashtag #WeRise2FightCOVID for our Twitter posts.  Do join the conversation and contribute your views and news.

Do send us news about your organization – info@ga-institute.com so we can share.   Stay safe – stay healthy — keep in touch!

 

Addressing Supply Chain Challenges in the COVID-19 Era

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

Since the concept of a “new world order” helped to usher in a new era in global trade some 30+ years ago with the end of the Cold War, barriers to trade have continued to tumble. “GATT” (the “General Agreement on Tariffs and Trade” continuing rounds of global trade talks that began in 1947 under United States leadership) gave way to the World Trade Organization (WTO) in 1995.  New rules were applied, and trade continued to become “more liberalized”.  Corporate interests responded with dispersal of many their operations.

Large manufacturing companies spread out their sourcing to many new areas of the world, building a substantial network of suppliers in far-off lands. Mid-sized and smaller firms followed the example and began to source globally.  Manufacturing moved from “home country” to be situated in many other countries over time.

As companies set up their operations in many countries and sourced almost everywhere on the globe; fleets of cargo vessels plied the seas with stacks of containers on their decks.

Result:  today’s diverse, complex, spread out networks of tier one, two and three suppliers, and non-home country factories and facilities — many in China and East Asia and Pacifica nations — have dramatically changed the face and very nature of “home country companies” (such as those based in North America and Western Europe).

Therein, we find the risk!  Today we present two commentaries for you on today’s global supply chains and how to make these more links less risky and more sustainable — and to address the inherent risk in the global supply chain mix.

Writing in SupplyChainBrain, David Cahn suggests “…it is essential for companies and their supply chains to realize that customers prefer to engage with organizations that are focused on environmental sustainability. Significant opportunities exist for leveraging people, processes and technologies to achieve operational efficiencies.”

He suggests five steps in “the Pursuit of Sustainability” that spans the corporate enterprise.  His five areas “ripe for improvement” include: sourcing; manufacturing; recycling; packaging; transportation. There are numerous tips in each of the categories that may be of value to your organization in his commentary.

Author David Cahn is global marketing director for Elemica, a Digital Supply Network for manufacturers that automates and provides visibility into supply chains.

Visibility and understanding the risks inherent in supply chains is important and our second commentary for you comes from our colleague Pam Styles, who poses the question:  “what’s in your supply chain mix”?

The COVID-19 pandemic has exposed countless concerns for corporate managers, and for investors and providers of capital — including global supply chain management issues, Pam writes.  And, she suggests, ESG/sustainability practitioners may be able to offer unique vantage to assist the debrief in collaboration with company supply chain experts and management teams.

Her comments are directed at investor relations officers (IROs) who are on point to answer analyst and investor questions about supply chain risks and issues as well as to corporate ESG practitioners.

Pam concludes: When it comes to Sustainability – climate change is important but supply chain is urgent.  Pam is a long-time Fellow of G&A Institute and a valued collaborator on client projects. She is a long-time member of NIRI and the NIRI Senior Roundtable.

Featured Stories

The Pursuit of Sustainability Spans the Enterprise
Source: Supply Chain Brain – These days, it’s essential for companies and their supply chains to realize that customers prefer to engage with organizations that are focused on environmental sustainability. Significant opportunities exist for leveraging…

Corporate ESG Stakeholders – Supply Chain Management – What’s in Your Supply Chain Mix?
Pam Styles commentary in G&A Institute’s Sustainability Update blog:
Does your company regularly review and remediate identifiable aggregate risks across the company’s supply chain and associated third-party relationships?

 

Boston Common Asset Management – Staying the Course, With Adjustments

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

Boston Common Asset Management with offices in Boston and San Francisco has been a sustainable and responsible investor since its founding in 2003.  The clients served are endowments, foundations, religious/faith-based groups, pension funds, family offices, and mission-driven organizations.

Part of its mission is to strive to improve corporate behaviors and responsibilities through engagement with corporate boards and executives and being active in proxy season with filing of resolutions, supporting other institutions doing the filing (often through collective actions) and voting practices.   Of course, like other asset managers, Boston Common is challenged as well by the changes brought about by the spreading coronavirus.

