Advancing Toward a Circular New York

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By Kirstie Dabbs – Analyst-Intern, G&A Institute

New York City’s latest OneNYC 2050 strategy outlines an ambitious sustainability agenda that includes goals to achieve zero waste to landfill by 2030, and carbon neutrality by 2050.

New Yorkers who track city- and state-wide environmental goals and regulations are likely aware of the importance of renewable energy and energy efficiency in achieving this climate strategy, but those actions alone won’t fulfill New York’s ambitions.

A circular economy must also be adopted in order to further reduce greenhouse gas emissions and waste, while also conserving resources. Although the OneNYC strategy does make note of this shift, many New Yorkers remain unfamiliar with even the concept of the circular economy, let alone its principles, practices and potential impact.

What is the Circular Economy?

Also known as circularity, the circular economy calls for a reshaping of our systems of production and consumption, and an inherently different relationship with our resources.

Rather than following our current “linear” economic model that extracts resources to make products that are used and disposed of before the end of their useful life, a circular economy follows three core principles to extend the value of existing resources and reduce the need to extract new resources:

  • Design out waste.
  • Keep products and materials in use.
  • Regenerate natural systems.

These three principles — as put forth by the Ellen MacArthur Foundation — create opportunities to reduce and potentially eliminate waste,  from the design phase all the way to a product’s end of life.

Materials Matter

In the design phase, the choice of materials plays a critical role in either facilitating or preventing recirculation of materials down the line. By choosing to manufacture products with recycled materials, companies will drive demand for more post-consumer feedstock, further reducing waste to landfill which is aligned with the City’s waste-reduction goal.

Companies can also choose to manufacture products using responsibly sourced bio-based materials, which enable circularity because they biodegrade at the end of life with the appropriate infrastructure in place.

WinCup and Eco-Products are examples of companies leading the way toward biodegradable paper and plastic cup alternatives. The regenerative process of biodegradation is in line with the third principle of circularity and supports New York City’s waste goals in bypassing the landfill altogether and heading directly to the compost pile.

Durable Design Increases Product Lifespan and Reduces Consumer Demand

In addition to applying material design principles to divert material from landfill, companies can deploy design and marketing strategies to keep their products in use longer.

Designing durable products and those that can be easily repaired not only leads to longer product lives, but also reduces waste and demand for new products. Creating products that will be loved or liked longer – such as “slow” fashion that won’t go out of style – is another tactic to extend the emotional use of a product.

Finally, companies such as Loop that combine durability with reuse offer a solution to the packaging waste dilemma by keeping long-lasting packaging in circulation.

According to a 2019 report from the European Climate Foundation, by recirculating existing products and materials, the demand for new materials will decrease, reducing environmental degradation and product-related carbon emissions.

How Will the Circular Economy Help Reduce Greenhouse Gas Emissions?

The same report also notes that in order to meet the carbon reduction targets outlined by the Intergovernmental Panel on Climate Change, we “cannot focus only on…renewables and energy efficiency” but must also ”address how we manufacture and use products, which comprises the remaining half of GHG emissions.”

A recent press release from the World Economic Forum (WEF) summarized it succinctly: If we don’t link the circular economy to climate change, “we’re not just neglecting half of the problem, we’re also neglecting half of the solution.”

New York’s Steps to Advance the Circular Economy

Although the principles of circularity can be applied to an individual’s or organization’s behavior, to fully achieve a circular economy the economic system as a whole must fully adopt these principles.

According to a recent report by Closed Loop Partners — an investment company dedicated to financing innovations required for a circular economy — the four key drivers currently advancing circularity in North America are investment, innovation, policy and partnership. All are important and increasing; we are seeing the private and public sectors collaborating to take advantage of the economic opportunity offered by circularity while executing this environmental imperative.

The New New York Circular City Initiative

Closed Loop Partners, along with several other private and public organizations, have come together to found the New York Circular City Initiative, officially launching this month.

One of several partners participating in the initiative is the NYC Economic Development Corporation (NYCEDC), and Chief Strategy Officer Ana Arino spoke last year of how the NYCEDC is well-positioned to inspire and implement city-wide changes leading to a circular economy through levers such as real estate assets; programs to support circular innovation; its intersectional position between the private and public sectors; and public-facing awareness campaigns.

The vision of the New York Circular City Initiative is “to help create a city where no waste is sent to landfill, environmental pollution is minimized, and thousands of good jobs are created through the intelligent use of products and raw materials.” Through engagement in this collaborative effort, the City is taking an important step toward circularity, that, if scaled, has the potential to make significant and lasting changes in the local economy—and beyond.

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Kirstie Dabbs is pursuing her M.B.A. in Sustainability with focus on Circular Value Chain Management at Bard College.  She is currently an analyst-intern at G&A Institute working on GRI Data Partner assignments and G&A research projects. In her role as an Associate Consultant for Red Queen Group in NYC she provides organization analyses and support for not-for-profits undergoing strategic or management transitions.

 

Profile:  https://www.ga-institute.com/about-the-institute/the-honor-roll/kirstie-dabbs.html

 

This article was originally published on the GreenHomeNYC blog on September 28, 2020.

 

The United Nations at 75 Years This Week – Corporate CEOs Around the Globe Pledge Support of the Missions

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October 20, 2020

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

Three-quarters of a century of serving humanity — the family of nations celebrates the 75th Anniversary of the founding of the United Nations on October 24th.

After the global conflict of World War Two, with great losses of life, liberty and property, 51 nations of world gathered in San Francisco to put the Charter into force — to collectively explore a better way forward with collaboration not confrontation.  (The Charter was signed as the war was ending in the Pacific and had ended in May in Europe).  We can say that on October 24, 1945, the United Nations “officially” came into existence with the ratification of the Charter by nations and the gathering of delegates.

The United Nations members states — the global family of sovereign nations collaborating peacefully for seven-plus decades to address common challenges — got good news in its 75th anniversary year.

