How To Build a Better – More Sustainable! – Brand … Advice From an Adweek Commentator

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

We seem to love our “top 10” [etc.] lists; these are typically eye-catching headlines for published news and commentaries about certain subjects. (As in: the 10 things you need to know about…). 

In Adweek, the authoritative news and insights publication for brand marketers over the past four decades, we learn about “the five truths needed to create a sustainable brand”. 

This is from a commentary by columnist Bruce Mau (he’s a prominent designer, co-founder of Massive Change Network and Visiting Professor at Pratt Institute).

The “mad scramble to make brands more sustainable is in full swing,” he advised his corporate marketing and advertising agency executives audience.  And many companies are still getting it wrong.  So what are the correct steps?  He suggests five – and explains the nature of each.

The first misconception to address (and change) is that a new, splashy product is not true sustainability, which comes about through a series of incremental improvements. 

Think of a product that is recyclable and (then) what that may take to create, produce and market successfully (in the end, that benefits the society by addressing the challenge of too much waste still going to landfill).

Then, (another step) in the lesson learned is usually that “you can’t do it alone” – society is facing an ecosystem of problems, and we all need help in addressing these.  

No firm can address an industry’s issues all alone.  Collaboration is key; imagine when a client on the scale of a McDonald’s says it will be sustainable, what happens if every of its vendor follows suit.  (Wal-Mart has been the prime corporate / retailer example of this over recent years.)

As we here at G&A tell our corporate clients and the many corporate managers we speak to each week, sustainability is not a destination; it is a journey! And the journey involves many people beyond those few taking the first steps in the company…the crowd will grow as the journey ensues. The excitement builds with more people involved.

“Strategy” is of course a very familiar (and over-used) word in the corporate world. This comes down to us from Ancient Greece, deriving its meaning from the concept that this is the work of generalship – being a leader.

Successful strategy comes from the top and begins with “clarity,” and understanding, author Bruce Mau tells us. Pursuit of sustainability should be a key strategy of the corporate enterprise.

Finally, today there is capacity to track the world’s energy and material flow and create metrics to enable those who manage brands to make better decisions and build “reasonable, actionable sustainability strategies”. 

Simple lesson is (for corporate leaders) — the impact that brands and brand marketers make can be better measured and managed. For better or worse.

Giving all of us – brand marketers and consumers and a widening range of stakeholders – a better way to track our progress (or lack thereof) and to determine the impacts we are making on our planet and society.

There’s a small treasure of insights for you in author Mau’s Adweek commentary – our Top Story for you this week.

Click here for more about Bruce Mau and his “Massive Change Network.

Please let us know how we’re doing with our selection of news, research and commentary that we present in our Highlights! 

This Week’s Top Story

The 5 Truths Needed to Create a Sustainable Brand
Source: Adweek – The mad scramble to make brands more sustainable is in full swing. And while companies are right to tackle this issue, the truth is that quite a few of them are still getting it wrong. That’s because there are still a few glaring… 

As Investors Suggest Tying Executive Compensation to Progress in ESG / Sustainability – Can This Be Factored Into Today’s Corporate Pay Programs?

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

For several decades now, investors have increasingly focused on issues involving executive compensation. 

Remember Graef S. Crystal?  Back in early 1990s the former compensation consultant to the nation’s largest corporations shape-shifted and became an author and activist focused on what he believed to be “excess” pay arrangements for U.S. corporate CEOs. (His 1992 book on the subject was a best-seller, “In Search of Excess – the Overcompensation of American Executives”.)

Crystal began his career at Towers Perrin, where he worked for two decades as a consultant to major companies on corp comp; he also taught at Haas School of Business (University of California, his alma mater). In later years Graef Chrystal was a leading commentator for Bloomberg News. (He passed away in April 2017.)

Every company faces the same questions, he explained in simple terms:  in terms of compensation of the senior management team, how much and how? 

In his work as a leading CEO comp consultant he explored the various approaches of the day and set the foundation for conversation about CEO comp over the ensuing months and years. (As corporate boards set compensation practices in place.) He was a major influence in his time as consultant in developing compensation programs for large public companies.

In 1989 he “switched” sides from advising Coca Cola et al and became a very vocal critic of CEO compensation schemes without having formal, accountable pay-for-performance systems in place.

For Crystal, It Was All About Pay-for-Performance

Let’s recognize here that much progress has been made in linking pay to performance over the years since Crystal’s (and others’) call for reform of the compensation packages of publicly-traded companies.  Institutional shareholder activism has certainly been a factor.

And as we have seen with the passage of new laws and operating rules of the road, there is increasing focus on CEO compensation. For example the Dodd-Frank legislation of 2010 – the the U.S. Congress attempted in the new statutes to address the issue. (The annual public report on the ratio of CEO pay to the median worker in U.S. public companies came about this way.)

