The “100 Best Corporate Citizens 2018” Roster -– Published by CR Magazine

by Hank Boerner – Chair, G&A Institute

Now in its 19th year, the well known CR Magazine “100 Best Corporate Citizens 2018” list was just unveiled; this effort recognizes the ESG performance of public companies in the United States. (The publication is now titled Corporate Responsibility Magazine, published by 3BL Media LLC.)

Top Companies:
Microsoft
(MSFT) earned top ranking (#1), followed by Accenture, Owens Corning, Intel, and Hasbro (at #5).

The next five ranked companies are (#6) Altria Group, Cisco Systems, Ecolab, Johnson & Johnson, and NVIDIA Corp (at #10).

The biggest gainers for the year were Becton, Dickenson; IBM; Owens Corning; and Biogen.  The complete list is available in our Top Story (below).

Assembling the list does not rely on responding to a survey, publisher Dave Armon explains.  Each year the rankings measure the success of the “Brands Taking Stands” movement by celebrating the most successful, most transparent companies that report on their responsible practices. “We congratulate the company on the 2018 list for their commitment to corporate responsibility,” he said in announcing the rankings.

Methodology:
The list examines 260 data points of performance measures and disclosure, harvested from publicly-available information for every company in the Russell 1000® Index, in seven categories (environmental, climate change, employee relations, human rights, corporate governance, financial, and philanthropy & community support).  The underlying research is conducted by ISS Corporate Solutions (Institutional Shareholder Services).

The inaugural list was published in 1999 by the former Business Ethics Magazine, which segued into CR Magazine.

Coming up soon, CR Magazine in collaboration with the 3BL Association (formerly the Corporate Responsibility Association), presents the well known annual COMMIT!Forum conference, now re-branded as the 2018 3BL Forum by its new owners.

This year’s event is at MGM National Harbor near Washington DC, October 23-25; the theme is “Brands Taking Stands – The Long View”.

3BL Media LLC is the global leader in disseminating CR and sustainability content. Its brands include Triple Pundit; CSR Wire; 3BL Wire; 3BL Report Alert; Justmeans, 3BL Studio, and others. Corporate clients utilize the platforms for their sustainability, CR and related content distribution, communications and campaigns.

G&A Institute has collaborated with the 3BL Media staff and Corporate Responsibility Magazine on a long-term basis.  3BL content is carried daily on G&A’s news and opinion web-based distribution platforms.

The details for the “100 Most are in the Top Story:

Top Stories

Corporate Responsibility Magazine Announces 2018 100 Best Corporate Citizens
(Wednesday – May 09, 2018) Associated Profiles : CSRwire Source: CSR Wire — Corporate Responsibility Magazine (CR Magazine) announced today its 19th annual 100 Best Corporate Citizens list, recognizing the standout environmental, social and governance (ESG) performance of…

Proof of Concept for Sustainable Investing: The Influential Barron’s Names the Inaugural “The Top 100 Sustainable Companies — Big Corporations With The Best ESG Policies Have Been Beating the Stock Market.”

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

Barron’s 100 Most Sustainable Companies

Barron’s is one of the most influential of investor-focused publications (in print and digital format) and a few months ago (in October), the editors published the first of an ongoing series of articles that will focus on ESG performance and sustainable investing, initially making these points:

  • Barron’s plans to cover this burgeoning style of investing on a more regular basis. A lot of possible content that was developed was left on the cutting room floor, the editors note.
  • Says Barron’s: “We are only in Version 1.0 of sustainable investing. 2.0 is where ESG is not a separate category but a natural part of active management.”
  • And:  “Given the corporate scandals of recent days (Wells Fargo, Equifax, Chipotle, Volkswagen, Valeant Pharmaceuticals), it is clear that focus on companies with good ESG policies is the pathway to greater returns for investors!”

The current issue of Barron’s (Feb 5, 2018) has a feature article and comprehensive charting with this cover description:

The Top 100 Sustainable Companies – Big Corporations With the Best ESG Policies Have Been Beating the Market.”

Think of this as proof of concept: The S&P 500® Index Companies returned 22% for the year 2017 and the Barron’s Top 100 Sustainable Companies average return was 29%.

The 100 U.S. companies were ranked in five categories considering 300 performance indicators.  Barron’s asked Calvert Research and Management, a unit of Eaton Vance, to develop the list of the Top 100 from the universe of 1,000 largest publicly-held companies by market value, all headquartered in the United States.

Calvert looked at the 300 performance indicators that were provided by three key data and analytic providers that serve a broad base of institutional investors:

  • Sustainalytics,
  • Institutional Shareholder Services (ISS)
  • and Thomson Reuters ASSET4 unit.

