Corporate Sustainability Performance – Setting the Stage for ESG Data Analysis by Humans and AI Bots Alike

By Pam Styles, Principal and Founder, Next Level Investor Relations, and G&A Institute Fellow

There is an expansive reservoir of ESG data – a.k.a. key performance indicators (KPIs) – across growing corporate ESG disclosure and reporting, commercially advertised metrics and/or data sets subscription access, and proprietary third-party rater, ranker and data provider analytical systems.

While voluntary reporting frameworks and the various third parties jockey for dominance and survival, who is using all this data — and how?

Currently, there are too many ESG-related KPIs and data sets for companies and investors to get a handle on, respond or analyze.  It is impossible to predict how many more KPIs will enter the mix or how soon third-party relationships will naturally consolidate the number of KPI expectations, simply driven by necessity for their own business models’ sustainability.

The corporate disclosure side of this issue is explored in:
The End User Side

Just like corporations, investors have to prioritize which KPIs matter and what reporting framework KPIs, public access information sources, licensed and/or proprietary databases they can rationalize for focus.

CFA-PRI recently joined forces to survey 1100 investment professionals.  Survey results show that fixed income inclusion of ESG in investment decision-making is rapidly catching-up with equity investors.

Source: UNPRI

Analogous to portfolio diversification theory, the number of investments (in both time and money) in ESG data sources has got to naturally reach some optimal number needed to optimize risk/return. Beyond that there is an entire sustainable finance ecosystem too large to address in a simple blog post.

Data Use

There is not an honest person alive who can tell you that they can stay on top of all the current and increasing company ESG data they could analyze, germane to their investment decision-making.

Research of Value

In addition to 90% of S&P 500 companies, Governance & Accountability Institute just announced its annual research update that 65% of Russell 1000 companies also published sustainability reports in 2019 (up from 60% in 2018), including 39% by companies in the smallest half of the index (up from 34% in 2018).

Important Perspective

An article highlighting takeaways from the recent NIRI “Big I – Investor & Issuer Invitational Forum”, quoted speaker Dan Romito, SVP of Business Development & Product Strategy at Nasdaq:

“There is an explosion of non-fundamental data…especially in ESG data…The
SEC found that 90% of data now used in the capital markets has been created during the past two years.”

Artificial Intelligence

AI use as a tool to consume, filter and analyze, huge reservoirs of ESG data is increasingly valuable in investment decision-making. AI providers are jockeying for differentiation and capital.  For instance:

  • AI is being used by investors, such as BlackRock, to not only analyze ESG data that companies are disclosing, but to uncover other information, such as ESG impacts from satellite images of pollution to cars in a parking lot, voice inflection and more.
  • FactSet just announced, on October 20th, a definitive agreement to acquire TrueValue Labs. Founded in 2013, TrueValue is a pioneer in AI-driven ESG data. It applies AI-driven technology to over 100,000 unstructured text sources in 13 languages, to identify positive and negative ESG behavior. Its coverage spans over 19,000 public and private companies.
  • TrueValue LabsTM had previously announced on January 23, 2020, that it was introducing its patent-pending concept of Dynamic Materiality, indicating that every company, industry and sector has a unique materiality signature. The company head of research noted that, “Given how central materiality is to ESG investing and fiduciary duty, it is critical to understand the mechanisms by which ESG factors impact the operational and financial performance of companies.”

The Human Element

“While AI can unearth key data for investors seeking sustainable investments, discerning unreliable information will be a key challenge and humans will not be replaced any time soon.” – as stated in the article titled,  How can AI help ESG investing? –  S&P Global, Sept 2020

“AI is not a replacement for human intelligence, but rather a way to further it… The strategic value of alternative datasets, in particular ESG data, in the financial sector is becoming increasingly visible. As only relevant data has decision-making utility, supervised machine learning is emerging as the most effective mechanism to generate strategic value for businesses.” – Cutting through the noise: demystifying the buzz around artificial intelligence in financial decision-makingRepRisk, Sept 2020

The Final Word

In only the last few years, it became obvious that ESG/Sustainability had finally gone mainstream.  It took over twenty years to catch-on, since the first voluntary ESG reporting framework, GRI, was founded in 1997.  Now it is time to buckle-up for the ride… practically everything ESG/Sustainability-related is advancing at orders of magnitude faster pace than anything we’ve experienced thus far!

Pamela Styles – Fellow G&A Institute – is principal of Next Level Investor Relations LLC, a strategic consultancy with dual Investor Relations and ESG / Sustainability specialties.

In Focus: Climate Change Challenges for Financial Sector Players and the Companies They Provide With Capital – Measuring and Managing the Risk

August 2 2020

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

Some encouraging developments for you from the (1) capital markets community and (2) the corporate sector and (3) the combining of forces of each.

To start: Morgan Stanley has become the first major U.S. bank to join the Partnership for Carbon Accounting Financials and will begin measuring and disclosing the emissions generated by the businesses that it lends to and invests in.

Big deal, we say:  the sources of capital telling the world what the companies they lend to, invest in, are emitting…whether the company discloses that or not. 

PCAF is a global collaboration of financial institutions aiming to standardize carbon accounting for the financial sector.

The work of the partnership could profoundly change the way that financial institutions and their corporate clients address climate change issues (and disclose the result of same).

Morgan Stanley will lend its insights and expertise to help the coalition development global standard that can be used by all financial institutions to measure and reduce their own climate impact.

In addition to measuring its Scope 3 emissions – including financed emissions, defined by the Greenhouse Gas Protocol as Category 15 emissions.

Morgan Stanley’s announcement comes a year after the institution released a report outlining the financial benefits of decarbonization for businesses — with an earnings potential between US$3-to-$10 billion.

Also involved in the standards project on the Steering Committee: ABN AMRO, Amalgamated Bank, ASN Bank, Tridos Bank, and the Global Alliance for Banking on Values (GABV).

Today there are 66 institutions involve in the partnership, with $US5 trillion-plus in collective AUM. The partnership is planning on releasing the standard at the COP 26 global gathering.

The Morgan Stanley Institute for Sustainable Investing builds “finance solutions” that seek to deliver competitive financial returns while driving positive “E” and “S” solutions.  Audrey Choi is the bank’s Chief Sustainability Officer and CEO of the Institute.  More information is at: www.morganstanley.com/sustainableinvesting.

And here is the encouraging news from the corporate sector and the investor service provider community:  Microsoft (MSFT) is teaming with MSCI – the global investment community advisor on risk and ESG issues – to “accelerate innovation among the global investment industry”.

MSFT’s cloud and AI technologies along with MSCI’s portfolio of tools will be aligned to “unlock innovations for the industry and enhance the ESG ratings agency’s products, data and services”.

The collaboration begins with migration of MSCI’s products onto the Microsoft Azure cloud platform with Index and Analytics solutions and then on to the MSCI ESG products and ratings.

Going forward MSFT and MSCI will explore possibilities to further drive development of climate risk and ESG solutions for investors and corporates.

Third item:  Microsoft is aiming to become a Zero-Carbon Enterprise.  The company announced a “suite” of  initiatives to wipe out the carbon “debt” acquired  — get ready – over the lifetime of this tech company.  Every bit of carbon “debt” ever generated over several decades!

MSFT is joining forces with Maersk, Danon, M-Benz, Natura, Nike, Starbucks, Unilever and Wipro to create a new coalition – Transform to Net Zero. (Environmental Defense Fund/EDF is a founding member).  MSFT peer/competitor/fellow transformation of society company Apple is aiming to have net-zero impact on every product in the next 10 years.

