As Investors Suggest Tying Executive Compensation to Progress in ESG / Sustainability – Can This Be Factored Into Today’s Corporate Pay Programs?

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

For several decades now, investors have increasingly focused on issues involving executive compensation. 

Remember Graef S. Crystal?  Back in early 1990s the former compensation consultant to the nation’s largest corporations shape-shifted and became an author and activist focused on what he believed to be “excess” pay arrangements for U.S. corporate CEOs. (His 1992 book on the subject was a best-seller, “In Search of Excess – the Overcompensation of American Executives”.)

Crystal began his career at Towers Perrin, where he worked for two decades as a consultant to major companies on corp comp; he also taught at Haas School of Business (University of California, his alma mater). In later years Graef Chrystal was a leading commentator for Bloomberg News. (He passed away in April 2017.)

Every company faces the same questions, he explained in simple terms:  in terms of compensation of the senior management team, how much and how? 

In his work as a leading CEO comp consultant he explored the various approaches of the day and set the foundation for conversation about CEO comp over the ensuing months and years. (As corporate boards set compensation practices in place.) He was a major influence in his time as consultant in developing compensation programs for large public companies.

In 1989 he “switched” sides from advising Coca Cola et al and became a very vocal critic of CEO compensation schemes without having formal, accountable pay-for-performance systems in place.

For Crystal, It Was All About Pay-for-Performance

Let’s recognize here that much progress has been made in linking pay to performance over the years since Crystal’s (and others’) call for reform of the compensation packages of publicly-traded companies.  Institutional shareholder activism has certainly been a factor.

And as we have seen with the passage of new laws and operating rules of the road, there is increasing focus on CEO compensation. For example the Dodd-Frank legislation of 2010 – the the U.S. Congress attempted in the new statutes to address the issue. (The annual public report on the ratio of CEO pay to the median worker in U.S. public companies came about this way.)

The Dodd-Frank rules call for an advisory shareholder vote on the corporate compensation programs (the frequency of this vote to be approved by the shareholders).

The corporate proxy statement today greatly illuminates the board thinking in the structuring of basic executive compensation for the top executives — pay levels plus a growing variety of incentives.

More recently, there are calls from some institutional investors to have executive compensation tied to performance related to ESG / sustainability.

Authors Seymour Burchman and Blair Jones writing in The Harvard Business Review see “…the final link in the chain of improving corporate accountability for sustainability is to tie improvements to pay”. 

That gets us closer to Graef Crystal’s fundamental questions of how much and how?

These are real challenges for boards in considering the how of incentives tied to ESG — the number of possible sustainability improvement goals grows by the day. 

The long-term efforts to realize payback from most ESG initiatives don’t easily fit into the usual annual or three-year incentive timeframes. 

And then because incentives are typically tied to financial results…revenues, profit, returns…how do you weight the non-financial aspects of the business…and develop clear ROIs for ESG?

The authors — both experienced compensation advisors, like the late Graef Crystal — set out five steps to designing sustainability incentives to address these challenges and more to enable boards and management teams to create incentives that respond to internal and external stakeholder priorities.

Briefly, these are:

(1) reexamine the context – what are your measurements?;

(2) clarify the organizational scope – where to apply the incentives;

(3) quantify the duration (time horizon);

(4) consider the ends and the means – what are the goals?;

(5) and then structure the incentives. 

The authors spell out the specifics of each of the five steps.

The public discussion that Graef Crystal helped to start on the subject of senior management compensation more than a quarter-century ago continues today with varying expectations of investors about how much and how, but with far greater transparency on the part of companies about their plans.

We are now seeing companies acknowledging the importance of factoring progress in sustainability efforts into the pay packages. 

We think corporate boards and managements, and investors in the enterprise, will find the Top Story of importance in the context of the growing expectation that executive compensation will somehow reflect the continuing embrace of sustainability (or “ESG”) by public companies of all sizes in the U.S.A. – and by a growing number of mainstream asset owners and their managers.

This Week’s Top Story

5 Steps for Tying Executive Compensation to Sustainability
(Source: Harvard Business Review) – The final link in the chain of improving corporate accountability for sustainability is to tie improvements to pay. In our last article, we explained that companies should use incentives to motivate executives to tap big…

Do Consumer Favor Sustainable Brands for Their Products and Services Needs? NYU Stern School Research Dives Deep into the Data For Answers

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

Many people in consumer marketing are wondering about consumer preferences for “sustainable” products! In our weekly newsletter the G&A Institute team offers media and experts’ shared perspectives on various issues and matters related to corporate sustainability, responsibility; and, sustainable, responsible and impact investing.

In recent months the content shared frequently has focused on trends in the consumer market — to help answer the question of whether or not consumers reacting to brand-facing companies positioning themselves as sustainability leaders.

