Do Consumer Favor Sustainable Brands for Their Products and Services Needs? NYU Stern School Research Dives Deep into the Data For Answers

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

Many people in consumer marketing are wondering about consumer preferences for “sustainable” products! In our weekly newsletter the G&A Institute team offers media and experts’ shared perspectives on various issues and matters related to corporate sustainability, responsibility; and, sustainable, responsible and impact investing.

In recent months the content shared frequently has focused on trends in the consumer market — to help answer the question of whether or not consumers reacting to brand-facing companies positioning themselves as sustainability leaders.

Is this type of brand marketing a successful strategy?  Worth the effort? 

So the important question in all of this “wondering” is: Are consumers now favoring sustainable or green (or pick your term of definition) for their products & services at retail? 

In our ongoing monitoring of news, feature and research results — such as for the fashion and footwear industries, the auto industry, food & beverages, and certain other categories — the results tell us brand leaders are now often introducing sustainable products alongside their usual cash cows. We included several items for you in this week’s newsletter along these lines. This was our top story:

Writing in the Harvard Business Review, Tensie Whelan, professor at New York University Stern School of Business, and leader of the NYU Stern Center for Sustainable Business, and Randi Kronthal-Sacco, director of Corporate Outreach for the Center (and formerly with Johnson & Johnson) describe the results of their recent in-depth research project. 

This research centered on trying to answer the question — do U.S. consumers actually purchase sustainably marketed products?  (Spoiler alert: yes – you must read the HBR article to find out more.) 

Whelan and Kronthal-Sacco used volumes of data sets from bar scan codes at retail for food, drug, dollar, and mass merchandisers, looking at 36 categories and 71,000+ SKUs, accounting for 40% of consumer products goods (CPG) sales over a 5-year period.

So, what did they find to be the largest share of sustainability-marketed products? 

Almost $1-in-$5 purchases at retail are for toilet tissue, facial tissue (think: forest products); milk, yogurt (the yield of countless dairy farmers); coffee (lots of attention on the global coffee-growing belt circling the Earth, and worker conditions therein); salty snacks (really?); and bottled juices (you’ll notice that Coke and Pepsi and other beverage marketers are advertising their shift away from sugary drinks). 

At the bottom of market share:  laundry care, floor cleaners and chocolate candy (accounting for a 5% share).

Say Tensie and Randi:  Pay attention, marketers and those all along the retail value chain, from grower field and factory floor to shelf space.  Consumers are voting with their dollars, for sustainable and against un-sustainable brands. 

Winners in the corporate sector include PepsiCo and Unilever; laggards include Kraft Heinz. (For the leader, Unilever:  think of the company’s sustainable labels like Seventh Generation, Sundial Brands and Pukka Herbs.)

And we are seeing in the many stories we bring you each week about consumers and sustainability, the future for sustainable CPG at retail is looking bright – look at the apparel industry.for examples  The agora is alive and well with many more sustainably-branded products on the shelves.  That’s the good news for sustainability professionals.

The NYU researchers used data from IRi (the research house for CGP, retail and health and beauty – information at: https://www.iriworldwide.com/en-US/Insights)

Congratulations to our colleagues Tensie Whelan and Randi Kronthal-Sacco at NYU Stern Center for Sustainable Business for sharing their insights and perspectives.

This Week’s Top Story

Research: Actually, Consumers Do Buy Sustainable Products
(Thursday – June 20, 2019) Source: Harvard Business Review – NYU Stern’s Center for Sustainable Business just completed extensive research into U.S. consumers’ actual purchasing of consumer packaged goods (CPG), using data contributed by IRI, and found that 50% of CPG growth from 2013 to… 

Recycling – The Circular Economy: Admirable Efforts, With Significant Challenges As The Efforts Expand & Become More Complex for Businesses

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

In these closing days of the year 2018, of course, we’ll be seeing shared expert perspectives on the year now ending and a look into the new year, 2019.  Sustainable Brands shared one person’s perspectives on three sustainability trends that are gaining momentum heading into 2019.

The commentary is authored by Renee Yardley, VP-Sales & Marketing of Rolland Inc., a prominent North American commercial & security paper manufacturer established in 1882. The company strives to be an environmental leader in the pulp and paper industry. A wide range of fine paper products is made using renewable energy, recycled fiber, and de-inked without the use of chlorine.  Rolland started making recycled paper in 1989 and adopted biogas as an energy source in 2004. The company is privately-owned and headquartered in Quebec, Canada.

The trends the author explains, do of course, affect users of all types of paper products — but also are useful for businesses in other sectors & industries.  He sees:  (1) a shifting of global recycling mindsets and in the circular economy; (2) more open collaboration and partnerships for impactful change; and (3) the need for more measurement and efforts to quantify impact.