These Top Stories are of a “fit” – as financial institutions develop new approaches to meeting climate change challenges the Global Carbon Accounting Partnership moves forward to bring a new standard to the financial services community.

And the MSCI / MSFT collaboration will be developing tools and resources that align with the standards effort.  MSFT itself is moving toward to become Zero Carbon tech company.  Do stay tuned!  Some details for you….

Morgan Stanley Becomes First U.S. Bank To Measure Carbon Footprint Of Its Loans (Source: OilPrice) Morgan Stanley has become the first U.S. bank to start measuring the emissions generated by the businesses it lends to and invests in, the bank said in a press release.

The news from Microsoft and MSCI on their collaboration:
https://www.msci.com/documents/10199/b8849622-7a48-1901-123e-29d39cca3814

As we prepared the above perspectives in our weekly newsletter, more related news came in:  Stefanie Spear, our colleague at As You Sow, alerted us that Bank of America and Citi Group joined Morgan Stanley in the commitment to publicly disclosure carbon emissions from loans and investments. (The two institutions are part of the Partnership for Carbon Accounting Financials, a global framework for financial institutions to measure and disclose the emissions from their lending and investment portfolios.)

And one more for you – Polly Ghazi of Triple Pundit (part of 3BL Media) prepared an excellent roundup of recent news that includes Morgan Stanley, BlackRock and Boston Consulting.  (And thank you to her for the mention of the G&A Institute’s S&P 500 research results on corporate reporting.)

We present 3BL media roundups in the weekly G&A newsletter, Sustainability Highlights — here is Polly’s post: https://www.triplepundit.com/story/2020/sustainability-reporting-new-highs/121006

The U.S. Department of Labor – Proposed Rule Addressing ESG Investment Selections by Fiduciaries – the Drama Continues As Agency Downplays Importance of ESG

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

August 9 2020

In the early 1970s, Congressional hearings featured allegations of abuses by managers of corporate pension funds taking actions to systemically deny men and women approaching retirement age their promised benefits.  A law was passed to protect plan beneficiariesThe Employee Retirement Income Security Act of 1974.

This was intended by the Congress of that day to create standards for private-sector plans to protect the financial and health of beneficiaries of corporate plans.

The U.S. Department of Labor was designated is the primary designated arm enforcing “ERISA”,  charged with “protecting the interests of employee benefit plans participants (workers) and their beneficiaries”.

Other agencies have plan oversight responsibilities as well – the U.S. Treasury Department (the IRS) and the Pension Benefit Guaranty Corporation (PBGC).

PBGC is like the FDIC protection for bank customers’ money; when a corporate pension plan fails, the PBGC assumes responsibility for providing retirement benefits to retirees. When a company with a retirement plan goes belly up, filing bankruptcy, or giving up responsibility for the plan, the PBGC takes over to help the plan’s beneficiaries (they don’t get all that was promised by the plan when it was managed by the company they worked for).

Among other elements of the ERISA law and operating rules, there are standards set for fiduciaries and managers of worker retirement plans and welfare benefit plans.

ERISA has been updated since passage 40+ years back and the DOL rules have changed over time.  So have related Internal Revenue Service rules.  In 1978 the Internal Revenue Code was amended to allow taxpayers to have a tax-deferred, defined, voluntary retirement plan of their own – the familiar 401 (k) plan that millions participate in.

In the latest summary from the DOL’s Employee Benefits Security Administration of DOL (“EBSA“) for FY 2013(!) — ERISA rules [then] applied to 684,000 retirement plans, 2.4 million health plans and 2.4 million additional welfare benefits.

These plans covered 140 million workers and beneficiaries – at the time, that was about half of the American workforce – and assets under management of the plans exceeded US$7 trillion.

To simplify what follows here, the rules adopted by federal regulators are intended to explain and enforce the statute passed by Congress – in this case, protection of worker rights and oversight of fiduciaries managing workers’ assets in plans.

There is a structured process for creating the enforcing agency rules-of-the-road for those organizations being overseen (for ERISA, fiduciaries, plan managers) and these rules could be changed from time-to-time and also be “interpreted” by regulators through communications intended to clarify the rules.

ESG Investment and the Department of Labor Perspectives

As “sustainable” or “ESG” investing became a preferred approach for individuals in plans and managers of plans, many more institutions and individuals preferred those investments, alongside or instead of more traditional investments.

Investors want to be able to invest in an ESG-themed mutual fund or ETF along with or instead of a traditional version that may track a benchmark of the same type.

Example:  There are many investment managers whose fund track the widely-used S&P 500 benchmark (from S&P Global) and investable products with an S&P 500 ESG benchmark.

State Street a few days ago launched an S&P 500 ESG Exchange Traded Fund (ETF) “to provide investors an opportunity to tap into ESG investing at the core of their portfolio” (with a very low expense ratio). This “EFIV” tracks the new S&P 500 ESG Index.

SSgA explains: “ESG investing is approaching a critical inflection point…the collective call for change is growing louder and investor increasingly taking a stand through their investment choices.”

How do the regulators of ERISA react to such progress?  To the call for change?  To respond to investors’ call for action?

By moving backward in rule-making with changes in rules to make it more difficult for plan managers and beneficiaries to invest in ESG vehicles.

To be sure, rules are subject to change. The DOL’s first guidance on ESG investment issues as issued back in 1994.

More recently, in 2008 (during the Administration of President George W. Bush) guidance appeared to be designed to restrict ESG investments by plan fiduciaries.

In 2015 (during the Administration of President Barack Obama) DOL guidance gave the green light to ESG investments…if the investment is appropriate based on economic considerations including those that may derive from ESG factors. (See our perspectives here from November 2015: http://ga-institute.com/Sustainability-Update/big-news-out-of-the-u-s-department-of-labor-for-fiduciaries-opportunity-to-utilize-esg-factors-in-investment-analysis-and-portfolio-management/)

And now in 2020, in June DOL’s EBSA proposed a “new investment duties rule” with “core additions” to the regulations.  (“Financial Factors in Selecting Plan Investments” — this to address “recent trends involving ESG investing”).

Among the comments of DOL that really wrankled the ESG investor universe:

  • New text was added to codify DOL’s “longstanding position” that plan fiduciaries must select investments based on financial considerations relevant to the risk-adjusted economic value of an investment (or “course of action”).
  • The reminder that “Loyalty” duty prohibits fiduciaries from subordinating interests of plan participants and beneficiaries to “non-pecuniary goals”.   ESG factors could be “pecuniary” factors — but only if they present economic risk/opportunity under generally-accepted investment theories.
  • New text was added on required investment analysis and documentation for the “rare circumstance” when fiduciaries are choosing among “truly economically-indistinguishable” investments.  (Huh?)
  • A provision that fiduciaries must consider “other” available investments to meet prudence and loyalty duties.
  • A new provision for selection of investment alternatives for 401-K plans describes what is required for “pursuing” one or more ESG-oriented objectives in the investment mandate (or include ESG “parameters” in the fund name).

DOL Comments On These:

“ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy…is to subordinate return or increase risk for the purpose of non-financial objectives.”  And

“Private [Sector] employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives…not in the interest of the plan…ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”

After the rule changes were published, numerous investors pushed back – some summaries for you that were published on the 401K Specialist web platform of the responses of some fiduciaries who object to the proposed rule (“Commenters Hammer DOL of Proposed  ESG Rule”).