More than one thousand business leaders from 100+ nations endorsed a Statement of Renewed Global Cooperation, pledging to further unite in helping to help to make this a better world…for the many, not the few. Some of the world’s best known brand marketers placed their signatories on the document.

UN Secretary General Antonio Guterres received the CEOs’ messages of support at a Private Sector Forum during the recent General Assembly in New York (September).

The Statement from Business Leaders for Renewed Global Cooperation was created as the nations of the world are coping with the impacts of the Coronavirus, domestic and global economic slowdown, rising political and civic unrest, wars in different regions, critical climate change challenges, the rising demand for equality of opportunity, and more.

The corporate CEOs’ public commitments included demonstration of ethical leadership and good governance (the “G” in ESG!) through values-based strategies, policies, operations and relationships when engaging with all stakeholders.

Now is the opportunity, the statement reads, to realign behind the mission of the UN to steer the world onto a more equitable, inclusive and sustainable path. We are in this together – and we are united in the business of a better world.

“Who” is the “We”? Leaders of prominent brands signing on include Accenture, AstraZeneca, BASF, CEMEX, The Clorox Company, Johnson & Johnson, Moody’s, Nestle, Thomson Reuters, S&P Global, Salesforce, Tesla, and many other consumer and B-to-B marketers. (The complete list of large-cap and medium and small companies accompanies the Statement at the link.)

There are many parts of the global community’s “meeting place” (the UN) that touch on the issues and topics that are relevant to us, the folks focused on sustainability. Think of the work of:

UN Global Compact (UNGC)
This is a non-binding pact (a framework) to encourage enterprises to voluntarily adopt sustainable and socially responsible policies and report on same; 12,000+ entities in 160 countries have signed on to date (the Compact was created in July 2000).

UN Principles for Responsible Investing (PRI)
Founded 2006, this is a global network of financial institutions and others in the capital markets pledging to invest sustainably, using 6 principles and reporting annually; today, there are 7,000+ signatories to date in 135 countries; this is in partnership with UNGC and the UNEP Finance Initiative.

UN Sustainable Development Goals (SDGs)
The SDGs (17 goals with 169 targets) build on the earlier Millennium Development Goals MDGs- (2000-2015).

The Paris Agreement builds on the UN Framework Convention on Climate Change.

The UN Environment Programme (UNEP) plays important roles in protecting the world’s environment.

In all, there are almost three dozen affiliated organizations working to advance humanity through the United Nations System.

 

SHARED PERSPECTIVES: FAYE LEONE
With all of this activity, the UN needs support, and shared ideas, to build even stronger foundations. Our colleague, G&A Institute Senior Sustainability Content Writer Faye Leone, has a decade of experience reporting on the UN.

Her perspectives: “It is exactly right for business leaders to express support for global cooperation– not competition- at this time. This is in the spirit of the UN’s 75th anniversary and critical for the next big challenge for multilateralism and solidarity: to fairly provide a safe vaccine for COVID-19.”

She explains that leading up to its 75th anniversary in September 2020, the UN conducted a year-long ‘listening campaign”. The results, after over one million people around the world participated!

They said they do not want “more of the same” from the UN.  They overwhelmingly called for a more inclusive, diverse, and transparent UN that does a better job of incorporating businesses, cities, vulnerable peoples, women, and young people. They also said the UN should be more innovative.

(View Source)

The Sustainable Development Goals, says Faye, can help with that.  The 17 goals “provide a common language for everyone to combine their strengths. According to the head of B Lab, business’ role is to participate in delivering on the SDGs, use the power of business to solve the world’s most urgent problems, and inspire others to do the same”.

(View Source)

Read more about the UN’s 75th anniversary through Faye’s work with IISD here.

Read more about the UN’s 75th anniversary here.

Mark October 24 on your calendar. That’s the day we commemorate the UN’s official founding after WW II (on 24 October 1945). We invite you to think about how you can support the UN moving toward the century-of-service mark in 25 years (2025) – and what ideas you can share to help this organization of the family of nations to address 21st Century challenges!

TOP STORY

Celebrating Highlights Issue #500 – And Unveiling a New Design

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October 16, 2020

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

Celebrating Highlights issue #500 – this is a landmark achievement, we will say, for this is also the tenth anniversary year of publishing the G&A Institute’s weekly newsletter (G&A Institute’s Sustainability Highlights).  As you will see in reading #500, we are also introducing an enhanced format intended to make the newsletter easier to read or scan as well.

Our G&A Institute’s Sustainability Highlights newsletter is designed to share timely, informative content in topic/issue “buckets” that we think will be of value to you, our reader. So much is happening in the sustainable investing and corporate sustainability spaces these days – and we are working hard to help you keep up to date with the important stuff!

Publishing the Sustainability Highlights newsletter is a team effort here at G&A.

Our company was formed in late 2006 and among our first efforts, Ken Cynar, then and now our Editor-in-Chief, began the daily editing of the then-new “Accountability Central” web site with shared news and opinion. The focus was (and is) on corporate governance, environmental matters, a widening range of societal and corporate-society issues, SRI investing, and more.

Two years later we created the “SustainabilityHQ” web platform – Ken manages content for both platforms today.

Back in those early days there was not the volume of ESG news or opinion pieces that we see today. Whenever we “caught” something of note the rest of the G&A team would quickly share the item with Ken.

Our team had worked together (some for a number of years) at the former Rowan & Blewitt consultancy, specialists in issue management, crisis management and strategic communications for the fortunate Fortune 500s.

That firm was acquired by Interpublic Group of Companies and after 7 years the New York City team created G&A Institute to focus on corporate sustainability, responsibility, citizenship and sustainable & responsible investing.  All of us came equipped with a strong foundation of issue management, risk management, critical issues managements, and corporate communications experience and know-how.

“ESG” had just emerged as a key topic area about the time we began our publishing efforts and soon we saw a steady flow of news, features, research reports, opinions & perspectives that we started sharing.

We had worked on many corporate engagements involving corporate governance, environmental management, a range of societal issues, public policy, and investor activism.  Here it was all coming together and so the G&A enterprise launch to serve corporate clients!

