Lively Discussions: The Move Toward Harmonized Corporate ESG / Sustainability Reporting

September 22 2020

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

There are lively discussions going on, centered on improving publicly-traded company disclosure and reporting – and especially ESG reporting…that is, storytelling about the company’s “non-financials” (in accounting-speak).  And the story of the corporate sustainability story for those-in-the-know!

The proliferation of ESG / sustainability reporting frameworks, standards, information platforms, industry guidance, stock exchange guidance and much more has been astounding in recent years.

We think of all this as about the organizing of the storytelling about a company’s sustainability journey and what the enterprise has accomplished. 

And why the story matters to society…to investors, employees, customers, suppliers, communities…and other stakeholders.

And it has a been a long journey to the state of today’s expanding corporate ESG disclosure.

The start of mandating of periodic financial and business mandated disclosure goes back to the 1930s with passage of landmark federal legislation & adopted implementation (compliance) rules for publicly-traded companies in the United States.

Corporate financial disclosure in concept is all about providing shareholders (and potential investors) with the information they need to make buy-sell-hold decisions.

The sturdy foundations of mandated corporate disclosure in the U.S. are the laws passed after the 1929 stock market crash – the 1933 Securities Act and 1934 Exchange Act.  These laws and the bodies of rules deriving from them have been constantly updated over the years, including with Sarbanes Oxley legislation in 2002 and Dodd Frank in 2010. These mandate or guide and otherwise provide the rules-of-the-road for financial disclosure for company managements.

Disclosure has steadily moved well beyond the numbers – Sarbanes-Oxley updated the 1930’s laws and addressed many aspects of corporate governance, for example.

Voluntary Disclosure & Reporting – ESG Issues & Topics
Over the past 40 years, beyond the financials, corporate voluntary non-financial disclosure has been steadily increasing, as investors first embraced “socially responsible investing” and moved on to sustainable & responsible & impact investing in the 21st Century.

Asset owner and asset manager (internal and external) requests for ESG information from publicly-traded companies in portfolio has steadily expanded in the depth and breadth of topic and issue areas that institutional investors are focused on – and that companies now address in significantly-expanded ESG disclosures.

Today, investor interest in ESG / sustainability and related topics areas is widespread throughout asset classes – for equities, equity-focused products such as imutual funds and ETFs, fixed-income instruments, and now credit risk, options and futures, fixed assets (such as real estate), and more.

With today’s dramatic increase in corporate sustainability & ESG reporting, the maturation of reporting frameworks and standards to help address the internal need for better organizing non-financial data and information and accompanying ESG financial disclosure.

And all of this in the context of trying to meet investor demands.  Today with expanded ESG disclosure, corporate executives find that while there are more resources available to the company, there is also more confusion in the disclosure process.   Investors agree.

Common Complaints:  Lack of Comparability, Confusion, Demand for Change
The result of increasing demand by a widening range of investors for accurate, detailed corporate ESG information and the related proliferation of reporting frameworks and standards can and has resulted in confusion among investors, stakeholders and companies as to what is important and material and what is frill.

This especially as corporate managements embrace various elements of the available frameworks and standards and industry guidance and ESG ratings for their still-voluntary ESG reporting.

So where do we go from here?  In our selection of Top Stories for you, we bring you news from important players in the ESG reporting process as they attempt to move in the direction of more uniform, comprehensive, meaningful and decision-ready corporate ESG reporting. That investors can rely on.

The news for you is coming from GRI, SASB, GSSB, IIRC, CDSB, and CDP (among others) – all working to get on the same page.

The aim: to benefit corporate reporters – and the users of the reports, especially capital market players.

Because in the end, ESG excellence is all about winning in the competition for access to capital. Accurate, timely, comprehensive comparable ESG information is key!

Top Stories

New E, S & G And ESG Benchmarks – TRCRI – For Investors, Corporate Managers and Consultants from Thomson Reuters and S Network Indexes


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Interview by Hank Boerner – Chairman, G&A Institute

Thomson Reuters is a global media and information services company, and one of the largest providers of capital markets information.  In 2009, T-R acquired ASSET4, a longtime ESG performance information service for investors. The ASSET4 methodology is being used for a new family of ESG benchmarks for investors and companies – the Thomson Reuters TR CR indices (TRCRI).  The managers of the indices is S Network Global Indexes LC,  providers of indexes that measure the performance of discrete segments of the global economy.   We spoke with Herbert Blank,  at S Network Global Indexes regarding the new TRCRI

G&A Institute Question:  Tell us about the new TR CR Indexes and Ratings from Thomson Reuters in partnership with S-Network Global Indexes LLC.  What are the first products coming to market – and what need do they fill?

