As the Global Demand for Palm Oil Rises, There is More Focus on the Growing Areas – and on Industry Behaviors Such as Deforestation

By Hank Boerner – Chair, G&A Institute

Palm Oil is one of the world’s most popular vegetable cooking oils and in western nations is widely used as prepared food ingredients. Food industry interests promote the benefits: lower cholesterol levels, less heart disease, more Vitamins A and E, and much more, derived from the rich beta-carotene from the pulp of oil palms.

Palm oil also shows up in our detergents, shampoo, cosmetics, pizza slices, cookies, margarine — and even in biofuels. Palm oil is especially used for cooking in Africa, Asia and parts of South America and is growing in favor in other regions such as in North America.

The palm oil plantations are located in such regions of the world as Southeast Asia – and there the industry is linked to the downside of the beneficial consumer product: deforestation, degrading of flora and fauna habitat, abuses of indigenous peoples, and negative impact on climate change as old growth land and tropical forest is cleared to make way for oil palm plantations.

Stakeholder reaction resulted in the creation of “reliable No Deforestation, No Peat, No Exploitation” policies – the “NDPE”.

These were developed for certification (to buyers) by the Roundtable on Sustainable Palm Oil (RSPO) and adopted in 2013 and 2014 by numerous Southeast Asian palm oil traders and refiners.

The policies (spelled out as best practices) are designed to prevent clearing of forests and peat lands for new palm oil plantations. There are 29 company groups, reports Chain Reaction Research, that have refining capabilities and have adopted NDPE policies. (Climate Reaction Research is a joint effort between Climate Advisers, Profundo and Aidenvironment.)

“Un-sustainable” palm oil practices are an issue for investors, customers (buying the oil), companies with sustainable practices, and countries in which palm oil is grown and harvested.

According to a new financial risk report from Chain Reaction Research, major markets with customers that accept “unsustainable palm oil” include India, China, Pakistan and Indonesia.

One of the major centers of production is the huge – more than 3,000-miles wide — Pacific Basin archipelago nation of Indonesia (once known as the Dutch East Indies). Almost half of the world’s palm oil refineries are in Indonesia and Malaysia.

The Indonesian government (the Ministry of Agriculture) reacted to the NDPE policies and proposed changes to its own certification program – known as the “Indonesian Sustainable Palm Oil Standard” (ISPO) – that would appear to be presenting companies with pressure to adopt one or the other of the certifications.  (The ISPO policy focus is on reducing Greenhouse Gas Emissions and addressing environmental issues.)

For Indonesia, palm oil is a strategic product that helps the government to meet job creation and export market goals. “Small holders” account for more than 40% of production in the country.

“Evidence suggests that the need for edible oil and energy will continue as populations grow, “Darmin Nasution, Coordinating Minister for Economic Affairs for Indonesia points out. “Land that can be utilized will decrease, so the question is how to meet those needs in the limited land area. Increasing productivity will be the key.”

Companies using the existing Indonesian ISPO certification were accused of human rights abuses and “land grabs” and so in January the government developed the new certification, which opponents claim weakens protection (the draft changes for the regulation removes independent monitoring and replaces “protection” with “management” for natural ecosystems).

Stranded Asset Risks

CDP estimates that global companies in the industry had almost US$1 trillion in annual revenues at risk from deforestation-related commodities. As the developed nation buyers looked carefully at their global supply chains and sources, “stranded assets” developed; that is, land on which palm oil cannot be developed because of buyers’ NPDE procurement policies. Indonesia and Malaysia have some of the world’s largest suppliers.

Western Corporate Reaction

Early in 2018 PepsiCo announced that it and its J/V partner Indofood suspended purchasing of palm oil from IndoAgri because PepsiCo — a very prominent global brand marketer — is concerned about allegations about deforestation and human rights were not being met.

Institutional Investors are busily identifying companies that source Crude Palm Oil (“CPO”) without paying attention to sustainability requirements, putting pressure on both sellers and buyers and perhaps pushing the smaller players to the sidelines. European buyers import CPO in large quantities to be used in biofuels.

The bold corporate names in western societies show up in rosters of company groups with refining capacity and NDPE policies, including Bunge, Cargill, Louis Dreyfus Company, Unilever, and Wilmar International. These are large peer companies in the producing countries (like IOI Group, Daabon, Golden Agri-Resources) are aiming for “zero deforestation” in their NDPE policies.

Other companies that source palm oil include Kellogg’s, Procter & Gamble, Mars, General Mills, Mondelez International, and other prominent brand name markets.

Your can check out the Chain Reaction Research group paper – “Unsustainable Palm Oil Faces Increasing Market Access Risks – NDPE Sourcing Policies Cover 74% of Southeast Asia’s Refining Capacity” at: http://chainreactionresearch.com/2017/11/01/report-unsustainable-palm-oil-faces-increasing-market-access-risks-ndpe-sourcing-policies

What About Exercise of National Sovereignty?

This situation raises interesting questions for developed nation brand marketers. If the government of Indonesia presses forward with the country’s own standards, should the purchaser in a developed country ignore or embrace the country standard? Instead of the Roundtable on Sustainable Palm Oil (RSPO) standard? What about “sovereign rights,” as in the ability for a sovereign nation to establish its own policies and standards governing the products developed within its borders?

As industry groups create their own standards and invite industry participants to embrace these (such as for product certification), corporations may find themselves bumping up against “nationalistic” guidelines designed to benefit the internal constituencies rather than “global norms” imposed from outside the country’s borders.

# # #

Responding to the streams of negative news coming out of Indonesia, Chain Reaction Research on April 26 reported that Citigroup has cancelled loans to Indofood Agri Resources and its subsidiaries. Citigroup will exit its overall relationship with Indofood other than specific financial relationships that are not related to the palm oil business, says the research organization.

The research firm said that labor and environmental violations by Indofood and other companies related to Anthoni Salim and his family have been documented. The web of companies: Salim and family own 44% of First Pacific, which owns 74% of Indofood.

In April a report commissioned by Rainforest Action Network Foundation Norway and SumofUS and prepared by Chain Reaction Research alleged deforestation of almost 10,000 hectares of peatland by PT Duta Rendra – which is majority owned, the report says, by Salim and PT Sawit Khatulistiwa Lestan, which is associated by Salim.

Notes:

As we prepared this commentary, the Danish Institute for Human Rights and The Forest Trust carried out a Labour Rights Assessment of Nestle’s and Golden Agri-Resources palm oil supply chain in Indonesia.  Nestle’s and GAR and going to share their own action plans in response to the findings and recommendations.

For The Roundtable on Sustainable Palm Oil information: https://www.rspo.org/

There is information from a recent conference in Jakarta for you at: https://www.scidev.net/asia-pacific/forestry/news/science-can-keep-palm-oil-industry-sustainable.html

The Indonesian Government ISPO information is at: http://www.ispo-org.or.id/index.php?lang=en

General Mills Statement on Responsible Palm Oil Sourcing is at: https://www.generalmills.com/en/News/Issues/palm-oil-statement

Rainforest Action Network information is at: https://www.ran.org/palm_oil?gclid=EAIaIQobChMIuJyBg97i2gIVE1mGCh3A-QMYEAAYASAAEgKZePD_BwE#

The Union of Concerned Scientists information is at: https://www.ucsusa.org/global-warming/stop-deforestation/drivers-of-deforestation-2016-palm-oil#.WudvOKjwbAw

A U.S. Corporate Leader Shares His Thoughts on Sustainability – EDF’s Fred Krupp Interviews Tom Linebarger of Diesel-Maker Cummins Inc.

By Hank Boerner – Chair, G&A Institute

Fred Krupp is head of the two-million-member Environmental Defense Fund (EDF), a leading global not-for-profit that creates “transformational solutions” to address environmental problems by linking economics, law, science and innovative private-sector partnerships.  Since the mid-1980s he has been a very vocal thought leader, activist, and champion for change on various climate change issues, striving to use the power of the marketplace to protect the global environment.

