Corporate ESG Stakeholders – Materiality Matters – Quality Over Quantity to Have Compelling Reporting

August 10 2020

By Pam Styles, Principal and Founder, Next Level Investor Relations, and G&A Institute Fellow

Will ESG/Sustainability be more or less in the forefront as economies attempt to recover from the COVID-19 pandemic?  Survey results vary, but a common theme is that materiality and quality of a company’s strategic sustainability focus and reporting will be expected.

Sustainability in Economic Recovery
A recent survey of publicly listed U.S. company executives by the Conference Board™ suggests that well over half (59%) believe the COVID-19 pandemic will have little or no negative impact on growing interest in company sustainability programs overall, while a majority within these results believe the pandemic may shift the focus of sustainability, e.g. more to people, supply chain, etc.

A survey of recent company announcements related to sustainability formed the basis for the article, Is sustainability undergoing a pandemic pause?  by Joel Makower, CEO of GreenBiz. He concludes that, “Unlike previous economic downturns, sustainability isn’t being jettisoned in the spirit of corporate cost-savings. It’s being kept alive as part of a pathway back to profitability.”

These are challenging but exciting times, and there is every reason to believe that ESG/sustainability can and will be in the forefront as companies, communities and countries recover from the COVID-19 pandemic. 

Materiality Matters
That said, heightened emphasis on materiality in sustainability reporting has gained traction, in response to perceived “greenwashing” by companies in sustainability communications.  The trap of greenwashing has been prevalent enough to frustrate many third-party stakeholders and gain attention across the field.

Most major voluntary frameworks for corporate sustainability reporting guidance now separately and collectively encourage companies to pay attention to the materiality of reported content. This includes GRI, SASB, IIRC, TCFD, CDP and others.

The Chartered Financial Association (CFA), the Big Four accounting houses, law firms and others are also stepping-up the pressure on corporations to bring sustainability reporting to a next level of materiality focus and quality.

Governance & Accountability Institute succinctly captures the breadth of concern,

“Materiality is an important cornerstone of an effective corporate sustainability process…Without an effective materiality process (and mapping) companies can waste time, effort, human resources and financial investment on issues that will provide little or no benefit in sustainability and responsibility reporting — or may even serve to further cloud and confuse the company’s stakeholders and shareholders…Companies committed to position themselves as recognized leaders in sustainability require the materiality determination process to be thorough, accurate, and effective to implement their Sustainability program.”

Compelling Reporting
Less-is-more… your company sustainability report need not be lengthy!  It needs to focus the reader on, where and how your particular company can effectively prioritize its sustainability efforts.

Those who read a lot of sustainability reports can quickly distinguish between sustainability platitudes and substantive content. The former can be perceived as a possible sign that the reporting company has not truly integrated sustainability into its business.”

As John Friedman writes in his newly-released book, Managing Sustainability, First Steps to First Class,

“For this reason, it is important, always, to adopt and use the language of business rather than advocacy or philanthropy when integrating sustainability into any business…too often sustainability professionals speak in terms of “doing well by doing good’ and the “Sustainable Development Goals” rather than the more compelling arguments that link sustainability programs to the established (and more familiar) business imperatives such as “improving business processes,” “implementing best practices,” and “return on investment.”

 A recent joint report by the U.S. Chamber of Commerce and Center for Capital Markets Competitiveness report on ESG Reporting Best Practices, makes other relevant observations including:

“… materiality determination may differ based on the diverse characteristics of different companies…”

“… while the word “materiality” is used by some constituencies to connote different meanings, the term has a well-established definition under the U.S. federal securities laws”

 “Issuers preparing ESG reports should explain why they selected the metrics and topics they ultimately disclose, including why management believes those metrics and topics are important to the company.”

 “Disclosure should not be a tool for advancing interests that are not aligned with the company’s ability to create value over time”

 Company leadership may find that…

  • renewed attention to materiality can help streamline internal efforts and strengthen the basis of information that Company corporate communications and spokespersons rely on.
  • having a clear materiality basis enables your communications team to clearly indicate ‘n/a’ or ‘not material’ in some fashion, where applicable, as opposed to not responding or to staying silent within external sustainability reporting and questionnaire responses (obviously seek legal counsel as warranted).
  • having a clear ESG materiality basis can help avoid frustration, confusion, and misunderstanding in external communications – and, yes, minimize guessing or interpolation by third party stakeholders.
  • Renewed attention to materiality helps everyone focus on the substance of your company’s sustainability efforts, strategic positioning and reporting.

