by Hank Boerner – Chair & Chief Strategist – G&A Institute
There is so much going on in the global sustainability space that we could draw an apt analogy – it’s “like drinking water not out of a straw but a fire hose!”
Every week our team seeks out the news, feature and research items that will help you stay informed on developments in corporate sustainability and CSR, sustainable investing, the actions of governments and civil society leadership, activists, academics & researchers…and more.
For the past two or three years the pace of these developments has accelerated and so created a long list of many “possibilities” to share with you. Sometimes, certain news jumps up and shouts at us from the print or digital page.
Example: This week we see a powerful accounting of the impacts of climate change as assembled by ProPublica, an independent, nonprofit journalism organization focused on the major issues of the day. The collaborating journalists – at ProPublica and The New York Times with support from the non-profit Pulitzer Center — focused on “the compounding calamities of climate risk” and the projected impact on the continental U.S.A. over the coming decades.
The issues “stack on top of one another”, they write. Such as rising heat, excessive humidity, oceans rising, very large fires, crop failures, economic damages, and more…scary projections for the 2040-2060 timeframe. (That is starting only 20 years, or 240 months, just 1,000+ weeks away!)
ProPublica worked with data from the Rhodium Group, which when presented in the context of the report, tell a story of warming temperatures, and changing rainfall that will drive agriculture and temperate climates from south to north, as the sea levels rise and vast amounts of coastlines “are consumed” and dangerous levels of humidity “swamp the Mississippi River Valley”.
All of this will profoundly interrupt the way that we in this, the world’s largest economy, will live and farm and work later in this century. This could be an era to be marked by mass migration within the U.S.A., far outpacing the dramatic “Great Black Migration” with large populations moving from southern states to the north, profoundly reshaping this Land.
The data is presented in maps and county-by-county review; you can in the visuals presented see how the temperate zone marches north and more…for corn and soy production, harvests will decrease and increase, depending on location in the country.
Economic impact? (Serious projections to consider today while we experience dislocation now due to the Coronavirus pandemic include rising energy costs, lower labor productivity, poor crop yields, increase in crime and more.
Which counties will rise and which, fall? The maps tell the story.
This reportage was so important and timely that the NY Times published a comprehensive wrap up this weekend in the Sunday magazine (reaching well beyond two million print and digital subscribers). We present this important reportage for you in the Top Stories.
Timeliness: This is also Climate Week, with important digital and some physical meetings around the world to focus on climate change challenges. We’re sharing some of the coverage of that as well.
by Hank Boerner – Chair & Chief Strategist – G&A Institute
According to responses to a June on-line survey of 2,000 adults in the U.S.A. for “clean manufacturing” leader Genomatica, sustainability is now a top-of-mind issue, with an overwhelming majority (85% of respondents) of Americans indicating they’ve been thinking about sustainability the same amount or more…and 56% want brands and government to prioritize sustainability even in the midst of the crises (Coronavirus, economic downturn – plus civil unrest).
According to Genomatica CEO Christophe Schilling: “The collective consciousness on sustainability is rising, and certainly faster than most would have expected during these unprecedented times.
While this shift has been underway for decades, and is particularly strong in Europe, many of us in the U.S. have been inspired by the rapid improvement in air quality and traffic that shine a bright light on how our behaviors and decisions impact our environment and quality of life.”
Other interesting survey findings:
59% of Americans say working from home is more sustainable than working in an office.
37% of Americans are willing to pay a little more for sustainable products, even during an economic downturn. Gen-Z is the most willing age group, at 43%.
Half of Americans won’t be comfortable using sharing economy services like Uber or Airbnb (53%), riding public transportation (54%) or carpooling (50%) until there is a vaccine, if ever.
There’s more findings in the Top Story link below:
Part of the “sustainability thinking” is about personal investments…and how to do well financially while doing good with one’s financial activities.
A new report published by the foundation of The Forum for Sustainable and Responsible Investment (US SIF) explores the growth of passive ESG investing and the outpace of investor flows into passive vs. active ESG funds.
The report shows that “net flows into passively-managed ESG funds have in recent years outpaced net flows into their actively managed counterparts” — despite the fact that “the vast majority of sustainably-invested assets are in actively-managed ESG funds.”
Meg Voorhes, Director of Research at the US SIF Foundation explains: “The advent of passive ESG funds provides more options to investors seeking sustainable impact, and we encourage these fund managers to make commitments to comprehensive ESG approaches.”
Follow Up to Last Week In last week’s Highlights we told you about Morgan Stanley’s pioneering move to join the Partnership for Carbon Accounting Financials (“PCAF”). The update: Citi and Bank of America are on board, too. Great news moving toward the low-carbon economy.
by Hank Boerner – Chair & Chief Strategist – G&A Institute
There are lively discussions going on, centered on improving publicly-traded company disclosure and reporting – and especially ESG reporting…that is, storytelling about the company’s “non-financials” (in accounting-speak). And the story of the corporate sustainability story for those-in-the-know!
The proliferation of ESG / sustainability reporting frameworks, standards, information platforms, industry guidance, stock exchange guidance and much more has been astounding in recent years.
We think of all this as about the organizing of the storytelling about a company’s sustainability journey and what the enterprise has accomplished.
And why the story matters to society…to investors, employees, customers, suppliers, communities…and other stakeholders.
And it has a been a long journey to the state of today’s expanding corporate ESG disclosure.