Rolland is a paper supply company and so there is a focus on recycled (post-consumer) paper, fiber, forests, the recycled paper process, moving toward zero waste, municipal recycling in North America, and so on.

On recycling:  we are seeing reports now of problems arising in the waste stream; in the USA, municipalities are calling for a reduction of waste and automating processes (to help reduce costs).  There are new on-line marketplaces as well for buying and selling recovered items.  The “market solution” is a great hope for the future as we continue to use paper products (we are not quite a paperless society, are we?).

Part of the issues recycling advocates are dealing with:  China is restricting the import of recyclable materials (think:  that paper you put at curbside at home of business).  Consumers can be encouraged to reduce consumption but paper is paper and we all use it every day – so new approaches are urgently needed!

That leads to the second trend – developing and leveraging partnership & open collaboration:  Yardley writes that collaboration across the spectrum of an organization’s stakeholders can help to address supply-chain wide sustainability if an organization can “understand the wider system” it is operating in (citing Harvard Business Review).  And, if an organization can learn to work with people you haven’t worked with before.

Rolland, for example, leverages biogas as a main energy source, partnering with a local landfill to recover methane (since 2004).  This trend is on the rise, with the EU biogas plants expanding by 200% (2009-2015).

And then there is Measure and Manage:  Environmental measuring and reporting is an important part of a company’s sustainability journey – at the outset and continuing and at G&A Institute we stress the importance of reporting year-to-year results in a standardized format, such as in a GRI Standards report  — most important, including a GRI Content Index.

At the Sustainable Brands New Metrics conference in 2018, SAP explained that organizations integrating ESG objectives see higher employee retention, and minimizing of risk for investors.

Renee Yardley’s commentary is our Top Story choice for you this week – do read it and you’ll find excellent examples of how companies in various sectors (Ford, Microsoft, Starbucks, Patagonia, Unilever) are dealing with their sustainability commitments in the face of challenges posed.

Click here for more information on Rolland and its environmental / sustainability efforts and products.

 

This Week’s Top Story

Three Sustainability Trends Gaining Momentum for 2019
(Friday, December 14, 2018) Source: Sustainable Brands – In the spirit of looking ahead to 2019, we’ve identified three important societal trends for 2019, relating to sustainability in business…

As the Global Demand for Palm Oil Rises, There is More Focus on the Growing Areas – and on Industry Behaviors Such as Deforestation

By Hank Boerner – Chair, G&A Institute

Palm Oil is one of the world’s most popular vegetable cooking oils and in western nations is widely used as prepared food ingredients. Food industry interests promote the benefits: lower cholesterol levels, less heart disease, more Vitamins A and E, and much more, derived from the rich beta-carotene from the pulp of oil palms.

Palm oil also shows up in our detergents, shampoo, cosmetics, pizza slices, cookies, margarine — and even in biofuels. Palm oil is especially used for cooking in Africa, Asia and parts of South America and is growing in favor in other regions such as in North America.

The palm oil plantations are located in such regions of the world as Southeast Asia – and there the industry is linked to the downside of the beneficial consumer product: deforestation, degrading of flora and fauna habitat, abuses of indigenous peoples, and negative impact on climate change as old growth land and tropical forest is cleared to make way for oil palm plantations.

Stakeholder reaction resulted in the creation of “reliable No Deforestation, No Peat, No Exploitation” policies – the “NDPE”.

These were developed for certification (to buyers) by the Roundtable on Sustainable Palm Oil (RSPO) and adopted in 2013 and 2014 by numerous Southeast Asian palm oil traders and refiners.

The policies (spelled out as best practices) are designed to prevent clearing of forests and peat lands for new palm oil plantations. There are 29 company groups, reports Chain Reaction Research, that have refining capabilities and have adopted NDPE policies. (Climate Reaction Research is a joint effort between Climate Advisers, Profundo and Aidenvironment.)

“Un-sustainable” palm oil practices are an issue for investors, customers (buying the oil), companies with sustainable practices, and countries in which palm oil is grown and harvested.

According to a new financial risk report from Chain Reaction Research, major markets with customers that accept “unsustainable palm oil” include India, China, Pakistan and Indonesia.

One of the major centers of production is the huge – more than 3,000-miles wide — Pacific Basin archipelago nation of Indonesia (once known as the Dutch East Indies). Almost half of the world’s palm oil refineries are in Indonesia and Malaysia.