Answer – Herb Blank: The Thomson Reuters Corporate Responsibility Indices (TRCRI) are a suite of benchmarks designed to measure the performance of companies with superior ratings for Environmental, Social and Governance practices (ESG).  Historical data and constituents are available on a rolling basis beginning January 1, 2007.

The Thomson Reuters Corporate Responsibility Ratings (TRCRR) apply extensive quantitative modeling to more than 500 data elements to score more than 4600 companies from 0 to 100 on Environmental, Social, Corporate Governance, and ESG Performance.   The indices and ratings were launched in April 2013.  They democratize ESG Ratings and indices by creating transparent and publicly available methodological standards that can be used for comparisons between global regions and industry groups.

G&A Institute:  What are the key characteristics of the rating process?

Herb Blank: The characteristics of the ratings process are:

  • Baseline Simplicity — Just one number between 0 and 100 on an approximated normal distribution characterizes performance on each dimension.
  • Comparability and Consistency — Data framework is identical for all companies within each industry and region allowing for the generation of comparable statistics over time.  Scoring and benchmarking relative to disclosure practices in industry and by region makes every score comparable in “E”, “S”, “G”,  and “ESG.”
  • Deterministic — Ratings are completely formula-driven and derived from publicly-available data.
  • Emphasis on Materiality — Analytical frameworks emphasize criteria most material to ESG performance and risk in each industry by region.
  • Transparency — Methodology including weights, dynamic scaling, peer groups, and adjustments 100% disclosed and available on spreadsheets via website.

G&A Institute:  When will the indices and ratings be available for users?

Herb Blank: Four indices apiece for the US Large Cap stock market and global ex-US developed stock markets have been available since April 2013.   Four stock indices for Emerging Markets are under development with an expected release date of April 1, 2014.  We also expect to be releasing fixed-income indices for TRCRI sometime during the second half of 2014.

The ratings are available and being utilized now through Thomson Reuters Enterprise Solutions.  The big change in the early part of 2014 is that Registered Investment Advisers (RIA’s), Corporate Users, and individuals will have the ability to purchase to ratings data directly from www.trcri.com via all major credit cards at surprisingly affordable prices.

G&A Institute:  How do you see asset managers, owners, and consultants using the products?

Herb Blank: The fact that the ratings have normal distribution curve properties facilitate their usage by asset managers as screening tools or as additional variables for existing portfolio universe scoring systems.   Since 500 data elements are engineered to create just four ratings per company, pricing is substantially less that the norm for existing ESG database products.  The news is even better for asset owners and their consultants who use the data for benchmarking, universe screening, and research; those who qualify will receive complimentary subscriptions to the ratings and the indices.

Asset managers and financial markets consultants can compare companies and portfolios against peer groups in these areas of corporate responsibility. Companies that are highly-rated in ESG metrics have been intuitively characterized as top performing companies. Now the TR ratings and indices present quantitative evidence to verify this assumption.

G&A  Institute:  How will corporate managers be able to use the products?

Herb Blank: Corporate managers will find it easy to compare themselves with their peers, both domestic and foreign.   Beyond that, the transparency of the ratings facilitates the ability of expert consultants such as G & A Institute to coach such clients on what things they could do to improve their ratings relative to their peers.  Also, corporate executives and financial leaders can highlight their company’s progress in ESG issues in quantitative terms that financial analysts must consider to be material. Strong performance in the ratings will give investors an inspective look into the companies.

G&A Question:  Can you fill us in on the background of the partnership with Thomson Reuters?

Herb Blank: Prior to launching the TRCRI and TRCRR, Thomson Reuters and S-Network have collaborated on the CRB Equity Indexes and have explored other joint ventures. S-Network Global Indexes’ historic expertise is as an architect, developer, and provider of specialty indices that can easily be attached to investment management products such as exchange-traded funds (ETFs) and separately managed accounts.  A key impetus for the TRCRI venture was to create investible ESG indices utilizing the vast corporate responsibility data collected and analyzed by Thomson Reuters Asset4.  In terms of the partnership, the TRCRI are compiled and published by S-Network Global Indexes and calculated using T-R data.