Is this type of brand marketing a successful strategy?  Worth the effort? 

So the important question in all of this “wondering” is: Are consumers now favoring sustainable or green (or pick your term of definition) for their products & services at retail? 

In our ongoing monitoring of news, feature and research results — such as for the fashion and footwear industries, the auto industry, food & beverages, and certain other categories — the results tell us brand leaders are now often introducing sustainable products alongside their usual cash cows. We included several items for you in this week’s newsletter along these lines. This was our top story:

Writing in the Harvard Business Review, Tensie Whelan, professor at New York University Stern School of Business, and leader of the NYU Stern Center for Sustainable Business, and Randi Kronthal-Sacco, director of Corporate Outreach for the Center (and formerly with Johnson & Johnson) describe the results of their recent in-depth research project. 

This research centered on trying to answer the question — do U.S. consumers actually purchase sustainably marketed products?  (Spoiler alert: yes – you must read the HBR article to find out more.) 

Whelan and Kronthal-Sacco used volumes of data sets from bar scan codes at retail for food, drug, dollar, and mass merchandisers, looking at 36 categories and 71,000+ SKUs, accounting for 40% of consumer products goods (CPG) sales over a 5-year period.

So, what did they find to be the largest share of sustainability-marketed products? 

Almost $1-in-$5 purchases at retail are for toilet tissue, facial tissue (think: forest products); milk, yogurt (the yield of countless dairy farmers); coffee (lots of attention on the global coffee-growing belt circling the Earth, and worker conditions therein); salty snacks (really?); and bottled juices (you’ll notice that Coke and Pepsi and other beverage marketers are advertising their shift away from sugary drinks). 

At the bottom of market share:  laundry care, floor cleaners and chocolate candy (accounting for a 5% share).

Say Tensie and Randi:  Pay attention, marketers and those all along the retail value chain, from grower field and factory floor to shelf space.  Consumers are voting with their dollars, for sustainable and against un-sustainable brands. 

Winners in the corporate sector include PepsiCo and Unilever; laggards include Kraft Heinz. (For the leader, Unilever:  think of the company’s sustainable labels like Seventh Generation, Sundial Brands and Pukka Herbs.)

And we are seeing in the many stories we bring you each week about consumers and sustainability, the future for sustainable CPG at retail is looking bright – look at the apparel industry.for examples  The agora is alive and well with many more sustainably-branded products on the shelves.  That’s the good news for sustainability professionals.

The NYU researchers used data from IRi (the research house for CGP, retail and health and beauty – information at: https://www.iriworldwide.com/en-US/Insights)

Congratulations to our colleagues Tensie Whelan and Randi Kronthal-Sacco at NYU Stern Center for Sustainable Business for sharing their insights and perspectives.

This Week’s Top Story

Research: Actually, Consumers Do Buy Sustainable Products
(Thursday – June 20, 2019) Source: Harvard Business Review – NYU Stern’s Center for Sustainable Business just completed extensive research into U.S. consumers’ actual purchasing of consumer packaged goods (CPG), using data contributed by IRI, and found that 50% of CPG growth from 2013 to… 

Affording an Unaffordable Utility Upgrade

Guest Column by John-Michael Cross, Policy Associate, Environmental and Energy Study Institute (EESI)

Last year, I moved into a 115 year-old home after years of living in modern apartment buildings. The house was in pretty good shape, but I knew from a career of advocating for home energy upgrades that it very likely needed efficiency improvements.

And my first Minnesota winter loomed.

I had a better idea than most at the likely price tag and benefits of the upgrades, but I was still left wide-eyed when the bills came due. The rebate checks from my electric utility helped a little, as did the lowered heating bills. But — we only were able to get the work done because my wife and I were fortunate and privileged to have the cash on hand to cover the upfront costs.

So many families are not as lucky and are unable to participate in utility incentive programs – even though these families would stand to benefit the most. In order to help households at all income levels reduce their high energy burdens, particularly in rural areas, utilities need to look at innovative financing models that eliminate upfront costs while increasing home comfort and energy savings.

Help For Rural Electric Cooperatives and Utilities

In 2014, the U.S. Congress created a way for rural electric cooperatives and other rural electric utilities to provide their members with the chance to upgrade their homes and businesses without any initial investment, paying for the insulation or other energy upgrades through a monthly fee on their utility bill.

The program — the Rural Energy Savings Program (RESP) — is administered through USDA’s Rural Utilities Services to provide rural electric utilities with zero-percent interest loans to capitalize customer-focused energy efficiency financing programs.

