An Attendee’s Experience and Review of G&A Institute’s / Global Change Associates’ Sustainable Finance Certificate Program at Baruch College/CUNY

Guest Post by Ling Qin – G&A Institute Data Partner Reports Analyst

LingQinG&A Institute’s Sustainable Finance Certificate Program, developed in partnership with Global Change Associates, was hosted on 14 December, 2016 at Baruch College, City University of New York, in New York City.

This was a very rewarding learning and networking experience for me. Although I have the primary professional foundation for the necessary sustainable skills and knowledge, this one-day intensive seminar provided me with a broader background and more concrete view of different sustainability frameworks, ESG ratings and sustainable trends.

Leading experts in the sustainable finance gathered together at the Baruch College Vertical Campus to offer their first-hand sustainability industrial insights. Experts participating as lecturers came from Governance and Accountability Institute (which is GRI’s Exclusive Data Partner in UK and US), the Baruch Business School, MSCI, SASB, Bloomberg, Global Change Associates, and other organizations.

Mr. Samuel Block from MSCI introduced his company’s ESG products, their ESG rating methodology and ESG rating process. Not only does he introduce how MSCI’s ESG research carries out, but also informed us [the course participants] of lots of resources of ESG data.

Those important ESG datasets from company public reporting, media searches, regulatory, academic and NGO’s (third parties) enables MSCI and other interested parties to do solid analysis focusing on the most material aspects of companies’ ESG performance.

The lively discussion in the Q&A session cast light on the reactions from MSCI when facing push backs from companies with low ESG scores. After this all-day series of lectures, I understood (for example) that MSCI would include the controversies in their final reports presented to the institutional investors, which is a very good signal of the importance of ESG scores and reputation and the independence of the MSCI’s evaluation.

Another impressive section was around the topic of “ESG Equity Fundamentals Data Analytics” provided by Mr. Hideki Suzuki from Bloomberg’s ESG Group.

He showed participants how to explore and conduct cross-analysis of the ESG performance by using Bloomberg Terminal step-by-step. Bloomberg Terminal covers ESG score summary for companies’ historical trends and their comparable peers’ performance.

For the environmental performance, the GHG intensity indicator in the Bloomberg Terminal is introduced as a good example.

The indicators for social performance in the Bloomberg Terminal include company’s productivity through human capital management, total recordable incident rate, employee turnover rate and etc.

Independence of the board, diversity of executives and executive compensation are outstanding indicators for the corporate governance performance.

Mr. Hideki also highlighted that “ratios” are the key to allow researchers to do apple-to-apple comparable studies, which is an important tip that all sustainable professionals need to pay attention to.

By the end of the day, I not only benefitted from all vibrant sustainable knowledge- sharing, but also feel grateful to connect with experienced sustainable professionals.

All the guest speakers are very willing to share their opinions, slides and contacts. I very much enjoyed an intellectually-challenging learning experience and an intimate learning atmosphere for the whole day.  I recommend this course to my professional colleagues who are seeking greater knowledge in the expanding sustainable investing field.

Linq Qin has served as a G&A Institute GRI data partner corporate reporting analyst.

# # #

Save-the-Date031517_squaread

SAVE THE DATE
The next session for the G&A Institute / Global Change Associates “Corporate ESG for Investment & Finance Professionals Certification” will be hosted at Baruch College/CUNY on March 15, 2017.  Click here for more information and to register at Eventbrite.

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

by Hank Boerner – Chairman – G&A Institute

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

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

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

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

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

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

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

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

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

Investors Want More Corporate ESG Information

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

Reforming and Updating Reg S-K

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

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

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

ESG / Sustainability in Focus For Review and Action

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

Some observers continue to share this view.

