Reporting and Disclosing Corporate ESG & Sustainability Results– Key Resources Roundup

By Kelly Mumford – Sustainability Reporting Analyst Intern – G&A Institute

Sustainability, Corporate Responsibility, and Environmental Social Governance (ESG) – these are some of the key buzz words circulating in capital markets’ circles that have become increasingly more important to both investors and corporate leaders as the risks of climate change to business organizations steadily increase.

We are now at the critical tipping point where it is necessary for all businesses to publicly report on and in various ways amply disclose how climate related risks — and related opportunities – and other issues such as Human Rights and Human Capital Management (HCM) might affect their business. And, to disclose what they are doing to address and mitigate such risks.

A recent institutional investor survey report by the Harvard Law School Forum on Corporate Governance that focused on ESG risk and opportunities found that investors recognize the growing risks of non-financial factors such as climate change, which is at the top of the agenda.

Climate change issues and human capital management were cited in the 2020 survey as the top sustainability topics that investors are focusing on when engaging with their boards.

Regardless of sector, all companies understand the importance of engaging with these topics. With that said, ESG and sustainability topics are playing a more concrete role in the private sector.

The good news is that there are significant resources available to help companies measure and report on sustainability and ESG, promote greater transparency, demonstrate better risk management, talk about improved performance, and in turn better promote the corporate brand value and reputation.

Such corporate disclosure and reporting have been shown to help to create higher shareholder returns and improve corporate economic performance.

With this in mind, standardized frameworks and indices are being used by corporations to provide more accurate and transparent information to their investors as well as all of their stakeholders.

However, as more diverse resources become available (examples are sustainability and responsibility frameworks, indices, and standards) there is also a need for distinctions to be made among them. To group all of these resources together would be inaccurate and misleading as each has unique advantages and distinction for both investors and corporate reporters.

Some of the key resources available in this space include: SASB, MSCI, Sustainalytics, Institutional Shareholder Services (ISS), Dow Jones Sustainability Index (the DJSI), TCFD, CDP, SDGs, and GRI.

To more easily understand their similarities and differences these can be grouped into broader categories. Such categories include: reporting standards, ESG ratings, indices, disclosure frameworks, investor surveys, and international goals. We’ll explain these in this commentary.

ABOUT CORPORATE REPORTING STANDARDS
The leading reporting standards present an effective way for companies to structure and publicly disclose “non- financial” information — such as strategies, actions, performance and outcomes for governance, environmental, and social impacts of the company. (That is, impacts affecting stakeholders, including investors.)

These important disclosures can be identified in the form of “sustainability, corporate responsibility, corporate citizenship” reporting.  Many such corporate reports explain how a company measures ESG performance, sets goals, and manages programs effectively – and then communicates their impact to stakeholders.

Reporting standards help to streamline the process of corporate reporting and allow stakeholders to better identify non-financial disclosures against widely used and accepted standards.

THE GLOBAL REPORTING INITIATIVE (GRI)
This is a long-established, independent organization (a foundation) that has helped to pioneer sustainability reporting. Since 1997 the organization has been working with the business sector and governments to help organizations (corporations, public sector and social sector organizations) communicate their impact and sustainability issues –such as climate change, human rights, governance and social well-being.

The current GRI sustainability reporting standards evolved out of four prior generations of frameworks dating to 1999-2000 (when the first reports were published, using “G1”) — and today is one of the most commonly-used with diverse multi stakeholder contributions to standards-setting.

GRI has been responsible for transforming sustainability reporting into a growing practice and today about 93% of the largest corporations report their sustainability performance using the GRI Standards.

  • Advantage of use for reporters: corporate reporting using the GRI standards helps to create consistent disclosures and facilitates engagement with stakeholders on existing and emerging sustainability issues. Further, use of GRI standards helps to create a more consistent and reliable landscape for sustainability reporting frameworks for both the reporters and their constituencies, especially including investors.

THE SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)
These more recent standards enable business leaders to identify, manage, and communicate financially-material sustainability information to investors. There are now 77 industry-specific standards (for 11 sectors) available for guidance.  These standards for an industry (and many companies are classified in more than one industry) help managers to identify the minimal set of financially-material sustainability topics and associated metrics for companies in each industry.

SASB standards help company managements to identify topics most relevant to their enterprise, and communicate sustainability data more efficiently and effectively for investors.

  • Can be used alone, with other reporting frameworks, or as part of an integrated reporting process. The G&A Institute team in assisting companies with their reporting activities use a hybrid approach, using both GRI and SASB as best practice.

 

ESG RATINGS/ DATA SUPPLIERS
A growing number of independent third-party providers have created ESG performance ratings, rankings and scores, resulting from assessment and measurements of corporate ESG performance over time against peers for investor clients. These ratings often form the basis of engagement and discussion between investors and companies on matters related to ESG performance.

There are several major ratings with varying methodology, scope, and coverage that are influencing the capital markets. Keep in mind there are numerous ESG data providers and ratings providing information to investors and stakeholders; however, for the scope of this post not all are mentioned.

INSTITUTIONAL SHAREHOLDER SERVICES (ISS) — ESG GOVERNANCE QUALITYSCORES(R)
ISS is a long-time provider of “corporate governance solutions” for institutional asset owners, their internal and external managers, and service providers. ISS provides a variety of ESG solutions for investors to implement responsible investment policies. The firm also provides climate change data and analytics and develops a Quality Score (for G, S and E) that provides research findings on corporate governance as well as social and environmental performance of publicly-traded global companies for its investor clients.

The ESG Governance QualityScore is described as a scoring and screening solution for investors to review the governance quality and risks of a publicly-traded company.

Scores are provided for the overall company and organized into four categories — covering Board Structure, Compensation, Shareholder Rights, and Audit & Risk Oversight.

Many factors are included in this score but overall the foundation of scoring begins with corporate governance, the long-time specialty of this important provider.

  • ISS Advantage: as a leading provider of corporate governance, the ISS ESG Governance QualityScore leverages this firm’s deep knowledge across key capital markets. Further, these rankings are relative to an index and region to ensure that the rankings are relevant to the market that the public company operates in.

MSCI ESG RATINGS
MSCI has a specific ESG Index Framework designed to represent the performance of the most common ESG investment approaches by leveraging ESG criteria. Indexes are organized into three categories: integration, values, and impact.

MSCI also creates corporate ESG ratings by collecting data for each company based on 37 key ESG issues. AI methodology is used to increase precision and validate data as well as alternative data to minimize reliance on voluntary disclosure.

Consider:

  • MSCI is the largest provider of ESG ratings with over 1,500 equity and fixed-income ESG Indexes. The firm provides ESG ratings for over 7,500 global companies and more than 650,000 equity and fixed-income securities (as of October 2019).
  • Advantages for investors: Focuses on intersection between a company’s core business and industry-specific issues that can create risks and opportunities. ESG ratings gives companies a rated score of AAA-to-CCC, which are relative to industry peers. Companies are rated according to their exposure to risk and how well they manage risks relative to peers. Companies are analyzed on calendar year basis and are able to respond to the profile developed for investors by MSCI analysts.

SUSTAINALYTICS
This organization rates sustainability of exchange-listed companies based on environmental, social, and corporate governance (ESG) performance. The focus is on ESG and corporate governance research and ratings.

What makes them unique: their ESG Risk Ratings are designed to help investors identify and understand material ESG risks at the security and the portfolio level.

The corporate ESG risk rating is calculated by assessing the amount of unmanaged risk for each material ESG issue that is examined. The issues are analyzed varying by industry and depending on industry, a weight is given to each ESG issue.

  • Key: The assessment focuses on most material risks, using a two-dimensional lens to assess what risks the corporation faces and how well leadership manages the identified risks. Absolute ratings enable comparability across industries and companies for investors; corporate governance ratings are integrated into the ESG risk rating, and controversy research is also considered for the risk ratings. The performance is based on both quantitative metrics and an assessment of controversial incidents, allowing for the complete picture to be demonstrated with the ESG ranking.
  • Unique point: Total ESG risk score is also presented as a percentile so it can be compared across industries. This allows for a better understanding of how the industry performs as a whole, so to better assess how well a company is performing relatively.

SOME OF THE LEADING INDICES
Indexes / benchmarks help to make capital markets more accessible, credible, and products or approaches better structured for investors. They allow for performance benchmarks to represent how equity and/or fixed-income securities are performing against peers.