By 2010, as we emerged from the 2007-2008 financial markets debacle, then-still-small-but-solid (and rapidly expanding) areas of focus were becoming more structured for our own information needs and for our intelligence sharing, part of the basic mission of G&A from the start. And so, we created the weekly Highlights newsletter for ease of sharing news, research results, opinion & perspectives, and more.

It is interesting to recall that in the early issues there were scant numbers of corporate CSR or sustainability etc. reports that had been recently published (and so we were able to share the corporate names, brief descriptions of report contents, links of those few reports).  That trickle soon became a flood of reports.

But looking back, it was interesting to see that at the start of the newsletter and our web sites, there were so few corporate sustainability / responsibility reports being published we could actually post them as news for readers. Soon that trickle of corporate reports became a flood.

A few years in, The Global Reporting Initiative (GRI) invited G&A to be the data partner for the United States and so our growing team of ESG analysts began to help identify and analyze the rapidly-increasing flow of corporate reports to be processed into the GRI’s global reporting database.

Hank Boerner and Lou Coppola in the early days worked closely with Ken on the capturing and editing of content.  Lou designed the back end infrastructure for formatting and distribution.

Amy Gallagher managed the weekly flow of the newsletter, from drafts, to layout and then final distribution along with the coordination of a growing body of conference promotions with select partner organizations.

And now with a solid stream of content being captured today, all of this is a considerable effort here at G&A Institute.

Ken is at the helm of the editorial ship, managing the “AC” and “SHQ” web platforms where literally thousands of news and opinion are still hosted for easy access. He frames the weekly newsletter.

Today Ken’s effort is supported by our ESG analysts Reilly Sakai and Julia Nehring and senior ESG analyst Elizabeth Peterson — who help to capture original research and other content for the newsletter.

Hank and Lou are overall editors and authors and Amy still manages the weekly flow of activities from draft to distribution.  Our head of design, Lucas Alvarez, working with Amy created this new format. As you see, it is a team effort!

There is a welcome “flood” — no, a tidal wave! — of available news, research and opinion being published around the world that focuses on key topic areas: corporate sustainability, CSR, corporate citizenship, ESG disclosure & reporting, sustainable investing, and more.  We capture the most important to share in the newsletter and on our web sites.

We really are only capturing a very tiny amount of this now-considerable flow of content, of course, and present but a few select items in the categories below for your benefit.  (The target is the three most important stories or items in each category.)

Much more of the ongoing “capture effort” is always available to you immediately on the SustainabilityHQ web platform (see the “more stories” links next to each category of headlines).

We hope that you find Sustainability Highlights newsletter of value. It’s a labor of love for us at G&A, and we would like to get your thoughts and feedback …including how we can continue to improve it. Thanks for tuning in all of these years to our long-term readers!

TOP STORIES

As example of the timely news of interest for this week we offer these (two) commentaries on the Sustainability Development Goals (SDGs).  We are five years in/with 10 years in which to make real progress…where do you think we are headed?

As students and faculty head back to campus – there’s discussion about “sustainability” and “campus”:

 

Rising Heat & Humidity, Rising Sea Levels, Up & Down Shifts in Crop Yields, More Large Fires, Huge Human Migration Within the United States -– What We Are Learning Today

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September 24 2020

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

There is so much going on in the global sustainability space that we could draw an apt analogy – it’s “like drinking water not out of a straw but a fire hose!”

Every week our team seeks out the news, feature and research items that will help you stay informed on developments in corporate sustainability and CSR, sustainable investing, the actions of governments and civil society leadership, activists, academics & researchers…and more.

For the past two or three years the pace of these developments has accelerated and so created a long list of many “possibilities” to share with you.  Sometimes, certain news jumps up and shouts at us from the print or digital page.

Example:  This week we see a powerful accounting of the impacts of climate change as assembled by ProPublica, an independent, nonprofit journalism organization focused on the major issues of the day.   The collaborating journalists – at ProPublica and The New York Times with support from the non-profit Pulitzer Center — focused on “the compounding calamities of climate risk” and the projected impact on the continental U.S.A. over the coming decades.

The issues “stack on top of one another”, they write.  Such as rising heat, excessive humidity, oceans rising, very large fires, crop failures, economic damages, and more…scary projections for the 2040-2060 timeframe.   (That is starting only 20 years, or 240 months, just 1,000+ weeks away!)

ProPublica worked with data from the Rhodium Group, which when presented in the context of the report, tell a story of warming temperatures, and changing rainfall that will drive agriculture and temperate climates from south to north, as the sea levels rise and vast amounts of coastlines “are consumed” and dangerous levels of humidity “swamp the Mississippi River Valley”.

All of this will profoundly interrupt the way that we in this, the world’s largest economy, will live and farm and work later in this century.  This could be an era to be marked by mass migration within the U.S.A., far outpacing the dramatic “Great Black Migration” with large populations moving from southern states to the north, profoundly reshaping this Land.

The data is presented in maps and county-by-county review; you can in the visuals presented see how the temperate zone marches north and more…for corn and soy production, harvests will decrease and increase, depending on location in the country.

Economic impact? (Serious projections to consider today while we experience dislocation now due to the Coronavirus pandemic include rising energy costs, lower labor productivity, poor crop yields, increase in crime and more.

Which counties will rise and which, fall?  The maps tell the story.

This reportage was so important and timely that the NY Times published a comprehensive wrap up this weekend in the Sunday magazine (reaching well beyond two million print and digital subscribers).   We present this important reportage for you in the Top Stories.

Timeliness:  This is also Climate Week, with important digital and some physical meetings around the world to focus on climate change challenges. We’re sharing some of the coverage of that as well.

 

Top Stories

Americans Tuning in to Sustainability During Crises, Expecting “More” from Government and Corporate Sector

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August 27 2020

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

According to responses to a June on-line survey of 2,000 adults in the U.S.A. for “clean manufacturing” leader Genomatica, sustainability is now a top-of-mind issue, with an overwhelming majority (85% of respondents) of Americans indicating they’ve been thinking about sustainability the same amount or more…and 56% want brands and government to prioritize sustainability even in the midst of the crises (Coronavirus, economic downturn – plus civil unrest).

