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…

Is Business Doing Enough to Address “Environmental Degradation” –and Other Important Points-of-Debate At A Recent Harvard B-School Conference

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

Is the business community doing enough to advance sustainability…are institutional investor doing enough with their allocation of capital and identification and targeting of positive outcomes for the invested capital? 

As we continue to be encouraged by the rising interest in sustainable investing by mainstream institutions, and the broadening interest of corporate executives and boards in corporate sustainability, responsibility, citizenship, ESG (et al), we are also intrigued by the more complex questions that arise.

A recent Harvard University Business School conference explored some of the challenging and complex questions related to corporate sustainability efforts, climate change, “business-focused” solutions to the “deteriorating” environment, and roadblocks to achieving sustainability goals.  The conference was titled, “Understanding and Overcoming Roadblocks to Sustainability.”

Participants included management researchers, business and environmental historians and practitioners.

One participant raised an interesting question that caught the eye:  “What’s the use of a zero-waste and carbon-free island resort in a world headed toward a temperature rise of 4-degrees Celsius?”  What is practical in this instance?

The comments of some participants were that progress could and was being made in certain sectors, and in the process, the solutions are becoming more complex and challenging – so let’s think about what some are calling the “Earth Systems” approach.

The very concept of “sustainability” was critiqued by many speakers, as the description has broadened since first emerging in the 1980s.

Among the important observations offered: “Overcoming roadblocks requires public policies to be much more aligned with creating the right incentives to support long-term commitments and radical shifts at the same time…and business may be the only entity that can effectively lobby to pass such policy.”

This space is too limited in presenting the report on the conference by co-organizer Geoffrey Jones in the Harvard B-School “Working Knowledge” report.  Overall, the conference participants added important points for all of us to consider as we continue on society’s and our own “sustainability journey.”

We recommend your reading of the recap as well as the comments that resulted from others’ reading and weighing in with their thoughts on the subject.  It’s all in our Top Story this week.

Has Sustainability Lost its Relevance?
(Wednesday – June 20, 2018) Source: Harvard Business School – Companies have thought for decades about business-focused solutions to fix the deteriorating environment. But judging by continually rising waters and temperatures, we may need a rethink about what sustainability means, suggest..

Barron’s Magazine Heralds the Arrival of Sustainable Investing to the Mainstream In Special Issue This Week – Sustainable Investing Version 2.0 Is Here!

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

The influential Barron’s magazine is published on Mondays by Dow Jones & Company with distribution to almost a half-million retail and institutional investors (300,000+ for print version, the rest digital or combination).

Barron’s says it has been “delivering market-beating stock picks and investment advice to wealthy readers since 1921…”

In Fall 2017, the Barron’s editors picked up the pace on coverage of sustainable investing, adoption of ESG approaches and related topics and positioned its expanding coverage with the statement: “Sustainable Investing is a Powerful Force in Today’s Capital Markets.” T

he October 7, 2017 issue was devoted to sustainable investing and the cover story was “The Top Sustainable Funds” for investors.

Editor Beverly Goodman explained: “As a team of seven writers and I began work on Barron’s first special edition devoted entirely to sustainable investing, we realized something – we could not get people to stop talking about it! CEO’s wanted to tout the strides they are making in labor practices and protecting the environment. Fund managers wanted to talk about how adding ESG criteria to stock picking isn’t that much of a stretch from the multitude of decisions they routinely use.”

And so: Barron’s would now cover this burgeoning style of investing on a regular basis. “We are only in Version 1.0 of sustainable investing – 2.0 is where ESG is not a separate category but a natural part of active management.”

The October 2017 issue’s cover story was about sustainable mutual funds based on data provided by Morningstar using Sustainalytics data – 37% of the 203 funds achieved a “high” or “above average rating” and beat the S&P 500® Index returns. (Only 28% of all large-cap mutual funds managed to do that.)

The Editors Began Steady Coverage of Sustainable Investing

Each of the issues that followed there would be some kind of coverage of sustainable investing. Barron’s followed up with another significant issue in February 2018 naming the sharing the magazine’s first ranking of sustainable companies for investor-readers.

Calvert Research and Management helped with the choices (using data from Sustainalytics, ISS and Thomson Reuters ASSET4) for the “Top 100 Sustainable Companies” rankings.

The top five positions were held by Cisco (#1), salesforce.com, Best Buy, Intuit, and HP (at #5). Said Calvert CEO John Streur: “This list gives people insight into companies addressing future risks and into the quality of management.”

Now – The Mainstream Impact of This Week’s Issue

The editors continued to ramp up coverage in each issue since late-2017. And this week’s issue (dated June 25) positioned Sustainable Investing Version 2.0 for its audience. This week’s content included:

The cover story is about “The New Conscience of Wall Street” – focused on BlackRock CEO Larry Fink and his “Investing With Purpose Theme.” (Subtitle: Larry Fink’s Mission: How the BlackRock CEO is leading a sustainable revolution on Wall Street.”)

One of the articles is a debate between George Serafeim (Harvard B School professor and stalwart advocate for sustainable investment) and Adam Sessel (CEO of Gravity Capital Management): “Does Sustainable Investing Lead to Lower Returns?”

