Dangerous Antics – Fiddling with the Future of US EPA and the Health and Safety of the American People

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

The Trump Administration  — Making moves now on the US EPA to destroy its effectiveness through budget cuts and ideological attacks on its missions.

In his landmark work published in 1993 – “A Fierce Green Fire – The American Environment Movement” – former New York Times journalist Philip Shabecoff explained:  the U.S. Environmental Protection Agency was created by President Richard Nixon (a Republican) in December 1970 (two years into his first term) as part of an overall re-organization of the Federal government. The EPA was created without any benefit of statute by the U.S. Congress.

Parts of programs, departments and regulations were pulled from 15 different areas of the government and cobbled together a single environmental protection agency intended to be the watchdog, police officer and chief weapon against all forms of pollution, author Schabecoff explained to us.

The EPA quickly became the lightning rod for the nation’s hopes for cleaning up pollution and fears about intrusive Federal regulation.

As the first EPA Administrator, William Ruckelshaus (appointed by Richard Nixon) explained to the author in 1989: “The normal condition of the EPA was to be ground between two irresistible forces: the environmental movement, pushing very hard to get [pollution] emissions no matter where they were (air, water)…and another group on the side of industry pushing just as hard and trying to stop all of that stuff…” Both, Ruckelshaus pointed out, regardless of the seriousness of the problem.

We are a half-century and more beyond all of this back and forth, and the arguments about EPA’s role and importance rage on.

Today we in the sustainability movement are alarmed at the recklessness of the Trump White House and the key Administration officials now charged with responsibility to protect the environment and public health in two key cabinet departments: The EPA and the Department of Energy.

The ripple effects of the attacks on climate change science are in reality much larger: The Department of Defense (which has declared climate change to be a major threat long-term); the Department of Interior, overseeing the nation’s precious legacy of national parks and more; the Department of Agriculture (and oversight of tens of millions of acres of farmland); the Department of Commerce; the Department of Justice..and on and on.

The destruction could start early: The Washington Post (with its ear to the ground) is closely watching the administration and reported on February 17th that President Donald Trump planned to target the EPA with new Executive Orders (between two and five are coming) that would restrict the Agency’s oversight role and reverse some of the key actions that comprise the Obama Administration legacy on climate change and related issues.

Such as: rolling back the Clean Energy Plan (designed to limit power plant GhG emissions), which required states to develop their own plan as well. And, withdrawing from the critical agreement reached in Paris at COP 21 to limit the heating up of Planet Earth (which most of the other nations of the world have also adopted, notably China and India).

The destroyers now at the helm of the EPA also don’t like the Agency’s role in protecting wetlands, rivers etc. (The Post was expanding on coverage originally developed by investigative reporters at Mother Jones.)

Mother Jones quoted an official of the Trump transition team: “What I would like to see are executive orders implementing all of President Trump’s main campaign promises on environment and energy, including withdrawal from the Paris climate treaty.”

And, in the Washington Post/Mother Jones reportage: “The holy grail for conservatives would be reversing the Agency’s ‘so-called endangerment finding,’ which states that GhG emissions harm public health and must therefore be regulated [by EPA] under the Clean Air Act.”

Think about this statement by H. Sterling Burnett of the right-wing Heartland Institute: “I read the Constitution of the United States and the word ‘environmental protection’ does not appear there.” He cheered the early actions by the Trump-ians to give the green light to the Keystone Pipeline and Dakota Access Project.

On March 1st The Washington Post told us that the White House will cut the EPA staff by one-fifth — and eliminate dozens of programs.

A document obtained by the Post revealed that the cuts would help to offset the planned increase in military spending. Cutting the EPA budget from US$ 8.2 billion to $6.1 billion could have a significant [negative] impact on the Agency.

We should remember that in his hectic, frenetic campaigning, Donald Trump-the-candidate vowed to get rid of EPA in almost every present form – and his appointee, now EPA Administrator (Scott Pruitt) sued EPA over and over again when he was Attorney General of Oklahoma, challenging its authority to regulate mercury pollution, smog (fog/smoke), an power plant carbon emissions (the heart of the Obama Clean Energy Plan).

In practical terms, the Post explained, the massive Chesapeake Bay clean up project, now funded at $73 million, would be getting $5 million in the coming Fiscal Year (October 1st on). Three dozen programs would be eliminated (radon; grants to states; climate change initiatives; aid to Alaskan native villages); and the “U.S. Global Change Research Program” created by President George H.W. Bush back in 1989 would be gone.

Important elements of the American Society have tackled conservation, environmental, sustainability and related issues to reduce harm to human health and our physical home – Mother Earth – over the past five decades: Federal and state and local governments; NGOs; industry; investors; ordinary citizens; academia.

Today, the progress in protecting our nation’s resources and human health made since rivers caught fire and the atmosphere of our cities and towns could be seen and smelled, is under attack.

The good news is that for the most part, absent some elements of society, the alarms bells are going off and people are mobilizing to progress, not retreat, on environmental protection issues.

American Industry – Legacy of Three Decade Commitment to Environmental Protection – The Commitment Must Continue

The good news to look back on and then to project down to the 21st Century and Year 2017 includes  the comments by leaders of the largest chemical industry player of the day as the EPA was launched and key initial legislation passed (Clean Air Act, Clean Water Act, and many more)  – that is the DuPont deNemours Company.

Think about the importance of these critical arguments – which could be considered as foundational aspirations for today’s corporate sustainability movement:

Former DuPont CEO Irving Shapiro told author Philip Shabecoff: “You’ve have to be dumb and deaf not to recognize the public gives a damn about the environment and a business man who ignores it writes his out death warrant.”

The fact is, said CEO Shapiro (who was a lawyer), “DuPont has not been disadvantaged by the environmental laws. It is a stronger company today (in the early 1990s) than it was 25 years ago. Where the environment is on the public agenda depends on the public. If the public loses interest, corporate involvement will diminish…”

His predecessor as CEO, E. S. Woolard, had observed in 1989: “Environmentalism is now a mode of operation for every sector of society, industry included. We in industry have to develop a stronger awareness of ourselves as environmentalists…”

And:  remember, warned Dupont CEO Shapiro: “…if the public loses interest corporate involvement will diminish…”

Today let’s also consider the shared wisdom of a past administrator as she contemplated the news of the Trump Administration actions and intentions:

Former EPA Administrator Gina McCarthy (2013-2017) said to the Post: “The [proposed] budget is a fantasy if the Trump Administration believes it will preserve EPA’s mission to protect public health. It ignores the need to invest in science and to implement the law. It ignores the history that led to the EPA’s creation 46 years ago. It ignores the American People calling for its continued support.”

Consider the DuPont’ CEO’s comments above … if the American public loses interest.  At this time in our nation’s history, we must be diligent and in the streets (literally and metaphorically) protesting the moves of this administration and the connivance of the U.S. Congress if our representatives go along with EPA budget cuts as outlined to date.

# # #

About “A Fierce Green Fire: The American Environmental Movement,” by Philip Shabecoff; published 1993 by Harper Collins. I recommend a reading to gain a more complete understanding of the foundations of the environmental movement.

A decade ago I wrote a commentary on the 100-year evolvement of the conservation movement into the environmental movement and then on to today’s sustainability movement in my Corporate Finance Review column.  It’s still an interesting read:  http://www.hankboerner.com/library/Corporate%20Finance%20Review/Popular%20Movements%20-%20A%20Challenge%20for%20Institutions%20and%20Managers%2003&04-2005.pdf

 

 

News From the Sustainability Front as The Trump White House Makes Controversial Moves on ESG Issues — Actions and Reactions

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

February 23, 2017
Forward Momentum! – Sustainability 2017

Are you like many of us having sleepless nights and anxiety spells as you watch the antics of the Trump White House and the creeping (and similarly moving-backwards) effects into the offices of important Federal agencies that the Administration is taking over?

Consider then “other news” — and not fake news, mind you, or alt-news — but encouraging real news that is coming from OTHER THAN the Federal government.

We are on track to continue to move ahead in building a more sustainable nation and world — despite the roadblocks being discussed or erected that are designed to slow the corporate sustainability movement or the steady uptake of sustainable investing in the capital markets.

Consider the Power and Influence of the Shareowner and Asset Managers:

The CEO of the largest asset manager in the world — BlackRock’s Larry Fink — in his annual letters to the CEOs of the S&P 500 (R) companies in January said this: “Environmental, social and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth:
(1) sustainability of the business model and its operations; (2) attention to external and environmental factors that could impact the company; (3) recognition of the company’s role as a member of the communities in which it operates.

A global company, CEO Fink wrote to the CEOs, needs to be “local” in every single one of its markets. And as BlackRock constructively engages with the S&P 500 corporate CEOs, it will be looking to see how the company’s strategic framework reflects the impact of last year’s changes in the global environment…in the ‘new world’ in which the company is operating.

BlackRock manages US$5.1 trillion in Assets Under Management. The S&P 500 companies represent about 85% of the total market cap of corporate equities.  Heavyweights, we would say, in shaping U.S. sustainability.

* * * * * * * *

As S&R investment pioneer Steve Viederman often wisely notes, “where you sit determines where you stand…” (on the issues of the day).  More and more commercial space users (tenants and owners) want to “sit” in green spaces — which demonstrates where they “stand” on sustainability issues.

Consider:  In the corporate sector, Retail and other tenants are demanding that landlords provide “green buildings,” according to Chris Noon (Builtech Services LLC CEO). The majority of his company’s construction projects today can easily achieve LEED status, he says (depending on whether the tenant wanted to pursue the certification, which has some cost involved). The company is Chicago-based.

This is thanks to advances in materials, local building codes, a range of technology, and rising customer-demand.

End users want to “sit” in “green buildings” — more than 40% of American tenants recently surveyed across property types expect now to have a “sustainable home.” The most common approaches include energy-saving HVAC systems, windows and plumbing. More stringent (local and state) building codes are also an important factor.

Municipalities — not the Federal government — are re-writing building codes, to reflect environmental and safety advances and concerns. Next week (Feb 28) real estatyer industry reps will gather in Chicago for the Bisnow’s 7th Annual Retail Event at the University Club of Chicago to learn more about these trends.

* * * * * * * *

Institutional investors managing US$17 trillion in assets have created a new Corporate Governance framework — this is the Investor Stewardship Group.

The organizers include such investment powerhouses as BlackRock, Fidelity and RBC Global Asset Management (a dozen in all are involved at the start). There are six (6) Principles advanced to companies by the group that including addressing (1) investment stewardship for institutional investors and (2) for public corporation C-suite and board room. These Principles would be effective on January 1 (2018), giving companies and investors time to adjust.

One of the Principles is for majority voting for director elections (no majority, the candidate does not go on board). Another is the right for investors to nominate directors with information posted on the candidate in the proxy materials.

Both of these moves when adopted by public companies would greatly enhance the activism of sustainable & responsible investors, such as those in key coalitions active in the proxy season, and year-round in engagements with companies (such as ICCR, INCR).

No waiting for SEC action here, if the Commission moves away from investor-friendly policies and practices as signaled so far. And perhaps – this activism will send strong messages to the SEC Commissioners on both sides of the aisle.

Remember:  $17 trillion in AUM at the start of the initiative — stay tuned to the new Investor Stewardship Group.  These are more “Universal Owners” with clout.

* * * * * * * *

Not really unexpected but disappointing nevertheless:  The Trump Administration made its moves on the Dakota Access Pipeline (DAPL), part of the Bakken Field project work, carrying out a campaign promise that caters to the project’s primary owners (Energy Transfer Partners**) and other industry interests, S&R investors are acting rapidly in response.

The company needed a key easement to complete construction across a comparatively small distance. Except that…

  • The Standing Rock Sioux Tribe says the route would cross their drinking water source, impact their sacred sites, and threaten environmentally-sensitive areas;
  • would violate treaty territory without meeting international standards for their consent; (this is the 1868 Fort Laramie Treaty, which according to the U.S. Constitution, should be the supreme law of the land);
  • and ignore alleged shortcomings in the required environmental review (under the National Environmental Policy Act – NEPA).

These are “abuses”, and banks and financial services firms involved may be complicit in these violations by the nature of their financing, S&R investors note. Their involvement in the project financing could impact their brands and reputations and relationships with society. And so S&R shareholders are taking action.

Boston Common Asset Management, Storebrand Asset Management (in Norway) and First Peoples Worldwide developed an Investor Statement to Banks Financing the DAPL. The statement — being signed on to by other investors — is intended to encourage banks and lenders to support the Rock Sioux Tribe’s request for re-routing the pipeline to not violate — “invade” — their treaty-protected territory. The violations pose a clear risk, SRI shareholders are saying.

The banks involved include American, Dutch, German, Chinese, Japanese, and Canadian institutions.  They in turn are owned by shareholders, public sector agencies, and various fiduciaries — “Universal Owners,” we would say.

The banks include: Bayerische Landesbank (Germany); BBVA (Argentina); Credit Agricole (France); TD Securities (Canada); Wells Fargo; ABN AMRO (The Netherlands); Bank of Tokyo-Mitsubishi UFJ; and Industrial and Commercial Bank of China, and others.

The shareholders utilizing the Investor Statement say they recognize that banks have a contractual obligation with the respect to their transactions — but — they could use their influence to support the Tribe’s request for a re-route…and reach a “peaceful solution” acceptable to all parties.

As The Washington Post reported on January 24th, soon after the Trump Administration settled in, President Trump signed Executive Orders to revive the DAPL and the Keystone XL pipelines. “Another step in his effort to dismantle former President Barack Obama’s environmental legacy,” as the Post put it.

One Executive Order directed the U.S. Army Corps of Engineers to “review and approve in an expedited manner” the DAPL. Days later the Corps made their controversial decision, on February 7th reversing course granting Energy Transfer Partners their easement. This week the remaining protestors were removed from the site (some being arrested).

The sustainable & responsible & impact investment community is not sitting by to watch these egregious events, as we see in the Investor Statements to the banks involved. The banks are on notice — there are risks here for you.

* * * * * * * *

May be what is happening in the asset management and project lending activities related to the project is the IBG / YBG worldview of some in the financial services world:  I’ll Be Gone / You’ll Be Gone when all of this hits the fan one day.  (Like the massive Ogalala Aquifer being contaminated by a pipeline break. The route of the extension is on the ground above and on the reservation’s lake bed.  Not to mention the threats to the above ground Missouri River, providing water downstream to U.S. states and cities.)

* * * * * * * *

Energy Transfer Partners, L.P:  (NYSE:ETP)  This is a Master Limited Partnership based in Texas.  Founded in 1995, the company has 71,000 miles of pipelines carrying various products. The company plans to build other major pipelines — the Rover Project — to carry product from the shale regions (Marcellus and Utica) across the Northern U.S. state east of the Mississippi.  ETP LP acquired Sunoco (remember them?).

Mutual Funds – Bond Holders – other key fiduciaries with brands of their own to protect — are funding the operations of ETP LP.

Brand names of equity holders include Oppenheimer; Goldman Sachs Asset Management; CalPERS; JPMorgan Chase.  Bond holders include Lord Abbett, PIMCO, Vanguard.  There are 567 institutional owners — fiduciaries — with some 45% of ownership, according to Morningstar. Partners include Marathon Petroleum Company (NYSE:MPC) and Enbridge (NYSE:ENB). (Bloomberg News – August 2, 2016 – both firms put $2 billion in the project and related work.)

The Partnership used to have an “Ownership” explanation on its web site — now it’s disappeared. But you can review some of it in Google’s archived web site pages here: http://webcache.googleusercontent.com/search?q=cache:http://www.energytransfer.com/ownership_overview.aspx&num=1&strip=1&vwsrc=0

* * * * * * * *

We are seeing in developments every day (like these above with non-governmental strategies and actions) that hold out promise for corporate and societal sustainability advocates and sustainable investment professionals that with — or without — public sector support, the Forward Momentum continue to build.

We’ll share news and opinion with you — let us know your thoughts, and the actions that you / your organization is taking, to continue the momentum toward building a better future…a more sustainable nation and world.

Out the Seventh Generation, as the Native American tribes are doing out in the American West in protecting their Treaty lands.  In that regard we could say, a promise is a promise — the Federal and state governments should uphold promises made in treaties.  Which are covered as a “guarantee” by the U.S. Constitution that some folk in politics like to wave around for effect.

FYI — this is Article VI:  “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land, and the Judges in every State shall be bound thereby…”

Quo Vadis, The Peoples’ U.S. EPA — Where Now in the Trumpian Era?

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

February 22, 2017

Quo Vadis (where are we going) with our Environmental Protection Agency?

The leader’s baton is passed and the U.S. EPA has a new head of agency.  E. Scott Pruitt got passed the opposition mounted to his nomination by President Trump and is now the 14th Administrator of the Agency. He was the Attorney General of the State of Oklahoma.

Where he mounted more than a dozen attacks in the courts against the Federal protector of land, air, water and more.  The cases are still pending; Administrator Pruitt has not yet  said he would recuse himself from the proceedings.

The lawsuits challenged EPA on various rules dealing with mercury pollution, carbon emissions, smog, protecting of waters and wetlands, and more.

The EPA Highlights outreach today proclaimed that Scott Pruitt “…believes promoting and protecting a strong and healthy environment is one of the lifeblood priorities of the government…and EPA is a vital part of that mission…”

And — “…as Administrator, Mr. Pruitt will lead EPA in a way that our future generations inherit a better and healthier environment while advancing America’s economic interests…”  We are on notice, I would say.

Meanwhile, hundreds of current and former EPA employees had urged the U.S. Senate NOT to ratify the nomination (450-plus signed on).  In Chicago, at lunch time, possibly imperiling their careers at the Agency, EPA Region 5 employees poured out of the office and into the streets at lunch time in protest.

More than two dozen environmental groups also challenged his qualifications.

The Washington Post yesterday reported that on his first day in office Administrator Pruitt “made clear that he intends to step back from what he sees as the Agency’s over-reach during the [President Barack] Obama years.  “The only authority that any agency has,” he told a noontime gathering at EPA, “is the authority given to it by Congress.  We need to respect that…”

Oh yes, Administrator Pruitt was speaking in the Rachel Carson Green Room at EPA (named for the author of Silent Spring, which helped to launch the modern environmental movement).  Perhaps someone passed along her book to the new leader.

The Administrator did say, according to the Post, that the EPA and the nation could do a better job of being both pro-energy and pro-environment.  Time will tell, we could say, as the actions and proclamations and loud and whispered orders come down from on high at EPA in the days ahead.

* * * * * * * *

for clues as to what may be ahead with Scott Pruitt at the helm, we could look to a commentary that the new EPA Administrator published on Public Utilities Fortnightly — ” The Methane Myth”  Incompetence and overreach at the EPA… (July 2012).

He wrote:  “,.,,my views on energy policy might be discounted as a simple ploy to bolster the energy industry at the expense of environmental stewardship and responsibility. That perspective would be misguided. I do strongly support energy producers and their role in the nation’s economic sustainability, but this issue isn’t about oil. Nor is it about natural gas or hydraulic fracturing. This is about a wayward federal agency arbitrarily using unsubstantiated, inaccurate, and flawed data to achieve a specific policy objective…”

And…”…The agency’s actions are at best incompetent, and at worst reprehensible. They have a very real effect on families, businesses, communities, and state economies. Without justification, they erode the states’ ability to self-regulate, and they stifle exploration of domestic energy sources, putting our national energy security at risk..”.

There’s more for you to read and process at: https://www.fortnightly.com/fortnightly/2012/07/methane-myth?page=0%2C0

The post is by  E. Scott Pruitt – Attorney General of Oklahoma

and Chair, Republican Attorneys General Association

* * * * * * * *

One of the pioneer environmental protection associations is the NRDC – founded in 1970 as the Natural Resources Defense Council by attorneys and students.  There are now 2 million members in the group.  The group explained its opposition to AG Pruitt’s appointment in a post on its web site:

Pete Altman:  “It could be his consistent record of siding with industry over public health, frequently choosing positions which benefited companies funneling money to Pruitt’s campaign, his PAC or groups he was raising money for (see here, here and here.) Or that he’s a climate denier. Or that his record includes no positive environmental achievements—as colleague John Walke tweeted yesterday, out of more than 700 press releases from Pruitt’s office, not one touts any action to enforce environmental laws…”

NRDC and other of its peer NGOs and SRI investors and state officials will be watching the EPA actions VERY CLOSELY in the days ahead, we can say with some assurance.

* * * * * * * *

Late afternoon – Feb 22 — No sooner did I finish and post the above then the news came in —The Washington Post today (2-22-17) is reporting that “thousands of emails detail EPA head’s close ties to fossil fuel industry.”

In response to a legal action by the Center for Media and Democracy, thousands of the AG’s emails were released.  The communications highlight, the Post report says, close relationships between AG Pruitt and fossil fuel interests.

“The emails show Pruitt and his office were in touch with a network of ultra-conservative groups…many receiving backing from billionaire brothers Charles and David Koch, owners of Koch Industries, a major oil company…”

More in the late breaking story for you at: https://www.washingtonpost.com/news/energy-environment/wp/2017/02/22/oklahoma-attorney-generals-office-releases-7500-pages-of-emails-between-scott-pruitt-and-fossil-fuel-industry/?utm_term=.7f34f5c67cd1&wpisrc=nl_evening&wpmm=1

 

In the American West & Midwest: Coal-fired Electricity-Generating Plants to Close

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

February 22, 2017

Momentum Forward! – 2017

Some good news to share:  Several large American coal-fired electric utility plant operators are abandoning the burning of coal and moving to natural gas and renewables to generate electricity.  This news was reported by The Washington Post on February 14th. Headline:  “The West’s largest coal-fired power plan is closing. not even Trump can save it.”

Top of the news: a plant in Arizona that is the largest coal-fired facility in the western part of the United States (the 2,250-MW Navajo Generation Station outside Page, AZ) will be de-commissioned by the owners/operators at the end of 2019 — decades before expected, said the Post.

In the era of low natural gas prices, the use of coal would cost more to produce electric power, which would be passed on to the rate base. The US EPA had listed the plant as the #3 of the major carbon-emitting facilities.

The facility is operated by the Salt River Project, utility companies and the U.S. Bureau of Reclamation*. The facility serves the Phoenix area.

The downside:  members of the Navajo and Hopi tribes would (1) lose their jobs in the Kayenta Mine that provides that provides the coal, and (2) the tribes will lose certain royalty payments.  Cautionary note:  The tribes of other operators could step up to continue operations.

* * * * * * * *

And less than a month earlier, in the State of Ohio the Dayton Power & Light Company and the Sierra Club reached agr3eement to close two plants (Killen and Stuart) which are coal-fired facilities. These will close in mid-2018. Stuart is a 2,440-MW plant; Killen is 666-MW.

Dayton Power & Light will develop solar power facilities to generate about half of the 555-MW by 2022.

The state’s Public Utilities Commission has the plan for its approval from DP&L.  This is good news for environmental NGOs and Ohio consumers; rate payers would be paying more for their electric power with coal — and be breathing in the results of coal-burning.

All of this, of course, comes as President Trump continues to promise to bring back coal mining, and signed an Executive Order to remove the obstacle for mining companies to dump wastes into surface waters (something that President Obama moved to prevent).

The shift from coal to natural gas: Forward Momentum in 2017 for sustainability!

* * * * * * * *

Footnote: About the Bureau of Land Reclamation*, from its web site:  Established in 1902, the Bureau of Reclamation is best known for the dams, powerplants, and canals it constructed in the 17 western states. These water projects led to homesteading and promoted the economic development of the West. Reclamation has constructed more than 600 dams and reservoirs including Hoover Dam on the Colorado River and Grand Coulee on the Columbia River.

The Bureau is  the largest wholesaler of water in the country, bringing water to more than 31 million people, and provided one-out-of-five Western farmers (140,000) with irrigation water for 10 million acres of farmland that produce 60% of the nation’s vegetables and 25% of its fruits and nuts.

 

Update 2017 – Forward Momentum! For Sustainability – Pope Francis Set the Tone in 2016

by Hank Boerner – Chairman, G&A Institute

Here we are in the year 2017 — and I see momentum coming into this new calendar year for continuing many of the positive trends for corporate sustainability / citizenship / responsibility managers, and sustainable investment professionals that I explored and commented on in 2016.

I set out more than 50 of these trends in my collection of commentaries — “Trends Converging! — The Convergence of Important CSR – ESG – SRI – Sustainability Trends in the Year 2016 and Beyond.”

In my first post of 2017 I explained some of these trends and provided background on the many experts and thought leaders that shared their perspectives with us on key topics and issues.  Going forward, I am going to update the trends material with current news and developments and shared perspectives from third parties.

I see this as continuing momentum for the positive trends — even in the face of hostile action that is anticipated in our nation’s capital.  So I am positioning my comments as “Momentum 2017 – Sustainability Forward!” for corporate sustainability and sustainable investing professionals.  And for NGOs and other stakeholders.

The 2016 trends are available for you in total on our G&A Institute web site (under Research menu).  The updates going forward will include the original materials that I saw as being forward-moving and in many instances helping to make “the business case,” “the investing case,” and so on.

* * * * * * * *

Here’s the first update for 2017 and the original perspectives shared in 2016.

January 2017 – Momentum – Forward!

Thousands of American Roman Catholics have petitioned President-elect Donald Trump to urge him to “take swift and meaningful action on climate change,” including honoring commitments and pledges made by President Barack Obama.

The Catholic Climate Covenant petition asked the incoming president to “demonstrate bold leadership” on climate on three fronts:

  • Keep the U.S. commitment to the Paris Agreement and go forward on the U.S. pledge to cut GhG emissions to 26% / 28% of the 2005 levels by year 2025.
  • Keep the U.S. pledge of $3 billion to the Green Climate Fund to help developing countries address climate change (mitigation, adjustments), including the development of sustainable energy resources.
  • Go forward with the Federal government’s Clean Energy Plan, and the U.S. EPA’s rules designed to help reduce carbon emissions from coal- and gas-fired power plants. (Note that some states are implementing their state-level plan as mandated in the Obama Administration approach. A Federal court put the plan on ice.)

The Catholic coalition cited Pope Francis’s Laudato Si (encyclical)  — On Care for Our Common Home – to remind the President-elect and his minions of the importance to the Roman Catholic Church worldwide of climate change and environmental and social issues to be addressed.

The U.S. Conference of Catholic Bishops (USCCB) strongly supports a national carbon pollution standard — as one way to move forward to implement the Paris (COP 21) Agreement of 2016.

The Catholic Climate Covenant is gathering signatures for its appeal to the new President and communicating its appeal on [his] favorite channels – social media!

The petition notes that before Pope Francis came to the USA in September 2015, a Public Religion Research Institute poll found three-out-of-four Catholics believed that the U.S. government should be more to address climate change. When white-only respondents were tallied, the percentage rose to 86%.

More recently (May 2016) a Center for Applied Research in the Apostolate at Georgetown University showed the amount held steady, with 73% of American Catholics in favor of society taking steps to combat climate change.

The Covenant petition has been endorsed by the Global Catholic Climate Movement; the Leadership Conference of Women Religious; the Conference of Major Superiors of Men; the Sisters of Mercy; and the Franciscan Action Network.

And in January, the President-elect can expect to see more than 100 prayer vigils stages across the country and during his first 100 days in office. That way, there will be clear demonstration against his climate-skeptic appointments and for an environmentally-sustainable future.

* * * * * * * *

Here is the foundational perspective offered up in my trend-watching efforts in 2016:  Chapter # 44. Pope Paul and Perspectives and Actions the Roman Catholic Church Worldwide

There are an estimated 1 billion Catholics worldwide, and a huge infrastructure of the RC Church that can implement policies and practices. Worldwide, the Bishops of the Church among other things are traditional heads of local dioceses — there are 177 in the U.S.A. alone. There are “ecclesiastical provinces” organized in metropolitan area; these are usually headed by an archbishop (New York, Washington DC, Baltimore, etc.).

The Roman Catholic Church as a collective institution is one of the largest owners and holders of assets in the world, including properties, solid gold, bonds, cash, and equity investments, pension systems of various orders, Catholic charities, and healthcare systems.

Imagine the power that such an institution can bring to bear on challenges, in the world, in the United States and other large nations — especially when it focuses on a societal issue

The Bishop of Rome, Pope Francis, in May 2015, issued “Laudato Si,” the Encyclical Letter of the Holy Father, “On Care of Our Common Home.” Among other things to explain his position, he addressed a joint session of the U.S. Congress in September 2015. (Note that in the audience, 31% of Members are Catholic, as well as six of the nine Supreme Court Justices.) The speech received 37 standing ovations.

So what are the Pope’s concerns, expressed in the House of the People? Consider these:

• Climate change;
• addressing common needs;
• addressing risk to our common home (the Earth);
• addressing income inequality (especially in less-developed nations);
• the responsibility of richer nations; advancing justice and peace;
• the dignity of human life;
• job creation;
• business is a “noble vocation”;
• environmental challenges.

“We should have a culture of care,'” Pope Francis said, and “now is the time for action” to protect our planet.

The Pope’s 74-page letter “to the world” and especially to the Catholic faithful in all lands, addressed topics that are front-of-mind for sustainability professionals:

• Pollution and climate change are a threat to the world.
• Part of the cause is the residue of industrialization.
• Part of the cause is our throwaway society.
• The climate is a common good, belonging to all.
• Warming has effects on the carbon cycle. This affects drinking water, agriculture, energy and other activities.
• Climate change is a global problem, affecting environmental, social, economic, political, and distribution of goods.
• There are critical issues in water, biodiversity, global inequality.

Pope Francis called for a vision of “integral ecology,” one that seriously considers environmental, social and economic factors.

The Holy Father set out suggestions for “approach and action,” with dozens of specific steps that could be taken to address challenges and bring about integral ecology. It is in these specificities that action will come through the organs of the worldwide RC Church, and its billion adherents to the faith.

We should not underestimate the enormous power that will be applied in many direct, indirect and subtle ways to implement “Laudato Si,” the Holy Father’s vision of how his church can help to bring about significant changes in the global society.

Consider the work of the Interfaith Center on Corporate Responsibility (ICCR), the 35-year old faith-based investment coalition, whose 300 institutional members manage up to $100 billion in assets. ICCR is a value-driven organization “who view the management of their investments as a powerful catalyst for social change.” ICCR’s membership includes many RC Church institutional investors.

We can expect to see the Pope’s vision applied by ICCR institutional members in the areas of concern — corporate governance, domestic health, the environment (including global warming), fair lending, food access and safety, human rights, and water (including corporate water impacts).

I’m keeping in mind the century-long influence that another Pope had with his encyclical letter on labor rights, human rights,

This was Pope Leo XIII and his 1891 letter, “Rerum Novarum” — on “the Rights and Duties of Capital and Labor.” This addressed the conditions of the working classes as industrialization and the emergence of the modern capital markets gained momentum.

What resonates from that work for some today: “Remedy must be found quickly for the misery of wretchedness pressing so unjustly on the majority of the working class…” Through the decades since the start of the 20th Century, RC Church interests have been guided by Rerum Novarum’s dictates to the faithful.

Expect the vision of the present pope to serve RC Church interests in similar ways — with impacts being felt in discussion of climate change, global warming, the plight of the worker, income & wealth inequality, financial & economic fairness, and many more issues that are in the realms of the capital markets and the global corporate community.

Noting MSCI Research on Inequality

About the issues surrounding wealth and income inequality: MSCI recently projected important trends for 2016. In the firm’s “2016 ESG Trends to Watch” report, there is this observation:

According to the NGO Oxfam, at the end of 2014, 80 individuals owned the same wealth as the bottom half of all of the world population. (The number was 388 individuals in 2010.) This is not just a societal issue, MSCI points out. OECD estimates that that growing inequality has cumulatively cuts six to seven percentage points off U.S. economic growth in the United States, Italy and Sweden between 1990 and 2010. (The U.K., Finland and Norway cut in growth was higher, at nine percent.)

What needs more understanding, says MSCI in its report, is how corporations feed into inequality (through job cuts, pushing down of wages, maximizing shareholder return) which over time could impact economic growth and stability.

* * * * * * * *

So – in the year 2016 we’ll be monitoring the growing intensity of the public debate about wealth and income inequality, in the presidential race for sure (thanks to U.S. Senator Bernie Sanders and his positions on the subject), in the fiduciary concerns raised (especially by activist investors), and in the restlessness of the population if the anger rises and targets are selected (that is, those perceived to be responsible for growing inequality in developed and developing countries).

The actions of the worldwide Roman Catholic Church, following the Pope’s positions on inequality, will be important to watch in the months ahead.

The statements and actions of investors will also be worth watching. The public dialogue on inequality will have many dimensions, depending on the voices raised. As responsible investment thought leader (and G&A Institute Fellow) Steve Viederman notes, “…where you sit will determine where you stand on an issue.” (“Sitting” meaning your affiliation, where you sit during the business day.)

* * * * * * * *

What are your thoughts?  Let us know!  Send me an email at: hboerner@ga-institute.com.

So Many Positives in 2016 for Sustainability – Corporate Citizenship – CR – Sustainable Investing — The Core of “Trends Converging!” Commentaries. It’s 2017 — Now What?

by Hank BoernerG&A Institute

Welcome to 2017! We are off to the start of a challenging year for sustainability / responsibility / corporate citizenship / sustainable investing professionals.

We are being forewarned: A self-described (by his constant tweeting) “new sheriff is coming to town,” along with the newly-elected members of the 115th Congress who begin their meetings this week. Given the makeup of the new Administration (at least in the identification of cabinet and agency leaders to date) and the members of the leadership of the majority party on Capitol Hill, sustainability professionals will have their work set out for them, probably coming into a more clear focus in the fabled “first 100 days” after January 20th and the presidential inauguration ceremonies.

The year 2016 began on such a hopeful note! One year ago as the year got started I began writing a series of commentaries on the many positive trends that I saw — and by summer I was assembling these into “Trends Converging! — A 2016 Look Ahead of the Curve at ESG / Sustainability / CR / SRI.” Subtitle, important trends converging that are looking very positive…

As I got beyond charting some 50 of these trends, and I stopped my thinking and writing to share the commentaries and perspectives that formed chapters in an assembled e-book that is available for your reading. I’ve been sharing my views because the stakes are high for our society, business community, public sector, social sector…all of us!

* * * * * * * *

The specifics: Throughout the early months of 2016 I was encouraged by:

The Secretary of the U.S. Department of Labor giving American fiduciaries the green light for considering corporate ESG factors in their investment decision-making. Page 7 – right up front in the commentaries!

The Sustainable Accounting Standards Board (SASB) team completing its comprehensive recommendations for 12 sectors and 80 industry components of these for “materiality mapping” and expansion of corporate reporting to include material ESG factors in the annual 10-k filing. These are important tools for investors and managements of public companies. See Page 17.

His Holiness Pope Francis mobilizing the global resources of the worldwide Roman Catholic Church with his 74-page Laudato Si [encyclical] that includes sharp and sweeping focus on climate change, global warming, water availability, biodiversity, and other social issues. Imagine, I wrote, the power that such an institution can bring to bear on challenges, in the world, in the USA, and other large nations…

This is the Pope’s great work: “On Care of Our Common Home.” I explored the breadth of depth of this in my commentaries. That’s on Page 163 – Chapter 44.

President Barack Obama ably led the dramatic advances made in the Federal government’s sustainability efforts thanks in large measure to several of the President’s Executive Orders (such as EO 13693 on March 19, 2015: Planning for Federal Sustainability in the Next Decade).

Keep in mind the Federal government is the largest purchaser of goods and services in the U.S.A. — over time this action will result in positive changes across the government’s prime supply chain networks. Page 50 / Chapter 13.

The European Union’s new rules for disclosure of non-financial information beginning in 2017; As I began my commentary, the various EU states were busily finalizing adoption of the Accounting Directive to meet the deadline for companies within each of the 28 states. The estimate is that as many as 5,000 companies will begin reporting on their CR and ESG performance. Page 27 / Chapter 7.

Here in the USA, Federal regulators were inching toward final rules for the remaining portions of the 2010 Dodd-Frank legislation. Roughly 20% of rules were yet to be completed for corporate compliance with D-F as we entered 2016, according to estimates by the Davis Polk law firm. Page 30 / Chapter 8.

In 2017, one very contentious rule will be in effect — the required disclosure by public companies of the CEO-to-median worker-pay ratio; the final rule was adopted in August 2015 and so in corporate documents we will be seeing this ratio publicized (technically, in the first FY beginning in January 1, 2017). Page 34 / Chapter 9 – What Does My CEO Make? Why It Matters to Me.

Good news on the stock exchange front: member exchanges of the World Federation of Exchanges have been collaborating to develop “sustainability policies” for companies with shares listed on the respective exchanges. At the end of 2015 the WFE’s Sustainability Working Group announced its recommendations [for adoption by exchanges]. Guidance was offered on 34 KPIs for enhanced disclosure. Page 103 / Chapter 27.

The WFE has been cooperating with a broad effort convened by stakeholders to address listing requirements related to corporate disclosure

This is the “SSE” — the Sustainable Stock Exchanges initiative, spearheaded by the Ceres-managed Investor Network on Climate Risk (INCR), and leadership of key UN initiatives as well as WFE member exchanges.

NASDAQ OMX is an important part of this overall effort in the United States and is committed to discussing global standards for corporate ESG performance disclosure.  Notd Evan Harvey, Director of CR for NASDAQ: “Investors should have a complete picture of the long-term viability, health and strategy of their intended targets. ESG data is a part of the total picture. Informed investment decisions tend to produce longer-term investments.”

The United Nations member countries agreed in Fall 2015 on adoption of sweeping Sustainable Development Goals (SDGs) for the next 15 years (17 goals/169 specific targets). This is a dramatic expansion of the 2000 Millennium Goals for companies, NGOs, governments, other stakeholders. Now the many nation-signatories are developing strategies, plans, programs, other actions in adoption of SDGs. And large companies are embracing the goals to help “transfer our world” with adoption of mission-aligned strategies and programs out to 2030.

G&A Institute’s EVP Lou Coppola has been working with Chairwoman of the Board Dr. Wanda Lopuch and leaders of the Global Sourcing Council to help companies adopt goals (the GSC developed a sweeping 17-week sourcing and supply chain campaign based on the 17 goals). Page 56 / Chapter 15.

Very important coming forth as the year 2016 moved to a close: The Report on US Sustainable, Responsible and Impact Investing Trends, 2016 — the every-other-year survey of asset managers in the USA to chart “who” considers ESG factors across their activities. Money managers and institutional investors, we subsequently learned later in 2016, use ESG factors in determining $8.72 trillion in AUM – a whopping 33% increase since 2014. Great work by the team research effort helmed by US SIF’s Meg Voorhes and Croatan Institute’s Joshua Humphreys (project leaders). Background before the report release Page 78.

* * * * * * * *

The above is a very brief overview of the many positive trends that I saw, explored further, and wrote commentaries on through many months of 2016. I worked to weave in the shared perspectives of outstanding thought leaders and experts on various topics. We are all more enlightened and informed by the work of outstanding thought leaders, many presented in the public arena to benefit us.

* * * * * * * *

Sharing Thought Leadership

In developing our commentaries we shared the wisdom of many people who are influential thought leaders and who enthusiastically share their own perspectives with us. These include:

  • Chris Skroupa, Founder of Skytop Strategies and prominent Forbes blogger. His views on Page i.
  • Pam Styles, Founder/Principal of Next Level Investor Relations and NIRI Senior Roundtable member. See Page iv.
  • Secretary Thomas Perez, U.S. Department of Labor on ERISA for fiduciaries. Page 7.
  • Dr. James Hawley of St. Mary’s College of California on the concept of the Universal Owner, based on the earlier work of corporate governance thought leader Robert Monks. Page 9.
  • the team at Sustainable Accounting Standards Board led by Chair Michael Bloomberg, Vice Chair Mary Schapiro, Founder and CEO Jean Rogers, Ph.D., P.E. . Page 17.
  • the team at TruCost.
  • the team at CDP.
  • the team at CFA Institute (the global organization for Chartered Financial Analysts) developing guidelines for inclusion of ESG factors in analysis and portfolio management — the new Guide for Investment Professionals – ESG Issues in Investing. Coordinated by Matt Orsagh, CFA, CIPM; Usman Hayat, CFA; Kurt Schacht, JD, CFA; Rebecca A. Fender, CFA. Page 20.
  • the leadership team at New York Society of Securities Analysts’ (NYSSA) Sustainable Investing Committee (where I was privileged to serve as chair until December 31st). Page 21. We have great perspective sharing among the core leadership team (Kate Starr, Peter Roselle, Ken Lassner, Andrew King, Agnes Terestchenko, Steve Loren).
  • experts respected law firms sharing important perspectives related to corporate governance, corporate citizenship / CSR / disclosure / compliance and related topics: Gibson Dunn on compliance matters. Page 25.
  • the law firm of Davis Polk on Dodd-Frank rulemaking progress and related matters.
  • experts at the respected law firm of Morrison & Foerster on executive compensation and related regulatory matters (in the excellent Cheat Sheet publication). Page 30.
  • the experts at the law firm of Goodwin Procter addressing SEC regulations. Page 146.
  • the skilled researchers, analysts and strategists at MSCI who shared “2016 ESG Trends to Watch” with their colleagues. The team of Linda Eling, Matt Moscardi, Laura Nishikawa and Ric Marshall identified 550 companies in the MSCI ACWI Index that are “ahead of the curve” in accounting for their carbon emissions targets relative to country targets. Baer Pettit, Managing Director and Global Head of Products, is leading the effort to integrate ESG factors into the various MSCI benchmarks for investor clients.Page 100.

AND……..

  • Thanks to Peter Roselle for his continuous sharing of Morgan Stanley  research results with the analyst community. 
  • the perceptive analysts at Veritas, the executive compensation experts who closely monitor and share thoughts on CEO pay issues. Page 36.
  • the outstanding corporate governance thought leader and counsel to corporations Holly Gregory of the law firm Sidley Austin LLP who every year puts issues in focus for clients and shares these with the rest of us; this includes her views on proxy voting issues. (She is co-leader of the law firm’s CG and Exec Compensation Practice in New York City.) Page 39.
  • the Hon. Scott M. Stringer, Comptroller of the City of New York, with his powerful “Board Accountability Project,” demanding increased “viable” proxy access in corporate bylaws to enable qualified shareholders to advance candidates for board service. Pages 40, 45 on.
  • the experts at Institutional Shareholder Services (ISS), a unit of MSCI, which counts numerous public employee pension funds and labor pension systems among its clients; ISS staff share their views on governance issues with the rest of us to keep us informed on their policies and related matters. Page 40.
  • SRI pioneer and thought leader Robert Zevin (chair of Zevin Asset Management) who shares his views on the company’s work to improve corporate behaviors. Page 41.
  • Mark W. Sickles, NACD thought leader, and my co-author of “Strategic Governance: Enabling Financial, Environmental and Social Sustainability” (p.2010) for helping me to better understand and refine my views on the “Swarming Effect” (investor engagement) by institutional investors that influences corporate behavior. Page 44.
  • the experts led by thought leader (and ED) Jon Lukomnik at Investor Responsibility Research Center (IRRC) that, working with Ernst & Young LLP, one year ago in January produced the Corporate Risk Factor Disclosure Landscape to help us better understand corporate risk management and related disclosure. Page 47.
  • CNN commentator and author Fareed Zakaria who shared his brilliant perspectives with us in publishing “The Post American World,” focusing on a tectonic, great power shift. Page 61.
  • The former food, agriculture and related topics commentator of The New York Times, Mark Bittman, who shared many news reports and commentaries with editors over five years before moving on to the private sector. Page 65.
  • our many colleagues at the Global Reporting Initiative (GRI) in the Netherlands, the USA, and in other countries, who shared their views on corporate sustainability reporting and related topics; the GRI framework is now becoming a global standard. (G&A Institute is the Data Partner for GRI in the USA, UK and Republic of Ireland; we are also a Gold Community member of supporters for the GRI.) Page 71.
  • our colleagues at Bloomberg LP, especially the key specialist of ESG research, Hideki Suzuki; (and) other colleagues at Bloomberg LP in various capacities including publishing the very credible Bloomberg data and commentary on line and in print. Page 76 and others.
  • Barbara Kimmel, principal of the Trust Across America organization, who collaborated with G&A Institute research efforts in 2016.
  • we have been continually inspired over many years by the efforts of the Interfaith Center on Corporate Responsibility (ICCR), and past and present leaders and colleagues there, who helped to inform our views in 2016 on shareholder activism and corporate engagement. Chair the Rev. Seamus Finn is on point with his “Holy Land Principles” in recent years. The long-time executive director, Tim Smith (now at Walden Asset Management) has been very generous in sharing news and perspectives long after his ICCR career. Details on Page 77.
  • our colleagues at the U.S. Forum for Sustainable & Responsible Investment (US SIF), and its Foundation, led by CEO Lisa Woll; and our colleagues at the SIF units SIRAN and IWG. The every-other-year summary of Assets Under Management utilizing ESG approaches showed [AUM] nearing $9 trillion before the run up in market valuations following the November elections. Page 78.
  • Goldman Sachs Asset Management acquired Imprint Capital in 2015 (the company was a leader in developing investment solutions that generate measureable ESG impact — impact investing). Hugh Lawson, head of GSAM client strategy, is leading the global ESG activities. GSAM has updated its Environmental Policy Framework to guide the $150 billion in clean energy financing out to 2025. Page 83.
  • the experts at Responsible Investor, publishing “ESG & Corporate Financial Performance: Mapping the Global Landscape,” the research conducted by Deutsche Asset & Wealth Management and Hamburg University. This is an empirical “study of studies” that looked at the “durable, overall impact of ESG integration to boost the financial performance of companies.” A powerful review of more than 2,000 studies dating back to 1970. Page 90.
  • Boston Consulting Group’s Gregory Pope and David Gee writing for CNBC saw the advantage held by the USA going into the Paris COP 21 talks: advances in technology are making the USA a global leader in low-cost/low-pollution energy production. They worked with Professor Michael Porter of Harvard Business School (the “shared value” proponent) on research. Page 95.
  • researchers, analysts and experts at Morgan Stanley Research charted “what was accomplished in Paris in 2015” for us; their report identified five key areas of progress that cheered conference participants; I share these in the “Trends Converging!” work. MS Research in the post-Paris days shared perspectives on the carbon tax concept and the status of various nations on the issue — and the actions of the State of California in implementing “AB 32” addressing GhGs. Page 119.
  • G&A Institute Fellow Daniel Doyle, an experienced CFO and financial executive, sharing thoughts on corporate “inversion” and the bringing back of profits earned abroad by U.S. companies. Page 122.
  • the Council of State Governments (serving the three branches of state governments) is actively working with public officials in understanding the Clean Power Plan of the Obama Administration (the shared information is part of the CSG Knowledge Center). Page 101.
  • Evan Harvey, Director of CR at NASDAQ, has continuously shared his knowledge with colleagues as the world’s stock exchanges move toward guidance or rule making regarding disclosure of corporate sustainability and related topics. Page 104.
  • our former Rowan & Blewitt [consulting practice] colleague Allen Schaeffer, now the leader of the Diesel Technology Forum, explaining the role of “clean diesel” in addressing climate change issues. Page 128.
  • Harvard Business School prof Clayton Christensen, who conceived and thoroughly explained “the Innovator Dilemma” in the book of the same name in 2007, updated recently, characterized new technology as “disruptive” and “sustaining,” now happening at an accelerated pace. We explain on Page 147.
  • the researchers and experts at the Society for Human Resource Management (SHRM) has shared important perspectives and research results dealing with the massive shift taking place in the corporate and business sectors as Baby Boomers retire(!) and the Millennials rise to positions of influence and power. And Millennials are bringing very positive views regarding corporate sustainability and sustainable investing to their workplace! The folks at Sustainable Brands also weighed in on this in recent research and conference proceedings. Page 154.
  • Author Thom Hartman in 2002 explored for us the subject of “corporate citizenship” in his book, “Unequal Protection, the Rise of Corporate Dominance and the Theft of Human Rights.” This work continues to help inform views regarding “corporate rights” in the context of corporate citizenship and beyond. The issue of corporate contributions to political parties and candidates continues to be a hot proxy season debate. Page 160.
  • Author and consultant Freya Williams in her monumental, decade-long research into “Green Giants” shared results with us in the book of that name and her various lectures. Seven green giant [companies] are making billions with focus on sustainability, she tells us, and they outperform the S&P 500 benchmark. Page 170.
  • Speaking of the S&P 500, I shared the results of the ongoing research conducted by our G&A Institute colleagues on the reporting activities of the 500 large companies — now at 81% of the benchmark components. Page 195.
  • And of course top-of-mind as I moved on through in writing the commentaries, I had the Securities & Exchange Commission’s important work in conducting the “Disclosure Effectiveness Initiative,” and a look at Regulation S-K in the “Concept Release” that was circulated widely in the earlier months of 2016. Consideration of corporate sustainability / ESG material information was an important inclusion in the 200-page document. Page 174.

* * * * * * * *

All of the above and more were important contributors in my collected “Trends Converging!” (in 2016) work. I am grateful to many colleagues in the corporate community and in the capital markets community who shared knowledge, wisdom, expertise and more with Lou Coppola and I over the recent years. They have helped to inform our work.

We thank the knowledge and valuable information willingly shared with us by our valued colleagues at RepRisk, especially Alexandra Milhailescu; Measurabl (Matt Ellis); The Conference Board’s Matteo Tonello; Nancy Mancilla and Alex Georgescu at our partnering organization for training, ISOS Group; Bill Baue at Convetit; Herb Blank at S-Networks Global Indexes; Robert Dornau at RobecoSAM Group, managers of the Dow Jones Sustainability Index family; Barbara Kimmel at Trust Across America.

Also, Professor Nitish Singh of St. Louis University, with his colleague VP Brendan Keating of IntegTree, our on-line professor and tech guru for the new G&A on-line, sustainability and CSR e-learning platform.

And, Executive Director Judith Young and Institute Founder James Abruzzo, our colleagues at the Institute for Ethical Leadership at Rutgers University Business School; Matt LePere and the leaders at Baruch College / City University of New York; and, Peter Fusaro, our colleague in teaching and coaching, at Global Change Associates.

And thank you, Washington DC Power Players!

Very important: We must keep uppermost in mind the landmark work of our President Barack H. Obama (consider his Action Plan on Climate Change, issued in December 2015) with the Clean Power Plan for the USA included. His Executive Orders have shaped the Federal government’s response to climate change challenges.

And there is U.S. Senator Bernie Sanders, again and again hitting the hot button sensitive areas for the middle class — like income and wealth inequalities and Wall Street reform — that raised the consciousness of the American public about these issues.
.
Former Secretary of State Hillary Rodham Clinton and her views (published in The New York Times) in her “How to Rein in Wall Street” op-ed.

And I thank my G&A Institute colleagues for their support and continued input all through the writing process: EVP Louis Coppola; Ken Cynar, our able editor and news director; Amy Gallagher, client services VP; Peter Hamilton, PR leader; Mary Ann Boerner, head of administration.

So many valuable perspectives shared by so many experts and thought leaders! All available to you…

* * * * * * * *

And Now to 2017!

And so what will happen in these many, many areas of forward-momentum in addressing society’s most challenging issues (like global warming) with “deniers and destroyers” lining up for key Federal government positions in the new administration and in the 115th Congress?

I and my colleagues at G&A Institute will be bringing you news, commentary and opinion, and our shared perspectives on developments.

If you would like to explore the many (more than 50) positive trends that I saw as 2016 began and proceeded on into the election season, you will find a complimentary copy of “Converging Trends!” (2016) at:http://www.ga-institute.com/research-reports/trends-converging-a-2016-look-ahead-of-the-curve.html

* * * * * * * *

Please do share with us your own thoughts where you think we might be headed in 2017, and your thoughts on the 2016 trends and their future directions — for 2017 and beyond. Do tune in to the many experts that I included in the various commentaries as they adjust to the New Normal of Washington DC.

I plan to share the individual commentaries with updates in 2017. Do Stay Tuned to G&A Institute’s Sustainability Update blog (you can register here to receive notice of new postings). You can sign on to receive the latest post at: http://www.ga-institute.com/sustainability-update-blog.html (Sharing insights and perspectives for your sustainability journey.)

Best wishes from the G&A Institute team for the New Year 2017!

 

 

Good News: Solar & Wind Emerge in Global Search for Renewable Energy Sources

Guest Commentary  – Alison Crady      Marketing Specialist, CDF Distributors and Fast Partitions, United Kingdom

On Planet Earth there are numerous resources we have learned to utilize to enhance our work and private lives. Through the work of brilliant inventors and engineers, our cities come alive day and night powered by reliable electricity.

From the cars we drive to the light bulbs that illuminate our desktop, we steadily use the planets’ natural resources without giving much thought to the power source.
But in recent years, in addition to our increasing usage of these resources and supplied power, there comes our greater awareness of their limitations.

Today, with the societal emphasis on greater sustainability in all areas of our lives, environmentalists and technicians eagerly search for renewable energy sources.

Options like hydropower, solar power, wind energy and geothermal plants are being tested around the world… the good news is, with increasing success, worth noticing.

Here are some good news stories to share about renewable energy successes around the world:

In Costa Rica
Perhaps one of the “brightest” examples, the nation of Costa Rica in Central America has managed to use 100 percent renewable energy for 76 days straight. This was the second test-run of the length of sustainable power this year, which adds up to over 150 renewable energy days. Being a smaller country, Costa Rica is the perfect testing grounds for replacement energy sources. The length of the country’s use of renewable power is astounding.

Throughout the project, the Costa Rican government depended on these primary replacements:
• Hydro/geothermal/wind/solar energy— 80. 27%
• Geothermal plants— 12.62%
• Wind turbines— 7.1%

In the Nation of Portugal
The Portuguese quest for clean energy has achieved some important milestones. Recently, this small European country on the Atlantic shoreline managed to provide power for four days straight using only renewable energy sources. For the entire 107 hours, the nation of Portugal was sustained only by wind and solar power. This 4-day streak was the recent peak of their increasingly-promising clean power journey. Last year renewable sources provided 48% of Portugal’s total energy needs. Zero harmful emissions release is the goal.

In the United Kingdom
In the UK, governmental leaders and renewable energy industry leaders are hard at work to identify sustainable clean energy solutions. Researchers have seen some dramatic changes in solar power and wind energy usage. Unfortunately, the UK government has decided to halt the spread of onshore windfarms, primarily because of how expensive these installations were becoming.

Experts predict at least a one gigawatt — enough to light up 660,000 homes — loss in renewable energy generation within the next five years. After the ground-breaking investment in wind energy last year, several proposed construction projects will come to a halt.

That is the disappointing news. Investment in solar power, on the other hand, has slowly but steadily been increasing. Perhaps with the coming drop in government wind energy subsidies, the renewable energy finances will be redirected to encourage greater solar energy funding.

In Spain
If you visit the colorful lands of Spain, Portugal’s neighbor on the Iberian Peninsula, you’ll soon learn that electrical power is expensive. The country’s lack of natural resource blessings — such as deposits of oil, natural gas or coal — has spurred policymakers and industry leaders forward in the development of renewable energy. With this motivation to find less expensive, reliable energy sources, Spain is becoming known as a “Cradle of Renewable Energy.”

During the night time, wind energy fulfills 70% of Spain’s electricity needs, with a daytime record achievement of 54%. Over 29 million homes in Spain are currently powered by wind energy. However, wind energy is unpredictable, which makes forecasting key to sustainable clean energy. The Spanish firm Acciona consistently monitors the operations of 9,500 wind turbines at the Pamplona control center.

In Germany
The German nation’s quest for renewable energy has recently gained momentum. According to the Agora Energiewende think tank, Germany was able to supply nearly 100% of its energy needs with renewable sources for an entire day. Conventional power plants were able to supply 7.7 gigawatts at their energy output peak. As the country moves forward to phase out nuclear and fossil fuels, Germany’s cleaner power drive / quest narrows in on solar and wind power.

In China
Never a country to miss out on significant global trends, China has taken stock in its renewable energy resources. Aware of the need to combat climate change, China sets up new wind turbines at the astonishing rate of two every hour. According to the International Energy Agency (IEA), onshore wind and solar panels have increasingly been reduced in costs.

The IEA reported this decline as impressive, and they expect the trend to continue. With cheaper renewable energy options, the clean power usage trend will continue to take off, most industry expert agree.

The Rewards of Renewable Energy
The damaging effects of current levels of carbon dioxide emissions and the awareness of ever-limited natural resources are being felt around the world. The need for a better way to generate energy is clear. Given the recent trends of success, in a growing number of countries, solar and wind energy power sources are not going away any time soon. These renewable resources are the forecasted “superheroes” for continued (and significant) reduction in dangerous carbon emissions and energy source and supply security on a global scale.

That’s the good news to share today.

# # #

Allison Crady provides these links to the companies she serves as marketing specialist:
• http://www.cdfdistributors.com/
• https://www.fastpartitions.com/

Alison Crady

Guest Commentator Alison Crady

Will We See Mandated Corporate Reporting on ESG / Sustainability Issues in the USA?

by Hank Boerner – Chairman – G&A Institute

Maybe…U.S. Companies Will Be Required…or Strongly Advised… to Disclose ESG Data & Related Business Information

Big changes in mandated US corporate disclosure and reporting on ESG factors may be just over the horizon — perhaps later this year? Or perhaps not…

Sustainable & responsible investing advocates have long called for greater disclosure on environmental and social issues that affect corporate financial performance (near and long-term). Their sustained campaigning may soon result in dramatic changes in the information investors and stakeholders will have available from mandated corporate filings.

We are in countdown mode — in mid-April the Securities & Exchange Commission (SEC), the agency that regulates many parts of the capital market operations and especially corporate disclosure and reporting for investors issued a Concept Release with a call for public comments.

Among the issues In focus are potential adjustments, expansions and updating of mandated corporate financial reporting. One of these involves corporate ESG disclosure. The issue of “materiality” is weaved throughout the release.

Among the many considerations put forth by SEC: expanding corporate disclosure requirements for corporate financial and business information to include ESG factors, and to further define “materiality.” Especially the materiality of ESG factors.

The comment period is open for you to weigh in with your opinion on corporate ESG disclosure and reporting rules — or at least strong SEC guidance on the matter.

SEC has been conducting a “Disclosure Effectiveness Initiative,” which includes looking at corporate disclosure and reporting requirements, as well as the forms of presentation and methods of delivery of corporate information made available to investors. (Such as corporate web site content, which most feel needs to be updated as to SEC guidance.)

The umbrella regulatory framework — “Regulation S-K” — has been the dominant approach for corporate reporting since 1977 has been the principal repository (in SEC lingo) for filing corporate financial and business information (such as the familiar 10-K, 10-Q, 8-K, etc.).

Investors Want More Corporate ESG Information

For a number of years now, investment community players have urged SEC to look at mandating or offering strong guidance to public company managements to expand disclosure and reporting to substantially address what some opponents conveniently call “non-financial,” or “intangible” information. An expanding base of investors feel just the opposite — ESG information is quite tangible and has definite financial implications and results for the investor. The key question is but how to do this?

Reforming and Updating Reg S-K

In December 2013 when the JOBS Act (“Jumpstart Our Business Startups”) was passed by Congress, SEC was charged with issuing a report [to Congress] on the state of corporate disclosure rules. The goal of the initiative is to improve corporate disclosure and shareholders’ access to that information.

The Spring 2016 Concept Release is part of that effort. The SEC wants to “comprehensively review” and “facilitate” timely, material disclosure by registrants and improve distribution of that information to investors. Initially, the focus is on Reg S-K requirements. Future efforts will focus on disclosure related to disclosure of compensation and governance information in proxy statements.

Asset managers utilizing ESG analytics and portfolio management tools cheered the SEC move. In the very long Concept Release – Business and Financial Disclosure Required by Regulation S-K, at 341 pages — there is an important section devoted to “public policy and sustainability” topics. (Pages 204-215).

ESG / Sustainability in Focus For Review and Action

In the Concept Release  SEC states: In seeking public input on sustainability and public policy disclosures (such as related to climate change) we recognize that some registrants (public companies) have not considered this information material.

Some observers continue to share this view.

The Concept Release poses these questions as part of the consideration of balancing those views with those of proponents of greater disclosure including ESG information:

• Are there specific public policy issues important to informed voting and investment decisions?

• If the SEC adopted rules for sustainability and public policy disclosure, how could the rules result in meaningful disclosures (for investors)?

• Would line items about sustainability or public policy issues cause registrations to disclose information that is not material to investors?

• There is already sustainability and ESG information available outside of Commission (S-K) filings — why do some companies publish sustainability, citizenship, CSR reports…and is the information sufficient to address investor needs? What are the advantages and disadvantages of these types of reports (such as being available on corporate web sites)?

• What challenges would corporate reporters face if ESG / sustaianbility / public policy reporting were mandated — what would the additional costs be? (Federal rule making agencies must balance cost-benefit.)

• Third party organizations — such as GRI and SASB for U.S. company reporting — offer frameworks for this type of reporting. If ESG reporting is mandated, should existing standards or frameworks be considered? Which standards?

The Commission has received numerous comments about the inadequacy of current disclosure regarding climate change matters. And so the Concept Release asks: Are existing disclosure requirements adequate to elicit the information that would permit investors to evaluate material climate change risk? Why — or why not? What additional disclosure requirements– or SEC guidance — would be appropriate?

Influential Voices Added to the Debate

The subject of expanded disclosure of corporate ESG, sustainability, responsibility, citizenship, and related information has a number of voices weighing in. Among those organizations contributing information and commentary to the SEC are these: GRI; SASB; Ceres; IEHN; ICCR; PRI; CFA Institute; PWC; E&Y; ISS; IIRC; BlackRock Institute; Bloomberg; World Federation of Exchanges; US SIF.

The overwhelming view on record now with SEC is that investor consideration of ESG matters is important and that change is needed in the existing corporate reporting and disclosure requirements. You can add your voice to the debate.

For Your Action:

I urge your reading of the Concept Release, particularly the pages 204 through 215, to get a better understanding of what is being considered, especially as proposed by proponents; and, I encourage you to weigh in during the open public comment period with your views.

You can help to ensure the SEC commissioners, staff and related stakeholders understand the issues involved in expanding corporate disclosure on ESG matters and how to change the rules — or offer strong SEC guidance. Let the SEC know that ESG information is needed to help investors better understand the risks and opportunities inherent in the ESG profiles of companies they do or might invest in.

SEC rules or strong guidance on ESG disclosure would be a huge step forward in advancing sustainability and ESG consideration by mainstream capital market players.

Information sources:

The SEC release was on 13 April 2016; this means the comment period is open for 90 days, to mid-July.

Helpful Background For You

Back in 1975 as the public focus on environmental matters continued to increase (all kinds of federal “E” laws were being passed, such as the Clean Air Act and Clean Water Act), stakeholders asked SEC to address the disclosure aspects of corporate environmental matters.

The initial proposal was deemed to have exceeded the commission’s statutory authority.

In 1974 the ERISA legislation had been passed by Congress, and pension funds, foundations and other fiduciaries were dramatically changing the makeup of the investor community, dwarfing the influence of one once-dominant individual investor. After ERISA and the easing of “prudent man” guidelines for fiduciaries, institutional investors rapidly expanded their asset holdings to include many more corporate equities.

And the institutions were increasingly focused on the “E,” “S” and :”G” aspects of corporate operations — and the real or potential influence of ESG performance on the financials. Over time, asset owners began to view the company’s ESG factors as a proxy for (effective or not) management.

While the 1975 draft requirements for companies to expand “E” and “S” information was eventually shelved by SEC, over the years there was a steady series of advances in accounting rules that did address especially “E” and some “S” matters.

FAS 5 issued by FASB in March 1975 addressed the “Accounting for Contingency” costs of corporate environmental liability FASB Interpretation FIN 14 regarding FAS 5 a year later (September 1976) addressed interpretations of “reasonable estimations of losses.” SEC Staff Bulletins helped to move the needle in the direction of what sustainable & responsible investors were demanding. Passage of Sarbanes-Oxley statutes in July 2002 with emphasis on greater transparency moved the needle some more.

But there was always a lag in the regulatory structure that enables SEC to keep up with the changes in investment expectations that public companies would be more forthcoming with ESG data and other information. And there was of course organized corporate opposition.

(SEC must derive its authority from landmark 1933 and 1934 legislation, expansions and updates in 1940, 2002, 2010 legislation, and so on. Rules must reflect what is intended in the statutes passed by Congress and signed into law by the President. And opponents of proposals can leverage what is/is not in the laws to push back on SEC proposals.)

There is an informative CFO magazine article on the subject of corporate environmental disclosure, published September 9, 2004, after the Enron collapse, two years after Sarbanes-Oxley became the law of the land, and 15+ years after the SEC focused on environmental disclosure enhancements. Author Marie Leone set out to answer the question, “are companies being forthright about their environmental liabilities?” Check out “The Greening of GAAP” at: http://ww2.cfo.com/accounting-tax/2004/09/the-greening-of-gaap/

And we add this important aspect to corporate ESG disclosure: Beginning in 1990 and in the years that followed, the G1 through G4 frameworks provided to corporate reporters by the Global Reporting Initiative (GRI) helped to address the investor-side demand for more ESG information and the corporate side challenge of providing material information related to their ESG strategies, programs, actions and achievements.

The G&A Institute team sees the significant progress made by public companies in the volume of data and narratives related to corporate ESG performance and achievements in the 1,500 and more reports that we analyze each year as the exclusive data partner for The GRI in the United States, United Kingdom, and The Republic of Ireland.

We have come a very long way since the 1970s and the SEC Concept Release provides a very comprehensive foundation for dialogue and action — soon!

Please remember to take action and leave your comments here:
http://www.sec.gov/rules/concept.shtml

U.S. Industry & Trade Associations Encourage Corporate Sustainability — Today, the American Cleaning Institute is in Focus

by Hank Boerner – Chairman, G&A Institute

As more and more U.S. companies begin or expand their disclosure and reporting on their sustainability journey, and their widening range of corporate responsibility activities, the choice of reporting frameworks both narrows and expands.

Narrows in the sense that the Global Reporting Initiative (GRI) framework — now in its fourth generation (“G4”) since the introduction of the GRI approach in 1999-2000 — is considered the de facto global standard by thousands of company managements. There are now 30,000 sustainability reports in the GRI database — 21,000-plus of those published GRI Reports.

And the number of reporting frameworks and generally accepted standard steadily expands — there are many more standards, frameworks, codes of conduct, guidelines, third party requests for information, that now take sustainability / responsibility / citizenship / environmental performance reporting far beyond where these activities were a decade or so ago. Many corporate managements recognize the importance of such reporting and devote the necessary [human and financial] resources to the task.

Examples of available standards include corporate responding to the annual CDP CSA request for information (the voluntary Corporate Sustainability Assessment). CDP began operations in 2000 as the Carbon Disclosure Project with focus on collecting, organizing and providing information on corporate Greenhouse Gas Emissions (GhGs) to investors; today the CDP focus include water issues, forestry issues, supply chain issues, and sector-by-sector research and analysis (the first sectors included chemicals and automotive). The client base is almost 500 institutional investors with more than US$55 trillion in AUM — they accept the CDP approach as an important standard in reporting on corporate environmental performance (or lack of).

There are also global and U.S. industry associations and trade groups that help their corporate members to understand key issues, map materiality; understand stakeholder expectations; align corporate strategies, activities and programs, third party engagement, and disclosure and reporting with the ever-expanding stakeholder and shareholder expectations. Among these are such well-known organizations as Automotive Industry Action Group (AIAG) and the Electronics Industry Citizenship Coalition (EICC).

Industry Effort:
The American Cleaning Institute and Sustainability

One large industry-focused effort we focus on today organized resources to develop a charter to provide a common, voluntary approach to promote and demonstrate continual improvement in the industry’s sustainability profile is that of the cleaning (products & services) industry — the American Cleaning Institute (ACI).

The Charter for Sustainable Cleaning is one of ACI’ major initiatives to fulfill the mission, and provide a framework for corporate members to go beyond basic legal and regulatory requirements.

You know many of the member company names and their brands, which are ubiquitous in American and global business-to-business and consumer marketing; a sampling includes Amway, BASF, Church & Dwight, Clorox, Colgate-Palmolive, Dow, DuPont, Huntsman, and International Flavors & Fragrances (IFF).

The American Cleaning Institute’s sustainability mission is to “benefit society and improve the quality of life through hygiene and cleanliness by driving sustainability improvements across the industry and throughout the supply chain.” The ACI Charter for Sustainable Cleaning was launched in January 2014 at the group’s annual meeting & industry convention. The charter was in part based on the A.I.S.E. Charter for Sustainable Cleaning, a voluntary initiative of the sister trade association in Europe (AISE). The bulk of ACI’s U.S. member companies are cleaning product manufacturers and chemical suppliers.

To date, 25 ACI member companies are signing on to the charter; they are required to have systems in place to continual assessment; review; and improvement of sustainability performance. This includes product life cycle; raw materials; resource use; product specs; manufacturing; end use and disposal of products and packaging; and occupational health and safety.


Discussion:
Brian Sansoni, VP, Sustainability Initiatives

We spoke with ACI’s Brian Sansoni, the VP, Sustainability Initiatives, based in Washington, D.C. Brian described the ACI’s sustainability efforts with the Charter as “an ongoing roll-out, beginning with speaker presentations and participant discussion at the 2014 annual conference. We are now two years into the effort.” The effort is to develop and demonstrate the sustainability efforts of a major industry sector in the United States, the cleaning products and services manufacturing and marketing industry and the industry’s supply chain.

Brian, who joined ACI in 2000, was named VP, Sustainability Initiatives in 2012 (he also has the title of VP, Communication & Membership). Brian works closely with the association’s communications team, the government affairs team, research & science team, and with a sustainability committee whose members come from member companies. He’s a radio news reporter and Congressional press secretary by background and past experience, and applies those skills to the communication about the industry association and member companies’ commitments to greater sustainability.

Brian’s teammate is Melissa Grande, Senior Manager, Sustainability Initiatives, who joined us in the conversation. Brian and Melissa oversee the production of the ACI Sustainability Report, which Brian describes as being thorough, distinct and relevant with metrics that clearly provide a hallmark of what the association and its member companies are doing in their collective sustainability journeys. The report summarizes data from 33 member companies participating in the 2014 Sustainability Metrics Program (the metrics relate to energy use, GhG emissions, water use and solid waste generation). The report features an updated summary of ACI’s social and environmental sustainability programs, and details for ACI’s scientific and research programs. They also conduct the “Sustainability Academy” for the education of ACI’s member companies.

The report is available at: www.cleaninginstitute.org/sustainability2015

Melissa Grande explained that as part of the association’s ongoing collaboration with other standard setters, ACI is a member organization of the Sustainability Consortium (Melissa was previously a member of the consortium staff).  ACI participated in the Sustainable Accounting Standards Board (SASB) development of suggested (voluntary) materiality disclosures for the Consumption Products Sector (including household and personal products).

Brian Sansoni stressed that the ACI effort is intended to create an industry-wide, discrete approach that member companies can benefit from, and contribute to as the initiatives move forward.

Important:  ACI’s Critical Issue Assessment

For the first time, the Institute staff and participating companies conducted a comprehensive materiality assessment to map risks and opportunities facing the U.S. cleaning product value chain, including key energy and environmental metrics. The mapping identified and characterized the key issues that affect ACI’s membership and the industry-at-large.

The top issues identified in the materiality process by internal and external stakeholders:

1 – Materials (safety of chemical ingredients; raw material sourcing, scarcity).
2 – Disclosure & Transparency (public disclosure related to sustainability, governance, products).
3 – Climate Change / GhGs (climate risk & opportunities; GhG emissions).
4 – Ecological Impacts (biodiversity, deforestation, environmental management, responsible agricultural practices).
5 – Water (use, waste water treatment, recycling).
6 – Workplace Health and Safety (health & safety management; health & wellness training programs).
7 – Waste (hazardous, non-hazardous waste; management of product end-of-life).
8 – Energy (energy use, renewable energy).
9 – Supply Chain Management (screening business partners on ethics & sustainability issues).
10 – Compliance (with EHS regulations).

The American Cleaning Institute’s Materiality Assessment, Brian notes, is an important way of guiding the association’s and member companies’ reporting on industry priorities. It’s also useful for the dialogue between companies and their stakeholders. ACI CEO Ernie Rosenberg notes that the association will be more strategic about tracking industry performance [on the issues] and the ACI sustainability reporting will evolve as a result.

In our view, the American Cleaning Institute’s sustainability program is an excellent example of the preferred method of the American business community in addressing ESG performance issues: adopting of voluntary, industry-wide standards, approaches, guidelines, codes of conduct, and other non-regulated approaches.

As we said up top, this approach is represented by what we see in the automotive, electronics, chemicals, apparel and other industries and sectors. This is important to keep in mind as the public dialogue on sustainability reporting includes expectations that the Federal government will at some point issue mandates for greater sustainability disclosure and structured reporting (similar, some advocates say, to mandated financial reporting).

# # #

For Reference

 

Company participants in the 2014 American Cleaning Institute Metrics Program:

AkzoNobel Chemicals LLC; Amway; Arylessence, Inc; BASF Corporation; Brenntag North America; Celeste Industries Corporation; Chemia Corporations; Church & Dwight Company, Inc; The Clorox Company; Colgate-Palmolive Company; Corbion; Croda, Inc; The Dow Chemical Company; DuPont Industrial Biosciences; Ecolab, Inc; Evonik Corporation; Farabi Petrochemicals; Firmenich Incorporated; Givaudan Fragrances Corporation; GOJO Industries, Inc; Henkel Consumer Goods, Inc; Huntsman Corporation; International Flavors & Fragrances, Inc; Novozymes PQ Corporation; Procter & Gamble; SC Johnson; Sasol; Seventh Generation; Shell Chemical LP; Stepan Company; The Sun Products Corporation; Vantage Oleochemicals.

These companies are key members of the US$30 billion U.S. cleaning products marketplace. ACI members formulate soaps, detergents and general cleaning products used in household, commercial, industrial and institutional settings. They also supply ingredients and finished packaging for these products; and, ACI members include oleochemical producers.

Interview With John H Streur of Calvert

By Louis Coppola, Governance & Accountability Institute


Calvert has a substantial presence at the 3rd Annual CSR Investing Summit.  Why was Calvert motivated to get involved with the conference?

We are big fans of S-Network. We recently chose S-Network to provide the underlying index construction and daily maintenance associated with the Calvert Responsible Index Series, and I think our reasons for sponsoring the conference are very similar to our reasons for choosing them for that task. S-Network really is a leader in custom index creation and they have a particular niche in understanding and working with Environmental, Social and Governance (ESG) data and “smart beta” indexes. We have had a long-standing relationship with them through work they already do providing custom indexes for two of our actively managed global investment strategies. Supporting the S-Net CSR Investing Summit is also one of the ways that Calvert can act on its commitments as a signatory to the UN Principles for Responsible Investment (PRI). We see forums like this as an opportunity to help educate others within the investment industry – particularly those who might be newer to responsible investing. We know that S-Network will bring together a conference agenda that is really at the cutting-edge of how best to define, manage and measure responsible investing. It’s in venues like this that the responsible investment community can work collaboratively to enhance how the UN PRI is being implemented within the field.


I understand that Calvert is presenting some new research for the first time.  Could you elaborate on this please?

Sure. As an integral part of Calvert’s fixed income investment process, we have long evaluated ESG factors alongside fundamental security analysis. Over the years, our relative-value analysis has identified significant ESG performance impacts (or you could think of these as insights) in many areas, such as sector analysis, credit ratings, credit spreads, duration, and security selection. We’ve recently published a paper explaining our finding that ESG factors appear most influential on spread performance for companies that exhibit combined outlier fundamental and ESG characteristics.  Specifically, we’ll be sharing the results of a paper in which we designed an empirical, back-tested study of the impact of ESG on the performance of credit default swap (CDS) spread performance over a 10-year period. We used six distinct scenarios, or simulations, and I don’t want to be providing a spoiler, but the exciting thing is that for all six simulations, the data demonstrated that ESG analysis added value, positively impacting performance.

I’m also excited to share that Calvert is working with George Serafeim, the Jakurski Family Associate Professor of Business Administration at Harvard, to conduct additional research that we’ll be sharing later this summer and throughout the fall in a series of thought leadership papers. George and several members of the Calvert team are exploring a range of topics and the exciting thing about this partnership is that we can really pair George’s intellectual curiosity with the proprietary insights and data from the Calvert research system.


You say that Calvert’s approach to Responsible Investing is shifting from being primarily values-driven to primarily research-driven.  What do you mean by that?

There is a lot of baggage that can come with the word “values.” It is a word that has gotten a bad rap lately and I want to be very clear about the fact that everything Calvert Investments does on behalf of our clients – whether it’s a large institutional asset owner or an individual investor – reflects a set of values that we refer to as the Calvert Principles of Responsible Investment.  These Principles outline our perspective on the role of corporations in society, the ways that we believe corporations should interact with our natural environment, how they should contribute to building equitable societies and how we believe they should be governed. So we’re not moving away from our principles.

Often when you hear someone talk about a “values-based” approach, that’s a euphemism for employing negative screens. Our new research system puts us in a very different position to be able to differentiate between companies that are minimally acceptable – those that barely clear the bar – and those companies that are good, better and best. This much more methodical approach allows us to make more nuanced decisions without the performance trade-offs of less sophisticated approaches.

Getting very tactical about how this works, Calvert’s sustainability analysts have developed performance indicators and models in conjunction with our equities and fixed-income analysts for all 156 GICS sub-industries. The research system is focused on the materiality of specific ESG factors. It’s a very holistic approach.


It sounds like change is a consistent theme at Calvert these days. As a Chief Executive Officer, how are you communicating this change – both internally and externally?

Change is another word that can be loaded. I have great respect for Calvert’s history as a leader and a pioneer in the socially responsible investment space. I think that the next step forward for our firm – our next evolution – is to become a global leader in responsible investing.  The differences in the language seem subtle, but the expectations we have of ourselves as a steward of other people’s capital are profound. Being a responsible investor means that you are balancing your responsibilities to many stakeholders.

First and foremost, we have to produce an expected investment return consistent with the risk budget of each client. It is fundamentally what we do. But truly responsible investors (and other large asset owners) do that in a particular way. The “how” is also important. We look at the full scope of impacts – risks and opportunities – associated with the non-financial characteristics of each company in which we invest. We see these environmental, social and governance (ESG) factors as a two-way street. Companies can create risk through their behaviors or they can be exposed to risk because of the changing natural environment, shifting social norms, changing regulations, etc. The third aspect of a responsible investment approach is being an engaged shareholder. This means voting our proxies in a way that is consistent with our Principles, it means shareholder advocacy – bringing resolutions where companies are not acting fast enough. It can be dialogues and multi-stakeholder initiatives to raise awareness of issues that are going to be critical in the future. We are an active and engaged shareowner in the companies in which we invest. And finally, responsible investment is also about acknowledging the obligations that companies have to the communities in which they operate. That includes Calvert and the companies we hold. Responsible investors understand that we must work to solve the most vexing problems facing society today. I would point to global poverty as one of those issues. How can we create inclusive prosperity? At Calvert, we do this through our own philanthropic giving and we enable investors to do this through community investing and an ability to channel assets toward early stage companies that are creating solutions to global problems.


What primary shifts have you observed in institutional attitudes toward responsible investing and products tied to ESG?

Leading institutions have literally gone from being somewhat antagonistic about the value of incorporating sustainability (or ESG factors) into investments to essentially requiring that asset managers consider these factors. I think there was always some perception or validation around the idea that there were brand risks tied to obvious social factors such as human rights abuses in the supply chain. However, after the collapse of the financial markets in 2008, we began to see an accelerated level of conviction around the role that good governance – accountability, transparency, diversity – could play in the financial services sector, specifically banks. At the same time, leading companies were demonstrating how better management of environmental resources could cut costs, lead to innovations, etc. Corporations are integrating ESG into their own understanding of business risk and opportunity. I think that smart institutions are focusing on two key demographics as well – women and Millennials – both of whom have been shown to prefer a responsible approach.


On June 19, Calvert announced substantial changes to its existing core Responsible Index along with the launch of two additional indexes in the large cap growth and value spaces.  Could you describe these strategies in more detail along with the motivations behind the launches?

The Calvert Social Index has been a gold standard in responsible indexing for 15 years. We’ve definitely been hearing from existing clients that they wanted to be able to have exposure to more areas of the market and at the same time, there’s an undeniable trend toward lower-cost investment options. It seemed Calvert was uniquely positioned to address both of these needs. The Calvert Social Index became the Calvert U.S. Large Cap Core Responsible Index as of market close on June 19th. At the same time, we launched two additional indexes – the Calvert U.S. Large Cap Growth and U.S. Large Cap Value Responsible Indexes.

The starting place when thinking about index construction is with the S-Network U.S. Large Cap 1000 (SNET 1000) which is 99.9% correlated to the Russell 1000. When we apply our Principles of Responsible Investment, we come up with about 700 constituents that meet the criteria that we have selected. From there, we rank those constituents on a float-adjusted market cap weighted basis which is similar to the way most indexes are constructed. We then do an analysis based on the top 10 GICS sectors and look at how our constituents weigh out in those ten GICS sectors relative to the S Net 1000 sectors. We make adjustments to ensure that the Index remains sector neutral. The elimination of these potential sources of variance is advantageous – in particular it helps to minimize tracking risk for our indexes and identify company-specific criteria that are adding value to the index as opposed to cyclical factors that are happening in the economy.

From our large-cap core index we construct a growth and value index based on the same 700 constituents. Think of them as stack-ranked from most growth-oriented at the top to most value-oriented at the bottom. The top 30% are exclusively in our growth index and the bottom 30% exclusively in our value index. The 40% that are in between will appear in both indexes.


Are these new indexes a harbinger of things to expect in the future?  If so, why now?

Definitely. By bringing the new Calvert research process to more global capital markets we can create additional indexes and we can also strengthen our active portfolio management. It is only by having this quantitatively oriented dataset of the full rankings and ratings of ESG risk and opportunity that the best investment decisions can be made.

You will see us bringing this approach to several additional investment universes in the coming months including small cap, mid cap, non-U.S. developed markets, emerging markets and the fixed income space.  Additionally we have the ability to customize passive solutions for clients and I think that’s a great application and additional evolution of passive investing – custom passive investing.


I see you are scheduled to deliver the closing remarks for the conference. What roles do conferences such as this one play for its participants and audience members in terms of the overall direction of the investment industry?

Conferences like the S-Net Summer in the City CSR Investing Summit are really important because they aren’t designed to be sales-focused, but really thought leadership focused. It’s a very different environment when you bring together expert practitioners such as plan sponsors, endowments, consultants, academics, non-governmental organizations, the sell side, and even the media.  I think when you look at the agenda; you see opportunities to really challenge your own thinking, challenge assumptions about where the industry is headed and how we should get there. I am eager to engage with fellow practitioners, both those who are actively engaged in supporting the UN PRI and those who are new to that framework, to identify what’s new, what’s next, and how we can best further the goals of responsible investment.


About Calvert Investments
Calvert Investments is a global leader in Responsible Investing. Our mission is to deliver superior long-term performance to our clients and enable them to achieve positive impact. Founded in 1976 and headquartered in Bethesda, Maryland, Calvert Investments had more than $13 billion in assets under management as of May 31, 2015. Learn more at www.Calvert.com.