According to Genomatica CEO Christophe Schilling: “The collective consciousness on sustainability is rising, and certainly faster than most would have expected during these unprecedented times.

While this shift has been underway for decades, and is particularly strong in Europe, many of us in the U.S. have been inspired by the rapid improvement in air quality and traffic that shine a bright light on how our behaviors and decisions impact our environment and quality of life.”

Other interesting survey findings:

  • 59% of Americans say working from home is more sustainable than working in an office.
  • 37% of Americans are willing to pay a little more for sustainable products, even during an economic downturn. Gen-Z is the most willing age group, at 43%.
  • Half of Americans won’t be comfortable using sharing economy services like Uber or Airbnb (53%), riding public transportation (54%) or carpooling (50%) until there is a vaccine, if ever.

There’s more findings in the Top Story link below:

Part of the “sustainability thinking” is about personal investments…and how to do well financially while doing good with one’s financial activities.

A new report published by the foundation of The Forum for Sustainable and Responsible Investment (US SIF) explores the growth of passive ESG investing and the outpace of investor flows into passive vs. active ESG funds.

The report shows that “net flows into passively-managed ESG funds have in recent years outpaced net flows into their actively managed counterparts” — despite the fact that “the vast majority of sustainably-invested assets are in actively-managed ESG funds.”

Meg Voorhes, Director of Research at the US SIF Foundation explains:  “The advent of passive ESG funds provides more options to investors seeking sustainable impact, and we encourage these fund managers to make commitments to comprehensive ESG approaches.”

Follow Up to Last Week
In last week’s Highlights we told you about Morgan Stanley’s pioneering move to join the Partnership for Carbon Accounting Financials (“PCAF”).  The update:  Citi and Bank of America are on board, too.  Great news moving toward the low-carbon economy. 

Citi, Bank of America join Morgan Stanley in carbon-disclosure group

Individual news releases from the banks with the details:

Lively Discussions: The Move Toward Harmonized Corporate ESG / Sustainability Reporting

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September 22 2020

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

There are lively discussions going on, centered on improving publicly-traded company disclosure and reporting – and especially ESG reporting…that is, storytelling about the company’s “non-financials” (in accounting-speak).  And the story of the corporate sustainability story for those-in-the-know!

The proliferation of ESG / sustainability reporting frameworks, standards, information platforms, industry guidance, stock exchange guidance and much more has been astounding in recent years.

We think of all this as about the organizing of the storytelling about a company’s sustainability journey and what the enterprise has accomplished. 

And why the story matters to society…to investors, employees, customers, suppliers, communities…and other stakeholders.

And it has a been a long journey to the state of today’s expanding corporate ESG disclosure.

The start of mandating of periodic financial and business mandated disclosure goes back to the 1930s with passage of landmark federal legislation & adopted implementation (compliance) rules for publicly-traded companies in the United States.

Corporate financial disclosure in concept is all about providing shareholders (and potential investors) with the information they need to make buy-sell-hold decisions.

The sturdy foundations of mandated corporate disclosure in the U.S. are the laws passed after the 1929 stock market crash – the 1933 Securities Act and 1934 Exchange Act.  These laws and the bodies of rules deriving from them have been constantly updated over the years, including with Sarbanes Oxley legislation in 2002 and Dodd Frank in 2010. These mandate or guide and otherwise provide the rules-of-the-road for financial disclosure for company managements.

Disclosure has steadily moved well beyond the numbers – Sarbanes-Oxley updated the 1930’s laws and addressed many aspects of corporate governance, for example.

Voluntary Disclosure & Reporting – ESG Issues & Topics
Over the past 40 years, beyond the financials, corporate voluntary non-financial disclosure has been steadily increasing, as investors first embraced “socially responsible investing” and moved on to sustainable & responsible & impact investing in the 21st Century.

Asset owner and asset manager (internal and external) requests for ESG information from publicly-traded companies in portfolio has steadily expanded in the depth and breadth of topic and issue areas that institutional investors are focused on – and that companies now address in significantly-expanded ESG disclosures.

Today, investor interest in ESG / sustainability and related topics areas is widespread throughout asset classes – for equities, equity-focused products such as imutual funds and ETFs, fixed-income instruments, and now credit risk, options and futures, fixed assets (such as real estate), and more.

With today’s dramatic increase in corporate sustainability & ESG reporting, the maturation of reporting frameworks and standards to help address the internal need for better organizing non-financial data and information and accompanying ESG financial disclosure.

And all of this in the context of trying to meet investor demands.  Today with expanded ESG disclosure, corporate executives find that while there are more resources available to the company, there is also more confusion in the disclosure process.   Investors agree.

Common Complaints:  Lack of Comparability, Confusion, Demand for Change
The result of increasing demand by a widening range of investors for accurate, detailed corporate ESG information and the related proliferation of reporting frameworks and standards can and has resulted in confusion among investors, stakeholders and companies as to what is important and material and what is frill.

This especially as corporate managements embrace various elements of the available frameworks and standards and industry guidance and ESG ratings for their still-voluntary ESG reporting.

So where do we go from here?  In our selection of Top Stories for you, we bring you news from important players in the ESG reporting process as they attempt to move in the direction of more uniform, comprehensive, meaningful and decision-ready corporate ESG reporting. That investors can rely on.

The news for you is coming from GRI, SASB, GSSB, IIRC, CDSB, and CDP (among others) – all working to get on the same page.

The aim: to benefit corporate reporters – and the users of the reports, especially capital market players.

Because in the end, ESG excellence is all about winning in the competition for access to capital. Accurate, timely, comprehensive comparable ESG information is key!

Top Stories

As Summer 2020 Nears End in Northern Hemisphere – Quo Vadis, Corporate Sustainability and ESG/Sustainable Investing?

