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…

Morgan Stanley Research Important Takeaway: Sustainable Investing Approaches Now Clearly Mainstream For Institutional and Retail Asset Owners

A 2018 survey by Morgan Stanley took the pulse of U.S. asset managers (with in-depth telephone interviews) to determine the level of adoption of sustainable investing approaches by asset managers in the United States.

Results:  in the report “Sustainable Signals: Growth and Opportunity in Asset Management” a majority of managers said they now see sustainable investing strategies as a strategic imperative, explains Matthew Slovik, head of Global Sustainable Finance at Morgan Stanley.

Morgan Stanley Institute for Sustainable Investing and Bloomberg had 300 asset management firms with at least US$50 million in Assets Under Management polled and the results built on a prior Morgan Stanley and Bloomberg survey in 2016 (“Sustainable Signals: The Asset Manager Perspective”). In that year’s pulse-taking, 65% of survey respondents said their firms adopted sustainable investing; the 2018 response was that 75% of asset management firms surveyed had done so.

Reasons cited:  increased investment stability; high client satisfaction; product popularity; possible high finance returns.

Explains Bloomberg Global Head of Sustainable Business & Finance, Curtis Ravenel:  “As investors increasingly consider sustainability factors across asset classes and investment products, we expect to see a shift toward better data tracking and reporting mechanisms…this will increase credibility and improve measurements of impact across portfolios.”

Survey Highlights:  Three-in-four U.S. asset managers now offer sustainable investing strategies. Nine-in-ten say sustainable investing is not a fad, it’s here to stay. Eight-in-ten say strong ESG practices can lead to higher profitability and companies [with ESG practices] may be better long-term investments. Two-out-of-three asset managers believe that it is possible to maximize financial return while investing sustainability.

Consider that according to the most recent survey of U.S. asset owners and managers by the U.S. Forum for Sustainable & Responsible Investing (US SIF), $13 trillion (or one-in-four dollars) of professionally-managed assets now consider sustainability principles, a clear signal that ESG factors are now widely incorporated into investment processes.

The new Morgan Stanley / Bloomberg survey results make the financial case for sustainable investing with both institutional and retail investors demanding an increasingly sophisticated range of investment approaches and impact outcomes.

The Initiative for Responsible Investment at the Hauser Institute for Civil Society at the Harvard Kennedy School and Edelman Intelligence contributed to the work.

The Top Story this week has highlights of the survey; click here to access the 16-page report.

The US SIF’s comprehensive “Report on U.S. Sustainable, Responsible and Impact Investing Trends 2018” is also available.

This Week’s Top Story

Sustainable Investing Goes Mainstream: Morgan Stanley and Bloomberg Survey Finds Sustainable Investing a Business Imperative Among U.S. Asset Managers
(Friday – February 22, 2019) Source: BusinessWire – A majority of U.S. asset managers are now practicing sustainable investing, viewing it as a strategic business imperative. In a new survey entitled Sustainable Signals: Growth and Opportunity in Asset Management, from..

There Were Many Positive Developments for Sustainability Professionals in 2018 and Much Promise for What’s To Come in 2019 – We Are Watching For You

There were many positive developments and trendlines in 2018 that we believe were encouraging for corporate sustainability & responsibility managers, sustainable investing champions, NGO managers and members, and other stakeholders.  The analyses and wrap-ups are beginning to appear now in the many media outlets and platforms that we monitor.  We bring you some highlights in this first newsletter of the exciting new year, 2019!

One of the most compelling and sweeping of essays to kick off the year was the commentary of Andrew Winston in the Harvard Business Review – “The Story of Sustainability in 2018:  We Have About 12 Years Left.”

Author Winston came to broad attention with the publication of his books, “Green to Gold” and “Green Recovery”, and the recent “The Big Pivot”.  In his end-of-year HBR commentary, the author begins with the important 2018 sustainability themes that he sees as having lasting impact, and his belief that the year just ended brought “incredible clarity” about the scale of our challenges and opportunities.”

Clarity:  the world’s scientists sound a “final” alarm on the climate — citing the Intergovernmental Panel on Climate Change/IPCC report on where we are; that is, dear reader, in a global, universally-perilous state with just a dozen years left for bold, collective action on carbon emissions.

