Busy Summer 2020 for the World of ESG Players – Rating Agencies, Information Providers, UNGC & the SDGs…and More

August 27 2020

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

It’s been a very busy summer for organizations managing corporate reporting frameworks and standards, for ESG rating agencies, and for multilateral agencies focused on corporate sustainability and responsibility.

If you are a corporate manager — or a sustainable investment professional — do tune in to some of the changes that will affect your work in some ways. Here’s a quick summary:

ISS/Institutional Shareholder Services
For four decades, ISS has been the go-to source on governance issues for proxy voting and corporate engagement guidance for major fiduciaries (pension funds are an example).

Two years ago, “E” and “S” ratings were added for investor-clients.

Now, ISS ESG (ISS’s responsible investing unit) is providing “best-in-class fund ratings” that assess the ESG performance of 20,000 firms. Funds will be rated 1-to-5 (bottom is 1) – this to be a broad utility resource for investment professionals. And for corporate managers – ISS ESG scores along with those of other ESG ratings agencies are a factor in whether your company is included in indexes, benchmarks, maybe ETFs and mutual funds that are being rated.

Bloomberg LP
It’s launching E, S & G scores for thousands of firms (highlighting environmental and societal risks that are material to a sector).

First sector up is Oil & Gas, with 252 firms rated. Also, there are new Board Composition scores, with Bloomberg assessing how well a board is positioned to respond to certain G issues. (Note that 4,300 companies are being rated – probably including yours if you are a publicly-traded entity.)

And in other news:

UN Global Compact and the SDGs
The UNGC observes its 20th anniversary and in its latest survey of companies, the organization asked about the SDGs and corporate perspectives of the 17 goals and 169 targets. The findings are in the blog post for you.

MSCI
This major ESG ratings agency expanded its model for evaluating company-level alignment to the Sustainable Development Goals. New tools will help capital markets players to enhance or develop ESG-themed investment services and products.

Global Reporting Initiative
The GRI continues to align its Universal Standards with other reporting frameworks or standards so that a GRI report becomes a more meaningful and holistic presentation of a company’s ESG profile.

GRI Standards were updated and planned revisions include moving Human Rights reporting closer to the UN Guiding Principles on Business and Human Rights and other inter-governmental instruments.

Climate Disclosure Standards Board
The CDSB Framework for climate-related disclosure is now available for corporate reporters to build “material, climate-related information” in mainstream documents (like the 10-k). This is similar to what the TCFD is recommending for corporate disclosure.

This is a small part of what has been going on this summer. We have the two top stories about ISS and Bloomberg and a whole lot more for you in the G&A Sustainability Update blog.

For your end-of-summer/get-ready-for-a-busy-fall schedule!

Top Stories

The G&A Blog with many more organizations and their actions here.

Publicly-traded Companies Have Many More Eyes Focused on Their ESG Performance – And Tracking, Measuring, Evaluating, ESG-Linked-Advice to Investors Is Becoming Ever-More Complex

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

Some recent developments for consideration by the boards and C-Suite of publicly-traded companies as established ESG ratings agencies up their game and new disclosure / reporting and frameworks come into play.

The “Global Carbon Accounting Standard” will debut in Fall 2020. Is your company ready? Some details for you…

Financial Institutions – Accounting for Corporate Carbon

The Partnership for Carbon Accounting Financials (PCAF) was organized to help financial institutions assess and then disclose the Greenhouse Gas emissions (GhGs) of their loans and investments to help the institutions identify and manage the risks and opportunities related to GhGs in their business activities.

Think: Now, the companies in lending or investment portfolios should expect to have their carbon emissions tracked and measured by those institutions that lend the company money or put debt or equity issues in their investment portfolios.

The financial sector kimono will be further opened. This could over time lead to a company lagging in ESG performance being treated differently by its institutional partners, whether the company in focus discloses their GhG emissions or not.

For companies (borrowers, capital recipients), this is another wake-up call – to get focused on GhG performance and be more transparent about it.

This effort is described as the to be the “first global standard driving financial institutions to measure and track the climate impact of their lending and investment portfolios.”

As of August 3, 2020, there are 70 financial institutions with AUM of US$10 trillion collaborating, with 16 banks and investors developing the standard…to be a common set of carbon accounting methods to assess and track the corporate emissions that are financed by the institutions’ loans and investments.

Significant news: Morgan Stanley, Bank of America (owners of Merrill Lynch) and Citi Group are all now members of the partnership and Morgan Stanley and Bank of America are part of the PCAF Core Team developing the Standard.

The institutional members of the Core Team leading the work of developing the PCAF Standard are: ABN AMRO, Access Bank, Amalgamated Bank, Banco Pichincha, Bank of America, Boston Common Asset Management, Credit Cooperatif, FirstRand Ltd, FMO, KCB, LandsBankinn, Morgan Stanley, Producanco, ROBECO, Tridos Bank, and Vision Banco.

The work of the PCAF will feed into the work of such climate initiatives as the CDP, TCFD, and SBTi (Science-based Target Initiative).

The work in developing the “Standard” includes an open comment period ending September 30, 2020. The final version of the Standard will be published in November.

Morgan Stanley, in its announcement of participation, explained: MS is taking a critical step by committing to measure and disclose its financial emissions…and those in its lending and investment portfolio. As other institutions will be taking similar steps.

(Morgan Stanley became a bank during the 2008 financial crisis and therefore received federal financial aid designed for regulated banking institutions.)

Tjeerd Krumpelman of ABN AMRO (member of the Steering Committee) explains: “The Standard provides the means to close a critical gap in the measurement of emissions financed by the financial industry. The disclosure of absolute financed emissions equips stakeholders with a metric for understanding the climate impact of loans and investment…”

Bloomberg Announces Launch of ESG Scores

Bloomberg LP has launched proprietary ESG scores – 252 companies are initially scored in the Oil & Gas Sector and Board Composition scores have been applied for 4,300 companies in multiple industries.