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September 14 2020

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

This has been a strange summer in the northern climes, as the corporate sector and capital markets players meet the challenges of the Big Three crises — Corona virus pandemic, economic downturn, and widespread civil protests.

In times of crises (and as we have at least three major crisis situations occurring all at once to deal with this summer) certain actions may take a back seat.  Not so with forward movement of corporate sustainability and ESG/sustainable investing in summer 2020.

We bring you brief updates on some of these trends that continue to shape the interactions of companies and their providers of capital.

First –– worldwide, ESG/sustainable investing index funds reach a record of US$250 billion, with the crises appearing to accelerate investors’ moves into these passive and actively managed investment instruments.

Consider:

  • Before COVID-19, sustainability funds were already experiencing major growth, with assets doubling over the past three years.
  • Actively-managed ESG mutual funds continue to attract the lion’s share of dollars and represent a much larger portion of the sustainable investing landscape. Combined inflows into both active and passive ESG-focused funds reached $71.1 billion during the second quarter — pushing global AUM above the $1 trillion mark for the first time.
  • In the USA, sustainable index funds still make up less than 1% of the market – lots of room for growth here!
  • According to a recent survey conducted by Morgan Stanley’s Institute for Sustainable Investing, nearly 95% of Millennials are interested in sustainable investing, while 75% believe that their investment decisions could impact climate change policy.

On the corporate sustainability side, Goldman Sachs shares the view that oil & gas enterprises could lead the way into a lower-carbon economy. Perhaps.  Will take leadership and action – very soon.

The sector’s leading equities players limped in value this summer and there are many challenges still ahead – but, says a Goldman Sachs report, a new European Union rule in 2021 could accelerate the oil & gas companies’ shift into more sustainable activities.  The industry leaders can leverage their brands and trading capabilities to acquire power customers, thinks GS analysts.  And exert leadership.

And the “octopus” that many retailers see encircling their businesses, Amazon, is pushing ahead with The Climate Pledge (founded by Amazon and Global Optimism in September 2019) with an important commitment:  meeting the Paris Agreement goals a decade early!

Info: https://sustainability.aboutamazon.com/about/the-climate-pledge

Mercedes-Benz is the latest signatory to the pledge.  And look at what these moves can mean in practical business terms:  Amazon will add 1,800 electric Mercedes-Benz vans to its delivery fleet in Europe in 2020!  Other big-name corporate signatories include Verizon, Infosys, and Reckitt Benckiser.

Not quite a quiet summer in the corporate sector and capital markets, we would say!

On to Fall now in the Northern climes and a most welcome Spring season in the Southern Hemisphere, 2020 into 2021.

These are the Top Stories picks for you this week – and there are important items in the categories as well.  Happy Welcome to Autumn and Spring, wherever you are from the G&A Institute team.

Top Stories

The Financial Sector and Corporate Universe – the “ESG Factors” Are Now Everywhere When Companies Seek Capital

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September 8 2020

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

The roots of today’s “sustainable investing” approaches go back decades; the organizing principle often was often around  what investors viewed as “socially responsible”, “ethical”, “faith-based” and “values” investing, and by other similar titles.

“SRI” over time evolved into the more dominant sustainable or ESG investing in the 21st Century — with many more mainstream investors today embracing the approach.

And busily shaping trends, there is a universe of ESG ratings agencies and information distributors providing volumes of ESG ratings, scores, rankings and opinions to institutional investor clients and a broad base of asset managers, index creators and more.

Recently, the three major credit risk agencies increased their focus on ESG factors for their investor and lending clients.

Access to and cost of capital for companies is a more complicated situation today for financial executives  — and the steady flow of “sustainable investing” products to asset owners and asset managers increases the importance of a publicly-traded firm “being in” the sustainable product for institutional and retail investors.

Such as having the company being present in an ever-wider range of ESG indexes, benchmarks, mutual funds, exchange-traded funds, and now even options and futures.

All of this can and does increase pressures on the publicly-traded corporation’s management to develop, or enhance, and more widely promote the company’s “public ESG profile” that financial sector players will consider when investing, lending, insuring, and more.

The latest expansion / adoption of ESG approaches for investable products are from Cboe Global Markets.

The new “Cboe S&P 500 ESG Index”(r) options (trading starts September 21) will align with investor ESG preferences, says the exchange.

The traditional S&P 500 index is a broad-based equity benchmark used by thousands of investment managers and is the leading equities benchmark representing about 85% of total USA publicly-traded equities (all large-cap companies).  Availability to investment managers of the S&P 500 ESG Index is a more recent development.

The S&P 500® Index (equities) measures the stock performance of 500 large-cap companies whose issues are traded on US stock exchanges.  It was created in 1957.

The newer S&P 500 ESG Index targets the top 75% of companies in the 500 universe within their GICS® industry group.(Exclusions include tobacco, controversial weapons and UNGC non-compliance.) Asset managers link sustainability-focused products for investors to this index, including Invesco and State Street (SPDRs) for their ETFs.

Note that the S&P 500 ESG Index uses S&P DJSI ESG scores and other data to select companies for inclusion —  increasing the importance of the Corporate Sustainability Assessment (CSA) that for two decades has been used to create the Dow Jones Sustainability Indexes (“DJSI”). (The CSA is managed by SAM, now a unit of S&P Global.)

About Futures:  In November 2019 CME Group launched its CME E-mini S&P 500 ESG Index futures as a risk management tools — aligning, it pointed out, with ESG values.

About the CME Group: You probably know the Chicago-based firm by its units, the Chicago Mercantile Exchange, New York Mercantile Exchange, Chicago Board of Trade, Kansas City Board of Trade, and others.  The organization’s roots go back to 1848 as the Chicago Board of Trade was created. This is the world’s largest financial derivatives exchange trading such things as futures for energy, agriculture commodities, metals, interest rates, and stock indexes.

Investors have access to fixed-income instruments and foreign exchange trading (such as Eurodollars).  The “trading pit” with shouted orders and complicated hand signals are features many are familiar with. Of course CME has electronic platforms.