Specialized ESG indices specifically have been gaining in favor over the recent years as investors become more interested in responsible / sustainable investing. This out-performance is evident in the time of the coronavirus crisis with ESG funds inflow exceeding outflow of traditional indexes. Investors see this as a sign of resilience and excellence in risk performance for ESG companies.

It is evident that ESG index funds have been outperforming key core indexes — such as the S&P 500 Index(r). (The new S&P 500 ESG Index has been outperforming the long-established sister fund.)

Also, the growing abundance of ESG data and research has helped to promote the development and embrace of corporate ESG ratings, which in turn allows for the construction of even more such indices.

Because these indexes represent the performance of securities in terms of ESG criteria relative to their peers, it helps define the ESG market and availability of sustainable investing options.

There are now numerous ESG Indices available to investors – to cover them all that would require another blog post. So, for the sake of this brief post only DJSI is mentioned, as it is one of the mostly widely-known and frequently used by global investors.

DOW JONES SUSTAINABILITY INDICES (DJSI)
This is a family of indices evaluating the sustainability performance of thousands of publicly-traded companies. DJSI tracks the ESG performance of the world’s leading companies in terms of critical economic, environmental, and social criteria. These are important benchmarks for investors who recognize that corporate sustainable practices create shareholder value. The indexes were created jointly with Dow Jones Indexes, and SAM, now a division of S&P Global Ratings (which owns the DJSI).

  • This was the first global sustainability index – created in 1999 by SAM (Sustainable Asset Management of Switzerland) and Dow Jones Indices. Today, owned and managed by S&P Global Ratings.
  • Advantage for investors: Combines the experience of an established index provider with the expertise of a sustainable investing analytics to select most sustainable companies for the indexes from across 61 industries. Calculated in price and total return disseminated in real time. This is an important benchmark for many financial institutions.
  • Selection process is based on companies’ total sustainability score from annual SAM Corporate Sustainability Assessment (the important CSA that results in the corporate profile). All industries are included, and the top 10% (for global indices, top 20% for regional indices, and top 30% for country indices) of companies per industry are selected

CORPORATE DISCLOSURE FRAMEWORKS
Disclosure frameworks are used to improve the effectiveness of financial disclosures by facilitating clear communication about certain criteria. There are long-standing frameworks such as created by the Financial Accounting Standards Board (FASB) that establish standards for U.S. corporate financial accounting.

Similarly, there is now a suggested disclosure framework related to the corporation’s financial information but that focuses on climate related risks and opportunities — the Financial Stability Boards’ “Taskforce on Climate-related Financial Disclosures” — or TCFD. (The FSB is an organization of the G20 countries; member participants are the securities and financial services administrators and central bankers of the largest economies.  The U.S. members include SEC, the Federal Reserve System and the Treasury Department.  The FSB considers future regulations that could be considered in the member countries.)

As the capital markets players interest in corporate sustainability and ESG grows, and public policy makers recognize the threat of many ESG issues to the health of their nations, it is not surprising that there would be a specific resource developed for corporate climate-related financial disclosures.

Investors have a heightened awareness of the risks that climate change issues poses to their holdings, so it is now considered to be a best practice for company managements to report and disclose on these risks and responses to address them – using among other resources the TCFD recommendations for disclosure.  Here is what you need to know:

TASKFORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES (TCFD)
Developed by the Financial Stability Board (FSB) to encourage voluntary, consistent, climate related financial disclosures that could be useful to investors. N.Y.C. Mayor/Bloomberg LP founder Michael Bloomberg serves as the chairman and founder of the task force (which has a 32-member board).

The “TCFD” recommendations for corporate disclosure are intended to help both publicly-traded companies and investors consider the risks and opportunities associated with the challenges of climate change and what constitutes effective disclosures across industries and sectors.

This approach enables users of financial information to better assess risk and helps to promote better corporate disclosure. The recommendations call for disclosure around four core areas — governance, strategy, risk management, and metrics and targets.

To keep in mind:

  • The initial recommendations applied to four financial sector organizations (bankers, insurers, asset owners, asset managers). And to four industry categories – oil & gas; food & agriculture; transport; building materials and management.
  • Advantage for companies: following the TCFD recommendations represents an opportunity for companies following the recommendations to bring climate-related financial reporting to a wider audience.

INVESTOR-FOCUSED SURVEYS – CORPORATE RESPONSES
Investor interest surveys — such as those conducted by CDP – can provide an advantage for companies in responding to disclose important ESG data and take part in the movement towards building a carbon-neutral economy.

The information provided to CDP by companies makes up the most comprehensive dataset tracking global climate progress. Investors use these volumes of data on climate change, deforestation, supply chain management and water security to inform decision-making, engage with companies, and identify risks and opportunities.

Corporate response to the annual, global surveys benefits investors and provides companies with ways to inform investor engagement strategies.

CDP
Established by investors 20 years ago as the Carbon Disclosure Project, CDP today is an organization that supports the movement of cities and companies toward greater measurement, management and disclosure of key data and information to promote a carbon neutral economy.

These data helps to manage risks and opportunities associated with climate change, water security and deforestation. More than 2,000 companies in North America and 8,000 globally disclose data through CDP.

Disclosure is key, not only for measuring impact but also for setting goals and targets that enable climate action. CDP has been at the forefront of the disclosure movement to track and measure global progress towards building a more sustainable world.

  • Advantage: reporting to CDP is advantageous because it helps companies get ahead of regulatory and policy changes, identify certain ESG risks, and find new opportunities to manage those risks in a way that is beneficial for both business — and the planet.
  • TCFD Connection: The CDP response questions have been aligned with the TCFD and a good comprehensive CDP response can provide a baseline for a majority of the necessary disclosures for TCFD.

INTERNATIONAL GOALS – THE SUSTAINABLE DEVELOPMENT GOALS (SDGS)
The United Nations Sustainable Development Goals are unique in that they are a set of widely-accepted international goals. Countries, cities, and companies all over the world and use these goals as a way to inform and inspire action on sustainable development goals. The goals are very broad in aims so it allows for parties to adapt and use the goals that are most relevant. They are non-binding and therefore their implementation depends on local government or corporate polices to be upheld.

These are a United Nations-developed plan to [among the goals] end extreme poverty, reduce inequality, and protect the planet. The SDGs succeeded the Millennium Goals (2000-to-2015) and extend collaborative and independent action out to year 2030 by public, private and social sector organizations.  The goals (17 in all with 169 underlying targets) have been adopted by 193 countries and emerged as a result of the most comprehensive multi-party negotiations in the history of the United Nations.

The SDGs focus on ways to generate impact and improve the lives of all people. The goals are related to themes such as water, energy, climate, oceans, urbanization, transport, and science and technology.

  • The SDGs are not focused on any sector or stakeholder in specific. Instead they serve as a general guidance that can be used at any level.
  • Distinctions: as one of the most widely recognized frameworks for corporate consideration, companies and stakeholders can use the Goals as a way to guide their sustainability initiatives. Many companies recognize them in corporate reports and many align certain aspects of their mission to relevant SDGs.

# # #

AUTHOR’S CONCLUSION
As asset owners and asset managers now expect – and demand – greater corporate disclosure on climate change-related topics and issues, there are numerous resources available for managers to create and inform comprehensive, compelling reports for public access.

It is up to company leaders to identify the category of resources that would best benefit them, whether that be aligning with a disclosure framework, answering a CDP survey, or using ESG ratings. Most leading companies are taking a hybrid approach and utilizing the best features of the most common frameworks to maximize the ROI of their investments in this area.  We’ve identified some of the most-utilized here but there are still many more resources available in each category depending on industry, sector, geography, nature of the business, and other factors.

While the large universe and diversity of sustainability and ESG disclosure and reporting resources might be confusing to make sense of, it is increasingly obvious that investors are relying on ESG factors when making decisions and that the importance of climate change is only growing.

The team at Governance & Accountability Institute are experts in helping corporate clients work with the frameworks, etc. profiled here.  I serve as a reporting analyst-intern at, reviewing literally dozens of corporate sustainability / ESG / citizenship – responsibility – citizenship et al reports each month.

ABOUT KELLY MUMFORD 
Kelly Mumford is a graduate of the Development Planning Unit at the University College London. She graduated with a Master’s of Science in Environment and Sustainable Development (with Merit). Her course focused on environmental planning and management in developing countries and culminated with a month of field work in Freetown, Sierra Leone. She led a group during their research on the water and sanitation practices of a coastal community in the city of Freetown. Her work in preparation for this fieldwork includes a policy brief, published by their partner research organization.