More than 1,500 comments have been submitted so far to DOL, calling for changes in the proposed rule, withdrawal, and the very short comment period (just 30 days, ended August 3, vs. the usual 90 days).

Investor/Fiduciary Pushback:

T. Rowe Price:   The proposed rule is attempting to solve a problem that does not exist. Worse, the proposed rule discourages fiduciaries from taking into account ESG factors that should be considered.

ICCR/Interfaith Center on Corporate Responsibility:  The rule would impose significant analytical and documentation burdens on fiduciaries of benefit plans governed by ERISA wishing to select (or allow individual account holders to select) investments that use ESG factors in investment analysis, or that provide ESG benefits (signed by 138 member institutions).

ESG Global Advisors: The Proposal has misunderstood and/or mischaracterized the nature and purpose of ESG integration…this is likely to lead to confusion for ERISA fiduciaries and additional costs to plan savers. Plan fiduciaries will struggle to fulfill their obligation to integrate all financially-material ESG risk factors into their investment process.

Morningstar: The Department’s rule is out of step with the best practices asset managers and financial advisors use to integrate ESG considerations into their investment processes and selections. The proposed rule would…erect barriers to considering ESG factors that many financial professionals consider as a routine part of investment management…

Voya Financial Inc.: The Proposal is fundamentally flawed for two reasons…among the many qualitative factors an ERISA fiduciary may appropriately consider…the Proposal singles out ESG factors and subjects them to special tests…second, the Proposal fails to account for the positive effect on investment behavior that the availability of ESG-focused investment options can have…

American Retirement Association: …appropriate investments that include ESG factors should not be prohibited from qualifying as Qualified Default Investment Alternatives (“QDIAs”)…

The Wagner Law Group:  The proposed amendment is inconsistent with existing law and guidance…it would require fiduciaries to only consider pecuniary factors instead of using their judgment and discretion to evaluate investments under the totality of circumstances…a narrow list of permissible factors is inconsistent with the notion that prudence is not determined by a checklist and is a fact-specific determination…

BlackRock:  …the Proposal creates an overly prescriptive and burdensome standard that would interfere with plan fiduciaries’ ability and willingness to consider financially-material ESG factors…we urge DOL to engage with the industry to understand how investment options incorporating ESG factors are used in ERISA plans…

Members of Congress – the body that passed ERISA during its 93rd session in 1974 – reacted along partisan lines.

Republican members of the House Committee on Education and Labor submitted a letter of support of the DOL action.

Democrat Party members (41 of them) of the House and 20 members of the House Education and Labor Committee expressed opposition to the rule changes.

The Securities & Exchange Commission is looking at ESG investments as well – soliciting public comment “for the appropriate treatment for funds that use terms such as ESG in their name and whether the terms are likely to mislead investors” (also in the Federal Register post).

In May 2020 the SEC Investor Advisory Committee / Investor-as-Owner Subcommittee issued their perspectives on ESG disclosure:  https://www.sec.gov/spotlight/investor-advisory-committee-2012/recommendation-of-the-investor-as-owner-subcommittee-on-esg-disclosure.pdf

There are more details for you here (the investor response summaries): https://401kspecialistmag.com/commenters-hammer-dol-on-proposed-esg-rule/

The Department of Labor’s EBSA proposal highlights are here as published in the Federal Register, June 30, 2020: http://ga-institute.com/Sustainability-Update/big-news-out-of-the-u-s-department-of-labor-for-fiduciaries-opportunity-to-utilize-esg-factors-in-investment-analysis-and-portfolio-management/

Notes:  The Secretary of Labor is Eugene Scalia, a nominee of President Donald Trump.

Acting Assistant Secretary for EBSA is Jeanne Klinefelter Wilson (appointed in June 2020).

There is an ERISA Advisory Council with six members.  Effective July 14, 2020:

  • Glenn Butash is chair; he is managing counsel at Nokia Corp.
  • David Kritz is vice-chair; he is deputy counsel at Norfolk Southern Corp.
  • John Harney is partner at law firm O’Donoghue and O’Donoghue.
  • Peter Wiedenbeck is Washington University School of Law professor.
  • James Haubrock is CPA and shareholder, Clark Schaefer Hackett.
  • Lisa Allen is compliance consultant, Altera Group.

Stay Tuned:  We will update you when decisions are announced by the Department of Labor.

There, In The Company’s 401-K Plan – Do You Have the Choice of ESG Investments? Ah, That Would Have Been Good For You to Have in the Recent Market Downturn…

June 2020

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

As many more institutional investors — asset owners, and their internal & outside managers — move into ESG / sustainable investing instruments and asset classes, the question may be asked: What about the individual investor…the family huddling to discuss what to do in the midst of the virus crisis to protect their retirement savings?

Are they offered “resilient choices” to stash their future funds? Bloomberg Green provides some answers in “ESG Funds Are Ready for Your Retirement Plan”.

Emily Chasan, in our view one of the finest of the sustainability editors in the nation today, explores the impact (or lack of) on individual / family investors in mutual funds and ETFs aiming to better protect their nest egg for the future.

For starters, fortunately, while some ESG mutual fund management (advisory) companies may not have set out to protect their investors in an unforeseen global pandemic…but…the ESG funds they manage are proving to be quite resilient during the recent market collapse. These would seem to be good choices for individuals. But the opportunity to partake is missing.

Fund managers, Emily explains, avoided risk (deliberately) by using corporate ESG scores as an important proxy for assembling their roster of well-managed, adaptable, investable companies…such as those companies with far-sighted executives who were planning for an existential climate shock. That planning paid off in the pandemic crisis.

Prioritized by leading asset managers for their [ESG} funds: tech, financial services and healthcare equities, and renewable energy companies. For demonstration of concept, Allianz, BlackRock, Invesco and Morningstar found their ESG investments were performing better than the more traditional investment vehicles in the dark market days of early 2020.

And, a BlackRock study found that more than three-quarters of sustainable indexes outperformed better than the traditional investor benchmarks from 2015 to the market drop in 2020. (How about this for proof of concept: 94% of sustainable indexes outperformed!)

Speaking at a World Business Council for Sustainable Development (WBCSD) conference, BlackRock’s director of retirement investment strategy, Stacey Tovrov, explained: “Sustainable Investment can provide that resilience amid uncertainty [when we really want to ensure we’re mitigating downside for retirement savers]’”.

So how come, asks Bloomberg Green, why are ESG funds largely missing from a US$9 million “chunk of the market, comprised of corporate retirement plans”?

In the USA, retirement accounts represented one-third of all household wealth going into the market downturn (investment in the family home is larger). But only 3% of 401-k plans offered ESG funds. And less than 1% of these funds are invested in ESG vehicles.

Perhaps the fiduciaries (the employer sponsoring he retirement plan, the outside investment advisors hired on to manage the plan) are just too cautious, too concerned that ESG investing will in some way negatively impact them.

So, we can say, these results should (operative word!) convince corporate retirement managers overseeing 401-k plans that the individual investor is actually being negatively impacted by being absent from the ESG choices, from the opportunities offered by ESG / sustainable investing approaches that many institutions enjoy.

As “Human Capital Management” steadily becomes an important aspect of board and C-suite strategy, oversight, measurement and management (and results), Emily Chasan suggests that the coronavirus crisis will reshape the fundamental relationship between employers and their workforce.

Re-structuring the retirement plan offerings is a good place for C-suite to start re-examining the why, what and how of offerings in their sponsored plans. “One place to start changing attitudes might just be offering workers the chance of a more resilient retirement,” Emily Chasan tells us.