The Indonesian government (the Ministry of Agriculture) reacted to the NDPE policies and proposed changes to its own certification program – known as the “Indonesian Sustainable Palm Oil Standard” (ISPO) – that would appear to be presenting companies with pressure to adopt one or the other of the certifications.  (The ISPO policy focus is on reducing Greenhouse Gas Emissions and addressing environmental issues.)

For Indonesia, palm oil is a strategic product that helps the government to meet job creation and export market goals. “Small holders” account for more than 40% of production in the country.

“Evidence suggests that the need for edible oil and energy will continue as populations grow, “Darmin Nasution, Coordinating Minister for Economic Affairs for Indonesia points out. “Land that can be utilized will decrease, so the question is how to meet those needs in the limited land area. Increasing productivity will be the key.”

Companies using the existing Indonesian ISPO certification were accused of human rights abuses and “land grabs” and so in January the government developed the new certification, which opponents claim weakens protection (the draft changes for the regulation removes independent monitoring and replaces “protection” with “management” for natural ecosystems).

Stranded Asset Risks

CDP estimates that global companies in the industry had almost US$1 trillion in annual revenues at risk from deforestation-related commodities. As the developed nation buyers looked carefully at their global supply chains and sources, “stranded assets” developed; that is, land on which palm oil cannot be developed because of buyers’ NPDE procurement policies. Indonesia and Malaysia have some of the world’s largest suppliers.

Western Corporate Reaction

Early in 2018 PepsiCo announced that it and its J/V partner Indofood suspended purchasing of palm oil from IndoAgri because PepsiCo — a very prominent global brand marketer — is concerned about allegations about deforestation and human rights were not being met.

Institutional Investors are busily identifying companies that source Crude Palm Oil (“CPO”) without paying attention to sustainability requirements, putting pressure on both sellers and buyers and perhaps pushing the smaller players to the sidelines. European buyers import CPO in large quantities to be used in biofuels.

The bold corporate names in western societies show up in rosters of company groups with refining capacity and NDPE policies, including Bunge, Cargill, Louis Dreyfus Company, Unilever, and Wilmar International. These are large peer companies in the producing countries (like IOI Group, Daabon, Golden Agri-Resources) are aiming for “zero deforestation” in their NDPE policies.

Other companies that source palm oil include Kellogg’s, Procter & Gamble, Mars, General Mills, Mondelez International, and other prominent brand name markets.

Your can check out the Chain Reaction Research group paper – “Unsustainable Palm Oil Faces Increasing Market Access Risks – NDPE Sourcing Policies Cover 74% of Southeast Asia’s Refining Capacity” at: http://chainreactionresearch.com/2017/11/01/report-unsustainable-palm-oil-faces-increasing-market-access-risks-ndpe-sourcing-policies

What About Exercise of National Sovereignty?

This situation raises interesting questions for developed nation brand marketers. If the government of Indonesia presses forward with the country’s own standards, should the purchaser in a developed country ignore or embrace the country standard? Instead of the Roundtable on Sustainable Palm Oil (RSPO) standard? What about “sovereign rights,” as in the ability for a sovereign nation to establish its own policies and standards governing the products developed within its borders?

As industry groups create their own standards and invite industry participants to embrace these (such as for product certification), corporations may find themselves bumping up against “nationalistic” guidelines designed to benefit the internal constituencies rather than “global norms” imposed from outside the country’s borders.

# # #

Responding to the streams of negative news coming out of Indonesia, Chain Reaction Research on April 26 reported that Citigroup has cancelled loans to Indofood Agri Resources and its subsidiaries. Citigroup will exit its overall relationship with Indofood other than specific financial relationships that are not related to the palm oil business, says the research organization.

The research firm said that labor and environmental violations by Indofood and other companies related to Anthoni Salim and his family have been documented. The web of companies: Salim and family own 44% of First Pacific, which owns 74% of Indofood.

In April a report commissioned by Rainforest Action Network Foundation Norway and SumofUS and prepared by Chain Reaction Research alleged deforestation of almost 10,000 hectares of peatland by PT Duta Rendra – which is majority owned, the report says, by Salim and PT Sawit Khatulistiwa Lestan, which is associated by Salim.

Notes:

As we prepared this commentary, the Danish Institute for Human Rights and The Forest Trust carried out a Labour Rights Assessment of Nestle’s and Golden Agri-Resources palm oil supply chain in Indonesia.  Nestle’s and GAR and going to share their own action plans in response to the findings and recommendations.