Clarity:  the key elements of the government of the United States of America told a similar story in the U.S. National Climate Assessment released at Thanksgiving time (with the White House attempting to bury on a slow Friday after holiday) – climate change inaction could knock off 10% of this, the world’s leading economy’s enormous GDP.  The U.S. GDP was US$19.39 trillion in 2017, said sources including the World Bank.

Clarity:  Business must dramatically change how it operates and companies must push well past their comfort zones.

There’s lots of information for you regarding the threats and challenges posed by dramatic climate change.  And, Andrew Winston points out the positive developments as well, by corporate leaders at organizations such as Unilever, Salesforce, Nike, Kroger, and Danone (which became the world’s largest B Corporation in 2018).

We present Winston’s wrap up for you in this week’s Top Story:

The Story of Sustainability in 2018: “We Have About 12 Years Left” 
(Wednesday – January 02, 2019) Source: Harvard Business School – We have about 12 years left. That’s the clear message from a monumental study from the Intergovernmental Panel on Climate Change (IPCC). To avoid some of the most devastating impacts of climate change, the world must slash carbon…

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…

Breaking News: $12 Trillion in Professionally Managed Sustainable Investment Assets — $1-in-$4 of Total U.S. Assets

by 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 report from US SIF.

The benchmark report issued today – “The Report on US Sustainable, Responsible and Impact Investing Trends 2018” – by the U.S. Forum for Sustainable and Responsible Investment (US SIF) puts things in perspective for investors and corporate managers:

  • At the beginning of 2018, the institutional owners and asset management firms surveyed reported total sustainable investment at US$12 trillion AUM – that is 26% of the total assets under professional management in the U.S.A. — $1-in-$4 of all investable assets!
  • That’s an increase of 38% since the last US SIF report at the start of 2016. The AUM of sustainable investments then was $8.72 trillion. That was $1-in-$5.
  • And that was an increase of 33% since the survey of owners and managers at the start of 2014.
  • Sustainable investing jumped following the 2008 financial crisis, with growth of 240% from 2012 to 2014.

The US SIF bi-annual survey of investors began in 1995, when the total of sustainable investments professionally managed was pegged at $639 billion. There has been an 18-fold increase in sustainable investing assets since then – at a compound rate of 13.6% over the years since that pioneering research was done.

The researchers queried these institutions in 2018:

  • 496 institutional owners (fiduciaries such as public employee pension funds and labor funds – these represented the component of the survey results at $5.6 trillion in ESG assets**).
  • 365 asset/money managers working for institutional and retail owners;
    private equity firms, hedge fund managers, VC funds, REITS, property funds;
    alternative investment or uncategorized money manager assets);
  • 1,145 community investing institutions (such as CDFIs).

What is “sustainable investing”?  There are these approaches adopted by sustainable investors:

  • Negative/exclusionary screening (out) certain assets (tobacco, weapons, gaming);
  • Positive/selection of best-in-class considering ESG performance (peer groups, industry, sector, activities);
  • ESG integration, considering risks and opportunities, ESG assets and liabilities);
    Impact investing (having explicit intention to generate positive social and environmental impact along with financial return);
  • Sustainability-themed products.

The top ESG issues for institutional investors in 2018 included:

  • Conflict Risk (terror attacks, repressive regimes) – $2.97 trillion impact;
  • Tobacco related restrictions – $2.56 trillion
  • Climate Change / Carbon-related issues – $2.24 trillion
  • Board Room issues – $1.73 trillion
  • Executive Pay – $1.69 trillion

Asset managers identified these issues as among the most important of rising concerns:

  • Climate change and Carbon
  • Conflict risk

Prominent concerns for asset owners included:

  • Transparency and Corruption
  • Civilian firearms / weapons
  • a range of diversity and equal employment opportunity issues.

The Proxy Voting Arena

The shareowners and asset managers surveyed regularly engage with corporate executives to express their concerns and advocate for change in corporate strategies, practices and behaviors through presentation of resolutions for the entire shareholder base to vote on in the annual corporate elections.

