Have You Heard? Despite the Global Crises, Corporate ESG/Sustainability Reporting Momentum Continues to Build – Here, Some Updates For You on Focused on Corporate ESG Reporting Frameworks and Standards
By Hank Boerner – Chair and Chief Strategist – G&A Institute
This has been a challenging year. In January when I do my usual “crystal-balling” for the new year, the coronavirus was fast-spreading in Wuhan, China, and the world outside had not yet awakened to the serious threat the early infections posed to we humans.
The U.S. equities market looked very promising – but the markets would tank in March and then slowly recover. (As we write this the Nasdaq numbers and S&P 500 Index® levels have investors cheering – look at Nasdaq and the S&P 500!)
Despite the upheavals in 2020, Reporting Standards and Frameworks are continuing to evolve and especially to become more investor-focused
Investors, public companies’ executives, and sustainability reporting Standards and Frameworks organizations are not slowing the pace on advancing ESG / Sustainability / Corporate Purpose / Sustainable Investing et al, and advancing the cause by various means in this Summer 2020.
In the event that you have been busy this spring and summer (haven’t we all!) and perhaps missing something here and there, here are news items & developments for you to illustrate the forward momentum and increasing importance of ESG “etc” matters.
This update is focused on ESG reporting frameworks, standards and ESG disclosure guidance – this is the daily work of the team at G&A Institute.
UN Global Compact Celebrates 20 Years – And Builds on the Progress
It is 20 years now since the founding of the United Nations Global Compact (UNGC) and the organization released its look back/look ahead report, “Uniting Business in the Decade of Action”. Each year the Compact surveys its participants to gauge the progress being made (or not).
This year the survey included a review of progress in complying with the Ten Principles of the Global Compact – and – corporate contributions to the achievement of the Sustainable Development Goals (SDGs).
2020 Survey Findings:
- 30% of companies responding believe they have targets sufficiently ambitious to meet the 2030 goals of the SDGs.
- Fewer than a third of respondents consider their industry moving fast enough to deliver on prioritized goals.
- Good news: 84% of UNGC corporate participants are taking some kind of action on SDGs.
- Not-so-good: only 46% are embedding the goals into their core business.
- Only 37% are designing business models to “contribute” to the 17 goals.
- 61% say that their company provides some kind of product/service that contribute(s) to the progress of the SDGs (that level was 48% in 2019).
- 57% measure their own operations’ impact on the SDGs.
- 13% extend this to their supply base; and only 10% extend this to raw materials and product use.
- 29% of companies advocate publicly to encourage action on the SDGs (this is a slide down from over half of companies in 2019).
Many companies focus on Goal 8: Decent Work and Economic Growth; and Goal 9: Industry, Innovation, and Infrastructure; less traction was noted for “socially-focused” goals (reducing inequality, gender equality, peace & justice).
The General Secretary of the United Nations has called on corporations to align their operations and strategies with the Ten Universal Principles of the Global Compact.
We are half-a-decade in now since goals adoption – with only one decade to go (years 2020 to 2030) to achieve the objectives.
More than 10,000 companies and 3,000 non-business entities (“signatories”) are participating in achieving the goals in some way, operating in 160 countries — and so, the UNGC has become the world’s largest corporate sustainability initiative.
Has your company signed on to the UNGC? Selected SDGs to build into your core business strategy and models? There is guidance for you in the UNGC report. https://unglobalcompact.org/take-action/20th-anniversary-campaign
About the SDGs – MSCI’s New “SDG Net Alignment Factors”
MCSI, one of the major ESG rating firms providing significant research and analysis results to its global investor clients, expanded the model for evaluating company-level alignment to the UN SDGs.
The new tools will help capital market players to enhance or develop ESG-themed investment services and products.
Subscribers to the firm’s Sustainable Impact Metrics now have access to the SDG Net Alignment Factors, which measures revenue exposure to “sustainable impact solutions and support actionable thematic allocations in line with impact frameworks like the UN SDGs.”
This approach will help investors to better understand what a company is doing with respect to the SDGs, what progress the company is making (or not), and related metrics that are being disclosed.