Five umbrella categories were considered:

  • Shareholders
  • Employees
  • Customers
  • Planet
  • Community

There were items considered in the “shareholders” category, like accounting policies and board structure; employee workplace diversity and labor relations; customer, business ethics and product safety; planet; community; GHG emissions; human rights and supply chain.

We can say here that “good governance” (the “G” in ESG) is now much more broadly defined by shareholders and includes the “S” and “E” performance indicators (and management thereof), not the formerly-narrow definitions of governance. Senior managers and board, take notice.

Every company was ranked from 1-to-100, including even those firms manufacturing weapons (these firms are usually excluded from other indexes and best-of lists, and a number of third party recognitions).

Materiality is key: the analysts adjusted the weighting of each category for how material it was for each industry. (Example: “planet” is more material for chip makers using water in manufacturing, vs. water for banking institutions – each company is weighted this way.)

The Top 100 list has each company’s weighted score and other information and is organized by sector and categories; the complete list and information about the methodology is found at Barron’s.com.

The Top 5 Companies overall were:

  • Cisco Systems (CSCO)
  • salesforce.com (CRM)
  • Best Buy (BBY)
  • Intuit (INTU)
  • HP (HPQ)

The 100 roster is organized in categories:

  • The Most Sustainable Consumer Discretionary Companies (Best Buy is at #1)
  • The Most Sustainable Financials (Northern Trust is #1) – Barron’s notes that there are few banks in the Top 100. Exceptions: PNC Financial Services Group and State Street.
  • The Most Sustainable Industrials (Oshkosh is ranked #1)
  • The Most Sustainable Tech Outfits (Cisco is at the top)

Familiar companies names in the roster include Adobe Systems, Colgate-Palmolive, PepsiCo, Deer, UPS, Target, Kellogg, Apple, and Henry Schein.

Singled out for their perspectives to be shared in the Barron’s feature commenting on the ESG trends: John Wilson, Cornerstone Capital; John Streur, Calvert; Calvet Analyst Chris Madden; Paul Smith, CEO of CFA Institute; Jon Hale, Head of Sustainability Research at Morningstar.

Calvert CEO John Streur noted: “This list gives people insight into companies addressing future risks and into the quality of management.”

Top-ranked Cisco is an example of quality of management and management of risk: The company reduced Scope 1 and 2 GHG emissions by 41% since 2007 and gets 80% of its electricity from renewable sources.

This is a feature article by Leslie P. Norton, along with a chart of the Top 100 Companies.

She writes: “…Barron’s offers our first ranking of the most sustainable companies in the U.S. We have always aimed to provide information about what keenly interests investors – and what affects investment risk and performance…” And…”what began as an expression of values (“SRI”) is finding wider currency as good corporate practices…”

The complete list of the top companies is at Barron’s com. (The issue is dated February 5th, 2018)  You will need a password (for subscribers) to access the text and accompanying chart.

For in-depth information: We prepared a comprehensive management brief in October 2017 on Barron’s sustainable coverage for our “G&A Institute’s To the Point!” web platform: https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/

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!

The Important Group of ESG Rankers for Institutional Investors Expands to a Significant Player — Institutional Shareholder Services (ISS)

Traditional Corporate Governance Focus Expanding to Encompass  ISS Environmental & Social QualityScores for 1,500 Public Companies Coming in January… Expanding to 5,000 Companies in Q2…

by Hank Boerner – G&A Institute Chair

A significant new player is now entering the mix of the growing number of organizations providing institutional investors with ESG rankings and data.

At G&A Institute, we’ve been tracking the growth of these organizations (such as MSCI, Sustainalytics, RobecoSAM, Bloomberg, Thomson Reuters, and others) and work with our clients to help managements understand, optimize and utilize these important intelligence points coming from the rapidly-growing number of investors considering ESG.

Founded in 1985 as Institutional Shareholder Services Inc., ISS is the world’s leading provider of corporate governance and responsible investment solutions for asset owners, asset managers, hedge funds, and asset service providers. Institutional investors today rely on ISS’ expertise to help them make informed corporate governance decisions, integrate responsible investing policies and practices into their strategy, and execute upon these policies through end-to-end voting.

Among the issues monitored, analyzed and perspectives and opinions offered to the investors by ISS:  board room makeup; qualifications of individual board candidates standing for election; CEO compensation; separation of the posts of chair of the board and chief executive officer; proposed transactions such as merger or acquisition; shareholder rights; transparency and disclosure of board and C-suite activities; “over-boarding by directors”…and more.

Over the decades ISS has been a powerful and very visible force in annual corporate proxy voting issues, offering advice to the client base to help the institutions exercise their fiduciary duties, including the mechanics of the voting process during the annual electoral season.