For The Roundtable on Sustainable Palm Oil information: https://www.rspo.org/

There is information from a recent conference in Jakarta for you at: https://www.scidev.net/asia-pacific/forestry/news/science-can-keep-palm-oil-industry-sustainable.html

The Indonesian Government ISPO information is at: http://www.ispo-org.or.id/index.php?lang=en

General Mills Statement on Responsible Palm Oil Sourcing is at: https://www.generalmills.com/en/News/Issues/palm-oil-statement

Rainforest Action Network information is at: https://www.ran.org/palm_oil?gclid=EAIaIQobChMIuJyBg97i2gIVE1mGCh3A-QMYEAAYASAAEgKZePD_BwE#

The Union of Concerned Scientists information is at: https://www.ucsusa.org/global-warming/stop-deforestation/drivers-of-deforestation-2016-palm-oil#.WudvOKjwbAw

A Big Year, 2018 – Tipping Points For Developments in Corporate Sustainability & Sustainable Investing…

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

Volume & Velocity!
Those may be well the key characteristics of developments in corporate sustainability and in sustainable in the year 2018.

Linda-Eling Lee, Global Head of Research for MSCI’s ESG Research Group and her colleague Matt Moscardi (Head of Research Financial Sector, ESG) this week described what they are projecting in the traditional early-in-the-year setting out of key ESG trends to watch by the influential MSCI ESG team:

Bigger, faster, more – that’s how Linda describes the “onslaught of challenges happening soon and more dramatically that many could have imagined” in the corporate sector” (including public policy, technology, and climate change as key factors).

Investors (in turn) are looking for ways to better position their portfolios to navigate the uncertainty of the 2018 operating environment in the corporate sector.

As the “heads up” for investors and companies– the five key 2018 trends projected by MSCI’s ESG researchers/analysts:

  • Investors will be using ESG “signals” to navigate the size/shape of the Emerging Markets investment universe to pick the winners for portfolios.
  • The first steps are coming in “scenario testing” for climate change (this is systematically looking at risks emanating from company carbon footprints across asset classes, with short- and long-term transition scenarios).
  • The fixed-income universe will see acceleration (velocity) with the alignment of ESG frameworks by investors across all asset classes.
  • And this is very important for the corporate sector:

Investors are looking beyond the growing volume of corporate disclosure and reporting for data.
Keep In Mind: 65% of a company’s rating by MSCI is based on data sources beyond the corporate reporting!

 

  • MSCI sees 2018 as the Year of the Human – it’s about human talent, talent, talent!  That is, what companies do to help in the transitioning to new working environments (with the changes brought about by automation, artificial intelligence, robotics) that will be factored into the analysis of public companies by the MSCI ESG team, and measured over time (for outcomes over a 3-year horizon).

Linda Eling-Lee observed:  These are the major trends that we think will shape how investors approach the risks and opportunities in 2018.

Already, at the Davos meetings this week, major global firms in IT are creating an initiative to “tech-reskill” one million people to meet the global skills gap challenge inherent in the “Fourth Industrial Revolution” (firms are Cisco, Accenture, CA Technologies, HP, Infosys, Salesforce, SAP, Tata Consultancy, others).

What we think company managements / boards should expect in the “volume and velocity” context:  many more investors (the volume / especially large fiduciaries) are embracing comprehensive ESG factors in their analysis and portfolio management approaches with a faster uptake of this trend among the mainstream elements of the capital markets players (the velocity).

Voluntary reporting by companies has its limits in providing a full picture of the companies’ ESG risks,” the MSCI ESG researchers note. “In 2018 we anticipate that the disclosure movement reaches a tipping point, as investors seek broader data sources that balance the corporate narrative and yield better signals for understanding the ESG risk landscape actually faced by portfolio companies”

# # #

Buzzing:  The Larry Fink CEO-to-CEO Message for 2018

Speaking of significant influence, the head of the world’s largest asset management firm sent an important CEO-to-CEO letter to stress the importance of companies having “a social purpose”

Background:  BlackRock engages with about 1,500 companies a year on a range of ESG issues, meeting with boards of directors and CEOs, and other shareholders when that is needed.

Each year, CEO Fink reaches out to the CEOs of companies in portfolio to alert them to the key issues in focus for BlackRock (as fiduciary).

For 2017-2018, the key Investment Stewardship priorities are:

  • Corporate Governance / Accountability
  • Corporate Strategy
  • Executive Compensation Policies
  • Human Capital (again — there’s the focus on talent management)
  • Climate Risk Disclosure

Larry Fink is the Founder, Chair, and CEO of BlackRock and heads the firm’s “Global Executive Committee.” BlackRock is about to celebrate its 30th anniversary in 2018.  It now manages more than US$6 trillion (Assets Under Management-AUM).

Of this, $1.7 trillion is in active funds managed by the company.  As one of the world’s most important and influential (and trend-setting) fiduciaries BlackRock engages with company management to drive the sustainable, long-term growth clients need to meet their goals.