The traditional Barron’s approach to a panel of expert to explore an investing topic is this week’s “ESG Roundtable: Great For the World, Good For Investors” – featuring Erika Karp of Cornerstone Capital; Todd Ahisten, Parnassus Investments; Jon Hale, Morningstar; and Roelfien Kuijpers of DWS Group (the asset management spin off of Deutsche Bank).

There is a “Getting Started in Sustainable Investing” guide for readers, including a Glossary and suggestions for mutual funds “with a purpose”.

The feature about Larry Fink is entitled, “In Defense of Social Purpose” – and his argument for sustainable investing that editors say has “ignited a burning debate about his concept…and him.”

Fink’s words in his CEO letter, says writer Leslie Norton, “…amounted to a Rorschach test for a polarized nation. As the debate rages on over immigration, climate change, guns, income inequality, and other issues, even considering their economic impact on a company looks like a political statement. Yet Corporate America and Wall Street are increasingly doing that…”

To hear CEO Fink tell it, writes Norton, “…short termism is a scourge of corporate thinking and is encouraged by the financial media…” And…ignoring ESG can take a toll…

With this feature there is a neat “Road to Sustainability” chart showing the evolution of SRI from the 1960s to today with many societal issues described along the way to 2018.

Other features include “The Trump Bump: A Silver Lining for ESG Investors” – telling readers that in the month after the November 2016 election results were in, investors’ money flowed into ESG mutual funds and ETFs; the flow into the 275 mutual funds and ETF’s focused on ESG was 10-fold over the prior month!

And, the backlash continues; since November 2016, inflows to ESG-focused mutual funds and ETFs is averaging $700 million per month, which is three times the pace of the prior 12 months. This lifted ESG focused funds to $118 billion to date. 

Looking at fiduciaries, the editors say that $23 trillion is not invested in pension, separately managed accounts and other funds using ESG approaches.

Barron’s editors have selected “The 20 Most Influential People in Sustainable Investing” – the Who’s Who in ESG – you will want to see that list.We are cheered to see our US SIF colleagues Lisa Woll, Tim Smith, Amy Domini, Matt Pasky, and John Streuer in the Top 20!

There is also an interview in the special issue with Jeremy Grantham and how the respected value investor (he’s on the list) is a force in increasing awareness of climate change.

Finally, the Barron’s conference unit scheduled its first “Impact Investing Summit” in San Francisco (last week) and Crystal Kim reports on that event, with focus on the Millennials and their generation’s increasing impact on investing trends.

We at G&A Institute think this is a tipping point moment for investors, as the Barron’s editors position sustainable investing as now a mainstream

# # #

Footnotes:  We prepared a brief about Barron’s coverage in October 2018 on our “G&A Institute’s To the Point!” web platform, and a follow up brief in February 2018.  You can find the in-depth briefs at:

https://ga-institute.com/to-the-point/the-authoritative-barrons-magazine-now-sets-the-pace-sustainable-investing-is-a-powerful-force-in-todays-capital-markets-so-say-the-editors/

https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/

There is information about Morningstar’s focus on sustainable investing mutual funds and ETFs at:  https://www.morningstar.com/articles/745467/morningstar-sustainability-rating.htm

Be sure to check out the special issue of Barron’s at:https://www.barrons.com/this_week

 

 

Sustainable Mutual Funds Investing Ratings

– Morningstar Has Added This To Its Widely-Used Information & Advice Platform – Some Practical Advice Offered to Investors…

Mutual Funds:  They are there in your individual or institutional portfolio, right? This should be of interest to most:

The 20th Century concept of “mutual funds” investment debuted before the stock market crash of October 1929; in 1924 the Massachusetts Investors’ Trust in Boston was created with State Street Investors’ Trust as the custodian.  That fund opened to public investment in 1928.  That same year the Wellington Fund (offering both bonds and equity) opened for business.

When the dramatic market crash occurred there were 19 open-ended funds for investors. The 1929 crash diminished individual investors’ appetite for equities for most of the following decade.  And, most Americans had little money to invest during the Great Depression (one of four households were unemployed).

But by 1940, as investors “recovered” and gained some confidence in the market, and the national economy improved with preparation for WW II, there were enough mutual funds for the Congress to pass the Investment Company Act of 1940 to regulate mutual funds and protect investors.

The first index funds came along in 1971 (a Wells Fargo offering); The Vanguard Group’s legendary investor John Bogle would use the concept (he embraced while a college student) to build the giant mutual fund enterprise.

By the end of 2016, Statista was charting 9,500-plus funds with US$16 trillion in AUM in operation.  There are also Exchange Traded Funds (ETFs) now with at least $3 trillion in AUM as of October 2017 according to Global X.

Of course, as investors embrace the concept of sustainable or ESG investing, both mutual fund and ETFs offerings have been coming to market to add to the long-available funds offered by Domini, Trillium, MSCI, Pax, Calvert, Zevin, and other SRI advisory firms (the newer funds du jour have such titles as Fossil Free, Green Future, Sustainable Investing, Green Bonds, Low Carbon, Socially Responsible, etc.).