The Earth Day message from Lauren Compere, Managing Director of Boston Common included these points:

  • The firm’s focus is on both local and global issues – such as the health and safety of our community, planet and Boston Common’s impact as an active, engaged investor. Even as the impacts of COVID-19 are addressed, the work must go on in addressing systemic risk, especially the climate crisis.
  • Engagements (with companies) have not changed, but the tenor and lens through which public companies are evaluated and act will change.
  • Boston Common feels it is important in the crisis for portfolio companies to prioritize stakeholder well-being and the firm commends those companies that step up to show leadership.
  • At the same time, some companies are being called out – those firms that are price gouging, firing employees who are concerned about their health, and limiting access to much-needed products on the front lines.

What Boston Common is doing:

  • Having direct dialogue with company managements.
  • Working with investor networks and partners.
  • Looking at its own “responsible business” practices.
  • Planning and re thinking its future work.

Some specifics:

Company Engagements — Issues include human rights, eco-efficiency, climate risk. The changed tone is having more empathy, with more personal tone in these engagements.  Company responses are applauded and accountability is discussed – balancing interests of shareholders and stakeholders.

Working in Partnerships and Coalitions — The ICCR is a key partner of Boston Common, which is a signatory of the “ICCR Coronavirus Investment Statement” on workplace and supplier practices, and engagement of pharma companies to coordinate & collaborate on urgent medical needs. Link: http://ga-institute.com/Sustainability-Update/watching-the-watchers-what-investors-esg-raters-are-doing-in-the-virus-crisis/

PRI:  The firm joined the Principles for Responsible Investment (PRI), which has awarded Boston Common an A+ rating for our consecutive years.

Boston Common itself, a B-Corporation, is taking these actions:

  • Continuing to pay composting, cleaners, other contract vendors who rely on the income.
  • Supporting local food banks and social agencies addressing urgent community needs in Boston and San Francisco, contributing to date $26,630 in firm and employee-donated funds.
  • Future Focus” includes a “refresh” of engagement priorities and investor and private sector actions.  A range of societal issues that have been in the spotlight during the crisis must be addressed:  how work is valued; the need for a sustainable living wage; public health risks posed by industrial agriculture and food insecurity; unequal healthcare access and outcomes for low-income and communities of color; corporate tax practices, need for investment in healthcare infrastructure, social safety nets…and more.
  • Boston Common is adjusting the lens through which the firm examines its “asks” of companies and actions, and keeping systemic risk in focus (such as for issues like climate change, digital human rights, environmental protections as EPA rolls back the regs, controversial energy projects.)

Much will change with the virus crisis, MD Lauren Compere points out. “We must ensure that as investors we memorialize the lessons learned in this crisis, empowering companies to manage for the long-term, with a focus on joint recovery and prosperity as the world emerges from lockdown.”

Boston Common has long been a proponent for responsible behavior of corporations and investors and regularly joins with other asset managers in initiatives to drive change.

The issues involved include Amazon de-forestation, climate change and the portfolio risk posed by fossil fuel, urging the Detroit Big 3 (GM, Ford, Fiat-Chrysler) to drop opposition to California’s waiver authority on auto emissions standards, encouraging boards to include more diversity in director choices, and bank financing of controversial projects such as the Dakota Access Pipeline.

About the name:  Many people have visited the beautiful Boston Commons in the middle of this New England city.  The firm’s name comes from the concept of standing at the intersection of the economic and social lives of the community; the “universal commons” is the firm’s shared mission and vision.

Information: https://bostoncommonasset.com/Membership/Apps/Boston_HP_Input_App.aspx 

 

Watching the Watchers – What Investors & ESG Raters Are Doing in the Virus Crisis

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

As we have numerous times in this space commented about the dramatic shift from a shareholder primacy focus (for public companies and investors) to today’s stakeholder primacy operating environment, the views of key stakeholders – investors, and their service providers – are critical during the virus crisis.