The start of mandating of periodic financial and business mandated disclosure goes back to the 1930s with passage of landmark federal legislation & adopted implementation (compliance) rules for publicly-traded companies in the United States.
Corporate financial disclosure in concept is all about providing shareholders (and potential investors) with the information they need to make buy-sell-hold decisions.
The sturdy foundations of mandated corporate disclosure in the U.S. are the laws passed after the 1929 stock market crash – the 1933 Securities Actand 1934 Exchange Act. These laws and the bodies of rules deriving from them have been constantly updated over the years, including with Sarbanes Oxley legislation in 2002 and Dodd Frankin 2010. These mandate or guide and otherwise provide the rules-of-the-road for financial disclosure for company managements.
Disclosure has steadily moved well beyond the numbers – Sarbanes-Oxley updated the 1930’s laws and addressed many aspects of corporate governance, for example.
Voluntary Disclosure & Reporting – ESG Issues & Topics
Over the past 40 years, beyond the financials, corporate voluntary non-financial disclosure has been steadily increasing, as investors first embraced “socially responsible investing” and moved on to sustainable & responsible & impact investing in the 21st Century.
Asset owner and asset manager (internal and external) requests for ESG information from publicly-traded companies in portfolio has steadily expanded in the depth and breadth of topic and issue areas that institutional investors are focused on – and that companies now address in significantly-expanded ESG disclosures.
Today, investor interest in ESG / sustainability and related topics areas is widespread throughout asset classes – for equities, equity-focused products such as imutual funds and ETFs, fixed-income instruments, and now credit risk, options and futures, fixed assets (such as real estate), and more.
With today’s dramatic increase in corporate sustainability & ESG reporting, the maturation of reporting frameworks and standards to help address the internal need for better organizing non-financial data and information and accompanying ESG financial disclosure.
And all of this in the context of trying to meet investor demands. Today with expanded ESG disclosure, corporate executives find that while there are more resources available to the company, there is also more confusion in the disclosure process. Investors agree.
Common Complaints:Lack of Comparability, Confusion, Demand for Change
The result of increasing demand by a widening range of investors for accurate, detailed corporate ESG information and the related proliferation of reporting frameworks and standards can and has resulted in confusion among investors, stakeholders and companies as to what is important and material and what is frill.
This especially as corporate managements embrace various elements of the available frameworks and standards and industry guidance and ESG ratings for their still-voluntary ESG reporting.
So where do we go from here? In our selection of Top Stories for you, we bring you news from important players in the ESG reporting process as they attempt to move in the direction of more uniform, comprehensive, meaningful and decision-ready corporate ESG reporting. That investors can rely on.
The news for you is coming from GRI, SASB, GSSB, IIRC, CDSB, and CDP (among others) – all working to get on the same page.
The aim: to benefit corporate reporters – and the users of the reports, especially capital market players.
Because in the end, ESG excellence is all about winning in the competition for access to capital. Accurate, timely, comprehensive comparable ESG information is key!
by Hank Boerner – Chair & Chief Strategist, G&A Institute
The roots of today’s “sustainable investing” approaches go back decades; the organizing principle often was often around what investors viewed as “socially responsible”, “ethical”, “faith-based” and “values” investing, and by other similar titles.
“SRI” over time evolved into the more dominant sustainable or ESG investing in the 21st Century — with many more mainstream investors today embracing the approach.
And busily shaping trends, there is a universe of ESG ratings agencies and information distributors providing volumes of ESG ratings, scores, rankings and opinions to institutional investor clients and a broad base of asset managers, index creators and more.
Recently, the three major credit risk agencies increased their focus on ESG factors for their investor and lending clients.
Access to and cost of capital for companies is a more complicated situation today for financial executives — and the steady flow of “sustainable investing” products to asset owners and asset managers increases the importance of a publicly-traded firm “being in” the sustainable product for institutional and retail investors.
Such as having the company being present in an ever-wider range of ESG indexes, benchmarks, mutual funds, exchange-traded funds, and now even options and futures.
All of this can and does increase pressures on the publicly-traded corporation’s management to develop, or enhance, and more widely promote the company’s “public ESG profile” that financial sector players will consider when investing, lending, insuring, and more.
The latest expansion / adoption of ESG approaches for investable products are from Cboe Global Markets.
The new “Cboe S&P 500 ESG Index”(r) options (trading starts September 21) will align with investor ESG preferences, says the exchange.
The traditional S&P 500 index is a broad-based equity benchmark used by thousands of investment managers and is the leading equities benchmark representing about 85% of total USA publicly-traded equities (all large-cap companies). Availability to investment managers of the S&P 500 ESG Index is a more recent development.
The S&P 500® Index (equities) measures the stock performance of 500 large-cap companies whose issues are traded on US stock exchanges. It was created in 1957.
The newer S&P 500 ESG Index targets the top 75% of companies in the 500 universe within their GICS® industry group.(Exclusions include tobacco, controversial weapons and UNGC non-compliance.) Asset managers link sustainability-focused products for investors to this index, including Invesco and State Street (SPDRs) for their ETFs.
Note that the S&P 500 ESG Index uses S&P DJSI ESG scores and other data to select companies for inclusion — increasing the importance of the Corporate Sustainability Assessment (CSA)that for two decades has been used to create the Dow Jones Sustainability Indexes (“DJSI”). (The CSA is managed by SAM, now a unit of S&P Global.)
