Corporate ESG Stakeholders – Supply Chain Management – What’s in Your Supply Chain Mix?

By Pam StylesG&A Institute Fellow

The current COVID-19 pandemic has exposed countless concerns, including (global) supply chain management issues near the top of the list.

Public and private-sector professionals and officials are soon to be attempting to get economies back up and running. Following Herculean and likely imperfect restart efforts, it will be important to debrief supply chain systemic failures and risks that have been exposed during the pandemic crisis.

ESG/Sustainability practitioners may be able to offer unique vantage to assist the debrief in collaboration with company supply chain experts and management teams.

Well-established ESG tracking practices and voluntary reporting frameworks, such as GRI (est. 1997) and CDP (est. 2000), could possibly be used to expand internal information sharing and analysis to augment internal supply chain risk assessments, monitoring and oversight capabilities.

ESG reporting frameworks are not necessarily a perfect fit or infallible, however they could potentially provide existing information platforms from which to add and/or improve accessible reporting, analysis and assessment, and executive leadership observation in a multitude of strategic (multi) sourcing risk assessments and repositioning exercises to come.

As we all try to learn and make important changes going forward, important questions to ask:

What do you know about your company’s suppliers’ supply chain, their suppliers, and so on?

The Business Continuity Institute, Zurich Insurance Company and others have been raising the red flag for years that too many companies do not have full visibility of their supply chain, nor the ability to fully track components through the full vertical supply chain.

Just a few recent examples of how reality has suddenly struck some pharmaceutical, consumer products and electronics companies (the list of other sector impacts can go on):

  • U.S. Pharmaceutical supply chain dependencies on China were well known at high levels prior to COVID-19, but effectively nothing was done about it and consumers were unaware of the looming risk.
  • Consumer Products giant Procter & Gamble indicated 17,600 products could be affected by Coronavirus in China.
  • Apple is dealing with pandemic-driven supply chain and sourcing woes.

Back in 2008 PwC published a fascinating paper about German companies supply chain sourcing practices in China, in which it suggested companies take a closer look at their KPI’s.

Who should raise warning flags and influence corrective supply chain action?

Supply chains can be very complicated with many layers or tiers, all the way down to original raw materials source. Aggregate supply chain geographic risk management is surely challenging.

As a specialist at well-known Gartner Supply Chain observed, “COVID-19 should be a wake-up call to boards of directors, CEOs and supply chain leaders that being well prepared for disruptions, regardless of their cause, is not an optional extra. It is a business necessity.

Companies are learning painful lessons in the shortcomings of legal boilerplate risk disclaimer language in situations like today’s. These lessons should compel executive leadership and Boards to step-up their efforts and investment in overseeing supply chain strategy and active risk management mitigation.

Does your company regularly review and remediate identifiable aggregate risks across the company’s supply chain and associated third-party relationships?

As recently pointed out in a COVID-19 related article by another G&A Institute Fellow, Daniel Goelzer, “Internal auditors are missing key risks.” He went on to observe,

“The Institute of Internal Auditors (IIA) has released its annual survey of Chief Audit Executives. The 2020 North American Pulse of Internal Audit “reveals serious gaps in internal audit’s coverage, with audit plans deficient in key risk areas.”

“For example, the IAA found that almost one-third of respondents did not include cybersecurity/information technology in their audit plans. In addition, more than half did not include governance/culture or third-party relationships, and 90 percent did not include sustainability.”

Postulating that the professional supply chain management tools kit is loaded with granularity to boggle the mind, it is fair to suggest the possibility that the many different tools may inadvertently complicate aggregate risk assessments.

Thus, we should think about whether there might be an opportunity for ESG/Sustainability professionals to constructively share their inherently top-down vantage and tools kit to assist companies with additional angles for risk assessment and oversight.

Brainstorming how the growing mainstream ESG/Sustainability field can help:

One gets a strong sense that professional supply chain experts across the board are now committed to re-engineer their collective body of knowledge and management resources to truly understand–down to the last pharmaceutical raw ingredient source, medical gear and equipment–the geographic and geo-political risks of their companies’ product vertical manufacturing and supplies.

First, let’s acknowledge that professional supply chain experts have a lot of knowledge, skills and complex management tools at their disposal that those outside their discipline know little about.