Krupp has worked with many business leaders over the years and today characterizes Tom Linebarger – the Chair and CEO of Cummins, Inc. (leaders in diesel engine manufacturing) – as one of the forward-thinkers on sustainability and environmental innovation.  Krupp interviewed the CEO for Forbes, our Top Story for this issue.

Cummins Inc. has publicly committed to set science-based targets for reducing GHG emission across the company’s supply chain, which would help to address stakeholder concerns and help contribute to the future well-being of communities in which the company operates.

Cummins’ innovation efforts will also help to make a difference in terms of the company’s products (such as vehicle and stationary engines), its facilities and the supply chain.  Diesel power is central to the progress of the economy, says Linebarger, moving vast amounts of products and supplying power just about everywhere — and is a factor in driving wealth creation.  While doing this, the Cummins’ products also impact the environment and so the intense focus on corporate sustainability for the company.

Here are some welcome words for us in the Trump/Pruitt era of tearing up environmental rules and regulations and denying the impacts of climate change:  “Regulations play an important role in protecting the environment, and we’ve worked to make sure we’re a positive contributor to the effort,” the CEO explains.

Cummins also pushes industry peers and its suppliers to support tough, clear, science-based, enforceable regulations that are good for the industry.

Also, welcome to other champions of corporate sustainability – this making the business case statement:

“There’s no question that our focus on environmental innovation and leadership has caused our company to grow, to become more profitable, and to increase our appeal with big companies that would like to partner with us because of our leading technologies.”

Cummins (NYSE: CMI) is headquartered in Columbus, Indiana; the company designs manufactures, sells and services diesel and natural gas power engines; and, alternative-fueled electrical generates sets, “emission solutions”, and components for electronics and fuel systems. The company has 58,600 employees and serves customers in 190 countries – sales are US$20 billion (2017).

Disclosure:  The G&A Institute team members were instrumental in 2000 in assisting diesel power and vehicle manufacturers in organizing the Diesel Technology Forum, a not-for-profit advocacy dedicated to raising awareness about the importance of clean diesel engines, fuels and technologies.  Cummins was instrumental in the concept of and the founding of DTF and over the years since has been active in advancing the mission. Our former colleague Allen R. Schaeffer is the organization’s Executive Director.

You’ll want to read and share our Top Story this week with very encouraging comments about sustainability from a respected U.S. corporate sector leader.

Top Stories

Cummins CEO Says Innovation, Sustainability, And Regulations Are Good For Business
(Thursday – April 19, 2018) Source: Forbes – As head of the largest independent maker of diesel engines and related products in the world, Tom has set lofty environmental goals for Cummins, including cutting energy intensity from company facilities by a third by 2020.

Global Trade – Good or Bad For Nations – For Individuals — a Factor in Encouraging Greater Sustainability for Society?

by Hank Boerner – Chair, G&A Institute

“Trade” can be viewed in the macro-environment or the micro, with personal advantages and disadvantages for men and women in both developed and developing nations.

With a new administration coming to Washington DC in January 2017, the heated rhetoric of the 2016 presidential primaries and during the general campaign quickly moved “trade” as a loose-lip and often-un-informed talking point at rallies in the direction of possibly enacted national public policy.

Tear up NAFTA  – punish China – make cozy deals with countries one-at-a-time instead of multi-lateral agreements.  That’s seemingly the direction of the Trump Administration policy-making in 2018 — if we believe the rhetoric.

So — the question hangs — is global trade good or bad for U.S. workers…for the economy…for workers in both developed and developing nations…as a positive or negative in the quest for greater global sustainability?

As in all policy making, we must search for truth and evidence to help answer the questions — and guide public governance.

We do have help if we want to tune in to the source:  The independent, not-for-profit National Bureau of Economic Research (NBER) weighed in in April with a Working Paper: “How Large Are the U.S. Economy’s Gains From Trade?”

FYI – NBER (founded in 1920) is based in Cambridge, Massachusetts, and has a huge cadre of economists and researchers that work to provide us with “objective, quantitative analysis of the American economy.”

The scholars issue a steady stream of Working Papers for public consumption (and study and discussion by policy makers looking for “truth, fact, objectivity, reliable findings”  — my characterizations).

The name may ring a bell — NBER is the non-governmental organization that declares the official start and end of a U.S. recession, for example.  Their declaration is often separate of what is going on in the capital markets so it stands out.

In the current paper, the researchers examined “estimates of the economic benefits of a globally-open economy.”  And the impact plus or minus on the American economy.

Most likely results: they see a gain for the U.S. domestic economy of from 2% to 8% through open global trade, depending on certain assumptions about consumer and producer behavior.

What if we actually slammed the door shut on trade beyond our borders?  Authors Arnaud Costinot and Andres Rodrigues-Clare explain there is [surprisingly] little direct quantitative evidence on how the economy would react if we did begin to close the doors on global trade. (Note to policymakers: That’s why we don’t make hasty or dumb decisions on trade!)

Looking at such factors as labor and capital embedded in goods purchased from around the world, they estimated the gains from trade by comparing the size of a “counter-factual” U.S. economy that would depend entirely on domestic sources compared with a nation (like the USA) that has ready access to foreign services and goods.

While the dollar value of U.S. imports is large, as a percentage of national spending it is actually really small.

There are varying impacts of open trade on individual industries – and the enterprises and their workers.

For garment and apparel companies the demand for cheap labor is “in-elastic” in economic lingo. Not much wiggle room or flexibility. That is why the companies go to East Asia for labor inputs.

For an American automaker, the import of German-made transmissions for installation in Detroit’s models is somewhat lesser of an impact (there are always alternatives).  US manufacturers used to be more “integrated” and made most of the components for their trucks and cars. Now the industry is defined as a global sourcer.

For U.S. farmers, the impact depends on where else in the world wheat is grown and the ready availability and pricing for that wheat. Trade is critical to the American farm belt.

Think of rare minerals used in manufacturing — if vital minerals are only available in certain areas of the globe, and are needed (say for making cell phones or other electronic products), the dependency is greater for U.S. manufacturers (again, in-elasticity reigns).

Tradeoffs in global trade exist everywhere: Lower consumer prices are enjoyed (as designer-label garments flow to U.S. retailers’ shelves from cheap East Asian labor sourcing) — but too many American workers may lose jobs and/or work for lower wages.  And in turn, local communities suffer.  The 2016 elections showed one of the results of that suffering as voters signalled their discontent with trade policies.

Global Trade ESG Issues

NBER researchers looked at a different topic in the trade bucket for their Working Paper: the effects of Fair Trade Certification.

The movement began led by a church-affiliated NGO in Holland and quickly spread throughout Europe and to the U.S.A. and various groups coalesced in the Fair Trade Labelling Organization (“FLO”) in 1997.

In this research effort, NBER authors Raluca Dragusanu and Nathan Nunn examined the impact of the Fair Trade movement on coffee producers in the Central American nation of Costa Rica, in the heart of the global coffee belt (typically countries near the Equator).

They looked at FLO impacts on incomes of coffee growers, their neighbors and communities.

Fair Trade policies, they assert, is a positive as it raises prices for local growers, to begin with, high enough to cover the cost of production. The higher prices are typically intended as well to raise the quality of life in the coffee-growing region.

Premium prices paid by buyers above the set minimums are used to build schools and establish scholarships, create local health care facilities, and various infrastructure, and to help improve growing practices.

Through fair trade practices, income rises in Fair Trade growing areas, for both certified growers and many of their non-growers neighbors.

Income levels were on average 3.5% higher for growers and as much as 7.5% for “skilled” coffee growers (when the “intensity of fair trade increases in an area).

The researchers found that price premiums for growers increased school enrollments (2%-to-5%) for children ages 13-to-17 — critical ages for young men and women preparing for their adult lives.

# # #

We found this and other NBER research interesting. We have “cold, hard facts” about the economy and trade and the “what-ifs” if present trade policies and practices are messed with, and the results are in the main “unknown”.

And we see that global trade is lifting people and their communities in a Central American country where coffee growing is an important agricultural pursuit.  And a benefit of open and fair trade.

Like climate change and many other public issues, there are plusses and minuses in trade affairs — and no easy answers!