Today we’re sharing the actions and perspectives of the investor-stakeholders…as the investor coalition in our first item notes…

“…the long-term viability of the companies in which we invest is inextricably tied to the welfare of their stakeholders, including employees, suppliers, customers and communities…”


Investor Coalition Focuses on Corporate Response to the Crisis

The Interfaith Center on Corporate Responsibility, a coalition of 300 institutional investors long focused on corporate responsibility and sustainability, joined forces with the Office of New York City Comptroller Scott M. Stringer and Domini Impact Investments LLC to develop an “Investment Statement on Coronavirus Response” — to urge the business community to take what steps they can and offered five (5) steps for corporate managements to consider.

These include:

  • Providing paid leave – emergency leave for all employees, including temps, part-timers, and subcontracted workers.
  • Prioritizing health and safety – limiting exposure to COVID-19, rotating shifts, enhancing protective measures, closing locations, setting up remote work, additional training where appropriate.
  • Maintaining employment – retain workers as much as possible; a well-trained and committed workforce will help companies resume operations quickly; also, companies should watch for potential discriminatory impact during and after the crisis.
  • Maintaining supplier/customer relationships – As much as is possible, companies should maintain timely or prompt payments to suppliers and work with customers facing financial challenges to help stabilize the economy, protect communities and small businesses, and ensure a stable supply chain will be in place when operations return to normal.
  • Practice financial prudence – the investors state they expect the highest level of ethical financial management and responsibility in the period of (acknowledged) financial stress. As “responsible investors” (the signatories) the expectation is that companies will suspend share buybacks, and limit executive and senior management compensation for the duration of the crisis.

Beyond these, the investors urged companies to consider such measures as childcare assistance, hazard pay, assistance in obtaining government aid for suppliers, paying employee health insurance for laid off/furloughed workers, and deploying resources to meet societal needs related to the pandemic.

Over the past few years, the investor coalition points out, corporations have shown leadership by using their power as a force for tremendous good. This kind of leadership if critically needed now. And, business reputation and social license to operate is at stake.

As we prepare this about 200 long-term institutional investors with AUM of US$5 trillion had signed on to the effort, including: the AFL-CIO funds, American Federation of Teachers, Aviva Investors, Boston Common Asset Management, the Chicago City Treasurer, Communications Workers of America, Connecticut State Treasurer Shawn T. Wooden, Delaware State Treasurer, Illinois State Treasurer Michael Frerichs, International Brotherhood of Teamsters, Investor Environmental Health Network, Office of Rhode Island General Treasurer Seth Magaziner, Oregon State Treasurer, Robeco, SEIU, UAW Retiree Medical Benefits Trust, Treasurer of the State of Maryland, Vermont State Treasurer, and a large roster of faith-based institutions and religious denomination funds.

#  #  #

Walking-the-Talk of Corporate Responsibility

Refinitiv provides investors with ESG ratings and perspectives on corporate ESG performance and builds ESG / sustainability considerations into products and services for investor clients. The company announced what it is doing to maintain its forward ESG momentum during the crisis.   And the changes will over time affect the public companies that are rated and ESG news distributed worldwide by Refinitiv. 

On Earth Day 2020, the folks at Refinitiv – this is one of the world’s largest providers of financial information – announced the beefing up of their own operations…walking the talk of what they provide to investor clients in terms of ESG Data and solutions for evaluating public companies’ ESG performance.

Refinitiv is putting in place for itself more stringent, science-based emissions targets, climate change reporting standards to meet the TCFD’s recommendations, and is joining the RE100 initiative to source 100% of its electricity from renewables.

Refinitiv had made three core pledges on the environment, social impact and sustainable solutions to support the UN SDGs. Part of this was a goal of achieving carbon neutrality before the end of 2020. The company is joining the Business Ambition For 1.5C commitment; aligning its own corporate reporting with the Task Force for Climate-Related Disclosures (the TCFD); and by this coming summer should be 100% in terms of how they source energy from renewables.

Refinitiv recently launched “The Future of Sustainable Data Alliance” to accelerate the mobilization of capital into sustainable finance, and will work to sustainability “at the core of product offerings”. Refinitiv serves more than 40,000 institutions in 190 countries, providing ESG data for 15+ years.