About Futures: In November 2019 CME Group launched its CME E-mini S&P 500 ESG Index futures as a risk management tools — aligning, it pointed out, with ESG values.
About the CME Group: You probably know the Chicago-based firm by its units, the Chicago Mercantile Exchange, New York Mercantile Exchange, Chicago Board of Trade, Kansas City Board of Trade, and others. The organization’s roots go back to 1848 as the Chicago Board of Trade was created. This is the world’s largest financial derivatives exchange trading such things as futures for energy, agriculture commodities, metals, interest rates, and stock indexes.
Investors have access to fixed-income instruments and foreign exchange trading (such as Eurodollars). The “trading pit” with shouted orders and complicated hand signals are features many are familiar with. Of course CME has electronic platforms.
About Cboe Global Markets: This is one of the world’s largest exchange holding companies (also based in Chicago) and offers options on more than 2,000 companies, almost two dozen exchanges and almost 150 ETFs. You probably have known it over the years as the Chicago Board Options Exchange, established by the Chicago Board of Trade back in April 1973. (The exchange is regulated by the SEC.)
The Cboe offers options in US and European debt and equity issues, index options, futures, and more. The organization itself issued its own first-time ESG report for 2019 performance, “referencing” GRI, SASB, TCFD, SDGs, and the World Federation of Exchanges (WFE), Sustainable Stock Exchanges (SSE) initiatives. Now ESG is part of the mix.
Considering equities, fixed-income, stock indexes, futures, options, mutual funds, exchange-traded funds, financial sector lending, “green bonds” and “green financing” – for both publicly-traded and privately-owned companies the ESG trends are today are very much an more important part of the equation when companies are seeking capital, and for the cost of capital raisedl.
And here clearly-demonstrated and communicated corporate ESG leadership is critical to be considered for becoming a preferred ESG issuer for many more investors and lenders.
by Hank Boerner – Chair & Chief Strategist – G&A Institute
As many more institutional investors — asset owners, and their internal & outside managers — move into ESG / sustainable investing instruments and asset classes, the question may be asked: What about the individual investor…the family huddling to discuss what to do in the midst of the virus crisis to protect their retirement savings?
Are they offered “resilient choices” to stash their future funds? Bloomberg Green provides some answers in “ESG Funds Are Ready for Your Retirement Plan”.
Emily Chasan, in our view one of the finest of the sustainability editors in the nation today, explores the impact (or lack of) on individual / family investors in mutual funds and ETFs aiming to better protect their nest egg for the future.
For starters, fortunately, while some ESG mutual fund management (advisory) companies may not have set out to protect their investors in an unforeseen global pandemic…but…the ESG funds they manage are proving to be quite resilient during the recent market collapse. These would seem to be good choices for individuals. But the opportunity to partake is missing.
Fund managers, Emily explains, avoided risk (deliberately) by using corporate ESG scores as an important proxy for assembling their roster of well-managed, adaptable, investable companies…such as those companies with far-sighted executives who were planning for an existential climate shock. That planning paid off in the pandemic crisis.
Prioritized by leading asset managers for their [ESG} funds: tech, financial services and healthcare equities, and renewable energy companies. For demonstration of concept, Allianz, BlackRock, Invesco and Morningstar found their ESG investments were performing better than the more traditional investment vehicles in the dark market days of early 2020.
And, a BlackRock study found that more than three-quarters of sustainable indexes outperformed better than the traditional investor benchmarks from 2015 to the market drop in 2020. (How about this for proof of concept: 94% of sustainable indexes outperformed!)
Speaking at a World Business Council for Sustainable Development (WBCSD) conference, BlackRock’s director of retirement investment strategy, Stacey Tovrov, explained: “Sustainable Investment can provide that resilience amid uncertainty [when we really want to ensure we’re mitigating downside for retirement savers]’”.
So how come, asks Bloomberg Green, why are ESG funds largely missing from a US$9 million “chunk of the market, comprised of corporate retirement plans”?
In the USA, retirement accounts represented one-third of all household wealth going into the market downturn (investment in the family home is larger). But only 3% of 401-k plans offered ESG funds. And less than 1% of these funds are invested in ESG vehicles.
Perhaps the fiduciaries (the employer sponsoring he retirement plan, the outside investment advisors hired on to manage the plan) are just too cautious, too concerned that ESG investing will in some way negatively impact them.
So, we can say, these results should (operative word!) convince corporate retirement managers overseeing 401-k plans that the individual investor is actually being negatively impacted by being absent from the ESG choices, from the opportunities offered by ESG / sustainable investing approaches that many institutions enjoy.
As “Human Capital Management” steadily becomes an important aspect of board and C-suite strategy, oversight, measurement and management (and results), Emily Chasan suggests that the coronavirus crisis will reshape the fundamental relationship between employers and their workforce.
Re-structuring the retirement plan offerings is a good place for C-suite to start re-examining the why, what and how of offerings in their sponsored plans. “One place to start changing attitudes might just be offering workers the chance of a more resilient retirement,” Emily Chasan tells us.
For corporate executives and managers seeking more information about this we recommend our trade association’s web site. Numerous members of the U.S. Forum for Sustainable and Responsible Investment (US SIF) offer mutual funds, ETFs, separate accounts, and other investment opportunities. There’s information on Climate Change and Retirement on the website. See: https://www.ussif.org/
We also offer a selection of ESG / Sustainable & Responsible Investment items for you this issue.