This approach is designed to help investors “decode” raw data for comparisons across companies; Bloomberg now presents both (raw data and scores) for investors.

This offers “a valuable and normalized benchmark that will easily highlight [corporate] ESG performance, explains Patricia Torres, Global Head of Bloomberg Sustainable Finance Solutions.

There is usually stronger data disclosure for the Oil & Gas Sector companies, says Bloomberg (the sector companies account for more than half of carbon dioxide emissions, generating 15% of global energy-related Greenhouse Gas emissions).

Governance scoring starts with Board Composition scores, to enable investors to assess board make up and rank relative performance across four key areas – diversity, tenure, overboarding and independence.

Bloomberg describes the “E, S” scores as a data-driven measure of corporate E and S (environmental and social) performance across financially-material, business-relevant and industry-specific key issues.

Think of climate change, and health and safety, and Bloomberg and investor clients assessing company activities in these against industry peers.

This is a quant modelling and investors can examine the scoring methodology and company-disclosed (or reported) data that underly each of the scores.

Also, Bloomberg provides “data-driven insights” to help investors integrate ESG in the investment process. This includes third party data, access to news and research content, and analytics and research workflows built around ESG.

Sustainalytics (a Morningstar company) Explains Corporate ESG Scoring Approach

The company explains its ESG Risk Rating in a new document (FAQs for companies). The company’s Risk Ratings (introduced in September 2018) are presented at the security and portfolio levels for equity and fixed-income investments.

These are based on a two-dimension materiality framework measuring a company’s exposure to industry-specific material ESG risks…and how well the company is managing its ESG risks.

Companies can be placed in five risk categories (from Neglible to Severe) that are comparable across sectors. Scores are then assigned (ranging from 9-to-9.99 for negligible risk up to 40 points or higher for severe risk of material financial impacts driven by ESG factors).

The company explains: A “material ESG issue” (the MEI) is the core building block of Sustainalytics’ ESG Risk Rating – the issue that is determined by the Sustainalytics Risk Rating research team to be material can have significant effect on the enterprise value of a company within an sub-industry.

Sustainalytics’ view is that the presence or absence of an MEI in a company’s financial reporting is likely to influence the decisions made by a reasonable investor.

And so Sustainalytics defines “Exposure to ESG Risk” and “Management of ESG Risk” and applies scores and opinions. “Unmanaged Risk” has three scoring components for each MEI – Exposure, Management, Unmanaged Risk.

There is much more explained by Sustainalytics here: https://connect.sustainalytics.com/hubfs/SFS/Sustainalytics%20ESG%20Risk%20Rating%20-%20FAQs%20for%20Corporations.pdf?utm_campaign=SFS%20-%20Public%20ESG%20Risk%20Ratings%20&utm_medium=email&_hsmi=93204652&_hsenc=p2ANqtz–uiIU8kSu6y0FMeuauFTVhiQZVbDZbLz18ldti4X-2I0xC95n8byedKMQDd0pZs7nCFFEvL172Iqvpx7P5X7s5NanOAF02tFYHF4w94fAFNyOmOgc&utm_content=93203943&utm_source=hs_email

G&A Institute Perspectives: Long established ESG raters and information providers (think, MSCI, Sustainalytics, and Bloomberg, Refinitiv, formerly Thomson Reuters) are enhancing their proprietary methods of tracking, evaluating, and disclosing ESG performance, and/or assigning ratings and opinions to an ever-wider universe of publicly-traded companies.

Meaning that companies already on the sustainability journey and fully disclosing on same must keep upping their game to stay at least in the middle of the pack (of industry and investing peers) and strive harder to stay in leadership positions.

Many more eyes are on the corporate ESG performance and outcomes. And for those companies not yet on the sustainability journey, or not fully disclosing and reporting on their ESG strategies, actions, programs, outcomes…the mountain just got taller and more steep.

Factors:  The universe of ESG information providers, ratings agencies, creators of ESG indexes, credit risk evaluators, is getting larger and more complex every day. Do Stay Tuned!


Corporate ESG Stakeholders – Materiality Matters – Quality Over Quantity to Have Compelling Reporting

August 10 2020

By Pam Styles, Principal and Founder, Next Level Investor Relations, and G&A Institute Fellow

Will ESG/Sustainability be more or less in the forefront as economies attempt to recover from the COVID-19 pandemic?  Survey results vary, but a common theme is that materiality and quality of a company’s strategic sustainability focus and reporting will be expected.

Sustainability in Economic Recovery
A recent survey of publicly listed U.S. company executives by the Conference Board™ suggests that well over half (59%) believe the COVID-19 pandemic will have little or no negative impact on growing interest in company sustainability programs overall, while a majority within these results believe the pandemic may shift the focus of sustainability, e.g. more to people, supply chain, etc.

A survey of recent company announcements related to sustainability formed the basis for the article, Is sustainability undergoing a pandemic pause?  by Joel Makower, CEO of GreenBiz. He concludes that, “Unlike previous economic downturns, sustainability isn’t being jettisoned in the spirit of corporate cost-savings. It’s being kept alive as part of a pathway back to profitability.”

These are challenging but exciting times, and there is every reason to believe that ESG/sustainability can and will be in the forefront as companies, communities and countries recover from the COVID-19 pandemic. 

Materiality Matters
That said, heightened emphasis on materiality in sustainability reporting has gained traction, in response to perceived “greenwashing” by companies in sustainability communications.  The trap of greenwashing has been prevalent enough to frustrate many third-party stakeholders and gain attention across the field.

Most major voluntary frameworks for corporate sustainability reporting guidance now separately and collectively encourage companies to pay attention to the materiality of reported content. This includes GRI, SASB, IIRC, TCFD, CDP and others.