And, of course, sustainability-focused ratings/scores/rankings/best for mutual funds and ETFs quickly followed here in the 21st Century as “sustainable” funds expanded. The popular Morningstar platform offers information on “Socially Responsible Funds” – any fund investing according to non-economic guidelines (issues include environmental responsibility, human rights, religious views, etc.)  Morningstar also offers Sustainability Ratings for “Sustainable Investing” funds and tools such as the Portfolio Carbon Risk Score™.

Janet Brown, a contributor to Forbes’ “Intelligent Investing,” offers her perspectives on ratings and rankings in this issue’s Top Story.  She begins with: between two funds with the same returns, many people invest in the one with companies with good ESG practices or commitment to data security and privacy.  Do sustainable ratings of the funds make a difference?

There are four factors she and the team at her company (Fund X Investment Group) and Morningstar recommend considering: (1) Cost of Ratings (free or not); (2) What do sustainability ratings measure?; (3) How to use these ratings to find suitable funds; (4) How do the ratings fit into your investing strategy?

The narrative captures highlights of a recent webinar by Fund X and Morningstar and explains some of the latter’s approach to the new Sustainable Funds ratings for you.

What You Need To Know About Fund Sustainability Ratings
(Friday – June 15, 2018) Source: Forbes – Given the choice between two funds that have similar returns, many people prefer to invest in the one that prioritizes investing in companies that focus on clean energy, good governance or are committed to data security or…

The “100 Best Corporate Citizens 2018” Roster -– Published by CR Magazine

by Hank Boerner – Chair, G&A Institute

Now in its 19th year, the well known CR Magazine “100 Best Corporate Citizens 2018” list was just unveiled; this effort recognizes the ESG performance of public companies in the United States. (The publication is now titled Corporate Responsibility Magazine, published by 3BL Media LLC.)

Top Companies:
Microsoft
(MSFT) earned top ranking (#1), followed by Accenture, Owens Corning, Intel, and Hasbro (at #5).

The next five ranked companies are (#6) Altria Group, Cisco Systems, Ecolab, Johnson & Johnson, and NVIDIA Corp (at #10).

The biggest gainers for the year were Becton, Dickenson; IBM; Owens Corning; and Biogen.  The complete list is available in our Top Story (below).

Assembling the list does not rely on responding to a survey, publisher Dave Armon explains.  Each year the rankings measure the success of the “Brands Taking Stands” movement by celebrating the most successful, most transparent companies that report on their responsible practices. “We congratulate the company on the 2018 list for their commitment to corporate responsibility,” he said in announcing the rankings.

Methodology:
The list examines 260 data points of performance measures and disclosure, harvested from publicly-available information for every company in the Russell 1000® Index, in seven categories (environmental, climate change, employee relations, human rights, corporate governance, financial, and philanthropy & community support).  The underlying research is conducted by ISS Corporate Solutions (Institutional Shareholder Services).

The inaugural list was published in 1999 by the former Business Ethics Magazine, which segued into CR Magazine.

Coming up soon, CR Magazine in collaboration with the 3BL Association (formerly the Corporate Responsibility Association), presents the well known annual COMMIT!Forum conference, now re-branded as the 2018 3BL Forum by its new owners.

This year’s event is at MGM National Harbor near Washington DC, October 23-25; the theme is “Brands Taking Stands – The Long View”.

3BL Media LLC is the global leader in disseminating CR and sustainability content. Its brands include Triple Pundit; CSR Wire; 3BL Wire; 3BL Report Alert; Justmeans, 3BL Studio, and others. Corporate clients utilize the platforms for their sustainability, CR and related content distribution, communications and campaigns.

G&A Institute has collaborated with the 3BL Media staff and Corporate Responsibility Magazine on a long-term basis.  3BL content is carried daily on G&A’s news and opinion web-based distribution platforms.

The details for the “100 Most are in the Top Story:

Top Stories

Corporate Responsibility Magazine Announces 2018 100 Best Corporate Citizens
(Wednesday – May 09, 2018) Associated Profiles : CSRwire Source: CSR Wire — Corporate Responsibility Magazine (CR Magazine) announced today its 19th annual 100 Best Corporate Citizens list, recognizing the standout environmental, social and governance (ESG) performance of…

It’s ESG Survey & Query Time — Public Companies Are In Response Mode

by Hank Boerner & Louis Coppola

Barrage… Avalanche… Tidal wave… Tsunami“Survey Fatigue…
These are terms we hear all year ‘round but especially in the spring of the year as corporate managers describe for us what they often feel as the inevitable flow of third party ESG / Sustainability surveys, forms and various types of questionnaires come pouring their offices. It’s spring – survey time!  Some large-cap companies may receive 200 or more such queries during a year.  What to do!

Effective Response and Engagements Will Be Key to Success
in Communicating Corporate Sustainability Strategies and
Demonstrating Leadership for Investors

The challenges posed to company managers are:

  1. First to decide which queries will matter most to the company and to investors and select those out of the large flow for response;
  2. decide what to do with the rest of the third party queries;
  3. decide what information to be disclosed is material, of relevance and of importance to the third party and beyond to that organization’s user base;
  4. internally source and organize the data and narrative needed in responding to put the best story forward to maximize the positive perceptions of the stakeholders using the data in some way;
  5. and as we hear, [typically] debate internally what can and should be disclosed and why — beyond the mandated financial and related disclosures.