Ensuring the company’s sustainability and survival and contributing to the economic recovery post-pandemic are too important to waste time or money communicating trivial metrics.

Final Word
Sustainability is more important now than ever, as we urgently work together to lift our companies, economies and stakeholders up in the wake of the devastating pandemic.

This urgency will require every company to play to its strengths, stretch where appropriate and produce compelling sustainability reports (website and other collateral communications too).  It will require strength of conviction that materiality matters – courage to clearly communicate when particular large or small performance elements of sustainability framework guidelines do not apply to your company and are simply not material for a framework response or third-party consideration.

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

The S&P 500® Universe — Setting the Pace for Corporate Sustainability Reporting: 90% Mark Reached!

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

The popular corporate equity “baskets” including the Dow Jones Industrial Index, Nasdaq 100, S&P 500, the Russell 1,000 – 2,000 – and 3,000– in essence consist of the underlying value of the corporate shares in each basket (or benchmark for investors).

Today, there is an ocean of stock indexes for asset managers to license from the creators and then apply process and approaches for keeping track of the companies in the fiduciary portfolio, or to analyze and pick from the underlying issues for their portfolio.

Alternative benchmarks and indexes may be dependent on market cap size and have variations in the index family to fine tune the analysis (think of the varieties of Wilshire, Russell, S&P Dow Jones, etc.).

There has been a steady move by many asset managers from “active management” to passive investment instruments, with this transition key benchmarks become an important tool for the analyst and portfolio manager.

One large-cap index really dominates the capital markets:  The S&P 500.

G&A Institute’s Annual S&P 500® Research
Almost a decade ago, the team at G&A Institute began gathering corporate reports to build our models and methodology for guiding client’s corporate disclosure and reporting — and focusing especially on the structured reports of U.S. publicly-traded companies, we selected the universe of companies that the index creators include in the S&P 500 Index®.

Here’s why:  The S&P 500 Index is the most-widely-quoted index measuring the stock performance of the 500 largest investable companies listed on American stock exchanges.  Asset managers licensees like State Street, MCSI, Invesco Capital and London Stock Exchange Group use this index for their constructing ETFs and other investable products.

This universe of public companies provided for our team a solid foundation for tracking and analyzing the activities of these 500 companies as they began or expanded their sustainability reporting. In 2011, that first year. we found just about 20% of the 500 were publishing sustainability reports.

And here’s the dramatic news:
G&A’s just-completed report shows 90% of the S&P 500 companies produced a sustainability report in year 2019!

Tracking the Trends
Over the decade of close tracking and analysis of the 500 companies in the index, the good news is we saw the number of reports steadily grow.

We charted the broad impact of these market-leading enterprises on such reporting frameworks and standards as the GRI and SASB as those standards evolved and matured and were adopted by the companies in the 500.  We saw…

CDP disclosure steadily expanded in structured reports and (stand alone) corporate responses to CDP on carbon emissions, water, supply chain, forestry products.

The adoption of UN Sustainable Development Goals (SDGs) by companies as they were in some way conceptually a part of a company’s sustainability strategy (and subsequent reporting).

And more recently, there was the adoption of TCFD recommendations by corporate issuers in the U.S. – that began to show up in reports recently.

Starting with 2010 reporting, the first G&A analysis, we’ve shared the highlights of the research efforts.

Teams of talented, passionate and bright analyst-interns developed each year’s report (you can see who they are/were in G&A’s Honor Roll on our web site).  Most of the team members have moved on to career positions in the corporate, investment, public sector and NGO communities.

Download this year’s report, examining 2019 corporate sustainability reporting by the S&P 500 companies.

We’ve organized the deliverable for both quick scanning and concentrated reviewing.  Let us know if you have questions about the research results.

Stay tuned to G&A’s upcoming Russell 1000 Index® analysis of 2019 reporting.

This second important index/benchmark was created several decades ago by the Frank Russell Company and is now maintained by FTSE Russell (subsidiary of the London Stock Exchange Group)

The largest companies by market cap companies are available as benchmarks for investors in the S&P 500 (largest cap) and for the next 500 in the Russell 1000.

The ripple effects of the S&P 500 companies and more recently some of the Russell 1000 companies on corporate sustainability disclosure and reporting is fascinating for us to track.

Many mid-cap and small-cap companies are now adopting similar reporting policies and practices.  Privately-owned companies are publishing similar reports.  All of this means volumes of ESG data and narrative flowing out to investors – and fueling the growth of sustainable investing.  We find this all very encouraging in our tracking of corporate reporting.