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

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

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

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

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

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

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

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

Influential Voices Added to the Debate

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

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

For Your Action:

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

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

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

Information sources:

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

Helpful Background For You

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

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

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

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

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

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

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

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

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

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

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

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

Please remember to take action and leave your comments here:

http://www.sec.gov/rules/concept.shtml

Dodd-Frank Act at 5 Years – Not Quite Done in Rulemaking

by Hank Boerner – Chairman – G&A Institute

So Here We Are Five Years on With The Dodd-Frank Act

Summer’s wound down/autumn is here  – while you were sunning at the beach or roaming Europe, there was an important anniversary here in the U.S.A. That was the fifth anniversary of “The Dodd-Frank Act,” the comprehensive package of legislation cobbled together by both houses of the U.S. Congress and signed into law by President Barack Obama on July 21, 2010.

The official name of the Federal law is “The Dodd-Frank Reform and Consumer Protection Act,” Public Law 111-203, H.R. 4173. There are 15 “titles” (important sections) in the legislative package addressing a wide range of issues of concern to investors, consumers, regulators, and other stakeholders.

Remember looking at your banking, investment and other financial services statements …in horror…back in the dark days of 2008-2009?

The banking and securities market crisis of 2008 resulted in an estimated losses of about US$7 trillion of shareholder-owned assets, as well as an estimated loss of $3 trillion ore more of housing equity, creating an historic loss of wealth of more than $10 trillion, according to some market observers.

That may be an under-estimation if we consider the wide range of very negative ripple effects worldwide that resulted from [primarily] reckless behavior in some big investment houses and bank holding companies…rating agencies…and then there were regulators dozing off…huge failures in governance by the biggest names in the business…and therefore the ones that investors would presumably place their trust in.

In response to the 2008 market, housing and wealth crash, two senior lawmakers — U.S. Senator Christopher Dodd of Connecticut and Congressman Barney Frank of Massachusetts — went to work to enact sweeping legislation that would “reform” the securities markets, address vexing issues in investment banking practices, and “right wrongs” in commercial banking, and consumer finance services. (Five years on, both are retired from public office. Congressman Frank is still vocal on the issues surrounding Dodd-Frank.)

After more than a year of hearings – and intense lobbying on both sides of the issues — the The Dodd-Frank Act became the Law of the Land — and the next steps for the Federal government agencies that are charged with oversight of the legislation was development of rules to be followed.

So — in July, we observed the fifth anniversary of Dodd-Frank passage. I didn’t hear of many parties to celebrate the occasion. Five years on, many rules-of-the-road have been issued — but a significant amount of rule-making remains unfinished.

Yes, there has been a lot of work done: there are 22,000-plus pages of rules published (after public process), putting about two-thirds of the statutes to work. But as we write this, about one-third of Dodd-Frank statutes are not yet regulatory releases — for Wall Street, banks, regulators and the business sector to follow.

Is The Wind At Our Back – or Front?

What should we be thinking regarding Dodd-Frank half-a-decade on? Are there positive results as rules get cranked out — what are the negatives? What’s missing?

We consulted with Lisa Woll, the CEO of the influential Forum for Sustainable & Responsible Investment (US SIF), the asset management trade association whose members are engaged in sustainable, responsible and impact investing, and advance investment practices that consider environmental, social and governance criteria.

She shared her thoughts on D-F, and progress made/not made to date: “Congress approved the Act following one of the worst financial crises in our country. The 2008 crash impacted the lives of millions of Americans who lost their homes, jobs and retirement savings. The Dodd-Frank Act helped to bring about much-needed accountability and transparency to the financial markets.”

Examples? Lisa Woll thinks one of the most important achievement was creation of the Consumer Financial Protection Bureau (CFPB), “which is up and running and now one of the most important agencies providing relief to consumers facing abuse from creditors.” She points out that CFPB has handled more than 677,000 complaints since it opened its doors four years ago.

Put this in the “be careful what you wish for” category: You may recall that the buzz in Washington power circles was that Harvard Law School professor Elizabeth Warren was slated to head the new bureau – -which was a concept championed by her. Fierce financial service industry opposition and Republican stonewalling prevented that appointment. Elected Senator from Massachusetts on November 6, 2012, she is now mentioned frequently in the context of the 2016 presidential race.