“Indeed,” CEO Fink said in his letter to CEOs, ”the public expectations of your company has never been higher.”

“Society is demanding that companies, both public and private, serve a social purpose…to prosper over time, every company must show it makes a positive contribution to society.”

“Without a sense of purpose, no company…can achieve its full potential…it will ultimately lose the license to operate from key stakeholders…”

# # #

The Key Word on Responsible Investing Growth is Global, RBC Reported

In October 2017, RBC Global Asset Management (RBC GAM) conducted its second annual global survey of asset managers.  Two-out-of-three respondents said they used ESG considerations, and 25% will increase their allocations to managers with ESG investment strategies to offer in 2018.

Does ESG mitigate risk…or drive alpha?  Answers were mixed.  Some asset managers are increasing their allocation and others are skeptical, especially about the accuracy and value of the available data on corporate ESG performance.

For 2018:  RBC sees responsible investing as a global trend, with many managers incorporating ESG in analysis and portfolio management due to client (asset owner) demand.

# # #

Tracking Company Behaviors – The RepRisk ESG Risk Platform

One of the leading producers of research and business intelligence for the banking and investment communities is RepRisk, based in Zurich, Switzerland. The firm started in 2006 to serve bank clients wanting to be alerted to real or possible risk issues in the corporate sector.

RepRisk developed artificial intelligence and data mining tools, that along with human analysis, “reduces blind spots and sheds light on risks that can have reputational, compliance and financial impacts on a company…”

Today, there are 100,000-plus companies in the RepRisk database (both listed and non-listed, from all countries and sectors). The firm started out monitoring 100 companies for clients.  The daily screening is delivered in 16 languages and about 50 companies a day are added for screening.  Is your company one of those tracked?  What are the risks tracked?

# # #

Does Adoption of ESG Approaches Sacrifice Corporate Performance?

Robeco, one of the world’s leading financial services firms (based on The Netherlands), and a sister company of RobecoSAM, managers of the Dow Jones Sustainability Indexes, looked at the question of whether or not the adoption of ESG / sustainability approaches “cost” the company performance.

Adopting sustainability approaches does require investment, but companies with poor ESG performance also have greater risks and “seriously under-perform” their peers.  And investors “win” by investing in the better performers (that reduce risk, strategize around climate change, reduce bad behaviors).

Says Robeco:  “…a growing body of evidence concludes that companies which are progressively more sustainable today will reap the rewards of the future…and it may save their businesses…”

The Company’s positioning:  “Robeco is an international asset manager offering an extensive range of active investments, from equities to bonds. Research lies at the heart of everything we do, with a ‘pioneering but cautious’ approach that has been in our DNA since our foundation in Rotterdam in 1929. We believe strongly in sustainability investing, quantitative techniques and constant innovation.”

# # #

CalPERS, America’s Leading Public Employee System – Corporate Engagement on Diversity Issues

“CalPERS: is the California Public Employee’s Retirement System, the largest state investment fund in the United States with about $350 billion in total fund market AUM.

CalPERS sent letters to 504 companies in the Russell 3000 Index to engage on the issue of diversity on the companies’ boards of directors.

CalPERS request:  the company should develop and then disclose their corporate board diversity policy, and the details of the plan’s implementation (to address what CalPERS sees as lack of diversity in the companies).

“Simply put, board diversity is good for business,” said Anne Simpson, CalPERS’ investment director for sustainability.

Starting in Fall 2017 and into 2018, CalPERS is monitoring companies’ progress on the matter and making it a topic for engagement discussions.  If a company lags in progress, CalPERS will consider withholding votes from director-candidates at annual voting time (at annual meetings).

# # #

The Climate Action 100+ Investor Initiative

 Sign of the times: More than 200 investors supporting action on climate change by the corporate sector are focusing on the board room of such companies as ExxonMobil, Boeing, GE, P&G, Ford, Volvo, PepsiCo, BP, Shell, Nestle, Airbus, and  other  enterprises (the “100” plus companies in focus) to dialogue on their GhG emissions as contributions to global warming.

The 100 corporates are said to account for 85% of the total GhG emissions worldwide – they need to step up, says the Coalition, and develop strategies and take action (and disclose!) to address the issue.  The investors manage more than $26 trillion in AUM, and are coordinating their efforts through five partnerships…

# # #

McKinsey Weighs In – ESG No Longer “Niche” – Assets Are Soaring

The McKinsey & Co. experts studied ESG investing and reported to corporate clients that of the $88 trillion in AUM in the world’s capital markets (in late-October), more than $1-in-$4 (25%-plus) are invested according to ESG principles.  That’s a growth of 17% a year, and ESG has become “a large and fast-growing market segment.”