From 2016 to 2018 proxy seasons these resolutions were focused on:

  • Proxy access for shareowners (business associations have been lobbying to restrict such access by qualified shareowners).
  • Corporate Political Activity (political contributions, lobbying direct expenses and expenses for indirect lobbying by business groups with allocated corporate contributions).
  • A range of environmental and climate change issues.
  • Labor issues / equal employment opportunity.
  • Executive compensation.
  • Human Rights.
  • Call for independent board chair.
  • Board Diversity.
  • Call for sustainability reporting by the company.

Public employee pension systems/funds led the campaigns with 71% of the resolutions filed in 2016, 2017 and 2018.

Labor funds accounted for 13% of filings.

Asset/money management firms accounted for 11.5%.

A total of 165 institutional owners and 54 asset managers filed or co-filed resolutions on ESG issues at the beginning of the 2018 proxy voting season.

The ESG Checklist

The institutions and asset managers queried could answer queries that addressed these ESG, community, product factors in describing their investment analysis, decision-making and portfolio construction activities. This is a good checklist for you when discussing ESG issues and topics with colleagues:

The “E” – Environmental:

  • Clean technology
  • Climate change / carbon (including GhG emissions)
  • Fossil fuel company divestment from portfolio, or exclusion
  • Green building / smart growth solutions
  • Pollution / toxics
  • Sustainable Natural Resources / Agriculture
  • Other E issues

The “S” – Social (or “societal”):

  • Conflict risk (repressive regimes, state sponsors of terrorism)
  • Equal employment opportunity (EEO) / diversity
  • Gender lens (women’s socio-economic progress)
  • Human rights
  • Labor issues
  • Prison-related issues (for-profit prison operators)
  • Other S issues

The “G” – Corporate Governance:

  • Board-related issues (independence, pay, diversity, response to shareowners)
  • Executive pay
  • Political contributions (lobbying, corporate political spending)
  • Transparency and anti-corruption policies

Product / Industry Criteria:

  • Alcohol
  • Animal testing and welfare
  • Faith-based criteria
  • Military / weapons
  • Gambling
  • Nuclear
  • Pornography
  • Product safety
  • Tobacco

Community Criteria:

  • Affordable housing
  • Community relations / philanthropy
  • Community services
  • Fair consumer lending
  • Microenterprise credit
  • Place-based investing
  • Small and medium business credit

The report was funded by the US SIF Foundation to advance the mission of US SIF.

The mission: rapidly shift investment practices towards sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. Both the foundation and US SIF seek to ensure that E, S and G impacts are meaningfully assessed in all investment decisions to result in a more sustainable and equitable society.

The bold name asset owners and asset managers and related firms that are members of US SIF include Bank of America, AFL-CIO Office of Investment, MSCI, Morgan Stanley, TIAA-CREF, BlackRock, UBS Global Asset Management, Rockefeller & Co, Bloomberg, ISS, and Morningstar.

Prominent ESG / sustainable investment players include Walden Asset Management, Boston Common Asset Management, Clearbridge, Cornerstone Capital, Neuberger Berman, As You Sow, Trillium Asset Management, Calvert Investments (a unit of Eaton Vance), Domini Impact Investments, Just Money Advisors, and many others.

The complete list is here: https://www.ussif.org/institutions

Information about the 2018 report is here: https://www.ussif.org/blog_home.asp?display=118

About the US SIF Report:  The report project was coordinated by Meg Voorhees, Director of Research, and Joshua Humphreys, Croatan Institute.  Lisa Woll is CEO of US SIF.  The report was released at Bloomberg LP HQs in New York City; the host was Curtis Ravenel, Global Head of Sustainable Business & Finance at Bloomberg. q1

Governance & Accountability Institute is a long-time member. EVP Louis D. Coppola is the Chair of the US SIF Company Calls Committee (CCC) which serves as a resource to companies by providing a point of contact into the sustainable investment analyst community

** Institutional owners include public employee retirement funds, labor funds, insurance companies, educational institutions, foundations, healthcare organizations, faith-based institutions, not-for-profits, and family offices.

INSTITUTIONAL INVESTORS LAUNCH ALLIANCE FOCUSED ON HUMAN RIGHTS

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

ICCR Provides Leadership for Investor Collaboration To Advance Corporate Sector and Investor Action on Human Rights Issues

The recently-launched Investor Alliance for Human Rights provides a collective action platform to consolidate and increase institutional investor influence on key business and human rights issues.