The Dodd-Frank rules call for an advisory shareholder vote on the corporate compensation programs (the frequency of this vote to be approved by the shareholders).

The corporate proxy statement today greatly illuminates the board thinking in the structuring of basic executive compensation for the top executives — pay levels plus a growing variety of incentives.

More recently, there are calls from some institutional investors to have executive compensation tied to performance related to ESG / sustainability.

Authors Seymour Burchman and Blair Jones writing in The Harvard Business Review see “…the final link in the chain of improving corporate accountability for sustainability is to tie improvements to pay”. 

That gets us closer to Graef Crystal’s fundamental questions of how much and how?

These are real challenges for boards in considering the how of incentives tied to ESG — the number of possible sustainability improvement goals grows by the day. 

The long-term efforts to realize payback from most ESG initiatives don’t easily fit into the usual annual or three-year incentive timeframes. 

And then because incentives are typically tied to financial results…revenues, profit, returns…how do you weight the non-financial aspects of the business…and develop clear ROIs for ESG?

The authors — both experienced compensation advisors, like the late Graef Crystal — set out five steps to designing sustainability incentives to address these challenges and more to enable boards and management teams to create incentives that respond to internal and external stakeholder priorities.

Briefly, these are:

(1) reexamine the context – what are your measurements?;

(2) clarify the organizational scope – where to apply the incentives;

(3) quantify the duration (time horizon);

(4) consider the ends and the means – what are the goals?;

(5) and then structure the incentives. 

The authors spell out the specifics of each of the five steps.

The public discussion that Graef Crystal helped to start on the subject of senior management compensation more than a quarter-century ago continues today with varying expectations of investors about how much and how, but with far greater transparency on the part of companies about their plans.

We are now seeing companies acknowledging the importance of factoring progress in sustainability efforts into the pay packages. 

We think corporate boards and managements, and investors in the enterprise, will find the Top Story of importance in the context of the growing expectation that executive compensation will somehow reflect the continuing embrace of sustainability (or “ESG”) by public companies of all sizes in the U.S.A. – and by a growing number of mainstream asset owners and their managers.

This Week’s Top Story

5 Steps for Tying Executive Compensation to Sustainability
(Source: Harvard Business Review) – The final link in the chain of improving corporate accountability for sustainability is to tie improvements to pay. In our last article, we explained that companies should use incentives to motivate executives to tap big…

What Does “Sustainability” Mean to Manufacturers? Ingersoll Rand Helps to Explain Through Operations & Products

One of the long-term success stories in U.S. manufacturing is that of Ingersoll Rand, with history dating back to the 1870s as the Industrial Revolution gained great momentum in North America.

The company’s products were needed by other industrial revolution companies (such as compressors), by mining companies (rock drills), and in various elements (locks and more) of the b-to-b market.  When the Panama Canal was being built by the U.S., Ingersoll Rand drills were on the job. 

Over the decades numerous industrial companies were acquired, with technologies and products added – including such well-known names as Clark Equipment Company, Trane, Thermo King, Dresser-Rand, Harrow Industries, and others. In 2006 the company celebrated its 100th anniversary of listing on the New York Stock Exchange.

Today the company’s products are used in business and residential heating and air conditioning systems (HVAC), in the food industry, on golf courses (the familiar Club Cars), in temperature control (for transport), as well as the company’s plants turning out power tools, control systems and other equipment (there are 51 plants worldwide).

In 2014 at the UN Climate Summit the company announced its Global Climate Commitment to reduce GhGs from products and operations by 2030.  So – how is Ingersoll Rand doing today? 

Today’s Top Story is a Forbes interview with Rasha Hasaneen, VP-Product Management Excellence and Innovation (before joining the company she was at General Electric. The interview is authored by Joan Michelson, a ForbesWomen contributor) who talks with Rasha about “process” as well as products. 

Ingersoll Rand has “a holistic view of sustainable innovation”, helping the company to find common ground with customers, partners and potential recruits.  Keys to innovating with a “core value of sustainability” including (1) anticipating customers’ unstated needs; (2) performance comes first with sustainability a close second; (3) the focus is primarily on product portfolios; (4) the company is constantly innovating; (5) data helps make the business case for understanding the customers’ industries; (6) use the organization’s unique “language” to get support for innovation.

These “6 tips” explain, says Rasha Hasaneen, comprise the Ingersoll Rand approach to innovation.  The challenges to address in the era of global warming with record heat across the U.S. include design and production of HVAC systems (heating, ventilation, A/C) which account for half of the energy consumption in U.S. homes and 39% of commercial buildings.

The company explains “sustainability”:  At Ingersoll Rand, we integrate sustainability into the anatomy of how we help our customers success and how we run our operations.  There’s good information on the firm’s 2030 Sustainability Commitment and the challenges the company, customers and society faces here.

We note here that the two aspects of “sustainable” definitions used today in industry are involved: developing sustainable, long-term products for customers (such as innovative HVAC systems) and making those products sustainability — and to be sustainable and responsible as well in the language of ESG.

Note:  The company’s headquarters was for a long time in New York City, moving to neighboring New Jersey in the 1970s and then on to Davidson, North Carolina.  The company is now incorporated in Dublin, Ireland (that’s a clear sign for us of the impact of globalization of what we formerly considered to be our “national” businesses!).

Top Story

6 Tips For Driving Sustainable Manufacturing From Ingersoll Rand
(Tuesday – July 16, 2019) Source: Forbes – As record heats spread across the U.S. (and the globe), air conditioning systems and the power systems they depend upon are getting a workout. These HVAC systems – heating, cooling and ventilation – are used 24/7 “account for…

About Those Assembled “Best Of” Lists of Companies – What Lessons Are There For The Managers Of Other Firms…Not On The List Of The Chosen?

There are a number of “best of” lists that corporate managers and investment professionals scour to see what companies are judged to be doing well (by the list makers)…whether they be industry peers & competitors, or possible acquisitions or partners, and for investors, whether the listed firms might be the right choices for investment portfolios.

One annual list that we do follow is the one produced by Corporate Knights – the “Global 100 Most Sustainable Corporations”, published for the 15th year in 2019.  This list begins with around 7,500 possible inclusions in the top 100, all firms generating $1 billion or more in revenues.  Analysts devote 5,000 hours scouring almost 4 million data points to narrow the field to the chosen 100.

Examining the results, Holly Johnson of The CEO Magazine shared her perspectives with her readers.  There were top takeaways she learned from examining the work of Corporate Knights analysts:

  1. The top companies “live longer” (average age for the top 10 was 87 years!).
  2. They are better governed than peers, with lower CEO-to-worker pay ratio. They pay more in taxes.
  3. They’re “greener,” generating more revenues from clean (positive green or social impact) goods and services.
  4. More women are found in their ranks, and in the board room; there’s bound to be found a link between exec compensation and sustainability measures.
  5. Revenue is “cleaner” – generated through sustainable products. The Top Company is Chr. Hansen, generating 80% of revenues from development of natural solutions for food preservation and crop protection, as well as alternatives to using antibiotics for food animals.
  6. Investors are happier with these firms. 

You can find the details from each of these findings in our Top Story. There’s a link to the Top 100 Corporate Knights list in The CEO Magazine post.

The company names you’ll find in the Top 10 of the Top 100 firms include Prologis (USA); GlaxoSmithKline Plc (UK); Banco do Brasil S.A. (Brazil); Taiwan Semiconductor (Taiwan).

Author Holly Johnson is staff writer and digital producer with The CEO Magazine, in Australia, where “she now delves into the world of leading business executives.”  The magazine is Australia’s leading business publication.

Top Story

Green leaders: The world’s most sustainable companies in 2019
(Tuesday – July 02, 2019) Source: CEO Magazine – According to Corporate Knights’ list of the 2019 Global 100 Most Sustainable Corporations, it encompasses carbon and waste reduction, gender equality in leadership and even revenues derived from clean products. 

Do Consumer Favor Sustainable Brands for Their Products and Services Needs? NYU Stern School Research Dives Deep into the Data For Answers

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

Many people in consumer marketing are wondering about consumer preferences for “sustainable” products! In our weekly newsletter the G&A Institute team offers media and experts’ shared perspectives on various issues and matters related to corporate sustainability, responsibility; and, sustainable, responsible and impact investing.

In recent months the content shared frequently has focused on trends in the consumer market — to help answer the question of whether or not consumers reacting to brand-facing companies positioning themselves as sustainability leaders.

Is this type of brand marketing a successful strategy?  Worth the effort? 

So the important question in all of this “wondering” is: Are consumers now favoring sustainable or green (or pick your term of definition) for their products & services at retail? 

In our ongoing monitoring of news, feature and research results — such as for the fashion and footwear industries, the auto industry, food & beverages, and certain other categories — the results tell us brand leaders are now often introducing sustainable products alongside their usual cash cows. We included several items for you in this week’s newsletter along these lines. This was our top story:

Writing in the Harvard Business Review, Tensie Whelan, professor at New York University Stern School of Business, and leader of the NYU Stern Center for Sustainable Business, and Randi Kronthal-Sacco, director of Corporate Outreach for the Center (and formerly with Johnson & Johnson) describe the results of their recent in-depth research project. 

This research centered on trying to answer the question — do U.S. consumers actually purchase sustainably marketed products?  (Spoiler alert: yes – you must read the HBR article to find out more.) 

Whelan and Kronthal-Sacco used volumes of data sets from bar scan codes at retail for food, drug, dollar, and mass merchandisers, looking at 36 categories and 71,000+ SKUs, accounting for 40% of consumer products goods (CPG) sales over a 5-year period.

So, what did they find to be the largest share of sustainability-marketed products? 

Almost $1-in-$5 purchases at retail are for toilet tissue, facial tissue (think: forest products); milk, yogurt (the yield of countless dairy farmers); coffee (lots of attention on the global coffee-growing belt circling the Earth, and worker conditions therein); salty snacks (really?); and bottled juices (you’ll notice that Coke and Pepsi and other beverage marketers are advertising their shift away from sugary drinks). 

At the bottom of market share:  laundry care, floor cleaners and chocolate candy (accounting for a 5% share).

Say Tensie and Randi:  Pay attention, marketers and those all along the retail value chain, from grower field and factory floor to shelf space.  Consumers are voting with their dollars, for sustainable and against un-sustainable brands. 

Winners in the corporate sector include PepsiCo and Unilever; laggards include Kraft Heinz. (For the leader, Unilever:  think of the company’s sustainable labels like Seventh Generation, Sundial Brands and Pukka Herbs.)

And we are seeing in the many stories we bring you each week about consumers and sustainability, the future for sustainable CPG at retail is looking bright – look at the apparel industry.for examples  The agora is alive and well with many more sustainably-branded products on the shelves.  That’s the good news for sustainability professionals.

The NYU researchers used data from IRi (the research house for CGP, retail and health and beauty – information at: https://www.iriworldwide.com/en-US/Insights)

Congratulations to our colleagues Tensie Whelan and Randi Kronthal-Sacco at NYU Stern Center for Sustainable Business for sharing their insights and perspectives.

This Week’s Top Story

Research: Actually, Consumers Do Buy Sustainable Products
(Thursday – June 20, 2019) Source: Harvard Business Review – NYU Stern’s Center for Sustainable Business just completed extensive research into U.S. consumers’ actual purchasing of consumer packaged goods (CPG), using data contributed by IRI, and found that 50% of CPG growth from 2013 to… 

Affording an Unaffordable Utility Upgrade

Guest Column by John-Michael Cross, Policy Associate, Environmental and Energy Study Institute (EESI)

Last year, I moved into a 115 year-old home after years of living in modern apartment buildings. The house was in pretty good shape, but I knew from a career of advocating for home energy upgrades that it very likely needed efficiency improvements.

And my first Minnesota winter loomed.

I had a better idea than most at the likely price tag and benefits of the upgrades, but I was still left wide-eyed when the bills came due. The rebate checks from my electric utility helped a little, as did the lowered heating bills. But — we only were able to get the work done because my wife and I were fortunate and privileged to have the cash on hand to cover the upfront costs.

So many families are not as lucky and are unable to participate in utility incentive programs – even though these families would stand to benefit the most. In order to help households at all income levels reduce their high energy burdens, particularly in rural areas, utilities need to look at innovative financing models that eliminate upfront costs while increasing home comfort and energy savings.

Help For Rural Electric Cooperatives and Utilities

In 2014, the U.S. Congress created a way for rural electric cooperatives and other rural electric utilities to provide their members with the chance to upgrade their homes and businesses without any initial investment, paying for the insulation or other energy upgrades through a monthly fee on their utility bill.

The program — the Rural Energy Savings Program (RESP) — is administered through USDA’s Rural Utilities Services to provide rural electric utilities with zero-percent interest loans to capitalize customer-focused energy efficiency financing programs.

USDA defines “energy efficiency” broadly in this program – it even includes small-scale renewable energy projects! The utility just has to show that each financed project will cost-effectively lower overall energy costs for the participant. RESP funds can also be used for lighting upgrades, building envelope improvements, HVAC systems, water heaters, water and waste efficiency improvements, fuel switching projects, and permanently-installed energy storage devices.

Cooperatives can even apply for funds to fully replace aging, inefficient manufactured homes.

Note that RESP funds are provided at zero-percent interest for 20 years. Utilities then relend (or invest) these funds to their member-customers at rates of up to five percent for 10 years, though most utilities to date have kept rates below three percent.

Where To Find More Information

My organization, the Environmental and Energy Study Institute (EESI), has worked to promote RESP since its inception, and provides no-cost technical assistance to help interested cooperatives apply for the program.

Because RESP aligns with EESI’s primary goal of accelerating the transition to a new, low-emissions economy based on energy efficiency and renewable energy, we want to see as many rural cooperatives as possible take advantage this program.

We want to see these dollars invested in rural communities, helping lower bills and spurring local economic development. We also push financing models that emphasize equity and inclusion, so that everyone in a utility service territory can participate. (This includes using good bill payment history in lieu of a credit score if the upgrades are expected to produce a positive cash flow.)

Project Examples

Exciting RESP-funded projects are launching around the country. Some important examples:

  • In Washington State, one co-op launched “Switch it Up!” to provide debt-free financing for ductless heat pumps and heat pump water heaters that can cut heating bills in half, as well as the installation of electric vehicle chargers. One member organization that took advantage of this was the Outlook Inn whose owners were able to switch all 17 rooms from expensive propane heat to ductless heat pumps, which they couldn’t have afforded without financing.
  • A group of South Carolina co-ops created the “Help My House” program, which helps their members finance energy efficiency improvements to their homes through their electric bills. One member who took advantage of this program is now saving up to $250 a month on her summer energy bills – even with the loan repayment added to her monthly bill.

Many cooperatives taking advantage of this program have reaped additional benefits through RESP such as reduced per capita energy use and peak load shaving, which can reduce the need for new power generation facilities.

Rural utilities that want to apply should first submit a letter of intent to USDA (the agency provides a sample here). Once approved, the utility must put together the full application. More than $100 million is available in the current round, with letters of intent due by September 30, 2019.

Interested in learning more? Please contact me at jmcross@eesi.org to learn how you can take advantage of this program and what EESI can do to help.

In the Skies Overhead – Global Airline Passenger Volume Set to Double Over Next Two Decades. What Could the Environmental Impact of More Air Travel Be?

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

Once upon a time in the early days of jet travel, business travelers accounted for three-quarters or more of the total passenger business of the major U.S. airlines (known as “trunk” carriers back in the day).  Fares were long set by Federal regulation and family-friendly, tourista-friendly fare packages were scarce or non-existent.  Airlines relied on the “have-to-travel-for-business” crowd. At full fare (regulated until the late-1970s).

As the U.S. transport regulations were significantly relaxed (scheduled carriers through Federal “de-regulation” in 1979), the number of U.S. airlines soared from 75 or so to 400 companies…and then began to steadily shrink as carriers merged or went out of business. But passenger travel continued to grow.

Consider:  The Federal Aviation Administration reports 2.7 million passengers move across 29 million miles of controlled airspace on 44,000 flights within the U.S. each day! (See Air Traffic by the Numbers for full details): https://www.faa.gov/air_traffic/by_the_numbers/media/Air_Traffic_by_the_Numbers_2019.pdf

IATA reports four billion annual passengers traveled on a global basis between 20,000 “city pairs”, doubling the global 1995 city pairs available to fliers (the airport centers) in 2017. Passenger traffic was heaviest in Asia-Pacific (more than one-third of the total); Europe and North America each had a quarter of the total number of passengers.  More information for you at: https://www.iata.org/pressroom/pr/Pages/2018-09-06-01.aspx

In response to this steady growth in passenger demand, as set fares were de-regulated airlines and seat price points steadily fell, airlines developed a bewildering array of fare offerings (“stay overnight on Saturday” etc).  And those reduced fares helped to bring many more non-business fliers to the American skies.  

Outside of the U.S., what were once “national flag carriers” (like British Airways, Air France, KLM, Al Italia (up for sale to private sector) and many others owned by governments) are now private sector companies — and these long-established carriers and their newer competitors are similarly filling their planes through offer of attractive fares and generous “packages” for retail customers, and connecting business and tourism fliers with many more cities.

And so – as author Stephan Rice points out in his Forbes commentary – IATA, the industry’s International Air Transport Association — sees the global commercial airline passenger business doubling over the next 20 years. 

More flying customers means more passenger airliners will be needed (with much more fuel consumed), more airports needed to accommodate the “to and from” of air travelers (or airports will have to be expanded and upgraded) …and all this means more pollution

Passengers are now becoming more aware of the impact of air transport on the environment and demanding more sustainable practices.  And they are willing to pay for it, some surveys show.

As air travel volume builds, what can be done to reduce the impact of air travel on the global environment? 

Dr. Rice suggests airports can be re-designed to be more sustainable (he cites enhancements at SFO International and Boston Logan as U.S. examples). Indira Ghandi International in Delhi has the first Leadership LEED Gold certificate.

Airlines could use biofuels; KLM had a biofuels test flight from Amsterdam to Paris; Honeywell arranged a flight over the Atlantic using petro-based fuel and camelina (a derivative of a flowering Mediterranean plant!); Singapore is using biofuels over the Pacific.

A 2017 survey of 700+ consumers showed that passengers were willing to pay an additional fee (up to 13% more) for a flight using biofuels — “…a portion of consumers value green initiatives and appear willing to contribute financially to support it…”

The U.S. carriers’ trade organization is “Airlines for America”; it promotes the “A4A’s Climate Change Commitment” for member airlines and is part of a worldwide aviation coalition committed to a global framework on aviation and climate change with emissions target goals. (The “Aspirational goal” is 50% reduction of CO2 emissions by 2050 relative to 2005 levels.)
Information at: http://airlines.org/a4as-climate-change-commitment/

IATA – the airline industry’s global trade association – has set three targets and four pillars to mitigate CO2 emissions from air transport. Information and fact sheets are available at: https://www.iata.org/policy/environment/Pages/climate-change.aspx

Author Rice describes the results of additional consumer surveys on the topic in his Forbes commentary.  He concludes:  “It is clear that the public wants sustainable aviation…and are willing to pay at least some costs for this. Some airlines and manufacturers are taking the lead, but the rest of aviation need to follow very quickly or get left behind.”  Read the details in his commentary, which is this week’s Top Story for you.