# # #

Investors Are Not Forgetting – Rana Plaza Still in Focus

One of the characteristics of the sustainable investing market players is having-the-memory-of-the-elephant.  Do you remember the Rana Plaza apparel factory tragedy of five years ago?  Most media reporters and commentators have moved on to other crisis events.

Investors are signing on to a statement – “Investors Call on Global Brands to Re-commit to the Bangladesh Accord for Fire and Building Safety” – with focus on the upcoming fifth anniversary of the statement signed (in May 2013) after the accident that killed more than 1,000 workers in Bangladesh.

Reforms were promised in the Accord by industry participants and trade unions.

# # #

Another Example of Investor Action – McDonald’s

“In a win for the health of the world’s oceans,” began the As You Sow shareholder advocacy group announcement, “McDonald’s Corp. agreed to end the use of polystyrene foam packaging – worldwide! – – by the end of 2018.

The advocacy group had campaigned to have the fast food retailer stop using foam cups and takeout containers.

A shareholder proposal filed by As You Sow in May 2017 requested the company stop using polystyrene and 32% of shares voted (worth $26 billion at the time) voted to support.

# # #

Finally – What a Low-Carbon Economy Looks Like – California Dreamin’

The State of California is the world’s sixth largest economy all by itself!

While President Donald Trump upon taking office fulfilled one of his signature campaign promises – beginning the process of withdrawal from the historic COP 21 Paris Accord on climate change – California Governor Edmund (Jerry) G. Brown, Jr is moving ahead with his state’s plans to move to a low-carbon economy.

The Global Climate Change Action Summit is scheduled for September 2018 in San Francisco, California.

The theme, as described by the governor:  “Sub-national governments” (cities & states), business sector leaders, investors and civil society leaders will gather to “demonstrate the groundswell of innovative, ambitious climate action from leaders around the world, highlight economic and environmental transition already underway and spur deeper commitment from all parties, including national governments.”

Says the governor: “California remains committed to a clean energy future and we welcome the responsibility to lead on America’s behalf…”

# # #

Coming:  ISS QualityScores for “E” and “S” for 1,500 Companies

As we communicated in early January, Institutional Shareholder Services (ISS) has expanded its long-term focus on corporate governance to encompass “E” and “S” issues for its QualityScore product for fiduciaries (its client base).  In late-January it is expected that ISS will issue the first wave of scores for 1,500 companies in six industries, expanding to 5,000 companies in additional industries by mid-year 2018.

The first 1,500 companies to be scored are in Autos & Components; Capital Goods; Consumer Durables & Apparel; Energy; Materials; and, Transportation.

The QualityScore is a Disclosure and Transparency Signal that investor-clients are seeking, says ISS, and an important resource for investors to conduct comparisons with corporate peers.

Keep in mind:  ISS serves its 1,700 clients with coverage in 117 global markets.

# # #

There’s much more information on this and other critical 2018 tipping points for corporate managers and investment professionals in the comprehensive management brief from the G&A Institute team posted on our G&A Institute’s “To the Point!” platform for you.

We’re presenting here more details on the MSCI trends forecast, the BlackRock CEO-to-CEO letter about Social Purpose for the Corporation, California’s move toward a low-carbon economy,  RepRisk’s focus areas for corporate behavior…and a host of additional important developments at the start of the year 2018 that will shape the operating environment throughout the year – and beyond! Read the brief here!

The DJSI – Analytical Game Changer in 1999 – Sustainable Investing Pacesetter in 2014

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

updated with information provided to me by RobecoSAM for clarification on 17 September 2014.

It was 15 years ago (1999) that an important — and game-changing  “sustainability investing” resource came in a big way to the global capital markets; that year, S&P Dow Jones Indices and Robeco SAM teamed to create the Dow Jones Sustainability Indices. This is described by the managers as “…the first global index to track the financial performance of the leading sustainability-driven companies worldwide,” based on analysis of financially material economic, environmental and social (societal) factors. Breakthrough, game-changing stuff, no?

Note “financially material” – not “intangible” or “non-financial,” as some capital market holdouts initially (and continue to) described the sustainable investing approach.  There were but handfuls of “sustainability-driven” companies in world capital markets for selection for the World benchmark.  1999 — -that year the Global Reporting Initiative (GRI) was assembling its first comprehensive framework for corporate reporting (G#) byond the numbers alone.  Interfaith Center for Corporate Responsibility (ICCR) was a steadily maturing organization mounting proxy campaigns to challenge the risky behavior of major companies that were polluting the Earth.  The Investor Responsibility Research Center (IRRC) was the go-to source for information on corporate behaviors, particularly related to corporate governance issues.  (And CG issues were rapidly expanding – the governance misbehaviors of unsustainable companies such as of Enron, WorldCom, et al, were not yet as evident as when they collapsed three years later.). Robert Monks and Nell Minow were active in Hermes Lens Asset Management, continuing to target poorly managed companies and encouraging laggard CEOs to move on. (Monks’s book, “The Emperor’s Nightingale,” was just out that year.)

Over the next 15 years, the managers of DJSI benchmarks steadily expanded their analysis and company-picking; the complex now offers choices beyond “World” —  of Dow Jones Sustainability Asia Pacific; Australia; Emerging Markets; Europe; Korea; and North America.

A handful of “sustainability-driven” companies have been aboard “World” for all of the 15 years; this is the honors list for some investors:  Baxter International (USA); Bayer AG; BMW; BT Group PLC; Credit Suisse Group; Deutsche Bank AG; Diageo PLC; Intel (USA); Novo Nordisk; RWE AG; SAP AG; Siemens AG: Storebrand; Unilever; United Health Group (USA).  Updated:  And Sainsbury’s PLC.

Though the DJSI indices have been availble to investors for a decade-and-a-half, it is only in the past few years that we hear more and more from corporate managers that senior executives are paying much closer attention.  “The CEO wants to be in the DJSI,” we frequently hear now.

Each year about this time the DJSI managers select new issues for inclusion and drop some existing component companies.  Selected to be in the World:  Amgen; Commonwealth Bank of Australia; GlaxoSmithKline PLC.  Out of the DJSI World:  Bank of America Corp; General Electric Co; Schlumberger Ltd.

DJSI managers follow a “best-in-lcass” approach, looking closely at companies in all industries that outperform their peers in a growing number of sustainability metrics.  There are about 3,000 companies invited to respond to RobecoSAM’s “Corporate Sustainability Assessment” — effective response can require a considerable commitment of time and resources by participating companies to be considered.  Especially if the enterprise is not yet “sustainability-driven.”  We’ve helped companies to better understand and respond to the DJSI queries; it’s a great exercise for corporate managers to better understand what DJSI managers consider to be “financially material.”  And to help make the case to their senior executives (especially those wanting to be in the DJSI).

updated informationRobecoSAM invites about 2,500 companies in the S&P Global Broad Market Index to participate in the assessment process; these are enterprises in 59 industries as categorized by RobecoSAM, located in 47 countries.

The new G$ framework from GRI, which many companies in the USA, EU and other markets use for their corporate disclosure and reporting, stresses the importance of materiality — it’s at the heart of the enhanced guidelines.  The head of indices for RobecoSAM (Switzerland), Guido Giese, observes:  “Since 1999, we’ve heled investors realize the financial materiality of sustainability and companies continue to tell us that the DJSI provides an excellent tool to measure the effectiveness of their sustainability strategies.”

Sustainability strategies — “strategy” comes down to us through the ages from the Ancient Greek; “stratagem”…the work of generals…the work of the leader…generalship…”  Where top leadership (and board) is involved, the difference (among investment and industry peers) is often quite clear.

At the S&P Dow Jones  Index Committee in the USA, David Blitzer, managing director and chair of the committee, said about the 15 years of indices work: “Both the importance and the understanding of sustainability has grown dramatically over the past decade-and-a-half…the DJSI have been established as the leading benchmark in the field…:”

The best-in-class among the “sustainability-driven” companies that we see in our close monitoring as GRI’s exclusive Data Partner in the USA, UK and Ireland, the company’s senior leadership is involved, committed and actively guiding the company’s sustainability journey.  And that may be among the top contributions to sustainable investing of DJSI managers over these 15 years.

Congratulations and Happy Anniversary to RobecoSAM and S&P Dow Jones Indices (a unit of McGraw Hill Financial).  Well done!  You continue to set the pace for investors and corporates in sustainable investing.

The Corporate Proxy Season is Underway – ESG Issues Are in Focus

by Hank Boerner, Chairman, G&A Institute

It’s a new year and the 2014 corporate proxy season is really underway, and the topics in focus are reflective of asset owners’ and managers’ concerns about key societal issues. Managements taking no action on the issues, deciding the wrong actions, or boards and managers ignoring the facts regarding key topics of concern to the asset owners could lead to greater risk, lost opportunities, and dramatic hits on corporate reputation — and share price valuations.

And all of that that could affect the value of the investors’ holdings. Since many of the shareowners are fiduciaries (think of SRI mutual funds, public employee pension funds, state trust funds), the growing consensus is that as fiduciaries, asset owners have a duty to be vocal, to actively engage with corporate management, and to take strong stands on key ESG issues. And, in some cases, to bring those issues to the electoral process at proxy time so all shareholders can have their say. Of course, there is usually negative press resulting for some companies.

