Picking Up Speed – Adoption of the FSB’s TCFD Recommendations…

January 21 2021

by Hank BoernerChair & Chief StrategistG&A Institute

Countries around the world are tuning in to the TCFD and exploring ways to guide the business sector to report on ever more important climate related disclosures.  Embracing of the Task Force recommendations is a key policy move by governments around the world.

After the 2008 global financial crisis, the major economies that are member-nations of the “G20” formed the Financial Stability Board (FSB) to serve a collective think tank and forum for the world’s leading developed countries to develop strong regulatory, supervisory, and other financial sector policies (guidance, legislation, regulations, rules).

Member-nations can adopt the policies or concepts for same developed collectively in the FSB setting back in their home nations to help to address financial sector issues with new legislative and/or adopted/adjusted rules, and issue guidance to key market players. The FSB collaborates with other bodies such as the International Monetary Fund (the IMF).

FSB operates “by moral suasion and peer pressure” to set internationally-agreed to policies and minimum standards that member nations then can implement at home. In the USA, members include the SEC, Treasury Department and Federal Reserve System.

In December 2015, as climate change issues moved to center stage and the Paris Agreement (at COP 21) was reached by 196 nations, the FSB created the Task Force on Climate-related Financial Disclosures, with Michael Bloomberg as chair.  The “TCFD” then set out to develop guidelines for corporate disclosure on climate change-related issues and topics.

These recommendations were released in 2017, and since then some 1,700 organizations endorsed the recommendations (as signatories); these included companies, governments, investors, NGOs, and others.

Individual countries are taking measures within their borders to encourage corporations to adopt disclosure and reporting recommendations. There are four pillars -– governance, strategy, risk management, and metrics & targets.

A growing number of publicly-traded companies have been adopting these recommendations in various ways and publishing standalone reports or including TCFD information and data in their Proxy Statements, 10-ks, and in sustainability reports.

The key challenge many companies face is the recommendations for rigorous scenario testing to gauge the resiliency of the enterprise (and ability to succeed!) in the 2C degree environment (and beyond, to 4C and even 6C),,,over the rest of the decades of this 21st Century.

Many eyes are on Europe where corporate sustainability reporting first became a “must do” for business enterprises, in the process setting the pace for other regions.  So – what is going on now in the region with the most experienced of corporate reporters are based?  Some recent news:

The Federal Council of Switzerland called on the country’s corporations to implement the TCFD recommendations on a voluntary basis to report on climate change issues.

Consider the leading corporations of that nation — Nestle, ABB, Novartis, Roche, LarfargeHolcim, Glencore — their sustainability reporting often sets the pace for peers and industry or sector categories worldwide.

Switzerland — noted the council — could strengthen the reputation of the nation as global leader in sustainable financial services. A bill is pending now to make the recommendations binding.

The Amsterdam-based Global Reporting Initiative (GRI) is backing an EU Commission proposal for the European Financial Reporting Advisory Group (EFRAG) to consider what would be needed to create non-financial reporting standards (the group now advises on financial standards only). The dual track efforts to help to standardize the disparate methods of non-financial reporting that exist today.

The move could help to create a Europe-wide standard. The GRI suggests that its Global Sustainability Standards Board (GSSB) could make important contributions to the European standard-setting initiative.

And, notes GRI, the GSSB could help to address the critical need for one global set of sustainability reporting standards.  To keep in mind:  the GRI standards today are the most widely-used worldwide for corporate sustainability reporting (the effort began with the first corporate reports being published following the “G1” guidelines back in 1999-2000).

The United Kingdom is the first country to make disclosures about the business impacts of climate change using TCFD mandatory by 2025.

The U.K. is now a “former member” of the European Union (upon the recent completion of “Brexit” process), but in many ways is considered to be a part of the European region. The UK move should be viewed in the context of more investors and sovereign nations demanding that corporations curb their GhG emissions and help society move toward the low-carbon economy.

In the U.K., the influential royal, Prince Charles — formally titled as the Prince of Wales — has also launched a new charter to promote sustainable practices within the private sector.  He has been a champion of addressing climate challenges for decades.

