Millennials Really Do Want To Work for Environmentally-Sustainable Companies, According to a New Survey of Large Company Employees

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

Here we are in the new millennium, since 2000 or 2001 (the clear delineation of the century-break has been debated) and the generation that straddles the 20th and 21st centuries has characteristics that may be quite different for employers (and as customers, investors, voters).

The Millennial Generation has been defined by the U.S. Census Bureau as those men and women born between 1981 and 1996, who are 23-to-38 years of age in 2019. (For sure, the exact definitions of recent generations are not always in general agreement.)

This cohort succeeded the smaller-sized “Generation Xers” and the larger Baby Boom generation (born 1946-1964, originally 77 million strong and two-thirds larger than the “Silents” before them).  The long-dominant Boomer population has been decreasing in total size since 2012…so what comes next for the business sector and the financial sector?

Answer:  Millennials! – and then over time the Post-Millennials, those born 1997-to-the-present day. But today’s focus is on the many impacts, strong and subtle, of the Millennials.

The Pew Research Center sees some of the defining trends for the Millennials as including experiencing the September 11, 2001 terrorist attacks and the aftermath (shes off at the airport screening); the 2008 financial crisis and the impacts of the Great Recession that followed; steadily escalating costs for higher education and healthcare and housing…and other factors that created “slow starts” for their careers and “that will be a factor for American society for decades to come.”

This is also the generation that grew up surrounded with technology and for some, the experience of transition from land-line phones to early cell phones and then on to sophisticated iPhones; and for most, the internet, the World Wide Web, and social media became the center of life, observes the Pew researchers.

So what should business leaders expect as this maturing generation – in terms of attractive to potential job applicants and for retention of Millennials already under the roof?

Fast Company, the go-to magazine for many in the generation, says corporate sustainability is a priority and most Millennials would actually take a pay cut to work at an environmentally-responsible company; 40 percent have already done so because “company sustainability”. That is higher than the answers of respondents of prior generations (below 25% for Gen Xers and 17% for parents and grandparents in the post-WW II Boomer crowd).

Millennial survey respondents (40%) said they have chosen a job because the company performed better on sustainability than other choices…something only 17% of Boomers said they had done.  As for employee retention, consider that 70% of Millennials said they would stay with a company if it had a strong sustainability plan.

Are these survey results a “blip”?  Fast Company [magazine] tells us that in 2016 a similar survey reported that 64% of Millennials said they would not take a job at a company that was not “socially responsible” — and 75% said they would take a smaller salary to work at a company more in line with their “values”.

The 2019 survey was based on conversations with 1,000 employees at large U.S. companies.  More than 70% of respondents said they would choose to work at a company with a strong environmental agenda, and a sizable number said they would take a pay cut to do so.

Today’s business leaders need to keep these attitudes in mind as this significant demographic shift is taking place.  As the huge generation of Baby Boomers continue to age out of the workplace (the oldest are 73 years of age, the youngest are now 55),

Transition:  Millennials will make up three-out-of-every-four workers in the next six years, staff writer Adele Peters tells readers.(And the Census Bureau says they are one-out-of-four of the total US population today.)

The survey was commissioned by the blockchain-based clean energy platform Swytch – another sign of the times; this is a new platform organized to track and verify the impact of sustainability efforts and action on the global level of C02 emissions using blockchain technology.

The company says that consumers reducing their energy use can win tokens.  Is this 21st Century approach to currency exchange a “blip”? Perhaps not – JPMorgan Chase recently announced its own crypto-currency and as we write this, Bitcoin values are at $4,000.

Says Swytch co-founder Evan Caron of the survey:  “From my perspective, it’s a competitive advantage for large enterprises to really align themselves with employees’ ideas about creating more environmentally-sustainable choices.”

This Week’s Top Story

Most millennials would take a pay cut to work at a environmentally responsible company
(Friday – February 15, 2019) Source: Fast Company – Nearly 40% of millennials have chosen a job because of company sustainability. Less than a quarter of gen X respondents said the same, and 17% of baby boomers.

Question for Corporate Leaders: Is Your Company’s Sustainability Journey Based on Key Strategies? Is There Clear Alignment of Foundational Strategies with Sustainability?

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

HBR Authors Share Some Research Findings Of Importance to Corporate Leaders and Asset Managers…

Strategy – the familiar word comes down to us over the eons from the language of ancient Greece. The roots of the original word (translated to the more modern “stratagem”) mean “the work of the generals, or generalship” which is to clearly say:  to lead from the front..or the top!