Second, kudos to the U.S. Army Corps of Engineers for their brilliance and ingenuity. Their recent reminder to all of us that, when a problem is large and complex and a fast solution is needed, it’s worth remembering the “keep it simple” concept.

Their challenge: emergency need to rapidly expand hospital bed and critical care capacity in multiple locations across the country.

Their solution: work with the infrastructure already there – large convention centers, empty hotels, and the like – and quickly retrofit them to meet the hopefully short-term surge capacity needs.

So now let’s apply the “keep it simple” concept, to think about what infrastructure we already have that can be efficiently and effectively adapted to immediate re-purpose, constructive to supply chain risk management.

Pre-dating the world’s awareness of the coronavirus COVID-19 crisis, the Global Reporting Initiative (GRI) stated in an article published November 15, 2019, that it “recognizes that joining the dots between corporate reporting and the practical changes needed to promote transparent supply chains can be challenging.”

In that same article, GRI announced its new two-year business leadership forum to help businesses work through challenges to bridge the gap between supply chain management and reporting. Your company may already use or be familiar with the GRI reporting framework.

Specific to supply chain, you might take another look at three GRI KPI sub-series: 204 – Procurement Practices, 308 – Supplier Environmental Assessment, and 414 – Supplier Social Assessment.

GRI is the oldest and most widely recognized voluntary ESG/Sustainability reporting framework and provides a wide range of supply chain related leadership interaction. It has alliances and synergies with the ISO certification standards and CDP, among other organizations.

Hence, GRI could be a robust resource to turn to for facilitating internal supply chain risk discussion, brainstorming and improvement.

CDP, originally known as the Carbon Disclosure Project, has grown beyond carbon to include a host of other key sustainability topics including supply chain. Several germane excerpts from the CDP Supply Chain Report 2018-2019:

  • Companies’ supply chains create, on average, 5.5 times as many greenhouse gas emissions as their own operations. (This hints at the veritable iceberg of suppliers beyond the companies’ direct control.)
  • Having a single, common disclosure platform is also proving to be beneficial. Amongst program members, 63% are currently using, or considering using, data from CDP disclosures to influence whether to contract with suppliers or not.
  • Managing supply chain risks, impacts, and capturing opportunities for sustainable value creation is complex. However, the fundamental steps are common across all organizations: understanding, planning and implementing. Learning from outcomes is essential in order to deepen and broaden the value of a Supply Chain strategy.
  • This year a record number of companies submitted disclosures on climate change. CDP supply chain members made requests to 11,692 suppliers, with 5,545 responses received from businesses headquartered across 90 different countries. This is a 14% increase on the 4,858 responses received in 2017.

Taking inspiration from the U.S. Army Corp of Engineers, a serious question to ask is whether either or both the existing GRI and CDP reporting and data analysis infrastructures could be used (1) ingeniously for a foundation from which to build or expand distance and country concentration inputs to provide additional foundation for sourcing risk analysis and oversight capabilities for companies, as well as (2) to facilitate improved global commerce and public stakeholders supply chain risk awareness?

Concluding Encouragement

To ESG/Sustainability practitioners:

Your reporting frameworks, databases and analytical tools may be well-positioned for collaborative solutions to help companies identify and address deep-tier supply-chain risks — both immediate (public health/safety) and longer-term (climate change) — that can and should now rise to a higher level of scrutiny.

When it comes to Sustainability – climate change is important, but supply chain is urgent.

Pamela Styles – Fellow G&A Institute – is principal of Next Level Investor Relations LLC, a strategic consultancy with dual Investor Relations and ESG / Sustainability specialties.

SEC Provides Public Companies with COVID-19 Filing Deadline Relief and Guidance on the Financial Reporting Effects of the Virus

Summary of Audit Committee and Auditor Oversight Update (No. 58 February-March 2020)

by Daniel L. GoelzerFellow, G&A Institute

As companies struggle with the uncertainties and disruptions of the COVID-19 pandemic, the Securities & Exchange Commission (SEC) has taken steps to assist public companies in complying with their reporting and disclosure obligations. The SEC has issued orders that extend for 45 days the deadline for most public company filings due between March 1st and July 1st, although companies that wish to take advantage of this relief must comply with certain conditions.

In addition, the Division of Corporation Finance had issued guidance providing staff views on disclosure and other securities law issues arising from COVID-19 and related business and market disruptions.