About Cboe Global Markets:  This is one of the world’s largest exchange holding companies (also based in Chicago) and offers options on more than 2,000 companies, almost two dozen exchanges and almost 150 ETFs.  You probably have known it over the years as the Chicago Board Options Exchange, established by the Chicago Board of Trade back in April 1973.  (The exchange is regulated by the SEC.)

The Cboe offers options in US and European debt and equity issues, index options, futures, and more.  The organization itself issued its own first-time ESG report for 2019 performance, “referencing” GRI, SASB, TCFD, SDGs, and the World Federation of Exchanges (WFE), Sustainable Stock Exchanges (SSE) initiatives. Now ESG is part of the mix.

Considering equities, fixed-income, stock indexes, futures, options, mutual funds, exchange-traded funds, financial sector lending, “green bonds” and “green financing” – for both publicly-traded and privately-owned companies the ESG trends are today are very much an more important part of the equation when companies are seeking capital, and for the cost of capital raisedl.

And here clearly-demonstrated and communicated corporate ESG leadership is critical to be considered for becoming a preferred ESG issuer for many more investors and lenders.

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As “Corporate Citizen” Working In Many Lands – This Can Be Challenging, As Corporate Experiences With China Show…

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Another in the series The Corporate Citizen and Society – the Dynamics of the Relationship

Started in Autumn 2019 – drafting interrupted – further edited in June 2020 – and posted in September 2020. 

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

Running a multi-national business today is quite challenging, especially for firms with “footprints” of size in countries beyond the homeland.

Recently we have been watching some critical events…at times crisis situations…that senior executives are navigating. 

Of course, corporate leaders are responding to the Covid-19 pandemic – and civil protests in many cities and towns related to equality issues and objections to current methods of policing. – and the economic dislocations of the virus and more.  

For large multi-nationals with a presence in many different nations – sourcing there, or with local facilities in operation, or with products and services extensively used in the countries, with partnerships established with the public sector or NGOs – the challenge of being a “good corporate citizen” is ever-present. And sometimes can be daunting.

Challenges? Think about those related to continuing “freedom to operate” or “social license” or actual regulatory license to operate that may be placed in jeopardy in some way or another. 

Something done, something said (or published or communicated)…with the foreign governments objecting to that “something”.– and threatening to or taking action to limit the freedom to operate. 

When I began drafting this commentary last fall, tiny bits of news about the Coronavirus was just beginning to be reported out of China, with very sketchy details.  By year end, It was a kind of flu. Nothing to worry about. 

In the news headlines at that time (summer into fall 2019) there were more obvious challenges being presented to non-Chinese tech companies as the Hong Kong people protests continued to build momentum, and the Communist government in the mainland began to put pressure on the corporate sector (perhaps pressuring foreign companies’ media that had China news coverage).

An example of this kind of threat came to us in October 2019 involving Apple — concerning its vital relationship with the “two Chinas” – and with significant production and retail stores on the mainland — the People’s Republic of China being the #2 global market for Apple sales.

Other non-China-based companies have also being feeling the pressures as well.  

Just offshore from mainland China, trouble was quite evident to the world in the former British territory of Hong Kong, which is a kind of status aparte of the mainland. (That is similar to the status of Aruba in the Caribbean Basin to parent country The Netherlands.)  China has maintained a “one country-two systems” approach to Hong Kong. Until now. 

China gained re-sovereignty over the Hong Kong territory in 1997 with the execution of a treaty at the end of the United Kingdom’s 99-year lease. The treaty terms were meant to assure separate governance systems for the more advanced Hong Kong economy and territory’s political system of that era.

Early in October 2019, an Apple device software application – Hkmap.live – developed by an outside firm and sold through the Apple Store, was removed from the on-line store. 

The concerns:  Reuters News and Associated Press reported that the Communist Party’s main newspaper (the People’s Daily) had singled out Apple for criticism for having the third party app for sale (and used on smartphones)  that reportedly enabled Hong Kong protesters to track the local police activity.

The People’s Republic of China’s propaganda arm (the publication) said this was a no-no – that is, Apple making the app available — and Apple removed the app because it “violated the rules,” according to the Reuters/AP report at the time.  (Reason: the app could be used to ambush police and by criminals where police were absent – the Apple rules allow for removal when the app is found to facilitate illegal activity.)

Apple had first rejected HKmap.live — then agreed to make it available — and then as the protest mounted (and mainland China responded), the app came off the App Store.

Was it the People’s Daily targeting of Apple and the app…or what the company said (“…many concerned customers in Hong Kong contacted the company…”).

An MSNBC commentator (Kif Leswing) weighed in, pointing out that Apple also removed a news stream (Quartz) because the content is illegal in China. Quartz was covering the Hong Kong democracy protests.

This is/was not a new issue: Back in 2017 several U.S. Senators presciently charged that Apple was enabling the Chinese government’s draconian moves on censorship and citizen surveillance.  (Which moves, according to news reports of today, involves collecting everyone’s DNA and placing cameras everywhere to track everyone – plus developing a “social profile” for tracking the movements of citizens — and meting out punishment where officials think it is merited.)

We note here that Google also quietly removed Hong Kong protest content from the Android store — without creating Apple-type headlines.

But – for those who had downloaded the app, it continued posting locations of police patrols, so said The Los Angeles Times.

MSNBC noted that Apple more than other tech companies has a very close relationship with China (where 200 million-plus iPhones are made each year) and China is an important market as well with tens of billions in revenue in total from the “three Chinas”.  (For Apple, China is the #2 market for iPhones.)

The third China: the separate nation of the Republic of China, more generally known as Taiwan, and persistently claimed by the mainland as part of its territory. “China” is a complicated subject for many company managements. And then there is Hong Kong and nearby Macao, outposts of China mainland.)

Apple CEO Tim Cook sent a memo to Apple’s 130,000 employees to explain the move. And we can assume try to calm nerves internally.

US Senator Josh Hawley (Missouri) quickly posed the question:  Who is running Apple…Tim Cook or Beijing?