For corporate executives and managers seeking more information about this we recommend our trade association’s web site. Numerous members of the U.S. Forum for Sustainable and Responsible Investment (US SIF) offer mutual funds, ETFs, separate accounts, and other investment opportunities. There’s information on Climate Change and Retirement on the website. See: https://www.ussif.org/

We also offer a selection of ESG / Sustainable & Responsible Investment items for you this issue.

Top Stories

ESG Funds Are Ready for Your Retirement Plan
(Source: Bloomberg Green / Emily Chasan) Not many ESG fund managers set out to protect investors from a global pandemic. But their funds have nevertheless proven resilient during the subsequent market collapse.

Other Top Stories of Interest

S&P Launches ESG Scores Based on 20 Years of Corporate Sustainability Data (Source: Environmental & Energy Leader) S&P Global has announced the launch of its S&P Global environmental, social, and governance (ESG) Scores with coverage of more than 7,300 companies, representing 95% of global market capitalization.

MSCI Makes Public ESG Metrics for Indexes & Funds to Drive Greater ESG Transparency (Source: MSCI) MSCI today announced that it has made public the MSCI ESG Fund Ratings provided by MSCI ESG Research LLC for 36,000 multi-asset class mutual funds and ETFs, and MSCI Limited has made public ESG metrics for all of its indexes covered by the European Union (EU) Benchmark Regulation (BMR). The ESG ratings and metrics are available as part of two new search tools now available to anyone on the MSCI website.

ESG Funds Outperforming S&P 500 this Year (Source: Pension & Investments) Investment funds set up with ESG criteria remain relative safe havens in the economic downturn caused by the coronavirus pandemic, according to an analysis released Wednesday by S&P Global Market Intelligence.

Five Actions Business Leaders Can Take to Create A More Sustainable Future (Source: D Magazine) As a Dallas-based business executive and environmentalist, I believe the marketplace can offer solutions for the environment. These solutions need not be at odds with economic growth and can actually be profitable when consumers…

Will We Ever See SEC Rules / Guidance For Corporate ESG Disclosure and Reporting? The Question Hangs in the Wind…

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

People have questions about corporate sustainability / ESG / responsibility / citizenship disclosure and reporting.  Such reporting has been on a hockey stick rise in recent years.

Should ESG/sustainability etc reporting be regulated?  How? What would be regulated in terms of disclosure and reporting – what should the guidelines for corporate issuers be?  Does this topic become a more important part of the SEC’s ongoing Reg S-K (disclosure) revamping? What information do investors want?  What do companies want to have covered by regulation?  Many questions!

Some answers are coming in the European Union for both issuers and investors with new and proposed regulations.

And in the main will have to come in the U.S.A. from the Securities & Exchange Commission — at some point.

SEC was created with the adoption of the Securities Exchange Act of 1934.  The agency was specifically created by the U.S. Congress to oversee behaviors in the securities and markets and the conduct of financial professionals.

Publicly-traded company reporting oversight is also an important part of the SEC mission. The 1933 and 1934 acts and other subsequent legislation (all providing statutory authority for rulemaking and oversight) provide the essential framework for SEC to do its work.

As Investopedia explains for us, the purpose of the 1934 act is “to ensure an environment of fairness and investor confidence.”  The ’34 act gave SEC broad authority to regulate all aspects of the securities industry and to enforce corporate reporting by companies with more than US$10 million in assets and shares held by 500 or more shareowners.

An important part of the ongoing SEC’s mission, we should say here, is to protect investors and be open to suggestions “from the protected” to improve the complicated regimes that guide corporate disclosure. So that investors have the information they need to make buy-sell-hold decisions.  Which brings us to S-K.

In recent months, the SEC staff has been working on the steps to reform and updates segments of Reg S-K and has been receiving many communications from investors to suggest reforms, updates, expansion of, corporate disclosure.  (Details are below in the news release from SEC in 2019. The SEC proposed rule changes, still in debate, are intended to “update rules” and “improve disclosures” for investors and “simplify compliance efforts for companies”.)

Regulation S-K provides standard instruction for filing forms required under the 1933 and 1934 acts and the Energy Policy and Conservation Act of 1975.

Especially important in the ongoing initiative to update Reg S-K, we believe:  the setting out for SEC staff and commissioners of facts and perspectives so that serious consideration is given to the dramatic sea changes in (1) the growth of sustainable investing and the related information needs; (2)  and, the vigorous corporate response, particularly in the form of substantial sustainability / ESG reports issued.

Most of the corporate reports published in recent years have been focused on the recommended disclosures as advanced by popular frameworks and widely-recognized reporting standards (such as those of GRI, SASB, CDP, TCFD, et al).

Will we see SEC action on S-K rules reform that will draw applause from the sustainable investors? Now, we point out, including such mainstream players as BlackRock, State Street and Vanguard Funds, to name but a few owners found in almost every corporate top holder list.

Ah, Depends.  Political winds have driven changes in rules at SEC. Then again, it is an election year.  (To be kept in mind:  There are five SEC commission members; two are appointed and confirmed Democrats, two are Republicans – and the chair is nominated by the president…right now, a Republican holds that position.)

Investor input is and should be an important part of SEC rule making. (All of the steps taken by the Commission to address such items as corporate disclosure and reporting in adopting or amending the rules have to follow the various statutes passed by the congress related to the issue.  Investor and stakeholder input is an important part of the approach to rule-making.  Sustainable investing advocates have been making their views abundantly clear in this initiative to update Reg S-K.)

The SEC Investor Advisory Committee formally makes recommendations to the agency to help staff and commissioners be aware of investor sentiment and help to guide the process through the advice provided.

Recently the committee voted to make recommendations to the SEC on three topics: (1) accounting and financial disclosure; (2) disclosure effectiveness; and, (3) ESG disclosure.

The committee said they decided that after 50 years of discussion on ESG disclosure it is time to make a move, now that ESG / sustainability are recognizably important factors in investing.  Given the current political environment in Washington, there probably won’t be much movement at SEC on the issue, many experts agree.

But the marker has been strongly set down in the committee’s recent report, one of numerous markers set down by sustainable investment champions.  

Commissioner Hester M. Pierce addressed the Investor Advisory Committee, and shared her perspectives on ESG reporting.  “The ambiguity has made the ESG debate a difficult one…”  She thinks “the call to develop a new ESG reporting regime…may not be helpful right now…”  (She is a Republican nominee, a lawyer in academia.)

We have included her comments in the selection of four Top Stories for you.  Another of the items – the comments of SEC Chair Jay Clayton along the same lines about ambiguity and confusion of ratings etc. (he is also a Republican appointee).

To which sustainable investing proponents might say – if not now, when, SEC commissioners!

While the conversation may at times be focused on “what do investors want,” there is also wide agreement among corporate boards and executives that guidance and standardization in corporate ESG / sustainability et al reporting would be very helpful.

With the current comments of the leadership of SEC we are not quite there yet.

Interesting footnote:  The October 1929 stock market crash helped to plunge the nation into the Great Depression.  The 1932 presidential elections resulted in New York Governor Franklin Delano Roosevelt (a Democrat) moving to the White House in March 1933 and swiftly taking action to address important public policy issues.  He brought him his “brains trust”, experts in various public policy issues that helped to create sweeping reforms and creation of powerful regulatory agencies — such as the SEC.

The story goes that there was so much to do that the financial markets and corporate oversight legislation had to be divided into two congressional sessions – in 1933 and 1934 (the congress met for shorter periods in those days – the members were part-timers).  Thus, the Securities Act of 1933 and the 1934 act.

Regulation overall was then and today is a very complicated topic!

Top Stories

SEC’s Investor Advisory Committee Makes Disclosure Recommendations  (Source: Cooley PubCo)

SEC Chair Warns of Risks Tied to ESG Ratings 
(Source:  Financial Times)

In addition, see:

New Evidence During the COVID-19 Crisis That ESG Approaches Will Pay Off From Wall Street

Excellence in Corporate Citizenship on Display in the Coronavirus Crisis
Post #10 in the Series – April 6 2020

Important Bloomberg info update – April 8th

By Hank Boerner and Louis CoppolaG&A Institute

Some of the messages we’ve been sharing supports our belief that the companies that continue on the paths of their sustainability journey during the virus crisis will be stronger (in the crisis) and come out stronger as the crisis subsides. That will benefit stakeholders and shareholders.

We posit:  Those publicly-traded companies recognized as sustainable investment leaders should benefit in the competition for capital – access, cost of capital, inclusion in key indices and benchmarks, and so on.

We’ve been monitoring for news and perspectives that support the theory and share some things we’ve found with you.

HSBC Headline: ESG Stocks Did Best in COVID-19 Slump

Climate and sustainable investments outperformed as pandemic struck.

The global bank HSBC’s Ashim Paun (co-head of ESG research) in March published results of the examination of the effect of ESG factors on public companies’ equity in the virus crisis sell off.

The research looked at 613 shares of global public companies valued at more than US$500 million where “climate solutions” generate at least 10% of revenues plus 140 stocks with the highest ESG scores and values above the global average.

Key Takeaway: While the virus upended many economies and markets, shares of companies focused on ESG or climate change have outperformed.

He cites this: Performance from 23 March to 10 December 2019 (the start of the virus in East Asia) was the base for comparison.

Results: Climate-focused shares outperformed others by 7.6% from December on and by 3% since February. And from 24 February, when the market’s high volatility began.

There are four (4) “HSBC Climate Solutions Database” divisions:

  1. Environment & Land Use Management;
  2. Low Carbon & Energy Production;
  3. Energy Efficiency & Energy Management
  4. Climate Finance.

All of these beat the markets over both period – Low Carbon by 11% plus since December, says HSBC. There were regional differences noted in the research results. (The report was published 25 March.)

During the crisis period, Ashim Paun advises that investors think about how well companies are managing their ESG risks – including what companies are best-case, worst-case, and highest likelihood scenarios.

And he shared this with his global investor clients: “Our core conviction is that issuers succeed long-term, and deliver shareholder returns when the create value for all shareholders. When crisis like COVID-19 manifest, particularly with “S” and “E” causes, and implications, investors can see ESG as a defensive characteristics.

The highlights are here – access to HSBC’s full research report is limited to subscribers.

https://www.gbm.hsbc.com/insights/global-research/esg-stocks-did-best-in-corona-slump

There is a very comprehensive examination of the HSBC research on BusinessGreen:

https://www.businessgreen.com/news/4013404/hsbc-companies-focused-climate-change-outperformed-virus-spread?ct=t(RSS_EMAIL_CAMPAIGN)&mc_cid=8dd16a5562&mc_eid=cc59b566af

* * * * * * * *

In a Financial Times opinion piece by David Stevenson we saw this: He asked the question, are ESG and sustainability the new alpha mantra?

His answer: when money managers begin again to look for alpha strategies, his bet is that more than a few will tell investors that sustainability and ESG will top the list in the search for performance.

He interviewed thought leaders at Impax Asset Management, DWS and BNP Paribas and cited the research of several researchers for the column.

* * * * * * * *

Bloomberg Asks — Believe the Investor’s Urging Will Pay Off?

As we shared with you last week and repeat here as part of this commentary:

Bloomberg LP provides us with some of the answer.

Bloomberg Intelligence’s (BI) Shaheen Contractor (ESG Team BI Industry Analyst) in a brief for terminal users noted that an analysis of ESG Exchange Traded Funds (ETFs) during the selloff for the week ending February 28 provided a buffer for their investors and outperformed their benchmarks. The data: only 8% of ESG ETFs had outflows while 22% of all U.S. ETFs saw outflows.

This, as she writes, suggests ESG is seen by investors as a long-term investment and not a trading strategy.

And the flow to ESG ETF’s suggests that these instruments are “sticky” and less cyclical. Where where the flows to ESG ETFs? BlackRock, JPMorgan, BNP Paribas, Societe Generale, DWS, State Street, and Vanguard all saw inflows during the drawdown.

Good news for investors looking for “proof of concept” of ESG/sustainable investing from Shaheen Contractor – thanks to her and Bloomberg for sharing this good news.

Her email is: scontractor2@bloomberg.net

The brief: “ESG ETFs See Relative Outperformance, Inflows During Drawdown”

For information Bloomberg: https://blinks.bloomberg.com/news/stories/Q6RT29T0G1L2

* * * * * * * * *

IMPORTANT UPDATE — APRIL 8TH

From Bloomberg Green – dated March 31, 2020 – Claire Ballentine reporting.

As of that date, 59% of U.S. ESG ETFs were beating the S&P 500. And 60% of European ESG ETTs were beating the MSCI Europe Index.

In 2029, sustainable ETFs added more than $8 billion (4X the 2018 level) and another $4 billion were added in January 2020.

Even with the sell off in February and March, $3 billion was added in that period.

* * * * * * * *

G&A Institute Team Note
We continue to bring you news of private (corporate and business), public and social sector developments as organizations in the three societal sectors adjust to the emergency.

The new items will be posted at the top of the blog post and the items posted today will move down the queue.

We created the tag “Corporate Purpose – Virus Crisis” for this continuing series – and the hashtag “#WeRise2FightCOVID-19” for our Twitter posts. Do join the conversation and contribute your views and news.

Do send us news about your organization – info@ga-institute.com so we can share. Stay safe – be well — keep in touch!

Perspectives – Bloomberg, McKinsey, Leading ESG Investors, Mark Cuban – on Corporate Purpose and the Virus Crisis

Excellence in Corporate Citizenship on Display in the Coronavirus Crisis – Post #8   

“Corporate Purpose – Virus Crisis”   #WeRise2FightCOVID-19

April 1, 2020

By Hank Boerner, Chair & Chief Strategist, and the G&A Institute team members

On Corporate Purpose – Words and Actions – Thoughts From Influentials As The Virus Crisis Deepens Worldwide — the Focus on Purpose Can Help Corporate Generals Lead From the Front

In summer 2019, The Business Roundtable (BRT), the association of the CEOs of 200 firms, revamped the organization’s mission statement to read…

…“as leaders of America’s largest corporations, BRT CEOs believe we have a responsibility to help build a strong and sustainable economic future in the United States.”

This followed the publication of the January 2019 CEO-to-CEO letter of Larry Fink, who heads BlackRock, the world’s largest asset manager (and therefore a major fiduciary investing in the BRT companies). He regularly writes to the CEOs of companies that BlackRock invests in to let them know where of the major investors stands.

He wrote at the start of 2019…

…Purpose is not the sole pursuit of profits but the animating force for achieving them. And, profits are in no way inconsistent with purpose; in fact, profits and purpose are inextricably linked.

And again in his January 2020 letter to CEOs, Chair & CEO Larry Fink said:

…“As I have written in past letters [to CEOs in 2019, 2018] a company cannot achieve long-term profits without embracing purpose and considering the needs of considering the needs of a broad range of stakeholders. Ultimately, purpose is the engine of long-term profitability.”

Fast forward to March 2020 and now into April. What is the walk-of-the-talk of the CEOs (181 of them) who were signatories as the coronavirus crisis grips the U.S. and the world — and the actions of the signatories’ firms as stakeholders look for aid, comfort, security, payroll, taxes paid, and more?

And what other companies not necessarily in the Roundtable? What actions are taken leveraging corporate power to help society?

The stakeholders are watching. And a good number of the Business Roundtable companies are responding to address societal needs.

And what are the perspectives shared about all of this? We bring you some of these today. Here are some of the views and advice of experts and  influentials.

McKinsey Speaks – On How to Demonstrate Corporate Purpose

Says the influential management consulting firm, McKinsey & Company: Companies will define what they do in the crucible of COVID-19 response – or be defined by it.

So what could company managements be doing when the primary purpose of their efforts is to help the enterprise survive? McKinsey acknowledges this — and provides some advice. This is from their bulletin today.

Questions are being asked, of course, related to survival. How long will the crisis last? What are peers doing? How do we pay our people?

“WIN” – what is important now? (The G&A team has asked and helped to answer that question many times in our three decades of crisis management support for client companies over the years.)

First up, advises the McKinsey team members — understand your stakeholder needs and then with the understanding gained, prioritize your response. There will be tradeoffs among stakeholders – prepare for that.

Then, bring the greatest strengths of the organization to bear – consider, how can you make a difference?

McKinsey advises “collaborate with suppliers and customers and they may identify strengths you didn’t know you had”.

Examples offered:  Car makers can make ventilators (GM, Ford etc). Perfume companies can rapidly turn to manufacture hand sanitizer (LVMH and Estee Lauder are doing that today as we’ve reported in these briefs).

As you move forward, test the assumption and decisions you are taking against your stated purpose – communicate – explain (how and why).

Banks have a commitment to lend money in their community. If the bank pulls away – why? The action could help to define that institution in and after the crisis.

Give people something to do! (We also shared this advice a number of times early in the crisis.)

Involve employees in solutions. Give them a sense of purpose. Your team is looking for signals of leadership. And how to help.

And McKinsey says, the positive is that you may in the process be identifying the next generation of your company’s leadership!

Try new ways. Try using “cross-cutting” teams to develop new solutions, new ways to do things.

When in 2005 Hurricane Katrina hit, Wal-Mart Stores asked employees to deliver supplies to areas that were hard to reach. And we remember that the company’s store managers on their own ordered extra supplies and kept the stores open – even as their own homes were being destroyed.

That led to the CEO embarking on a strategic sustainability journey that revolutionized the whole company and in the process formed the Sustainability Consortium!

And like the best of the military leaders, you should yourself lead from the front. Communicate – often, early. Don’t sugarcoat the news. Adapt to changing conditions (and then communicate again). Your enterprise looks to its leaders for guidance.

Things that stand out for us that McKinsey explains:

  • Executives are uniquely poised now to bring corporate power, guided by social purpose to aid millions of dislodged and vulnerable lives. Done well, your actions can bridge the divide between shareholders and stakeholders. And leave a lasting, positive legacy.
  • Credibility is both essential and fragile element of executive leadership. Authentic actions demonstrate the company’s genuine commitment to social purpose.

Thanks to McKinsey’s Bill Schaninger, senior partner in Philadelphia, and Bruce Simpson, senior partner in Toronto, and their colleagues Han Zhang and Chris Zhu, for the valuable insights and guidance offered to corporate leaders.

* * * * * * * *

Mark Cuban on COVID-19 – Words & Action

We are often entertained by the antics of Mark Cuban on the courts (he’s owner of the Dallas Mavericks NBA team) and appearances on the hit TV show, “Shark Tank”. He was serious this week in addressing the virus crisis.

On Twitter he advised the federal policymakers: “Dear government, here is why you require companies that receive bailouts to retain 100% of their employees. The cost of the bailout loan – eventual payments will cost taxpayers less than the cost of government assistance programs for fired employees. Case closed.”

And…

“If you run a business, BEFORE YOUR FIRE ANYONE (or any more), you have an obligation to yourself/employees to find every gov loan option available today and those soon to come. Find the time. When the gov loans start you want to be already an expert and in line.”

Mark Cuban then walked-the-talk, setting up a way to pay his team’s venue employees (American Airlines Arena) even though games are cancelled and no one is coming. Then sent $100,000+ to the area’s not-for-profits aiding the Big D residents.

* * * * * * * *

Investor Coalition Speaks Its Mind on Corporate Purpose

Nearly 200 long-term institutional investors (with AUM of US$4.7 trillion) called on company managements to protect their workers – difficult to do, the investors acknowledge. Board directors are accountable for long-term Human Capital Management strategies (they remind board members on both domestic U.S. and global companies).

The steps companies could take, says the investor group:

  • Provide paid leave – including emergency leave) for full-time, part-time and subcontracted workers.
  • Prioritize health and safety – meaning, worker and public health safety, and to protect social license to operate. That may include closing facilities as precautionary step.
  • Maintain employment levels – your workers are well-trained (we hope!) and will enable the company to ramp up quickly once the crisis is resolved.
  • And be on the watch for any moves that may be discriminatory.
  • Maintain customer – and supplier — relationships to ensure that you can help stabilize them if necessary (such as financial challenges to suppliers) and to protect your own and other communities and businesses.
  • Practice financial prudence – demonstrate, the advisors strongly urge, the highest levels of ethical financial management and responsibility. And, limit executive and senior management compensation during the crisis (not repeating the practices of companies in the 2008 financial practices with money provided by the taxpayer).

Corporate leadership is critically-needed, the coalition stresses, to help society get through the crisis.

Among the investors in the coalition issuing the advice to public company managements: the Interfaith Center on Corporate Responsibility (ICCR) coalition (with 300 institutional members); the New York City public employees pension fund, led by Comptroller Scott Stringer; AFL-CIO fund; the state treasurers of Connecticut, Maryland, Rhode Island, Oregon, Vermont; American Federation of Teachers (AFT); the British Columbia Government and Services Employees Union; Aviva Investors; APG; Boston Common Asset Management; Coalition on Corporate Responsibility in Indiana & Michigan; Cornerstone Capital Group; Communications Workers of America (CWA); Robeco Asset Management; numerous foundations and religious orders and denominations.

Information: https://www.iccr.org/program-areas/human-rights/investor-action-coronavirus

All of this is spelled out in the “Investor Statement on Coronavirus Response” being circulated among fiduciaries.

* * * * * * * *

Believe the Investor’s Urging Will Pay Off?

Bloomberg LP provides us with some of the early answers.  Bloomberg Intelligence’s (BI) Shaheen Contractor (ESG Team BI Industry Analyst) in a brief for terminal users noted that an analysis of ESG Exchange Traded Funds (ETFs) during the selloff for the week ending February 28 provided a buffer for their investors and outperformed their benchmarks. The data: only 8% of ESG ETFs had outflows while 22% of all U.S. ETFs saw outflows.

This, she writes, suggests ESG is seen by investors as a long-term investment and not a trading strategy.

And the flow to ESG ETF’s suggests that these instruments are “sticky” and less cyclical. Where where the flows to ESG ETFs? BlackRock, JPMorgan, BNP Paribas, Societe Generale, DWS, State Street, and Vanguard all saw inflows during the drawdown.

Good news for investors looking for “proof of concept” of ESG/sustainable investing from Shaheen Contractor – thanks to her and Bloomberg for sharing this good news.

Her email is: scontractor2@bloomberg.net

The brief: “ESG ETFs See Relative Outperformance, Inflows During Drawdown”

For information, it is on the Bloomberg: https://blinks.bloomberg.com/news/stories/Q6RT29T0G1L2

* * * * * * * *

Lead from the front.  The general who led the effort to win WW II for the U.S.A. and the democracies, General Dwight D. Eisenhower (President, 1953-1961) observed:   “Leadership is the art of getting someone else to do something you want done because he wants to do it.  You don’t lead by hitting people over the head–that’s assault, not leadership.”

* * * * * * * *

G&A Institute Team Note
We continue to bring you news of private (corporate and business), public and social sector developments as organizations in the three societal sectors adjust to the emergency.

The new items will be posted at the top of the blog post and the items today will move down the queue.

We created the tag Corporate Purpose – Virus Crisis” for this continuing series – and the hashtag WeRise2FightCOVID-19 for our Twitter posts.  Do join the conversation and contribute your views and news.

Send us news about your organization – info@ga-institute.com so we can share.   Stay safe – be well — keep in touch!

Getting Serious About SASB: Company Boards, Execs and Their Investors Are Tuning In. What About Accounting Firms?

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

February 26, 2020

The importance of the work over the recent years of the Sustainable Accounting Standards Board in developing industry-specific ESG disclosure recommendations was underscored with the recent letters to company leadership from two of the world’s leading asset management firms.

Corporate boards and/or executive teams received two important letters in January that included strong advice about their (portfolio companies’) SASB disclosures. 

BlackRock CEO Larry Fink explained to corporate CEOs his annual letter:  “We are on the edge of a fundamental reshaping of finance. Important progress in improving disclosure has been made – many companies already do an exemplary job of integrating and reporting on sustainability but we need to achieve more widespread and standardized adoption.” 

While no framework is perfect, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics. 

In 2020, BlackRock is asking companies that the firm invests in on behalf of clients to publish a disclosure in line with industry-specific SASB guidelines by year end (and disclose a similar set of data in line with the TCFD’s recommendations). 

In a thought paper, BlackRock explained that disclosures intended for investors need to focus on financially material and business relevant metrics and include supporting narratives. The recommendations of the TCFD and the SASB (standards) are the benchmark frameworks for a company to disclose its approach to climate-related risks and the transition to a lower carbon economy.

Absent such robust disclosure, investors could assume that companies are not adequately managing their risk. Not the right message to send to current and prospective investors in the corporation, we would say.

State Street Sends Strong Signals

Separately, State Street Global Advisors (SSgA) CEO Cyrus Taraporevala in his 2020 letter to corporate board members explained:  “We believe that addressing material ESG issues is a good business practice and essential to a company’s long-term financial performance – a matter of value, not values.” 

The asset management firm [one of the world’s largest] uses its “R-Factor” (R=“responsibility”) to score the performance of a company’s business operations and governance as it relates to financially material and sector-specific ESG issues.

The CEO’s letter continued:  The ESG data is drawn from four leading service providers and leverages the SASB materiality framework to generate unique scores for 6,000+ companies’ performance against regional and global industry peers. “We believe that a company’s ESG score will soon effectively be as important as it credit rating.”

The Sustainable Accounting Standards Board

About SASB’s continuing progress:  Recommendations for corporate disclosure centered on materiality of issues & topics were fully developed in a multi-party process (“codified”) concluding in November 2018 for 77 industry categories in 11 sectors by a multi-party process.

The recommendations are now increasingly being used by public companies and investors as important frameworks for enhanced corporate disclosure related to ESG risks and opportunities. 

To keep in mind: A company may be identified in several sectors and each of these should be seriously considered in developing the voluntary disclosures (data sets, accompanying narrative for context).

Bloomberg LP (the company headed by Mayor Michael Bloomberg, now a presidential candidate seeking the Democratic nomination) is a private company but publishes a SASB Disclosure report. (Bloomberg is the chair of SASB as well as the leader of his financial information firm.)

The company published “robust” metrics using the SASB on three industry categories for 2018: Internet & Media Services; Media & Entertainment; Professional & Commercial Services.

Bloomberg LP is privately-owned; this was an example for public company managements. The report explained:

“The nature of our business directs us to consult three industries (above). We provide a distinct table for each…containing topics we have identified as material and against which we are able to report as a private company. Quantitative data is followed by narrative information that contextualizes the data table and is responsive to qualitative metrics.”

Solid advice for company boards and executives beginning the expansion of disclosure using the SASB.

SASB Guidance

SASB provides a Materiality Map for each sector (SASB uses its SICS® – The Sustainability Industry Classification System) and provides a Standards Navigator for users. There is also an Engagement Guide for investors to consider when engaging with corporates; and, an Implementation Guide for companies (explaining issues and SASB approaches).

The fundamental tenets of SASB’s approach is set out in its Conceptual Framework: Disclosures should be Evidence-based; Industry-specific; Market-informed.  The recommended metrics for corporate disclosure include fair representation, being useful and applicable (for investors), comparable, complete, verifiable, aligned, neutral, distributive.

Accounting and Audit Professionals Advised: Tune In to SASB

Separate of the BlackRock and SSgA advice to companies and investors, accounting and auditing professionals working with their corporate clients are being urged to “tune in” to SASB.

Former board member of the Financial Accounting Standards Board (“FASB”) Marc Siegel shared his thoughts with the New York State Society of CPAs in presenting: “SASB: Overview, Trends in Adoption, Case Studies & SDG Integration”.  The Compliance Week coverage is our Top Story in the newsletter this week.

Marc Siegel is a Partner in E&Y’s Financial Accounting Advisory Service practice, served a decade on the FASB board (managers and shapers of GAAP) and was appointed to the SASB board in January 2019.

He was in the past a leader at RiskMetrics Group and CFRA, both acquired by MSCI, and is recognized as a thought leader in financial services – his views on SASB will be closely followed.

With the growing recognition of the importance of SASB recommendation for disclosure to companies and the importance of SASB’s work for investors, he encouraged the gathered accountants to get involved and assist in implementing controls over ESG data, suggesting that SASB standards are a cost-effective way for companies to begin responding to investor queries because they are industry-specific. 

Accountants, he advised, can help clients by putting systems in place to collect and control the data and CPA firms can use SASB standards as criteria to help companies that are seeking assurance for their expanding sustainability reporting.

This is an important call to action for accounting professionals, helping to generate broader awareness of the SASB standards for those working with publicly-traded companies and for internal financial executives.

The G&A Institute team has been working with corporate clients in recent years in developing greater understanding of the SASB concepts and approaches for industry-specific sustainability disclosure and helping clients to incorporate SASB standards in their corporate reports. 

We’ve also been closely tracking the inclusion of references to “SASB” and inclusion of SASB metrics by public companies in their reporting as part of our GRI Data Partner work. ‘

The G&A Institute analyst teams examine and assess every sustainability report published in the USA and have tracked trends related to how companies are integrating SASB disclosures into their reporting. 

What began as a trickle of SASB mentions in corporate reports several years ago is now increasing and we are capturing samples of such inclusions in our report monitoring and analysis.

Over the past four+ years we’ve developed comprehensive models and methodologies to assist our corporate client teams incorporating SASB disclosures in their public-facing documents (such as their sustainability / responsibility / citizenship reports, in Proxy Statements, for investor presentations and in other implementations).

Our co-founder and EVP Louis Coppola was among the first in the world (“early birds”) to be certified and obtain the SASB CSA Level I credential in 2015.

If you’d like to discuss SASB reporting for your company and how we can help please contact us at info@ga-institute.com

There’s information for you about our related services on the G&A Institute web site: https://www.ga-institute.com/services/sustainability-esg-consulting/sasb-reporting.html

Top Story

Benefits of sustainability reporting: takeaways for accounting 
Source: Compliance Week – According to former Financial Accounting Standards Board (FASB) member Marc Siegel, companies are being asked for sustainability information from many sides and are facing a bumpy road because they are under pressure due to pervasive… 

The Year 2020: Off To Great Start For News About Sustainable Investing

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

January 2020 — Here we are now in a new year, and new decade (already, the third decade of the 21st Century) and much of the buzz is all about (1) climate change and the dramatic impacts on business, finance, government and we humans around the globe; and (2) many investors are moving their money to more sustainable investments.

Oh, of course, there are other important conversations going on, such as about corporate purpose, corporate stewardship, human rights, the circular economy, worker rights, supply chain responsibility, reducing GHG emission, conserving natural resources, moving to a greener and lower carbon economy, workplace diversity, what happens to workers when automation replaces them…and more. 

But much of this is really part of sustainable investing, no?  And corporate purpose, we’d say, is at the center of much of this discussion!

The bold names of institutional investors/asset management are in the game and influencing peers in the capital markets – think about the influence of Goldman Sachs, BlackRock (world’s largest asset manager), State Street/SSgA, The Vanguard Group, and Citigroup on other institutions, to name here but a handful of major asset managers adopting sustainable investing strategies and approaches.

This week’s Top Story is about Goldman Sachs Group Inc’s pivot to “green is good”, moved by Reuters news service and authored by Chris Taylor.  The GS website welcome is Our Commitment to Sustainable Finance

The company announced a US$750 billion, 10-year initiative focused on financing of clean energy, affordable education and accessible healthcare, and reduction of or exclusion of financing for Arctic oil-gas drilling.

Head of GS Sustainable Finance Group John Goldstein explains the company’s approach to sustainable financing and investment in the Reuters story. 

Our other Top Story is from Morningstar; this is an update on the investors’ flows into sustainable funds in 2019…what could be the leading edge of a huge wave coming as new records are set. 

For 2019, net flows into open-end and ETF sustainable funds were $20.6 billion for the year just ended – that’s four times the 2018 volume (which was also a record year). There’s always information of value for you on the Morningstar website; registration is required for free access to content.

And the commentary on the January 2020 letter from BlackRock CEO Larry Fink to the CEOs of companies the firm invests in – we’ve included a few perspectives. 

We’d say that 2020 is off to an exciting start for sustainability professionals, in the capital markets, and in the corporate sector! Buckle your seat belts!

Top Stories for This Week

Green is good. Is Wall Street’s new motto sustainable?   
Source: Reuters – If you have gone to Goldman Sachs Group Inc’s (GS.N) internet home page since mid-December, it would be reasonable to wonder if you had stumbled into some kind of parallel universe. 

Sustainable Fund Flows in 2019 Smash Previous Records   
Source: MorningStar – Sustainable funds in the United States attracted new assets at a record pace in 2019. Estimated net flows into open-end and exchange-traded sustainable funds that are available to U.S. investors totaled $20.6 billion for the… 

Purpose – This Was the Buzzword of 2019 for The Corporate Sector & Investment Community. The “Purpose” Debate Will Continue in 2020

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

Another in the series about The Corporate Citizen and Society

As 2019 draws to a close — we look back at a year with a lively discussion about The Corporate Citizen and Society…and “Purpose” discussions…

The year 2019 began with an important challenge to corporate leaders from Larry Fink, chairman and CEO of the world’s largest asset manager, BlackRock (with more than US$6 trillion in AUM). 

The very influential investor writes each year to the CEOs of companies that his firm invests in on behalf of BlackRock clients. There are literally hundreds of publicly-traded companies in the BlackRock portfolio (managed and indexed funds).

At the start of 2018, CEO Fink wrote that every company needs a framework to navigate difficult landscapes and it must begin with a clear embodiment of the company’s purpose (in the business model and corporate strategy).

He explained to the many CEOs: “Purpose being not a mere tagline or marketing campaign; it is a reason for the company’s being – what is does every day to create value for its stakeholders.”

Then (in January 2019) Larry Fink explained in his start-of-the-year letter to CEOs as he expanded on the theme, Purpose is not the sole pursuit of profits but the animating force for achieving them.  And, profits are in no way inconsistent with purpose; in fact, profits and purpose are inextricably linked.

This 2019 communication to CEOs pointed out that the world needs their leadership (especially) in a polarized environment. Stakeholders are pushing companies to tackle social and political issues as governments fall short of doing that.

And (very important) Millennials, now outnumbering the Baby Boomers in the workforce, represent a new generation’s focus – on various expressions of, and clear demonstrations of corporate purpose.

The January 2019 letter of course created a buzz in the corporate sector and in the capital markets as people thought about the meaning and weighed in on all sides of the issue.  What many agreed with was that there were now clear signals that the half-century doctrine for the corporate sector of “shareholder primacy” was giving way to “stakeholder primacy.”

As the purpose discussion rolled on, in August 2019 the influential Business Roundtable issued a revision of its Statement on the Purpose of a Corporation, signed by 181 of the CEOs of the largest of American companies (firms both publicly-traded and privately-owned). 

Important step forward: the CEOs publicly committed to lead their companies for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.

The Roundtable’s Principles of Corporate Governance has been issued since 1978; from 1997 on this endorsed the principle of shareholder primacy (that corporations existing principally to serve shareholders).  The new statement, said the BRT in summer 2019, outlines a modern standard for corporate responsibility. 

The team at G&A Institute looked at the companies whose CEOs are members of the Business Roundtable (almost 200 in all), examining their public disclosures and structured reporting on “walking-the-talk” of “purpose” and “responsibility to stakeholders” 

What are the companies doing — and how are they telling the story of the doing — the walking the talk?

Our approach was to analyze the means of disclosure and reporting “on corporate purpose” and the focus on any related content of sustainability / responsibility / ESG / corporate citizenship reporting by the BRT member companies.  (The good news to share:  there’s plenty of relevant information on purpose in the leadership corporate reporting. You can read through the respective corporate reports to divine the meaning and expressions of purpose in the pages.)

The analysis is available on the G&A Institute web site – see this week’s Top Story for the headline and link to our Resource Paper. There are relevant links there as well.

What will the purpose of the corporation discussion be in the new year, 2020?  Stay tuned to the perspectives shared that we’ll have in our G&A Institute Sustainability Highlights newsletter and on this blog.

Best wishes to you for the holiday season from all of us at G&A!

BlackRock CEO Larry Fink’s 2019 letter: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

G&A Institute Releases Analysis of The Business Roundtable Companies’ ESG Reporting Practices
Source: Governance & Accountability Institute

Highlights:

 Governance & Accountability Institute’s research team examined the ESG / sustainability reporting practices of the BRT signatory corporations to examine trends and create a baseline for tracking progress and actions going  forward.  G&A released these initial benchmark results in a resource paper available on our website.