Kelly has been very active in the environmental sector and prior to this interned at Natural Resources Defense Council. She holds a Sustainability Associate Credential from the International Society of Sustainability Professionals and has been an active member of the organization, planning and executing a successful N.Y.C. chapter’s whale watching event. She holds a B.A. in Environmental Studies and a minor in Spanish studies from the University of Delaware. She plans to pursue a career in sustainability, focusing on ESG and leveraging her research experience and knowledge of sustainability reporting.

ADDITIONAL RESOURCES

Will We Ever See SEC Rules / Guidance For Corporate ESG Disclosure and Reporting? The Question Hangs in the Wind…

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

People have questions about corporate sustainability / ESG / responsibility / citizenship disclosure and reporting.  Such reporting has been on a hockey stick rise in recent years.

Should ESG/sustainability etc reporting be regulated?  How? What would be regulated in terms of disclosure and reporting – what should the guidelines for corporate issuers be?  Does this topic become a more important part of the SEC’s ongoing Reg S-K (disclosure) revamping? What information do investors want?  What do companies want to have covered by regulation?  Many questions!

Some answers are coming in the European Union for both issuers and investors with new and proposed regulations.

And in the main will have to come in the U.S.A. from the Securities & Exchange Commission — at some point.

SEC was created with the adoption of the Securities Exchange Act of 1934.  The agency was specifically created by the U.S. Congress to oversee behaviors in the securities and markets and the conduct of financial professionals.

Publicly-traded company reporting oversight is also an important part of the SEC mission. The 1933 and 1934 acts and other subsequent legislation (all providing statutory authority for rulemaking and oversight) provide the essential framework for SEC to do its work.

As Investopedia explains for us, the purpose of the 1934 act is “to ensure an environment of fairness and investor confidence.”  The ’34 act gave SEC broad authority to regulate all aspects of the securities industry and to enforce corporate reporting by companies with more than US$10 million in assets and shares held by 500 or more shareowners.

An important part of the ongoing SEC’s mission, we should say here, is to protect investors and be open to suggestions “from the protected” to improve the complicated regimes that guide corporate disclosure. So that investors have the information they need to make buy-sell-hold decisions.  Which brings us to S-K.

In recent months, the SEC staff has been working on the steps to reform and updates segments of Reg S-K and has been receiving many communications from investors to suggest reforms, updates, expansion of, corporate disclosure.  (Details are below in the news release from SEC in 2019. The SEC proposed rule changes, still in debate, are intended to “update rules” and “improve disclosures” for investors and “simplify compliance efforts for companies”.)

Regulation S-K provides standard instruction for filing forms required under the 1933 and 1934 acts and the Energy Policy and Conservation Act of 1975.

Especially important in the ongoing initiative to update Reg S-K, we believe:  the setting out for SEC staff and commissioners of facts and perspectives so that serious consideration is given to the dramatic sea changes in (1) the growth of sustainable investing and the related information needs; (2)  and, the vigorous corporate response, particularly in the form of substantial sustainability / ESG reports issued.

Most of the corporate reports published in recent years have been focused on the recommended disclosures as advanced by popular frameworks and widely-recognized reporting standards (such as those of GRI, SASB, CDP, TCFD, et al).

Will we see SEC action on S-K rules reform that will draw applause from the sustainable investors? Now, we point out, including such mainstream players as BlackRock, State Street and Vanguard Funds, to name but a few owners found in almost every corporate top holder list.

Ah, Depends.  Political winds have driven changes in rules at SEC. Then again, it is an election year.  (To be kept in mind:  There are five SEC commission members; two are appointed and confirmed Democrats, two are Republicans – and the chair is nominated by the president…right now, a Republican holds that position.)

Investor input is and should be an important part of SEC rule making. (All of the steps taken by the Commission to address such items as corporate disclosure and reporting in adopting or amending the rules have to follow the various statutes passed by the congress related to the issue.  Investor and stakeholder input is an important part of the approach to rule-making.  Sustainable investing advocates have been making their views abundantly clear in this initiative to update Reg S-K.)

The SEC Investor Advisory Committee formally makes recommendations to the agency to help staff and commissioners be aware of investor sentiment and help to guide the process through the advice provided.

Recently the committee voted to make recommendations to the SEC on three topics: (1) accounting and financial disclosure; (2) disclosure effectiveness; and, (3) ESG disclosure.

The committee said they decided that after 50 years of discussion on ESG disclosure it is time to make a move, now that ESG / sustainability are recognizably important factors in investing.  Given the current political environment in Washington, there probably won’t be much movement at SEC on the issue, many experts agree.

But the marker has been strongly set down in the committee’s recent report, one of numerous markers set down by sustainable investment champions.  

Commissioner Hester M. Pierce addressed the Investor Advisory Committee, and shared her perspectives on ESG reporting.  “The ambiguity has made the ESG debate a difficult one…”  She thinks “the call to develop a new ESG reporting regime…may not be helpful right now…”  (She is a Republican nominee, a lawyer in academia.)

We have included her comments in the selection of four Top Stories for you.  Another of the items – the comments of SEC Chair Jay Clayton along the same lines about ambiguity and confusion of ratings etc. (he is also a Republican appointee).

To which sustainable investing proponents might say – if not now, when, SEC commissioners!

While the conversation may at times be focused on “what do investors want,” there is also wide agreement among corporate boards and executives that guidance and standardization in corporate ESG / sustainability et al reporting would be very helpful.

With the current comments of the leadership of SEC we are not quite there yet.

Interesting footnote:  The October 1929 stock market crash helped to plunge the nation into the Great Depression.  The 1932 presidential elections resulted in New York Governor Franklin Delano Roosevelt (a Democrat) moving to the White House in March 1933 and swiftly taking action to address important public policy issues.  He brought him his “brains trust”, experts in various public policy issues that helped to create sweeping reforms and creation of powerful regulatory agencies — such as the SEC.

The story goes that there was so much to do that the financial markets and corporate oversight legislation had to be divided into two congressional sessions – in 1933 and 1934 (the congress met for shorter periods in those days – the members were part-timers).  Thus, the Securities Act of 1933 and the 1934 act.

Regulation overall was then and today is a very complicated topic!

Top Stories

SEC’s Investor Advisory Committee Makes Disclosure Recommendations  (Source: Cooley PubCo)

SEC Chair Warns of Risks Tied to ESG Ratings 
(Source:  Financial Times)

In addition, see:

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

Company in the CSR Reporting Spotlight: Salesforce

By Julia Nehring – Report Analyst-Researcher, G&A Institute

In recent months I have been analyzing many dozens of corporate sustainability, responsibility, stewardship, corporate citizenship, and similarly-titled public reports. Many of these are published by very prominent names with well-known brands attached to the corporate name.

For example, you probably know of Salesforce. As many technology companies have done, the enterprise began humbly in a small West Coast residence in 1999, when several entrepreneurs attempted to re-imagine how businesses could utilize computer software.

Today, the company offers a variety of sales, marketing, analytics, and other business services to its 150,000+ clients, which include startups, nonprofits, governments, large corporations, and anything in-between.

Measuring success, between 2017 and 2019 alone, Salesforce’s employee base increased 44 percent and its billions of dollars’ in revenue increased by 58%.

During this period of significant growth, Salesforce has impressively been lauded as a best workplace for diversity, a best workplace for women, and a best workplace overall, among numerous other types of accolades.

The Company’s Reporting Practices

Salesforce discusses these and a range of other accomplishments in its FY19 Stakeholder Impact Report. However, I am not commenting here to heap praise on Salesforce.

Using my lens as a CSR analyst-intern, I will attempt to highlight several reporting frameworks and concepts Salesforce has chosen to use in its most recent report that provide both transparency and promotional value for the company’s practices and accomplishments.

I also offer my own comments and ideas that come from learning about different reporting guidelines from different agencies, as well as reviewing many dozens of corporate CSR reports as a GRI report analyst.

Clicking on any of the links below will take you to G&A resources mentioned about the topic.

ESG Reporting Frameworks

By far the most commonly-used framework worldwide by companies in G&A’s research is the Global Reporting Initiative (GRI). Salesforce includes multiple references to this framework (formally, the GRI Standards) in its content index. (Best practice: including a content index in your company’s report to help users find information quickly.)