Consider the influence of ISS in the capital markets:  117 global markets covered; 40,000 corporate meetings reviewed; on behalf of 1,700 global institutional investor clients.

Now, “E” and “S” along with “G” issues are coming into sharp focus for ISS – due to the demand of its institutional clients – and included in the QualityScore process.

Tune in now to an important development that significantly expands the influence of ISS and communicates new dimensions of “G” (governance) into the ESG space (E=environmental, S=social, societal issues).  The E and S QualityScore builds on ISS’s market-leading Governance QualityScore, which provides a measure of governance risk, performance, disclosure and transparency in Board Structure, Compensation, Shareholder Right, and Audit & Risk Oversight.

The E&S QualityScore, says ISS, provides a measure of corporate disclosure practices and transparency to shareholders and stakeholders.  This is the Disclosure and Transparency Signal that investor-clients seek, and is a resource that enables effective comparison with company peers.

ISS had been an independent organization, then was acquired by MSCI, and later divested, becoming a unit of the P/E firm Vestar Capital; it was purchased by Genstar Capital in October 2017.  To rebuild the firm’s ESG capabilities lost as a result of the 2014 spinoff from MSCI,  ISS in September 2015 acquired Ethix SRI Advisors, one of Europe’s leading ESG analytics and advisory firms with offices in Scandinavia.

In January 2017, ISS also acquired IW Financial, one of the leading ESG analytics firms in the United States (based in Maine), and in June of 2017 acquired the climate investment data unit of Zurich-based South Pole Group.

ISS’s initial expansion beyond “G” to include Environmental and Social issues in the QualityScore, which will be announced on January 18, covers companies in six industries:  (1) Autos and Components; (2) Capital Goods; (3) Consumer Durables & Apparel; (4) Energy; (5) Materials; and, (6) Transportation – roughly 1,500 companies in all.

Public company managements have been invited to respond to the new “E&S” data verification process for their company (the period ends January 12th).

In 2Q the program expands to include 3,500 more corporate entities in other industries (the total corporate universe in focus by mid-year will be 5,000-plus public companies).

These ratings will be a critical part of a company’s ESG profile for the rapidly expanding number investors with Assets Under Management (AUM) that are considering ESG in their investment decision-making.  This number, as of the latest 2016 US SIF survey includes US$8.72 trillion out of $40.3 trillion total AUM in the United States.  This is now $1-out-of-every-$5   in the U.S. capital markets –and globally the numbers are even more striking with the latest GSIA report showing even larger percentages and rapid expansion in every other part of the world.

The G&A Institute team will be communicating much more detail about this important new initiative by ISS in the weeks ahead, through our various communications channels.  For more information, contact EVP Louis D. Coppola at: lcoppola@ga-institute.com or ISS at ESGHelpdesk@Issethix.com

There are details here on the ESG QualityScore:
https://www.issgovernance.com/file/faq/es-key-issues-discloure-transparency-qualityscore.pdf

For those interested in the Quality Score for Core Corporate Governance Practices in Focus:https://www.issgovernance.com/file/products/1_QS-2017-Methodology-Update-27Oct2017.pdf

Information on ISS Corporate Solutions is here:  https://login.isscorporatesolutions.com/galp/login

AN IMPORTANT UPDATE ON ISS’ EXPANSION INTO ESG
A thorough exploration of ISS’ new E and S QualityScores is available on the G&A Institute’s To The Point! platform including a conversation with Marija Kramer, Head of ISS’ Responsible Investment Business. This important brief is available without subscription, with our compliments by clicking here.

Climate Change Resolutions / and Investors’ Voting — “Hurricane” Coming in 2017 Shareholder Voting?

“Stormy Weather Ahead Warning”:  Climate Change Resolutions / and Investors’ Voting — “Hurricane” Coming in 2017 Shareholder Proxy Voting Season?

Guest Commentary – by Seth DuppstadtProxy Insight Limited

The United Nations‘ consensus reached in the “Paris Agreement” (COP 21), the goal to limit global temperature rise to within 2 degrees Celsius could turn shareholder support for climate change resolutions from a squall into a powerful hurricane at U.S. energy and utility companies this proxy season. says our team at Proxy Insight.

Example cited:  The BlackRock Investment Stewardship Team’s new guidance on climate risk engagement made the possibility of a Category 5 storm conceivable — if companies aren’t responsive.