ESG Funds Are Ready for Your Retirement Plan
(Source: Bloomberg Green / Emily Chasan) Not many ESG fund managers set out to protect investors from a global pandemic. But their funds have nevertheless proven resilient during the subsequent market collapse.
MSCI Makes Public ESG Metrics for Indexes & Funds to Drive Greater ESG Transparency (Source: MSCI) MSCI today announced that it has made public the MSCI ESG Fund Ratings provided by MSCI ESG Research LLC for 36,000 multi-asset class mutual funds and ETFs, and MSCI Limited has made public ESG metrics for all of its indexes covered by the European Union (EU) Benchmark Regulation (BMR). The ESG ratings and metrics are available as part of two new search tools now available to anyone on the MSCI website.
ESG Funds Outperforming S&P 500 this Year (Source: Pension & Investments) Investment funds set up with ESG criteria remain relative safe havens in the economic downturn caused by the coronavirus pandemic, according to an analysis released Wednesday by S&P Global Market Intelligence.
by Hank Boerner – Chair & Chief Strategist – G&A Institute
Shorthand terms in business and finance do matter – the “titling” of certain developments can sum up trends we should be tuning in to. Some examples for today: Sustainable Capitalism – Stakeholder Primacy – Sustainable Investing – Corporate Sustainability – Corporate ESG Performance Factors – Environmental Sustainability – Corporate Citizenship…and more.
These are very relevant and important terms for our times as world leaders grapple with the impacts of the coronavirus, address climate change challenges, as well as addressing conditions of inequality, have/have not issues, questions about the directions of the capital markets, ensure issuer access to long-term capital…and more. And, as influential leaders in the private, public and social sectors consider the way forward when the coronavirus crisis begins to wind down.
For investors and corporate sector leaders, the concept of shareholder primacy was more or less unchallenged for decades after World War II with the rise of large publicly-traded corporations – General Electric! — that dominated the business sector in the USA and set the pace other companies in the capital markets.
But as one crisis followed another – the names are familiar — Keating Five S&L scandal, Drexel Burnham Lambert and junk bonds, Tyco, Enron, WorldCom, Adelphia Cable, Arthur Andersen, the Wall Street research analysts’ debacle (Merrill Lynch et al), Lehman Bros and Bear Stearns, Turing Pharmaceutics, on to Wells Fargo, Purdue Pharma and its role in the Opiod crisis – over time, increasing numbers of investors began to seriously adjust they ways that they evaluate public companies they will provide vital capital to in both equities and fixed-income markets.
Investors today in this time of great uncertainty are focused on: which equity issue to put in portfolio that will stand the test of time; whose bonds will be “safe”, especially during times of crisis; which corporate issuer’s reputation and long-term viability is not at risk; where alpha may be presented as portfolio management practices are challenged by macro-events.
This is about where the money will be “safer” overall, and provide future value and opportunity for the providers of capital – because there is great leadership in the board room and executive offices and resilience in crisis is being demonstrated.
As we think about this, the questions posed in context (virus crisis all around) are: Why has sustainable investing gone mainstream? What can savvy boards and C-Suite leaders do to exert leadership in corporate sustainability? Where is sustainable capitalism headed? How do we identify great leadership in the corporate sector in times of crisis?
Our choice of featured stories up top for you this week provide some interesting perspectives on these questions.
And, we’ve tried to illustrate the embrace of sustainability as a fundamental organizing principle today of great corporate leaders. As well as explaining the continuing embrace of sustainable investing approaches of key providers of capital as a strategic risk management discipline — and proof of concept of acceptance of stakeholder primacy / sustainable capitalism in the 21st Century.
The other stories we’ve curated for you this issue of our newsletter help to broaden these perspectives that are offered up in these challenging times from thought leaders.
As the ancient blessing/curse goes: Maywe live in interesting times.
Featured Stories – The Two Critical Halves of Sustainable Capitalism, Issuers and Providers of Capital…
Concept: A well-structured sustainability committee not only serves a critical coordinating function, but also steers sustainability right to the heart of the company and the company’s strategy. Let’s take a look at how boards at some of the world’s leading companies have tackled this…
The evidence suggesting that boardrooms should prioritize sustainability is growing rapidly. On the one hand, there are increased risks associated with not prioritizing sustainability. On the other hand, the figures show the huge opportunities sustainability offers businesses. As a result, more and more, sustainability is positioned at the top of boards’ agendas.
During a recent CECP CEO Roundtable, current and former CEOs gathered virtually and shared insights from their perspectives on the business landscape. In these informative discussions, one executive noted that leadership, more so than having the right systems in place, is and will be integral as we navigate uncharted territory:
Pivoting with Moral Leadership Source: CECP– During a recent CECP CEO Roundtable, current and former CEOs gathered virtually and shared insights from their perspectives on the business landscape. In these informative discussions, one executive noted that leadership, more so…
Bears watching: On 8 April 2020 the European Commission published a consultation paper on its renewed sustainable finance strategy (the “Sustainability Strategy”). The Sustainability Strategy is a policy framework forming a key part of the European Green Deal, the EU’s roadmap to making the EU’s economy sustainable, including reducing net greenhouse gas emission to zero by 2050. Despite the inevitable recent shift of focus to measures dealing with the COVID-19 crisis, this remains a top EU priority and the outcome of this consultation may significantly affect :
By Hank Boerner – Chair & Chief Strategist – G&A Institute
As we have numerous times in this space commented about the dramatic shift from a shareholder primacy focus (for public companies and investors) to today’s stakeholder primacy operating environment, the views of key stakeholders – investors, and their service providers – are critical during the virus crisis.
Today we’re sharing the actions and perspectives of the investor-stakeholders…as the investor coalition in our first item notes…
“…the long-term viability of the companies in which we invest is inextricably tied to the welfare of their stakeholders, including employees, suppliers, customers and communities…”
Investor Coalition Focuses on Corporate Response to the Crisis
The Interfaith Center on Corporate Responsibility, a coalition of 300 institutional investors long focused on corporate responsibility and sustainability, joined forces with the Office of New York City Comptroller Scott M. Stringer and Domini Impact Investments LLC to develop an “Investment Statement on Coronavirus Response” — to urge the business community to take what steps they can and offered five (5) steps for corporate managements to consider.
Providing paid leave – emergency leave for all employees, including temps, part-timers, and subcontracted workers.
Prioritizing health and safety – limiting exposure to COVID-19, rotating shifts, enhancing protective measures, closing locations, setting up remote work, additional training where appropriate.
Maintaining employment – retain workers as much as possible; a well-trained and committed workforce will help companies resume operations quickly; also, companies should watch for potential discriminatory impact during and after the crisis.
Maintaining supplier/customer relationships – As much as is possible, companies should maintain timely or prompt payments to suppliers and work with customers facing financial challenges to help stabilize the economy, protect communities and small businesses, and ensure a stable supply chain will be in place when operations return to normal.
Practice financial prudence – the investors state they expect the highest level of ethical financial management and responsibility in the period of (acknowledged) financial stress. As “responsible investors” (the signatories) the expectation is that companies will suspend share buybacks, and limit executive and senior management compensation for the duration of the crisis.
Beyond these, the investors urged companies to consider such measures as childcare assistance, hazard pay, assistance in obtaining government aid for suppliers, paying employee health insurance for laid off/furloughed workers, and deploying resources to meet societal needs related to the pandemic.
Over the past few years, the investor coalition points out, corporations have shown leadership by using their power as a force for tremendous good. This kind of leadership if critically needed now. And, business reputation and social license to operate is at stake.
As we prepare this about 200 long-term institutional investors with AUM of US$5 trillion had signed on to the effort, including: the AFL-CIO funds, American Federation of Teachers, Aviva Investors, Boston Common Asset Management, the Chicago City Treasurer, Communications Workers of America, Connecticut State Treasurer Shawn T. Wooden, Delaware State Treasurer, Illinois State Treasurer Michael Frerichs, International Brotherhood of Teamsters, Investor Environmental Health Network, Office of Rhode Island General Treasurer Seth Magaziner, Oregon State Treasurer, Robeco, SEIU, UAW Retiree Medical Benefits Trust, Treasurer of the State of Maryland, Vermont State Treasurer, and a large roster of faith-based institutions and religious denomination funds.
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Walking-the-Talk of Corporate Responsibility
Refinitiv provides investors with ESG ratings and perspectives on corporate ESG performance and builds ESG / sustainability considerations into products and services for investor clients. The company announced what it is doing to maintain its forward ESG momentum during the crisis. And the changes will over time affect the public companies that are rated and ESG news distributed worldwide by Refinitiv.
On Earth Day 2020, the folks at Refinitiv – this is one of the world’s largest providers of financial information – announced the beefing up of their own operations…walking the talk of what they provide to investor clients in terms of ESG Data and solutions for evaluating public companies’ ESG performance.
Refinitiv is putting in place for itself more stringent, science-based emissions targets, climate change reporting standards to meet the TCFD’s recommendations, and is joining the RE100 initiative to source 100% of its electricity from renewables.
Refinitiv had made three core pledges on the environment, social impact and sustainable solutions to support the UN SDGs. Part of this was a goal of achieving carbon neutrality before the end of 2020. The company is joining the Business Ambition For 1.5C commitment; aligning its own corporate reporting with the Task Force for Climate-Related Disclosures (the TCFD); and by this coming summer should be 100% in terms of how they source energy from renewables.
Refinitiv recently launched “The Future of Sustainable Data Alliance” to accelerate the mobilization of capital into sustainable finance, and will work to sustainability “at the core of product offerings”. Refinitiv serves more than 40,000 institutions in 190 countries, providing ESG data for 15+ years.
We can expect that these moves will result in the intensifying of the evaluation of corporate sustainability efforts by this major financial information provider. As the Refinitiv CEO David Craig comments:
“The pandemic is clearly providing humanity with a re-set moment: a stark reminder about our fragility as a species and a sharp lesson about what happens when we mess with nature. It is also a moment when the old rules about the role of the state no longer apply. We can therefore attack the twin challenges of COVID-19 and climate change simultaneously, not sequentially. After all, when again will we be at a moment when governments are injecting such unprecedented sums into the economy just as the world needs up to $7 trillion a year of renewable investments to hit 2030 development and climate targets.”
Luke Manning, Global Head of Sustainability and Risk Enterprise at Refinitiv, adds:
“Our commitment is going further than before and aiming for more ambitious emissions reductions that – if repeated by businesses across the world – should limit atmospheric warming to 1.5C above pre-industrial levels. If we want to truly progress the climate agenda we need to help everyone understand that tackling it is in all our personal and financial self-interest. It’s not just about the impact we are having on the environment, but the impact the environment is having on us.”
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Morningstar Acquires Full Ownership in Sustainalytics
Morningstar, a leading firm in providing investment research to individual and institutional investors in North America, Europe, Asia and Australia-Pacific region, began measuring the performance of ESG-focused mutual funds and ETFs three years ago. As part of the initiative, Morningstar acquired a 40% interest in the ESG ratings organization, Sustainalytics.
Now, that interest will be 100% as Morningstar solidifies its competitive advantage in measuring the performance of ESG investable products. Says CEO Kamal Kapoor:
“Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company’s economic moat or the stability of its credit rating, this is the future of long-term investing.
“By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics’ mission of contributing to a more just and sustainable global economy.”
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As companies large and small, public and private, step up to help society during the virus crisis, they burnish their reputation and social license to operate.And help society cope with the impact of the crisis on individuals, families, communities and institutions.
We’re bringing you the news of those corporate actions. And, we’re watching the investment community for their reactions, and their intention to encourage public companies to stay the course of their sustainability journey during the virus crisis. Stay Tuned to this blog.
by Hank Boerner – Chair & Chief Strategist, G&A Institute
February 26, 2020
The importance of the work over the recent years of the Sustainable Accounting Standards Board in developing industry-specific ESG disclosure recommendations was underscored with the recent letters to company leadership from two of the world’s leading asset management firms.
Corporate boards and/or executive teams received two important letters in January that included strong advice about their (portfolio companies’) SASB disclosures.
BlackRock CEO Larry Fink explained to corporate CEOs his annual letter: “We are on the edge of a fundamental reshaping of finance. Important progress in improving disclosure has been made – many companies already do an exemplary job of integrating and reporting on sustainability but we need to achieve more widespread and standardized adoption.”
While no framework is perfect, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics.
In 2020, BlackRock is asking companies that the firm invests in on behalf of clients to publish a disclosure in line with industry-specific SASB guidelines by year end (and disclose a similar set of data in line with the TCFD’s recommendations).
In a thought paper, BlackRock explained that disclosures intended for investors need to focus on financially material and business relevant metrics and include supporting narratives. The recommendations of the TCFD and the SASB (standards) are the benchmark frameworks for a company to disclose its approach to climate-related risks and the transition to a lower carbon economy.
Absent such robust disclosure, investors could assume that companies are not adequately managing their risk. Not the right message to send to current and prospective investors in the corporation, we would say.
State Street Sends Strong Signals
Separately, State Street Global Advisors (SSgA) CEO Cyrus Taraporevala in his 2020 letter to corporate board members explained: “We believe that addressing material ESG issues is a good business practice and essential to a company’s long-term financial performance – a matter of value, not values.”
The asset management firm [one of the world’s largest] uses its “R-Factor” (R=“responsibility”) to score the performance of a company’s business operations and governance as it relates to financially material and sector-specific ESG issues.
The CEO’s letter continued: The ESG data is drawn from four leading service providers and leverages the SASB materiality framework to generate unique scores for 6,000+ companies’ performance against regional and global industry peers. “We believe that a company’s ESG score will soon effectively be as important as it credit rating.”
The Sustainable Accounting Standards Board
About SASB’s continuing progress: Recommendations for corporate disclosure centered on materiality of issues & topics were fully developed in a multi-party process (“codified”) concluding in November 2018 for 77 industry categories in 11 sectors by a multi-party process.
The recommendations are now increasingly being used by public companies and investors as important frameworks for enhanced corporate disclosure related to ESG risks and opportunities.
To keep in mind: A company may be identified in several sectors and each of these should be seriously considered in developing the voluntary disclosures (data sets, accompanying narrative for context).
Bloomberg LP (the company headed by Mayor Michael Bloomberg, now a presidential candidate seeking the Democratic nomination) is a private company but publishes a SASB Disclosure report. (Bloomberg is the chair of SASB as well as the leader of his financial information firm.)
The company published “robust” metrics using the SASB on three industry categories for 2018: Internet & Media Services; Media & Entertainment; Professional & Commercial Services.
Bloomberg LP is privately-owned; this was an example for public company managements. The report explained:
“The nature of our business directs us to consult three industries (above). We provide a distinct table for each…containing topics we have identified as material and against which we are able to report as a private company. Quantitative data is followed by narrative information that contextualizes the data table and is responsive to qualitative metrics.”
Solid advice for company boards and executives beginning the expansion of disclosure using the SASB.
SASB provides a Materiality Map for each sector (SASB uses its SICS® – The Sustainability Industry Classification System) and provides a Standards Navigator for users. There is also an Engagement Guide for investors to consider when engaging with corporates; and, an Implementation Guide for companies (explaining issues and SASB approaches).
The fundamental tenets of SASB’s approach is set out in
its Conceptual Framework: Disclosures should be Evidence-based; Industry-specific; Market-informed. The recommended metrics for corporate
disclosure include fair representation,
being useful and applicable (for investors), comparable, complete, verifiable,
aligned, neutral, distributive.
Accounting and Audit Professionals Advised: Tune In to SASB
Separate of the BlackRock and SSgA advice to companies and investors, accounting and auditing professionals working with their corporate clients are being urged to “tune in” to SASB.
Former board member of the Financial Accounting Standards Board (“FASB”) Marc Siegel shared his thoughts with the New York State Society of CPAs in presenting: “SASB: Overview, Trends in Adoption, Case Studies & SDG Integration”. The Compliance Week coverage is our Top Story in the newsletter this week.
Marc Siegel is a Partner in E&Y’s Financial Accounting Advisory Service practice, served a decade on the FASB board (managers and shapers of GAAP) and was appointed to the SASB board in January 2019.
He was in the past a leader at RiskMetrics Group and CFRA, both acquired by MSCI, and is recognized as a thought leader in financial services – his views on SASB will be closely followed.
With the growing recognition of the importance of SASB recommendation for disclosure to companies and the importance of SASB’s work for investors, he encouraged the gathered accountants to get involved and assist in implementing controls over ESG data, suggesting that SASB standards are a cost-effective way for companies to begin responding to investor queries because they are industry-specific.
Accountants, he advised, can help clients by putting systems in place to collect and control the data and CPA firms can use SASB standards as criteria to help companies that are seeking assurance for their expanding sustainability reporting.
This is an important call to action for accounting professionals, helping to generate broader awareness of the SASB standards for those working with publicly-traded companies and for internal financial executives.
The G&A Institute team has been working with corporate clients in recent years in developing greater understanding of the SASB concepts and approaches for industry-specific sustainability disclosure and helping clients to incorporate SASB standards in their corporate reports.
We’ve also been closely tracking the inclusion of references to “SASB” and inclusion of SASB metrics by public companies in their reporting as part of our GRI Data Partner work. ‘
The G&A Institute analyst teams examine and assess every sustainability report published in the USA and have tracked trends related to how companies are integrating SASB disclosures into their reporting.
What began as a trickle of SASB mentions in corporate reports several years ago is now increasing and we are capturing samples of such inclusions in our report monitoring and analysis.
Over the past four+ years we’ve developed comprehensive models and methodologies to assist our corporate client teams incorporating SASB disclosures in their public-facing documents (such as their sustainability / responsibility / citizenship reports, in Proxy Statements, for investor presentations and in other implementations).
Our co-founder and EVP Louis Coppola was among the first in the world (“early birds”) to be certified and obtain the SASB CSA Level I credential in 2015.
If you’d like to discuss SASB reporting for your company and how we can help please contact us at firstname.lastname@example.org
Benefits of sustainability reporting: takeaways for accounting Source: Compliance Week – According to former Financial Accounting Standards Board (FASB) member Marc Siegel, companies are being asked for sustainability information from many sides and are facing a bumpy road because they are under pressure due to pervasive…
by Hank Boerner – Chair and Chief Strategist – G&A Institute
There is no doubt now — the world’s largest asset managers are definitely focused on corporate sustainability and sustainable investing (the two go hand-in-hand) as survey upon survey of investment professionals tells us.
In recent years we seen considerable momentum as asset owners and their managers adopt or further enhance their sustainable investing / ESG investing approaches. And to gauge the progress we’re seeing major, global asset managers busily taking the pulse of the capital market players.
For example UBS, the findings from one of the world’s leading asset managers, which regularly surveys asset managers. James Purcell, Global Head of Sustainable and Impact Investing at UBS Wealth Management shares the latest survey findings in a sponsored editorial post in the Harvard Business Review,and assures executive-level readers:
“Sustainability doesn’t mean one potentially has to give up returns. In fact it may be contributing to the investment process by adding more pertinent non-financial information. In this, we have reached a ‘why not’ moment.”
UBS, the commentator explains, is ambitious in wanting to shape the future of sustainable investing because the company believes these investments can help clients pursue investments according to their values. And – because UBS is confident that sustainable investing will remain a widely-accepted way of investing.
In the content shared on the HBR platform, the company explains the signals that sustainable investing should be seen as a lasting, major force in the capital markets. Among these signals:
Urgent challenges such as climate change (presented to both companies and investors).
The Paris Agreement on Climate Change, the UN Sustainable Development Goals (SDGs), the aims of the EU High Level Expert Group on Sustainable Finance – all of these actively suggest solutions to global challenges that are now at a scale demanding critical mass. (We have but 10 years to go to change the direction of perilous global warming, science experts tell us.)
At the same time, customers, shareholders and employees are aligning their values and leveraging their investments for the public good. That is impacting (positively) sustainable investing.
In turn, this trend creates new demands on institutions to make ESG performance and sustainable investment part of the long-term strategy.
Asset owners are heeding the call – see the Principles for Responsible Investing (PRI) for reports on the progress of asset owners (the PRI signatories) and their asset managers. (PRI was launched in 2006 with 63 investment companies committing to incorporate ESG issues into investment decision. This year there are 2,450 signatories representing US$82 trillion in collective AUM!)
Three of four asset owners surveyed by UBS say that they consider ESG management approaches and results as one of the key issues looked at when choosing an asset manager.
These and other factors (outlined in the Harvard Business Review commentary) are clear demonstration – important signals! — of the extent to which the mainstreaming of ESG has evolved over the most recent years.
In the 2018 UBS Investor Watch Global Survey, 81% of respondents said they wanted to align their consumer spending patterns with their values.