The “Terra Carta” charter sets out a 10-point action plan designed to reduce the carbon footprint of the business sector by year 2030.  This is part of the Sustainable Markets Initiative launched by the prince at the January 2020 meeting in Davos, Switzerland at the World Economic Forum gathering.

Prince Charles called on world leaders to support the charter “to bring prosperity into harmony with nature, people and planet”. This could be the basis of global value creation, he explains, with the power of nature combined with the transformative innovation and resources of the private sector.

We closely monitor developments in Europe and the U.K. to examine the trends in the region that shape corporate sustainability reporting — and that could gain momentum to become global standards.  Or, at least help to shape the disclosure and reporting activities of North American, Latin American, Asia-Pacific, and African companies.

It is expected that the policies that will come from the Biden-Harris Administration in the United States of America will more strenuously align North American public sector (and by influence, the corporate sector and financial markets) with what is going on in Europe and the United Kingdom.  Stay Tuned!

TOP STORIES FOR YOU FROM THE UK AND EUROPE

Items of interest — non-financial reporting development in Europe:

Excellence in Corporate Citizenship on Display in the Coronavirus Crisis – #4

by Hank Boerner – Chair & Chief Strategist – G&A Institute and the G&A team — continuing a new conversation about the corporate and investor response the coronavirus crisis…continuing the second week of the conversation… Post #4 – Late Evening,  March 23 … second of the day

 

 

 

Introduction
These are the times when actions and reactions to crisis helps to define the character of the corporation and shape the public profiles of each of the corporate citizens. For companies, these are not easy times.

Many important decisions are to be made, many priorities set in an environment of unknown unknowns — there are many stakeholders with needs to be taken care of.

The good news: Corporations are not waiting to be part of the solution – decisions are being made quickly and action is being taken to protect the enterprise. This is no easy task while protecting the corporate brand, the reputation for being a good corporate citizen, watching out for the investor base and the employee base — and all stakeholders.

What are companies doing? How will the decisions made at the top in turn affect the company’s employees, customers, hometowns, suppliers, other stakeholders?    Stay tuned.

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Getting Pharmaceuticals to Those in Need

The giant global pharma company Novartis commits to donate up to 130 million doses by end of May of generic hydroxychloroquine (a compound) – this and chloroquine are being evaluated to treat COVID-19. In New York State, tomorrow trials will begin for the use of the two drugs.

Novartis Sandoz division is pursuing regulatory approvals and once that is in hand the managers will work with stakeholders to figure out how to get the drugs to patients. (Novartis has registration for hydroxychloroquine in the USA.)

This is part of the Novartis COVID-19 Response Fund (US$20 million) effort for drug discovery, development, collaboration and price stability. Novartis will work with other companies to support global supply.

The Novartis enterprise resulted from the merger of Sandoz and Ciba-Geigy.

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Bayer AG (Germany) is partnering with the federal government to get several millions of anti-malaria drugs – millions of tables of chloroquine (on label: Resochin® – made of chloroquine phosphate) to the U.S. – the other half of the experimental treatment. President Donald Trump called on regulatore to agree on an emergency-use authorization.

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Funding — Cash Really Helps to Bring Aid to the Nation

Morgan Stanley committing $10 million in cash to support children’s wellbeing and capacity-building for first responders. The first distribution is for Feeding America, the CDC Foundation and the World Health Organization’s COVID-19 Solidarity Health Fund.

The CDC Foundation will use the fund to support local and state health departments, the global response, logistics, communications, data management, PPEs, and supplies. These funds are in addition to $500,000 in employee matching to charities supporting the initial outbreak in Wuhan, China.

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Keeping the Power on and Communities’ Needs Met

Alliant Energy, the utility serving Iowa and Wisconsin in the Heartland, donated $100,000 to COVID-19 relief efforts through its foundation arm. CEO John Larsen said the firm worked with non-profit partners to identify local needs – and cash was at the top of the list.

Contributions are headed to non-profits in the two states – to six food banks to be divided between Iowa and Wisconsin (for food boxes, mobile drive-through pantry support, gaps in school lunch programs. And the American Red Cross chapters in each state will receive funds. When the employees and retirees donate to local relief efforts, the Alliant Energy Foundation will match gifts up to $3,500 this year.

The company activated its comprehensive pandemic emergency plan and instituted safety work practices to protect employees. And yes, “Powering What’s Next” is the title of the 2019 Corporate Responsibility Report – you can see it here: https://sustainability.alliantenergy.com/

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Driving Folks Around in a Lyft During the Crisis

The drive-sharing service Lyft’s co-founders (John and Logan) sent customers an email. “All of us feel the weight of our responsibility to the community right now.” To drivers (who need the cash) and to customers, to be their critical lifeline, especially those in need.

And so to support drivers and maximize community impact:

  • Supporting delivery of medical supplies and providing access to necessary transport, especially for low-income individuals.
  • Activating LyftUp to donate tens of thousands of dollars to families and children, low-income seniors, doctors and nurses.
  • Teaming with United Way, World Central Kitchen and Team Rubicon.
  • Riders and drivers encouraged to stay home if they are sick – and work with medical professionals to discuss transportation options.

Coming all together to help:

Governments, not-for-profits, healthcare entities are asked to get in touch with Lyft to discuss how the company can help – form to reply is here. 

Foundations and philanthropic organizations looking to help can connect via email: LyftUpCovid19Funding@lyft.com.

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The Buzz is All About E-Learning – What Do People Need?

In Houston, Texas, school children are at home (and so are their teachers), and “e-learning” or tele-learning is the alternative method of keeping the school year going. Harris County Sheriff’s Office and CITGO Petroleum Corporation are donating 150 tablets (Kindles) to the Houston and Alief Independent School Districts to support low-income students’ e-learning needs during the crisis.

CITGO has had a six-year partnership with the sheriff’s office in offering the “Kindling Young Minds Program” to provide Kindle Fire tables to Houston-area students with perfect or much-improved attendance records – that program is modified now to meet crisis conditions.

The tablets were in student’s hands by March 19th. (More than 600 tablets are now in use.) As they say, life hands you a lemon – go make buckets of lemonade!)

CITGO operates three refineries in Texas, Louisiana and Illinois; wholly or jointly owns 48 terminals, 9 pipelines and other businesses and is #5 refiner in the U.S. The familiar brand is in 30 states. Old timers remember the original brand – Cities Service.

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Along these lines, Discovery Education is helping homebound students (and parents & guardians) by launching “Daily DE” – digital curriculum resources, engaging content and professional learning for K-12 classroom. This is a suite of free activities and resources for students and their families.

There are partners in the offering: Afterschool Alliance, American Heart Association, the NFL, US Shoah Foundation, Tiger Woods Foundation, Siemens, 3M, TCS, and others. You can find out more at: https://www.discoveryeducation.com/

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Putting Food on the Table — Addressing the Anxieties of Families

Families and individuals are in need of food during the crisis and Albertsons Companies and Albertsons Foundation pledge funds and launch a major fundraising drive to “fight hunger” during the crisis.

This is a call to action; CEO Vivek Sankaran explains that Albertsons Companies are on the front line of hunger relief and calls on communities to assist. The “Nourishing Neighbors” program (especially focused on breakfast for kids) needs help to feed families now.

Contributions are solicited for food banks, emergency meal distribution at schools, senior center meals, and family access to federal food programs.

There’s information at: AlbertsonsCompaniesFoundation.org.

Hey shoppers – you, too, can chip in at branded retail outlets as they stock up for their own families – look for information at Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Star Market, Tom Thumb, Randal’s, ACME, and other of the company’s retail food outlets.

Internally, Albertsons employees are helping each other with donations to the “We Care Fund”, part of the foundation activiti4es.

In 2019, Albertsons Companies and the foundation donated $225 million in food and financial support to communities, for education, hunger relief, cancer research and treatment, veterans outreach, and for people with disabilities. To that list the company and foundation added COVID-19 relief.

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Getting Money and Help to the People Who Need it

Fifth Third Bank Bancorp (Cincinnati) and the Fifth Third Foundation and the Fifth Third Chicagoland Foundation will direct $8.75 million in funds to support community members.

“Recovery and Resilience Funds” will direct funds through “Strengthening Our Communities” grants of the foundation to support small businesses, affordable housing and homeownership, and economic development. Relief funds are directed for COVID-19 response in areas served by Fifth Third Bank.

The institution is also offering a vehicle payment waiver program; consumer credit card payment waiver; mortgage and home equity program for late payments (with no late fees); small business payment waiver (up to six months for loans); suspension of vehicle repossession actions; suspension of foreclosures. Many of these are for at least 60 and 90 days duration.

Banking units serve Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, W Virginia, Georgia, and North Carolina. The federal bank had $169 billion in assets and 1149 full service banking centers. Money management: Fifth Third is among the largest institutions in the Midwest with $413 billion in assets under care.

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And More Funds for Small Businesses

Facebook launched a $100 million grant program for small businesses that are being impacted by the pandemic – most of the disbursements will be in cash payments, with some credits for business services.

“We’ve listened to small businesses to understand how best we can help them,” explains Facebook COO Sheryl Sandberg. Being helped: 30,000 small business enterprises in 30+ nations where Facebook employees live and work.

Facebook’s estimate is that as many as 140 million businesses use the apps each month to help in management and market of the firm as some 200 million people visit an Instagram Business Profile every day.

According to Forbes writer Maneet Ahuja, such firms as Unashamed Imaging (principal, Anesha Collins), a Florida-based wedding photographers is using Facebook Live and IGTV to keep in touch clients; Heavenly Soap (principal Patti Gibbons) pushes ahead using Facebook. These are the types of firms considered for the program.

Last week Facebook launched Business Hub, with resources for small businesses. Info: https://www.facebook.com/business/boost/resource?ref=alias

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Close to home for some of us on the G&A Institute team who live in suburban Nassau or Suffolk counties, PSEG Long Island and the PSEG Foundation are lending support to the leading food bank in the area – Island Harvest.

The company and its foundation are supporting the Island Harvest Food Bank with a grant of $45,000 to address rising food insecurity – including helping local children without access to school food programs because their schools are closed.

Island Harvest relies on donations of surplus food by commercial establishments, wholesalers, supermarkets, individuals. Each day, surplus bread and other commodities have been donated by local Panera Bread markets, for example.

The electric utility’s regional territory includes the populous Nassau and Suffolk counties (almost 3.5 million population. CEO Daniel Eichorn points out that many of the company’s employees volunteer to help Island Harvest each year and the funds will help as part of the ongoing partnership with the food pantry.

PSEG Long Island is a subsidiary of the New Jersey-based Public Service Enterprise Group Inc, a diversified energy company.

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G&A Institute team note: We continue to bring you news of private (corporate and business), public and social sector developments as organizations in the three societal sectors adjust to the emergency.

The new items will be posted at the top of the blog post and the items today will move down the queue.

We created the tag “Corporate Purpose – Virus Crisis” for this continuing series – and the hashtag #WeRise2FightCOVID-19 for our Twitter posts.  Join the conversation and contribute your views and news — email info@ga-institute.com

World’s Largest Sovereign Wealth Fund – an Investor Actively Engaged in ESG Issues Like Fossil Fuel Divestment…Quo Vadis, Norway SWF?

by Hank Boerner – Chairman, G&A Institute

Here at G&A the team monitors a sizeable number of asset owners (like pension funds CalPERS and New York State Common), asset managers (Black Rock, Morgan Stanley State Street), S&R investors (TIAA-CREF, Trillium, Calvert) and other kinds of institutional investors – including the growing universe of Sovereign Wealth Funds (SWFs).

A SWFis generally described as an asset fund that is state owned and managed, and investing outside of the home nation for the benefit of the population of the home state — and especially for future generations.  The oldest SWF is the Kuwait Investment Authority,  founded in 1954, and funded with oil revenues.

The largest SWF in terms of asset base has long been ADIAAbu Dhabi Investment Authority — established more than 30 years ago by the Emirate and now with US$800 billion-plus in Assets Under Management (AUM). .

Today, it’s a given that the #1 tittle is now held by Norway — the Government Pension Fund Global designed for investing outside of the country (there is a companion fund, much smaller, for investing inside the nation).

Let’s take a look at Norway’s SWF — established almost 20 years ago.  The “inflow” of money to invest comes from sale of the country’s North Sea oil and gas reserves; the government levies a tax of 78% on oil and gas production, and has income from other taxes and dividends from Statoil, the government-managed oil company.

The fund is managed by Norges Bank Investment Management, part of the financial ministry. Investments are primarily in stocks and bonds, a bit of real estate.

The New York Times profiled the SWF in June 2014; among the highlights: the SWF will be more aggressive over the next 3 years, taking larger stakes (5% of more) in companies; expanding the real estate portfolio; will be an “anchor investor” in capital raising; will continue to invest in smaller companies and emerging markets; will continue to look at “green investments.”  The fund has traditionally invested in Europe and North America markets.  Largest holdings are in such companies as Nestle, Novartis, HSBC Holdings, Royal Dutch Shell, Vodafone Group.

Norway’s SWF managers are reported to be looking for investments in companies that are involved in renewable energy, energy efficiency, water / waste water management, and related fields — for both equity and bonds (possibly “green bonds” investments).

Here is where things get interesting.  The flow of funds into the SWF to invest since 1996 has come from oil and gas activities.  Earlier this year a panel of experts was assembled to study the SWF’s investments in oil and natural gas and coal — “fossil fuels.”  Environmentalists and political interests want to see less/or no investments in fossil fuels.  Where the fund’s future funds come from!

More recently, The Financial Times profiled the SWF (November 3, 2014) — and the discussion involved not only the huge size of the fund, and its success in investing (helping to fuel the growth of average US$165 million each year) but also the “climate change” issue.  Soon the fund will be the first SWF to reach US$1 trillion in AUM.  Will those assets include fossil fuel companies?

Yngve Slyngstad (CEO of the fund) was interviewed by FT; he indicated the SWF will begin next year how it will vote ahead of corporate shareholder meetings, beginning with about 30 companies. (The fund owns shares in 8,000 companies; that means with an average of 10 proxy items to vote on, some 80,000 decisions are necessary before votes are cast this global fiduciary with considerable clout.)

The Norway SWF did cast votes against big names in the portfolio; managers don’t like the combination of chairman and CEO so prevalent in US companies, so it voted against Lloyd Blankfein of Goldman Sachs and Jamie Dimon, JP MorganChase for their combined roles.

CEO Slyngstad explained to FT that the SWF is not necessarily an activist investor and does usually support company boards of companies in portfolio, but the CEO and chair at companies they invest in should be separate people. Auditors should be rotated. And shareowners should be allowed to nominate board candidates.

And then the conversation got to climate change and fossil fuels. Should the Norway fund divest fossil fuel investments? Should it back more green (renewable) technologies? Should the fund be used as a diplomatic policy or environmental policy instrument?

In Norway, the fund is regularly the focus of political discussion.  The assets managed are larger than the country’s Gross Domestic Product.

Some politicians want to make changes in the investment policies. Climate change is central to some politico’s views.  The Times quotes Christine Meisingset, who heads sustainability research at Storebrand, who said: “As a country we are so exposed to fossil fuels, a risky position in the transition to a low-carbon economy. That makes the discussion around the oil fund so important.”

The fund does not invest in tobacco companies or companies involved in weapons manufacturing.  Will it soon divest investments in fossil fuel companies…even as fossil fuels “fuel the growth” of the SWF itself?

Stay Tuned to the discussion in the nation of Norway — the wealth generated for its citizens from deep beneath the earth (oil and gas reserves) and being available to the SWF for investment helped to create one of the world’s most important investment portfolios.  And the SWF as the country’s investment mechanism may be among the largest of the institutional investors heeding the call to divest fossil fuel companies (which compromise a tenth of the portfolio right now).

The climate change – global warming dialogue centered on portfolio management approaches regarding fossil fuel divestment continues to…well, “heat up!”