Publicly-traded Companies Have Many More Eyes Focused on Their ESG Performance – And Tracking, Measuring, Evaluating, ESG-Linked-Advice to Investors Is Becoming Ever-More Complex

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

Some recent developments for consideration by the boards and C-Suite of publicly-traded companies as established ESG ratings agencies up their game and new disclosure / reporting and frameworks come into play.

The “Global Carbon Accounting Standard” will debut in Fall 2020. Is your company ready? Some details for you…

Financial Institutions – Accounting for Corporate Carbon

The Partnership for Carbon Accounting Financials (PCAF) was organized to help financial institutions assess and then disclose the Greenhouse Gas emissions (GhGs) of their loans and investments to help the institutions identify and manage the risks and opportunities related to GhGs in their business activities.

Think: Now, the companies in lending or investment portfolios should expect to have their carbon emissions tracked and measured by those institutions that lend the company money or put debt or equity issues in their investment portfolios.

The financial sector kimono will be further opened. This could over time lead to a company lagging in ESG performance being treated differently by its institutional partners, whether the company in focus discloses their GhG emissions or not.

For companies (borrowers, capital recipients), this is another wake-up call – to get focused on GhG performance and be more transparent about it.

This effort is described as the to be the “first global standard driving financial institutions to measure and track the climate impact of their lending and investment portfolios.”

As of August 3, 2020, there are 70 financial institutions with AUM of US$10 trillion collaborating, with 16 banks and investors developing the standard…to be a common set of carbon accounting methods to assess and track the corporate emissions that are financed by the institutions’ loans and investments.

Significant news: Morgan Stanley, Bank of America (owners of Merrill Lynch) and Citi Group are all now members of the partnership and Morgan Stanley and Bank of America are part of the PCAF Core Team developing the Standard.

The institutional members of the Core Team leading the work of developing the PCAF Standard are: ABN AMRO, Access Bank, Amalgamated Bank, Banco Pichincha, Bank of America, Boston Common Asset Management, Credit Cooperatif, FirstRand Ltd, FMO, KCB, LandsBankinn, Morgan Stanley, Producanco, ROBECO, Tridos Bank, and Vision Banco.

The work of the PCAF will feed into the work of such climate initiatives as the CDP, TCFD, and SBTi (Science-based Target Initiative).

The work in developing the “Standard” includes an open comment period ending September 30, 2020. The final version of the Standard will be published in November.

Morgan Stanley, in its announcement of participation, explained: MS is taking a critical step by committing to measure and disclose its financial emissions…and those in its lending and investment portfolio. As other institutions will be taking similar steps.

(Morgan Stanley became a bank during the 2008 financial crisis and therefore received federal financial aid designed for regulated banking institutions.)

Tjeerd Krumpelman of ABN AMRO (member of the Steering Committee) explains: “The Standard provides the means to close a critical gap in the measurement of emissions financed by the financial industry. The disclosure of absolute financed emissions equips stakeholders with a metric for understanding the climate impact of loans and investment…”

Bloomberg Announces Launch of ESG Scores

Bloomberg LP has launched proprietary ESG scores – 252 companies are initially scored in the Oil & Gas Sector and Board Composition scores have been applied for 4,300 companies in multiple industries.

This approach is designed to help investors “decode” raw data for comparisons across companies; Bloomberg now presents both (raw data and scores) for investors.

This offers “a valuable and normalized benchmark that will easily highlight [corporate] ESG performance, explains Patricia Torres, Global Head of Bloomberg Sustainable Finance Solutions.

There is usually stronger data disclosure for the Oil & Gas Sector companies, says Bloomberg (the sector companies account for more than half of carbon dioxide emissions, generating 15% of global energy-related Greenhouse Gas emissions).

Governance scoring starts with Board Composition scores, to enable investors to assess board make up and rank relative performance across four key areas – diversity, tenure, overboarding and independence.