For nearly 50 years, the Interfaith Center on Corporate Responsibility (ICCR) has been engaging with corporate managements and boards, coalescing with asset owners and managers and waging campaigns on key E, S and G issues.

ICCR has become a major influence for investors at corporate proxy voting time, and in ongoing investor-corporate engagements.

Consider:  The member institutions have AUM of US$400 billion and influence many other investors (depending on the issue in focus at the time).

ICCR has 300-plus institutional investor members, many (but not all) are faith-based organizations. A good number of member institutions are leaders in making available sustainable & responsible investment products and services. (See representative names in references at end.)

Key issues in focus for ICC members include:

  • Human Rights (key: human trafficking, forced labor, fair hiring practices)
  • Corporate Governance (board independence, CEO comp, lobbying)
  • Health (pharma pricing, global health challenges)
  • Climate Change (science-based GhG reduction targets)
  • Financial Services (risk management for financial institutions, responsible lending)
  • Food (antibiotics in food production, food waste, labor)
  • Water (access, corporate use of water and pollution)

HUMAN RIGHTS IN FOCUS FOR NEW ALLIANCE

On the last issue – Human Rights – ICCR has long been involved in various Human Rights issues back to its founding in 1971 and has been organizing the Investor Alliance for Human Rights since late-fall 2017.  Here are the essentials:

  • Investor Alliance participants will have an effective “Collective Action Platform” for convening, information sharing, and organizing collaboration on action to make the case to corporate decision-makers and public sector policymakers (and other stakeholders) on the need for urgency in addressing human rights issues.
  • The umbrella of a formal alliance will help individual participants to build partnerships and develop collaboration within their own universes of connections (such as NGOs, other investors, community-based organizations, trade groups, corporate leaders, multi-lateral organizations, and other institutions and enterprises).
  • Among the work to be done is the encouragement and support of building Human Rights criteria and methodology into asset owner and manager guidelines, investing protocols, models, and to integrate these in corporate engagements and proxy campaigns, as well as to guide portfolio management. (Buy/sell/hold decision-making.)
  • All of this will help to expand investor reach and influence and strengthen advocacy for best practices in Human Rights by both companies and investors. Leveraging of broader investor influence is key in this regard.

The Alliance will provide participants with a “rapid response” resource to assure that the “investor voices” are clearly heard in corporate board rooms and C-suites, in public sector leadership offices, and in media circles when there are threats posed to effective actions and reforms in Human Rights issues.

The Alliance is outreaching to NGOs, faith-based institutions, academics, media, labor unions, multi-lateral global institutions, trade and professional associations, corporate managements and boards, and of course to a wide range of asset owners and managers.

# # #

The key player at ICCR for the Alliance is David Schilling, a veteran staff member who is Senior Program Director – Human Rights & Resources. (email:  dschilling@iccr.org)

David joined ICCR in 1994 and has led initiatives on human rights in corporate operations in Africa, Asia and Latin America, often visiting factories and meeting with workers on the ground.

David is currently Chair, Advisory Board of the Global Social Compliance Program; member, International Advisory Network of the Business and Human Rights Resource Centre; member, RFK Center Compass Education Advisory Committee; UNICEF CSR Advisory Group; and, Coordinator (with ICCR member institutions) of the Bangladesh Investor Initiative (a global collaboration in support of the “Accord for Fire and Building Safety”.

# # #

ICCR stresses that it sees its work “through a social justice lens.”  For more than two decades members and staff have worked to eradicate human rights abuses in corporate operations and across global supply chains, such as forced child labor in cotton fields in Uzbekistan.

The organization has an Advisory Committee of Leaders in Business and Human Rights (formed in late-2016).  Members include representatives of Boston Common Asset Management; Shift; Landesa; The Alliance for a Greater New York; Oxfam America; Mercy Investment Services; International Corporate Accountability Roundtable; and Global Witness.

# # #

ICCR has a long history in Human Rights progress.  The organization came together as a committee of the mainstream Protestant denominations under the  umbrella in 1971 to organize opposition to the policies and practices of “Apartheid” in South Africa.