USDA defines “energy efficiency” broadly in this program – it even includes small-scale renewable energy projects! The utility just has to show that each financed project will cost-effectively lower overall energy costs for the participant. RESP funds can also be used for lighting upgrades, building envelope improvements, HVAC systems, water heaters, water and waste efficiency improvements, fuel switching projects, and permanently-installed energy storage devices.

Cooperatives can even apply for funds to fully replace aging, inefficient manufactured homes.

Note that RESP funds are provided at zero-percent interest for 20 years. Utilities then relend (or invest) these funds to their member-customers at rates of up to five percent for 10 years, though most utilities to date have kept rates below three percent.

Where To Find More Information

My organization, the Environmental and Energy Study Institute (EESI), has worked to promote RESP since its inception, and provides no-cost technical assistance to help interested cooperatives apply for the program.

Because RESP aligns with EESI’s primary goal of accelerating the transition to a new, low-emissions economy based on energy efficiency and renewable energy, we want to see as many rural cooperatives as possible take advantage this program.

We want to see these dollars invested in rural communities, helping lower bills and spurring local economic development. We also push financing models that emphasize equity and inclusion, so that everyone in a utility service territory can participate. (This includes using good bill payment history in lieu of a credit score if the upgrades are expected to produce a positive cash flow.)

Project Examples

Exciting RESP-funded projects are launching around the country. Some important examples:

  • In Washington State, one co-op launched “Switch it Up!” to provide debt-free financing for ductless heat pumps and heat pump water heaters that can cut heating bills in half, as well as the installation of electric vehicle chargers. One member organization that took advantage of this was the Outlook Inn whose owners were able to switch all 17 rooms from expensive propane heat to ductless heat pumps, which they couldn’t have afforded without financing.
  • A group of South Carolina co-ops created the “Help My House” program, which helps their members finance energy efficiency improvements to their homes through their electric bills. One member who took advantage of this program is now saving up to $250 a month on her summer energy bills – even with the loan repayment added to her monthly bill.

Many cooperatives taking advantage of this program have reaped additional benefits through RESP such as reduced per capita energy use and peak load shaving, which can reduce the need for new power generation facilities.

Rural utilities that want to apply should first submit a letter of intent to USDA (the agency provides a sample here). Once approved, the utility must put together the full application. More than $100 million is available in the current round, with letters of intent due by September 30, 2019.

Interested in learning more? Please contact me at jmcross@eesi.org to learn how you can take advantage of this program and what EESI can do to help.

Today, We Have Corporate ESG Comparisons Galore – The Institutional Investor Has Access to Volumes of ESG Data Sets & Information – Where Can Others Find Scores, Rankings and Ratings of Public Companies?

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

These days the comparisons of companies ESG strategies and performance in sectors and industries and among investment peers (those companies chasing similar sources of capital) are continuing to gain momentum. 

There is a sizable universe of third party players — ESG raters, rankers, scorers — busily analyzing, measuring and charting company ESG performance.

These organizations assign proprietary scores, rankings, ratings and various kinds of comparisons (company-to-company, company to industry etc) for their investor-clients. (The institutional asset owners and their asset management firms.)

Companies typically get to see how they are doing when they inspect their ESG service provider profiles…but those data and information sets are not always publicly available. They are the secret sauce provided to investors — institutions holding equity or bonds or researching candidates for investment.

So how should the person without access to the major ESG service providers’ confidential output understand where the public company sits in the views of the analysts (at least the highlights, such as scores assigned)? 

Slowly but steadily some of the volumes of information provided to investor clients by the major ESG ratings agencies are making their way into public view. 

For example, you can see a public company’s Sustainalytics highlights on Yahoo Finance. For Apple Inc. / NASDAQ: AAPL “ESG Total Score” information, click here.

Our colleagues at CSR Hub® share a number of Ratings & Rankings and other CSR and ESG highlights on their web site and their “ESG Hub” information (which is available on the Bloomberg Terminal®)  CSR Hub is at: https://www.csrhub.com/

Now a neat presentation comes our way from Visual Capital, authored by Jenna Ross.  This is a mapping of “The Countries with the Most Sustainable Corporate Giants”. 

Remember BlackRock CEO Larry Fink’s letter to corporate CEOs urging them to serve a social purpose to deliver not only financial performance but also show how it makes a positive contribution to society? 

Following on that theme, Corporate Knights “2019 Global 100 Report” data and ranking of the “most sustainable corporations in the world” is presented in visualization format.

Corporate Knights scores companies on a mix of metrics after screening for those with at least US$1 billion in revenues and sufficient sustainability reporting:  resource management; employee (or human capital) management; financial management; “clean” revenue; supplier performance. 

The United States comes out at the top of the charting with 22 of the 100 companies on the list, followed by France (11), Japan (8), Finland and United Kingdom 7), and Canada (6).  No company in China or India made the list.