These challenges grow in importance each year as many more asset owners and managers either directly pose the questions to companies — or do so through an army of third-party ESG analytics firms.

The stakes are high and getting higher; the most efficient and effective of the corporate responders could enjoy inclusion in the sustainable investing indexes and benchmarks, and investor products; win high rankings, scores, ratings and other honors bestowed by the third party organizations; and in turn, be recognized by still more third-party organizations for their high scores and rankings.

Questions Often Heard in the Corporate Office: 
How come we are not in the DJSI?
How come “competitor X” is ranked higher than we are?
What should we be doing to improve our scores?
Who are the most important providers to engage with and respond to?

THE MORE TRANSPARENT COMPANY – THE PUBLIC COMPANY ESG PROFILE
Beyond the challenges to responding to the many third party organizations that crank the response and other information into their models and into investor-facing products, there is an ever-widening transparency of the company profile that may be of importance say, to major customers or business partners: for example, the Bloomberg professional services ESG dashboard will put the company’s ESG data and profile in front of more than 300,000 subscribers.   Similarly, the Thomson Reuters’ Eikon dashboards reach 200,000 and more subscribers with the same kinds of information.

We can hear the call from the corporate offices this month — Help!  The spring round of queries is at hand. For example, RobecoSAM’s “Corporate Sustainability Assessment” (the CSA) opened for company response last week; companies have only until the end of May to respond.  (We recently conducted a workshop in NYC for first time reporters in collaboration with RobecoSAM’s Robert Dornau and Gretchen Norwood.)

The information provided by companies in responding to the CSA will be an important determinant in RobecoSAM deciding which companies will be in the Dow Jones Sustainability Indexes and featured in the prized Yearbook roster. The information is used in S&P Dow Jones Company’s various products as well.

HOW TO ADDRESS THE CHALLENGES IN RESPONDING
 The good news is that there are efficient, thorough, comprehensive and organized ways to meet the challenges described above that are faced by many managers at publicly-traded and even privately-owned enterprises.

Here at G&A Institute, we call this our matrix approach that results in a more comprehensive “mosaic” (multi-dimensional) corporate ESG profile with significant benefits for the issuer.

It is important to keep in mind: the public company already has a sustainability profile shaped by its own publicly-disclosed information, by the dissemination of information by third parties distributing ESG analysis and data sets and by such stakeholders as government agencies, media, NGOs, activists, competitors, and others.

This mosaic corporate profile may be incomplete, inaccurate, misleading, or otherwise have information that is detrimental to the company and its stakeholders that can be corrected with more timely and/or accurate information. The “wrong information” can lead to negative perceptions that can affect corporate reputation and valuation, and perhaps even societal freedom to operate.

THE G&A INSTITUTE APPROACH TO ESG DATA REVIEW
We usually start with an examination of the existing public ESG profile of the corporation.  This is the information typically provided to investors and key stakeholders by a ever-expanding universe of the ESG rankers and raters.  This phase of the work this helps us and the internal team in developing an understanding of how investors and stakeholders may be viewing the company, what issues are most material in their view — and from this analysis we can provide strategic guidance for how the company can work to better position itself to take advantage of any advances in corporate sustainability over the months and years ahead.

The comprehensive sweep of first-round examinations can be for a key set of the most important data providers (around 4-to-6) or more comprehensive and up to 15 or more of the ESG data providers, index managers, asset managers and public information platforms (such as the data on the Bloomberg and on Eikon).

The specific third party service providers to be examined may depend on peer group, geography of operations, the company’s sector and industry classifications (and keep in mind there are variations of these), the nature of products and services, and other factors.

IMPORTANCE OF THE GAP ANALYSIS
Once the key third party organizations are selected for close examination, an internal gap analysis against the information being made available to investors by the third party provider can be determined – and addressed by the internal team.

Key areas of strength, weakness and the peers’ standings will emerge for internal managers to address. Low hanging fruit such as correcting inaccurate data, or improving reporting by better organizing important ESG disclosure data, may make it easy for short-term improvement.  Longer term the results of this type of analysis and engagement will inform strategy setting, and resource allocations to most efficiently and effectively improve the ROI of the Sustainability program.

G&A’s Co-Founder Louis Coppola was recently interviewed at Skytop Strategies ESG4 Summit on the “Value Companies Can Obtain by Engaging with ESG Investor Data Providers.”  You can watch the interview here and email Lou at lcoppola@ga-institute.com if you have questions or would like to discuss the ESG review process.

KEEP IN MIND:
Improving the ratings, rankings, scores etc is a journey, not a sprint.

It’s important here to stress that whether or not a company chooses to answer queries, respond to data provider inquiries or attempts to correct some public information that service providers are sharing with investors, there is a public sustainability profile out there and it is making an impression on investors.

As the flow of this year’s queries reaches corporate managers, it is important to understand who some of the key third party ESG players are — and what their work is about – and how they can impact the corporation.  We provide some recent news updates about leading players below for your information.

FOR YOUR FURTHER INFORMATION: NEWS ABOUT KEY ESG / SUSTAINABILITY DATA PROVIDERS

The Universe of ESG Rankers Serving Institutional Investor Clients Expands…
Source:G&A Institute’s To the Point! Management Briefs (January 2018)
ISS’ Traditional Corporate Governance Focus Expanding to Encompass Environmental & Social QualityScores for Roughly 1,500 Public Companies Coming in January…And Expanding to 5,000 Issuers in Q2…

ISS Unveils New Corporate “E” and “S” QualityScores for 1,500 Companies
Source:G&A Institute’s To the Point! (February 2018)

Oekom Research to Join Institutional Shareholder Services
Source: oekom research news (March 2018)
oekom research, a leader in the provision of environmental, social, and governance (ESG) ratings and data, as well as sustainable investment research, today announced it will join Institutional Shareholder Services Inc. (“ISS”). Reflecting the strength of both brands, oekom research will be renamed ISS-oekom…

Sustainalytics’ New Research Report Offers Insight into ESG Risks Facing 10 Sectors
Source: Sustainalytics (February 15, 2018)
Sustainalytics, a leading global provider of ESG and corporate governance research, ratings and analytics, today released a new thematic research report – “10 for 2018: ESG Risks on the Horizon”.  The report examines critical ESG risks facing 10 sectors, which are classified under four broad themes, including: Water Management / Stakeholder Governance / Consumer Protection / Climate Change..

Morningstar & Sustainalytics Expand Sustainability Collaboration
Source: Sustainalytics (July 2017)
In a continuing and growing commitment to helping investors integrate sustainability considerations into portfolio decisions, Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, and Sustainalytics, a leading global provider of environmental, social, and governance (ESG) research and ratings, today announced that Morningstar has acquired a 40 percent ownership stake in Sustainalytics. The direct investment represents an important milestone in Morningstar’s long-term sustainability strategy and intends to support Sustainalytics’ ability to deliver high-quality, innovative ESG products and services to the global investment community…

Bloomberg ESG Function for Sustainability Investors Adds RobecoSAM Data
Source: Bloomberg (September 2016)
Bloomberg recently expanded its offering of ESG (environmental, social, governance) data by incorporating information from RobecoSAM’s percentile rankings on the Bloomberg Professional service at ESG<GO> —  a Bloomberg Terminal function that provides sustainability investors with data about a company’s environmental, social and governance metrics…

RobecoSAM Publishes “The Sustainability Yearbook 2018”
Source: RobecoSAM (February 2018)
RobecoSAM, the investment specialist that has focused exclusively on Sustainability Investing (SI) for over 22 years, today announced the publication of “The Sustainability Yearbook 2018”.    The Yearbook showcases the sustainability performance of the world’s largest companies and includes the top 15% per industry, which are awarded Gold, Silver or Bronze Class medals. RobecoSAM has analyzed the corporate sustainability performance of the world’s largest listed companies every year since 1999…

Results Announced for 2017 DJSI Review
Source: RobecoSAM (September 7, 2017)
S&P Dow Jones Indices (S&P DJI), one of the world’s leading index providers, and RobecoSAM, an investment specialist focused exclusively on Sustainability Investing (SI), today announced the results of the annual Dow Jones Sustainability Indices (DJSI) review. The three largest additions and deletions…

MSCI:  2018 ESG Trends to Watch
Source: Commentary by Linda Eling-Lee, Global Head of ESG Research, MSCI  (January 2018)
Bigger, faster, more.  Whether due to policy, technological or climatic changes, companies face an onslaught of challenges that are happening sooner and more dramatically than many could have anticipated.  Investors, in turn, are looking for ways to position their portfolios to best navigate the uncertainty. In 2018, these are the major trends that we think will shape how investors approach the risks and opportunities on the horizon. In 2018, investors will…

Has ESG Affected Stock Performance?
Source: Commentary by Guido Giese – ED, Applied Equity Research, MSCI
Are ESG characteristics tied to stock performance? Many researchers have studied the relationship between companies with strong environmental, social and governance (ESG) characteristics and corporate financial performance. A major challenge has been to show that positive correlations — when produced — explain the behavior. As the classic phrase used by statisticians says, “correlation does not imply causation.”Instead of conducting a pure correlation-based analysis, we focused on understanding how ESG characteristics have led to financially significant effects…

CDP:  The Disruptors:  Paul Simpson, the Atypical Activist Who Awoke C-Suites to Climate Risk
Source: Ethical Corporation (November 2017)
The founder of CDP tells Oliver Balch how the organization he started 17 years ago has helped transform corporate and investor attitudes to climate change  The phrase “task force” is hardly one to get the heart racing. Expand it to the Task Force on Climate-related Financial Disclosures, and you’re into catatonic territory. So it’s little wonder that when the TCFD (as insiders call it) issued a suite of recommendations over the summer, it didn’t trouble the headline writers much. Not so Paul Simpson, who met the news with huge excitement…

Our Governments Have Committed to Keeping Global Temperature Rises to Well Below 2-Degrees – What Can Companies and Cities Do…
Source: CDP Campaigns
The Paris Agreement sends a clear signal that the shift to a low-carbon economy is inevitable, and everyone must play their part. To facilitate this transition, CDP and its partners have developed campaigns that seek to highlight and spur meaningful action on tackling climate change from the private sector and sub-national governments…campaign information…. committed to keeping global temperature rises to well…

G&A Institute Research Results: 85% of the S&P 500® Index Companies Published Sustainability / Responsibility / CR / Citizenship Reports in 2017

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

One of the world’s most important benchmarks for equity investors is the S&P 500 Index®, a proprietary market-value weighted “basket” of the top stocks that represent about 80% of the U.S. equity markets according to the index owner, S&P Dow Jones Indices/McGraw Hill Financial.

Market Clout:  There are about US$8 trillion in Assets Under Management benchmarked to the index  – companies included in the index have a market-cap of US$6 billion or more (ticker:SPX).

More than six years ago the G&A Institute team decided to focus on the companies in the index to determine their level of (or lack of) ESG / Sustainability / CR / Citizenship disclosure and reporting.

Our first look-see was for year 2011 corporate reporting activities and after scouring the known sources  — each of the corporate websites, IR reports, printed reports, search engines results, connecting with companies and more —  we found just about 20% or about 100 of the large-cap index 500 companies were doing “something” along the lines of what we can describe today as structured reporting.  There were numerous brochure-type publications that did not qualify as a structured report of value to investors and stakeholders.

The GRI Was a Favored Framework – Then and Now
A good number of the early reporting companies were following the Global Reporting Initiative (GRI) framework for reporting guidance (that was for G3 and G3.1 at the time), and some perhaps had some other form of reporting (such as publishing key ESG performance indicators on their website or in print format for stakeholders); GRI’s G4 was later embraced by the 500.  And now we move on to the GRI Standards, which we are tracking for 2018 reporting by the 500.

This initial research effort was a good bit of work for our analyst team because many of the companies simply did not announce or publicize the availability of their sustainability et al report. (Some still do not announce, even in 2017 and 2018!)

The response to our first survey (we announced the results in spring 2012) was very encouraging and other organizations began to refer to and to help publicize the results for stakeholders.

We were pleased that among the organizations recognizing the importance of the work was the GRI; we were invited to be the data partner for the United States, and then the United Kingdom and the Republic of Ireland.  That comprehensive work continues and is complementary to the examination of the 500.

The 2011 Research Effort – Looking Back, The Tipping Point for Sustainability Reporting

Looking back, we can see that the research results were early indications of what was going on in the corporate and investment communities, as more asset owners and managers were adopting ESG / sustainability approaches, investment policies, engagement programs — and urging more public company managements to get going on expanded disclosure beyond the usual mandated financials (the “tangibles” of that day).

Turns out that we were at an important tipping point in corporate disclosure.

Investor expectations were important considerations for C-suite and board, and there was peer pressure as well within industries and sectors, as the big bold names in Corporate America looked left and right and saw other firms moving ahead with their enhanced disclosure practices.

And there was pressure from the purchasing side – key customers were asking their corporate supply chain partners for information about their ESG policies and practices, and for reports on same.  There was an exponential effect; companies within the 500 were, in fact, asking each other for such reports on their progress!

We created a number of unique resources and tools to help guide the annual research effort.  Seeing the characteristics and best practices of sustainability reporting by America’s largest and for the most part best-known companies we constantly expanded our “Sustainability Big Data” resources and made the decision to closely track S&P 500 companies’ public reporting — and feed the rich resulting data yield into our databases and widely share top-line results (our “Flash Report”).

The following year (2013) we tracked the 500 companies’ year 2012 reporting activities – and found a very encouraging trend that rang a bell with our sustainable investing colleagues:  a bit more than half of the 500 were now publishing sustainability et al reports.  Then in 2013, the numbers increased again to 72%…then 75%…then 81%…and now for 2017, we reached the 85% level.  The dramatic rise is clearly evident in this chart:

Note that there are minor annual adjustments in the composition of the S&P 500 Index by the owners, and we account for this in our research, moving companies in and out of the research effort as needed.

Louis Coppola, EVP of G&A Institute who designs and manages the analysis, notes:  “Entering 2018, just 15% of the S&P 500 declined to publish sustainability reports. The practice of sustainability reporting by the super-majority of the 500 companies is holding steady with minor increases year after year. One of the most powerful driving forces behind the rise in reporting is an increasing demand from all categories of investors for material, relevant, comparable, accurate and actionable ESG disclosure from companies they invest in, or might consider for their portfolio.

“Mainstream investors are constantly searching for larger returns and have come to the conclusion that a company that considers their material Environmental, Social, and Governance opportunities and risks in their long-term strategies will outperform and outcompete those firms that do not. It’s just a matter now of following the money.”

Does embracing corporate sustainability in any way impact negatively on the market performance of these large companies?  Well, we should point out that the annual return for the SPX was 22% through 12-13-18.   You can read more in our Flash Report here.

Thank you to our wonderful analyst team members who over the years have participated in this exhaustive search and databasing effort.   We begin our thank you’s to Dr. Michelle Thompson, D.Env, now a postdoc fellow supporting the U.S. Department of Energy in the Office of Energy Policy Systems Analysis; and her colleague, Natalia Valencia, who is now Senior Research Analyst at LAVCA (Latin American Venture Capital Association).  Their early work was a foundational firming up of the years of research to follow.

Kudos to our G&A Research Team for their significant contributions to this year’s research report:  Team Leader Elizabeth Peterson; analyst-interns Amanda Hoster, Matthew Novak, Yangshengling “UB” Qui, Sara Rossner, Shraddha Sawant, Alan Stautz, Laura Malo Yague, and Qier “Cher” Zue.

We include here a hearty shout out to the outstanding analyst-interns who have made great contributions to these research efforts in each year since the start of the first project back in 2011-2012.  It’s wonderful working with all of these future leaders!

The reports from prior years are posted on the G&A Institute website: https://www.ga-institute.com/research-reports/research-reports-list.html

Check out our Honor Roll there for the full roster of all of the talented analysts who have worked on these reports and numerous other G&A Institute research that we broadly share with you when the results are in.  Their profiles (which we work with our valued colleagues to keep up to date as they move on to great success in their careers) are on the G&A website: https://www.ga-institute.com/about-the-institute/the-honor-roll.html

Footnote:  As we examine 1,500 corporate and institutional reports each year we see a variety of titles applied:  Corporate Sustainability; Corporate Social Responsibility; Corporate Responsibility; Corporate Citizenship (one of the older titles still used by GE and other firms); Corporate Stewardship; Environmental Sustainability…and more!

If you would like to have information about G&A Institute research efforts, please connect with us via our website.

The Media – And Sustainability & CR Thought Leadership, For Both Topic-Focused and Mainstream Media Coverage

by Hank Boerner – Chair, G&A Institute

The “media” that we choose to get our news, commentary, research results, even crossword puzzles, movie reviews, the latest scientific papers and maybe information about what our friends are up to (such as “social media”) are usually self-selected.  

We tune in to what we want to read or watch or listen to…for information / education / entertainment…and it also helps to define us in many ways.

So here at G&A Institute as we broadly monitor for content related to both our day-to-day and long-term focus areas (the list of topics and issues is long), when we see these things pop up in “not-the-usual places,” we are cheered.

This weekend, for example, we picked up on the following, which were encouraging in that senior management publications are read beyond the folks involved in sustainable investing and corporate sustainability or ESG issues and topics.

In Focus:   MIT Sloan Management Review

This is the publication of the prestigious Massachusetts Institute of Technology’s MIT Sloan School of Management.  “Share Your Long-Term Thinking” was one feature article. Companies need to be more forthcoming about their strategies for long-term value creation when they communicate with investors — especially about ESG issues, write authors Tim Youmans and Brian Tomlinson.

Their observation is that over the past five years, CEOs have faced mounting pressure to produce short-term profits. CEOs do think about the long-term, have long-term plans (detailed and extensive) and these typically are closely held.  Result: corporate strategy and practice are not captured in investor communications.

They then offer six reasons why long-term plans should be disclose and how to do that.  One of these is to help investors understand ESG issues through the eyes of management — because a majority of investors see ESG factors as financially material and expect sound management of material ESG factors to deliver better performance over the long-term. 

Tim Youmans is engagement director for Hermes Equity Ownership Services and Brian Tomlinson is research director for the Strategic Investor Initiative at CECP.

They conclude for the magazine’s audience (aimed at corporate executives and senior managements in the main): “The long-term plan is a new tool in the regular sequence of periodic corporate-shareholder communications and represents an unprecedented opportunity for leading companies and investor together to drive sustainable value creation and help to clarify the role of the corporation in a sustainable society.”

That is not all for the MIT Sloan Management Review audience in the Spring 2008 issue.

“Why Companies Should Report Financial Risks From Climate Change” is another feature — this from Robert Eccles and Michael Krzus.  They  focused on the Financial Stability Board’s Task Force on Climate-related Disclosures [recommendations].

“Investors and the rest of the world is watching to see how companies will respond to the TFCD recommendations” — the ask here is that company managements will expand their disclosure to report on the risks and opportunities inherent in climate change in such documents as the 10-k.

Boston Common Asset Management LLC and ShareAction organized a campaign with institutions representing US$1.5 trillion in AUM participating to pressure financial institutions (especially banks) to implement the recommendations.

Companies should follow the recommendations, authors Eccles and Krzus argue, because this could lead to evolving better strategies to adapt to climate change — and be able to explain these strategic moves to the their investors.

They focus on the oil and gas industry, looking at disclosures in 2016 by 15 of the largest industry firms listed on the NYSE.  A few have made good progress in adhering to the TCFD recommendations (so there is not a “blank slate”); there is work to be done by all of the companies in enhancing their disclosures to meet the four top recommendations (in governance, strategy, risk management and metrics and targets areas).

Their article is an excellent summation of the challenges and opportunities presented for such companies as BP, Chevron, ExxonMobil, Sinopec, Statoil, Total, and others in oil & gas.

Bob Eccles is a well-known expert in corporate sustainability and sustainable investing and is visiting professor at Said Business School at the University of Oxford. Mike Krzus is an independent consultant and researcher and was a Fellow of G&A Institute.

Wait, there’s more!

The magazine’s columnists had important things to say as well.

Kimberly Whitler and Deborah Henretta penned “Why the Influence of Women on Boards Still Lags,” applauding the rise of the number of women on boards and offering two important criticisms — the growth rate is slowing and boards do that do have female members often limit their influence.

Although there are measurable positive results of female board inclusion — they cite Return on Equity averaging 53% higher in the top quartile than in the bottom — women still are not making more rapid inroads with fewer reaching the most influential board leadership positions, even with more women on boards than 10 years ago.

The authors set out ways for making more progress in board rooms.  And they advise: “For real, lasting change that wins companies the full benefits of gender-diverse decision-making, boards need to look beyond inclusion — and toward influence.”

Kimberly Whitler is assistant professor of business adminstration at the University of Virginia’s Darden School of Business; Deborah Henretta is an independent board director on the boards of Dow Corning, Meritage Homes Corp, NiScource Inc and Staples (she was a Proctor & Gamble executive).

There is much more for executives and board members in the issue, which has the overall theme of: “In Search of Strategic Agility – discover a better way to turn strategy into results.”

The content we outlined here is powerful stuff (our own technical term) to crank into corporate strategy-setting, and savvy execs are doing just that, as we see here at G&A as we pour through the more than 1,500 corporate reports we analyze each year with titles such as Corporate Sustainability, Corporate Responsibility, Corporate Citizenship, Corporate Environmental Sustainability, and more.

And so it is very encouraging when we wander beyond the beaten path of reading the reliable staple of sustainability-oriented and CSR-oriented media to see what the senior management thought leadership media are doing!

We recommend that you read through the Spring 2018 Strategy magazine from MIT Sloan.  Link: https://sloanreview.mit.edu/

ING Surveyed Corporate Finance Execs: The Results are Encouraging, as the Respondents Commented on Positive Results of Corporate Sustainability

Take our Top Story today and get it in front of your firm’s finance leaders

So often we hear that “investors don’t ask” or “no one inside seems to care” or “our finance folks don’t believe in” when we talk with corporate connections about corporate sustainability at their firm.  And, inside the company, skepticism can typically be found in the finance offices.

We have some good news “findings” for you today from the ING folks to add to the growing number of research studies demonstrating the sustainability business case.  ING is a leading global financial institution (banking, financial service) of Dutch origin, with a strong European base, serving clients in 40+ countries; it is selected to be among the leaders in the Dow Jones Sustainability Index’s Bank Industry category.

The firm just issued a report — “From Sustainability to Business Value – Finance as a Catalyst” — based on survey results (analyzing the views of 200-plus US-based finance executives in financial services, manufacturing, tech, consumer goods, real estate, industrial engineering, telecom, media, agriculture, infrastructure, chemical, transport, and logistics).

The survey respondents included CFOs, financial controllers, finance directors and senior treasury professionals, with revenues in their firms of from $500MM to $20+ billion.  The survey was intended to help to improve understanding of how financing and lending can support the goal of building a low-carbon, sustainability society.

The findings are encouraging for the most part, and resonated with us.  In our discussion with many corporate managers, the conversation usually includes “encouraging greater Corporate Sustainability is important for me internally, especially with our tough-minded and often skeptical finance folks. So being able to make the strong business case is a critical task…”.

Here’s some help for you from ING: 
The important role played by corporate finance and the benefits that these professionals identified were described in these ways:

“Almost half of the firms responding said that sustainability concerns have some level of influence on their business’s growth strategy…and 40%+ of firms with a mature sustainability framework in place said revenue growth is a main driver for acting.”

Supporting that portion of the business case?

  • 87% of survey respondents in firms with sustainability frameworks (the “mature” firms) said they experienced better revenue,
  • and 65% improved their credit rating.

ING states that it believes that financial institutions have a duty to explore how their financing can help to support energy transition and combat climate change. CEO Ralph Hamer is a “champion”  in the Alliance of CEO Climate Leaders.

An important takeway is the ING CEO’s perspective:

“We are witnessing an important shift in how companies in the United States view sustainability. Our research shows that it is no longer just about cutting costs or creating positive brand awareness ­— sustainability strategies are being deployed as true revenue drivers,” said Gerald Walker, CEO, ING Americas. “The finance function holds the key to unlocking the business value of these strategies, and are crucial to pushing the sustainable agenda in the U.S. as the industry continues to mature.”

There’s more for you in the Top Story, which also has a link to the ING Report:

Research: U.S. Companies Implement Sustainability Strategies To Drive Revenues
(Friday – February 16, 2018) Source: Chem Info News – ING’s sustainability report, ‘From Sustainability to Business Value — Finance as a Catalyst’, published today, finds that revenue growth is the most important factor when deciding to implement sustainability strategies, as 39…