Over time, the U.S. corporations operating in South Africa stopped operations there.  More than 200 cities and municipalities in the United States of America adopted anti-Apartheid policies, many ending their business with companies operating in South Africa.

Protests were staged in many cities and on many college & university campuses, and U.S. and European media presented numerous news and feature presentations on the issue.

In time, the government of South Africa dismantled Apartheid and the country opened the door to broader democratic practices (the majority black population was formerly prohibited to vote).

Over the years since the Apartheid campaign, ICCR broadened its focus to wage campaigns in other societal issues, including:

  • Focus on fair and responsible lending, including sub-prime lending and payroll lending.
  • Putting climate change issues on the agenda for dialogue with corporations, including the demand for action and planning, and then greater disclosure on efforts to curb GHG emissions.
  • Encouraging investment in local communities to create opportunities in affordable housing, job development, training, and related areas.
  • Promoting greater access to medicines, including drugs for treatment of AIDS in Africa, and affordable pricing in the United States.
  • Promoting “Impact Investing” – for reasonable ROI as well as beneficial outcomes for society through investments.
  • Promoting Islamic Finance.
  • On the corporate front, requesting greater transparency around lobbying by companies to influence climate change, healthcare and financial reforms, both directly and through trade associations and other third-party organizations.
  • Opposing “virtual-only” annual corporate meetings that prevent in –person interaction for shareholders.

Proxy Campaigns – Governance in Focus:

ICCR members are very active at proxy voting time.  Among the “wins” in 2017:

  • Getting roles of (combined) Chair & CEO split – 47% support of the votes for that at Express Scripts and 43% at Johnson & Johnson; 39% at Chevron.
  • More disclosure on lobbying expenditures – 42% support at Royal Bank of Canada and 41% at First Energy; 35% at Cisco and 25% at IBM.

# # #

Notes and References:

Information on the new Alliance is at: http://iccr.org/iccr-launches-new-alliance-amplify-global-investor-influence-human-rights

ICCR’s web site is at: www.iccr.org

And at http://iccr.org/our-issues/human-rights/investor-alliance-human-rights

The Alliance initiative is supported with funding from Humanity United and Open Society Foundations.

Influence and Reach:  The ICCR member organizations include the AFSCME union fund, Walden Asset Management, Boston Common Asset Management, Oxfam, The Maryknoll Fathers and Brothers, and Maryknoll Sisters, American Baptist Churches, Mercy Investments, Christian Brothers Investment Services (CBIS), Wespath Investment Management, Everence Financial, Domini Social Investments, Church of England Ethical Investment Advisory Group, Gabelli Funds, Trillium Asset Management, Calvert Group, Clean Yield, The Nathan Cummings Foundation, and other institutional investors.

 

 

 

 

 

About Sustainability Ratings: CPAs Are Being Educated by Their Profession’s Journal – A Good First Effort to Push Information to All Levels of CPAs

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

The professional CPAs working inside a public company, or in the outside accounting firm working with a company may or may not yet be involved in assisting corporate managers in responding to a growing number of third-party surveys focused on the company’s ESG strategies, actions and achievements.  Responses to these periodic surveys and engagements by other means with the ratings and rankings organizations are increasingly shaping outcomes – that is, investor opinions of the company.

Many more companies are now receiving surveys from and responding to a growing number of third-party ESG rating providers – and as we are told by our corporate connections, very often managers are straining under the effort to effectively respond given the breadth of information sought and the information available in the corporation.

As we advise corporate managers, it is important to know that there is a publicly-available ESG profile of your company that investors are considering in various ways – and either you will shape the profile and tell the company’s sustainability progress story, or someone else will.  That “someone else” would be the global universe of ESG rating providers — and their output is directed to their investor clients. The ones who invest in, or could invest in, your company.

Savvy corporate managers of course “get it” and really make the effort to effectively respond to as many queries and surveys as possible.  But what about the internal financial managers and outside accountants – are they involved?  At some firms, yes, and other firms no — or not yet.

The Big Four are tuned in to corporate ESG / sustainability disclosure and reporting.  But many smaller CPA firms are not.