Of the “Top 10-star players” only one is from the USA – the REIT Prologis Inc.  Denmark has two companies; the rest are one-off listings from other countries.

Author Jenna Ross sums up: “It’s clear that sustainability is a strong differentiator in the business community.  The world’s largest – and smartest – companies are leading the charge towards a greener, more equitable future.” 

We think you’ll find the charting of this Global 100 fascinating and very useful – and there are many other clever and useful visual presentations on the web site.  Check out our Top Story for this week.

This Week’s Top Stories

Mapped: The Countries With the Most Sustainable Corporate Giants   
(Wednesday – May 08, 2019) Source: Visual Capitalist – Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. 

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…

Environmental Threats to Us and Mother Earth – Seven Trends to Consider…and Develop Solutions From the Forum for the Future

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

This week we are celebrating Earth Day.  The first (in 1970) observance became a catalyst for action – soon after the first of a series of environmental-focused Federal legislation began to change dirty air to cleaner and then clean, and more laws to address a very unhealthy state of affairs in the U.S.A. (The Environmental Act, Clean Water Act, Clean Air Act, RCRA, etc.). 

But…the challenges for society have not gone away. The list of “hot ESG issues” grows by the week. 

Once an ESG issue emerges and people begin to dive into the details, a range of sub-issues arises.  In this corporate proxy season we are seeing top-line issues in focus and the underlying questions that investors have as they bring their resolutions to the companies for inclusion in the broader shareholder-base voting.

Example: Where “political spending” began as a broad issue the investors moved on to ask from where the company money was being spent directly(corporate donations to political party or candidate or PAC) to now, indirectly (is the company’s money going to business industry groups that lobby against shareholder interest – which ones, addressing what issues, how much money?) 

Some environmental challenges of the 1970s are still with us (consider the continuing impact of coal-burning, the state of global plastics disposal, and questions about water treatment such as in animal husbandry and fracking). And more issues are in focus under the huge bundle we refer to as “climate change”.

The evolvement of ESG as an integrated approach for investor evaluation of companies has complicated life for many corporate managers. 

In the recent past, a large-cap would assemble the “top 10” issues list for the management team and their direct reports to address.  For 3M, as example, “highway safety” and related issues under the heading would be high on the list (the company’s important product offerings would be directly impacted by changes). 

Today, that Top 10 list is all about the materiality of the issue(s) for many investors and companies — and how those issues are being measured, managed, how risk is being addressed and opportunities seized — and then reported to stakeholders.

In many large-cap companies a broader-based team will be busily shaping ESG strategy, policy, sustainability team practices and addressing issues-associated risk management on a much wider range of topics and subtopics. 

Timothy McClimon, head of the American Express Foundation, brings us his views on seven global trends – and their relevant issues – that are impacting the sustainability movement today. (You can think about how the seven impact your organization through the 2020s, the focus of the research and perspectives shared.)

He reviews the Forum for the Future’s report in a Forbes commentary.  The report is “Driving Systems Change in Turbulent Times” – with major implications for “how” or even “if” we will be able to address current global “E” challenges.  (Are patterns of behavior, structures or mindsets shifting toward or away from sustainability?)  Consider:

First – the plastics kickback; we continue to produce and then dispose of eight million tons each year with no real change in sight. (We are adding tons of material that will go “somewhere” and have an impact on society.)

Second – Climate change and the impact on mass migration; large parts of the world are becoming less hospitable and more people will try to move to safer places. Mass migrations are ahead. Perhaps as many as 2 billion persons will be affected by climate change and migrating away from their homes.

Third – around the world, Nationalism Marches Again; this is leading to fragmentation, intolerance, competition for fewer resources… complicated by growing inequality and a range of old and new “S” issues.

Fourth – We Live in the “On-Life” – by the end of this year, half of the world’s 7-billion-plus will be online, with issues arising (mental health, social cohesion, personal interaction, privacy and security, and more).

Fifth – The Rise of Participatory Democracy; cities and states lead the way in combating rising levels of protectionism and nationalism, which may usher in a new era of more local decision-making and civic participation.

Sixth – Asia’s Changing Consumerism; China leads the way with India, Japan, South Korea and Thailand close behind in moving more people into middle class status.  But, we are losing our global capacity to sustain them as the pursue the good life.  Millennials may slow the trend in Asia (they’re more conscious consumers).

Seventh – Biodiversity is Now in Freefall; scientists see mass extinction of some plant and animal species and one-fifth of the valuable Amazon rainforest has disappeared. (Something has to give to make room for growing food to meet the needs of the growing Earth population.) Little is being done about this, say the report authors.