Therefore, we can argue, let reason reign, common sense be applied — and science and facts and evidence-based research be the foundations of good public sector decision-making!

Thanks to NBER researchers for their efforts (in producing more than 1,000 Working Papers a year) to continue to produce research and surface evidence that can add to be leveraged to develop both public and private sector strategies.

You can learn more at:  www.nber.org

Dispatch From London and The Economist Sustainability Summit 2018

Guest Post By Juliet Russell – Sustainability Reporting Analyst, G&A Institute

The Economist’s third annual Sustainability Summit was convened in London on March 22nd, 2018. I attended as a representative of G&A Institute.

The discussions focused on how to shift from “responsibility to leadership”: how to lead and encourage co-operation on the path to progress.

I was impressed that significant players from a diverse range of sectors attended the conference, including representatives of Government, NGOs, Business and Academia. Panelists ranged from the CEO of Sainsbury’s, to Google’s Lead for Sustainability, to the Chair of the Board of Directors for Greenpeace and to a Deputy Mayor of London.

Each provided their own views and experiences of sustainability leadership and how to really see actions, instead of ‘just talk and promises’.

The key themes from the day centered around the need for collaboration, communication, shared responsibility, disruptive innovation, combatting short-termism and internalizing sustainability into core strategy and business models.

 

One of the most poignant messages for me was the need for understanding the urgency of the issues we are facing today, particularly in relation to climate change – “we are behaving as though the delta is zero and the delta is clearly not zero” (Jay Koh, The Lightsmith Group).

An attendee told a story of new LEED Platinum Certified buildings in Seattle that everyone is of course proud of — but in 30 years these super energy-efficient buildings will be underwater because we’re too busy focusing on small wins and continual growth, failing to act fast enough or understand the urgency when it comes to climate change and sea-level rise.

As quoted from Baroness Bryony Worthington of the Environmental Defense Fund – “…winning slowly with climate change is the same as losing!”

The conference was incredibly insightful, with such a breadth of timely and interesting topics, which highlighted different areas of debate and offered up potential solutions. Four of the panel discussions I feel are particularly worth highlighting:

1)    ‘A TALE OF THREE CITIES’
Discussion led by Mark Watts, Director of C40 Cities Climate Leadership Group
and featuring three city government representatives: Shirley Rodrigues, Deputy Mayor of London (Environment and Energy); Solly Tshepiso, Mayor of Tshwane, South Africa; and,  Karsten Biering Nielsen, Deputy Director of Technical and Environmental Administration for the City of Copenhagen.

The lack of adequate and strategic government action is failing so far in preventing climate change and also in reaching the United Nations Sustainable Development Goals (SGDs).

Mayor Solly discussed as example how slow progress on Paris Agreement targets were partly due to the lack of communication from top Government-level down to the city-level in South Africa. City-to-city communication and partnerships were touted as solutions to these kind of problems, as well as being vital in reaching the SDGs.

The C40 Cities Group facilitates this kind of partnership and network through the sharing of best-practice and successful innovation among their 92 affiliated cities around the world.

2)    ‘PIECES OF THE PUZZLE’
Discussion led by Christopher Davis, International Director of Corporate Responsibility and Campaigns from The Body Shop International.

This panel discussion focused around how to “do good and do well,”; Chris suggested that we need to be gearing business to be truly sustainable based on what the planet needs – not the economy or the shareholders – and creating benchmarks against planetary and societal needs.

Essential consideration for creating a sustainable business:  when sustainability is not an add-on function but embedded in the strategy and business model and thus integral to all activities. The Body Shop International management will know that they have been successful in their sustainability mission when sustainability is ingrained in everything the company is doing and they no longer have a need for a separate sustainability team.

3)    ‘CHANGING MINDS’
Discussion led Dr. Simone Schnall from the University of Cambridge and Prerana Issar from the UN World Food Programme.

This discussion revolved around the relevance of ‘nudging’ in changing behaviour (a behavioral economics approach) to push progress in sustainability. Dr. Simone discussed the concept of ‘nudging’ – creating a choice architecture, which is set up so that people are more inclined to go for the ‘beneficial’ option, gently pushing people to do the right thing.

An example of this might be in putting the recycled paper products at eye-level, with the products made from less sustainable materials at a more awkward height to see and reach.

Essentially, using nudging, we bypass the attempt at changing minds but still change the behaviour.

This can help to reduce problems such as ‘moral licensing’, where people feel licensed to do something ‘bad’ if they have just done something morally good (and vice versa). For example, when using energy efficient products, some people then feel they are able to use them more often because they are doing a ‘good’, which actually negates the positive efficiency benefit.

Nudging may be more and more necessary as actions towards sustainability become more urgent, as we can’t generally rely on society to make the best and informed decisions all the time. Though as nudging still relies on choice, is this enough to make us change? In reality, society may need more guidance and regulation and here, there’s a role for stricter governance and policy.

4)    ‘PIECES OF THE PUZZLE’
Discussion led by Marie-Claire Daveu, Chief Sustainability Officer for Kering.

Touching on the themes of innovation, partnerships and collaboration, Marie-Claire discussed a tool that Kering developed and are using: their Environmental Profit and Loss (“E P&L”).

Many people around the world and across sectors acknowledge that over-exploitation and degradation of the environment and our resources are partially due to the fact that these resources, our ‘natural capital’, have not been accounted for in economic decision-making and cost-benefit analyses.

Because of this, we are failing to internalize the negative externalities, which is crucial if we are to properly be accountable and responsible for our actions in society today, thus failing to understand the true environmental consequences of our actions.

Many businesses would fail to acknowledge the environment as a stakeholder unless it explicitly showed up on their profit and loss accounting.

Kering, a first-mover in their field, created and proposed an E P&L accounting tool as a way to do this and it can be applied throughout the entire value chain. This tool allows identification of impact areas and thus increases ability to reduce it.

Kering also provide their E P&L methodology open-source, to encourage other companies to follow and increase their accountability. This hones in on the knowledge-sharing and sharing of best-practice theme.

During the final session of the day, editors from The Economist newspaper came up with their main takeaways, the “four Ps”:

  • Pragmatic – that is, moving from debating who is responsible and asking, ‘is it really happening?’ to understanding that the situation “is what it is” — and we need to just get on with it. For this, collaborations at all levels will be key.
  • Persistent – sustainability needs to be talked about and implemented persistently, in order to become deeply embedded – not something that has the ‘fickleness of fashion’ – being ‘in’ the one day and passé the next. Persistence can help to bring a necessary sense of depth to the issues and challenges we are facing, in order to trigger action.
  • Problem – understanding reality and assessing our achievements: if we add up all of our efforts today, is it anywhere near enough? I’m sure you’ll all agree that the answer is most definitely not. How do we scale up these efforts effectively? We need to be mindful of the scale of the threats the planet and society face – increasing measurement and transparency can help to uncover this.
  • Prioritization – at present, we can’t robustly value different externalities, which is necessary for internalizing them and dealing in the most efficient and effective way. We must remember to be aware that each trade-off has consequences and consider alternative actions.

Coming away from this wonderful conference, it was clear to me that the main takeaway was of the potential of collaboration – within companies, within industries, between industries, and across sectors. This was picked up on in nearly every talk.

We need a whole ‘ecosystem’ featuring collaboration (involving business, NGOs, government, academia and citizens) in order to win with the current challenges we’re facing; to really progress in sustainability and work towards meeting the United Nations’ Sustainable Development Goals. The conference was undoubtedly a timely and powerful call for action.

Feeding 9 Billion People in 2050? Challenging!  – A Leading U.S. CEO in the Food & Agriculture Business Has Important Perspectives to Share

by Hank Boerner -Chair, G&A Institute

The CEO of one of the nation’s leading food and agriculture companies has important messages for us:  “To move the planet forward, farmers must lead the charge. But they cannot do it alone. Coordinated action on sustainability across the food supply chains is the only way to achieve lasting progress.”  He tells us how and why in his commentary in a Top Story in our Sustainability Highlights newsletter.

BackgroundThe Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat in the 2017 revision of the World Population Prospects (the 25th version of this report) says: the current world population of 7.6 billion is expected to reach 8.6 billion in 2030, 9.8 billion in 2050 and 11.2 billion in 2100.