“Proxy season” used to be those times of year when certain gadflies showed up to (in the view of management and board) ” harass” the assembled corporate leadership. (Such pioneer proxy luminaries as the Gilbert Brothers and Evelyn Davis come to mind.)

Today, the proxy  season is actually a year-round engagement, with advocates such as the Interfaith Center on Corporate Responsibility (ICCR) institutional members active in dialogue with corporate managements and board members on various E-S-G issues. One sea change of a decade ago or more was the linking of traditional corporate governance concerns with environmental and social or societal issue concerns, and working through the barriers to getting their resolution to the proxy statement and to vote.

Linking “good governance” practices with progress (or lack of) on supply chain issues, or product stewardship, marketing practices, protection of natural resources, or lobbying and political spending, now helps advocates avoid the “no action” letter from the SEC that allowed corporate managements to ignore the shareholder’s resolution. (In the past, the usual practice of SEC staff was to advise the company protesting the draft resolution that “no action” would be recommended to the commissioners if the company ignored the draft.)

So what is in store for 2014 corporate proxy voting — what are the issues in focus? Sustainable & responsible investing (SRI) advocates are raising issues with companies about public policy and climate. (As we write this, every US state is in the grip of a cold wave, that is being linked to climate change by experts.)  For two decades now, investors have engaged company managements about climate change.

Now, coalitions of shareholders are involved in a larger collective effort — “Raising the Bar” — in response, they say, to the expanding and alarming scientific evidence of our changing climate. And, as long-term advocates like Tim Smith of Walden Asset Management point out, the resulting significant environmental and economic impacts on the corporate enterprise. Investor interests are very concerned about climate change.

A number of companies — AEP, Chevron, Conoco, ExxonMobil — have received draft resolutions by coalition shareowners urging boards and managements to re-examine their opposition to regulation and legislation intended to address climate change. That includes their lobbying on climate change issues and disclosing more about those actions to their owners.

It’s not just direct company actions in focus — the shareowners include the corporation-funded efforts of the US Chamber of Commerce , the oil lobby (American Petroleum Institute) and the National Association of Manufacturers in the lobbying and advocacy on issues…

Beyond climate change, other proxy resolutions call for companies to re examine their state-level lobbying, especially through such groups as ALEC (the American Legislative Exchange Council), which operates primarily with corporate contributions and promotes conservative public policy issues with :”model” legislation which often moves from state-to-state. (An example is the “Stand Your Ground” laws adopted by a number of states.)

The companies in focus include Microsoft, Pfizer, Time Warner Cable, and UPS. Among the prime movers in this initiative: State of Connecticut Retirement Plans, Zevin Asset Management, Sisters of Charity of the Incarnate Word, and Walden Asset Management clients.

Some companies are responding to shareowner concerns — Coca-Cola, John Deere, Dell, P&G, GE, GM, Unilever, and Wal-Mart have reduced their involvement or quit ALEC,according to information provided by Walden Asset Management.

Other concerns: ICCR’s David Schilling advises that an issue now in focus is the garment industry’s pricing policies, following the Rana Plaza tragic fire in Bangladesh (killing 1,000+ people). The “Accord for Fire and Building Safety” addresses pricing practices and the almost 300 institutional members of ICCR and other shareholder advocates are focused on current pricing models, outsourcing, and prevailing wages in developing countries.

And, from Green Century Capital Management we hear that more than 40 institutional investors representing US$270 billion in AUM are urging the other invesotrs, major palm oil products, consumers, and major shareholders in such companies as food marketers Kellogg and financiers HSBC to support an effort to not contribute to further deforestation or support human rights violations. “Fueling deforestation is bad business for any company seeking to position itself as a responsible, sophisticated global player,” says Lucia von Reusner, Green Century’s shareholder advocate.

Ceres helps to mobilize business and investor leadership on climate change. Rob Berridge, director of shareholder engagement, says investors Ceres works with are asking corporate managements to actively address forced labor, deforestation, habitat destruction, and accelerating GhG emission, and to develop and operate palm plantations more responsibly.

Consumer-facing brand companies — Uniliver, Kellogg, Dunkin Donuts, HSBC — are facing high-profile consumer campaigns on palm oil issues. Some companies are saying in response that they will purchase of finance palm oil that has been certified by the Roundtable on Sustainable Palm Oil (RSPO).

There is much more action to come in the days ahead as the peak of proxy voting nears — we’ll bring you news and commentary and insight on trends in this space.  Stay Tuned to the 2014 ESG-focused proxy campaigns.