Here are the details for you:

Top Stories

90% of S&P 500 Index Companies
Publish Sustainability Reports in 2019,
G&A Announces in its Latest Annual
2020 Flash Report

Source: Governance & Accountability Institute, Inc. – G&A Institute announces the results of its annual S&P 500 sustainability reporting analysis. 90% of the S&P 500 published corporate sustainability reports, an all-time high!


Adding Important Perspectives to G&A’s S&P 500 Research Results

What is Greenwashing? The Importance of Maintaining Perspective in ESG Communications
Source: AlphaSense, Pamela Styles principal of Next Level Investor Relations LLC – “Greenwashing” can generally be described as ‘the practice of only paying lip service to environmental, social and governance (ESG) factors with token gestures.’ In practice, greenwashing occurs when an organization presents…

New report measures boardroom diversity at top S&P 500 companies
Source: CNBC – There’s a renewed focus on diversity in the boardroom, but a new report shows not much is changing. CNBC’s Seema Mody reports.

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:

Watching the Watchers – What Investors & ESG Raters Are Doing in the Virus Crisis

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

As we have numerous times in this space commented about the dramatic shift from a shareholder primacy focus (for public companies and investors) to today’s stakeholder primacy operating environment, the views of key stakeholders – investors, and their service providers – are critical during the virus crisis.

Today we’re sharing the actions and perspectives of the investor-stakeholders…as the investor coalition in our first item notes…

“…the long-term viability of the companies in which we invest is inextricably tied to the welfare of their stakeholders, including employees, suppliers, customers and communities…”


Investor Coalition Focuses on Corporate Response to the Crisis

The Interfaith Center on Corporate Responsibility, a coalition of 300 institutional investors long focused on corporate responsibility and sustainability, joined forces with the Office of New York City Comptroller Scott M. Stringer and Domini Impact Investments LLC to develop an “Investment Statement on Coronavirus Response” — to urge the business community to take what steps they can and offered five (5) steps for corporate managements to consider.

These include:

  • Providing paid leave – emergency leave for all employees, including temps, part-timers, and subcontracted workers.
  • Prioritizing health and safety – limiting exposure to COVID-19, rotating shifts, enhancing protective measures, closing locations, setting up remote work, additional training where appropriate.
  • Maintaining employment – retain workers as much as possible; a well-trained and committed workforce will help companies resume operations quickly; also, companies should watch for potential discriminatory impact during and after the crisis.
  • Maintaining supplier/customer relationships – As much as is possible, companies should maintain timely or prompt payments to suppliers and work with customers facing financial challenges to help stabilize the economy, protect communities and small businesses, and ensure a stable supply chain will be in place when operations return to normal.
  • Practice financial prudence – the investors state they expect the highest level of ethical financial management and responsibility in the period of (acknowledged) financial stress. As “responsible investors” (the signatories) the expectation is that companies will suspend share buybacks, and limit executive and senior management compensation for the duration of the crisis.

Beyond these, the investors urged companies to consider such measures as childcare assistance, hazard pay, assistance in obtaining government aid for suppliers, paying employee health insurance for laid off/furloughed workers, and deploying resources to meet societal needs related to the pandemic.

Over the past few years, the investor coalition points out, corporations have shown leadership by using their power as a force for tremendous good. This kind of leadership if critically needed now. And, business reputation and social license to operate is at stake.

As we prepare this about 200 long-term institutional investors with AUM of US$5 trillion had signed on to the effort, including: the AFL-CIO funds, American Federation of Teachers, Aviva Investors, Boston Common Asset Management, the Chicago City Treasurer, Communications Workers of America, Connecticut State Treasurer Shawn T. Wooden, Delaware State Treasurer, Illinois State Treasurer Michael Frerichs, International Brotherhood of Teamsters, Investor Environmental Health Network, Office of Rhode Island General Treasurer Seth Magaziner, Oregon State Treasurer, Robeco, SEIU, UAW Retiree Medical Benefits Trust, Treasurer of the State of Maryland, Vermont State Treasurer, and a large roster of faith-based institutions and religious denomination funds.

#  #  #

Walking-the-Talk of Corporate Responsibility

Refinitiv provides investors with ESG ratings and perspectives on corporate ESG performance and builds ESG / sustainability considerations into products and services for investor clients. The company announced what it is doing to maintain its forward ESG momentum during the crisis.   And the changes will over time affect the public companies that are rated and ESG news distributed worldwide by Refinitiv. 

On Earth Day 2020, the folks at Refinitiv – this is one of the world’s largest providers of financial information – announced the beefing up of their own operations…walking the talk of what they provide to investor clients in terms of ESG Data and solutions for evaluating public companies’ ESG performance.

Refinitiv is putting in place for itself more stringent, science-based emissions targets, climate change reporting standards to meet the TCFD’s recommendations, and is joining the RE100 initiative to source 100% of its electricity from renewables.

Refinitiv had made three core pledges on the environment, social impact and sustainable solutions to support the UN SDGs. Part of this was a goal of achieving carbon neutrality before the end of 2020. The company is joining the Business Ambition For 1.5C commitment; aligning its own corporate reporting with the Task Force for Climate-Related Disclosures (the TCFD); and by this coming summer should be 100% in terms of how they source energy from renewables.

Refinitiv recently launched “The Future of Sustainable Data Alliance” to accelerate the mobilization of capital into sustainable finance, and will work to sustainability “at the core of product offerings”. Refinitiv serves more than 40,000 institutions in 190 countries, providing ESG data for 15+ years.

We can expect that these moves will result in the intensifying of the evaluation of corporate sustainability efforts by this major financial information provider. As the Refinitiv CEO David Craig comments:

The pandemic is clearly providing humanity with a re-set moment: a stark reminder about our fragility as a species and a sharp lesson about what happens when we mess with nature. It is also a moment when the old rules about the role of the state no longer apply. We can therefore attack the twin challenges of COVID-19 and climate change simultaneously, not sequentially. After all, when again will we be at a moment when governments are injecting such unprecedented sums into the economy just as the world needs up to $7 trillion a year of renewable investments to hit 2030 development and climate targets.”

Luke Manning, Global Head of Sustainability and Risk Enterprise at Refinitiv, adds:

Our commitment is going further than before and aiming for more ambitious emissions reductions that – if repeated by businesses across the world – should limit atmospheric warming to 1.5C above pre-industrial levels. If we want to truly progress the climate agenda we need to help everyone understand that tackling it is in all our personal and financial self-interest. It’s not just about the impact we are having on the environment, but the impact the environment is having on us.

# # #

Morningstar Acquires Full Ownership in Sustainalytics

Morningstar, a leading firm in providing investment research to individual and institutional investors in North America, Europe, Asia and Australia-Pacific region, began measuring the performance of ESG-focused mutual funds and ETFs three years ago. As part of the initiative, Morningstar acquired a 40% interest in the ESG ratings organization, Sustainalytics.

Now, that interest will be 100% as Morningstar solidifies its competitive advantage in measuring the performance of ESG investable products. Says CEO Kamal Kapoor:

“Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company’s economic moat or the stability of its credit rating, this is the future of long-term investing.

“By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics’ mission of contributing to a more just and sustainable global economy.”

#  #  #

As companies large and small, public and private, step up to help society during the virus crisis, they burnish their reputation and social license to operate.And help society cope with the impact of the crisis on individuals, families, communities and institutions. 

We’re bringing you the news of those corporate actions.  And, we’re watching the investment community for their reactions, and their intention to encourage public companies to stay the course of their sustainability journey during the virus crisis.  Stay Tuned to this blog. 

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

California – America’s Sovereign State of Sustainability Superlatives!

While the Federal Government Leaders Poo-Pooh Climate Change, the Sovereign State of California Continues to Set the Pace for America and the World!

Focus on The State of California – the America’s Sovereign State of Superlatives Including in the Realm of Societal Sustainability…

By Hank Boerner – Chair and Chief Strategist – G&A Institute

We are focusing today on the “Golden State” – California – America’s sovereign state of sustainability superlatives!

The U.S.A.’s most populous state is forceful and rigorous in addressing the numerous challenges of climate change, ESG issues, sustainable investing and other more aspects of life in this 21st Century.

Think about this: California is by itself now the fifth largest economy in the world. The total state GDP (the value of goods & services produced within the borders) is approaching US$ 3 trillion. The total U.S.A. GDP is of course the largest in the world (it includes California GDP) and then comes China, Japan, Germany… and the state of California!

The California population is about 40 million people – that means that roughly one-in-eight people in the U.S.A. live in the Golden State.

Stretching for 800+ miles along the coastline of the Pacific Ocean, California is third largest in size behind Alaska (#1)  and Texas and takes the honor of setting the example for the rest of the U.S.A. in societal focus on sustainability.