More than 80 million people are added to the world’s population each year. One of the 2030 Agenda for Sustainable Development Goals (the SDGs) is to end poverty and hunger – how do we achieve this will depend in large measure on the success of growers in the USA and many other lands.

Looking at global agriculture moving towards 2050, there are serious challenges posed; the UN’s Food and Agriculture Organization (FAO) in 2009 described some of these:  much more food and fiber must be produced; there will be a smaller rural labor force to help do this; there will be increased demand for more feedstocks for a potentially huge bioenergy market; adapting to climate is  necessary; and, ag producers must be more efficient and sustainable.

Demand for cereals, as example, could almost double from today’s production (for animal feed and human food). Almost all of the land expansion for ag could be in sub-Saharan Africa and Latin America.

The CEO of Land O’Lakes, Chris Policinski writing in Agri-Pulse explains that while the discussion about climate change and other challenges seems to be focused on developments being a generation away, American farmers are dealing right now with such things as harsh drought, severe weather and more pests…the challenges to the food supply are happening right now.

And it is time to start talking about sustainability differently…to include (for example) the reality of what farmers face, acre-by-acre/field-by-field. And then, “farm-to-fork” issues.

Bringing together big-picture, company-level sustainability commitments and acre-by-acre conservation efforts makes both more effective. The great example used by the CEO is Wal-Mart’s Project Gigaton, which aims to remove one billion metric tons of GhGs from the company’s supply chain by 2030.  (Land O’Lakes was one of the first supply partners to sign on.)

There’s much more for you in the Land O’Lakes CEO’s message in one of our Top Stories this week.  There are related items “up top” for you – this week we have ag and food in focus in the Highlights.

Note:  Land O’Lakes, Inc. is a member-owned cooperative agribusiness and food production company based in Minnesota, with $13.7 billion revenues in 2017. The cooperative is almost 100 years in operation and ranks #215 on the Fortune 500® roster.

Top Stories – Ag & Food In Focus

Opinion: To Move Our Planet Forward, Food and Agriculture Must Think about Sustainability Differently
(Friday – April 06, 2018) Source: Agri-Pulse – In many ways, the sustainability story of the American farmer mirrors that of every other American. Farmers genuinely care about doing their part to protect our planet, for all the same reasons as anyone else. They want to leave…

Smallholder farmers are key to making the palm oil industry sustainable
(Monday – April 02, 2018) Source: Eco-Business – Smallholder farmers play an increasingly prominent role in Indonesia’s growing palm oil industry and could be the vanguard of sustainability, say WRI researchers.

A few surprising industries affecting the concept of sustainability in a positive way
(Tuesday – April 03, 2018) Source: Augusta Free Press – In the last ten years, sustainability has become a very important element in the business processes in many industries. For instance, all-natural and organic have become trendy terms in the food industry. Companies which are part…

Opinion: To Move Our Planet Forward, Food and Agriculture Must Think about Sustainability Differently
(Friday – April 06, 2018) Source: Agri-Pulse – In many ways, the sustainability story of the American farmer mirrors that of every other American. Farmers genuinely care about doing their part to protect our planet, for all the same reasons as anyone else. They want to leave…

Don’t Believe In Global Warming? Just Ask A Tuscan Winemaker
(Wednesday – April 04, 2018) Source: Forbes – “Have you seen the effects of climate change and global warming in your region?”

Hershey is investing in more sustainable cocoa for its chocolate treats
(Wednesday – April 04, 2018) Source: LA Times

The Media – And Sustainability & CR Thought Leadership, For Both Topic-Focused and Mainstream Media Coverage

by Hank Boerner – Chair, G&A Institute

The “media” that we choose to get our news, commentary, research results, even crossword puzzles, movie reviews, the latest scientific papers and maybe information about what our friends are up to (such as “social media”) are usually self-selected.  

We tune in to what we want to read or watch or listen to…for information / education / entertainment…and it also helps to define us in many ways.

So here at G&A Institute as we broadly monitor for content related to both our day-to-day and long-term focus areas (the list of topics and issues is long), when we see these things pop up in “not-the-usual places,” we are cheered.

This weekend, for example, we picked up on the following, which were encouraging in that senior management publications are read beyond the folks involved in sustainable investing and corporate sustainability or ESG issues and topics.

In Focus:   MIT Sloan Management Review

This is the publication of the prestigious Massachusetts Institute of Technology’s MIT Sloan School of Management.  “Share Your Long-Term Thinking” was one feature article. Companies need to be more forthcoming about their strategies for long-term value creation when they communicate with investors — especially about ESG issues, write authors Tim Youmans and Brian Tomlinson.

Their observation is that over the past five years, CEOs have faced mounting pressure to produce short-term profits. CEOs do think about the long-term, have long-term plans (detailed and extensive) and these typically are closely held.  Result: corporate strategy and practice are not captured in investor communications.

They then offer six reasons why long-term plans should be disclose and how to do that.  One of these is to help investors understand ESG issues through the eyes of management — because a majority of investors see ESG factors as financially material and expect sound management of material ESG factors to deliver better performance over the long-term. 

Tim Youmans is engagement director for Hermes Equity Ownership Services and Brian Tomlinson is research director for the Strategic Investor Initiative at CECP.

They conclude for the magazine’s audience (aimed at corporate executives and senior managements in the main): “The long-term plan is a new tool in the regular sequence of periodic corporate-shareholder communications and represents an unprecedented opportunity for leading companies and investor together to drive sustainable value creation and help to clarify the role of the corporation in a sustainable society.”

That is not all for the MIT Sloan Management Review audience in the Spring 2008 issue.

“Why Companies Should Report Financial Risks From Climate Change” is another feature — this from Robert Eccles and Michael Krzus.  They  focused on the Financial Stability Board’s Task Force on Climate-related Disclosures [recommendations].

“Investors and the rest of the world is watching to see how companies will respond to the TFCD recommendations” — the ask here is that company managements will expand their disclosure to report on the risks and opportunities inherent in climate change in such documents as the 10-k.

Boston Common Asset Management LLC and ShareAction organized a campaign with institutions representing US$1.5 trillion in AUM participating to pressure financial institutions (especially banks) to implement the recommendations.

Companies should follow the recommendations, authors Eccles and Krzus argue, because this could lead to evolving better strategies to adapt to climate change — and be able to explain these strategic moves to the their investors.

They focus on the oil and gas industry, looking at disclosures in 2016 by 15 of the largest industry firms listed on the NYSE.  A few have made good progress in adhering to the TCFD recommendations (so there is not a “blank slate”); there is work to be done by all of the companies in enhancing their disclosures to meet the four top recommendations (in governance, strategy, risk management and metrics and targets areas).

Their article is an excellent summation of the challenges and opportunities presented for such companies as BP, Chevron, ExxonMobil, Sinopec, Statoil, Total, and others in oil & gas.

Bob Eccles is a well-known expert in corporate sustainability and sustainable investing and is visiting professor at Said Business School at the University of Oxford. Mike Krzus is an independent consultant and researcher and was a Fellow of G&A Institute.

Wait, there’s more!

The magazine’s columnists had important things to say as well.

Kimberly Whitler and Deborah Henretta penned “Why the Influence of Women on Boards Still Lags,” applauding the rise of the number of women on boards and offering two important criticisms — the growth rate is slowing and boards do that do have female members often limit their influence.

Although there are measurable positive results of female board inclusion — they cite Return on Equity averaging 53% higher in the top quartile than in the bottom — women still are not making more rapid inroads with fewer reaching the most influential board leadership positions, even with more women on boards than 10 years ago.

The authors set out ways for making more progress in board rooms.  And they advise: “For real, lasting change that wins companies the full benefits of gender-diverse decision-making, boards need to look beyond inclusion — and toward influence.”

Kimberly Whitler is assistant professor of business adminstration at the University of Virginia’s Darden School of Business; Deborah Henretta is an independent board director on the boards of Dow Corning, Meritage Homes Corp, NiScource Inc and Staples (she was a Proctor & Gamble executive).