We can expect that these moves will result in the intensifying of the evaluation of corporate sustainability efforts by this major financial information provider. As the Refinitiv CEO David Craig comments:

The pandemic is clearly providing humanity with a re-set moment: a stark reminder about our fragility as a species and a sharp lesson about what happens when we mess with nature. It is also a moment when the old rules about the role of the state no longer apply. We can therefore attack the twin challenges of COVID-19 and climate change simultaneously, not sequentially. After all, when again will we be at a moment when governments are injecting such unprecedented sums into the economy just as the world needs up to $7 trillion a year of renewable investments to hit 2030 development and climate targets.”

Luke Manning, Global Head of Sustainability and Risk Enterprise at Refinitiv, adds:

Our commitment is going further than before and aiming for more ambitious emissions reductions that – if repeated by businesses across the world – should limit atmospheric warming to 1.5C above pre-industrial levels. If we want to truly progress the climate agenda we need to help everyone understand that tackling it is in all our personal and financial self-interest. It’s not just about the impact we are having on the environment, but the impact the environment is having on us.

# # #

Morningstar Acquires Full Ownership in Sustainalytics

Morningstar, a leading firm in providing investment research to individual and institutional investors in North America, Europe, Asia and Australia-Pacific region, began measuring the performance of ESG-focused mutual funds and ETFs three years ago. As part of the initiative, Morningstar acquired a 40% interest in the ESG ratings organization, Sustainalytics.

Now, that interest will be 100% as Morningstar solidifies its competitive advantage in measuring the performance of ESG investable products. Says CEO Kamal Kapoor:

“Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company’s economic moat or the stability of its credit rating, this is the future of long-term investing.

“By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics’ mission of contributing to a more just and sustainable global economy.”

#  #  #

As companies large and small, public and private, step up to help society during the virus crisis, they burnish their reputation and social license to operate.And help society cope with the impact of the crisis on individuals, families, communities and institutions. 

We’re bringing you the news of those corporate actions.  And, we’re watching the investment community for their reactions, and their intention to encourage public companies to stay the course of their sustainability journey during the virus crisis.  Stay Tuned to this blog. 

It’s Earth Day Again – Let’s Celebrate – and Pledge Again to Defend Mother Earth!

For Earth Day – Plus 50 – April 22, 2020

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

The first Earth Day was the idea of and championed by a United States Senator, Democrat Gaylord Nelson of Wisconsin on April 22, 1970. Fifty years ago!

Let’s also celebrate his life (1916-2005) and the environmental movement he helped to launch as we observe Earth Day 2020.

For those of us who were not around back in the day, I will also offer up some background for you as we celebrate the 50th Earth Day.

Why Earth Day?
In 1970, there were too many assaults on the nation’s environment. On Our Good Earth with air, water, soil polluted – in many parts of the nation, we were really heavily polluted!  (There are still SuperFund sites being cleaned in many states.)

The American landscape was rich with manufacturing facilities and processing plants, located in every state. Our manufacturing and processing exports in the post-WW II period comprised fully one-quarter and more of all world trade.

The generosity of the U.S. in creating the Marshall Plan to help our former wartime enemies build up their economies and our WW II allies’ economies fueled the exports of American-made goods. 

Even today, U.S. manufacturing (really cleaner!) accounts for half of U.S. exports. U.S. manufacturing today by itself makes up the world’s 10th largest economy (ahead of China, Japan, Germany and many other manufacturing centers). But back in the day…

The Importance of U.S. Manufacturing in the Post War
After World War II, the U.S. was the dominant manufacturing center of the world. Germany and Japan factories were coming back on line, having suffered tremendous damage [to each country’s industry].

Early in the post-WW II period many European companies began setting up factories in the U.S. (chemicals, pharma) — and many of those companies were serious polluters here, as they were in Europe. (One reason why European investors were early adopters of ESG approaches – not often discussed.)

In 1951, “re-armament” was in full gear and the Cold War was on. Military production was greater than for consumer goods – and that meant many more plants would be turning out goods without necessarily protecting the environment around the plant. (“In the national interest…”)

Solvents used for manufacturing would go into the ground. Emissions from toxic fumes, into the air. Solid and liquid waste – into ground, or waters (streams, bays, rivers, oceans). As consumer goods manufacturing rose, a “Guns & Butter” economy emerged in the U.S., with the factories running in two or three shifts. Out put steadily rose. So, too, nasty byproducts.