How can we meet these global environmental challenges – what principles can be adopted to preserve the good life so many of the citizens of Earth enjoy today?  Some are spelled out in the Top Story for you.

Author Timothy J. McClimon is president of the American Express Foundation and serves on not-for-profit boards. He also teaches at New York University and at Johns Hopkins University.

Click here for more on the Forum for the Future (not for profit).

Each of the 7 trends has a chapter devoted to the issues. 
Click here for the full report.


This Week’s Top Stories

7 Global Trends Impacting The Sustainability Movement   
(Tuesday – April 16, 2019) Source: Forbes – the Forum for the Future advances seven trends that have major implications for how (or if) we will be able to address current global environmental challenges…

When Will Sustainable Investing Be Considered to be in the Mainstream?

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

“Movements” – what comes to mind when we describe the characteristics of this term are some 20th Century examples.

The late-20th Century “environmental movement” was a segue from the older 19th and early 20th Century “conservation movement” that was jump started by President Theodore Roosevelt (#26), who in his 8 years in the Oval Office preserved some 100,000 acres of American land every work day (this before the creation of the National Parks System a decade later).

The catalysts for the comparatively rapid uptake of the environmental movement?  American rivers literally burned in the 1960’s and 1970’s (look it up – Cuyahoga River in Ohio was one).

And that was just one reason the alarm bells were going off.  New York’s Hudson River was becoming an open, moving sewer, with its once-abundant fish dying and with junk moving toward the Atlantic Ocean.  Many East Coast beaches were becoming fouled swamp lands.

One clarion call – loud & clear — for change came from the pen.  The inspired naturalist / author Rachel Carson wielded her mighty pen in writing the 1962 best-seller, “Silent Spring”. 

That book helped to catalyze the rising concerns of American citizens. 

She quickly attracted great industry criticism for sounding the alarm…but her words mobilized thousands of early activists. And they turned into the millions of the new movement.

She explained the title:  There was a strange stillness.  Where had the little birds gone? The few birds seen anywhere were moribund; they trembled violently and could not fly.”  (Hint:  the book had the poisonous aspects of the DDT pesticide at its center as the major villain.)

Americans in the 1960s were becoming more and more alarmed not only of dumping of chemical wastes into rivers and streams and drifting off to the distant oceans —

—but also of tall factory smokestacks belching forth black clouds and coal soot particles;

–of large cities frequently buried beneath great clouds of yellow smog a mile high on what were cone clear days;

–of dangerous substances making their way into foods from the yields of land and sea;

–of yes, birds dropping out of the sky, poisoned;

–of tops of evergreen and other trees on hilltops and mountains in the Northeast burned clean off by acid rain wafting in from tall utility smokestacks hundreds of miles away in the Midwest…and more. 

Scary days. For public health professionals, dangerous days.

We will soon again be celebrating Earth Day; give thanks, we are long way from that first celebration back in spring 1970. (Thank you, US Senator Gaylord Nelson of Wisconsin for creating that first Earth Day!)

Most of our days now are (as the pilots cheer) CAVU – ceiling (or clear) and visibility unlimited. 

We can breathe deep and as we exhale thank many activists for persevering and driving dramatic change and creating the modern environmental movement… and on to the sustainability movement. 

And now – is it time (or, isn’t time!) for another movement along these lines…the sustainable investing movement going mainstream? 

Experts pose the question and provide some perspectives in this week’s Top Story.

In Forbes magazine, they ask:  “Why Hasn’t Sustainable Investing Gone Viral Yet?”

Decio Fascimento, a member of Forbes Council (and chief investment officer of the Richmond Global Compass Fund) and the Forbes Finance Council address the question in their essay.

In reading this, we’re reminded that such mainstream powerhouse asset managers as BlackRock, State Street/SSgA, Vanguard Funds, TIAA-CREF, and asset owners New York State Common Fund, New York City pension funds (NYCPERS), CalPERS, CalSTRS and other capital market players have embraced sustainable investing approaches. 

But – as the authors ask:  what will it take for many more capital market players to join the movement?  There’s interesting reading for you in the Top Story – if you have thoughts on this, send them along to share with other readers in the G&A Institute universe.

Or send comments our way to supplement this blog post.


This Week’s Top Stories

Why Hasn’t Sustainable Investing Gone Viral Yet?
(Wednesday – April 10, 2019) Source: Forbes – Let’s first look at what sustainability looks like in financial terms. In sustainable investing, the ideal scenario is when you find opportunities that produce the highest returns and have the highest positive impact. 

And of further reading for those interested:

3rd in Series: The Electric Utilities & Power Generators Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

By Jess Peete – G&A Institute Sustainability Report Analyst Intern

It is often the case that many us may not give our monthly energy utility company a second thought — unless there is an issue with the power going out or the bill is too high.