During the 2016 corporate proxy season, a particularly successful subset of shareholder-sponsored climate change resolutions — known as 2 Degree Scenario (“2DS”) proposals —  averaged 37.73 percent shareholder support:

ISSUER MEETING DATE % FOR
Devon Energy Corporation 8-Jun-16 36.06
Southern Company (The) 25-May-16 34.46
Exxon Mobil Corporation 25-May-16 38.14
Chevron Corporation 25-May-16 40.76
FirstEnergy Corporation 17-May-16 31.9
Anadarko Petroleum Corporation 10-May-16 42
Occidental Petroleum Corporation 29-Apr-16 48.99
Noble Energy Inc. 26-Apr-16 25.1
AES Corporation (The) 21-Apr-16 42.21

 

This was a notably high level of support for a first-round shareholder proposal — especially for climate change related. *

Example:  The proposal at Occidental Petroleum almost gained a majority with 48.99% of votes cast in support (not including abstentions).

Proxy Insight data show Institutional Shareholder Services (ISS) recommended For votes for all nine 2DS resolutions, while proxy advisor Glass Lewis opposed one.

The shareholder resolutions ask companies to stress test their portfolios and report on financial risks that could occur in a low-carbon economy.

Up to 17 2DS resolutions are expected to move to vote at U.S. companies in 2017 proxy voting, according to Ceres.  (Ten will be filed at companies not having these resolutions before).  The next scheduled company voting on 2DS will be at AES Corp on April 20th. A preliminary proxy indicates Duke Energy shareholders will be voting on May 4.

*excluding non-US “Strategic Resilience for 2035” proposals (2015/16)

 TOP-10 INVESTORS (AUM) MOST FREQUENTLY SUPPORTING “2DS” CLIMATE CHANGE RESOLUTIONS

Investor For Against Abstain DNV Split
Deutsche Asset & Wealth Management 100.00% 0.00% 0.00% 0.00% 0.00%
Legal & General Investment Management 100.00% 0.00% 0.00% 0.00% 0.00%
Legg Mason Partners Fund Advisor, LLC. 100.00% 0.00% 0.00% 0.00% 0.00%
AXA Investment Managers 100.00% 0.00% 0.00% 0.00% 0.00%
APG (Stichting PF ABP) 100.00% 0.00% 0.00% 0.00% 0.00%
Schroders 100.00% 0.00% 0.00% 0.00% 0.00%
M&G Investment Management 100.00% 0.00% 0.00% 0.00% 0.00%
Aviva Investors 100.00% 0.00% 0.00% 0.00% 0.00%
Canada Pension Plan Investment Board (CPPIB) 100.00% 0.00% 0.00% 0.00% 0.00%
California Public Employees’ Retirement System (CalPERS) 100.00% 0.00% 0.00% 0.00% 0.00%

Information is available at:  https://www.linkedin.com/pulse/climate-change-voting-calm-before-storm-seth-duppstadt

Proxy Insight is the leading provider of global shareholder voting analytics.

Visit www.proxyinsight.com for more information, where you can also sign up for a trial or contact Seth Duppstadt, SVP Proxy Insight Limited at: seth.duppstadt@proxyinsight.com  Telephone:  646-513-4141

So Many Positives in 2016 for Sustainability – Corporate Citizenship – CR – Sustainable Investing — The Core of “Trends Converging!” Commentaries. It’s 2017 — Now What?

by Hank BoernerG&A Institute

Welcome to 2017! We are off to the start of a challenging year for sustainability / responsibility / corporate citizenship / sustainable investing professionals.

We are being forewarned: A self-described (by his constant tweeting) “new sheriff is coming to town,” along with the newly-elected members of the 115th Congress who begin their meetings this week. Given the makeup of the new Administration (at least in the identification of cabinet and agency leaders to date) and the members of the leadership of the majority party on Capitol Hill, sustainability professionals will have their work set out for them, probably coming into a more clear focus in the fabled “first 100 days” after January 20th and the presidential inauguration ceremonies.

The year 2016 began on such a hopeful note! One year ago as the year got started I began writing a series of commentaries on the many positive trends that I saw — and by summer I was assembling these into “Trends Converging! — A 2016 Look Ahead of the Curve at ESG / Sustainability / CR / SRI.” Subtitle, important trends converging that are looking very positive…

As I got beyond charting some 50 of these trends, and I stopped my thinking and writing to share the commentaries and perspectives that formed chapters in an assembled e-book that is available for your reading. I’ve been sharing my views because the stakes are high for our society, business community, public sector, social sector…all of us!

* * * * * * * *

The specifics: Throughout the early months of 2016 I was encouraged by:

The Secretary of the U.S. Department of Labor giving American fiduciaries the green light for considering corporate ESG factors in their investment decision-making. Page 7 – right up front in the commentaries!

The Sustainable Accounting Standards Board (SASB) team completing its comprehensive recommendations for 12 sectors and 80 industry components of these for “materiality mapping” and expansion of corporate reporting to include material ESG factors in the annual 10-k filing. These are important tools for investors and managements of public companies. See Page 17.

His Holiness Pope Francis mobilizing the global resources of the worldwide Roman Catholic Church with his 74-page Laudato Si [encyclical] that includes sharp and sweeping focus on climate change, global warming, water availability, biodiversity, and other social issues. Imagine, I wrote, the power that such an institution can bring to bear on challenges, in the world, in the USA, and other large nations…

This is the Pope’s great work: “On Care of Our Common Home.” I explored the breadth of depth of this in my commentaries. That’s on Page 163 – Chapter 44.

President Barack Obama ably led the dramatic advances made in the Federal government’s sustainability efforts thanks in large measure to several of the President’s Executive Orders (such as EO 13693 on March 19, 2015: Planning for Federal Sustainability in the Next Decade).

Keep in mind the Federal government is the largest purchaser of goods and services in the U.S.A. — over time this action will result in positive changes across the government’s prime supply chain networks. Page 50 / Chapter 13.

The European Union’s new rules for disclosure of non-financial information beginning in 2017; As I began my commentary, the various EU states were busily finalizing adoption of the Accounting Directive to meet the deadline for companies within each of the 28 states. The estimate is that as many as 5,000 companies will begin reporting on their CR and ESG performance. Page 27 / Chapter 7.

Here in the USA, Federal regulators were inching toward final rules for the remaining portions of the 2010 Dodd-Frank legislation. Roughly 20% of rules were yet to be completed for corporate compliance with D-F as we entered 2016, according to estimates by the Davis Polk law firm. Page 30 / Chapter 8.

In 2017, one very contentious rule will be in effect — the required disclosure by public companies of the CEO-to-median worker-pay ratio; the final rule was adopted in August 2015 and so in corporate documents we will be seeing this ratio publicized (technically, in the first FY beginning in January 1, 2017). Page 34 / Chapter 9 – What Does My CEO Make? Why It Matters to Me.

Good news on the stock exchange front: member exchanges of the World Federation of Exchanges have been collaborating to develop “sustainability policies” for companies with shares listed on the respective exchanges. At the end of 2015 the WFE’s Sustainability Working Group announced its recommendations [for adoption by exchanges]. Guidance was offered on 34 KPIs for enhanced disclosure. Page 103 / Chapter 27.

The WFE has been cooperating with a broad effort convened by stakeholders to address listing requirements related to corporate disclosure

This is the “SSE” — the Sustainable Stock Exchanges initiative, spearheaded by the Ceres-managed Investor Network on Climate Risk (INCR), and leadership of key UN initiatives as well as WFE member exchanges.

NASDAQ OMX is an important part of this overall effort in the United States and is committed to discussing global standards for corporate ESG performance disclosure.  Notd Evan Harvey, Director of CR for NASDAQ: “Investors should have a complete picture of the long-term viability, health and strategy of their intended targets. ESG data is a part of the total picture. Informed investment decisions tend to produce longer-term investments.”

The United Nations member countries agreed in Fall 2015 on adoption of sweeping Sustainable Development Goals (SDGs) for the next 15 years (17 goals/169 specific targets). This is a dramatic expansion of the 2000 Millennium Goals for companies, NGOs, governments, other stakeholders. Now the many nation-signatories are developing strategies, plans, programs, other actions in adoption of SDGs. And large companies are embracing the goals to help “transfer our world” with adoption of mission-aligned strategies and programs out to 2030.

G&A Institute’s EVP Lou Coppola has been working with Chairwoman of the Board Dr. Wanda Lopuch and leaders of the Global Sourcing Council to help companies adopt goals (the GSC developed a sweeping 17-week sourcing and supply chain campaign based on the 17 goals). Page 56 / Chapter 15.

Very important coming forth as the year 2016 moved to a close: The Report on US Sustainable, Responsible and Impact Investing Trends, 2016 — the every-other-year survey of asset managers in the USA to chart “who” considers ESG factors across their activities. Money managers and institutional investors, we subsequently learned later in 2016, use ESG factors in determining $8.72 trillion in AUM – a whopping 33% increase since 2014. Great work by the team research effort helmed by US SIF’s Meg Voorhes and Croatan Institute’s Joshua Humphreys (project leaders). Background before the report release Page 78.

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The above is a very brief overview of the many positive trends that I saw, explored further, and wrote commentaries on through many months of 2016. I worked to weave in the shared perspectives of outstanding thought leaders and experts on various topics. We are all more enlightened and informed by the work of outstanding thought leaders, many presented in the public arena to benefit us.

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Sharing Thought Leadership

In developing our commentaries we shared the wisdom of many people who are influential thought leaders and who enthusiastically share their own perspectives with us. These include:

  • Chris Skroupa, Founder of Skytop Strategies and prominent Forbes blogger. His views on Page i.
  • Pam Styles, Founder/Principal of Next Level Investor Relations and NIRI Senior Roundtable member. See Page iv.
  • Secretary Thomas Perez, U.S. Department of Labor on ERISA for fiduciaries. Page 7.
  • Dr. James Hawley of St. Mary’s College of California on the concept of the Universal Owner, based on the earlier work of corporate governance thought leader Robert Monks. Page 9.
  • the team at Sustainable Accounting Standards Board led by Chair Michael Bloomberg, Vice Chair Mary Schapiro, Founder and CEO Jean Rogers, Ph.D., P.E. . Page 17.
  • the team at TruCost.
  • the team at CDP.
  • the team at CFA Institute (the global organization for Chartered Financial Analysts) developing guidelines for inclusion of ESG factors in analysis and portfolio management — the new Guide for Investment Professionals – ESG Issues in Investing. Coordinated by Matt Orsagh, CFA, CIPM; Usman Hayat, CFA; Kurt Schacht, JD, CFA; Rebecca A. Fender, CFA. Page 20.
  • the leadership team at New York Society of Securities Analysts’ (NYSSA) Sustainable Investing Committee (where I was privileged to serve as chair until December 31st). Page 21. We have great perspective sharing among the core leadership team (Kate Starr, Peter Roselle, Ken Lassner, Andrew King, Agnes Terestchenko, Steve Loren).
  • experts respected law firms sharing important perspectives related to corporate governance, corporate citizenship / CSR / disclosure / compliance and related topics: Gibson Dunn on compliance matters. Page 25.
  • the law firm of Davis Polk on Dodd-Frank rulemaking progress and related matters.
  • experts at the respected law firm of Morrison & Foerster on executive compensation and related regulatory matters (in the excellent Cheat Sheet publication). Page 30.
  • the experts at the law firm of Goodwin Procter addressing SEC regulations. Page 146.
  • the skilled researchers, analysts and strategists at MSCI who shared “2016 ESG Trends to Watch” with their colleagues. The team of Linda Eling, Matt Moscardi, Laura Nishikawa and Ric Marshall identified 550 companies in the MSCI ACWI Index that are “ahead of the curve” in accounting for their carbon emissions targets relative to country targets. Baer Pettit, Managing Director and Global Head of Products, is leading the effort to integrate ESG factors into the various MSCI benchmarks for investor clients.Page 100.

AND……..

  • Thanks to Peter Roselle for his continuous sharing of Morgan Stanley  research results with the analyst community. 
  • the perceptive analysts at Veritas, the executive compensation experts who closely monitor and share thoughts on CEO pay issues. Page 36.
  • the outstanding corporate governance thought leader and counsel to corporations Holly Gregory of the law firm Sidley Austin LLP who every year puts issues in focus for clients and shares these with the rest of us; this includes her views on proxy voting issues. (She is co-leader of the law firm’s CG and Exec Compensation Practice in New York City.) Page 39.
  • the Hon. Scott M. Stringer, Comptroller of the City of New York, with his powerful “Board Accountability Project,” demanding increased “viable” proxy access in corporate bylaws to enable qualified shareholders to advance candidates for board service. Pages 40, 45 on.
  • the experts at Institutional Shareholder Services (ISS), a unit of MSCI, which counts numerous public employee pension funds and labor pension systems among its clients; ISS staff share their views on governance issues with the rest of us to keep us informed on their policies and related matters. Page 40.
  • SRI pioneer and thought leader Robert Zevin (chair of Zevin Asset Management) who shares his views on the company’s work to improve corporate behaviors. Page 41.
  • Mark W. Sickles, NACD thought leader, and my co-author of “Strategic Governance: Enabling Financial, Environmental and Social Sustainability” (p.2010) for helping me to better understand and refine my views on the “Swarming Effect” (investor engagement) by institutional investors that influences corporate behavior. Page 44.
  • the experts led by thought leader (and ED) Jon Lukomnik at Investor Responsibility Research Center (IRRC) that, working with Ernst & Young LLP, one year ago in January produced the Corporate Risk Factor Disclosure Landscape to help us better understand corporate risk management and related disclosure. Page 47.
  • CNN commentator and author Fareed Zakaria who shared his brilliant perspectives with us in publishing “The Post American World,” focusing on a tectonic, great power shift. Page 61.
  • The former food, agriculture and related topics commentator of The New York Times, Mark Bittman, who shared many news reports and commentaries with editors over five years before moving on to the private sector. Page 65.
  • our many colleagues at the Global Reporting Initiative (GRI) in the Netherlands, the USA, and in other countries, who shared their views on corporate sustainability reporting and related topics; the GRI framework is now becoming a global standard. (G&A Institute is the Data Partner for GRI in the USA, UK and Republic of Ireland; we are also a Gold Community member of supporters for the GRI.) Page 71.
  • our colleagues at Bloomberg LP, especially the key specialist of ESG research, Hideki Suzuki; (and) other colleagues at Bloomberg LP in various capacities including publishing the very credible Bloomberg data and commentary on line and in print. Page 76 and others.
  • Barbara Kimmel, principal of the Trust Across America organization, who collaborated with G&A Institute research efforts in 2016.
  • we have been continually inspired over many years by the efforts of the Interfaith Center on Corporate Responsibility (ICCR), and past and present leaders and colleagues there, who helped to inform our views in 2016 on shareholder activism and corporate engagement. Chair the Rev. Seamus Finn is on point with his “Holy Land Principles” in recent years. The long-time executive director, Tim Smith (now at Walden Asset Management) has been very generous in sharing news and perspectives long after his ICCR career. Details on Page 77.
  • our colleagues at the U.S. Forum for Sustainable & Responsible Investment (US SIF), and its Foundation, led by CEO Lisa Woll; and our colleagues at the SIF units SIRAN and IWG. The every-other-year summary of Assets Under Management utilizing ESG approaches showed [AUM] nearing $9 trillion before the run up in market valuations following the November elections. Page 78.
  • Goldman Sachs Asset Management acquired Imprint Capital in 2015 (the company was a leader in developing investment solutions that generate measureable ESG impact — impact investing). Hugh Lawson, head of GSAM client strategy, is leading the global ESG activities. GSAM has updated its Environmental Policy Framework to guide the $150 billion in clean energy financing out to 2025. Page 83.
  • the experts at Responsible Investor, publishing “ESG & Corporate Financial Performance: Mapping the Global Landscape,” the research conducted by Deutsche Asset & Wealth Management and Hamburg University. This is an empirical “study of studies” that looked at the “durable, overall impact of ESG integration to boost the financial performance of companies.” A powerful review of more than 2,000 studies dating back to 1970. Page 90.
  • Boston Consulting Group’s Gregory Pope and David Gee writing for CNBC saw the advantage held by the USA going into the Paris COP 21 talks: advances in technology are making the USA a global leader in low-cost/low-pollution energy production. They worked with Professor Michael Porter of Harvard Business School (the “shared value” proponent) on research. Page 95.
  • researchers, analysts and experts at Morgan Stanley Research charted “what was accomplished in Paris in 2015” for us; their report identified five key areas of progress that cheered conference participants; I share these in the “Trends Converging!” work. MS Research in the post-Paris days shared perspectives on the carbon tax concept and the status of various nations on the issue — and the actions of the State of California in implementing “AB 32” addressing GhGs. Page 119.
  • G&A Institute Fellow Daniel Doyle, an experienced CFO and financial executive, sharing thoughts on corporate “inversion” and the bringing back of profits earned abroad by U.S. companies. Page 122.
  • the Council of State Governments (serving the three branches of state governments) is actively working with public officials in understanding the Clean Power Plan of the Obama Administration (the shared information is part of the CSG Knowledge Center). Page 101.
  • Evan Harvey, Director of CR at NASDAQ, has continuously shared his knowledge with colleagues as the world’s stock exchanges move toward guidance or rule making regarding disclosure of corporate sustainability and related topics. Page 104.
  • our former Rowan & Blewitt [consulting practice] colleague Allen Schaeffer, now the leader of the Diesel Technology Forum, explaining the role of “clean diesel” in addressing climate change issues. Page 128.
  • Harvard Business School prof Clayton Christensen, who conceived and thoroughly explained “the Innovator Dilemma” in the book of the same name in 2007, updated recently, characterized new technology as “disruptive” and “sustaining,” now happening at an accelerated pace. We explain on Page 147.
  • the researchers and experts at the Society for Human Resource Management (SHRM) has shared important perspectives and research results dealing with the massive shift taking place in the corporate and business sectors as Baby Boomers retire(!) and the Millennials rise to positions of influence and power. And Millennials are bringing very positive views regarding corporate sustainability and sustainable investing to their workplace! The folks at Sustainable Brands also weighed in on this in recent research and conference proceedings. Page 154.
  • Author Thom Hartman in 2002 explored for us the subject of “corporate citizenship” in his book, “Unequal Protection, the Rise of Corporate Dominance and the Theft of Human Rights.” This work continues to help inform views regarding “corporate rights” in the context of corporate citizenship and beyond. The issue of corporate contributions to political parties and candidates continues to be a hot proxy season debate. Page 160.
  • Author and consultant Freya Williams in her monumental, decade-long research into “Green Giants” shared results with us in the book of that name and her various lectures. Seven green giant [companies] are making billions with focus on sustainability, she tells us, and they outperform the S&P 500 benchmark. Page 170.
  • Speaking of the S&P 500, I shared the results of the ongoing research conducted by our G&A Institute colleagues on the reporting activities of the 500 large companies — now at 81% of the benchmark components. Page 195.
  • And of course top-of-mind as I moved on through in writing the commentaries, I had the Securities & Exchange Commission’s important work in conducting the “Disclosure Effectiveness Initiative,” and a look at Regulation S-K in the “Concept Release” that was circulated widely in the earlier months of 2016. Consideration of corporate sustainability / ESG material information was an important inclusion in the 200-page document. Page 174.

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All of the above and more were important contributors in my collected “Trends Converging!” (in 2016) work. I am grateful to many colleagues in the corporate community and in the capital markets community who shared knowledge, wisdom, expertise and more with Lou Coppola and I over the recent years. They have helped to inform our work.

We thank the knowledge and valuable information willingly shared with us by our valued colleagues at RepRisk, especially Alexandra Milhailescu; Measurabl (Matt Ellis); The Conference Board’s Matteo Tonello; Nancy Mancilla and Alex Georgescu at our partnering organization for training, ISOS Group; Bill Baue at Convetit; Herb Blank at S-Networks Global Indexes; Robert Dornau at RobecoSAM Group, managers of the Dow Jones Sustainability Index family; Barbara Kimmel at Trust Across America.

Also, Professor Nitish Singh of St. Louis University, with his colleague VP Brendan Keating of IntegTree, our on-line professor and tech guru for the new G&A on-line, sustainability and CSR e-learning platform.

And, Executive Director Judith Young and Institute Founder James Abruzzo, our colleagues at the Institute for Ethical Leadership at Rutgers University Business School; Matt LePere and the leaders at Baruch College / City University of New York; and, Peter Fusaro, our colleague in teaching and coaching, at Global Change Associates.

And thank you, Washington DC Power Players!

Very important: We must keep uppermost in mind the landmark work of our President Barack H. Obama (consider his Action Plan on Climate Change, issued in December 2015) with the Clean Power Plan for the USA included. His Executive Orders have shaped the Federal government’s response to climate change challenges.

And there is U.S. Senator Bernie Sanders, again and again hitting the hot button sensitive areas for the middle class — like income and wealth inequalities and Wall Street reform — that raised the consciousness of the American public about these issues.
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Former Secretary of State Hillary Rodham Clinton and her views (published in The New York Times) in her “How to Rein in Wall Street” op-ed.

And I thank my G&A Institute colleagues for their support and continued input all through the writing process: EVP Louis Coppola; Ken Cynar, our able editor and news director; Amy Gallagher, client services VP; Peter Hamilton, PR leader; Mary Ann Boerner, head of administration.

So many valuable perspectives shared by so many experts and thought leaders! All available to you…

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And Now to 2017!

And so what will happen in these many, many areas of forward-momentum in addressing society’s most challenging issues (like global warming) with “deniers and destroyers” lining up for key Federal government positions in the new administration and in the 115th Congress?

I and my colleagues at G&A Institute will be bringing you news, commentary and opinion, and our shared perspectives on developments.

If you would like to explore the many (more than 50) positive trends that I saw as 2016 began and proceeded on into the election season, you will find a complimentary copy of “Converging Trends!” (2016) at:http://www.ga-institute.com/research-reports/trends-converging-a-2016-look-ahead-of-the-curve.html

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Please do share with us your own thoughts where you think we might be headed in 2017, and your thoughts on the 2016 trends and their future directions — for 2017 and beyond. Do tune in to the many experts that I included in the various commentaries as they adjust to the New Normal of Washington DC.

I plan to share the individual commentaries with updates in 2017. Do Stay Tuned to G&A Institute’s Sustainability Update blog (you can register here to receive notice of new postings). You can sign on to receive the latest post at: http://www.ga-institute.com/sustainability-update-blog.html (Sharing insights and perspectives for your sustainability journey.)

Best wishes from the G&A Institute team for the New Year 2017!

 

 

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

by Hank Boerner – Chairman – G&A Institute

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

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

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

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

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

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

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

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

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

Investors Want More Corporate ESG Information

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

Reforming and Updating Reg S-K

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

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

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

ESG / Sustainability in Focus For Review and Action

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

Some observers continue to share this view.

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

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

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

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

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

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

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

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

Influential Voices Added to the Debate

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

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

For Your Action:

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

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

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

Information sources:

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

Helpful Background For You

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

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

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

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

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

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

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

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

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

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

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

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

Please remember to take action and leave your comments here:
http://www.sec.gov/rules/concept.shtml