The steady assault on Mother Earth by industry and governments steadily rose.

Among the catalysts for action after two decades:

The Cayuhoga River, flowing through Cleveland, Ohio, the industrial city on the Great Lakes, caught fired and the junk on top burned. (Noontime, June 22, 1969 – a five story fire flashed out of the river in the downtown!) Info at: https://clevelandhistorical.org/items/show/63

A huge oil spill just offshore fouled the beaches of Santa Barbara, California. January 28, 1969 – 3 million gallons of crude spilled off the shoreline of the beautiful city by Union Oil (now Unocal), leaving an oil slick of 35 miles in length along the California shores…killing bird, fish, mammals (and tourism!). 1,000 gallons of oil per hour flowed for a month.

The federal government had relaxed the regulations on casing around the drilling hole and an explosion ripped the sea floor. (Sound too familiar in 2020?)

The federal government did stop offshore drilling for a few years (in the state’s waters) but then that restriction was relaxed and The Los Angeles Times (which has covered the story for five decades) says today there are 23 oil and gas leases in state waters.

The California spill is considered a catalyst for the modern environmental movement. Richard Nixon was a California native — then sitting in the Oval Office — and was moved to action shortly after the spill.

The LA Times coverage is at: https://www.latimes.com/local/lanow/la-me-ln-santa-barbara-oil-spill-1969-20150520-htmlstory.html

In the eastern U.S., the trees on mountaintops were constantly seared and leaves gone, branches standing naked of greenery. The “acid rain” coming from parts of the nation to the west wafted high up and denuded New York and New England mountaintop greenery (that was SOX, NOX, etc from smokestacks carried far to the east on the higher winds).

Those with light color cars would be scrubbing the dark stains running vertically on the vehicle. Acid rain streaks. We saw those on our homes (the white paint, the rain gutters, these would be streaked with black stain).
https://www.sciencedaily.com/releases/1998/09/980928072644.htm

Personal Remembrances
As a boy, heading in the car to Manhattan or Brooklyn with family, I remember being curious about the large black, brown, yellow clouds hovering above the Empire State Building or Chrysler Building in midtown. Wafting along, at leisurely pace. You could “smell” the city as you approached. There was often a coating of soot on my shirt or coat when I returned home.

“Smog” enveloped many American and European cities. (Fog and smoke.) I have written a few times about my flying through or over city smog. Looking down below from the cockpit, thick yellow clouds often blanketed Manhattan on hot summer days. Flying through (at lower levels) I would be on instruments until I was safely over New Jersey’s rural parts heading west. And clean air again filled the cockpit!

You could always see the bellowing smoke coming out of New York City’s electric generating plants, furnaces fired by coal in those days.

For a time, to build flight hours, I flew around the city and suburbs on weekends broadcasting as “Captain Hank, Your Eye-in-the-Sky” for radio stations WGBB and WGSM. Checking on traffic to the beach, open spaces Jones Beach parking fields, fishing offshore, surfing at Gilgo Beach, and the like. Quite often I would be dodging in and out of smog banks that drifted eastward.

Up in Connecticut, driving one day along a river road, I was startled to see “rubber rocks” along the river bank. A large rubber tire company’s outflow of waste from the factory to the river had coated the rocks before heading downstream into Long Island Sound and then to the Atlantic Ocean. Everything would just disappear into the seas, right? (Prevalent thinking of certain business leaders at the time – externalize the crap and let someone else pay for results.)

Up in The Bronx (boro of New York City) and the northern parts of Manhattan, trucks would idle for hours as they picked up or dropped off food at the terminals…the children of minority populations living there had high rates of asthma. Part of the payment for the necessary local industry that employed their parents.

New York City – the Manufacturing Center!
It is hard to believe here in 2020, but New York City was once a mighty manufacturing city for goods now produced in Asia — apparel, footwear, jewelry and accessories. Also, for food and beverages (local beer manufacturers, sugar processing factories, colas). The Brooklyn Navy Yard produced mighty battleships and repaired aircraft carriers damaged in battle (the USS Enterprise).