The Chartered Financial Association (CFA), the Big Four accounting houses, law firms and others are also stepping-up the pressure on corporations to bring sustainability reporting to a next level of materiality focus and quality.

Governance & Accountability Institute succinctly captures the breadth of concern,

“Materiality is an important cornerstone of an effective corporate sustainability process…Without an effective materiality process (and mapping) companies can waste time, effort, human resources and financial investment on issues that will provide little or no benefit in sustainability and responsibility reporting — or may even serve to further cloud and confuse the company’s stakeholders and shareholders…Companies committed to position themselves as recognized leaders in sustainability require the materiality determination process to be thorough, accurate, and effective to implement their Sustainability program.”

Compelling Reporting
Less-is-more… your company sustainability report need not be lengthy!  It needs to focus the reader on, where and how your particular company can effectively prioritize its sustainability efforts.

Those who read a lot of sustainability reports can quickly distinguish between sustainability platitudes and substantive content. The former can be perceived as a possible sign that the reporting company has not truly integrated sustainability into its business.”

As John Friedman writes in his newly-released book, Managing Sustainability, First Steps to First Class,

“For this reason, it is important, always, to adopt and use the language of business rather than advocacy or philanthropy when integrating sustainability into any business…too often sustainability professionals speak in terms of “doing well by doing good’ and the “Sustainable Development Goals” rather than the more compelling arguments that link sustainability programs to the established (and more familiar) business imperatives such as “improving business processes,” “implementing best practices,” and “return on investment.”

 A recent joint report by the U.S. Chamber of Commerce and Center for Capital Markets Competitiveness report on ESG Reporting Best Practices, makes other relevant observations including:

“… materiality determination may differ based on the diverse characteristics of different companies…”

“… while the word “materiality” is used by some constituencies to connote different meanings, the term has a well-established definition under the U.S. federal securities laws”

 “Issuers preparing ESG reports should explain why they selected the metrics and topics they ultimately disclose, including why management believes those metrics and topics are important to the company.”

 “Disclosure should not be a tool for advancing interests that are not aligned with the company’s ability to create value over time”

 Company leadership may find that…

  • renewed attention to materiality can help streamline internal efforts and strengthen the basis of information that Company corporate communications and spokespersons rely on.
  • having a clear materiality basis enables your communications team to clearly indicate ‘n/a’ or ‘not material’ in some fashion, where applicable, as opposed to not responding or to staying silent within external sustainability reporting and questionnaire responses (obviously seek legal counsel as warranted).
  • having a clear ESG materiality basis can help avoid frustration, confusion, and misunderstanding in external communications – and, yes, minimize guessing or interpolation by third party stakeholders.
  • Renewed attention to materiality helps everyone focus on the substance of your company’s sustainability efforts, strategic positioning and reporting.

Ensuring the company’s sustainability and survival and contributing to the economic recovery post-pandemic are too important to waste time or money communicating trivial metrics.

Final Word
Sustainability is more important now than ever, as we urgently work together to lift our companies, economies and stakeholders up in the wake of the devastating pandemic.

This urgency will require every company to play to its strengths, stretch where appropriate and produce compelling sustainability reports (website and other collateral communications too).  It will require strength of conviction that materiality matters – courage to clearly communicate when particular large or small performance elements of sustainability framework guidelines do not apply to your company and are simply not material for a framework response or third-party consideration.

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.

The S&P 500® Universe — Setting the Pace for Corporate Sustainability Reporting: 90% Mark Reached!

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

The popular corporate equity “baskets” including the Dow Jones Industrial Index, Nasdaq 100, S&P 500, the Russell 1,000 – 2,000 – and 3,000– in essence consist of the underlying value of the corporate shares in each basket (or benchmark for investors).

Today, there is an ocean of stock indexes for asset managers to license from the creators and then apply process and approaches for keeping track of the companies in the fiduciary portfolio, or to analyze and pick from the underlying issues for their portfolio.

Alternative benchmarks and indexes may be dependent on market cap size and have variations in the index family to fine tune the analysis (think of the varieties of Wilshire, Russell, S&P Dow Jones, etc.).

There has been a steady move by many asset managers from “active management” to passive investment instruments, with this transition key benchmarks become an important tool for the analyst and portfolio manager.

One large-cap index really dominates the capital markets:  The S&P 500.

G&A Institute’s Annual S&P 500® Research
Almost a decade ago, the team at G&A Institute began gathering corporate reports to build our models and methodology for guiding client’s corporate disclosure and reporting — and focusing especially on the structured reports of U.S. publicly-traded companies, we selected the universe of companies that the index creators include in the S&P 500 Index®.

Here’s why:  The S&P 500 Index is the most-widely-quoted index measuring the stock performance of the 500 largest investable companies listed on American stock exchanges.  Asset managers licensees like State Street, MCSI, Invesco Capital and London Stock Exchange Group use this index for their constructing ETFs and other investable products.

This universe of public companies provided for our team a solid foundation for tracking and analyzing the activities of these 500 companies as they began or expanded their sustainability reporting. In 2011, that first year. we found just about 20% of the 500 were publishing sustainability reports.

And here’s the dramatic news:
G&A’s just-completed report shows 90% of the S&P 500 companies produced a sustainability report in year 2019!

Tracking the Trends
Over the decade of close tracking and analysis of the 500 companies in the index, the good news is we saw the number of reports steadily grow.

We charted the broad impact of these market-leading enterprises on such reporting frameworks and standards as the GRI and SASB as those standards evolved and matured and were adopted by the companies in the 500.  We saw…

CDP disclosure steadily expanded in structured reports and (stand alone) corporate responses to CDP on carbon emissions, water, supply chain, forestry products.

The adoption of UN Sustainable Development Goals (SDGs) by companies as they were in some way conceptually a part of a company’s sustainability strategy (and subsequent reporting).