In 2019, “strategy” and “sustainability” should be clearly linked, right?  In the corporate sector, setting strategies is at the heart of the work of the men and women at the top, in the board room and in the C-suite.  So what does that mean to us in terms of the intensive focus today on corporate sustainability and ESG performance? (And, the impacts positive and negative in the capital markets?)

The corporate enterprise that is seeking to excel among its peers, and clearly demonstrates leadership in sustainability matters (that encompasses a broadening range of ESG issues today) surely has the leaders at the top crafting, innovating and sharpening the leadership strategy…and driving the foundational elements down into the depth and breadth of the enterprise.  Typically, universal understanding helps to drive competitive advantage and creates a moat more difficult for peers to cross.

And so in this context, what about the “corporate sustainability laggards”?  Often in our ongoing conversations with a wide range of corporate managers – and with investment managers evaluating corporate ESG performance – the companies not yet well along in the journey or perhaps not even started on the journey, lack of sustainability strategy sends a signal of “silence” from the top ranks.

What this says to stakeholders:  ESG and strategy = not connected yet, there is a lack of quality in our management and board.  Don’t look to our firm for signals of sustainability leadership.

We find that most large-caps “get it” and it is the resource-challenged small-cap and mid-cap firms that are not yet started or not far into the sustainability journey.

The topic of corporate sustainability strategy gets a good overview in the pages of the Harvard Business Review by the outstanding ESG / sustainability experts, George Serafeim and Ioannis Ioannou.  Their post is based on their new 45-page paper (“Corporate Sustainability: A Strategy?”) and their co-authored HBR management brief is the topic of our Top Story for you.

They recently published the paper using data from MSCI ESG Ratings for 2012-to-2017 (looking at 3,802 companies); among the approaches was to separate “common practices” (across many companies) and “strategic” (those not so common to most companies).

Your key takeaway from their work:  “Our exploratory results confirm that the adoption of strategic sustainability practices is significantly and positively associated with both return on capital and market valuation multiples, even after accounting for the focal firm’s past financial performance.”

And…”the adoption of common sustainability practices is not associated with return-on-capital, but is positively associated with market valuation multiples.” There’s more for your reading in the Top Story below.

You could share these findings upward in your organization if your firm’s executives are not quite tuned in yet to the importance of having a clear strategy that factors ESG factors and sustainability into account.

Notes:  George Serafeim is Professor of Business Administration at Harvard B-School and Ioannis Ioannou is Associate Professor of Strategy and Entrepreneurship at London Business School.  They frequently collaborate and both write extensively on topics related to corporate sustainability and sustainable investment. And both are frequent speakers and panelists at trade and industry conferences and workshops.

This Week’s Top Story

Yes, Sustainability Can Be a Strategy
(February 11, 2019) Source: Harvard Business Review – In recent years, a growing number of companies around the world have voluntarily adopted and implemented a broad range of sustainability practices. The accelerating rate of adoption of these practices has also provoked a debate about the nature of sustainability and its long-term implications for organizations. Is the adoption of sustainability practices a form of strategic differentiation that can lead to superior financial performance?

Or, is it a strategic necessity that can ensure corporate survival but not necessarily outperformance?

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

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

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

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

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

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

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

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

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

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

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

by Hank BoernerG&A Institute Chair & Chief Strategist

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Call it “sustainable and responsible investing” or “SRI” or “ESG investing” or “impact investing” – whatever your preferred nomenclature, “sustainable investing” in the U.S.A. is making great strides as demonstrated in a new report from US SIF.

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

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

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

The researchers queried these institutions in 2018:

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

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

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

The top ESG issues for institutional investors in 2018 included:

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

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

  • Climate change and Carbon
  • Conflict risk

Prominent concerns for asset owners included:

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

The Proxy Voting Arena

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

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

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

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

Labor funds accounted for 13% of filings.

Asset/money management firms accounted for 11.5%.

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

The ESG Checklist

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

The “E” – Environmental:

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

The “S” – Social (or “societal”):

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

The “G” – Corporate Governance:

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

Product / Industry Criteria:

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

Community Criteria:

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

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

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

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

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

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

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

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

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

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

Critical Development for CDP Responders in 2018 & 19: CDP Introduces Additional Alignment With FSB Task Force on Climate-Related Financial Disclosures Recommendations

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

Corporate ESG Data, Data, Data – it’s now everywhere and being digested, analyzed and applied to corporate equity analytics and portfolio decision-making.

Whether your public company participates in the annual round of organizing responses to the ever-more comprehensive queries from leading ESG / sustainability / CR rating agencies or not, there is a public ESG profile of your company that investors (asset owners, managers and analysts) are examining and applying to their work.

If you don’t tell the story of your firm’s progress in its sustainability journey, someone else will (and is).  And if you have not embarked on the journey yet…and there is not much to disclose and report on…you are building the wrong kind of moat for the company.  That is, one that will ever-widen and impair access to capital and affect the cost of capital.  And over time, perhaps put the company’s issues on the divestiture list for key investors.

This sounds a bit dramatic, but what is happening in the capital markets these days can be well described as a dramatic shift in focus and actions, with corporate ESG strategies, actions, programs, achievements, and disclosure becoming of paramount importance to a growing body of institutional and retail investors.

Consider these important developments:

  • The influential Barron’s editors, reaching hundreds of thousands of investors every week, beginning in Fall 2017 made coverage of corporate sustainability and sustainable investing a mainstay of the magazine’s editorial content.
  • Morningstar, the premier ranker of mutual fund performance, added sustainability to the analysis of funds and ETFs with guidance from Sustainalytics, one of the major ESG rating firms (and Morningstar made a significant investment in the firm).
  • SustainableInvest, headed  by Henry Shilling, former leader on sustainability matters for Moody’s Investor Service, noted that in 2Q 2018 as the proxy season was ending, 2018 voting was notable for the high level of “E” and “S” proposals, some achieving majority votes in shareholder voting at such firms as Anadarko Petroleum, Kinder Morgan and Range Resources.  Assets in 1,025 sustainable funds analyzed added $14 billion during 2Q and ended in June at US$286 billion; more than $1 billion was new net cash inflows, demonstrating investor interest in the products.

Significant:  according to the Harvard Law School Forum on Corporate Governance and Financial Regulations, two-thirds of investor-submitted proxy resolutions focused on having the company follow through on the 2-degrees scenario (testing) were withdrawn and company boards and managements agreed to the demand for climate risk reporting.

The FSB TCFD Impact on Corporate Sector and Financial Services Sector

The Financial Stability Board, an organization founded by the central bankers and financial leaders of the G-20 nations, created a Task Force on Climate-related Financial Disclosures (“TCFD”) to develop climate-related financial disclosures for adoption by financial services sector firms and by publicly-traded companies in general.

The 32-member Task Force, headed by Mayor Michael Bloomberg, announced financial recommendations for companies and investors in June 2017.

The essence of the recommendations:

  • Corporate boards and managements should focus on the risks and opportunities present and in the future taking into account a global temperature risk of 2-degrees Centigrade (3.5-F), and in the future, 4-C and even 6-C global temperature rises.

The risks (presented are not just to the affected companies but to the financial sector institutions investing in the company, institutions lending funds to the company, carriers insuring the company, etc.).

The risks and opportunities related to climate change should be thoroughly analyzed using the scenario testing that the company uses (an example would be projecting future pricing, regulations, technologies, and “what ifs” for an oil and gas industry company).

The company should consider in doing the scenario testing and analyzing outcomes the firm’s corporate governance policies and practices; strategies for the long-term; risk management policies and resources; establishing targets; and, putting metrics in place for measuring and managing climate risk.  Then, the next step is disclosing this to investors and other stakeholders.

Key Player:  CDP and its Wealth of Corporate, Institutional and Public Sector Data

The CDP – formerly known as the Carbon Disclosure Project – was founded almost two decades ago (2000) as a United Kingdom-based not-for-profit charity at the urging of the investment community, to gather corporate “carbon” data.

Timing:  soon after the start of meetings of the “Conference of the Parties” (or “COP”), organized by the United Nations as the Climate Change Conferences. (The “UNFCCC”.)

In the mid-1990s, the Kyoto Protocol emerged that legally-bound nations to their pledge to reduce Greenhouse Emissions (GHGs).  The U.S.A. did not sign on to the global protocol during the tenure of President George W. Bush, and the agreement reached in Paris at the COP meeting in 2015 was finally agreed to by President Barack Obama.

And then began the process of withdrawal under President Donald Trump.  The U.S.A. is now the prominent holdout (among the community of 197 nations signed on) in the global effort to address global warming before the danger point is passed.  In Paris, the COP agreed that the threshold was 2-degrees Centigrade.

Today, a growing universe of investors and many other stakeholders are increasingly focused on the role of carbon emissions in the framing of questions about what to do as scientists charted the warming of Earth’s climate.

And so — ESG / environmental data is critical to the mission of determining “what to do” and then implementing measures to address climate change challenges.

The Critical Role of CDP 

CDP over almost two decades since its founding has become the premier repository of corporate data related to climate change – with more than 6,000 companies’ data collected and shared in organized ways with the investment community.  (That includes the ESG data of half of the world’s public companies by market cap.)

The CDP emissions data focused has broadened over 16 years to now include water, supply chain, forestry (for corporates) and environmental data from more than 500 cities and some 100 states and regions available to investors.

Key user base:

  • 650-plus institutional investors with US$87 trillion in Assets Under Management.
  • Corporate Supply Chain members (such as Wal-Mart Stores) that collect data from their suppliers through CDP—a universe of 115 companies with over $3.3 trillion in combined purchasing power.

When the TCFD recommendations were being developed, CDP announced a firm commitment to align with the task force recommendations.

Following their release of the Task Force recommendations in July 2017, CDP held public consultations on a draft version of the TCFD-aligned framework. The current 2018 Climate Change questionnaire that corporations received from CDP is fully aligned with the TCFD recommendations on climate-related disclosures related to governance, risk management, strategy, and metrics and targets.

The TCFD recommendations are already aligned with the majority of CDP’s longstanding approach to climate change disclosure, including most of the recommendations for climate-related governance, strategy, risk management as well as metrics and target disclosure.

However, this year CDP has modified some questions and added new ones — the most impactful being on climate-related scenario analysis to ensure complete alignment.

Some modifications include:

The Governance section now asks for more information about oversight of climate change issues and why a company doesn’t have board-level oversight (if applicable). CDP also requests information about the main individual below the board level with the highest responsibility — and how frequently they report up to the board.

Next, in the risks and opportunities section, CDP now asks for the climate-related risk & opportunity identification, and assessment process.

As in past years, questions are posed in the Business Strategy module to allow companies to disclose whether they have acted upon integrating climate-related issues into their strategy, financial planning, and businesses.

CDP has also added a question for high impact sectors on their low carbon transition plans, so data users can gauge and further understand the sustainable and strategic foresight that these companies aim to achieve.

CDP also added a new question on scenario analysis, explaining that scenario analysis is a strategic planning tool to help an organization understand how it might perform in different future states.

A core aim of the TCFD recommendations is for companies to improve their understanding of future risks and develop suitable resilience strategies.

Finally, the TCFD recommendations highlighted five (5) sectors as the most important. In 2018, CDP rolled out sector-specific questions for the four non-financial sectors that the TCFD highlighted (they are energy, transport, materials, and agriculture).

TCFD also highlighted the financial sector – looking forward, in 2019, CDP is planning to release a financial sector-specific climate change questionnaire.

The TCFD resources for investors and corporate managers are embodied in three documents – (1) the Main Report; (2) an Implementation Annex; (3) the Technical Supplement for Scenario Analysis.  These are available at:  www.fsb-tcfd.org

G&A Institute Perspectives:

Our team has been assisting corporate managers in organizing the response to the CDP annual survey and we’ve tracked over the years the steady expansion of information requested of companies.

Our advice to companies not reporting yet:  get started!  The CDP staff members are very cooperative in assisting new corporate reporters in understanding what data are being sought (and why) and providing answers to questions.

CDP’s founding CEO Paul Simpson cautions:  “Big companies:  get better at telling those who hold the purse strings how climate risks could affect your bottom line.”

And so, our mission at G&A includes helping corporate issuers tell a better sustainability and ESG story, including the story told in the data sets communicated to 650-plus institutional investors by CDP!

CDP data is everywhere, we advise clients, including for example being part of the volumes of ESG data sets that Bloomberg LP shares on its terminals (through the terminal ESG Dashboard).

On the supply chain side, we point out that more than US$3 trillion is the collective spend of companies now addressing their supply chain sustainability factors and environmental impacts (customers see suppliers as part of their own CDP footprint).  Corporate leaders in this effort include Apple, Honda and Microsoft, CDP points out.

Resources:

CDP’s Technical Notes on the TCFD are available at: https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/guidance_docs/pdfs/000/001/429/original/CDP-TCFD-technical-note.pdf?1512736184

The “A” List of CDP naming the world’s business leaders on environmental performance (160 firms) is at: https://www.cdp.net/en/scores-2017

The CDP USA Report 2017, focused on key findings on Governance, ESG and the Role of the Board of Directors is available at: https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/891/original/CDP-US-Report-2017.pdf?1512733010

There’s an excellent interview with CDP CEO/Founder Paul Simpson at: http://www.ethicalcorp.com/disruptors-paul-simpson-atypical-activist-who-woke-c-suites-climate-risk

You can check out Henry Shilling’s SustainableInvest.com at: https://www.sustainableinvest.com/second-quarter-2018-sustainable-funds-investing-review/

 

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!

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