There is much more for executives and board members in the issue, which has the overall theme of: “In Search of Strategic Agility – discover a better way to turn strategy into results.”

The content we outlined here is powerful stuff (our own technical term) to crank into corporate strategy-setting, and savvy execs are doing just that, as we see here at G&A as we pour through the more than 1,500 corporate reports we analyze each year with titles such as Corporate Sustainability, Corporate Responsibility, Corporate Citizenship, Corporate Environmental Sustainability, and more.

And so it is very encouraging when we wander beyond the beaten path of reading the reliable staple of sustainability-oriented and CSR-oriented media to see what the senior management thought leadership media are doing!

We recommend that you read through the Spring 2018 Strategy magazine from MIT Sloan.  Link: https://sloanreview.mit.edu/

Remembering Marjory Stoneman Douglas and Her Rich Sustainability Legacy

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

As we watched the news of the tragic events at the high school in Broward County in South Florida, I wondered how many of us connected the oft-mentioned name of the high school with the woman – and her legacy – behind the institution’s name.

It’s a wonderful story to share with you: Marjory Stoneman Douglas was a valiant and heroic pioneer in so many ways on so many environmental and social issues.

She moved to Florida in 1915 from her early roots in Minnesota and New England (she was a Wellesley College grad) when the Sunshine State was in so many ways actually really a very new state. (Miami on her arrival had but several thousand residents and was a pioneer settlement).

Shortly after WW I ended there was a land boom in South Florida, with the Miami area coming alive with entrepreneurial and land and community development activity.

Some pieces of Miami land changed hands 10 times with the owner not even seeing the property “they owned.” The Miami Herald –her father was the founder and publisher — carried more classified advertising (buy my real estate!) than any other American newspaper at that time.

Marjory was born in 1890 and died in 1998 – her life spanned almost all of the 20th Century. She was an accomplished newspaper and magazine journalist, a tireless author and playwright and inspiration for female writers; an advocate for women, for civil rights, for human rights, for public health; a fighters for social justice; and a conservation leader who defended the previous Everglades eco-system for much of her life.

She moved to Miami – the new frontier of the American Atlantic coast in the early years of the 20th Century – and wrote for the city’s signature newspaper. She also wrote many short stories about this and that, for national magazines, and a run of good books. And then, in a defining moment in her life, she was invited by the Rinehart & Co. book publishing firm to contribute to the landmark series, “Rivers in America.”

(The 65 books in the series began appearing in 1937 and continued to 1974, with three publishers helming the efforts of local writers providing essays about their local rivers and the communities surrounding them.)

The editors asked her to write about the Miami River, which was not really a river at all, she cheerfully responded.

But then she began to research the ‘Glades” and there focused on the broad “wet” plains and the Biscayne Aquifer, giant Lake Okeechobee, and the role of the Kissimmee River in the fabled Everglades. The water was of the great stretch of wetlands was…well… moving…like a river.

The ‘Glades — not quite a river there, she explained to her readers, at least not like the Rio Grande or the Hudson or the Missouri and Mississippi – but it could be seen as a river of grass.

The result of her years of extensive exploration and research and working with naturalists and conservationists was her 1947 work, “The Everglades: River of Grass”.

She observed that the water did move, ever so slowly, shaping everything around it. That work awakened her interest in things conservation and environmental.

The Everglades was not just some, well, “swamp” – but a very important and vast and vital eco-system.

The Rivers series was very successful for the publishing house. I have copies of some of the book here on my bookshelf. Including River of Grass. Which has sold more than a half-million copies in the 70 years since first appearing in book stores. It is often compared to Rachel Carson’s Silent Spring in terms of impact and influence and awakening of the public conscience.

Marjory fought for many years to preserve and protect that eco-system and much of South Florida. Woe be to the “official” who stood in her way! She became known in the state as the “Grande Dame of the Everglades,” and a string of governors and other elected officials came into her crosshairs — and eventually under her sway.

I had the privilege to see Ms. Stoneman Douglas in action in Florida on several occasions. She appeared quite tiny and frail in her later days. But then she began to speak…and the sparks would fly! Her tiny voice was a megaphone for protection of the environment in Florida!

When I was an editor and publisher of Florida newsletters, magazines and management briefs, I constantly monitored the activities of the great lady, and came to appreciate the many achievements of her lifetime and way beyond (in the beneficial impacts on society today).

Today, thanks to her efforts, the Everglades National Park is a reality, saved from the relentless expansion and growth of developed areas for which Florida is nationally-known. Open space? Pave it over!

The area is also designated as a Wetland of International Significance and an International Biosphere Preserve.

We can all enjoy the Big Cypress area of the ‘Glades thanks to Marjory. Lake Okeechobee is still threatened by industrial activities but it is in much better shape than it would have been had she not joined the battle to push back on the flow of fertilizers, wastes into the lake, and other impacts that threatened this precious natural resource that helps to define Florida.

Well-Intended But In Turns Out, Boneheaded

The U.S. Army Corps of Engineers in the late-1930s and into the 1940s made a number of bone-headed decisions for “improving” the Kissimmee River flow and the effects on the Everglades. A series of floods had caused damage to newly-developed and agricultural areas, and the rising complaints by the increasing population moved government officials to “action”.

The river was “straightened out” in the 1940s and 1950s for much of it meandering course – with disastrous results. The little river flows from Lake Kissimmee, from close by to the well-visited Orlando area resorts, 100 miles south to the expanses of the Lake Okeechobee area through a wide and very flat floodplain.

This is home to a rich and wide variety of natural fauna and flora. In 1948, the Corps began building the “Central and South Florida Project” to move the river to a ditch, the C-38 Canal and installed water control facilities that…destroyed the natural river.

In 1992, the “reversal” began, restoring parts of the old natural river. The US Army Corps of Engineers splits the cost with the South Florida Water Management District – which Marjory helped to organize. (Known locally to some as “swiff-mud”.)

Marjory had strenuously pushed back on such modernization and “progress” — and won support for the restoration of the river; the project is still underway.

Marjory Stoneman Douglas High School:  The high school being named after her was in honor, we could say, of her quest for learning throughout all of her life. The Marjory Stoneman Douglas Building in the state capital (Tallahassee) is home to the offices of the Florida Department of Environmental Protection.

In her lifetime she was awarded the nation’s highest civilian honor – the Presidential Medal of Freedom – by President Bill Clinton (1993). England’s Queen Elizabeth paid her a visit. The National Wildlife Federation Hall of Fame inducted her, as did the National Women’s Hall of Fame in 2000.

When she passed in 1998 – 20 years ago at the age of 108! – President Clinton said: “Long before there was an Earth Day, Mrs. Douglas was a passionate steward or our nation’s natural resources and particularly her Florida Everglades.”

The Hall of Fame said of her book: “Her best-seller raised America’s consciousness and transformed the Florida Everglades from an area that was looked upon as a useless swamp – to be drained and developed commercially – to a national park that is seen as a valuable resource to be protected and preserved.”

And as we all know now, the scene of the February 2018 Parkland high school shooting tragedy took place at the high school named after her in 1990, during her lifetime.

Upon her passing her ashes were made part of the land – dust-returning-to-dust, to become part of the Marjory Stoneman Douglas Wilderness Area of the Everglades National Park.

And now you know more about the great lady of that name, who was a powerful voice that would very much at home in today’s sustainability movement!

She would be railing (I could picture her doing so) about global warming and the rising seas. She experienced the devastation hurricanes that ripped through South Florida in the 1920s and worried about her little house in Coconut Grove – that might be underwater at some point in the 21st Century (the restored house is a National Historic Landmark).

Her advice (according to a biographer, Mary Jo Breton in 1998): “Be a nuisance where it counts, but don’t be a bore at any time. Do your part to inform and stimulate the public to join your action. Be depressed (and she was at times in her life), discouraged and disappointed at failure but the disheartening effects of ignorance, greed, corruption and bad politics – but never give up.”

# # #

Graphic:  Wikipedia Commons

To learn more about this extraordinary woman and fighter for our environment, see the well done profile on Wikipedia: https://en.wikipedia.org/wiki/Marjory_Stoneman_Douglas

About her work, “The Everglades: River of Grass”: https://en.wikipedia.org/wiki/The_Everglades:_River_of_Grass

About The Kissimmee River restoration project: http://www.ces.fau.edu/riverwoods/kissimmee.php

A Big Year, 2018 – Tipping Points For Developments in Corporate Sustainability & Sustainable Investing…

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

Volume & Velocity!
Those may be well the key characteristics of developments in corporate sustainability and in sustainable in the year 2018.

Linda-Eling Lee, Global Head of Research for MSCI’s ESG Research Group and her colleague Matt Moscardi (Head of Research Financial Sector, ESG) this week described what they are projecting in the traditional early-in-the-year setting out of key ESG trends to watch by the influential MSCI ESG team:

Bigger, faster, more – that’s how Linda describes the “onslaught of challenges happening soon and more dramatically that many could have imagined” in the corporate sector” (including public policy, technology, and climate change as key factors).

Investors (in turn) are looking for ways to better position their portfolios to navigate the uncertainty of the 2018 operating environment in the corporate sector.

As the “heads up” for investors and companies– the five key 2018 trends projected by MSCI’s ESG researchers/analysts:

  • Investors will be using ESG “signals” to navigate the size/shape of the Emerging Markets investment universe to pick the winners for portfolios.
  • The first steps are coming in “scenario testing” for climate change (this is systematically looking at risks emanating from company carbon footprints across asset classes, with short- and long-term transition scenarios).
  • The fixed-income universe will see acceleration (velocity) with the alignment of ESG frameworks by investors across all asset classes.
  • And this is very important for the corporate sector:

Investors are looking beyond the growing volume of corporate disclosure and reporting for data.
Keep In Mind: 65% of a company’s rating by MSCI is based on data sources beyond the corporate reporting!

 

  • MSCI sees 2018 as the Year of the Human – it’s about human talent, talent, talent!  That is, what companies do to help in the transitioning to new working environments (with the changes brought about by automation, artificial intelligence, robotics) that will be factored into the analysis of public companies by the MSCI ESG team, and measured over time (for outcomes over a 3-year horizon).

Linda Eling-Lee observed:  These are the major trends that we think will shape how investors approach the risks and opportunities in 2018.

Already, at the Davos meetings this week, major global firms in IT are creating an initiative to “tech-reskill” one million people to meet the global skills gap challenge inherent in the “Fourth Industrial Revolution” (firms are Cisco, Accenture, CA Technologies, HP, Infosys, Salesforce, SAP, Tata Consultancy, others).

What we think company managements / boards should expect in the “volume and velocity” context:  many more investors (the volume / especially large fiduciaries) are embracing comprehensive ESG factors in their analysis and portfolio management approaches with a faster uptake of this trend among the mainstream elements of the capital markets players (the velocity).

Voluntary reporting by companies has its limits in providing a full picture of the companies’ ESG risks,” the MSCI ESG researchers note. “In 2018 we anticipate that the disclosure movement reaches a tipping point, as investors seek broader data sources that balance the corporate narrative and yield better signals for understanding the ESG risk landscape actually faced by portfolio companies”

# # #

Buzzing:  The Larry Fink CEO-to-CEO Message for 2018

Speaking of significant influence, the head of the world’s largest asset management firm sent an important CEO-to-CEO letter to stress the importance of companies having “a social purpose”

Background:  BlackRock engages with about 1,500 companies a year on a range of ESG issues, meeting with boards of directors and CEOs, and other shareholders when that is needed.

Each year, CEO Fink reaches out to the CEOs of companies in portfolio to alert them to the key issues in focus for BlackRock (as fiduciary).

For 2017-2018, the key Investment Stewardship priorities are:

  • Corporate Governance / Accountability
  • Corporate Strategy
  • Executive Compensation Policies
  • Human Capital (again — there’s the focus on talent management)
  • Climate Risk Disclosure

Larry Fink is the Founder, Chair, and CEO of BlackRock and heads the firm’s “Global Executive Committee.” BlackRock is about to celebrate its 30th anniversary in 2018.  It now manages more than US$6 trillion (Assets Under Management-AUM).

Of this, $1.7 trillion is in active funds managed by the company.  As one of the world’s most important and influential (and trend-setting) fiduciaries BlackRock engages with company management to drive the sustainable, long-term growth clients need to meet their goals.

“Indeed,” CEO Fink said in his letter to CEOs, ”the public expectations of your company has never been higher.”

“Society is demanding that companies, both public and private, serve a social purpose…to prosper over time, every company must show it makes a positive contribution to society.”

“Without a sense of purpose, no company…can achieve its full potential…it will ultimately lose the license to operate from key stakeholders…”

# # #

The Key Word on Responsible Investing Growth is Global, RBC Reported

In October 2017, RBC Global Asset Management (RBC GAM) conducted its second annual global survey of asset managers.  Two-out-of-three respondents said they used ESG considerations, and 25% will increase their allocations to managers with ESG investment strategies to offer in 2018.

Does ESG mitigate risk…or drive alpha?  Answers were mixed.  Some asset managers are increasing their allocation and others are skeptical, especially about the accuracy and value of the available data on corporate ESG performance.

For 2018:  RBC sees responsible investing as a global trend, with many managers incorporating ESG in analysis and portfolio management due to client (asset owner) demand.

# # #

Tracking Company Behaviors – The RepRisk ESG Risk Platform

One of the leading producers of research and business intelligence for the banking and investment communities is RepRisk, based in Zurich, Switzerland. The firm started in 2006 to serve bank clients wanting to be alerted to real or possible risk issues in the corporate sector.

RepRisk developed artificial intelligence and data mining tools, that along with human analysis, “reduces blind spots and sheds light on risks that can have reputational, compliance and financial impacts on a company…”

Today, there are 100,000-plus companies in the RepRisk database (both listed and non-listed, from all countries and sectors). The firm started out monitoring 100 companies for clients.  The daily screening is delivered in 16 languages and about 50 companies a day are added for screening.  Is your company one of those tracked?  What are the risks tracked?

# # #

Does Adoption of ESG Approaches Sacrifice Corporate Performance?

Robeco, one of the world’s leading financial services firms (based on The Netherlands), and a sister company of RobecoSAM, managers of the Dow Jones Sustainability Indexes, looked at the question of whether or not the adoption of ESG / sustainability approaches “cost” the company performance.

Adopting sustainability approaches does require investment, but companies with poor ESG performance also have greater risks and “seriously under-perform” their peers.  And investors “win” by investing in the better performers (that reduce risk, strategize around climate change, reduce bad behaviors).

Says Robeco:  “…a growing body of evidence concludes that companies which are progressively more sustainable today will reap the rewards of the future…and it may save their businesses…”

The Company’s positioning:  “Robeco is an international asset manager offering an extensive range of active investments, from equities to bonds. Research lies at the heart of everything we do, with a ‘pioneering but cautious’ approach that has been in our DNA since our foundation in Rotterdam in 1929. We believe strongly in sustainability investing, quantitative techniques and constant innovation.”

# # #

CalPERS, America’s Leading Public Employee System – Corporate Engagement on Diversity Issues

“CalPERS: is the California Public Employee’s Retirement System, the largest state investment fund in the United States with about $350 billion in total fund market AUM.

CalPERS sent letters to 504 companies in the Russell 3000 Index to engage on the issue of diversity on the companies’ boards of directors.

CalPERS request:  the company should develop and then disclose their corporate board diversity policy, and the details of the plan’s implementation (to address what CalPERS sees as lack of diversity in the companies).

“Simply put, board diversity is good for business,” said Anne Simpson, CalPERS’ investment director for sustainability.

Starting in Fall 2017 and into 2018, CalPERS is monitoring companies’ progress on the matter and making it a topic for engagement discussions.  If a company lags in progress, CalPERS will consider withholding votes from director-candidates at annual voting time (at annual meetings).

# # #

The Climate Action 100+ Investor Initiative

 Sign of the times: More than 200 investors supporting action on climate change by the corporate sector are focusing on the board room of such companies as ExxonMobil, Boeing, GE, P&G, Ford, Volvo, PepsiCo, BP, Shell, Nestle, Airbus, and  other  enterprises (the “100” plus companies in focus) to dialogue on their GhG emissions as contributions to global warming.

The 100 corporates are said to account for 85% of the total GhG emissions worldwide – they need to step up, says the Coalition, and develop strategies and take action (and disclose!) to address the issue.  The investors manage more than $26 trillion in AUM, and are coordinating their efforts through five partnerships…

# # #

McKinsey Weighs In – ESG No Longer “Niche” – Assets Are Soaring

The McKinsey & Co. experts studied ESG investing and reported to corporate clients that of the $88 trillion in AUM in the world’s capital markets (in late-October), more than $1-in-$4 (25%-plus) are invested according to ESG principles.  That’s a growth of 17% a year, and ESG has become “a large and fast-growing market segment.”

# # #

Investors Are Not Forgetting – Rana Plaza Still in Focus

One of the characteristics of the sustainable investing market players is having-the-memory-of-the-elephant.  Do you remember the Rana Plaza apparel factory tragedy of five years ago?  Most media reporters and commentators have moved on to other crisis events.

Investors are signing on to a statement – “Investors Call on Global Brands to Re-commit to the Bangladesh Accord for Fire and Building Safety” – with focus on the upcoming fifth anniversary of the statement signed (in May 2013) after the accident that killed more than 1,000 workers in Bangladesh.

Reforms were promised in the Accord by industry participants and trade unions.

# # #

Another Example of Investor Action – McDonald’s

“In a win for the health of the world’s oceans,” began the As You Sow shareholder advocacy group announcement, “McDonald’s Corp. agreed to end the use of polystyrene foam packaging – worldwide! – – by the end of 2018.

The advocacy group had campaigned to have the fast food retailer stop using foam cups and takeout containers.

A shareholder proposal filed by As You Sow in May 2017 requested the company stop using polystyrene and 32% of shares voted (worth $26 billion at the time) voted to support.

# # #

Finally – What a Low-Carbon Economy Looks Like – California Dreamin’

The State of California is the world’s sixth largest economy all by itself!

While President Donald Trump upon taking office fulfilled one of his signature campaign promises – beginning the process of withdrawal from the historic COP 21 Paris Accord on climate change – California Governor Edmund (Jerry) G. Brown, Jr is moving ahead with his state’s plans to move to a low-carbon economy.

The Global Climate Change Action Summit is scheduled for September 2018 in San Francisco, California.

The theme, as described by the governor:  “Sub-national governments” (cities & states), business sector leaders, investors and civil society leaders will gather to “demonstrate the groundswell of innovative, ambitious climate action from leaders around the world, highlight economic and environmental transition already underway and spur deeper commitment from all parties, including national governments.”

Says the governor: “California remains committed to a clean energy future and we welcome the responsibility to lead on America’s behalf…”

# # #

Coming:  ISS QualityScores for “E” and “S” for 1,500 Companies

As we communicated in early January, Institutional Shareholder Services (ISS) has expanded its long-term focus on corporate governance to encompass “E” and “S” issues for its QualityScore product for fiduciaries (its client base).  In late-January it is expected that ISS will issue the first wave of scores for 1,500 companies in six industries, expanding to 5,000 companies in additional industries by mid-year 2018.

The first 1,500 companies to be scored are in Autos & Components; Capital Goods; Consumer Durables & Apparel; Energy; Materials; and, Transportation.

The QualityScore is a Disclosure and Transparency Signal that investor-clients are seeking, says ISS, and an important resource for investors to conduct comparisons with corporate peers.

Keep in mind:  ISS serves its 1,700 clients with coverage in 117 global markets.

# # #

There’s much more information on this and other critical 2018 tipping points for corporate managers and investment professionals in the comprehensive management brief from the G&A Institute team posted on our G&A Institute’s “To the Point!” platform for you.

We’re presenting here more details on the MSCI trends forecast, the BlackRock CEO-to-CEO letter about Social Purpose for the Corporation, California’s move toward a low-carbon economy,  RepRisk’s focus areas for corporate behavior…and a host of additional important developments at the start of the year 2018 that will shape the operating environment throughout the year – and beyond! Read the brief here!

SEC Proposes Important Amendments to Corporate Disclosure & Reporting – Changes Are in the Wind — But Corporate ESG Disclosure Is Not Addressed in the SEC Proposals …

October 12 2017 – by Hank Boerner – Chair, G&A Institute

On October 11, 2017 important news was coming from the Securities Exchange Commission (in Washington DC) for corporate leaders and investment professionals: a comprehensive package of proposed changes (amendments) to existing rules for corporate disclosure and reporting was released for public examination and comment.

There are more than 250 pages of proposed changes and adjustments released for your reading (the document will be published now in the Federal Register for broad communication to stakeholders).

You’ll remember the April 2016 activities as SEC released a 200-plus page Concept Release that addressed a range of issues that could result in revamping the overarching parts of Regulation S-K and parts of Regulation Fair Disclosure (“Reg FD“) and other corporate disclosures required by Federal statutes.

We told you about this in our post of May 13, 2016.
Link: http://ga-institute.com/Sustainability-Update/tag/sec-concept-release/

We said then: Maybe…U.S. Companies will be required…or strongly advised…to disclose ESG Data and related business information…

There were great hopes raised when the Commission in circulating the Concept Release document devoted more than a dozen pages to discussion about ESG, sustainable investing, the possibility of “guidance” or perhaps amending rules to meet investors’ expectations that public companies would begin, expand, improve on, ESG disclosure.

Numerous investor interests provided comments to the SEC in support of the possibilities raised by SEC in the dozen pages of the Concept Release devoted to ESG et al.

The US SIF — the Forum for Sustainable and Responsible Investing, a very influential trade association of asset owners and managers — provided important input, as did the CFA Institute (the U.S.-based, global certification organization for financial analysts and portfolio managers worldwide).

Disclosure of material ESG issues was a key concern of the numerous responders in the public comment period.

This week’s development: The SEC Commission proposed amendments to existing regulations that are part of the “Modernization and Simplification of Regulation S-K,” citing a different package of legislation. (The FAST Act Modernization, which in part will the sponsors said will attempt to “prune the regulatory orchard” — this is part of the Fixing America’s Surface Transportation Act or “FAST”.)

The Commission referred to the proposals as an important step “…to modernize and simplify disclosure requirements for public companies, investment advisors and mutual fund (investment) companies under the FAST Act…”

This, said recently-appointed SEC Chair Jay Clayton, “…is the most effective way to update SEC rules, simplify forms and utilize technology to make disclosure more accessible…”

The proposed amendments were characterized as part of the overall, long-term review of the SEC’s disclosure system. Thus, the SEC said the proposed amendments reflect “perspectives developed during the staff’s broader review…including public input on the prior Concept Release.

The details are available for you in a new 253-page document, at: https://www.sec.gov/rules/proposed/2017/33-10425.pdf

You have 60 days of open comment period ahead during which to express your views on the proposals.

The proposed amendments mostly address corporate governance (G”) issues that if adopted would:

• Change such items as Description of Property**; the MD&A; Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act; Outside Cover Page of the Prospectus.

• Revise rules and forms to update, streamline and improve the SEC disclosure framework by eliminating risk factor examples listed in the disclosure requirement and revising the description of “the property requirement” to emphasize the materiality threshold**”.

Note that while “property” is usually a facility, this does not always apply to the service sectors.

• Update rules as needed to reflect changes since the rules were first adopted or last amended. (Including, “corporate governance” items, such as for Board Auditing, Compensation Committee operations.)

• Simplify the overall disclosure process, including treatment of confidential information; also, changes would be made to the MD&A to allow for “flexibility in discussing historical periods”. (The discussion on confidential info runs for pages – important to read for corporate managers involved in disclosure.)

• Treatment of subsidiaries.

• Incorporate technology to improve access to information requiring data tagging (XBRL) for items on the cover page and use of hyperlinks (HTML) by reference and in the EDGAR system.