SEC Exempts More Small Companies from ICFR Audits

On March 12, the SEC adopted amendments to the definitions of the terms “accelerated filer” and “large accelerated filer”.

The effect of these amendments is to exclude certain smaller public companies from accelerated filer status. As a result, these companies will no longer be required to obtain an auditor’s report on the effectiveness of their internal control over financial reporting and will have additional time to file annual and periodic reports with the SEC.

Companies that qualify as smaller reporting companies under the Commission’s rules and have less than $100 million in revenue will move from accelerated filer to nonaccelerated filer status.

Managements and audit committees of companies affected by these amendments should consider whether or not discontinuing the ICFR audit is cost-effective.

Internal Auditors Are Missing Key Risks

The Institute of Internal Auditors (IIA) has released its annual survey of Chief Audit Executives. The 2020 North American Pulse of Internal Audit “reveals serious gaps in internal audit’s coverage, with audit plans deficient in key risk areas.”

For example, the IAA found that almost one-third of respondents did not include cybersecurity/information technology in their audit plans. In addition, more than half did not include governance/culture or third-party relationships, and 90 percent did not include sustainability.

Audit committees should consider whether the internal audit staff’s plans for the coming year match the committee’s view of risk.

What’s on the Audit Committee’s Agenda in 2020?

Part II: COVID-19

During the past month, COVID-19 has radically altered public company priorities and challenges. This Update summarizes the views of three large accounting firms on the financial reporting issues that companies – and therefore audit committees — will face in the new environment.

Deloitte Perspectives

In Financial Reporting Considerations Related to COVID-19 and an Economic Downturn (March 25, 2020), Deloitte discusses key accounting and financial reporting considerations related to economic conditions that may result from the COVID-19 pandemic.

Deloitte’s comprehensive 64-page analysis includes the following sections:

  • Select SEC and PCAOB Announcements Related to COVID-19,
  • SEC Reporting and Disclosure Considerations, Broad Financial Reporting and Accounting Considerations, Internal Control Considerations, and
  • Financial Reporting Under ASC 852 for Entities in Reorganization Under the Bankruptcy Code.

The Deloitte paper also includes an appendix with industry-specific insights for eleven industry sectors. The executive summary discusses six accounting and reporting issues that “will be the most pervasive and challenging as a result of the pandemic’s impact.”

PwC’s Perspectives

PwC’s Responding to COVID-19: Considerations for corporate boards (March 20, 2020) states that boards “need to be proactive and agile, and they need to respond with strong leadership.” Accordingly, boards “will want to immediately consider” four broad issues:

  • Business (e.g., employee well-being,impact on strategy, share repurchases and dividends,supply chain,and liquidity);
  • tax policy and Washington;
  • financial reporting (e.g., financial reporting operations, earnings guidance, judgments and estimates, revenue recognition, and internal control testing);
  • and governance.

In a second publication — 1 2020 Audit committee newsletter: Helping you prepare for your next meeting — PwC adds some points specifically for audit committees.

E&Y Perspectives

In Five Financial Reporting Issues to Consider as a Consequence of COVID-19 (March 23, 2020), EY acknowledges that “the impact on financial reporting may not be the first thing that comes to mind as a consequence of the outbreak.”

Nonetheless, “there is an important and challenging role here for preparers of financial statements, audit committees and auditors.”

EY states that five issues will be priorities: Going concern and liquidity, impairment assessment, contract modifications, fair value measurement, and government assistance and income tax.

# # #

Daniel Goelzer is a retired partner in the law firm of Baker McKenzie. He is a member of the Sustainability Accounting Standards Board and advises a Big Four accounting firm on audit quality issues. From 2002 to 2012, he was a member of the Public Company Accounting Oversight Board and served as Acting PCAOB Chair from August 2009 through January 2011. From 1983 to 1990, he was General Counsel of the Securities and Exchange Commission. Mr. Goelzer is a CPA and a lawyer.

He is a G&A Institute Fellow. 

You can follow the Audit Blog:  @BlogAuditor on Twitter or @the-audit-blog on medium.com

“Total Impact Valuation” – Monetizing the Enterprise’s “Cost-Benefit Analysis” of the Impact on Society? This is for CEOs – Advice From The Conference Board

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

Today’s question for corporate CEO’s:  Have you examined your company’s “Total Impact Valuation,” a new approach being advanced by The Conference Board, wherein the enterprises’ impact on society is monetized (cost/benefit evaluated and value attached)?

A small group of companies is doing these exercises. Think of their efforts to date as expanding the usual reporting of “Input/Output” to seriously consider (1) Outcomes, (2) Impacts, (3) Cost and Benefit to Society (and to the company).

Such firms as BASF (the German chemical giant), cement industry leaders Holcim/Ambjua Cement and LafargeHolcim, Samsung, Akzonobel (materials), ABN AMRO (Holland, financial services), Volvo (vehicles), and Argo (materials, Colombia) have been doing something along these lines and reporting results for a few years now on web sites, in sustainability reports, in financial statements, in a “total contribution report” or “value-added statement”, and by other means.

Some of these disclosures are third party assured (Argo’s is by Deloitte) and otherwise guided; the big accounting firms are involved (PwC and KPMG included).

This appears to us to have the potential to take corporate sustainability reporting to expanded (new) levels for at least the publicly-traded large caps – that is, if enough investors jump aboard the concept and ask for the information.  (Think about public discussion of the company’s “plus or minus” impact on society beyond the fences.)

Thomas Singer, Corporate Leadership research leader at The Conference Board, presents findings of his sampling of firms (those identified above) and shares his perspectives on the concept in Chief Executive Magazine – it’s our Top Story for you this issue.

BASF shares its “Value to Society” model (there’s a link to this in the article).  The company, explains Singer, monetizes more than 20 different types of environmental, social and economic impacts, including direct and indirect suppliers and even customer industries.

Author Thomas Singer turns out a good amount of strategic advice to company leaders and has been focusing more in his Director Notes on ESG and corporate sustainability.  There’s links to his papers and publications for you in the link.

A major drawback here in the U.S.A.: there is no standard benchmark for measuring progress or lack of, and to guide reporting; there is in turn no way to compare company “A” to “B” for investors, ratings analysts and others.

So what do you think – is this a “we’re a long way from Kansas, Toto” moment for corporate leaders in terms of expectations of shareholders and stakeholders for what the companies will share in their disclosures of the future?  (The “Kansas” reference being the bad old days practices of chemicals and other companies “externalizing” costs to society for environmental mismanagement and minimizing the actual costs of clean up in financial reports.)

The total value practice got underway in Europe – and we will be watching to see if U.S.-based public companies pick up on the concept. Especially those where their foreign peers have the modeling and techniques underway.  That is what happened with corporate sustainability and ESG reporting over time.

Top Stories

CEOs Need To Put This Sustainability Trend On Their Radar
(Tuesday – July 03, 2018) Source: Chief Executive – What if America’s CEOs could understand the full financial impact their company has on society? It could make them rethink their game plan for how they prevent workplace accidents, lessen air pollution, manage waste – the list…

The Words From Davos In 2018: Sustainability, Responsibility…And More In This, The Fourth Industrial Revolution

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

The World Economic Forum (WEF) annually convenes business leaders, government officials, celebrities and other luminaries in the Swiss village of Davos-Klosters to explore societal issues and develop or work to advance solutions to same.

This year’s convocation was staged over four days n late-January. Some of the highlights for you:

UN Sustainable Development Goals in Focus
The Government of Denmark and the WEF signed a memorandum of understanding to move ahead with a partnership to improve the state of the world through a public-private cooperation. The agreement provides a model framework that could lead to improvement over the long-term.

And, adoption of the approach by other nations. Consider what this European nation and the WEF have in mind:

  • They will pursue public-private partnership to promote green growth.
  • Develop a technology and innovation partnership.
  • Work together to encourage greater adoption of the SDGs.
  • Support the mobilization of private capital for infrastructure through the WEF-led initiative, the Sustainable Development Investment Partnership.
  • Support trade and investment through the Global Alliance for Trade Facilitation (a multi-stakeholder initiative).
  • Work to implement the WEF’s System Initiative on Education, Gender and Work.
  • Denmark will assign a Ministry of Foreign Affairs senior advisor to the WEF New York City office (a second such WEF appointment for Denmark).

Prime Minister Lars Lokke Rasmussen said: “Denmark has an ambitious agenda to promote public-private partnerships…in terms of sustainable growth, social cohesion and technological skills. We are delighted to team with WEF to create concrete progress on these agendas…to create better lives for more people and sole the urgent climate crisis. We must build bridges across sectors, borders and old divisions…”

Addressing Modern Slavery
Influentials addressed the need for coordinated global action to end modern slavery – that was championed by US Senator Bob Corker (R-Tennessee); Monique Villa, CEO of Thomson Reuters Foundation; and, Gary Haugen, CEO of the International Justice Mission.