Institutional investor clients can use the information provided in developing sustainable investing products and services.
Corporate managers should be aware that the SDGs are getting more attention now as the last decade is upon us for achieving progress on the 17 goals/169 underlying targets.
The MSCI approach was developed in collaboration with the OECD and takes a “net impact” perspective to evaluate alignments of companies based on product and operations for each of the 17 Sustainable Development Goals (and there are 169 underlying targets for these).
The approach to “help institutional investors:
- Measure and report on the degree of SDG alignment.
- Develop SDG-themed investment products.
- Meet rising demand to channel capital toward addressing the objectives of the Goals.
- Identify companies better aligned with the SDGs based on a well-rounded framework that looks beyond [corporate] disclosure and considers positive and negative alignment.
Corporate board members and C-suite leaders note: In evaluating your company, MSCI’s approach will include qualitative categories indicating the degree of alignment and scores that assess:
- Each public company’s overall Net Alignment for each of the 17 SDGs.
- Product alignment – focusing on products and services with positive and negative impacts.
- Operational alignment – internal policies of the company, operating practices to address SDGs targets, involvement in controversial activities.
The new SDG Net Alignment Framework is built on the MSCI Sustainable Impact Metrics; these include:
- New Sustainable Agriculture and Connectivity categories to provide additional areas where products and services align with the SDGs.
- Expanded Fixed-Income coverage to align the MSCI ESG Ratings corporate coverage universe, bringing impact coverage to 10,000+ equity and fixed-income issuers.
- Introduction of more granular “E” impact revenue sub-categories to enable a flexible application of MSCI Sustainable Impact Metrics to a broad range of impact and sustainability frameworks.
The new service for MSCI clients began in August.
Note the OECD is the Organization for Economic Co-Operation and Development, and part of its mission is to establish evidence-based international standards and finding solutions to social, economic, and environmental challenges.
GRI – The Choice of Many Corporate Reporters for Guidance
The Global Reporting Initiative has its roots in the United States, with foundational elements put in place by (in that day) socially responsible investors, a few companies, and some NGOs.
In 1989 in Prince William Sound, Alaska, the tanker Exxon Valdez spilled crude oil in the waters over several days. In response, in Boston, Trillium Asset Management under the direction of Joan Bavaria worked to create a new organization — the “Coalition for Environmentally Responsible EconomieS” (now, known simply as Ceres) and created the Valdez Principles for companies to sign (to pledge to be more environmentally-responsible).
These became the Ceres Principles and over time contributed to the creation of the GRI and its first framework (“G1”).
The framework was continually evolving, becoming G3 and G4 and what would be G5 (Generation 5) are now the GRI Standards, a powerful guide for public companies to use to examine and decide on “what” to disclose against the Standards.
Companies can choose to report against “Core” or “Comprehensive” levels.
GRI has also aligned the Standards with other reporting frameworks or standards so that publishing a “GRI Report” becomes a more meaningful and holistic presentation of a company’s ESG profile.
Note: G&A Institute is the designated Data Partner for the GRI in the United States of America, the United Kingdom and the Republic of Ireland. In this role, we gather and analyze every report published in these countries and provide the analysis to GRI for inclusion in its comprehensive, global report database.
This is the largest collection of corporate sustainability reports going back to the first issued using “G1” in 1999-2000.
What’s happening now:
In June GRI announced an update to the “Universal Standards”. These are planned revisions such as address concerns in Human Rights reporting to move GRI Standards “closer” to inter-governmental instruments such as the UN Guiding Principles on Business and Human Rights.
“Materiality” will be “re-focused” so that companies will report the importance of issues to stakeholders – rather than the customary approach of disclosing the results of a materiality assessment with focus on the company’s view of issues (regarding the economy, environmental matters, and people or human assets).
This will mean much more engagement with stakeholders to determine their perspectives to guide disclosures using the Universal Standards.
In the past, part of the guidance from the GRI was focused on “sectors”. Now, the organization is reviving Sector Guidance, which will support the Universal Standards. The sector guidance will link where possible with other frameworks and initiatives.
These steps are in the “disclosure draft” stage, with GRI gathering input to move to final adoption in 2021. GRI is inviting organizations – including companies – to be part of a “Global Standards Fund” to “safeguard and increase GRI’s to deliver the leading sustainability standards that encourage organizations to embrace responsible business practices.” It hopes to raise 8 million euros by 2022.
Climate Disclosure Standards Board – Guidance Issued
The CDSB Framework for climate-related disclosure is available for corporate reporters to build “material, climate-related information” in their “mainstream” reports. (That is, “the annual reporting packages required to audited financial results under the corporate compliance or securities laws of the country in which they operate.”)
Think of the 10-k in the United States or annual report in the United Kingdom, and similarly required filings.
The guidance is similar to that of the TCFD recommendations – the Task Force on Climate-related Financial Disclosure (organized by the Financial Stability Board, an arm of the G-20 nations, with the Task Force headed by Michael Bloomberg).
Important note: CDP advises that connecting CDP data with the CDSB Framework will help companies to successfully fulfill the TCFD recommendations.
The CDSB has been working on the Standards since 2007, and over time reflected on such developments as the 2015 Paris Agreement (or Accord) on climate risk.
In discussions with company managers and in our monitoring of corporate disclosure as the GRI data partner in the U.S.A., we see a wide range of opinions on just what “integrated reporting” should look like.
For some companies (not to be cute here) it boils down to have a 10-k and ESG report at the same time, often combined. Side-by-side, stapled in effect for a printed report.
Other firms may put financial/economic information up top and then build out a sustainability report with volumes of ESG data. We don’t see a lot of tieing the implications of that data to financial results, with top and bottom line impacts clearly spelled out.
Bloomberg – Launching E, S & G Scores – Oil & Gas Sector First Up, Along With Board Composition Scores for Thousands of Firms
This month Bloomberg announced it was launching new, proprietary ESG scores for 252 companies in the Oil & Gas Sector – and Board Composition scores for more than 4,300 companies. The scores are available in the professional services terminals service.
For the “E” and “S” scores of the companies in the Oil & Gas Sector, Bloomberg is highlighting environmental and societal risks that are material to the sector.
For the Board Composition scoring, Bloomberg says it is assisting investors with information to assess how well a board is positioned to provide diverse perspectives, supervision of management, and assess potential risks in the current board structure.
ISS/Institutional Shareholder Services – New Data Points For Investors
The long-time governance ratings and proxy guidance organizations were originally focused on “G” – governance practices – and expanded its work into “E” and “S” scoring and evaluations two years ago. (The “G” work goes back four decades.)
Now, “ISS ESG” (the responsible investment arm) is providing “best in class” fund ratings that assess the ESG performance of 20,000-plus firms around the world.
The new ratings will draw on ISS’s ESG ratings, governance data, norm-based research, energy and extractives’ screens, SDG impact ratings, carbon emissions analysis, shareholder voting outcomes, and more…resulting in a composite, holistic picture of a fund’s ESG performance.
Funds will be rated on a relative scale of “1” (bottom” to “5”, based on the fund’s standing within the Lipper Global Benchmark class.
The service is intended to have broad utility for investment professionals, such as fund managers and investment advisors.
This is still one more layer to add to the complexity of the capital markets competition for public companies.
G&A Institute Perspectives:
Inside the publicly-traded company, there may be a lively discussion going on among participants as the sustainability disclosures are prepared – for example, legal teams may frown certain ESG data revelations at times.
“Who is asking for this” may be a determinant in “what” gets disclosed. Lots of negotiations go on, we can tell you.
But every year, more and more ESG data sets and narratives are published and corporate leaders in sustainability reporting set the pace for industry and sector.
The various reporting frameworks, guidance, standards that are available to corporate managers are a positive – here, including the framework (guidance) presented by the Standards of the Carbon Disclosure Standards Board. Information: https://www.cdsb.net/
G&A Institute closely monitors the corporate sustainability reporting arena and will share with you more updates as we see the need.
Lots going on in Summer 2020 — be in touch with us if you have questions about any of this! We’d like to be your sherpas and guides and navigators on the corporate sustainability journey!