Bloomberg describes the “E, S” scores as a data-driven measure of corporate E and S (environmental and social) performance across financially-material, business-relevant and industry-specific key issues.

Think of climate change, and health and safety, and Bloomberg and investor clients assessing company activities in these against industry peers.

This is a quant modelling and investors can examine the scoring methodology and company-disclosed (or reported) data that underly each of the scores.

Also, Bloomberg provides “data-driven insights” to help investors integrate ESG in the investment process. This includes third party data, access to news and research content, and analytics and research workflows built around ESG.

Sustainalytics (a Morningstar company) Explains Corporate ESG Scoring Approach

The company explains its ESG Risk Rating in a new document (FAQs for companies). The company’s Risk Ratings (introduced in September 2018) are presented at the security and portfolio levels for equity and fixed-income investments.

These are based on a two-dimension materiality framework measuring a company’s exposure to industry-specific material ESG risks…and how well the company is managing its ESG risks.

Companies can be placed in five risk categories (from Neglible to Severe) that are comparable across sectors. Scores are then assigned (ranging from 9-to-9.99 for negligible risk up to 40 points or higher for severe risk of material financial impacts driven by ESG factors).

The company explains: A “material ESG issue” (the MEI) is the core building block of Sustainalytics’ ESG Risk Rating – the issue that is determined by the Sustainalytics Risk Rating research team to be material can have significant effect on the enterprise value of a company within an sub-industry.

Sustainalytics’ view is that the presence or absence of an MEI in a company’s financial reporting is likely to influence the decisions made by a reasonable investor.

And so Sustainalytics defines “Exposure to ESG Risk” and “Management of ESG Risk” and applies scores and opinions. “Unmanaged Risk” has three scoring components for each MEI – Exposure, Management, Unmanaged Risk.

There is much more explained by Sustainalytics here: https://connect.sustainalytics.com/hubfs/SFS/Sustainalytics%20ESG%20Risk%20Rating%20-%20FAQs%20for%20Corporations.pdf?utm_campaign=SFS%20-%20Public%20ESG%20Risk%20Ratings%20&utm_medium=email&_hsmi=93204652&_hsenc=p2ANqtz–uiIU8kSu6y0FMeuauFTVhiQZVbDZbLz18ldti4X-2I0xC95n8byedKMQDd0pZs7nCFFEvL172Iqvpx7P5X7s5NanOAF02tFYHF4w94fAFNyOmOgc&utm_content=93203943&utm_source=hs_email

G&A Institute Perspectives: Long established ESG raters and information providers (think, MSCI, Sustainalytics, and Bloomberg, Refinitiv, formerly Thomson Reuters) are enhancing their proprietary methods of tracking, evaluating, and disclosing ESG performance, and/or assigning ratings and opinions to an ever-wider universe of publicly-traded companies.

Meaning that companies already on the sustainability journey and fully disclosing on same must keep upping their game to stay at least in the middle of the pack (of industry and investing peers) and strive harder to stay in leadership positions.

Many more eyes are on the corporate ESG performance and outcomes. And for those companies not yet on the sustainability journey, or not fully disclosing and reporting on their ESG strategies, actions, programs, outcomes…the mountain just got taller and more steep.

Factors:  The universe of ESG information providers, ratings agencies, creators of ESG indexes, credit risk evaluators, is getting larger and more complex every day. Do Stay Tuned!


Top 10 GRI Sustainability Aspects for the Financial Services Sector

Sustainability – What Matters in the Financial Services Sector

Recent research conducted by the Governance & Accountability Institute attempts to answer important questions for company managements in the Financial Services Sector, by examining the disclosure practices of 134 global peer organizations publishing GRI reports in the Sector.