However, the report was not prepared “in accordance” with the GRI Standards. Instead, Salesforce opted to reference only certain disclosures and metrics of the GRI framework, as they apparently deemed applicable internally.

The apparent rationale? Since each framework identified in the report — including the GRI Standards, the Task Force on Financial-related Disclosures (TCFD), and the Sustainability Accounting Standards Board (SASB) — define materiality in different ways, Salesforce did “not attempt to formally reconcile the divergent uses of the term materiality”.

In other words, instead of providing a more complete set of disclosures for one of the frameworks, the company opted to in effect dabble in each.

Along with its GRI references, the report includes some SASB references in the content index, and (positively) mentions its support of and use of the TCFD in conducting a climate-related scenario analysis.

I think investors may find this confusing. While Salesforce is ahead of the majority of companies who do not currently acknowledge SASB or TCFD at all, it is difficult for the report reader to discern which disclosures from each framework have been excluded. This does not help to paint a full picture for the reader.

It appears the company does acknowledge this, as it states that, “Over time we will work to expand our disclosures and align more closely to the leading frameworks, even as the frameworks themselves rapidly evolve.” A good practice, I think.

United Nations Sustainable Development Goals (SDGs)

Salesforce is a supporter of the United Nations Sustainable Development Goals (the 17 SDGs). In its report, Salesforce lists 12 SDGs that the company closely aligns with.

However, the company does not explicitly state how each SDG aligns with a particular action or initiative. Providing this level of detail — common practice among companies that discuss SDGs in their reports — Salesforce could show the reader that these are not merely ideals for the company, but that in fact Salesforce is actually taking actions in regards to each stated goal.

Regarding External Review

Ernst & Young was retained to review and provide limited assurance for select sustainability metrics in Salesforce’s report.

The items reviewed cover Salesforce’s reported GHG emissions, energy procured from renewable resources, and carbon credits. A limited level of assurance and review of only GHG data or specified sections is very commonly seen in CSR reports.

The companies that tend to stand out among their peers in our wide and deep research of corporate disclosure are those that have decided (strategically) to obtain reasonable/high assurance, or opt to have the entire report reviewed by credible third party auditors.

Salesforce’s awards and growth speak for themselves — the company is undoubtedly providing great value to its clients and doing so in a way that people admire.

While its Stakeholder Impact report overall does an excellent job at showcasing the company’s progress, in my comments here I covered the above areas to encourage and provoke thoughts of striving for even greater completeness and reader comprehension.

Not just for Salesforce, but for public companies in general with Saleforce’s report as one example.

Epilogue: Why did I decide to review Salesforce?

During my time as an analyst-intern for G&A Institute, my intern colleagues and I analyzed dozens upon dozens of CSR reports in depth over the months, many of which are reports of The Business Roundtable (BRT) companies.

Many BRT CEO members signed on to the re-stated “corporate purpose” statement last summer and we researched the companies’ sustainability / responsibility track records and public disclosure practices.

In our research, we found that:

  • Twenty-nine (29) BRT companies had upward trends for all Yahoo! platform’s sharing of Sustainalytics scores (including those for environment, social, and governance) since 2017.
  • Of these 29, five had CEOs that were identified on the Harvard Business Review’s Top 100 CEOs list
  • Of these five, Salesforce was the only company whose Carbon Disclosure Project (CDP) score rose between 2017 – 2018 (from “B” to”A” score)

So, while I certainly do enjoy using Salesforce’s tools at my job, it had no bearing on my decision to analyze the company’s CSR report for this project. The company’s growth in spite of (or because of) its commitment to people and planet is very exciting to see.

I hope that my analysis is helpful to Salesforce and other companies that may be following this corporate responsibility leader’s sustainability journey.

* * * * * * * *

Since her internship as a report analyst, Julie Nehring joined G&A as a Sustainability Analyst. She continues her research role as a member of the G&A team. She pursued an MBA at the University of Illinois in Urbana-Champaign and interned at the Caterpillar Inc Data Innovation Lab. Julie previously worked for several years as a project manager for a national environmental consulting firm and for a year as an AmeriCorps volunteer. As the president of her university’s Net Impact chapter, she enjoyed helping colleagues and classmates get involved and volunteer in the community.

Note the views and opinions expressed here are those of the author and do not necessarily reflect the views or position of Governance & Accountability Institute regarding the company.

Getting Serious About SASB: Company Boards, Execs and Their Investors Are Tuning In. What About Accounting Firms?

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

February 26, 2020

The importance of the work over the recent years of the Sustainable Accounting Standards Board in developing industry-specific ESG disclosure recommendations was underscored with the recent letters to company leadership from two of the world’s leading asset management firms.

Corporate boards and/or executive teams received two important letters in January that included strong advice about their (portfolio companies’) SASB disclosures. 

BlackRock CEO Larry Fink explained to corporate CEOs his annual letter:  “We are on the edge of a fundamental reshaping of finance. Important progress in improving disclosure has been made – many companies already do an exemplary job of integrating and reporting on sustainability but we need to achieve more widespread and standardized adoption.” 

While no framework is perfect, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics. 

In 2020, BlackRock is asking companies that the firm invests in on behalf of clients to publish a disclosure in line with industry-specific SASB guidelines by year end (and disclose a similar set of data in line with the TCFD’s recommendations). 

In a thought paper, BlackRock explained that disclosures intended for investors need to focus on financially material and business relevant metrics and include supporting narratives. The recommendations of the TCFD and the SASB (standards) are the benchmark frameworks for a company to disclose its approach to climate-related risks and the transition to a lower carbon economy.

Absent such robust disclosure, investors could assume that companies are not adequately managing their risk. Not the right message to send to current and prospective investors in the corporation, we would say.

State Street Sends Strong Signals

Separately, State Street Global Advisors (SSgA) CEO Cyrus Taraporevala in his 2020 letter to corporate board members explained:  “We believe that addressing material ESG issues is a good business practice and essential to a company’s long-term financial performance – a matter of value, not values.” 

The asset management firm [one of the world’s largest] uses its “R-Factor” (R=“responsibility”) to score the performance of a company’s business operations and governance as it relates to financially material and sector-specific ESG issues.

The CEO’s letter continued:  The ESG data is drawn from four leading service providers and leverages the SASB materiality framework to generate unique scores for 6,000+ companies’ performance against regional and global industry peers. “We believe that a company’s ESG score will soon effectively be as important as it credit rating.”

The Sustainable Accounting Standards Board

About SASB’s continuing progress:  Recommendations for corporate disclosure centered on materiality of issues & topics were fully developed in a multi-party process (“codified”) concluding in November 2018 for 77 industry categories in 11 sectors by a multi-party process.

The recommendations are now increasingly being used by public companies and investors as important frameworks for enhanced corporate disclosure related to ESG risks and opportunities. 

To keep in mind: A company may be identified in several sectors and each of these should be seriously considered in developing the voluntary disclosures (data sets, accompanying narrative for context).

Bloomberg LP (the company headed by Mayor Michael Bloomberg, now a presidential candidate seeking the Democratic nomination) is a private company but publishes a SASB Disclosure report. (Bloomberg is the chair of SASB as well as the leader of his financial information firm.)

The company published “robust” metrics using the SASB on three industry categories for 2018: Internet & Media Services; Media & Entertainment; Professional & Commercial Services.

Bloomberg LP is privately-owned; this was an example for public company managements. The report explained:

“The nature of our business directs us to consult three industries (above). We provide a distinct table for each…containing topics we have identified as material and against which we are able to report as a private company. Quantitative data is followed by narrative information that contextualizes the data table and is responsive to qualitative metrics.”

Solid advice for company boards and executives beginning the expansion of disclosure using the SASB.

SASB Guidance

SASB provides a Materiality Map for each sector (SASB uses its SICS® – The Sustainability Industry Classification System) and provides a Standards Navigator for users. There is also an Engagement Guide for investors to consider when engaging with corporates; and, an Implementation Guide for companies (explaining issues and SASB approaches).

The fundamental tenets of SASB’s approach is set out in its Conceptual Framework: Disclosures should be Evidence-based; Industry-specific; Market-informed.  The recommended metrics for corporate disclosure include fair representation, being useful and applicable (for investors), comparable, complete, verifiable, aligned, neutral, distributive.

Accounting and Audit Professionals Advised: Tune In to SASB

Separate of the BlackRock and SSgA advice to companies and investors, accounting and auditing professionals working with their corporate clients are being urged to “tune in” to SASB.