And more recently, there was the adoption of TCFD recommendations by corporate issuers in the U.S. – that began to show up in reports recently.

Starting with 2010 reporting, the first G&A analysis, we’ve shared the highlights of the research efforts.

Teams of talented, passionate and bright analyst-interns developed each year’s report (you can see who they are/were in G&A’s Honor Roll on our web site).  Most of the team members have moved on to career positions in the corporate, investment, public sector and NGO communities.

Download this year’s report, examining 2019 corporate sustainability reporting by the S&P 500 companies.

We’ve organized the deliverable for both quick scanning and concentrated reviewing.  Let us know if you have questions about the research results.

Stay tuned to G&A’s upcoming Russell 1000 Index® analysis of 2019 reporting.

This second important index/benchmark was created several decades ago by the Frank Russell Company and is now maintained by FTSE Russell (subsidiary of the London Stock Exchange Group)

The largest companies by market cap companies are available as benchmarks for investors in the S&P 500 (largest cap) and for the next 500 in the Russell 1000.

The ripple effects of the S&P 500 companies and more recently some of the Russell 1000 companies on corporate sustainability disclosure and reporting is fascinating for us to track.

Many mid-cap and small-cap companies are now adopting similar reporting policies and practices.  Privately-owned companies are publishing similar reports.  All of this means volumes of ESG data and narrative flowing out to investors – and fueling the growth of sustainable investing.  We find this all very encouraging in our tracking of corporate reporting.

Here are the details for you:

Top Stories

90% of S&P 500 Index Companies
Publish Sustainability Reports in 2019,
G&A Announces in its Latest Annual
2020 Flash Report

Source: Governance & Accountability Institute, Inc. – G&A Institute announces the results of its annual S&P 500 sustainability reporting analysis. 90% of the S&P 500 published corporate sustainability reports, an all-time high!


Adding Important Perspectives to G&A’s S&P 500 Research Results

What is Greenwashing? The Importance of Maintaining Perspective in ESG Communications
Source: AlphaSense, Pamela Styles principal of Next Level Investor Relations LLC – “Greenwashing” can generally be described as ‘the practice of only paying lip service to environmental, social and governance (ESG) factors with token gestures.’ In practice, greenwashing occurs when an organization presents…

New report measures boardroom diversity at top S&P 500 companies
Source: CNBC – There’s a renewed focus on diversity in the boardroom, but a new report shows not much is changing. CNBC’s Seema Mody reports.

The U.S. Department of Labor – Proposed Rule Addressing ESG Investment Selections by Fiduciaries – the Drama Continues As Agency Downplays Importance of ESG

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

August 9 2020

In the early 1970s, Congressional hearings featured allegations of abuses by managers of corporate pension funds taking actions to systemically deny men and women approaching retirement age their promised benefits.  A law was passed to protect plan beneficiariesThe Employee Retirement Income Security Act of 1974.

This was intended by the Congress of that day to create standards for private-sector plans to protect the financial and health of beneficiaries of corporate plans.

The U.S. Department of Labor was designated is the primary designated arm enforcing “ERISA”,  charged with “protecting the interests of employee benefit plans participants (workers) and their beneficiaries”.

Other agencies have plan oversight responsibilities as well – the U.S. Treasury Department (the IRS) and the Pension Benefit Guaranty Corporation (PBGC).

PBGC is like the FDIC protection for bank customers’ money; when a corporate pension plan fails, the PBGC assumes responsibility for providing retirement benefits to retirees. When a company with a retirement plan goes belly up, filing bankruptcy, or giving up responsibility for the plan, the PBGC takes over to help the plan’s beneficiaries (they don’t get all that was promised by the plan when it was managed by the company they worked for).

Among other elements of the ERISA law and operating rules, there are standards set for fiduciaries and managers of worker retirement plans and welfare benefit plans.

ERISA has been updated since passage 40+ years back and the DOL rules have changed over time.  So have related Internal Revenue Service rules.  In 1978 the Internal Revenue Code was amended to allow taxpayers to have a tax-deferred, defined, voluntary retirement plan of their own – the familiar 401 (k) plan that millions participate in.

In the latest summary from the DOL’s Employee Benefits Security Administration of DOL (“EBSA“) for FY 2013(!) — ERISA rules [then] applied to 684,000 retirement plans, 2.4 million health plans and 2.4 million additional welfare benefits.

These plans covered 140 million workers and beneficiaries – at the time, that was about half of the American workforce – and assets under management of the plans exceeded US$7 trillion.

To simplify what follows here, the rules adopted by federal regulators are intended to explain and enforce the statute passed by Congress – in this case, protection of worker rights and oversight of fiduciaries managing workers’ assets in plans.

There is a structured process for creating the enforcing agency rules-of-the-road for those organizations being overseen (for ERISA, fiduciaries, plan managers) and these rules could be changed from time-to-time and also be “interpreted” by regulators through communications intended to clarify the rules.

ESG Investment and the Department of Labor Perspectives

As “sustainable” or “ESG” investing became a preferred approach for individuals in plans and managers of plans, many more institutions and individuals preferred those investments, alongside or instead of more traditional investments.

Investors want to be able to invest in an ESG-themed mutual fund or ETF along with or instead of a traditional version that may track a benchmark of the same type.

Example:  There are many investment managers whose fund track the widely-used S&P 500 benchmark (from S&P Global) and investable products with an S&P 500 ESG benchmark.

State Street a few days ago launched an S&P 500 ESG Exchange Traded Fund (ETF) “to provide investors an opportunity to tap into ESG investing at the core of their portfolio” (with a very low expense ratio). This “EFIV” tracks the new S&P 500 ESG Index.

SSgA explains: “ESG investing is approaching a critical inflection point…the collective call for change is growing louder and investor increasingly taking a stand through their investment choices.”

How do the regulators of ERISA react to such progress?  To the call for change?  To respond to investors’ call for action?

By moving backward in rule-making with changes in rules to make it more difficult for plan managers and beneficiaries to invest in ESG vehicles.

To be sure, rules are subject to change. The DOL’s first guidance on ESG investment issues as issued back in 1994.

More recently, in 2008 (during the Administration of President George W. Bush) guidance appeared to be designed to restrict ESG investments by plan fiduciaries.

In 2015 (during the Administration of President Barack Obama) DOL guidance gave the green light to ESG investments…if the investment is appropriate based on economic considerations including those that may derive from ESG factors. (See our perspectives here from November 2015: http://ga-institute.com/Sustainability-Update/big-news-out-of-the-u-s-department-of-labor-for-fiduciaries-opportunity-to-utilize-esg-factors-in-investment-analysis-and-portfolio-management/)

And now in 2020, in June DOL’s EBSA proposed a “new investment duties rule” with “core additions” to the regulations.  (“Financial Factors in Selecting Plan Investments” — this to address “recent trends involving ESG investing”).

Among the comments of DOL that really wrankled the ESG investor universe:

  • New text was added to codify DOL’s “longstanding position” that plan fiduciaries must select investments based on financial considerations relevant to the risk-adjusted economic value of an investment (or “course of action”).
  • The reminder that “Loyalty” duty prohibits fiduciaries from subordinating interests of plan participants and beneficiaries to “non-pecuniary goals”.   ESG factors could be “pecuniary” factors — but only if they present economic risk/opportunity under generally-accepted investment theories.
  • New text was added on required investment analysis and documentation for the “rare circumstance” when fiduciaries are choosing among “truly economically-indistinguishable” investments.  (Huh?)
  • A provision that fiduciaries must consider “other” available investments to meet prudence and loyalty duties.
  • A new provision for selection of investment alternatives for 401-K plans describes what is required for “pursuing” one or more ESG-oriented objectives in the investment mandate (or include ESG “parameters” in the fund name).

DOL Comments On These:

“ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy…is to subordinate return or increase risk for the purpose of non-financial objectives.”  And

“Private [Sector] employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives…not in the interest of the plan…ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”

After the rule changes were published, numerous investors pushed back – some summaries for you that were published on the 401K Specialist web platform of the responses of some fiduciaries who object to the proposed rule (“Commenters Hammer DOL of Proposed  ESG Rule”).

More than 1,500 comments have been submitted so far to DOL, calling for changes in the proposed rule, withdrawal, and the very short comment period (just 30 days, ended August 3, vs. the usual 90 days).

Investor/Fiduciary Pushback:

T. Rowe Price:   The proposed rule is attempting to solve a problem that does not exist. Worse, the proposed rule discourages fiduciaries from taking into account ESG factors that should be considered.

ICCR/Interfaith Center on Corporate Responsibility:  The rule would impose significant analytical and documentation burdens on fiduciaries of benefit plans governed by ERISA wishing to select (or allow individual account holders to select) investments that use ESG factors in investment analysis, or that provide ESG benefits (signed by 138 member institutions).

ESG Global Advisors: The Proposal has misunderstood and/or mischaracterized the nature and purpose of ESG integration…this is likely to lead to confusion for ERISA fiduciaries and additional costs to plan savers. Plan fiduciaries will struggle to fulfill their obligation to integrate all financially-material ESG risk factors into their investment process.

Morningstar: The Department’s rule is out of step with the best practices asset managers and financial advisors use to integrate ESG considerations into their investment processes and selections. The proposed rule would…erect barriers to considering ESG factors that many financial professionals consider as a routine part of investment management…

Voya Financial Inc.: The Proposal is fundamentally flawed for two reasons…among the many qualitative factors an ERISA fiduciary may appropriately consider…the Proposal singles out ESG factors and subjects them to special tests…second, the Proposal fails to account for the positive effect on investment behavior that the availability of ESG-focused investment options can have…

American Retirement Association: …appropriate investments that include ESG factors should not be prohibited from qualifying as Qualified Default Investment Alternatives (“QDIAs”)…

The Wagner Law Group:  The proposed amendment is inconsistent with existing law and guidance…it would require fiduciaries to only consider pecuniary factors instead of using their judgment and discretion to evaluate investments under the totality of circumstances…a narrow list of permissible factors is inconsistent with the notion that prudence is not determined by a checklist and is a fact-specific determination…

BlackRock:  …the Proposal creates an overly prescriptive and burdensome standard that would interfere with plan fiduciaries’ ability and willingness to consider financially-material ESG factors…we urge DOL to engage with the industry to understand how investment options incorporating ESG factors are used in ERISA plans…

Members of Congress – the body that passed ERISA during its 93rd session in 1974 – reacted along partisan lines.

Republican members of the House Committee on Education and Labor submitted a letter of support of the DOL action.

Democrat Party members (41 of them) of the House and 20 members of the House Education and Labor Committee expressed opposition to the rule changes.

The Securities & Exchange Commission is looking at ESG investments as well – soliciting public comment “for the appropriate treatment for funds that use terms such as ESG in their name and whether the terms are likely to mislead investors” (also in the Federal Register post).

In May 2020 the SEC Investor Advisory Committee / Investor-as-Owner Subcommittee issued their perspectives on ESG disclosure:  https://www.sec.gov/spotlight/investor-advisory-committee-2012/recommendation-of-the-investor-as-owner-subcommittee-on-esg-disclosure.pdf

There are more details for you here (the investor response summaries): https://401kspecialistmag.com/commenters-hammer-dol-on-proposed-esg-rule/

The Department of Labor’s EBSA proposal highlights are here as published in the Federal Register, June 30, 2020: http://ga-institute.com/Sustainability-Update/big-news-out-of-the-u-s-department-of-labor-for-fiduciaries-opportunity-to-utilize-esg-factors-in-investment-analysis-and-portfolio-management/

Notes:  The Secretary of Labor is Eugene Scalia, a nominee of President Donald Trump.