Manufacturing is still big in Gotham City – but it is far cleaner, safer, more responsible in operations — by many magnitudes. https://nycfuture.org/data/manufacturing-in-nyc-a-snapshot

City of Transportation
New York has a magnificent harbor. The shorelines of Manhattan and Brooklyn boasted of many ocean shipping terminals for both passengers and cargo. Railroads ran along the shoreline (one abandoned line is now the High Line, an important Manhattan tourist attraction). The line brought carloads of meat to the west side, and then on to giant cruise ships of yesteryear.

Trucks ran uptown and downtown (my father owned a local trucking company and I would ride along on school breaks). The driver would back a truck up to the dock, load it, run around the city to deliver and pick up, bringing freight to the waiting rail cars along the docks, which would go on large barges over to New Jersey and out to the nation.

All of this activity pouring engine emissions into the air of New York, and with drip-drip-drip from transport machines (oil, gas, fluids) tricking down into the sewers and out to the rivers and out to the ocean.

This was at the height of 20th Century industrial America, the Arsenal of Democracy of World War Two. From east to west coasts and all through the heartland, factories poured out war materiel, and then shifted to peak production of peacetime goods for 1950s and 1960s consumer purchase. Along with Cold War materiel. Guns & Butter.

We were the world’s major manufacturing exporters, then, not China.

But at a cost. And so the rivers burning, smog choking the cities, creeks and bays and inlets and rivers and then oceans polluting.

Earth Day Helped to Change All of This – Looking Back, Rather Quickly
Senator Nelson was impressed by the 1960s “social revolution” with protest across the country as especially young men and women voiced their opposition to the status quo. Sit-ins were staged at universities to protest the draft and the Vietnam War. Marches took place in the south despite the marchers suffering beatings and arrests.

The senator was fascinated with civil rights sit-ins at southern soda fountains and marches by both black and white leaders — including many clergy and public officials. By the early organizing efforts to protect and ensure the rights of females and passage, state-by-state of the ERA – the Equal Rights Amendment (which failed to reach the votes to become part of the Amendments to the U.S. Constitution).

According to the Earth Day origin story, Senator Gaylord Nelson was thinking to himself: “If we could tap into the environmental concerns of the general public and infuse the student ant-war energy into the environmental cause, we could generate a demonstration that would force the issue onto the national political agenda.” And he did!

He set up an “Environmental Teach-in” (like civil rights counter “sit ins”!) to tell the story of the environmental degradation of the country and send a call to action to college campuses and schools. (Hey, let’s do that again today — so many youngsters are at home in the digital classrooms during this virus crisis!)

The result in 1970 was that 20 million people — roughly one-of-10 citizens — participated that first Earth Day (and that would be like 33 million people celebrating Earth Day today, out of our 330 million population!).

The midterm elections of 1970 saw many long-standing members turned out and a new wave of consciousness sweep the country. President Richard Nixon and the U.S. Congress on January 1, 1970 moved to pass the National Environmental Protection Act – which created the U.S. Environmental Protection Agency (EPA).

Then came passage of Clean Water Act (1972), Clear Air Act, Endangered Species Act, RCRA (waste), SuperFund (CERCLA-1980), Wilderness Act (1974) and many more federal and state regulations.

The good news is that while Senator Nelson hoped to kick off a movement, he did — and observance of Earth Day took hold – the year 1990 (20 years in) saw the peak participation in the U.S. and by 2000 some 184 countries held formal observances. There’s interesting background at: http://www.nelsonearthday.net/earth-day/

Alas, here in April 2020 we are homebound and not able to march or gather in groups. But we do have our electronic platforms of all kinds – so let’s connect and celebrate Earth Day that way.

We only have one (Earth) to protect and in the spirit of Senator Gaylord Nelson and those early organizers, let’s say we are still here, still with you in spirit, and there is much work still to be done!

Happy Earth Day, Mother Earth!

Shared Perspectives
You might be interested in the environmental movement perspectives here from March/April 2005, my column from the former journal, Corporate Finance Review. Popular Movements: A Challenge for Institutions and Managers” – explaining the emergence of ESG and the Sustainability Movement.

When Sustainability Movement Champion Michael Bloomberg was Mayor of New York City, in April 2007 he delivered a wonderful speech – A Greener, Greater New York – presaging his wonderful work in helping many of the world’s cities make their environments safer and more sustainable. This is what great mayors do!