If We Don’t Agree — We Will Name & Share – Beware of the China Leadership

Brands targeted by China’s rulers have been subjected to campaigns (name and shame) to alert local customers of issues with a company or organization.

This could become more of a threat to non-Chinese companies as the government continues to develop the “social profile” of its citizens. And captures their imagines on street cameras. Which company’s products they buy could become a major issue in the western democracies!

Further complicating life for execs — we’ve seen the rise of internal protest inside U.S. tech companies, when employees don’t like the work being done for customers –particularly government agencies, police departments, intelligence agencies, military branches, etc. 

Business-society relationships are complicated. Sports is a big business in the USA. The National Basketball Association is a powerful sports enterprise now with global reach and the ownership universe (the key decision-makers) is made up of corporations and wealthy partnerships that own local sports teams. 

So – when the manager of the Houston Rockets briefly voiced support of the Hong Kong protests — the state TV in China stopped the broadcast of NBA games.  Pow!

Senator Majority Leader Mitch McConnell (R_Kentucky) quickly weighed in: “The people of Hong Kong have risked much more than money to defend their freedom of expression, human rights and autonomy.  I hope the NBA can learn from that courage and not abandon those values for the sake of their bottom line.” (The NBA apologized for the Twitter comment of the Houston team GM. It’s not comfortable being in the middle of intercontinental cat fight.)

Complicating matters: Majority Leader McConnell’s wife – Secretary of Transportation Elaine Chao – is a Chinese-American born in Taiwan. She was Secretary of Labor under President George W. Bush (and therefore an overseer of U.S. fiduciary investment policy-making at the DOL, affecting decisions of many large investors.) More complications in public and private sectors, we could say.

The Houston basketball team has been very popular in China and a star player (Yao Ming) played for the team.   The U.A. Senate majority leader is a constant critic of China policies. Complicated matters for companies doing business in and with China!

Senator Ted Cruz (R-Texas) also weighed in:  “We’re better than this. Human rights should not be for sale and the NBA should not be assigning Chinese communist censorship.”  Remember, his father fled Communist Cuba to come to the U.S.A.

The aggravated condition of U.S.-China trade relations under the Trump Administration is also complicating things. 

One, Two, Three Chinas – It’s Complicated

We should explain that the “ Two Chinas” policy of the United States government should now be considered as “three,” as the identification has traditionally meant the relationship of [mainland] Communist China and the offshore democracy of the Republic of China (Taiwan) to the USA.

The Nationalist ROC has governed the island nation since the end of civil war of 1949 when many mainland refugees fled to Taiwan as the Communists came to power.

With China moving aggressively toward Hong Kong independence-of-a-sort, the Trump Administration and members of Congress are talking about possible actions to attempt to ensure some independence of the little territory.  

Another dustup:  Hollywood’s Dreamworks and a China production company (Pearl Studio) collaborated to create an animated feature – “Abominable” (about a young girl meeting the Abominable Snowman or “Yeti”).  The film features Asian-American actor and was quickly a hit on release in America.

The film debuted in Vietnam as well – and was quickly pulled from viewing.  A map of China used in the animation showed the “nine dashes” – a no-no in China’s neighboring countries.

The Nine-Dashes – Complicating Matters in the South China Sea

What are the 9 dashes, you might ask?  (I’m sure that question rapidly went ’round in Dreamworks’ Hollywood offices — what the hell!.)  China attempts to impose its authority over the South China Sea with a series of dashes (not firm lines) to imply control or ownership. 

Which angers neighbors — Vietnam, Taiwan, the Philippines, Malaysia, and other nations with access to the vital sea lanes.  And those nations are trading partners of the U.S. — and American companies have significant presence in them.

How many people in corporate suites are tuned in to the vagaries or subtleties of China’s diplomacy!   

We recommend that you read Foreign Affairs and China-scholar Robert D. Kaplan’s excellent book on all of this — red warning flags flying! — “Asia’s Cauldron:  The South China Sea and the End of a Stable Pacific.”  Published in 2014 – available on Amazon. 

Simply stated –  “China” – it’s  a complicated subject for corporate citizens.

The China – United State of America Relationship

Former Secretary of State Henry Kissinger has said that the USA-China relationship with shape the international order for the 21st Century and the countries will have to deal with serious cultural differences (like freedom of expression and the right to protest and the freedom to trade etc.).

We saw that the investors in the USA shrugged off the Apple dustup with China over the Hong Kong protests. The share price was up $6.00 (3%) and moving toward an all-time high as the China-Hong Kong-APPL news stories appeared… this is a US$1 trillion-plus company! (Well, after the coronavirus crash of March 2020, we did have to check again and the price is back up in high $300s.)

Challenge: Being a Good Corporate Citizen When You Are a Guest

For large corporations, in general, worldwide, being a “good corporate citizen” in many lands is always a concern and a challenge as well as a competitive advantage (the brand and reputation and consumer favor as a 21st Century moat) — but things can be very complicated in the execution of citizenship on the ground. 

Complicated Challenge: Some companies operate in literally all but three or four nations of the world, excluding Iran, North Korea and perhaps a few others from their operations and marketing activities.

As we first prepared to finally publish this June 2020, dusting off the earlier Fall 2019 draft, we were in the midst of a global epidemic (COVID-19), and U.S. and global civil protests — with the news coverage all but eliminating the news out of Hong Kong on some days.

But China actions focused on western business organizations are very much in focus today. Recently several large news organizations (corporate-owned, of course, and at the top, corporate board and C-suite managed) saw their in-country journalists booted out of China because the Communist leaders objected to their news coverage.

Journalists employed by The New York Times (owned by The Times Company); The Wall Street Journal (owned by News Corp); and The Washington Post (now owned by Jeff Bezos, head of Amazon) were told to leave mainland China and the “regulated territories” of Hong Kong and Macoa.

In September 2020 we learned that Australian journalists had fled China to avoid detention. 

The leaders of the People’s Republic of China, it is said, are angered by coverage of the coronavirus (and the Communist government’s response); coverage of Hong Kong protests; and the reporting of “shadowy business dealings” of the country’s government leadership.

