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

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

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:

The UN Sustainable Development Goals -– “What Matters” For 40 Sectors? G&A Institute’s Research Project Yields Key Data

by Hank BoernerG&A Institute Chair & Chief Strategist

  • An examination of materiality decisions made by 1,387 corporations in their sustainability / ESG reports on all 91 GRI G4 Specific Standard Disclosures, linked SDG Targets, and GRI Standards Disclosures 
  • Forty individual sector reports including the “Top GRI Indicators / Disclosures” and “Top SDG Targets” rankings for each sector are available for download at https://www.ga-institute.com/SDGsWhatMatters2018

Nearing the end of the 20th Century, the United Nations assembled experts to develop the eight Millennium Goals (the MDGs), to serve as blueprints and guides for public, private and social sector actions during the period 2000-2015 (the “new millennium”).

For “post-2015”, the more ambitious Sustainable Development Goals (the now familiar SDGs) were launched with 17 goals and 169 targets.

These are calls to action for rich and poor and middle-income nations from 2015 out to the year 2030.  These ambitious efforts are focused on such societal issues as improving education and health; social protection; providing job opportunities; and encouraging greater environmental protection (global climate change clearly in focus!).

The 17 SDGs are numbered for themes – “No Poverty” is Goal #1; “Clean Water and Sanitation” is Goal #6; Gender Equality is Goal #5.

As the goals were announced after an exhaustive development process (ending in 2015), sovereign nations, regions, communities, corporations, academic institutions, and other societal stakeholders began “adopting” and embracing the goals, and developing action plans and programs related to the goals.

Numerous companies found (and are finding today) that the goals aligned with the long-term corporate strategies (and vice versa).

SDG strategies were and are being amended to align the goals with critical corporate strategies; actions and programs were formulated; partnerships were sought (corporate with government and/or social sector partners and so on).  And the disclosures about all of this began to appear in corporate and institutional GRI sustainability reports.

In the months following official launch, a wave of corporations began a more public discussion of the SDGs and their adoption of specific goals – those that were material in some way to the company’s strategies, operations, culture, stakeholders, geography…and other factors and characteristics.

As the SDGs were “adopted” and embraced, companies began quickly to examine the materiality of the SDGs relative to their businesses and the first disclosures were appearing in corporate sustainability reports.

To rank the materiality of the SDGs for 40 different sectors, the G&A Institute analyst team gathered 1,387 corporate GRI G4 Sustainability / ESG reports and examined the disclosure level of each on 91 Topic Specific Standard Disclosures.  The database of the reporters materiality decisions around GRI Indicators were then linked to the 169 SDG targets using the SDG Compass Business Indicators table.

The sectors include Electricity, Beverages, Banks, Life Insurance, Media, and many more classifications (the list is available on the G&A web platform with selections to examine highlights of the research for each sector).

The results:  we now have available for you 40 separate sector report highlights containing rankings of the SDG Targets’ and the GRI G4 Indicators & GRI Standards Disclosures for each sector which can be downloaded here:  https://www.ga-institute.com/SDGsWhatMatters2018

The research results are an excellent starting point for discussion and planning, a foundation for determining sector-specific materiality of the SDGs and the GRI KPIs and disclosures as seen through the lens of these 1,387 corporate reporters across 40 sectors.

This is all part of the G&A Institute’s “Sustainability Big Data” approach to understanding and capturing the value-added corporate data sets for disclosure and reporting.  The complete database of results is maintained by G&A Institute and is used for assisting corporate clients and other stakeholders in understanding relevant materiality trends.
We welcome your questions and feedback on the year-long research effort.

Thanks to our outstanding research team who conducted the intensive research: Team Research Leaders Elizabeth Peterson, Juliet Russell, Alan Stautz and Alvis Yuen.  Researchers Amanda Hoster, Laura Malo, Matthew Novak, Yangshengjing “UB” Qiu, Sara Rosner, Shraddha Sawant, and Qier “Cher” Xue. The project was architected and conducted under the direction of Louis Coppola, Co-Founder of G&A Institute.

There’s more information for you at: https://www.ga-institute.com/SDGsWhatMatters2018

More information on the SDGs is at: https://www.un.org/sustainabledevelopment/

Contact G&A Institute EVP Louis Coppola for information about how G&A can help your company with SDGs alignment at:  lcoppola@ga-institute.com

The State of Sustainable / ESG Investment in 2018: The State of Corporate Sustainability Reporting & How We Got Here

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

In this issue of our weekly newsletter we brought you two important Top Stories that capture the state of sustainable investing from varying points-of-view. 

We selected these research efforts for their value to both corporate managers and investment professionals.

  • Corporate staff can use the findings to “make the case” upward to C-suite and boardroom using both documents.
  • Investors not yet on board with Sustainable / ESG investing can gain valuable insights from both reports.

First is the report by Guido Giese and Zoltan Nagy at MSCI – “How Markets Price ESG” – addressing the question “have changes in ESG scores affected market prices?”

MSCI examines the changes in companies ESG scores, “ESG momentum” — either strong or negative for the companies being rated. Using the firm’s model, the research showed that markets reacted “most sensitively” to improvements in a public company’s characteristics rather than to declines in ESG performance, among many other takeaways in the full report.

The takeaway is that changes in ESG profiles of companies certainly affect company valuations.  The change in ESG characteristics showed the strongest move in equity pricing over a one-year horizon compared to shorter or longer time frames.  The report contains a well designed, thorough methodology which clearly demonstrates the importance of a public company’s ESG profile.

The MSCI score, the authors point out, is a proxy for the ESG-related information that the market is processing. (All MSCI ESG scores are updated at least once a year.)  There’s good information for both corporate managers and investment professionals in the 25-page report.

The second report is a snapshot of the “State of Integrated and Sustainability Reporting 2018” — issued by the Investor Responsibility Research Institute (IRRCI)Sol Kwon of the Sustainable Investments Institute (Si2) is the author and colleague Heidi Welsh is editor.  (IRRCI and Si2 regularly publish research reports together.)

The report charts the evolution of corporate sustainability reporting, which got off to a modest start in the 1980s – then on to the 1990s when corporate sustainability reports as we know them today as investors and companies adopted ESG or Triple Bottom Line approaches.

Key:  Another transition is underway, writes author Kwon, the “value creation” (a/k/a shared value) which should lead to more holistic reporting of inputs and outputs…and the emergence of the integrated report.

In 2013, IRRCI had Si2 look at the state of integrated reporting among the S&P 500® companies and examined practices again for this year’s report.  (The earlier work focused on what companies were reporting without regard to status as “mandated” or “voluntary” disclosure.)  Much progress has been made – for one thing, investor attention on ESG matters is much higher today…making corporate sustainability reporting ripe for the next phase.

The details are set out for you in the IRRCI report including trends and examples in use of reporting frameworks (GRI, SASB, IIRC), Quality, Alignment with SDGs, Inclusion of Sustainability in Financial Reports, Investor Engagement / Awareness, Board Oversight, Incentives, and many other important trends.

This an important comprehensive read for both corporate managers and investment professionals, with a sweep of developments presented in an easy-to-read format.

Example:  What drives ESG integration into investment strategy?  The drivers are identified and presented in a graphic for you.

Important note for you regarding IRRCI:  in 2019 the organization’s intellectual properties will be assumed by the Weinberg Center at the University of Delaware.  The center conducts research and holds conferences on corporate governance and related issues and is headed by Charles Elson, one of the most highly-regarded thought leaders on corporate governance in the U.S.

Important Study on ESG Momentum by MSCI: 
https://www.msci.com/www/research-paper/how-markets-price-esg-have/01159646451

State of Integrated and Sustainability Reporting 2018:
https://irrcinstitute.org/wp-content/uploads/2018/11/2018-SP-500-Integrated-Reporting-FINAL-November-2018.pdf

The Survey Results Are Here: $12 Trillion in Professionally Managed Assets Are Guided by Sustainable Investing / ESG Approaches in the USA – That’s $1-in-$4 of All Capital Market Assets Under Professional Management At End of 2017

The results of the 2018 survey of asset owners, asset managers and community investment professions conducted by The Forum for Sustainable and Responsible Investment (“US SIF”) were announced last week.

Dramatic results were highly anticipated  — and the US SIF trends survey delivered:  at the end of 2017, ESG / sustainable assets under professional management (AUM) totaled US$12 trillion.  That’s 1-in-$4 of total professional managed assets (AUM) in the U.S. capital markets ($46 trillion).

The survey universe consisted of 496 asset owners, 385 asset managers and 1, 145 community investing financial institutions.

These professional money managers pursued ESG integration for a variety of reasons, including:  (1) to meet increasing institutional and retail client demand for “sustainable investing”; (2) to fulfill stated mission and pursuing social benefits; (3) to address a number of societal issues such as climate change, diversity, human and labor rights, weapons manufacturing, and corporate political spending.

High net worth individuals and retail investors increasingly utilized ESG / sustainable investing approaches reporting $3 trillion in sustainable assets.

One of the leading sponsors of the every-other-year study since the 2010 survey report is the Wallace Global Fund.  The managers have embraced sustainable investing and Executive Director Ellen Dorsey commented:  “We support this research as a critical tool to track crucial trends in the industry and benchmark our own goal of 100 percent mission alignment, as we promote an informed and engaged citizenry, help fight injustice and protect the diversity of nature.”

The Trends report breaks out the top ESG issues for investors – nine types of financial institutions (public employee funds, insurance companies, labor funds, and more), mutual funds, ETFs, money management firms, foundations, venture capital funds, and community investing institutions.  There is a tremendous amount of useful data and information or you in the Trends report available from US SIF.  The two top stories this week provide you with highlights.

We encourage readers to order the full report and keep it handy…for the next two years, volumes of content will be cited by investors, investor coalitions and advocates, media, academics, NGOs, government agencies, and others. To get started in digesting the sustainable investing trends, start with our two Top Stories below.

This Week’s Top Story

Breaking News: $12 Trillion in Professionally Managed Sustainable Investment Assets — $1-in-$4 of Total U.S. Assets
(Thursday – November 01, 2018) Source: Hank Boerner – Chair and Chief Strategist – G&A Institute – Call it “sustainable and responsible investing” or “SRI” or “ESG investing” or “impact investing” – whatever your preferred nomenclature, “sustainable investing” in the U.S.A. is making great strides as demonstrated in a new…

US SIF Foundation Releases 2018 Biennial Report On US Sustainable, Responsible And Impact Investing Trends
(Thursday – November 01, 2018) Source: US SIF Foundation – The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends, released today, found that sustainable, responsible and impact investing (SRI) assets now account for $12.0 trillion—or one…