One of the influential voices following the lead of Senator Nelson in our time is Bill McKibben, whose books and extensive writing have helped to influence the more recent sustainability movement. He was interviewed by the Times Union (Albany , New York) newspaper for this year’s celebration. 

You can follow him on Twitter.

Can’t get into the streets today to help celebrate? Earth Institute at Columbia University offers some suggestions on sheltering in place and celebrating

Corporate ESG Stakeholders – Supply Chain Management – What’s in Your Supply Chain Mix?

By Pam StylesG&A Institute Fellow

The current COVID-19 pandemic has exposed countless concerns, including (global) supply chain management issues near the top of the list.

Public and private-sector professionals and officials are soon to be attempting to get economies back up and running. Following Herculean and likely imperfect restart efforts, it will be important to debrief supply chain systemic failures and risks that have been exposed during the pandemic crisis.

ESG/Sustainability practitioners may be able to offer unique vantage to assist the debrief in collaboration with company supply chain experts and management teams.

Well-established ESG tracking practices and voluntary reporting frameworks, such as GRI (est. 1997) and CDP (est. 2000), could possibly be used to expand internal information sharing and analysis to augment internal supply chain risk assessments, monitoring and oversight capabilities.

ESG reporting frameworks are not necessarily a perfect fit or infallible, however they could potentially provide existing information platforms from which to add and/or improve accessible reporting, analysis and assessment, and executive leadership observation in a multitude of strategic (multi) sourcing risk assessments and repositioning exercises to come.

As we all try to learn and make important changes going forward, important questions to ask:

What do you know about your company’s suppliers’ supply chain, their suppliers, and so on?

The Business Continuity Institute, Zurich Insurance Company and others have been raising the red flag for years that too many companies do not have full visibility of their supply chain, nor the ability to fully track components through the full vertical supply chain.

Just a few recent examples of how reality has suddenly struck some pharmaceutical, consumer products and electronics companies (the list of other sector impacts can go on):

  • U.S. Pharmaceutical supply chain dependencies on China were well known at high levels prior to COVID-19, but effectively nothing was done about it and consumers were unaware of the looming risk.
  • Consumer Products giant Procter & Gamble indicated 17,600 products could be affected by Coronavirus in China.
  • Apple is dealing with pandemic-driven supply chain and sourcing woes.

Back in 2008 PwC published a fascinating paper about German companies supply chain sourcing practices in China, in which it suggested companies take a closer look at their KPI’s.

Who should raise warning flags and influence corrective supply chain action?

Supply chains can be very complicated with many layers or tiers, all the way down to original raw materials source. Aggregate supply chain geographic risk management is surely challenging.

As a specialist at well-known Gartner Supply Chain observed, “COVID-19 should be a wake-up call to boards of directors, CEOs and supply chain leaders that being well prepared for disruptions, regardless of their cause, is not an optional extra. It is a business necessity.

Companies are learning painful lessons in the shortcomings of legal boilerplate risk disclaimer language in situations like today’s. These lessons should compel executive leadership and Boards to step-up their efforts and investment in overseeing supply chain strategy and active risk management mitigation.

Does your company regularly review and remediate identifiable aggregate risks across the company’s supply chain and associated third-party relationships?

As recently pointed out in a COVID-19 related article by another G&A Institute Fellow, Daniel Goelzer, “Internal auditors are missing key risks.” He went on to observe,

“The Institute of Internal Auditors (IIA) has released its annual survey of Chief Audit Executives. The 2020 North American Pulse of Internal Audit “reveals serious gaps in internal audit’s coverage, with audit plans deficient in key risk areas.”

“For example, the IAA found that almost one-third of respondents did not include cybersecurity/information technology in their audit plans. In addition, more than half did not include governance/culture or third-party relationships, and 90 percent did not include sustainability.”

Postulating that the professional supply chain management tools kit is loaded with granularity to boggle the mind, it is fair to suggest the possibility that the many different tools may inadvertently complicate aggregate risk assessments.

Thus, we should think about whether there might be an opportunity for ESG/Sustainability professionals to constructively share their inherently top-down vantage and tools kit to assist companies with additional angles for risk assessment and oversight.

Brainstorming how the growing mainstream ESG/Sustainability field can help:

One gets a strong sense that professional supply chain experts across the board are now committed to re-engineer their collective body of knowledge and management resources to truly understand–down to the last pharmaceutical raw ingredient source, medical gear and equipment–the geographic and geo-political risks of their companies’ product vertical manufacturing and supplies.

First, let’s acknowledge that professional supply chain experts have a lot of knowledge, skills and complex management tools at their disposal that those outside their discipline know little about.

Second, kudos to the U.S. Army Corps of Engineers for their brilliance and ingenuity. Their recent reminder to all of us that, when a problem is large and complex and a fast solution is needed, it’s worth remembering the “keep it simple” concept.

Their challenge: emergency need to rapidly expand hospital bed and critical care capacity in multiple locations across the country.

Their solution: work with the infrastructure already there – large convention centers, empty hotels, and the like – and quickly retrofit them to meet the hopefully short-term surge capacity needs.

So now let’s apply the “keep it simple” concept, to think about what infrastructure we already have that can be efficiently and effectively adapted to immediate re-purpose, constructive to supply chain risk management.

Pre-dating the world’s awareness of the coronavirus COVID-19 crisis, the Global Reporting Initiative (GRI) stated in an article published November 15, 2019, that it “recognizes that joining the dots between corporate reporting and the practical changes needed to promote transparent supply chains can be challenging.”

In that same article, GRI announced its new two-year business leadership forum to help businesses work through challenges to bridge the gap between supply chain management and reporting. Your company may already use or be familiar with the GRI reporting framework.

Specific to supply chain, you might take another look at three GRI KPI sub-series: 204 – Procurement Practices, 308 – Supplier Environmental Assessment, and 414 – Supplier Social Assessment.

GRI is the oldest and most widely recognized voluntary ESG/Sustainability reporting framework and provides a wide range of supply chain related leadership interaction. It has alliances and synergies with the ISO certification standards and CDP, among other organizations.

Hence, GRI could be a robust resource to turn to for facilitating internal supply chain risk discussion, brainstorming and improvement.

CDP, originally known as the Carbon Disclosure Project, has grown beyond carbon to include a host of other key sustainability topics including supply chain. Several germane excerpts from the CDP Supply Chain Report 2018-2019:

  • Companies’ supply chains create, on average, 5.5 times as many greenhouse gas emissions as their own operations. (This hints at the veritable iceberg of suppliers beyond the companies’ direct control.)
  • Having a single, common disclosure platform is also proving to be beneficial. Amongst program members, 63% are currently using, or considering using, data from CDP disclosures to influence whether to contract with suppliers or not.
  • Managing supply chain risks, impacts, and capturing opportunities for sustainable value creation is complex. However, the fundamental steps are common across all organizations: understanding, planning and implementing. Learning from outcomes is essential in order to deepen and broaden the value of a Supply Chain strategy.
  • This year a record number of companies submitted disclosures on climate change. CDP supply chain members made requests to 11,692 suppliers, with 5,545 responses received from businesses headquartered across 90 different countries. This is a 14% increase on the 4,858 responses received in 2017.

Taking inspiration from the U.S. Army Corp of Engineers, a serious question to ask is whether either or both the existing GRI and CDP reporting and data analysis infrastructures could be used (1) ingeniously for a foundation from which to build or expand distance and country concentration inputs to provide additional foundation for sourcing risk analysis and oversight capabilities for companies, as well as (2) to facilitate improved global commerce and public stakeholders supply chain risk awareness?

Concluding Encouragement

To ESG/Sustainability practitioners:

Your reporting frameworks, databases and analytical tools may be well-positioned for collaborative solutions to help companies identify and address deep-tier supply-chain risks — both immediate (public health/safety) and longer-term (climate change) — that can and should now rise to a higher level of scrutiny.

When it comes to Sustainability – climate change is important, but supply chain is urgent.

Pamela Styles – Fellow G&A Institute – is principal of Next Level Investor Relations LLC, a strategic consultancy with dual Investor Relations and ESG / Sustainability specialties.