In addition, Time magazine (now owned by Marc Benioff, head of Salesforce) and the Voice of America – AND the expelled media organizations — were instructed to turn over information about their operations to the government minders.

U.S. Retaliation Complicates Corporate Life

This is not happening in a vacuum – in Washington, D.C., President Donald Trump designated the five China media organization operating in the USA as government functionaries of China, limiting the number of Chinese citizens who could work in the U.S. as journalists. The five are propaganda tools, the charge goes.  Their activities are being restricted. 

And so here in the USA the tit-for-tat is targeting China’s main news outlets –– Xinhua, CGTN, China Daily, People’s Daily, China Radio.

The Trump Administration is also moving to de-list publicly-traded Chinese corporations (traded on American stock exchanges). 

In all of the dustups, as U.S. business leaders are deftly navigating the tricky shoals where the seas of statesmanship meet the rocks of ideology and pose challenges to strategy and business models. 

Some of the challenges in the US-China relationships are about freedoms.  Such as our First Amendment freedoms. There are no China equivalents. 

President Franklin Delano Roosevelt set out four important freedoms for the peoples of all nations during the early days of World War II  — freedom of speech and religion, freedom from want and fear. These have long been central to many elements of U.S. and western capitalism — and foreign concepts to the rulers of present-day China. 

American companies have to carefully navigate the differences when they do business in China, with China, and other non-democratic nations. 

An example getting news coverage this week:  The Walt Disney Company, a U.S.-based global entertainment and communications company.  The company has been a  very able and savvy global marketer since the earliest days of Uncle Walt’s cartoon studio in sunny California.  Founder Uncle Walt always innovated and marketed that innovation far and wide. 

Consider that Disney has a $5 billion-plus investment in Shanghai Disneyland Resort (opened 2016) — co-owned by the Communist government — and an older Disney park in Hong Kong.   China is an important market for various activities of the company, including motion pictures.

And so the anxiety we logically could expect in the Disney offices as a new dustup occurred.  The company created “Hulan”, a movie about an important character (female) in China mythology, with a China-born female lead and a female director, and scenes filmed in China for accurate depiction of locations for the story. 

One snippet of the 1 hour/50 minute film — the usual (traditional) roll of credits at the end named a number of governments within China as assisting. Including Xinjiang, rolling by in a long list.  Where other American companies operated.  And where in 2018 as the film was underway, the local government was locking up tens of thousands of Muslims in concentration camps!  And so the September 2020 criticism of The Walt Disney Company — including by two dozen members of the U.S. Congress. 

There’s a thorough, fair and balanced recap of all of this in The New York Times, Sunday, September 13, 2020 (“How a 1 Minute of Scenery in ‘Mulan’ Put Disney in a Bind Over China”).    It’s an important read for you, I think, in the context of U.S.-China relations and for non-China-based companies operating in the country. 

Thinking about “open” communication not being permitted today in China we are reminded of President Thomas Jefferson’s perspective: “The only security of all is in a free press. The force of public opinion cannot be resisted when permitted freely to be expressed. The agitation it produces must be submitted to. It is necessary, to keep the waters pure.” – Thomas Jefferson letter to the Marquis de Lafayette.

So true some two centuries later in our great democracy!

 

Busy Summer 2020 for the World of ESG Players – Rating Agencies, Information Providers, UNGC & the SDGs…and More

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August 27 2020

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

It’s been a very busy summer for organizations managing corporate reporting frameworks and standards, for ESG rating agencies, and for multilateral agencies focused on corporate sustainability and responsibility.

If you are a corporate manager — or a sustainable investment professional — do tune in to some of the changes that will affect your work in some ways. Here’s a quick summary:

ISS/Institutional Shareholder Services
For four decades, ISS has been the go-to source on governance issues for proxy voting and corporate engagement guidance for major fiduciaries (pension funds are an example).

Two years ago, “E” and “S” ratings were added for investor-clients.

Now, ISS ESG (ISS’s responsible investing unit) is providing “best-in-class fund ratings” that assess the ESG performance of 20,000 firms. Funds will be rated 1-to-5 (bottom is 1) – this to be a broad utility resource for investment professionals. And for corporate managers – ISS ESG scores along with those of other ESG ratings agencies are a factor in whether your company is included in indexes, benchmarks, maybe ETFs and mutual funds that are being rated.

Bloomberg LP
It’s launching E, S & G scores for thousands of firms (highlighting environmental and societal risks that are material to a sector).

First sector up is Oil & Gas, with 252 firms rated. Also, there are new Board Composition scores, with Bloomberg assessing how well a board is positioned to respond to certain G issues. (Note that 4,300 companies are being rated – probably including yours if you are a publicly-traded entity.)

And in other news:

UN Global Compact and the SDGs
The UNGC observes its 20th anniversary and in its latest survey of companies, the organization asked about the SDGs and corporate perspectives of the 17 goals and 169 targets. The findings are in the blog post for you.

MSCI
This major ESG ratings agency expanded its model for evaluating company-level alignment to the Sustainable Development Goals. New tools will help capital markets players to enhance or develop ESG-themed investment services and products.

Global Reporting Initiative
The GRI continues to align its Universal Standards with other reporting frameworks or standards so that a GRI report becomes a more meaningful and holistic presentation of a company’s ESG profile.

GRI Standards were updated and planned revisions include moving Human Rights reporting closer to the UN Guiding Principles on Business and Human Rights and other inter-governmental instruments.

Climate Disclosure Standards Board
The CDSB Framework for climate-related disclosure is now available for corporate reporters to build “material, climate-related information” in mainstream documents (like the 10-k). This is similar to what the TCFD is recommending for corporate disclosure.

This is a small part of what has been going on this summer. We have the two top stories about ISS and Bloomberg and a whole lot more for you in the G&A Sustainability Update blog.

For your end-of-summer/get-ready-for-a-busy-fall schedule!

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The G&A Blog with many more organizations and their actions here.