The top 10 Global Reporting Initiative (GRI) aspects that were determined to be material by the managements of reporting organizations in the Financial Services Sector are:

  1. Customer Privacy
  2. Materials
  3. Marketing Communications
  4. Equal Remuneration for Women and Men
  5. Training and Education
  6. Public Policy
  7. Investment and Procurement Practices
  8. Diversity and Equal Opportunity
  9. Corruption
  10. Indirect Economic Impacts

Results:  The complimentary report examining 35 sectors including top 10 GRI aspects, and top/bottom 10 GRI performance indicators can be downloaded here:
www.ga-institute.com/sustainability-what-matters

The full rankings for all 84 GRI performance indicators and all 37 GRI Aspects for each of the 35 sectors examined are available for purchase at:
www.ga-institute.com/getall84

Organizations included in the Financial Services Sector study are:

Aargauische Kantonalbank, ABN AMRO Holding, Absa, Access Bank PLC, ACE Seguros S.A., AEGON, Agence Française de Développement, Akbank, Allianz, ALPHA Bank, Arab Bank, Assicurazioni Generali, ATEbank, Australia and New Zealand Banking Group (ANZ), Banco do Brasil, Banco Galicia, Bank Millennium S.A., Bank Of Montreal, Bank of the Philippine Islands (BPI), Barclays, Basellandschaftliche Kantonalbank BLKB, Basler Kantonalbank, BBVA Bancomer, BBVA Colombia, BBVA Provincial, Berner Kantonalbank, BicBanco, Bilbao Bizkaia Kutxa (BBK), BNY Mellon, Bonus Vorsorge, CaixaBank, Cajamar Caja Rural, CIMB Foundation under CIMB Group, CISCO Thailand, Citigroup, Comergon, Credit Suisse, Deutsche Bank, Development Bank of the Philippines, Diners Club del Ecuador, Discovery, DKV Seguros, DNB NOR, Eksport Kredit Fonden (EKF), Etera, Etica Sgr S.p.A., European Reliance, Ficohsa, FIRA – Banco de Mexico, Folksam, Fonds de solidarité FTQ, Fouriertransform, GNP Seguros, Government Savings Bank, Graubundner Kantonalbank (GKB), Grupo Sancor Seguros, Grupo Sura, Hatton National Bank (HNB), HNB Assurance PLC, Hong Kong Exchanges and Clearing Limited, Humana, IBERCAJA BANCO, S.A.U, IDLC, ING Group, Innnovationsbron, Instituto Infraero de Seguridade Social -INFRAPREV, Insurance Australia Group (IAG), Intesa Sanpaolo, Investec, Investissement Quebec, JPMorgan Chase, KBC Group, Kendall Court, Kutxa, Kuwait Finance Housing, Landbank Of The Philippines, Landesbank Baden-Wüerttemberg (LBBW), LeasePlan, Liberty Group, Montepaschi Group, Morgan Stanley, Munich Re, Mutualista Pichincha, National Bank of Abu Dhabi (NBAD), National Bank of Greece, National Bank of Oman, Nationale Suisse, Nedbank Group, NIBC Bank, Nordea Bank, Norrlandsfonden, Northern Trust, Nykredit, Oesterreichische Kontrollbank, Oesterreichische Nationalbank, PREVI, Prudential Financial Inc, Raiffeisen Schweiz, Redecard, Sanlam, Sarasin, SBAB, Sberbank, Scotiabank, Shinhan Financial Group, SIX Group, Standard Bank, Standard Life, State Street Corporation, SulAmérica Companhia Nacional de Seguros, Suramericana S.A, SVEDAB, Svensk Exportkredit, Swedfund International, Swiss Re, TD Bank Financial Group, The Co-operators, The GPT Group, The National Commercial Bank (NCB), The Saudi Investment Bank (SAIB), Triglav Insurance Company, Triodos Bank, UBS, UCA Funds Management, Unicredit, Union Bank, Union Investment, Valiant, Vancity, VidaCaixa, Vontobel Gruppe, VTB Group, Wells Fargo & Company, Zürcher Kantonalbank

 

About G&A Institute (www.ga-institute.com)
G&A Institute is a New York-based, private sector company providing sustainability-focused services and resources to corporate and investment community clients, including: Issue Counseling & Sustainability Strategies; Sustainability Reporting; Materiality Assessments; Stakeholder Engagement; Benchmarking; Investor Relations; Communications; Coaching, Team Building & Training;  Issues Monitoring & Customized Research; Third Party Recognitions.  G&A is the exclusive Data Partner for the GRI in the United States of America, the United Kingdom and the Republic of Ireland.