Senator Corker drew attention to the new Global Fund to End Modern Slavery (“GFEMS”), a public-private partnership to fund programs in countries where such practices are prevalent.

The initial funding is from the United States and United Kingdom; the goal is to raise US$1.5 billion-plus and develop a global strategy to address modern slavery. (It’s estimated that as many as 40 million people now live in modern slavery conditions. This is said to be a $150 billion global business.)

There are three pillars adopted by GFEMS: (1) leverage the rule of law; (2) “energized” engagement with business sector (3) work to sustain freedom.

Jean Baderschneider is CEO of the new Global Fund. The fund’s work will be modeled on the global effort to fight AIDS, TB and malarial infections, bringing together governments, the private sector and NGOs.

Tech-Reskilling Drive Announced
The Information Technology industry is going to work to target 1 million people to offer resources (such as on-line tools) and training opportunities to “re-skill” adults to help them meet the requirements of the tech industry for employment, as well as continue their education and learn more about today’s technology.

Big names in tech are signed on: Accenture, CA Technologies, Cisco, Cognizant, Hewlett Packard Enterprise, Infosys, Pegasystems, PwC, Salesforce, SAP, and Tata Consultancy Services. The coalition is seeking more members to help develop tools and processes to address the “barriers preventing adults from re-skilling or successfully completing training, initially in the United States. There are plans to scale to other geographies.

The coalition’s “SkillSET” is hosted on the EdCas AI-powered Knowledge Cloud Platform, accessible to all.

ISO 20121:2012 Certification for Davos
The conference was awarded the ISO certification for “sustainable event planning and operation” by DNVGL (a certifying body). ISO 20121 is a framework for identifying and managing key social, economic and environmental impacts of an event.

Sustainability measures implement by the Forum included carbon compensation for all air travel by the staff, media and participants; promotion of “sustainable transport” in Davos (walk don’t ride); energy efficiency; water management; sourcing of renewable energy; reduction of waste and recycling.

Ending With A Call to Action
The 2018 Forum closed with a call to action to “globalize compassion” and “leave no one behind.” This, the 48th WEF Annual Meeting, closed on a creative note with four artists sharing visions of how painting, photography, film and dance can inspire empathy with other people’s stories.

Across all of the 400 sessions, the Davos organizers said, “…one key theme kept emerging, the need to embrace our common humanity in the face of rapid technological changes ushered in by the Fourth Industrial Revolution.”

And so the call for a spirit of inclusion, diversity and respect for human rights…this characterized the 2018 gathering, said Sharon Burrow, one of the seven female co-chairs of the meeting (she is General Secretary of the International Trade Union Confederation).

Important outcomes of the meeting included these developments, on the theme of “mending our fractured world”:

  • Preparing workers for the future.
  • Safeguarding our oceans.
  • Closing the gender gap.
  • Tackling waste and pollution.
  • Unlocking nature’s value.
  • Making meat sustainable.
  • Bridging the digital divide.
  • Fighting financial crime and modern slavery.
  • Taking on fake news.
  • Securing air travel.

And…advancing the Fourth Industrial Revolution, which includes Forum centers at work with social, public and private sector partners in numerous countries.

As Oliver Baitch writing in Ethical Corp observed, having spent four days at the conference:

“First, and foremost, sustainability is here to stay. Long gone are the denials or debates as to whether “non-financial” or “soft” issues are the preserve of global business. Themes such as citizenship-centred science, a post-oil energy matrix and tax transparency have shifted from side-room workshops to the main stage.

“Second, companies are beginning to put their money where their mouths are. Davos 2018 saw a litany of firm, measureable corporate commitments – professional services firm PwC promising to cut its carbon emissions by 40% by 2022 (having cut them by 29% since 2007) through to Coca-Cola pledging to collect and recycle the equivalent of every bottle or can it sells globally by 2030.”

You can read his summary of the 2018 confab at: http://www.ethicalcorp.com/will-sustainability-be-ceos-trays-after-davos

And, of course, there is a significant amount of related information at the WEF web site:  https://www.weforum.org/

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