However, for those of us working in the sustainability field, the Energy Utilities Industry is one of the most important industries to consider, regardless of where we live or do business.

This industry’s companies power our homes, power our businesses, and in so many ways power our modern lives.

Traditionally, the energy utilities & power generators industry relied on oil and coal to generate supply for the power grid. This historic reliance on fossil fuels has more recently become a major issue in focus for investors, and society, as the effects of climate change continue to grow and the impact of burning fossil fuels for energy become more apparent.

Because of these effects on the environment and atmosphere, the Energy Utilities and Power Generators sector is today considered “high impact”.

Key sustainability reporting frameworks – including the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) — have sector-specific reporting standards (GRI has supplemental guidance that goes beyond their regular reporting requirements in order to more accurately measure the societal impact of the industry.)

Similarities and Differences in Standards

I’ve found that there is a great deal of similarity in the GRI Sector Supplements and SASB Industry standards for the Energy Utilities and Power Generation industry — but there are distinct differences as well.

The sector supplements only exist for GRI-G4, however, it is still advised for reporting organizations to now use the GRI Standards and incorporate the sector-specific disclosures from the GRI-G4 energy sector supplement to establish a more thorough industry-specific review of the total impact of the energy utilities sector.

The SASB Standards

SASB defines the materiality for the Energy Utilities sector reporting to include the following topics:

ENVIRONMENT

  • Greenhouse Gas Emissions & Energy Resource Planning
  • Air Quality
  • Water Management
  • Coal Ash Management

SOCIAL CAPITAL

  • Community Impacts of Project Siting

HUMAN CAPITAL

  • Workforce Health & Safety

BUSINESS MODEL AND INNOVATION

  • End-Use Efficiency & Demand

LEADERSHIP AND GOVERNANCE

  • Nuclear Safety & Emergency Management
  • Grid Resiliency
  • Management of the Legal & Regulatory Environment

Overall, the SASB standards appear to me to be quite comprehensive for a company to follow for their reporting — and would require reporting for many aspects of the electric power grid, including overall energy supply chain impacts.

For instance, SASB requires a calculation of Greenhouse Gases (GHG) emitted related to operations — but also requires a qualitative reporting of management-level planning to reduce the GHG emissions (emitted both from the company and its customers).

SASB addresses this in terms of recommending corporate reporting on negative environmental impacts — such things as coal ash and potential hazards such as posed by nuclear plants.

The GRI Standards

There appears to be little to no mention of coal ash storage in the GRI Standards — unless a company chooses to include coal ash as effluence.

This type of reporting could also be included in a company’s disclosure of their management approach (DMA) in the GRI Standards Report.

One area where the GRI standards seems to have a stronger “urging” for corporate reporting is the Sector impact on water, which is incredibly important because the energy utilities sector is one of the biggest users of water (usually required for cooling).

GRI Standards, in this case, appear to take a more holistic approach to water consumption (measuring total stress) while SASB only requires reporting the water impact from high stress areas.

Conclusion:

Because of the high impact that energy production and distribution have on climate, local communities, and the economy, companies in the Sector using both the GRI Standards and GRI G4 Energy Supplement alongside the SASB Energy Utilities Sector Supplement will be able to create a sustainability report that measures the true impact and costs of operations.

Measuring and managing these material E&S issues can help to provide both companies and investors in the sector a better understanding of their businesses, and a clear pathway to keeping consumer costs low while shifting to an energy portfolio that is one more based on sustainable energy.

Note:  This commentary is part of a series sharing the perspectives of G&A Institute’s Analyst-Interns as they examine literally thousands of corporate sustainability / responsibility reports.  Click the links below to read the first post in the series which includes explanations and the series introduction as well as the other posts in the series:

1st in Series: The Software / IT Services Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

2nd in Series: The Agriculture Products Industry — GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

4th in Series: The Food Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

From Sustainable Brands: A Prominent IT Professional’s Outlook on 2019 -– “Year of Sustainability” Empowered by Technology & Innovation

Is 2019 going to be “The Year of Sustainability”?  Greatly empowered by technology?  With exciting innovation on the business front?  One European-based writer (Carmen Ene, CEO of 3 STEP IT in Helsinki, Finland) thinks so. Writing for Sustainable Brands® SB/The Bridge to Better Brands, she outlines what she sees as the top sustainability issues for corporate leaders in 2019 — and offers advice on how to address them.

Consider her view: Companies can take better control of their sustainability strategies and publicly acknowledge the top issues they could be facing in this year.  Data-driven metrics can help here (“Big Data” analytics help in planning and strategy-setting at the top, for example).  The rate of adoption of sustainable practices has been picking up in recent years but in 2019, we can expect to see significant change in business leaders’ behavior toward sustainability efforts.