Editors
On the G&A Institute web site there is additional information available on the Fact Sheet: What Matters Project (www.ga-institute.com/research-reports/sustainability-what-matters/fact-sheet).  The resulting “most important” to “least important” ranking for the 35 sectors is available to media on a case-by-case basis please contact:  Peter Hamilton (phamilton@ga-institute.com).

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For Financial Services Sector Managers – Materiality Reporting Workshop, G3.1 and Preparing for Transition to G4

by Hank Boerner, Chairman, G&A Institute

Materiality – for corporate managers, and sustainability report users (asset managers, analysts), materiality really does matter.  But the question is asked — what matters?  To whom? What are our peer companies reporting?  What is best practice in determining the materiality of issues?  What about our sector…industry?

To help answer some of these questions for Financial Services Sector managers, two leading consultancies have teamed to present a workshop on November 20, 2013 at Baruch College / City of New York University.  The “how and why” of determining and reporting on materiality for the sector will be explored and research presented on the 2012 GRI reporting activities of almost 200 companies in the global Financial Services Sector. G&A Institute is teaming with ISOS Group, certified GRI trainers, and host Baruch College / The Zicklin Center for Corporate Integrity, to present an all-day workshop on materiality in the Financial Services Sector.

Participants will learn (and get advice on) what companies in North America and other regions are addressing in their materiality processes, and what they are including in their GRI reports. G&A Institute is the exclusive Data Partner for the GRI in the United States and over the past year has conducted a comprehensive study of corporate reporting using the GRI guidelines, sector-by-sector.  Findings will be shared at the workshop.  ISOS Group conducts the two-day GRI workshops around the country and will discuss the transition to G4 from G3.1, and important aspects of determining materiality for the GRI reporting process.

*NEW IN THE USA: As part of this workshop, participants will receive their Certificate of completion of the “GRI Certified Training Module on Defining Report Content” directly from the Global Reporting Initiative.

The workshop is timely — companies using the Global Reporting Initiative (GRI) for their sustainability reporting are preparing for transition from the present third generation (G3.1) to the new G4 guidelines. There is increased emphasis on the materiality of content of reports in G4. So -what is considered “material?” (Depends on the company’s operations, sector, industry, peer group reporting practices- and very important, stakeholder views on what is material to them.)

Companies experienced in sustainability reporting develop robust materiality processes, which include engaging with a range of stakeholders and developing feedback on their views of materiality (as well as internal processes to identify material issues).. So – looking at 2012 corporate reporting – what are companies choosing as their most material content element? The least material? What’s in the middle? What varies sector-to-sector, industry-to-industry?

The G&A Institute team will provide answers to these questions. We are just completing a year-long study of 1500 global companies in 30+ sectors and their responses to the GRI 3.1 guidelines. We’ll be releasing results over the coming weeks. The first unveiling of the most-to-least responses will be for the global Financial Services Sector.

On November 20, the one-day workshop on Financial Services materiality disclosure and reporting trends agenda will cover many items dealing with Materiality.

Guest speakers include Hideki Suzuki of Bloomberg LP,  Marjella Alma of GRI Focal Point USA, and Herbert Blank of Thomson Reuters (new) TR CR Indexes and benchmarks..

Registration for the workshop is open — information is at: www.isosgroup.com/gri-certified-reporting/trainings/materiality