Continuing the discussion on Dodd-Frank, US SIF’s Lisa Woll points to a recently released regulatory rule that addresses CEO-to-work pay-ration disclosure. This is a “Section” of the voluminous Dodd-Frank package requiring publicly-traded companies (beginning in 2017) to disclose the median of annual total compensation of all employees except the CEO, the total of the CEO compensation, and the ratio of the two amounts.

Says Lisa Woll: “Disclosure of the CEO-to-worker pay ratio is a key measure to ensure sound corporate governance.”

She says in general US SIF members are pleased that the Securities & Exchange Commission (SEC) rule applies to U.S. and non-U.S. employees, as well as full-time, part-time, seasonal and temporary workers employed by the company or any consolidated subsidiaries, with some exceptions: “The rule will provide important information about companies’ compensation strategies and whether CEO pay is out of balance in comparison to what the company pays its workers. Those will be measurable results.”

What Doesn’t Work/ or May be Missing in D-F?

CEO Woll says investors were disappointed that the pay ratio provision (CEO-to-worker) did not include smaller companies and that up to five percent of non-U.S. employees may be excluded from reporting. Her view: “High pay disparities within companies can damage employee morale and productivity and threaten a company’s long-term performance. In a global economy, with increased outsourcing, comprehensive information about a company’s pay and employment practices is material to investors.”

The Conflict Minerals Rule

Another positive example offered by Lisa Woll: The Dodd-Frank Act requirement that companies report on origin of certain minerals that are used, and that originate in conflict zones such as the Democratic Republic of the Congo. (Section 1502 of Dodd-Frank instructed SEC to issue rules to companies to disclose company use of conflict minerals if those minerals are “necessary to the functionality or production of a product manufactured by the company”. This includes tantalum, tin, gold or tungsten.)

Lisa Woll observes: The submission of these reports exposes operational risks that are material to investors. Last year 1,315 companies submitted disclosures, according to Responsible Sourcing Network. We continue to urge more corporate transparency in conflict minerals reporting.”

Dodd-Frank Rule Making Scorecard

The US SIF CEO notes that of 390 rules required to be enacted, 60 rules have yet to be finalized and another 83 have not even been proposed, according to law firm Davis Polk & Wardell LP.

Woll: “One example is the Cardin-Lugar Amendment, requiring any U.S. or foreign company trading on a U.S. stock exchange to publicly disclose resource extraction payment made to governments on a project basis. We are still waiting for SEC to complete the rule.”

CEO Woll sees the ongoing effort by some members of the U.S. Congress to undermine or weaken The Dodd-Frank Act as “very concerning,” and putting investors at risk. “In my own work with our asset management members, I am seeing positive effects in that they have greater access to information in order to make an investment decision in companies. The examples are rules around transparency and disclosure. At the same time, asset managers lack access to information in a number of areas where rules are still pending, such as payment disclosures to companies by extractive companies.”

Of rules not yet adopted (or addressed), Lisa Woll urges continued work by SEC: “We hope to see more of the rules finalized so that we can move toward more transparent financial markets and a more sustainable economy.”

# # #

Notes: The Forum for Sustainable & Responsible Investment (US SIF) is an asset management trade association based in Washington, D.C. Member institutions include Bank of America, UBS Global Asset Management, Bloomberg, Calvert Investments, Legg Mason, Domini Social Investments, Cornerstone Capital, Walden Asset Management, and many other familiar names.

Members are engaged in sustainable, responsible and impact investing, and advance investment practices that consider environmental, social and governance criteria. Lisa Woll has been CEO since 2006.

Disclosure: G&A Institute is a member organization of US SIF and team members participate in SIRAN, the organization’s “Sustainable & Responsible Research Analyst Network.”) Other SIF entities include The International Working Group; Indigenous Peoples Working Group; and Community Investing Working Group. Information is at: http://www.ussif.org/