Again – the public now has 60 days to submit comments on the proposed amendments (to such statutory authority as the Securities Act of 1933; Securities Exchange Act of 1934; Investment Company Act of 1940; and, regulations under these landmark securities protection laws of the land).

There are numerous sections within the proposed amendment document where the Commission is inviting public comment. To submit your comments, see: http://www.sec.gov/rules/proposed.shtml — file#S7-08-17

Disappointing News: There is no mention that we could find in the proposal document that addressed the many comments that were directed to the SEC staff in response to the earlier Concept Release by sustainable & responsible investor interests. And, in many investor conversations with SEC staff that acknowledged the growing importance of disclosure regarding corporate sustainability and ESG performance.

No mention of: Climate Change. ESG. Responsible Investment.

This is very troubling — no doubt members of the investment community and corporate leaders well along on their sustainability journey will be providing their perspectives to SEC — and the media, and elected officials — on this important oversight.

SEC guidance for corporate reporters regarding their ESG, sustainability, responsibility, citizenship, etc disclosures and reporting activities would be very helpful – right?  Of course, we are in a new political environment now, and perhaps that is helping to shape the agenda at the Commission as “reforms” are drafted and distributed for public consumption.

There is much more news to come when the response to the announcement begins. Stay Tuned!

P.S. – if you/your organization responds to the draft proposals, please do let G&A know so we can publicize your perspectives.

Climate Change Risk? Nah – The Deniers & Destroyers Are At Work – White House Attempts to Roll Back Obama Legacy

Deniers/Destroyers are at work – at US EPA — the White House — hoping/wishing for rollback of rich Obama legacy positions on climate change issues…

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

March 28, 2017

In classic-CNN style we bring you !!!BREAKING NEWS!!! – the Climate Change Deniers and Environmental Regulatory Protection Destroyers are at work in Washington DC today.

You’ve heard the news by now: President Donald Trump and EPA Administrator E. Scott Pruitt are preening and pompously strutting as they announce the important beginnings of what they want (and hope!) to be the rollback of important environmental and public health protections of the Obama Administration … you know, the “job killers” that were at work putting coal miners out of business.

At least that’s some of the twisting, grasping, pretzel-elian logic that underpins the actions taken today (which in turn tells the Trump loyal voting base that yes, still another campaign promise is being carried out on their behalf).

During his early months in office, President Barack Obama signed important Executive Orders that addressed climate change issues and global warming challenges — and please here do note that these and other Presidential EOs are always based on (1) the existing statutes enacted by Congress and (2) the authority of the Office of the President.

You remember some of the key statutes involved in these issues  — The Clean Air Act (CAA); The Clean Water Act; (CWA) the foundations laid by the all-empowering National Environmental Policy Act (NEPA) …and other landmark legislation sensibly reached on a bipartisan basis over the decades since American rivers burst into flames.

Today, President Donald Trump signed [a very brief] EO with a flourish — the “Promoting Energy Independence and Economic Growth” Executive Order.

The action orders the U.S. Environmental Protection Agency to begin the [legal] process of un-doing or re-doing the nation’s Clean Power Plan, the keystone to President Obama’s actions to address global warming. (Or “climate change” if one is skittish about being on the side of the angels on this issues.)

Here is what today’s EO covers:

  • Executive (cabinet) departments and agencies will begin reviewing regulations that potentially burden the development/or use of domestic energy sources — and then suspend, revise or rescind those that “unduly burden” the development of domestic energy resources…beyond the degree necessary to protect the public interest.
  • All [Federal] agencies should take appropriate actions to promote clean air (!) and clean water (!) for the American People — oh, while following the law and the role of the Congress and the States concerning these matters. (One hopes this includes Flint, Michigan residents. We can hear great, cogent arguments in the Federal courts about all of this.)
  • Costs are to be considered — regarding “environmental improvements for the American People” — as, when “necessary and appropriate” environmental regulations are to be complied with…and the benefits must be greater than the cost.

This is encouraging, if only that it is stated to provide cover for legal challenges: Environmental regulations will be developed through transparent processes that employ the best available peer-reviewed science and economics!

  • All Federal agencies are to review actions that are described in the Trump Executive Order and then submit to the [White House] staffed departments and the Vice President their plan(s) to carry out the review for their agency.

Here’s The Important Deny/Destroy Actions

By swipe of pen, the President revoked these important cornerstones of the Obama Administration climate change legacy:

  • Executive Order 13653 (November 1, 2013) – “Preparing the U.S. for the Impacts of Climate Change.”
  • President Memorandum (June 25, 2013) – “Power Sector Carbon Pollution Standards.”
  • Presidential Memorandum (November 3, 2015) – “Mitigating Impact on Natural Resources from Development and Encouraging Related Private Investment.”
  • Presidential Memorandum (September 21, 2016) – “Climate Change and National Security.”
  • Report of the Executive Office of the President (June 2013) – “Climate Action Plan.”
  • Report of the Executive Office of the President (March 2014) – “Climate Action Plan Strategy to Reduce Methane Emissions.”
  • The Council on Environmental Quality guidance (August 5, 2016) – “Final Guidance for Federal Departments and Agencies on Consideration of GhGs and Effects of Climate Change in NEPA Reviews.”

And The Very Important Clean Power Plan…

  • A review of the EPA’s “Clean Power Plan,” to be suspended, revised or rescinded, or, new rules proposed following the steps necessary. This will affect:
  • The final rules of the Clean Power Plan (October 23, 2015) – “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generation Units”;
  • Final Rules (October 23, 2015) – “Standards of Performance for GhGs from New, Modified and Reconstructed Stationary Sources: Electric Utility Generating Units;
  • Proposed Rule (October 23, 2015) – “Federal Plan Requirements for GhGs Emissions from Electric Utility Generating Units Constructed before January 8, 2015”; “Model Trading Rules: Amendments to Framework Regulations”.
  • The Interagency Working Group on Social Cost of Greenhouse Gases – convened by the Council of Economic Advisors and the Director, Office of Management and Budget (OMB) — is disbanded, and the documents that established the “social cost of carbon” no longer represent public policy.

Beyond these specifics, the EO also orders the Secretary of the Interior to review its rules, and any guidance given, and (if appropriate) suspend, revise and rescind these. Included:

  • Final Rule (March 26, 2015) – “Oil and Gas: Hydraulic Fracturing on Federal and Indian Lands”;
  • Final Rule (November 4, 2016) – “General Provisions and Non-Federal Oil and Gas Rights”;
  • Final Rule (November 14, 2016) – “Management of Non-Federal Oil and Gas Rights”;
  • Final Rule (November 18, 2016) – “Waste Prevention, Production Subject to Royalties, and Resource Conservation.”

For the record: The EO is intended to (1) promote clean and safe development of “our Nation’s vast” energy sources; (2) avoid regulatory burdens that constrain production, energy growth and job creation; (3) assure the Nation’s geo-political security.

US SIF Weighs In

The influential trade association for sustainable, responsible and impact investing swiftly responded. Lisa Woll, CEO of US SIF, commented:

“On behalf of our 300 institutional members, US SIF belies the Administration should be working aggressively to reduce carbon in the atmosphere and that this Executive Order accomplishes the opposite.

“The United States is paying a high economic price from the ravages of severe drought, wildfires and storms associated with increased atmospheric levels of carbon. This is not the time to retreat from the call to protect current and succeeding generations from the catastrophic implications of further, unrestrained climate change.”

In the US SIF biennial survey of sustainable and impact investment assets, it should be noted here that U.S. money managers with US$1.42 trillion in AUM and institutional asset owners with $2.15 trillion in assets consider climate change risk in their investment analysis — that is three times the level in the prior survey in 2014.

Now — Investors – NGOs – State and local governments – social issue activists — business leaders — Federal and State courts — can push back HARD on these moves by the Trump Administration.

Otherwise, it could be drill, baby, drill — dig, baby, dig — and, hey, it’s good for us, we are assured by the Deflector-in-Chief and his merry band of wrongheaded Deniers/Destroyers in the Nation’s capital!

What do you think — what do you have to say? Weigh in our this commentary and share your thoughts – there’s space below to continue the conversation!