Acting Assistant Secretary for EBSA is Jeanne Klinefelter Wilson (appointed in June 2020).

There is an ERISA Advisory Council with six members.  Effective July 14, 2020:

  • Glenn Butash is chair; he is managing counsel at Nokia Corp.
  • David Kritz is vice-chair; he is deputy counsel at Norfolk Southern Corp.
  • John Harney is partner at law firm O’Donoghue and O’Donoghue.
  • Peter Wiedenbeck is Washington University School of Law professor.
  • James Haubrock is CPA and shareholder, Clark Schaefer Hackett.
  • Lisa Allen is compliance consultant, Altera Group.

Stay Tuned:  We will update you when decisions are announced by the Department of Labor.

Sustainable & Responsible Investment and Asset Manager Perspectives – Today, and Quo Vadis Over the Coming Years…

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

The terms of reference are familiar now to many more institutional owners and their internal and external managers (as well as to a growing number of retail investors who are their clients and beneficiaries).

This movement began as “socially responsible investing” (“SRI”) which evolved over time to “sustainable & responsible investing” and on to “sustainable & responsible & impact investing” in the 21st Century.

In recent months we’re increasingly hearing and using the simplified term “sustainable investing” and “ESG investing”.

The progress is welcomed!  Our esteemed colleague Erika Karp at Cornerstone Capital Group here in New York (she was formerly managing director/head of Global Sector Research at UBS and is one of the founders of SASB) has been saying for some time at public conferences that one day we’ll just be talking about “investing” — and it will all be what today we’re describing as “sustainable investing”. 

So how do investors – the world’s trusted fiduciaries and intermediaries – feel about sustainable investing? 

According to Schroder’s “Institutional Investor Study 2019 – Geopolitics and Investor Expectations” – belief is very high and the proportion of investors worldwide who do not believe in sustainable / ESG investing fell to just 11 percent (from 20% in 2017); the decline was most notable in Latin America (falling to 12% from 29%).

The survey respondents:  pension funds, insurance companies, sovereign wealth funds, endowments, foundations – 650 in total, managing US$25 trillion in assets from 20 global locations.  According to Schroder’s survey of these entities, the “cynics in the asset management sector” fell by 50% in just three years of the survey effort.

Geographic spread of responses:  27%, North America; 38%, Europe; 27%, Asia-Pacific; Latin America, 8%.

Key numbers:  52 percent cite macro and geopolitical risks as greatest concern; 52% look to increase their exposure to private assets; 53% need customized solutions to meet their needs; 67% believe annual total returns will remain above 5% over the next five years; and, 75% believe sustainability will play a more important role over the next five years.

This is an important point to underscore:  Three quarters of respondents expect sustainable investing to grow in importance over the next five years (up from the base of 67% who thought so in the 2017 survey effort). 

Alas, there are still asset managers doubting the value of sustainable investing – almost one-in-five (19%) of investors responding said they do not invest in sustainable investing funds.

Sixty-seven percent of North American survey respondents said greater transparency and better ESG data and benchmarks were important.  

At G&A Institute we’re hearing this argument every day among our capital market colleagues and this is why the major ESG ratings agencies and ESG information providers – such as MSCI, Sustainalytics, Bloomberg, Thomson Reuters/Refinitiv, Vigeo Eiris and ISS — have been strengthening their systems and enhancing their methodologies to meet increasing investor-clients’ demands. 

We have been successfully working with our corporate sector clients in helping them better manage their ESG data profiles and related information in the effort to improve the information available to the rating agencies’ for rankings and data sets in a more efficient and effective manner. And then from the ratings agencies on to their investor clients.

These efforts help the corporate issuer to better represent themselves as a sustainable investment candidate and to make sure they do not get passed over by the dramatically-growing pool of asset managers now focused on corporate ESG as key factors in financial analysis and portfolio management. 

The Schroder’s results as revealed in their latest investor survey are good news all around, we would say!

Schroder’s Global is a 200-year old investment management firm working with institutions, intermediaries and individuals, managing $500 billion-plus in assets for 5,000 people on all continents.

This week’s Top Story is a review of the Schroder’s report for asset managers as published for the readers of Chief Investment Officer.  Information about the Schroder’s report is also available to you here and here.

Each week as part of our Highlights content we bring you news of ESG / Sustainable & Responsible Investment from global sources.

Adding Considerable Value to This Discussion:
Business Insider shared the results of the Merrill Lynch – Bank of America survey of investors. These are the top 10 reasons investors and companies should care about ESG investing. You can read highlights here.

Top Stories

Sustainable Investment Skeptics are Becoming Believers
Source: Chief Investment Officer – The doubters of sustainable investing are rapidly dwindling in numbers, according to a study by asset manager Schroders, which found that cynics of the sector have fallen by nearly 50% in just three years.

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…

EDF Report Offers Perspectives on the Current State of Sustainability Ratings and Rankings — and Has Suggestions for Improvement…

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

Ratings, rankings, scores, best of lists – these are increasingly important to corporate issuers and for investors

The popular CBS TV Network nighttime host David Letterman for many years provided us with periods of laughter with his well-known top 10 list segments. (Example: The Top 10 Stupid Things Americans Say to Brits.)

There’s long been a spirited competition in the corporate sector along the lines of the popular “top of” or “best of” lists (with rankings) that companies are awarded, and/or that companies pursue in the effort to garner more third party recognitions and awards. 

In recent years, there’s been a steadily-increasing number of such contests focused on governance, social and environmental issues.

Popular audience “top 10” awards seem to proliferate overnight (like mushrooms in the forest) coming forth from publishers, NGOs, conference organizers, trade associations, professional membership organizations, academia, and others.  All are welcome to some degree by investors and stakeholders and can add luster to the company reputation and brand.