And among small- and mid-cap publicly-traded firms, the role of the ratings and rankings service providers could still be an unknown and under-appreciated factor in shaping the firm’s reputation, valuation, access to and cost of capital, and other considerations. The article in the influential CPA Journal this month is a worthwhile attempt to educate professional CPAs, whatever their position.

Five professors — co-authors and colleagues at the Feliciano School of Business, Montclair State University — explored the question, “Are Sustainability Rankings Consistent Across Rating Agencies?”  One obvious element in the piece that we noticed is something happening in both the corporate sector and investment community:  the fluid interchangeability of terms of reference.

Is what is being explored by the ESG ratings and rankings service providers and their investor clients performance related to …CSR (corporate social responsibility)…ESG performance factors (environment/social/governance)…corporate sustainability…corporate citizenship…sustainable investing?  Combinations? All of these?
The authors use the terms interchangeably, as do company managers and capital markets practitioners in discussing the ever-more important role that “corporate sustainability rating providers” play in investor decision-making.

They cite the 2014 overview of rating agencies by Novethic Research (7 international rating agencies, 2 non-financial data providers, 8 specialized agencies and 20 local/regional agencies). Several studies and books are identified as reference sources.

Specific CSR rankings examined for 2015 results:  Newsweek’s Greenest Companies; Forbes Global 100 Most Sustainable Corporations; and, CSR Magazine Top 100 Global RepTrak companies.

We offer the perspectives of the Journal authors in our Top Story so that you can see what CPA’s will be reading in their Journal.

There are important points raised — but the three rankings examined do not cover the full breadth of the expanding universe of ESG rating organizations.  And we are light years away from 2015 in terms of the rating agencies’ influence.

The three rankings cited are not as “investor decision-useful” as would be the analytical work of teams at such firms as MSCI, Sustainalytics, Institutional Shareholder Services (ISS); what was offered in 2015 doesn’t compare to the depth of ESG data available today via Bloomberg and T-R Eikon terminals; the RobecoSAM Corporate Sustainability Assessment (CSA) ratings that influence inclusion in the DJSI; and, volumes of information made available by CDP (formerly the Carbon Disclosure Project).

The G&A Institute team assists corporate managers in responding to these important players and an ever-widening range of third-party ESG service providers.

We’d like to share three basic observations with you and with CPAs: (1) the third party queries are becoming more probing in the information and data sought; (2) the corporate response effort is much more organized and thorough these days; (3) the results of both of these efforts are increasingly important to, and utilized by, the institutional investment community (both asset owners and their managers).

So — the more information that CPAs have about sustainable investing and corporate ESG performance, the better equipped they’ll be to support their clients.  The article is a good start in this regard.

The journal authors are academics Betsy Lin, Silvia Romero, Agatha Jeffers, Laurence DeGaetano, and Frank Aquilino.

Top Story

Are Sustainability Rankings Consistent Across Ratings Agencies?
(Thursday – July 26, 2018) Source: CPA Journal – As more and more companies begin to devote serious attention to sustainability reporting, many different systems of rating the depth and effectiveness of sustainability efforts have arisen. The authors compare three leading…

Sustainability & ESG Trends in View -– The G&A Institute Team Closely Monitors Developments For You

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

Every week G&A Institute assembles the value-added content that our team gathers for you as we closely monitor trends and developments in corporate sustainability, corporate responsibility, corporate citizenship, sustainable investing, and related topics and issues.

Our Editor-in-Chief Ken Cynar leads the daily effort and you see the results of his work in each issue of Highlights (note we are on #406 this week).  We hope that you benefit from this effort, part of our information-sharing and educational mission.

One of the benefits for us on the G&A Institute team is the yield from the close and continuous tracking and deep analysis of important trends in the related fields in every corner of the world, and in varying spheres of influence.   We are monitoring thought leaders on the corporate sector side, on the asset owner and manager side, from the perspective of the NGO or civic activist, the regulators, the academics, the ESG research service providers, and many more.

As the Global Reporting Initiative’s  (GRI) Data Partner for the United States of America, the United Kingdom and the Republic of Ireland, our team collects, analyzes and databases considerable volumes of data and narrative from the more than 1,200 reports we process each year (the reports are then made part of the GRI global inventory for public access).