In the 2019 UBS survey of investors (“ESG: Do You, or Don’t You?”) more four-of-ten respondents said they already have sustainable investments in their portfolios and expect a positive impact on financial performance. Eight-of-ten respondents said they thoughts “sustainable companies” were good investments (they’re perceived as better managed, more forward-thinking).
In 2019, UBS teamed with Responsible Investor to gauge the extent of ESG investing. Europe had the highest proportion of asset owners active in ESG investing (82% of owners). North America is catching up with 70% of respondents saying they were “do-ers” (making ESG material their day-to-day activity) and 19% were “adopters” (not yet focused day-to-day on ESG but planning to integrate in the future).
Just in time!
Opening this week’s COP 25 meetings, UN General Secretary Antonio Guterres challenged those assembled at the Conference of Parties’ gathering (and millions more tuning in) by asking – Do we really want to be remembered as the generation that buried its head in the sand, that fiddled while the planet burned? (Or, follow of path of resolve, of sustainable solutions).
The UBS commentary is a message of hope – and there is a handy sidebar explain sustainable investing which is of value. We invite your reading of this week’s Top Story and the other items (including more sustainable investment items) that Editor-in-Chief Ken Cynar and the G&A team has selected for you this week.
Is Sustainable Investing Moving Into the Mainstream? Source: Harvard Business Review – Sustainable investing, which incorporates environmental, social, and governance (ESG) criteria into investment decisions, has been gaining more attention among both individual investors and asset managers in the world’s largest…
by Hank Boerner – Chair & Chief Strategist, G&A Institute
The terms of reference are familiar now to many more institutional owners and their internal and external managers (as well as to a growing number of retail investors who are their clients and beneficiaries).
This movement began as “socially responsible investing” (“SRI”) which evolved over time to “sustainable & responsible investing” and on to “sustainable & responsible & impact investing” in the 21st Century.
In recent months we’re increasingly hearing and using the simplified term “sustainable investing” and “ESG investing”.
The progress is welcomed! Our esteemed colleague Erika Karp at Cornerstone Capital Group here in New York (she was formerly managing director/head of Global Sector Research at UBS and is one of the founders of SASB) has been saying for some time at public conferences that one day we’ll just be talking about “investing” — and it will all be what today we’re describing as “sustainable investing”.
So how do investors – the world’s trusted fiduciaries and intermediaries – feel about sustainable investing?
According to Schroder’s “Institutional Investor Study 2019 – Geopolitics and Investor Expectations” – belief is very high and the proportion of investors worldwide who do not believe in sustainable / ESG investing fell to just 11 percent (from 20% in 2017); the decline was most notable in Latin America (falling to 12% from 29%).
The survey respondents: pension funds, insurance companies, sovereign wealth funds, endowments, foundations – 650 in total, managing US$25 trillion in assets from 20 global locations. According to Schroder’s survey of these entities, the “cynics in the asset management sector” fell by 50% in just three years of the survey effort.
Geographic spread of responses: 27%, North America; 38%, Europe; 27%, Asia-Pacific; Latin America, 8%.
Key numbers: 52 percent cite macro and geopolitical risks as greatest concern; 52% look to increase their exposure to private assets; 53% need customized solutions to meet their needs; 67% believe annual total returns will remain above 5% over the next five years; and, 75% believe sustainability will play a more important role over the next five years.
This is an important point to underscore: Three quarters of respondents expect sustainable investing to grow in importance over the next five years (up from the base of 67% who thought so in the 2017 survey effort).
Alas, there are still asset managers doubting the value of sustainable investing – almost one-in-five (19%) of investors responding said they do not invest in sustainable investing funds.
Sixty-seven percent of North American survey respondents said greater transparency and better ESG data and benchmarks were important.
At G&A Institute we’re hearing this argument every day among our capital market colleagues and this is why the major ESG ratings agencies and ESG information providers – such as MSCI, Sustainalytics, Bloomberg, Thomson Reuters/Refinitiv, Vigeo Eiris and ISS — have been strengthening their systems and enhancing their methodologies to meet increasing investor-clients’ demands.
We have been successfully working with our corporate sector clients in helping them better manage their ESG data profiles and related information in the effort to improve the information available to the rating agencies’ for rankings and data sets in a more efficient and effective manner. And then from the ratings agencies on to their investor clients.
These efforts help the corporate issuer to better represent themselves as a sustainable investment candidate and to make sure they do not get passed over by the dramatically-growing pool of asset managers now focused on corporate ESG as key factors in financial analysis and portfolio management.
The Schroder’s results as revealed in their latest investor survey are good news all around, we would say!
Schroder’s Global is a 200-year old investment management firm working with institutions, intermediaries and individuals, managing $500 billion-plus in assets for 5,000 people on all continents.
This week’s Top Story is a review of the Schroder’s report for asset managers as published for the readers of Chief Investment Officer. Information about the Schroder’s report is also available to youhere and here.
Each week as part of our Highlights content we bring you news of ESG / Sustainable & Responsible Investment from global sources.
Adding Considerable Value to This Discussion: Business Insider shared the results of the Merrill Lynch – Bank of America survey of investors. These are the top 10 reasons investors and companies should care about ESG investing. You can read highlights here.
Sustainable Investment Skeptics are Becoming Believers Source: Chief Investment Officer – The doubters of sustainable investing are rapidly dwindling in numbers, according to a study by asset manager Schroders, which found that cynics of the sector have fallen by nearly 50% in just three years.