As the universe of third party ESG data and analytics providers continue to expand their efforts to tell a story about the ESG activities of public companies, without active control of the narration, corporate executives may see various independent narratives (presented by the third parties) that are not favorable portrayals of the company and its ESG activities.
Innovation in technology is empowering businesses to utilize tech solutions to keep up with society’s changing demand (think about the Internet of Things and Blockchain examples).

Artificial intelligence and blockchain are some approaches to be explored, says the writer. Naturally, as a seasoned IT professional, Carmen Ene sees innovation in tech as important means for leaders to keep up with meeting investor, customer and stakeholder needs.

Consumer behavior is something smart businesses always deal with.  And so, dealing with the prevalent “throwaway culture” for producers of IT hardware — think about the waste and need for recycling of electronic goods — will certainly present growing challenges. (China recently curtailed treatment of E waste from other nations, presenting real challenges for civil government leaders in the USA at the community level.)

As the “digital world” continues to expand (think: ever-increasing access to information via newly-acquired hardware), the cast-off waste and E-detritus continues to build worldwide.

That requires smart approaches by electronics manufacturers and others to develop more effective waste and recycling efforts — which for industry players means (the author advises) better management of hardware, improved purchasing decisions and focus on reduction.

More effective IT lifecycle management is one approach being adopted by companies, says Carmen Ene — and that is the focus of her company’s efforts.

Changing regulations will pose challenges for businesses — worldwide, more regulations are being put in place to address environmental issues such as those posed by plastic waste and increasing GHG emissions. Local and national governments are putting sustainability goals in place (the UN SDGs are a driver) with both voluntary and mandatory guidelines. The almost 200 nations signing on to the Paris Agreement are busily coming up with “solutions” to environmental issues at home.

A key takeaway from her commentary:  business has a real need to act responsibly as a key aspect of corporate strategy.  Technology does help to drive change (sometimes very rapidly and causing disruption in many instances), and technology properly deployed can help to drive sustainability practices — creating still more innovation in sustainability strategy and efforts.  Business offerings can be made more sustainable and ethical for the future – with the help of technology.

We’re presenting interesting reading for you from this author in our Top Story this week.  Carmen Ene joined 3 STEP IT as CEO in 2015; the company’s mission is “to enable the most advanced IT life cycle management while striving to make the circular economy a reality.”  She previously held senior management positions at IBM.

The publication is from Sustainable Brands (SB), the premier global community of brand innovators “shaping the future of commerce worldwide.”  SB positions itself as a bridge between brand innovators across all circles, acting as a catalyst for intelligent discourse.  G&A Institute collaborates with SB in sharing information of value to our connections and promoting visibility for the fabulous Sustainable Brands conferences.

Top Story

3 Top Sustainability Issues in 2019 and How to Address Them
(Monday – January 14, 2019)  Source: Sustainable Brands – Once seen as a ‘nice to have’ for businesses, sustainability has become a vital component of many global organisations’ social and economic strategies.

2nd in Series: The Agriculture Products Industry — GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

By Emilie Ho – G&A Institute Sustainability Report Analyst Intern

During my analysis, I found that although many of the material disclosures that the SASB Standards suggest for disclosure by the Agriculture Products Industry are in line with the GRI’s Topic Disclosures, there are also a number of material topics that SASB advances for disclosure that do not have a related disclosure under the GRI Standards.

Interestingly, some of the material disclosures that do share overlap also have differences in what the two reporting frameworks suggest companies include in their sustainability reports. (Note that in the United States, use of both standards is voluntary for corporations.)

This commentary will explore some of these similarities and gaps between SASB and GRI to help corporate reporters better understand how these standards can be utilized for a company in the Agriculture Products Industry to report their environmental, social, and economic impacts more effectively.

At first glance, I found that the GRI Standards appear to seek more in-depth disclosures for some topics that they share in concept with the SASB Standards — but as a whole, the SASB Standards provide a more comprehensive view of agricultural practices due to the industry-specific disclosures and components suggested in its recommendations. These are not covered in as much depth under the GRI Standards.

As an example, SASB and GRI both include Greenhouse Gas (GHG) Emissions as an area for disclosure, and the disclosure of GHG emissions suggested by the two Standards’ organizations both account for Scope 1 emissions and biogenic carbon dioxide emissions.

Similarities and Differences to Consider

However, although SASB asks agricultural organizations to describe their long-term and short-term strategies of managing Scope 1 emissions and emission-reduction targets—something that is not specifically outlined under the GRI’s Emissions Topic Disclosure — GRI does suggest organizations that choose to report on emissions include a management approach that is used to cover components such as the policies, commitments, and goals and targets as they relate to the reporting organization’s emissions.

GRI expects reporting organizations to provide a management approach disclosure (otherwise known as the DMA) for every material topic chosen, or else explain why the management approach was not included at the time of reporting.

While the discussion encouraged by the GRI’s DMA is similarly suggested for some of the topics covered by SASB, it is not found in the SASB’s emissions materiality topic. Many of the industry-specific disclosures included in SASB could thus be improved by being covered using this management approach section of the GRI.

Emissions and Energy Related Disclosure

The GRI Standard’s Emissions Topic Disclosure also has more topic-specific components available for reporting — such as Scope 2 and Scope 3 GHG emissions, emissions of ozone-depleting substances, and other significant air emissions.

In this way, the GRI Standards would appear to be more comprehensive for the emissions materiality topic that it shares with SASB.

The same observation is found in Energy, which is also available as a material topic under SASB and a disclosure topic in the GRI Standards.

SASB Standards suggest reporting organizations disclose their consumption of operational energy fleet fuel — both of which are also covered under GRI’s topic-specific categories of energy consumption within and outside of the organization.

Both GRI and SASB also account for the amount of energy reduced through the use of renewable energy.

However, GRI Standards additionally ask reporting organizations to disclose their energy intensity and the reductions in energy requirements of sold products and services achieved during the reporting period.

Since this topic will be coupled with a management approach under the GRI, the organization’s Standards would appear to cover more ground than SASB Standards in the Energy topic disclosures, since this discussion is not required for the Energy material topic under SASB — however, the company could choose to disclose it in the DMA section.

Addressing Labor/HR Issues

Suggested disclosure content that relates to labor is also more extensive under GRI than SASB.

SASB Standards cover Food Safety and Health Concerns as it relates to the number of recalls issued and strategies used to manage genetically modified organisms (GMOs) and Fair Labor Practices and Workplace Health and Safety (as it pertains to whether farms are certified for fair labor practices, the data on injury rates, and how to assess, monitor and reduce exposure of employees to pesticides).  In comparison, the GRI Standards offer 19 available Social topics for companies to report on.

In particular, the labor/management relations and occupational health and safety topic specific disclosures share some overlap with those of SASB.

These topic-specific disclosures under the GRI Standards also suggest that companies report on hazard identification, risk assessment, promotion of worker health, prevention and mitigation of occupational health and safety impacts, and work-related injuries.

Agriculture-Specific Issues

SASB does take a more agriculture-focused approach because it asks specifically for data on topics such as recalls, GMOs, and farms certified for fair labor practices; these are not similarly asked for under the GRI Standards.

The Land Use and Ecological Impacts, Climate Change Impacts on Crop Yields, and Environmental and Social Impacts of Ingredient Supply Chains material issues identified by SASB are other examples where SASB takes a more comprehensive approach to reporting for the Agricultural industry’s specific issues.

These SASB Standards disclosures ask organizations to report on topics such as the amount of crop yields/lost, percentage of agricultural raw materials certified to third-party environmental/social standards, amount of pesticide consumption by hazard level, and volume of wastewater reused/discharged to the environment.

The available disclosures following the GRI Standards do not appear to directly encompass these agriculture-specific components (even in the GRI Food Processing Sector Supplement), making GRI reporting as a whole appear to be not as comprehensive for the Agriculture sector — despite GRI requiring more detail for those disclosures that do intersect with SASB.

Agricultural organizations that choose to report without following SASB Standards and / or the Food Processing Sector Supplement may, therefore, result in a more restricted view of those organizations’ agriculture-specific practices — despite them being in line with GRI Standards reporting.

My Conclusions

Moving forward, corporations in the Agricultural sector can improve their sustainability reports by using both the GRI Standards and the SASB Standards for the collection, measurement, analysis and reporting of their environmental, social, and economic data.

This integrative approach to reporting would enable corporations to create a much more comprehensive sustainability report, by allowing the enterprise to take advantage of both SASB’s industry-specific disclosure recommendations and GRI’s broader topic-specific recommendations.

# # #

Note about GRI’s Sector Disclosure — from the GRI’s website FAQ: “With the transition from G4 Guidelines to GRI Standards, the G4 Sector Disclosures remain valid. The use of the G4 Sector Disclosures is recommended for organizations using the GRI Standards, but is not a requirement for preparing a report in accordance with the Standards (see GRI 101: Foundation, Section 2 for more detail).”

Note:  This commentary is part of a series sharing the perspectives of G&A Institute’s Analyst-Interns as they examine literally thousands of corporate sustainability / responsibility reports.  Click the links below to read the first post in the series which includes explanations and the series introduction as well as the other posts in the series: