Seven Compelling Corporate Sustainability Stories For You – How Entrepreneurs Are Managing Their Sustainable Business and Meeting Society’s Needs

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

How do we structure a more sustainable (and responsible) business – it’s a question we are regularly asked here at G&A Institute. By big firms and small companies — publicly-traded or privately-owned (and numerous planning to go public).

As we get into the conversation, what often becomes clear is that the company really was founded to meet some kind(s) of societal need, and sometimes it actually created a need (think of the popularity of the Apple eco-system or the early days of the Ford Motor Company and the “horseless carriage”) that it fills, benefiting society.

And in the firm’s “growing up and maturing” phase the leaders want to be recognized as a sustainable and responsible enterprise.

There are well-known corporate models that can help point the way for a management team.  We explain the successes of our “top performers and reporters” roster as examples of how the industry leaders (depending on sector and industry) have achieved clear, recognized leadership in sustainability. Their stories are inspirational as well as instructive.

(Tip:  read the companies’ GRI reports for a deep dive into corporate strategies, programs, collaborations, and achievements – our team dives into 1,500 corporate reports and more each year in our work as GRI Data Partners for the USA, UK and Republic of Ireland.)

But what about smaller enterprises, not “giants” in their industry, or niche players, run by talented entrepreneurs and managers who want to do the right thing as they build their business?  How do we find their stories?

You know, like the early story of Ben & Jerry’s (ice cream), two young guys with borrowed money operating a small store (a renovated gas station) in downtown Burlington, Vermont; the founders, Ben Cohen and Jerry Greenfield, built their business as a pioneer in social responsibility. (In 1985, the Ben & Jerry’s Foundation got 7.5% of annual pre-tax profits to fund community-oriented projects and supporting dairy family farming was a priority – like the duo’s support of Farm Aid.)

What we have for you today are the stories of seven perhaps less well-known firms briefly profiled by tech blogger Kayla Matthews in her guest commentary on the Born2Invest platform.  The quick-read profiles explain the companies’ business models and how they try to operate as sustainable enterprises.

These are: Prime Five Homes (building $1 million eco-mod homes in Los Angeles); LaCoste (marketing the well-known crocodile brand of clothing); Liberty Bottleworks (recycled water bottles); Cleancult (paving the way for more efficient detergents); Andean Collection (marketing jewelry from the rainforest and providing Ecuadorian women with jobs ); Blockchain (technology); Wash Cycle Laundry (eco-friendly local laundry service).

What is interesting is that each of the companies, the author explains, develop products and manufacturing processes that benefit employers, employees and Mother Earth by striving for and being (more) sustainable.  The stories are fascinating – and very appealing in this age of anxiety for many of us.

These stories remind us of the 2018 “Sense of Purpose” letter sent to public company CEO’s by Chairman and CEO Larry Fink, who heads the world’s largest asset manager, BlackRock. As a fiduciary, he explains, BlackRock engages with companies to drive the sustainable, long-term growth that the firm’s clients (asset owners) need to meet their goals.

And society, he explains to the CEOs receiving the letter, “…is demanding that companies, both public and private, serve a social purpose.”

To prosper over time, Mr. Fink wrote, “…every company must not only deliver financial performance but also show how it makes a positive contribution to society…without a sense of purpose, no company can achieve its full potential.”

You can read Larry Fink’s letter to corporate CEOs here – it well worth the read: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

You can follow Kayla Matthews on her tech blog, Productivity Bytes, where she often connects technology and sustainability topics: https://productivitybytes.com/

And do read our top story – it’s a fascinating and brief read to learn more about these innovative companies striving for greater sustainability and societal responsibility.

This Week’s Top Story

How 7 Eco-Friendly Businesses Are Changing The Sustainability Game
(Tuesday – September 11, 2018) Source: Born To Invest – To save the planet, it’s going to take cooperation from everyone, including both individuals and corporations. In fact, an increasing number of corporations are realizing that modern consumers are growing more environmentally…

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

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

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

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

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

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

Consider these important developments:

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

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

The FSB TCFD Impact on Corporate Sector and Financial Services Sector

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

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

The essence of the recommendations:

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

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

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

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

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

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

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

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

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

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

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

The Critical Role of CDP 

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

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

Key user base:

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

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

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

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

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

Some modifications include:

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

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

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

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

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

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

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

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

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

G&A Institute Perspectives:

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

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

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

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

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

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

Resources:

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

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

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

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

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

 

Proof of Concept for Sustainable Investing: The Influential Barron’s Names the Inaugural “The Top 100 Sustainable Companies — Big Corporations With The Best ESG Policies Have Been Beating the Stock Market.”

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

Barron’s 100 Most Sustainable Companies

Barron’s is one of the most influential of investor-focused publications (in print and digital format) and a few months ago (in October), the editors published the first of an ongoing series of articles that will focus on ESG performance and sustainable investing, initially making these points:

  • Barron’s plans to cover this burgeoning style of investing on a more regular basis. A lot of possible content that was developed was left on the cutting room floor, the editors note.
  • Says Barron’s: “We are only in Version 1.0 of sustainable investing. 2.0 is where ESG is not a separate category but a natural part of active management.”
  • And:  “Given the corporate scandals of recent days (Wells Fargo, Equifax, Chipotle, Volkswagen, Valeant Pharmaceuticals), it is clear that focus on companies with good ESG policies is the pathway to greater returns for investors!”

The current issue of Barron’s (Feb 5, 2018) has a feature article and comprehensive charting with this cover description:

The Top 100 Sustainable Companies – Big Corporations With the Best ESG Policies Have Been Beating the Market.”

Think of this as proof of concept: The S&P 500® Index Companies returned 22% for the year 2017 and the Barron’s Top 100 Sustainable Companies average return was 29%.

The 100 U.S. companies were ranked in five categories considering 300 performance indicators.  Barron’s asked Calvert Research and Management, a unit of Eaton Vance, to develop the list of the Top 100 from the universe of 1,000 largest publicly-held companies by market value, all headquartered in the United States.

Calvert looked at the 300 performance indicators that were provided by three key data and analytic providers that serve a broad base of institutional investors:

  • Sustainalytics,
  • Institutional Shareholder Services (ISS)
  • and Thomson Reuters ASSET4 unit.

Five umbrella categories were considered:

  • Shareholders
  • Employees
  • Customers
  • Planet
  • Community

There were items considered in the “shareholders” category, like accounting policies and board structure; employee workplace diversity and labor relations; customer, business ethics and product safety; planet; community; GHG emissions; human rights and supply chain.

We can say here that “good governance” (the “G” in ESG) is now much more broadly defined by shareholders and includes the “S” and “E” performance indicators (and management thereof), not the formerly-narrow definitions of governance. Senior managers and board, take notice.

Every company was ranked from 1-to-100, including even those firms manufacturing weapons (these firms are usually excluded from other indexes and best-of lists, and a number of third party recognitions).

Materiality is key: the analysts adjusted the weighting of each category for how material it was for each industry. (Example: “planet” is more material for chip makers using water in manufacturing, vs. water for banking institutions – each company is weighted this way.)

The Top 100 list has each company’s weighted score and other information and is organized by sector and categories; the complete list and information about the methodology is found at Barron’s.com.

The Top 5 Companies overall were:

  • Cisco Systems (CSCO)
  • salesforce.com (CRM)
  • Best Buy (BBY)
  • Intuit (INTU)
  • HP (HPQ)

The 100 roster is organized in categories:

  • The Most Sustainable Consumer Discretionary Companies (Best Buy is at #1)
  • The Most Sustainable Financials (Northern Trust is #1) – Barron’s notes that there are few banks in the Top 100. Exceptions: PNC Financial Services Group and State Street.
  • The Most Sustainable Industrials (Oshkosh is ranked #1)
  • The Most Sustainable Tech Outfits (Cisco is at the top)

Familiar companies names in the roster include Adobe Systems, Colgate-Palmolive, PepsiCo, Deer, UPS, Target, Kellogg, Apple, and Henry Schein.

Singled out for their perspectives to be shared in the Barron’s feature commenting on the ESG trends: John Wilson, Cornerstone Capital; John Streur, Calvert; Calvet Analyst Chris Madden; Paul Smith, CEO of CFA Institute; Jon Hale, Head of Sustainability Research at Morningstar.

Calvert CEO John Streur noted: “This list gives people insight into companies addressing future risks and into the quality of management.”

Top-ranked Cisco is an example of quality of management and management of risk: The company reduced Scope 1 and 2 GHG emissions by 41% since 2007 and gets 80% of its electricity from renewable sources.

This is a feature article by Leslie P. Norton, along with a chart of the Top 100 Companies.

She writes: “…Barron’s offers our first ranking of the most sustainable companies in the U.S. We have always aimed to provide information about what keenly interests investors – and what affects investment risk and performance…” And…”what began as an expression of values (“SRI”) is finding wider currency as good corporate practices…”

The complete list of the top companies is at Barron’s com. (The issue is dated February 5th, 2018)  You will need a password (for subscribers) to access the text and accompanying chart.

For in-depth information: We prepared a comprehensive management brief in October 2017 on Barron’s sustainable coverage for our “G&A Institute’s To the Point!” web platform: https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/

We’re a Long Way from NYC’s Stonewall Inn, But Still a Ways to Go for Corporate LGBT Policies, Says Investor Coalition

by Hank Boerner – Chairman, G&A Institute

We’ve come a long way since the gay & lesbian communities mobilized and began in earnest their civil rights campaigns of the 1970s and 1980s and into the1990s. It was the New York City Police Department’s wrongheaded “raid” on the Stonewall Inn in Greenwich Village neighborhood in June 1969 that provided the important spark for the long-term, winning campaign by LGBT community for equal rights and equal protection under the laws of the land. “Stonewall” became a rallying cry for the next installment of the continuing “journey” of the civil rights movement in the United States.

The 1960s/1970s were the era of civil rights protests — we were involved in or witnessed and were affected by the civil rights / voting rights movement; the counter-culture “revolution” (remember the hippies?); the drive for adoption of the ERA (Equal Rights Amendment to the Constitution); and the anti-war movement protests against the conflict in Vietnam.  These were catalysts as well for the LGBT equal rights warriors of the decades that followed the 1969 Stonewall protests.

Finally, in recent years, after years of campaigning by LGBT advocates, most states have been adopting protective measures to protect the LGBT community.  Same gender marriage is a reality in many U.S. jurisdictions.

On November 7, 2014 The New York Times carried an update — it was a “milestone year” for LGBT rights advocates, the publication explained.  Voters in the 3Ms — Maine, Maryland and Minnesota – favored same-sex marriage; the first openly-gay US Senator (Tammy Baldwin) was elected by Wisconsin voters.

Still, there was vocal and often fierce opposition to same-sex marriage and equal protection under the law for LGBT citizens.

About LGBT Policies and the US Corporate Community

Many large companies (estimate:70 companies in the S&P 500 Index to date) have adopted non-discrimination policies to protect LGBT employees in the United States, says the 2014 Corporate Equality Index (a national benchmarking tool of the Human Rights Campaign).

We see these policies and programs for inclusion described in the many sustainability and responsibility reports we examine as exclusive data partner for the Global Reporting Initiative (GRI) for the United States of America.

Still, legal protections for LGBT citizens are not sufficient in numerous US jurisdictions. “Homophobic” policies and attitudes still reign in too many US cities and states and local communities.

And policies, attitudes, practices in other countries?  Well, that’s really a problem, say sustainable & responsible investment advocates — and steps are being taken to address the situation.

The S&R investment advocacy campaign is focused on the LGBT employees of US firms working overseas.  In countries like Russia, one of the world’s largest industrial economies, which has harsh anti-LGBT policies. The US investor group points out that 79 countries consider same sex relationships illegal; 66 countries provide “some” protection at least in the workplace; and in some countries, homosexuality is punishable by death.

In a business environment that continues to globalize in every aspect, with American large-cap companies operating everywhere, the investor coalition is calling on US companies to extend their LGBT policies on anti-discrimination and equal benefits policies to employees outside the United States. A letter was sent by the coalition to about 70 large-cap companies (the signatories manage US$210 billion in assets.

Shelley Alpern, Director Social Research & Shareholder Advocacy at Clean Yield Asset Management explains: “Today, most leading U.S. corporations now have equitable policies on their books for their [American-based] LGBT employees. Ther’s a dearth of information on how many extend policies outside of the U.S. In starting this dialogue, we hope to identify best practices and start to encourage all companies to adopt them.”

The objective of the shareowner advocacy campaign is to stimulate interest in the issue and create a broad dialogue that leads to greater protection of LGBT employees of US companies operating outside of the United States.

Mari Schwartzer, coordinator of shareholder advocacy at NorthStar Asset Management compliments US firms with effective non-discrimination policies and states:  “While we are pleased that so many companies have adopted non-discrimination policies in the USA which incorporate equal protections for LGBT employees, the next phase of implementation is upon us — we must ensure that international employees are receiving equal benefits and are adequately protected.  Particularly those stationed in regions hostile to LGBT individuals…”

Signatories of the letters sent to companies include these sustainable & responsible investing advocates:  Calvert Investments; Jantz Management; Miller/Howard Investments; Office of the Comptroller of New York City; Pax World Management; Sustainability Group/Loring, Wolcott & Coolidge; Trillium Asset Management; Unitarian Universalist Association; Walden Asset Management; Zevin Asset management.

Companies contacted include:  Aetna, AIG, Allstate, Altria, Amazon, American Express, Apple, AT&T, Bank of America, Baxter, Best Buy, Boeing, Cardinal health, Caterpillar, Chevron, Cisco, Citigroup, Coca Cola, Colgate Palmolive, Costco, CVS Health, Delta, Dow Chemical, DuPoint, EMC, FedEx, Ford Motor, General Electric, General Dynamics, General Motors, Goldman Sachs, Google, HP, Home Depot, Honeywell, Human, IBM Ingram Micro, Intel, J&J, JPMorgan Chase, Lockheed Martin, McDonalds, McKesson, Merck, MetLife, Microsoft, Morgan Stanley, Oracle, PepsiCo, Pfizer, P&G, Prudential, Sears, Sprint, Starbucks, Target, Texas Instruments, United Continental, United HealthGroup, United Technologies, UPS, Verizon, Visa, Walgreen, Walt Disney, Walmart, Wellpoint, Wells Fargo.

Summing up the heart of the issue for investors (and corporate employees):  “Corporations must take the extra step to ensure consistent application of LGBT-inclusive workplace policies throughout their operations, regardless of location,” said Wendy Holding, Partner, the Sustainability Group of Loring, Wolcott & Coolidge.