Former board member of the Financial Accounting Standards Board (“FASB”) Marc Siegel shared his thoughts with the New York State Society of CPAs in presenting: “SASB: Overview, Trends in Adoption, Case Studies & SDG Integration”.  The Compliance Week coverage is our Top Story in the newsletter this week.

Marc Siegel is a Partner in E&Y’s Financial Accounting Advisory Service practice, served a decade on the FASB board (managers and shapers of GAAP) and was appointed to the SASB board in January 2019.

He was in the past a leader at RiskMetrics Group and CFRA, both acquired by MSCI, and is recognized as a thought leader in financial services – his views on SASB will be closely followed.

With the growing recognition of the importance of SASB recommendation for disclosure to companies and the importance of SASB’s work for investors, he encouraged the gathered accountants to get involved and assist in implementing controls over ESG data, suggesting that SASB standards are a cost-effective way for companies to begin responding to investor queries because they are industry-specific. 

Accountants, he advised, can help clients by putting systems in place to collect and control the data and CPA firms can use SASB standards as criteria to help companies that are seeking assurance for their expanding sustainability reporting.

This is an important call to action for accounting professionals, helping to generate broader awareness of the SASB standards for those working with publicly-traded companies and for internal financial executives.

The G&A Institute team has been working with corporate clients in recent years in developing greater understanding of the SASB concepts and approaches for industry-specific sustainability disclosure and helping clients to incorporate SASB standards in their corporate reports. 

We’ve also been closely tracking the inclusion of references to “SASB” and inclusion of SASB metrics by public companies in their reporting as part of our GRI Data Partner work. ‘

The G&A Institute analyst teams examine and assess every sustainability report published in the USA and have tracked trends related to how companies are integrating SASB disclosures into their reporting. 

What began as a trickle of SASB mentions in corporate reports several years ago is now increasing and we are capturing samples of such inclusions in our report monitoring and analysis.

Over the past four+ years we’ve developed comprehensive models and methodologies to assist our corporate client teams incorporating SASB disclosures in their public-facing documents (such as their sustainability / responsibility / citizenship reports, in Proxy Statements, for investor presentations and in other implementations).

Our co-founder and EVP Louis Coppola was among the first in the world (“early birds”) to be certified and obtain the SASB CSA Level I credential in 2015.

If you’d like to discuss SASB reporting for your company and how we can help please contact us at info@ga-institute.com

There’s information for you about our related services on the G&A Institute web site: https://www.ga-institute.com/services/sustainability-esg-consulting/sasb-reporting.html

Top Story

Benefits of sustainability reporting: takeaways for accounting 
Source: Compliance Week – According to former Financial Accounting Standards Board (FASB) member Marc Siegel, companies are being asked for sustainability information from many sides and are facing a bumpy road because they are under pressure due to pervasive… 

NASDAQ Exchange Publishes the “ESG Reporting Guide” for Corporate Managements and Boards

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

There is encouraging news for sustainability professionals coming from the world of stock exchanges this month.  The NASDAQ Exchange just published its guide for listed companies – as well for privately-owned firms as perhaps future IPOs for NASDAQ listing – for companies’ public ESG reporting. 

This is the ESG Reporting Guide – A Voluntary Support Program for Companies”.

The pilot program for the guide effort got underway with NASDAQ’s Nordic and Baltic markets in 2017; the May 2019 guide includes third party reporting methodologies for company leaders’ education. 

The recommendations are “completely voluntary” for companies, the exchange emphasizes. Evan Harvey is the Global Head of Sustainability for NASDAQ and key player in development of the guide.

As the corporate ESG reporting pace continues to increase in both volume and velocity, company boards and managements do need more guidance on evolving ESG / sustainability standards and frameworks that could be used [for their increased disclosure and structured reports such as those published annually or periodically for their investors]. 

These frameworks, NASDAQ explains, include the Global Reporting Initiative Standards, (GRI); the standards of the Sustainable Accounting Standards Board (SASB) for 79 industries; the TCFD recommendations (the work of the FSB’s Task Force on Climate-Related for Financial Disclosures); and (as example) the guidance and frameworks for industry reporting such as GRESB for the real estate industry. Note: G&A Institute is the Data Partner for the GRI in the U.S.A., U.K. and Republic of Ireland.

The NASDAQ guide developed along the lines of such ESG / sustainability reporting “being voluntary” by private sector companies underscores that we are yet not quite at the “order to publish” from the United States stock exchanges.

Halfway ‘round the world, the Hong Kong and Singapore stock exchanges set the pace with such listed company rules.  In Hong Kong, listed companies must “comply or explain” for their ESG reporting; in Singapore, the rule is to publish the annual corporate sustainability report after 1/1/17 – also on comply or explain basis.

And in Europe, companies larger than certain market caps and employee counts must report on their CR activities; (“The European Directive of Non-Financial and Diversity Information by Certain Large Companies”, part of the EU’s Initiative of CSR.)

Getting to a “listed rule requirement” that exchange-listed companies must publish an annual or more frequent corporate sustainability report is a heavy lift in the U.S. capital markets, which typically reflect the direction of the political winds in Washington D.C. and the opinions within the corporate community. (Such as: this type of reporting means more work and expense.)

Right now, the chair of the SEC – the regulator of both the stock exchanges and publicly-traded companies – is a Republican and two other members of the five-member Commission are “Rs”.  Their party’s leader in the White House is busily dismantling environmental protection and other rules and pulling the U.S. out of the historic Paris Agreement on climate change.

Background:  The regulatory activities of the stock exchanges based in the United States are governed by statutes passed by the U.S. Congress (such as the Securities Act of 1933 and Exchange Act of 1934) and the stock exchanges therefore by federal law are designated as non-governmental “self-regulating organizations” or SROs. 

As SROs, the New York Stock Exchange and NASDAQ Exchange have certain authority to establish rules and regulations and set standards for companies (“issuers”) whose stock is listed for trading on their exchange.  Of course, the views of the listed company leaders and other stakeholders are considered when rules are being developed.

Proposed listing company or brokerage (“member”) rules are filed with the Securities & Exchange Commission (created by that 1934 law) to oversee and regulate certain activities. And so, the proposed rules for listed companies, brokerage firms and other entities are filed with SEC and public comment invited before SEC approval and then the exchange’s official adoption of the Rule.  

A recent NASDAQ SEC filing example is: “Notice of Filing of Proposed Rule to Adopt Additional Requirements for Listings in Connection with an Offering Under Regulation A of the Securities Act” in April 2019.

Should the U.S. exchanges adopt rules requiring corporate ESG reporting?  Could they?  Will they? Will SEC review and approve such rules for exchange-listed firms?  These are important questions for our times.  Of course, many people are “Staying Tuned!”

An important P.S.: The 1934 Act also ordered publicly traded companies to file annual and other periodic reports.  In the 1970s, the NYSE listing rules required listed companies to begin publishing quarterly reports; some of the listed companies reacted with great alarm. 

But shortly afterward the SEC made this a requirement for all listed companies. And so the familiar 10-K, 10-Q etc.  This extends to non-US companies raising capital in the U.S. such as listing their securities on an American exchange.

Note from Hank Boerner: This writer once served as the NYSE’s head of communications and as the Exchange’s advisor to listed company investor relations, corporate secretaries and corporate communicators on things like timely disclosure and related topics.

Our announcement of [new] listed company rules calling for quarterly corporate reporting and other reforms was quickly greeted by many more jeers than welcoming cheers! But today, quarterly reporting is a settled matter. One day, we may see the same for corporate sustainability reporting.

Click here to find out more about Hong Kong and Singapore exchange rules.

NASDAQ, NYSE, Hong Kong, Singapore – all are participating in the World Federation of Stock Exchanges (WFE) Principles to exert leadership in promoting a sustainable finance agenda. Those principles are explained in the report here.

This Week’s Top Stories

Nasdaq Launches Global Environmental, Social And Governance (ESG) Reporting Guide For Companies
(Thursday – May 23, 2019) Source: NASDAQ – Nasdaq (Nasdaq: NDAQ) has announced the launch of its new global environmental, social and governance (ESG) reporting guide to support public and private companies. The 2019 ESG Reporting Guide includes the latest… 

More information is available at: https://business.nasdaq.com/esg-guide

4th in Series: The Food Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

By Jessica Caron –  G&A Institute Sustainability Report Analyst Intern

A comparison of the SASB Meat, Poultry & Dairy Standard — which is designed for use by companies involved in the raising, slaughtering, processing and packaging of animal food product — to the GRI Standards must start with the observation that the GRI Standards are general and not industry-specific, asking about topics that apply to most business organizations (such as employee benefits).