Most investors and public company boards and managements know that the large California pension fund fiduciaries (institutional investors) often set the pace for U.S. fiduciary responsibility and stewardship in their policies and activities designed to address the challenges of climate change, of global warming effects.

The state’s two large public employee pension funds —  CalPERS (the California Public Employees’ Retirement System) and CalSTRS (the California State Teachers’ Retirement System) have been advocates for corporate governance reforms for public companies whose shares are in their portfolios.

CalPERS manages more than US$350 billion in AUM; CalSTRS, $220 billion.

A new law in California this year requires the two funds to identify climate risk in their portfolios and to disclose the risks to the public and legislature (at least every three years)

CalSTRS and CalPRS will have to report on their “carbon footprints” and progress made toward achieving the 2-Degrees Centigrade goals of the Paris Accord.

Looking ahead to the future investment environment — in the  emerging “low carbon economy” — CalPERS is pointing more of its investments toward renewable energy infrastructure projects (through a direct investment program). The fund has invested in two solar generation facilities and acquired a majority interest in a firm that owns two wind farms.

Walking the Talk with proxy voting: long an advocate for “good governance,” CalPERS voted against 438 board of director nominees at 141 companies this year in proxy voting. CalPERS said this was based on the [companies’] failures to respond to it effort to engage with corporate boards and managements to increase board room diversity.

CalPERS’ votes including “no” cast on the candidacy of numerous board chairs, long-term directors and nominating & governance committee chairs. This campaign was intended to “create heat” in the board room to increase diversity. CalPERS had solicited engagements with 504 companies — and more than 150 responded and added at least one “diverse” director.  CalSTRS joins its sister fund in these campaigns.

During the year 2018 proxy voting season, to date, CalPERS has voted against executive compensation proposals and lack of diversity in board room 43% of the time for the more than 2,000 public companies in the portfolio.

Other fiduciaries in the state follow the lead of the big funds.

The San Francisco City/County Employee Retirement Fund

The San Francisco Employees’ Retirement System (SFERS) with US$24 billion in AUM recently hired a Director of ESG Investment as part of a six-point strategy to address climate risk.  Andrew Collins comes from State Street Global Advisors (SSgA) and the Sustainable Accounting Standards Board (SASB – based in SFO) where he helped to develop the ESG accounting standards for corporations in 80 industries.

The approach Collins has recommended to the SFERS Investment Committee:

  • Engagement through proxy voting and support for the Investor Network on Climate Risk (INCR) proxy resolutions.
  • Partnerships with Climate Action 100+, Principles for Responsible Investment (PRI), Ceres, Council of Institutional Investors, and other institutional investor carbon-reducing initiatives.
  • Active ESG consideration for current and future portfolio holdings.
  • Use of up-to-date ESG analytics to measure the aggregate carbon footprint of SFERS assets; active monitoring of ESG risks and opportunities; continued tracking of prudent divestment of risky fossil fuel assets.

The staff recommendations for the six point approach (which was adopted) included:

  • Adopt a carbon-constrained strategy for $1 billion of passive public market portfolio holdings to reduce carbon emissions by 50% vs. the S&P 500 Index.
  • Hire a director of SRI to coordinate activities – that’s been done now.

As first step in “de-carbonization” the SFERS board approved divestment of ExxonMobil, Royal Dutch Shell and Chevron (September 2018) and will look at other companies in the “Underground 200 Index”.  The pension fund held $523 million in equities in the CU200 companies and a smaller amount of fixed-income securities ($36MM).

Important background is here:  https://mysfers.org/wp-content/uploads/012418-special-board-meeting-Attachment-E-CIO-Report.pdf

There are 70,000 San Francisco City and County beneficiaries covered by SFERS.

At the May 2017 SFERS board meeting, a motion was made to divest all fossil fuel holdings.  An alternative was to adopt a strategy of positive investment actions to reduce climate risk. The board approved divestment of all coal companies back in 2015.

California Ignores the National Leadership on Climate Change

In 2015, the nations of the world gathered in Paris for the 21st meeting of the “Conference of Parties,” to address climate change challenges. The Obama Administration signed on to the Paris Accord (or Agreement); Donald Trump upon taking office in January 2017 made one of his first moves the start of withdrawal from the agreement (about a three year process).

American states and cities decided otherwise, pledging to continue to meet the terms previously agreed to by the national government and almost 200 other nations – this is the “We are still in movement.”

The State of California makes sure that it is in the vanguard of the movement.

This Year in California

The “Global Climate Action Summit” was held in San Francisco in September; outgoing Governor Jerry Brown presided. The meeting attracted leaders from around the world with the theme, “Take Ambition to the Next Level,” designed to encourage collaboration among states, regions, cities, companies, investors, civic leaders, NGOs, and citizens to take action on climate change issues.

Summit accomplishments:  there were commitments and actions by participants to address: (1) Healthy Energy Systems; (2) Inclusive Economic Growth; (3) Sustainable Communities; (4) Land and Ocean Stewardship; and (5) Transformative Climate Investments.  Close to 400 companies, cities, states and others set “100 percent” renewable energy targets as part of the proceedings.

New “Sustainability” Laws

The California State Legislature passed the “100 Percent Clean Energy Act of 2018” to accelerate the state’s “Renewable Portfolio Standard” to 60% by year 2030 — and for California to be fossil free by year 2045 (with “clean, zero carbon sourcing” assured). Supporters included Adobe and Salesforce, both headquartered in the Golden State; this is now state law.

Governor Jerry Brown issued an Executive Order directing California to achieve “carbon neutrality” by the year 2045 — and to be “net zero emissions” after that.

Building “De-Carbonization”

The state legislature this year passed a “Investor Network on Climate Risk (INCR) ” measure that is now law, directing the California Energy Commission to create incentives for the private sector to create new or improved building and water heating technologies that would help reduce Greenhouse Gas emissions.

Water Use Guidelines

Water efficiency laws were adopted requiring the powerful State Water Resources Control Board to develop water use guidelines to discourage waste and require utilities to be more water-efficient.

About Renewables and Sustainable Power Sources

Walking the Talk: Renewables provided 30% of California power in 2017; natural gas provided 34% of the state’s electricity; hydropower was at 15% of supply; 9% of power is from nuclear. The state’s goal is to have power from renewables double by 2030.

California utilities use lithium-ion batteries to supplement the grid system of the state. PG&E is building a 300-megawatt battery facility as its gas-generating plants go off-line.

Insurance, Insurers and Climate Change Challenges

There are now two states — California and Washington — that participate in the global Sustainable Insurance Forum (SIF); the organization released a report that outlines climate change risks faced by the insurance sector and aims to raise awareness for insurers and regulators of the challenges presented by climate change. And how insurers could respond.

The Insurance Commissioner of California oversees the largest insurance market in the U.S.A. and sixth largest in the world — with almost $300 billion in annual premiums.  Commissioner Dave Jones endorsed the 2017 recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (the “TCFD”) and would like to see the now-voluntary disclosures be made mandatory by the G-20 nations. (The G-20 created the Financial Stability Board after the 2018 financial crisis to address risk in the financial sector).

In 2016 the Insurance Commissioner created the requirement that California-licensed insurance companies report publicly on the amount of thermal coal enterprise holdings in portfolio — and asked that the companies voluntarily divest from these enterprises.  Also asked: that insurers of investments in fossil fuel companies (such as thermal coal, oil, gas, utilities) survey or “data call” on these companies for greater public financial disclosure.

What About a Carbon Tax for California?

The carbon tax – already in place. California has a “cap and trade” carbon tax adopted in 2013; revenues raised go into a special fund that finances parks and helps to make homes more energy efficient. The per ton tax rate in 2018 was $15.00.  The program sets maximum statewide GhG emissions for covered entities in power and industrial sectors and enables them to sell allowances (the “trade” part of cap & trade). By 2020, the Cap and Trade Program is expected to drive more than 20% of targeted GhG emissions still needed to be reduced.

As we said up top, the “Golden State” – California – is America’s sovereign state of sustainability superlatives!

There is more information for you at G&A Institute’s “To the Point!” management briefing platform:

Brief:  California Leads the Way (Again) – State’s Giant Pension Funds Must Now Consider Portfolio Climate Risks & Report on Results – It’s the Law

 

 

Critical Development for CDP Responders in 2018 & 19: CDP Introduces Additional Alignment With FSB Task Force on Climate-Related Financial Disclosures Recommendations

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

Corporate ESG Data, Data, Data – it’s now everywhere and being digested, analyzed and applied to corporate equity analytics and portfolio decision-making.

Whether your public company participates in the annual round of organizing responses to the ever-more comprehensive queries from leading ESG / sustainability / CR rating agencies or not, there is a public ESG profile of your company that investors (asset owners, managers and analysts) are examining and applying to their work.

If you don’t tell the story of your firm’s progress in its sustainability journey, someone else will (and is).  And if you have not embarked on the journey yet…and there is not much to disclose and report on…you are building the wrong kind of moat for the company.  That is, one that will ever-widen and impair access to capital and affect the cost of capital.  And over time, perhaps put the company’s issues on the divestiture list for key investors.

This sounds a bit dramatic, but what is happening in the capital markets these days can be well described as a dramatic shift in focus and actions, with corporate ESG strategies, actions, programs, achievements, and disclosure becoming of paramount importance to a growing body of institutional and retail investors.

Consider these important developments:

  • The influential Barron’s editors, reaching hundreds of thousands of investors every week, beginning in Fall 2017 made coverage of corporate sustainability and sustainable investing a mainstay of the magazine’s editorial content.
  • Morningstar, the premier ranker of mutual fund performance, added sustainability to the analysis of funds and ETFs with guidance from Sustainalytics, one of the major ESG rating firms (and Morningstar made a significant investment in the firm).
  • SustainableInvest, headed  by Henry Shilling, former leader on sustainability matters for Moody’s Investor Service, noted that in 2Q 2018 as the proxy season was ending, 2018 voting was notable for the high level of “E” and “S” proposals, some achieving majority votes in shareholder voting at such firms as Anadarko Petroleum, Kinder Morgan and Range Resources.  Assets in 1,025 sustainable funds analyzed added $14 billion during 2Q and ended in June at US$286 billion; more than $1 billion was new net cash inflows, demonstrating investor interest in the products.

Significant:  according to the Harvard Law School Forum on Corporate Governance and Financial Regulations, two-thirds of investor-submitted proxy resolutions focused on having the company follow through on the 2-degrees scenario (testing) were withdrawn and company boards and managements agreed to the demand for climate risk reporting.

The FSB TCFD Impact on Corporate Sector and Financial Services Sector

The Financial Stability Board, an organization founded by the central bankers and financial leaders of the G-20 nations, created a Task Force on Climate-related Financial Disclosures (“TCFD”) to develop climate-related financial disclosures for adoption by financial services sector firms and by publicly-traded companies in general.

The 32-member Task Force, headed by Mayor Michael Bloomberg, announced financial recommendations for companies and investors in June 2017.

The essence of the recommendations:

  • Corporate boards and managements should focus on the risks and opportunities present and in the future taking into account a global temperature risk of 2-degrees Centigrade (3.5-F), and in the future, 4-C and even 6-C global temperature rises.

The risks (presented are not just to the affected companies but to the financial sector institutions investing in the company, institutions lending funds to the company, carriers insuring the company, etc.).

The risks and opportunities related to climate change should be thoroughly analyzed using the scenario testing that the company uses (an example would be projecting future pricing, regulations, technologies, and “what ifs” for an oil and gas industry company).

The company should consider in doing the scenario testing and analyzing outcomes the firm’s corporate governance policies and practices; strategies for the long-term; risk management policies and resources; establishing targets; and, putting metrics in place for measuring and managing climate risk.  Then, the next step is disclosing this to investors and other stakeholders.

Key Player:  CDP and its Wealth of Corporate, Institutional and Public Sector Data

The CDP – formerly known as the Carbon Disclosure Project – was founded almost two decades ago (2000) as a United Kingdom-based not-for-profit charity at the urging of the investment community, to gather corporate “carbon” data.

Timing:  soon after the start of meetings of the “Conference of the Parties” (or “COP”), organized by the United Nations as the Climate Change Conferences. (The “UNFCCC”.)

In the mid-1990s, the Kyoto Protocol emerged that legally-bound nations to their pledge to reduce Greenhouse Emissions (GHGs).  The U.S.A. did not sign on to the global protocol during the tenure of President George W. Bush, and the agreement reached in Paris at the COP meeting in 2015 was finally agreed to by President Barack Obama.

And then began the process of withdrawal under President Donald Trump.  The U.S.A. is now the prominent holdout (among the community of 197 nations signed on) in the global effort to address global warming before the danger point is passed.  In Paris, the COP agreed that the threshold was 2-degrees Centigrade.

Today, a growing universe of investors and many other stakeholders are increasingly focused on the role of carbon emissions in the framing of questions about what to do as scientists charted the warming of Earth’s climate.

And so — ESG / environmental data is critical to the mission of determining “what to do” and then implementing measures to address climate change challenges.

The Critical Role of CDP 

CDP over almost two decades since its founding has become the premier repository of corporate data related to climate change – with more than 6,000 companies’ data collected and shared in organized ways with the investment community.  (That includes the ESG data of half of the world’s public companies by market cap.)

The CDP emissions data focused has broadened over 16 years to now include water, supply chain, forestry (for corporates) and environmental data from more than 500 cities and some 100 states and regions available to investors.

Key user base:

  • 650-plus institutional investors with US$87 trillion in Assets Under Management.
  • Corporate Supply Chain members (such as Wal-Mart Stores) that collect data from their suppliers through CDP—a universe of 115 companies with over $3.3 trillion in combined purchasing power.

When the TCFD recommendations were being developed, CDP announced a firm commitment to align with the task force recommendations.

Following their release of the Task Force recommendations in July 2017, CDP held public consultations on a draft version of the TCFD-aligned framework. The current 2018 Climate Change questionnaire that corporations received from CDP is fully aligned with the TCFD recommendations on climate-related disclosures related to governance, risk management, strategy, and metrics and targets.

The TCFD recommendations are already aligned with the majority of CDP’s longstanding approach to climate change disclosure, including most of the recommendations for climate-related governance, strategy, risk management as well as metrics and target disclosure.

However, this year CDP has modified some questions and added new ones — the most impactful being on climate-related scenario analysis to ensure complete alignment.

Some modifications include:

The Governance section now asks for more information about oversight of climate change issues and why a company doesn’t have board-level oversight (if applicable). CDP also requests information about the main individual below the board level with the highest responsibility — and how frequently they report up to the board.

Next, in the risks and opportunities section, CDP now asks for the climate-related risk & opportunity identification, and assessment process.

As in past years, questions are posed in the Business Strategy module to allow companies to disclose whether they have acted upon integrating climate-related issues into their strategy, financial planning, and businesses.

CDP has also added a question for high impact sectors on their low carbon transition plans, so data users can gauge and further understand the sustainable and strategic foresight that these companies aim to achieve.

CDP also added a new question on scenario analysis, explaining that scenario analysis is a strategic planning tool to help an organization understand how it might perform in different future states.

A core aim of the TCFD recommendations is for companies to improve their understanding of future risks and develop suitable resilience strategies.

Finally, the TCFD recommendations highlighted five (5) sectors as the most important. In 2018, CDP rolled out sector-specific questions for the four non-financial sectors that the TCFD highlighted (they are energy, transport, materials, and agriculture).

TCFD also highlighted the financial sector – looking forward, in 2019, CDP is planning to release a financial sector-specific climate change questionnaire.

The TCFD resources for investors and corporate managers are embodied in three documents – (1) the Main Report; (2) an Implementation Annex; (3) the Technical Supplement for Scenario Analysis.  These are available at:  www.fsb-tcfd.org

G&A Institute Perspectives:

Our team has been assisting corporate managers in organizing the response to the CDP annual survey and we’ve tracked over the years the steady expansion of information requested of companies.

Our advice to companies not reporting yet:  get started!  The CDP staff members are very cooperative in assisting new corporate reporters in understanding what data are being sought (and why) and providing answers to questions.

CDP’s founding CEO Paul Simpson cautions:  “Big companies:  get better at telling those who hold the purse strings how climate risks could affect your bottom line.”

And so, our mission at G&A includes helping corporate issuers tell a better sustainability and ESG story, including the story told in the data sets communicated to 650-plus institutional investors by CDP!

CDP data is everywhere, we advise clients, including for example being part of the volumes of ESG data sets that Bloomberg LP shares on its terminals (through the terminal ESG Dashboard).

On the supply chain side, we point out that more than US$3 trillion is the collective spend of companies now addressing their supply chain sustainability factors and environmental impacts (customers see suppliers as part of their own CDP footprint).  Corporate leaders in this effort include Apple, Honda and Microsoft, CDP points out.

Resources:

CDP’s Technical Notes on the TCFD are available at: https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/guidance_docs/pdfs/000/001/429/original/CDP-TCFD-technical-note.pdf?1512736184

The “A” List of CDP naming the world’s business leaders on environmental performance (160 firms) is at: https://www.cdp.net/en/scores-2017

The CDP USA Report 2017, focused on key findings on Governance, ESG and the Role of the Board of Directors is available at: https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/891/original/CDP-US-Report-2017.pdf?1512733010

There’s an excellent interview with CDP CEO/Founder Paul Simpson at: http://www.ethicalcorp.com/disruptors-paul-simpson-atypical-activist-who-woke-c-suites-climate-risk

You can check out Henry Shilling’s SustainableInvest.com at: https://www.sustainableinvest.com/second-quarter-2018-sustainable-funds-investing-review/