Indeed, here at G&A Institute we have well beyond 400 “corporate awards and recognitions” related to ESG / Corporate Sustainability, Corporate Responsibility, Corporate Citizenship, et al…identified and profiled to help client companies round out their third party awards roster with relevant, suitable recognitions of different kinds. 

The competitive kinds that we’re all familiar with include Best in industry. Best workplace for women. For LGBTQ employees. Best business sector economic development contributors in the state (the Governor’s Award). Best companies for Hispanic or African-American engineers…and on and on.

Some of these types of recognitions are well known and for investors and stakeholders, welcomed signals of third party recognitions of a company’s citizenship, responsibility or sustainability / ESG progress and achievements.

Many awards began as editorial features of magazines. (In past years, members of our team worked with Fortune on a “Best Places” annual award.)  Forbes is another well-regarded business and finance publication with much-followed awards for companies (the Best Employers List; Best Employers for Diversity; Top Companies to Work For, and more).

Investor-Focused Ratings / Rankings / Scores / Leadership Lists

And then there are the all-important ratings, rankings, scores, index/benchmark selections that many more public companies are receiving from such service provider organizations as MSCI, Sustainalytics and Institutional Shareholder Services.

There are many robust corporate ESG profiles in the Bloomberg platform or on Thomson Reuters’ Eikon (now, “Refinitiv” branded); and coming forth from a host of other ratings organizations in the U.S. and Europe. 

These ESG data sets, and rankings / ratings are also used by many third parties in the methodology to create other awards, recognitions, indexes, and so on.  This is why it’s critical for companies to engage with and improve these key ESG investor data sets and rankings as they flow down and are used by many investors and many other stakeholders.

At the top – in the board room, C-suite — these are indeed critical recognitions and independent (to a large degree) profiles of a company’s ESG strategy, actions, achievements, and recognitions.  Of course there’s grumbling from companies about the efforts to keep up and the independent views of the raters, and how the company may be presented in the ratings work.

So how do the best of these ratings pay off for the public issuer?

Consider:  In terms of ROI for their awards efforts, sustainability rankings can help companies define internal performance measures, attract top talent and link executive comp to corporate sustainability efforts…so write the authors of an essay in Forbes.

Victoria Mills and Austin Reagan of the EDF (Environmental Defense Fund) then add:  Unfortunately, there’s a significant problem with these sustainability lists.

The authors point to a new report – “The Blind Spot in Corporate Sustainability Rankings: Climate Policy Leadership” – produced by EDF+Business — which posits that: “Environmental problems like climate change will never be solved through voluntary corporate actions alone. Public policies are critical to reduce environmental impacts across the economy in an efficient and equitable manner, and on a scale commensurate with the challenges.”

The missing link, thinks EDF, is [corporate] public policy advocacy; companies can be doing more than just addressing their own ESG issues (and winning third party recognition for leadership and admirable rankings and scores from ESG raters).

EDF thinks the most powerful tool companies have to fight climate change is their political influence.

The report explains EDF views on rankings vs. ratings; analysis of rankings (“all have a major blind spot”, explains EDF); the challenges of integrating climate policy advocacy into sustainability rankings; and, a series of recommendations.

The EDF opinions are sure to stimulate debate now among asset owners and managers, and within the corporate community. 

We’re all hooked on sustainability / ESG rankings, ratings, scores and other opinions; they’ve become ever-more important in the decision-making of key asset managers.  So, in this brief report, EDF shares its perspective on the way forward to make corporate reporting on ESG more robust.

Click here to view the 12-page report.

This Week’s Top Story

The Good, The Bad And The Blind Spot Of Corporate Sustainability Rankings
(Thursday – March 21, 2019) Source: Forbes – No matter the industry, business stakeholders care about lists – who’s on them and who’s on top. Consider this small sampling: Fast Company’s “50 Most Innovative Companies” list, Fortune’s “Change the World” list, Forbes’ “The…

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

By Jessica Caron –  G&A Institute Sustainability Report Analyst Intern

A comparison of the SASB Meat, Poultry & Dairy Standard — which is designed for use by companies involved in the raising, slaughtering, processing and packaging of animal food product — to the GRI Standards must start with the observation that the GRI Standards are general and not industry-specific, asking about topics that apply to most business organizations (such as employee benefits).

The SASB industry standards focus on industry-specific ESG information — such as animal welfare.

The GRI Standards also, in being of value in generating a general portrait of any type of organization, suggest disclosure of a wide range of basic information — such as legal form and markets served as well as significant amounts of content with information directly related to corporate ESG strategies and performance.

The only basic information SASB Standards suggest in the category is information about the number of processing and manufacturing facilities, amount of animal protein produced by category, and percentage of animal protein production that is outsourced.

We should keep in mind SASB is investor-focused, and GRI is stakeholder focused (of course, including investors). And so the information suggested for disclosure by the reporter (the company disclosing) has different end users in mind when using either or both of the standards for corporate reporting.

The GRI Sector Disclosure:

The SASB suggested industry standards are more similar to the Sector Disclosures from the GRI G4, the predecessor of the GRI Standards. Each Sector Disclosure consists of additional disclosures and guidance for answering general GRI disclosures tailored to a certain industry, and thus attains the level of industry focus that the SASB standards have.

The GRI Sector Disclosure most similar to the SASB Meat, Poultry, and Dairy Standard is the Food Processing Sector Disclosure, which is designed for food processing companies rather than farmers, but including questions about a company’s supply chain, which does include farmers. The G4 Food Processing Sector Disclosure is discussed in more detail at the end of this commentary.

Being Prepared for Reporting:

In general, my advice is that corporate reporters should be prepared for using the GRI Standards to disclose much more information than the SASB Standards suggest.

For example, the GRI Standards by design suggest that a company should expect to report on every material ESG issue that affects the company, and the reporting in accordance with “Comprehensive” level reporting option prescribes a management approach (DMA) for every risk, opportunity, and topic mentioned in the issuer’s report. In comparison, SASB suggest a well-defined and narrower set of [material] data and suggests management approaches for just a few topics, such as water management risk.

Other Differences to Note:

The GRI Standards Disclosures have an entire section on economic issues; the SASB Standard does not. These issues are focused on the economic value generated, financial assistance received from the government, and benefit plan contributions. The GRI Standards also ask about anti-corruption practices and anti-competitive behavior (in the “Society” subcategory), which the SASB Standard does not.

The GRI Standards suggest more detailed information in general than the SASB Standard on environmental topics, but the SASB Standard’s suggested disclosures are at times more specific and are on the whole more industry-specific. The main environmental topics both standards deal with are energy, water, greenhouse gas (GHG) emissions, waste, and biodiversity.

The GRI Standards suggest information on an organization’s energy consumption, energy intensity, and reduction in energy consumption and requirements — in addition to the suggestion that at least one or all, depending on individual company’s materiality assessments, of the ESG issues — be discussed and a management plan provided for it. including energy issues.

In contrast, the only energy information the SASB standard asks for is how much total energy is consumed, and suggests a breakdown of that energy by grid electricity and renewable energy (where the GRI Standards do not).

Overlaps and Differences – E/Environmental:

The water disclosures for GRI and SASB do overlap a great deal – SASB even suggests discussion of water-related risks and management approaches; notably, use of the SASB Standards suggests companies to report water specific non-compliance incidents where GRI Standards has a disclosure which asks for the companies approach for environmental compliance overall.

In terms of the other three topics, SASB only suggests disclosure of Scope 1 GHG emissions, of the amount of animal waste generated, and of the percentage of pasture and grazing land managed to Natural Resources Conservation Service (NRCS) conservation plan criteria in the biodiversity section.

GRI suggests much more information for all three of these topics (because the GRI Standards are general, they ask about waste only in general terms, but they do suggest disclosure of types of waste generated).

However, SASB suggests disclosure of management approaches for GHG emissions and waste management, whereas GRI suggests disclosure of management approach for each GRI topic considered to be material to the company. The NRCS conservation plan can also be considered as part of a management approach.

Using the GRI Standards For Reporting – More Detailed

GRI is more detailed – by far – than SASB in its suggested disclosures related to employees and their human rights; GRI Standards ask about benefits, labor-management relations, training and education, gender pay equality, diversity and equal opportunity, non-discrimination, forced or compulsory labor, human rights training for security personnel, and grievance mechanisms in addition to employee health and safety — which is the only employee-related topic mentioned in SASB Standards.

SASB Standards, do, however, suggest a description of how respiratory health conditions (a problem in animal feedlots) are managed and prevented, an issue which is much more industry-specific and not specifically mentioned even in the GRI G4 Food Processing Sector Disclosures.

GRI also asks many questions about a company’s product responsibility and impact on society, whereas SASB does not.

Addressing “S” — Social Issues

The social issues GRI Standards ask about are indigenous rights (in the “Human Rights” subcategory); contributions to and effects on local communities; anti-corruption, anti-competitive behavior; consumer privacy and health and safety; compliance; marketing, labeling; and, grievance mechanisms for effects on society. SASB Standards focus on food safety. (Note that the GRI Standards suggests a discussion of markets that ban imports of the company’s products, which is often a food safety issue for the meat, poultry, and dairy industry. SASB Standards address this under the “Food Safety” section; other food safety topics are covered in the G4 Sector Disclosures.)

About Supply Chain Content

Both GRI and SASB Standards address disclosures on supply chain information — the information suggested by SASB Standards specifically address biodiversity, animal welfare, water stress, and climate change resilience in the meat, poultry and dairy supply chain (including discussion of plans to manage climate change risks and opportunities in the supply chain). These are of course all very important issues in the meat, poultry and dairy sector.

GRI in comparison suggests more general information about screening for environmental and social issues and local suppliers. (The Sector Disclosures address in general terms, supplier compliance with sourcing policies and international standards.)

The G4 Food Processing Sector Disclosures — which are the closest equivalent to the SASB Meat, Poultry & Dairy standards — suggest additional information in many sub-categories, such as product safety, and additional guidance for many aspects. (For example, it is noted that financial assistance from government may marginalize small-scale producers and have negative impacts on public health.)

The GRI Sector Disclosures also add information on sourcing practices to the procurement practices section (as discussed in the previous paragraph) and two new sections in the “Society” subcategory, on healthy and affordable food (which SASB does not mention) and animal welfare.

The GRI Sector Disclosures’ food safety questions relate to markets that ban the company’s products and the percentage of food manufactured in facilities accredited by a third party for food safety. SASB has more questions, including about recalls, and does ask about one third-party certification system, the Global Food Safety Initiative (GFSI).

Focus on Food Issues

The GRI Sector Disclosures also have sections on nutrition — specifically, on fortified foods and food reduced in saturated and trans fats, sodium, and added sugars – and marketing and labeling, especially marketing to vulnerable groups like children and pregnant women.

The SASB Standard does not address these issues. However, other than dairy products, most animal-based foods are not fortified with nutrients or reduced in fat, sodium, or sugar, perhaps making the GRI Sector Disclosures in this area of little relevance to the meat, poultry and dairy industry specifically.

In conclusion, I see the SASB Standard and the GRI Standards + G4 Food Processing Sector Disclosure each covering most of the environmental, social, and governance (ESG) topics relevant to the livestock industry, and together, the GRI and SASB standards fill in each other’s gaps to create a more complete ESG profile for any given company in the industry/sector.

Because some pieces of information are in differently-named categories across the standards, responding in the corporate reporting process to both standards does take a little extra work — but is very much possible and I think beneficial to do if the company seeks to be a sustainability leader in the industry (or industries) in which it operates.

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

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