The SASB industry standards focus on industry-specific ESG information — such as animal welfare.

The GRI Standards also, in being of value in generating a general portrait of any type of organization, suggest disclosure of a wide range of basic information — such as legal form and markets served as well as significant amounts of content with information directly related to corporate ESG strategies and performance.

The only basic information SASB Standards suggest in the category is information about the number of processing and manufacturing facilities, amount of animal protein produced by category, and percentage of animal protein production that is outsourced.

We should keep in mind SASB is investor-focused, and GRI is stakeholder focused (of course, including investors). And so the information suggested for disclosure by the reporter (the company disclosing) has different end users in mind when using either or both of the standards for corporate reporting.

The GRI Sector Disclosure:

The SASB suggested industry standards are more similar to the Sector Disclosures from the GRI G4, the predecessor of the GRI Standards. Each Sector Disclosure consists of additional disclosures and guidance for answering general GRI disclosures tailored to a certain industry, and thus attains the level of industry focus that the SASB standards have.

The GRI Sector Disclosure most similar to the SASB Meat, Poultry, and Dairy Standard is the Food Processing Sector Disclosure, which is designed for food processing companies rather than farmers, but including questions about a company’s supply chain, which does include farmers. The G4 Food Processing Sector Disclosure is discussed in more detail at the end of this commentary.

Being Prepared for Reporting:

In general, my advice is that corporate reporters should be prepared for using the GRI Standards to disclose much more information than the SASB Standards suggest.

For example, the GRI Standards by design suggest that a company should expect to report on every material ESG issue that affects the company, and the reporting in accordance with “Comprehensive” level reporting option prescribes a management approach (DMA) for every risk, opportunity, and topic mentioned in the issuer’s report. In comparison, SASB suggest a well-defined and narrower set of [material] data and suggests management approaches for just a few topics, such as water management risk.

Other Differences to Note:

The GRI Standards Disclosures have an entire section on economic issues; the SASB Standard does not. These issues are focused on the economic value generated, financial assistance received from the government, and benefit plan contributions. The GRI Standards also ask about anti-corruption practices and anti-competitive behavior (in the “Society” subcategory), which the SASB Standard does not.

The GRI Standards suggest more detailed information in general than the SASB Standard on environmental topics, but the SASB Standard’s suggested disclosures are at times more specific and are on the whole more industry-specific. The main environmental topics both standards deal with are energy, water, greenhouse gas (GHG) emissions, waste, and biodiversity.

The GRI Standards suggest information on an organization’s energy consumption, energy intensity, and reduction in energy consumption and requirements — in addition to the suggestion that at least one or all, depending on individual company’s materiality assessments, of the ESG issues — be discussed and a management plan provided for it. including energy issues.

In contrast, the only energy information the SASB standard asks for is how much total energy is consumed, and suggests a breakdown of that energy by grid electricity and renewable energy (where the GRI Standards do not).

Overlaps and Differences – E/Environmental:

The water disclosures for GRI and SASB do overlap a great deal – SASB even suggests discussion of water-related risks and management approaches; notably, use of the SASB Standards suggests companies to report water specific non-compliance incidents where GRI Standards has a disclosure which asks for the companies approach for environmental compliance overall.

In terms of the other three topics, SASB only suggests disclosure of Scope 1 GHG emissions, of the amount of animal waste generated, and of the percentage of pasture and grazing land managed to Natural Resources Conservation Service (NRCS) conservation plan criteria in the biodiversity section.

GRI suggests much more information for all three of these topics (because the GRI Standards are general, they ask about waste only in general terms, but they do suggest disclosure of types of waste generated).

However, SASB suggests disclosure of management approaches for GHG emissions and waste management, whereas GRI suggests disclosure of management approach for each GRI topic considered to be material to the company. The NRCS conservation plan can also be considered as part of a management approach.

Using the GRI Standards For Reporting – More Detailed

GRI is more detailed – by far – than SASB in its suggested disclosures related to employees and their human rights; GRI Standards ask about benefits, labor-management relations, training and education, gender pay equality, diversity and equal opportunity, non-discrimination, forced or compulsory labor, human rights training for security personnel, and grievance mechanisms in addition to employee health and safety — which is the only employee-related topic mentioned in SASB Standards.

SASB Standards, do, however, suggest a description of how respiratory health conditions (a problem in animal feedlots) are managed and prevented, an issue which is much more industry-specific and not specifically mentioned even in the GRI G4 Food Processing Sector Disclosures.

GRI also asks many questions about a company’s product responsibility and impact on society, whereas SASB does not.

Addressing “S” — Social Issues

The social issues GRI Standards ask about are indigenous rights (in the “Human Rights” subcategory); contributions to and effects on local communities; anti-corruption, anti-competitive behavior; consumer privacy and health and safety; compliance; marketing, labeling; and, grievance mechanisms for effects on society. SASB Standards focus on food safety. (Note that the GRI Standards suggests a discussion of markets that ban imports of the company’s products, which is often a food safety issue for the meat, poultry, and dairy industry. SASB Standards address this under the “Food Safety” section; other food safety topics are covered in the G4 Sector Disclosures.)

About Supply Chain Content

Both GRI and SASB Standards address disclosures on supply chain information — the information suggested by SASB Standards specifically address biodiversity, animal welfare, water stress, and climate change resilience in the meat, poultry and dairy supply chain (including discussion of plans to manage climate change risks and opportunities in the supply chain). These are of course all very important issues in the meat, poultry and dairy sector.

GRI in comparison suggests more general information about screening for environmental and social issues and local suppliers. (The Sector Disclosures address in general terms, supplier compliance with sourcing policies and international standards.)

The G4 Food Processing Sector Disclosures — which are the closest equivalent to the SASB Meat, Poultry & Dairy standards — suggest additional information in many sub-categories, such as product safety, and additional guidance for many aspects. (For example, it is noted that financial assistance from government may marginalize small-scale producers and have negative impacts on public health.)

The GRI Sector Disclosures also add information on sourcing practices to the procurement practices section (as discussed in the previous paragraph) and two new sections in the “Society” subcategory, on healthy and affordable food (which SASB does not mention) and animal welfare.

The GRI Sector Disclosures’ food safety questions relate to markets that ban the company’s products and the percentage of food manufactured in facilities accredited by a third party for food safety. SASB has more questions, including about recalls, and does ask about one third-party certification system, the Global Food Safety Initiative (GFSI).

Focus on Food Issues

The GRI Sector Disclosures also have sections on nutrition — specifically, on fortified foods and food reduced in saturated and trans fats, sodium, and added sugars – and marketing and labeling, especially marketing to vulnerable groups like children and pregnant women.

The SASB Standard does not address these issues. However, other than dairy products, most animal-based foods are not fortified with nutrients or reduced in fat, sodium, or sugar, perhaps making the GRI Sector Disclosures in this area of little relevance to the meat, poultry and dairy industry specifically.

In conclusion, I see the SASB Standard and the GRI Standards + G4 Food Processing Sector Disclosure each covering most of the environmental, social, and governance (ESG) topics relevant to the livestock industry, and together, the GRI and SASB standards fill in each other’s gaps to create a more complete ESG profile for any given company in the industry/sector.

Because some pieces of information are in differently-named categories across the standards, responding in the corporate reporting process to both standards does take a little extra work — but is very much possible and I think beneficial to do if the company seeks to be a sustainability leader in the industry (or industries) in which it operates.

Note:  This commentary is part of a series sharing the perspectives of G&A Institute’s Analyst-Interns as they examine literally thousands of corporate sustainability / responsibility reports.  Click the links below to read the first post in the series which includes explanations and the series introduction as well as the other posts in the series:

1st in Series: The Software / IT Services Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

2nd in Series: The Agriculture Products Industry — GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

3rd in Series: The Electric Utilities & Power Generators Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

3rd in Series: The Electric Utilities & Power Generators Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

By Jess Peete – G&A Institute Sustainability Report Analyst Intern

It is often the case that many us may not give our monthly energy utility company a second thought — unless there is an issue with the power going out or the bill is too high.