Stephen Rice is a professor at Embry-Riddle Aeronautical University and received his Ph.D. from the University of Illinois.

Hank Boerner personal note: I spent most of the first two decades of my career in the air transport industry. After my time as an aviation business journalist I was the first “corporate citizenship” manager of American Airlines and later, senior advisor to Royal Jordanian Airlines, then the fastest-growing airline in the world (for two years). In the 1970s, I served as organizer and executive director of the two “MECACON” conferences (Middle East Civil Aviation). On September 11, 2001 I was on duty again, with our team, serving my client, American Airlines in the New York City region in crisis management; and again, for the Flight 587 tragedy in November 2001. It’s a great industry creating opportunities for so many individuals and nations!

This Week’s Top Stories

The Public Supports Sustainable Aviation and They’re Willing Pay for It
(Friday – June 07, 2019) Source: Forbes – The International Air Transport Association has predicted that the number of commercial airline travelers will double in the next 20 years. This means that there will be more airplanes, more airports, and more pollution. The…

And – adding to the discussion – the Simple Flying web platform has an interesting story by Joanna Bailey on “sustainable jet fuel” – can it save the planet?  This is an ideal companion piece to the Top Story this week: 

What On Earth Is Sustainable Jet Fuel? Can It Save Our Planet?
(Friday – June 18, 2019) Source: Simple Flying – The use of sustainable aviation fuel is on the increase around the world. But what is this newfangled propulsion juice exactly, and is it the magic bullet to make aviation kinder to the environment?

For the Board Room and C-Suite –Questions and Advice From the Harvard Business Review About Corporate ESG and Sustainability

Corporate managers & executives: is your board “sustainability/ESG fluent”? And if not – why not?

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

Attorney Silda Wall Spitzer and John Mandyck, CEO of Urban Green Council, writing in Harvard Business Review explain that while “some” board members have become increasingly “sustainability/ESG fluent” many companies [still] don’t expect their directors to understand sustainability or ESG and don’t provide board room education on the subject matter.

Those enterprises are at a competitive disadvantage, the authors believe. 

An important game-changer for the board room and C-suite to understand is the profound influence of ESG as investment professionals (institutional asset owners and their management firms) increasingly use ESG data, ratings, rankings, and scores to analyze their portfolio holdings (and screening prospective investments).

These ratings, rankings, scores and comprehensive ESG profiles provide a foundation of corporate ESG data and information from the independent ratings agencies that the asset owners and managers use to refine their models and apply to portfolio management policies and practices.

The HBR authors explain the basics of this for the publication’s broad management audience – those men and women at the top of the corporate pyramid who should be aware of, understand and be focused on their company’s ESG strategies, actions and outcomes (or current lack thereof!).

The company’s sustainability scores provided by third party organizations are based on corporate disclosure and performance in three main categories (environmental, social, governance).

Here at G&A Institute we see the leaders in large-cap space embracing sustainability / ESG as evident by the results of our annual survey of the S&P 500 Index® companies’ sustainability & responsibility reporting. 

From the rate of about 20 percent eight years ago, we now find 86% of the 500 large-cap firms are now publishing such reports — many using very innovative and robust approaches.

We’re seeing that the mid-cap and small-cap companies are catching on to the trend and beginning their own sustainability journey that will result in still broader disclosure and reporting.  But not all mid- and small-caps are on board yet. 

This is an area of tremendous opportunity for leadership by companies who make the first move in their sectors and differentiate themselves from their industry and investment peers.

In our conversations with managers at companies just starting out on their sustainability journey (or contemplating same), we explain that there is already a “public ESG profile” of the company “out there” and being studied by investors.

Perhaps, being studied by a good portion of the company’s current shareowner base, depending on the size of the company (the market cap), geography, sector or industry classification, or other factors.

The often- scattered and diverse elements of the existing ESG public profile come from the company’s financial filings, regulatory filings (such as for environmental data), financial and other analyst reports, the company’s web site postings, ESG “brochure-type” reports — and a host of ratings and scores created by the ESG ratings providers and used by investors.

There are more than 200 such ESG / sustainability ratings organizations of varying size and type.  The major influencers for institutional investors include ESG raters such as MSCI, Sustainalytics, and Institutional Shareholder Services (ISS), and ESG data providers such as Bloomberg and Thomson Reuters.

What directors and executives of all public companies need to understand is that important decisions about their companies are being made in large measure now by the foundational work of these organizations and their many peers around the world.

And if the company does not tell the story of its sustainability journey, others will (and are).

Potential Impacts:

The work of the ESG ratings firms also can affect company-customer relationships; employee recruitment and retention; business partnerships and collaborations; relations with civic leaders and the communities the company operates in; for global players, the countries they operate in; the stock exchanges their issues trade on; their insurers and re-insurers views of the enterprise…and other aspects of corporate finance.

While “ESG” and “sustainability” may be seen as touchy-feely and “non-financial” concepts in some board rooms and C-suites, the material ESG issues are really about the company’s risk management profile, the quality of leadership at the top, competitive advantage, sustainability in the traditional investment view (the company has lasting power and is a long-term value proposition), and more.

As for being “non-financial”, the HBR authors point to a Harvard B-School study that found that $1 invested in a company focused on ESG resulted in $28 return vs. $14 for those companies not yet focused on ESG.  What director would not want to brag about this kind of achievement that is real and financial? It’s time to stop thinking of ESG as being touchy feely and squishy!

The HBR commentary is good basic overview for directors to help them understand the role of the board in overseeing and helping to shape the strategies and actions that will comprise their company’s sustainability journey. 

Author Silda Wall Spitzer is the former First Lady of New York State and co-founder and CEO of New York Makers, which curates NYS-made gifts and events that “define New York State”.  She is a former private equity director. Information at: https://newyorkmakers.com/

Co-author John Mandyck is CEO of Urban Green Council; its mission is to transform buildings in New York City and around the world through research, convening, advocacy and education. More information at: https://www.urbangreencouncil.org/aboutus

This Week’s Top Stories

What Boards Need to Know About Sustainability Ratings
(Friday – May 31, 2019) Source: Harvard Business Review – Corporate boards of directors must tackle questions about sustainability in a new and urgent manner. If they don’t, they will hear from investors about their lack of action. In just the latest indication of the investor… 

NASDAQ Exchange Publishes the “ESG Reporting Guide” for Corporate Managements and Boards

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

There is encouraging news for sustainability professionals coming from the world of stock exchanges this month.  The NASDAQ Exchange just published its guide for listed companies – as well for privately-owned firms as perhaps future IPOs for NASDAQ listing – for companies’ public ESG reporting. 

This is the ESG Reporting Guide – A Voluntary Support Program for Companies”.

The pilot program for the guide effort got underway with NASDAQ’s Nordic and Baltic markets in 2017; the May 2019 guide includes third party reporting methodologies for company leaders’ education. 

The recommendations are “completely voluntary” for companies, the exchange emphasizes. Evan Harvey is the Global Head of Sustainability for NASDAQ and key player in development of the guide.

As the corporate ESG reporting pace continues to increase in both volume and velocity, company boards and managements do need more guidance on evolving ESG / sustainability standards and frameworks that could be used [for their increased disclosure and structured reports such as those published annually or periodically for their investors]. 

These frameworks, NASDAQ explains, include the Global Reporting Initiative Standards, (GRI); the standards of the Sustainable Accounting Standards Board (SASB) for 79 industries; the TCFD recommendations (the work of the FSB’s Task Force on Climate-Related for Financial Disclosures); and (as example) the guidance and frameworks for industry reporting such as GRESB for the real estate industry. Note: G&A Institute is the Data Partner for the GRI in the U.S.A., U.K. and Republic of Ireland.

The NASDAQ guide developed along the lines of such ESG / sustainability reporting “being voluntary” by private sector companies underscores that we are yet not quite at the “order to publish” from the United States stock exchanges.

Halfway ‘round the world, the Hong Kong and Singapore stock exchanges set the pace with such listed company rules.  In Hong Kong, listed companies must “comply or explain” for their ESG reporting; in Singapore, the rule is to publish the annual corporate sustainability report after 1/1/17 – also on comply or explain basis.

And in Europe, companies larger than certain market caps and employee counts must report on their CR activities; (“The European Directive of Non-Financial and Diversity Information by Certain Large Companies”, part of the EU’s Initiative of CSR.)

Getting to a “listed rule requirement” that exchange-listed companies must publish an annual or more frequent corporate sustainability report is a heavy lift in the U.S. capital markets, which typically reflect the direction of the political winds in Washington D.C. and the opinions within the corporate community. (Such as: this type of reporting means more work and expense.)

Right now, the chair of the SEC – the regulator of both the stock exchanges and publicly-traded companies – is a Republican and two other members of the five-member Commission are “Rs”.  Their party’s leader in the White House is busily dismantling environmental protection and other rules and pulling the U.S. out of the historic Paris Agreement on climate change.

Background:  The regulatory activities of the stock exchanges based in the United States are governed by statutes passed by the U.S. Congress (such as the Securities Act of 1933 and Exchange Act of 1934) and the stock exchanges therefore by federal law are designated as non-governmental “self-regulating organizations” or SROs. 

As SROs, the New York Stock Exchange and NASDAQ Exchange have certain authority to establish rules and regulations and set standards for companies (“issuers”) whose stock is listed for trading on their exchange.  Of course, the views of the listed company leaders and other stakeholders are considered when rules are being developed.

Proposed listing company or brokerage (“member”) rules are filed with the Securities & Exchange Commission (created by that 1934 law) to oversee and regulate certain activities. And so, the proposed rules for listed companies, brokerage firms and other entities are filed with SEC and public comment invited before SEC approval and then the exchange’s official adoption of the Rule.  

A recent NASDAQ SEC filing example is: “Notice of Filing of Proposed Rule to Adopt Additional Requirements for Listings in Connection with an Offering Under Regulation A of the Securities Act” in April 2019.

Should the U.S. exchanges adopt rules requiring corporate ESG reporting?  Could they?  Will they? Will SEC review and approve such rules for exchange-listed firms?  These are important questions for our times.  Of course, many people are “Staying Tuned!”

An important P.S.: The 1934 Act also ordered publicly traded companies to file annual and other periodic reports.  In the 1970s, the NYSE listing rules required listed companies to begin publishing quarterly reports; some of the listed companies reacted with great alarm. 

But shortly afterward the SEC made this a requirement for all listed companies. And so the familiar 10-K, 10-Q etc.  This extends to non-US companies raising capital in the U.S. such as listing their securities on an American exchange.

Note from Hank Boerner: This writer once served as the NYSE’s head of communications and as the Exchange’s advisor to listed company investor relations, corporate secretaries and corporate communicators on things like timely disclosure and related topics.

Our announcement of [new] listed company rules calling for quarterly corporate reporting and other reforms was quickly greeted by many more jeers than welcoming cheers! But today, quarterly reporting is a settled matter. One day, we may see the same for corporate sustainability reporting.

Click here to find out more about Hong Kong and Singapore exchange rules.

NASDAQ, NYSE, Hong Kong, Singapore – all are participating in the World Federation of Stock Exchanges (WFE) Principles to exert leadership in promoting a sustainable finance agenda. Those principles are explained in the report here.

This Week’s Top Stories

Nasdaq Launches Global Environmental, Social And Governance (ESG) Reporting Guide For Companies
(Thursday – May 23, 2019) Source: NASDAQ – Nasdaq (Nasdaq: NDAQ) has announced the launch of its new global environmental, social and governance (ESG) reporting guide to support public and private companies. The 2019 ESG Reporting Guide includes the latest… 

More information is available at: https://business.nasdaq.com/esg-guide

S&P 500® Index Companies’ ESG/Sustainability, Responsibility Reporting Hits 86% For Year 2018 – Latest G&A Institute Research Results…

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

The G&A Institute’s S&P 500 Index(r) analysis for the constituent companies’ 2018 reporting is complete.

For the eighth year, the G&A Institute research team has examined the ESG, Sustainability, Responsibility & Citizenship disclosure and reporting practices of the S&P 500® Index companies — and determined for year 2018 that 86 percent of the almost 500 public companies were publishing reports in various formats for public viewing.

This is a 1% increase over the 85% reporting trend determined by G&A researchers for year 2017. When the research effort began eight years ago (for 2010 reporting, in the 2011 examination) the number of companies among the 500 was just below 20%.

In the beginning of January each year, the current team of G&A analysts begin their examination of the prior year’s reporting trends. 

The S&P 500 companies (not always an exact number) are closely examined to determine public disclosure and reporting practices for activities that may be branded “corporate sustainability, or responsibility or citizenship, or even environmental” that appear in print, web or hybrid versions.

The initial results are double checked by other analysts and by EVP Louis Coppola, the architect of G&A’s research efforts since 2011.  G&A Institute Senior ESG Analyst Elizabeth Peterson assists as team leader in the coordination of the analysts’ research (she has been involved in the effort for several years now).

G&A’s team report analysts who contributed to the research this year are: Minalee Busi, Jessica Caron, Emilie Ho, Jess Peete.

The S&P 500 Index research results are widely cited by investors, analysts, company managers and other stakeholders in their own work and have become a standard reference for those citing the dramatic increase in corporate sustainability reporting. 

Institutional investors cite the results in urging non-reporting companies to begin reporting to shareholders on their sustainability journey.

You can see the full report in the news release that is linked as the Top Story this week.

FLASH REPORT: 86% of S&P 500 Index® Companies Publish Sustainability / Responsibility Reports in 2018
(Thursday – May 16, 2019) Source: Governance & Accountability Institute, Inc. – Highlights from Governance & Accountability Institute, Inc. Research: “Sustainability reporting” rose dramatically from 2011, when roughly 20% of companies published reports, to 72% just three years later in 2013. From 2013 to…