From the thousands of corporate & institutional sustainability reports we process year-after-year, the yield includes value-added information on long-term trends, emerging trends, and “might-be-a-trend-taking-shape” development.  And so high on our list is news, information, research results related to corporate sustainability and responsibility reporting.  We highlight a few for you at the top of the newsletter this week.

We share volumes of information through our communication platforms, such as this weekly newsletter; our G&A Institute company website; the Accountability Central and Sustainability HQ web platform; the  G&A Sustainability Update blog; our TwitterFacebook, and other social media feeds; and more in-depth management briefs through our “G&A Institute To the Point!” platform.

IMPORTANT:  As always, we welcome your engagement, invite your queries, your feedback, your suggestions for issues and trends to watch, and suggestions for the guidance of the information-sharing that we do.  We’d also welcome the opportunity to speak with you about our consulting services.  Email us at info@ga-institute.com.

In this week’s issue, we’ve identified an especially higher number of important trends for you that are worth “tuning in to” as you continue on your sustainability journey.

“Sustainability “ trends that are the march – worldwide!

“Warm regards to you” from The Team at G&A Institute this sweltering summer in most parts!

“Total Impact Valuation” – Monetizing the Enterprise’s “Cost-Benefit Analysis” of the Impact on Society? This is for CEOs – Advice From The Conference Board

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

Today’s question for corporate CEO’s:  Have you examined your company’s “Total Impact Valuation,” a new approach being advanced by The Conference Board, wherein the enterprises’ impact on society is monetized (cost/benefit evaluated and value attached)?

A small group of companies is doing these exercises. Think of their efforts to date as expanding the usual reporting of “Input/Output” to seriously consider (1) Outcomes, (2) Impacts, (3) Cost and Benefit to Society (and to the company).

Such firms as BASF (the German chemical giant), cement industry leaders Holcim/Ambjua Cement and LafargeHolcim, Samsung, Akzonobel (materials), ABN AMRO (Holland, financial services), Volvo (vehicles), and Argo (materials, Colombia) have been doing something along these lines and reporting results for a few years now on web sites, in sustainability reports, in financial statements, in a “total contribution report” or “value-added statement”, and by other means.

Some of these disclosures are third party assured (Argo’s is by Deloitte) and otherwise guided; the big accounting firms are involved (PwC and KPMG included).

This appears to us to have the potential to take corporate sustainability reporting to expanded (new) levels for at least the publicly-traded large caps – that is, if enough investors jump aboard the concept and ask for the information.  (Think about public discussion of the company’s “plus or minus” impact on society beyond the fences.)

Thomas Singer, Corporate Leadership research leader at The Conference Board, presents findings of his sampling of firms (those identified above) and shares his perspectives on the concept in Chief Executive Magazine – it’s our Top Story for you this issue.

BASF shares its “Value to Society” model (there’s a link to this in the article).  The company, explains Singer, monetizes more than 20 different types of environmental, social and economic impacts, including direct and indirect suppliers and even customer industries.

Author Thomas Singer turns out a good amount of strategic advice to company leaders and has been focusing more in his Director Notes on ESG and corporate sustainability.  There’s links to his papers and publications for you in the link.

A major drawback here in the U.S.A.: there is no standard benchmark for measuring progress or lack of, and to guide reporting; there is in turn no way to compare company “A” to “B” for investors, ratings analysts and others.

So what do you think – is this a “we’re a long way from Kansas, Toto” moment for corporate leaders in terms of expectations of shareholders and stakeholders for what the companies will share in their disclosures of the future?  (The “Kansas” reference being the bad old days practices of chemicals and other companies “externalizing” costs to society for environmental mismanagement and minimizing the actual costs of clean up in financial reports.)

The total value practice got underway in Europe – and we will be watching to see if U.S.-based public companies pick up on the concept. Especially those where their foreign peers have the modeling and techniques underway.  That is what happened with corporate sustainability and ESG reporting over time.

Top Stories

CEOs Need To Put This Sustainability Trend On Their Radar
(Tuesday – July 03, 2018) Source: Chief Executive – What if America’s CEOs could understand the full financial impact their company has on society? It could make them rethink their game plan for how they prevent workplace accidents, lessen air pollution, manage waste – the list…