However, for those of us working in the sustainability field, the Energy Utilities Industry is one of the most important industries to consider, regardless of where we live or do business.

This industry’s companies power our homes, power our businesses, and in so many ways power our modern lives.

Traditionally, the energy utilities & power generators industry relied on oil and coal to generate supply for the power grid. This historic reliance on fossil fuels has more recently become a major issue in focus for investors, and society, as the effects of climate change continue to grow and the impact of burning fossil fuels for energy become more apparent.

Because of these effects on the environment and atmosphere, the Energy Utilities and Power Generators sector is today considered “high impact”.

Key sustainability reporting frameworks – including the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) — have sector-specific reporting standards (GRI has supplemental guidance that goes beyond their regular reporting requirements in order to more accurately measure the societal impact of the industry.)

Similarities and Differences in Standards

I’ve found that there is a great deal of similarity in the GRI Sector Supplements and SASB Industry standards for the Energy Utilities and Power Generation industry — but there are distinct differences as well.

The sector supplements only exist for GRI-G4, however, it is still advised for reporting organizations to now use the GRI Standards and incorporate the sector-specific disclosures from the GRI-G4 energy sector supplement to establish a more thorough industry-specific review of the total impact of the energy utilities sector.

The SASB Standards

SASB defines the materiality for the Energy Utilities sector reporting to include the following topics:

ENVIRONMENT

  • Greenhouse Gas Emissions & Energy Resource Planning
  • Air Quality
  • Water Management
  • Coal Ash Management

SOCIAL CAPITAL

  • Community Impacts of Project Siting

HUMAN CAPITAL

  • Workforce Health & Safety

BUSINESS MODEL AND INNOVATION

  • End-Use Efficiency & Demand

LEADERSHIP AND GOVERNANCE

  • Nuclear Safety & Emergency Management
  • Grid Resiliency
  • Management of the Legal & Regulatory Environment

Overall, the SASB standards appear to me to be quite comprehensive for a company to follow for their reporting — and would require reporting for many aspects of the electric power grid, including overall energy supply chain impacts.

For instance, SASB requires a calculation of Greenhouse Gases (GHG) emitted related to operations — but also requires a qualitative reporting of management-level planning to reduce the GHG emissions (emitted both from the company and its customers).

SASB addresses this in terms of recommending corporate reporting on negative environmental impacts — such things as coal ash and potential hazards such as posed by nuclear plants.

The GRI Standards

There appears to be little to no mention of coal ash storage in the GRI Standards — unless a company chooses to include coal ash as effluence.

This type of reporting could also be included in a company’s disclosure of their management approach (DMA) in the GRI Standards Report.

One area where the GRI standards seems to have a stronger “urging” for corporate reporting is the Sector impact on water, which is incredibly important because the energy utilities sector is one of the biggest users of water (usually required for cooling).

GRI Standards, in this case, appear to take a more holistic approach to water consumption (measuring total stress) while SASB only requires reporting the water impact from high stress areas.

Conclusion:

Because of the high impact that energy production and distribution have on climate, local communities, and the economy, companies in the Sector using both the GRI Standards and GRI G4 Energy Supplement alongside the SASB Energy Utilities Sector Supplement will be able to create a sustainability report that measures the true impact and costs of operations.

Measuring and managing these material E&S issues can help to provide both companies and investors in the sector a better understanding of their businesses, and a clear pathway to keeping consumer costs low while shifting to an energy portfolio that is one more based on sustainable energy.

Note:  This commentary is part of a series sharing the perspectives of G&A Institute’s Analyst-Interns as they examine literally thousands of corporate sustainability / responsibility reports.  Click the links below to read the first post in the series which includes explanations and the series introduction as well as the other posts in the series:

1st in Series: The Software / IT Services Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

2nd in Series: The Agriculture Products Industry — GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

4th in Series: The Food Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

2nd in Series: The Agriculture Products Industry — GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

By Emilie Ho – G&A Institute Sustainability Report Analyst Intern

During my analysis, I found that although many of the material disclosures that the SASB Standards suggest for disclosure by the Agriculture Products Industry are in line with the GRI’s Topic Disclosures, there are also a number of material topics that SASB advances for disclosure that do not have a related disclosure under the GRI Standards.

Interestingly, some of the material disclosures that do share overlap also have differences in what the two reporting frameworks suggest companies include in their sustainability reports. (Note that in the United States, use of both standards is voluntary for corporations.)

This commentary will explore some of these similarities and gaps between SASB and GRI to help corporate reporters better understand how these standards can be utilized for a company in the Agriculture Products Industry to report their environmental, social, and economic impacts more effectively.

At first glance, I found that the GRI Standards appear to seek more in-depth disclosures for some topics that they share in concept with the SASB Standards — but as a whole, the SASB Standards provide a more comprehensive view of agricultural practices due to the industry-specific disclosures and components suggested in its recommendations. These are not covered in as much depth under the GRI Standards.

As an example, SASB and GRI both include Greenhouse Gas (GHG) Emissions as an area for disclosure, and the disclosure of GHG emissions suggested by the two Standards’ organizations both account for Scope 1 emissions and biogenic carbon dioxide emissions.

Similarities and Differences to Consider

However, although SASB asks agricultural organizations to describe their long-term and short-term strategies of managing Scope 1 emissions and emission-reduction targets—something that is not specifically outlined under the GRI’s Emissions Topic Disclosure — GRI does suggest organizations that choose to report on emissions include a management approach that is used to cover components such as the policies, commitments, and goals and targets as they relate to the reporting organization’s emissions.

GRI expects reporting organizations to provide a management approach disclosure (otherwise known as the DMA) for every material topic chosen, or else explain why the management approach was not included at the time of reporting.

While the discussion encouraged by the GRI’s DMA is similarly suggested for some of the topics covered by SASB, it is not found in the SASB’s emissions materiality topic. Many of the industry-specific disclosures included in SASB could thus be improved by being covered using this management approach section of the GRI.

Emissions and Energy Related Disclosure

The GRI Standard’s Emissions Topic Disclosure also has more topic-specific components available for reporting — such as Scope 2 and Scope 3 GHG emissions, emissions of ozone-depleting substances, and other significant air emissions.

In this way, the GRI Standards would appear to be more comprehensive for the emissions materiality topic that it shares with SASB.

The same observation is found in Energy, which is also available as a material topic under SASB and a disclosure topic in the GRI Standards.

SASB Standards suggest reporting organizations disclose their consumption of operational energy fleet fuel — both of which are also covered under GRI’s topic-specific categories of energy consumption within and outside of the organization.

Both GRI and SASB also account for the amount of energy reduced through the use of renewable energy.

However, GRI Standards additionally ask reporting organizations to disclose their energy intensity and the reductions in energy requirements of sold products and services achieved during the reporting period.

Since this topic will be coupled with a management approach under the GRI, the organization’s Standards would appear to cover more ground than SASB Standards in the Energy topic disclosures, since this discussion is not required for the Energy material topic under SASB — however, the company could choose to disclose it in the DMA section.

Addressing Labor/HR Issues

Suggested disclosure content that relates to labor is also more extensive under GRI than SASB.

SASB Standards cover Food Safety and Health Concerns as it relates to the number of recalls issued and strategies used to manage genetically modified organisms (GMOs) and Fair Labor Practices and Workplace Health and Safety (as it pertains to whether farms are certified for fair labor practices, the data on injury rates, and how to assess, monitor and reduce exposure of employees to pesticides).  In comparison, the GRI Standards offer 19 available Social topics for companies to report on.

In particular, the labor/management relations and occupational health and safety topic specific disclosures share some overlap with those of SASB.

These topic-specific disclosures under the GRI Standards also suggest that companies report on hazard identification, risk assessment, promotion of worker health, prevention and mitigation of occupational health and safety impacts, and work-related injuries.

Agriculture-Specific Issues

SASB does take a more agriculture-focused approach because it asks specifically for data on topics such as recalls, GMOs, and farms certified for fair labor practices; these are not similarly asked for under the GRI Standards.

The Land Use and Ecological Impacts, Climate Change Impacts on Crop Yields, and Environmental and Social Impacts of Ingredient Supply Chains material issues identified by SASB are other examples where SASB takes a more comprehensive approach to reporting for the Agricultural industry’s specific issues.

These SASB Standards disclosures ask organizations to report on topics such as the amount of crop yields/lost, percentage of agricultural raw materials certified to third-party environmental/social standards, amount of pesticide consumption by hazard level, and volume of wastewater reused/discharged to the environment.

The available disclosures following the GRI Standards do not appear to directly encompass these agriculture-specific components (even in the GRI Food Processing Sector Supplement), making GRI reporting as a whole appear to be not as comprehensive for the Agriculture sector — despite GRI requiring more detail for those disclosures that do intersect with SASB.

Agricultural organizations that choose to report without following SASB Standards and / or the Food Processing Sector Supplement may, therefore, result in a more restricted view of those organizations’ agriculture-specific practices — despite them being in line with GRI Standards reporting.

My Conclusions

Moving forward, corporations in the Agricultural sector can improve their sustainability reports by using both the GRI Standards and the SASB Standards for the collection, measurement, analysis and reporting of their environmental, social, and economic data.

This integrative approach to reporting would enable corporations to create a much more comprehensive sustainability report, by allowing the enterprise to take advantage of both SASB’s industry-specific disclosure recommendations and GRI’s broader topic-specific recommendations.

# # #

Note about GRI’s Sector Disclosure — from the GRI’s website FAQ: “With the transition from G4 Guidelines to GRI Standards, the G4 Sector Disclosures remain valid. The use of the G4 Sector Disclosures is recommended for organizations using the GRI Standards, but is not a requirement for preparing a report in accordance with the Standards (see GRI 101: Foundation, Section 2 for more detail).”

Note:  This commentary is part of a series sharing the perspectives of G&A Institute’s Analyst-Interns as they examine literally thousands of corporate sustainability / responsibility reports.  Click the links below to read the first post in the series which includes explanations and the series introduction as well as the other posts in the series:

1st in Series: The Software / IT Services Industry – GRI & SASB Standards In Focus – Perspectives on Alignments & Differences

SERIES INTRODUCTION 
GRI & SASB In Focus – Perspectives on Alignments & Differences

Notes from the G&A Institute Team on the series of commentaries by members of the G&A Sustainability Report Analyst Interns…

With the recent publication of the much-anticipated “Report on US Sustainable, Responsible and Impact Investing Trends 2018” issued by US SIF showing that ESG has really hit the capital markets’ mainstream — with $1-in-$4 in the US (by professional investment managers now incorporating ESG).  And, with the recent petition urging mandatory ESG reporting — submitted to the Securities & Exchange Commission by institutional investors  — he need to develop a more standardized framework for corporate ESG reporting is more pressing than ever before.

A recent discussion paper — “Investor Agenda For Corporate ESG Reporting” — with inputs from the CFA Institute, ICGN, PRI, CERES, GSIA, GIIN, and the UNEP-FI — further highlights this issue.

Among other things, the discussion paper emphasizes the need for participants of the Corporate Reporting Dialogue (participants include reporting standard setters – GRI, SASB, CDP, IIRC,CDSB, ISO, FASB, and IFRS) to deliver on their promise to work together to develop a more unified agenda on ESG reporting.

As part of our company’s role as the GRI Data Partner in the USA, UK and Republic of Ireland, G&A Institute’s Sustainability Report Analyst-Interns analyze thousands of sustainability reports each year and contribute the information to the GRI’s Sustainability Disclosure Database. This is the largest publicly-accessible sustainability disclosure database in the world (with now over 50,000 sustainability reports included, dating back to the start of the GRI).

Many of the corporate reports the G&A analysts process use the GRI Standards — and a number have now started to implement aspects of the SASB Standards as well in their disclosure and reporting process, depending on their sector and industry categories.

In their ongoing work, G&A’s Sustainability Report Analyst-Interns have been comparing the two standards for disclosure in specific industries as they carefully examine the corporate reports, and consider two standards’ alignment, similarities and differences.

In this series G&A’s Sustainability Report Analyst-Interns share their own perspectives as they have analyzed reports and noticed similarities and differences.

* * *

We begin our series of shared perspectives with the perspectives of Minalee Busi, looking at the Software and IT Services Industry.

Comments by Minalee Busi – G&A Sustainability Report Analyst-Intern

Discussion regarding sustainability reporting is usually more focused in context of resource intensive industries, and the Software and IT Services sector is often left out.

With sustainability being a major factor in competitive advantage and investor decision-making, Software and IT Services companies need to re-think their sustainability reporting strategies, if they are not already at that point.

SASB identifies a limited number of material issues for the industry for corporate reporting, such as:
• environmental footprint of hardware infrastructure,
• data privacy and freedom of expression,
• data security,
• recruiting and managing a diverse skilled workforce, and
• managing systematic risks from technology disruptions.

Environmental Disclosures

The disclosure suggestions set forth by both the SASB and GRI Standards are in fact quite comparable, and in alignment with each other for some topics.

For example, both standards suggest companies to report on the energy consumed (both renewable and non-renewable) — but with different reporting boundaries.

SASB suggests reporting consumption within the organization — and the GRI Standards ask to additionally include consumption outside of the company.

However, GRI Standards also include disclosures in terms of energy reduction due to conservation and efficiency initiatives — which SASB disclosures do not include.

Similarly, though both the disclosure frameworks require information about water withdrawal and consumption, GRI also expects detailed reporting on water discharge into different water bodies, with information such as whether water was treated before discharge and whether they follow international standards on discharge limits.

The GRI Standards also include disclosure on recycling — which although not very comprehensive, is completely non-existent in the SASB sector disclosure.

Given the increasing e-waste generated by the IT industry, both GRI and SASB could consider including more detailed disclosures in this area for addressing material risks companies face.

Addressing Data Security/Privacy

In terms of data security, both standards include suggestions of disclosures related to data breaches and the number of users affected. But since SASB disclosures are designed to be industry-specific standards, more detailed reporting requirements in terms of data privacy and freedom of speech are found in SASB — including information on secondary usage of user data and monetary losses as a result of legal proceedings associated with user privacy.

Other such additional detailed areas of sector-/industry-specific disclosures by SASB which are not specified in the GRI standards are topics under managing systematic risks — such as performance issues, downtime and service disruptions due to technological impediments; and, activity metrics related to data storage, processing capacity and cloud-computing.

Disclosures with respect to monetary losses due to legal proceedings around intellectual property protection and competitive behaviour can also be found in the SASB Standards.  These disclosures can be loosely be aligned with the GRI disclosures under non-compliance with laws in the socio-economic arena.

S/Social Reporting

With respect to the “S” (social domain) of corporate ESG reporting, both of the standards suggest reporting on employee diversity, with GRI focusing on categories such as age, gender and minority representation and SASB additionally suggesting reporting on data related to the percentage of employees who are (1) foreign nationals and (2) located offshore.

Interestingly, although SASB disclosures are industry specific standards and the IT industry is mainly dependent on human and intellectual capital, there is no specific suggestion of reporting on training and education of employees.

GRI Standards appear to be filling this gap with suggestions of detailed disclosures on average training hours, upskilling and transition assistance programs and information related to employee performance reviews.

Sustainability Reporting Criteria

The GRI Standards have extensive sustainability reporting criteria, of which a major portion of the disclosures fall under the “General Disclosures” — which include materiality, measurement approaches, consistency and comparability of reporting, external assurance, supply chain information, sustainability strategies, and ethics and integrity. This to me is seemingly more transparent as compared to the SASB Standards.

Another such area is stakeholder engagement, which exists in the SASB Standards only in the form of percentage of employee engagement.

The category of Discussion and Analysis under SASB Standards does require reporting on strategic planning about each of the material topics identified, which can be mapped to the Management Approach (DMA) disclosures recommended under each material Topic-specific disclosure area of the GRI Standards.

Alignment – and Gaps

With the above overview, the SASB disclosures and GRI Standards can be seen in alignment with respect to some material topics while having some gaps in others.

However, since both the standards are developed to address the needs different stakeholders – with GRI aiming a broader set of stakeholders and the SASB majorly targeting mainstream U.S. investors — they should not be seen by report preparers as being in competition with each other.

I believe that the efforts of the CDP and important sustainability reporting standards-setters such as GRI and SASB will certainly be welcomed by companies and other stakeholders now struggling to keep up, but the question remains if such collaborations can ultimately lead to the desired standardised sustainability reporting framework that many investors actively seek.

#  #  #

Note:  This commentary is part of a series sharing the perspectives of G&A Institute’s Analyst-Interns as they examine literally thousands of corporate sustainability / responsibility reports.  Click the links below to read the other posts in the series: