Monthly Archives: August 2020

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!

Top Stories

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

Corporate Sustainability Reporting – Frameworks, Standards, Guidance – Summer 2020 Update

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Have You Heard? Despite the Global Crises, Corporate ESG/Sustainability Reporting Momentum Continues to Build – Here, Some Updates For You on Focused on Corporate ESG Reporting Frameworks and Standards

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

August 2020 –   This has been a challenging year. In January when I do my usual “crystal-balling” for the new year, the coronavirus was fast-spreading in Wuhan, China, and the world outside had not yet awakened to the serious threat the early infections posed to we humans.

The U.S. equities market looked very promising – but the markets would tank in March and then slowly recover. (As we write this the Nasdaq numbers and S&P 500 Index® levels have investors cheering – look at Nasdaq and the S&P 500!)

Despite the upheavals in 2020, Reporting Standards and Frameworks are continuing to evolve and especially to become more investor-focused

Investors, public companies’ executives, and sustainability reporting Standards and Frameworks organizations are not slowing the pace on advancing ESG / Sustainability / Corporate Purpose / Sustainable Investing et al, and advancing the cause by various means in this Summer 2020.

In the event that you have been busy this spring and summer (haven’t we all!) and perhaps missing something here and there, here are news items & developments for you to illustrate the forward momentum and increasing importance of ESG “etc” matters.

This update is focused on ESG reporting frameworks, standards and ESG disclosure guidance – this is the daily work of the team at G&A Institute.

UN Global Compact Celebrates 20 Years – And Builds on the Progress

It is 20 years now since the founding of the United Nations Global Compact (UNGC) and the organization released its look back/look ahead report, “Uniting Business in the Decade of Action”. Each year the Compact surveys its participants to gauge the progress being made (or not).

This year the survey included a review of progress in complying with the Ten Principles of the Global Compact – and – corporate contributions to the achievement of the Sustainable Development Goals (SDGs).

2020 Survey Findings:

  • 30% of companies responding believe they have targets sufficiently ambitious to meet the 2030 goals of the SDGs.
  • Fewer than a third of respondents consider their industry moving fast enough to deliver on prioritized goals.
  • Good news: 84% of UNGC corporate participants are taking some kind of action on SDGs.
  • Not-so-good: only 46% are embedding the goals into their core business.
  • Only 37% are designing business models to “contribute” to the 17 goals.
  • 61% say that their company provides some kind of product/service that contribute(s) to the progress of the SDGs (that level was 48% in 2019).
  • 57% measure their own operations’ impact on the SDGs.
  • 13% extend this to their supply base; and only 10% extend this to raw materials and product use.
  • 29% of companies advocate publicly to encourage action on the SDGs (this is a slide down from over half of companies in 2019).

Many companies focus on Goal 8: Decent Work and Economic Growth; and Goal 9: Industry, Innovation, and Infrastructure; less traction was noted for “socially-focused” goals (reducing inequality, gender equality, peace & justice).

The General Secretary of the United Nations has called on corporations to align their operations and strategies with the Ten Universal Principles of the Global Compact.

We are half-a-decade in now since goals adoption – with only one decade to go (years 2020 to 2030) to achieve the objectives.

More than 10,000 companies and 3,000 non-business entities (“signatories”) are participating in achieving the goals in some way, operating in 160 countries — and so, the UNGC has become the world’s largest corporate sustainability initiative.

Has your company signed on to the UNGC? Selected SDGs to build into your core business strategy and models? There is guidance for you in the UNGC report. https://unglobalcompact.org/take-action/20th-anniversary-campaign

About the SDGs – MSCI’s New “SDG Net Alignment Factors”

MCSI, one of the major ESG rating firms providing significant research and analysis results to its global investor clients, expanded the model for evaluating company-level alignment to the UN SDGs.

The new tools will help capital market players to enhance or develop ESG-themed investment services and products. 

Subscribers to the firm’s Sustainable Impact Metrics now have access to the SDG Net Alignment Factors, which measures revenue exposure to “sustainable impact solutions and support actionable thematic allocations in line with impact frameworks like the UN SDGs.”

This approach will help investors to better understand what a company is doing with respect to the SDGs, what progress the company is making (or not), and related metrics that are being disclosed.

Institutional investor clients can use the information provided in developing sustainable investing products and services.

Corporate managers should be aware that the SDGs are getting more attention now as the last decade is upon us for achieving progress on the 17 goals/169 underlying targets.

MSCI’s Approach

The MSCI approach was developed in collaboration with the OECD and takes a “net impact” perspective to evaluate alignments of companies based on product and operations for each of the 17 Sustainable Development Goals (and there are 169 underlying targets for these).

The approach to “help institutional investors:

  • Measure and report on the degree of SDG alignment.
  • Develop SDG-themed investment products.
  • Meet rising demand to channel capital toward addressing the objectives of the Goals.
  • Identify companies better aligned with the SDGs based on a well-rounded framework that looks beyond [corporate] disclosure and considers positive and negative alignment.

Corporate board members and C-suite leaders note: In evaluating your company, MSCI’s approach will include qualitative categories indicating the degree of alignment and scores that assess:

  • Each public company’s overall Net Alignment for each of the 17 SDGs.
  • Product alignment – focusing on products and services with positive and negative impacts.
  • Operational alignment – internal policies of the company, operating practices to address SDGs targets, involvement in controversial activities.

The new SDG Net Alignment Framework is built on the MSCI Sustainable Impact Metrics; these include:

  • New Sustainable Agriculture and Connectivity categories to provide additional areas where products and services align with the SDGs.
  • Expanded Fixed-Income coverage to align the MSCI ESG Ratings corporate coverage universe, bringing impact coverage to 10,000+ equity and fixed-income issuers.
  • Introduction of more granular “E” impact revenue sub-categories to enable a flexible application of MSCI Sustainable Impact Metrics to a broad range of impact and sustainability frameworks.

The new service for MSCI clients began in August.

Note the OECD is the Organization for Economic Co-Operation and Development, and part of its mission is to establish evidence-based international standards and finding solutions to social, economic, and environmental challenges.

GRI – The Choice of Many Corporate Reporters for Guidance

The Global Reporting Initiative has its roots in the United States, with foundational elements put in place by (in that day) socially responsible investors, a few companies, and some NGOs.

In 1989 in Prince William Sound, Alaska, the tanker Exxon Valdez spilled crude oil in the waters over several days. In response, in Boston, Trillium Asset Management under the direction of Joan Bavaria worked to create a new organization — the “Coalition for Environmentally Responsible EconomieS” (now, known simply as Ceres) and created the Valdez Principles for companies to sign (to pledge to be more environmentally-responsible).

These became the Ceres Principles and over time contributed to the creation of the GRI and its first framework (“G1”).

The framework was continually evolving, becoming G3 and G4 and what would be G5 (Generation 5) are now the GRI Standards, a powerful guide for public companies to use to examine and decide on “what” to disclose against the Standards.

Companies can choose to report against “Core” or “Comprehensive” levels.

GRI has also aligned the Standards with other reporting frameworks or standards so that publishing a “GRI Report” becomes a more meaningful and holistic presentation of a company’s ESG profile.

Note: G&A Institute is the designated Data Partner for the GRI in the United States of America, the United Kingdom and the Republic of Ireland. In this role, we gather and analyze every report published in these countries and provide the analysis to GRI for inclusion in its comprehensive, global report database.

This is the largest collection of corporate sustainability reports going back to the first issued using “G1” in 1999-2000.

What’s happening now:

In June GRI announced an update to the “Universal Standards”. These are planned revisions such as address concerns in Human Rights reporting to move GRI Standards “closer” to inter-governmental instruments such as the UN Guiding Principles on Business and Human Rights.

“Materiality” will be “re-focused” so that companies will report the importance of issues to stakeholders – rather than the customary approach of disclosing the results of a materiality assessment with focus on the company’s view of issues (regarding the economy, environmental matters, and people or human assets).

This will mean much more engagement with stakeholders to determine their perspectives to guide disclosures using the Universal Standards.

In the past, part of the guidance from the GRI was focused on “sectors”. Now, the organization is reviving Sector Guidance, which will support the Universal Standards. The sector guidance will link where possible with other frameworks and initiatives.

These steps are in the “disclosure draft” stage, with GRI gathering input to move to final adoption in 2021. GRI is inviting organizations – including companies – to be part of a “Global Standards Fund” to “safeguard and increase GRI’s to deliver the leading sustainability standards that encourage organizations to embrace responsible business practices.” It hopes to raise 8 million euros by 2022.

Climate Disclosure Standards Board – Guidance Issued

The CDSB Framework for climate-related disclosure is available for corporate reporters to build “material, climate-related information” in their “mainstream” reports. (That is, “the annual reporting packages required to audited financial results under the corporate compliance or securities laws of the country in which they operate.”)

Think of the 10-k in the United States or annual report in the United Kingdom, and similarly required filings.

The guidance is similar to that of the TCFD  recommendations – the Task Force on Climate-related Financial Disclosure (organized by the Financial Stability Board, an arm of the G-20 nations, with the Task Force headed by Michael Bloomberg).

Important note: CDP advises that connecting CDP data with the CDSB Framework will help companies to successfully fulfill the TCFD recommendations.

The CDSB has been working on the Standards since 2007, and over time reflected on such developments as the 2015 Paris Agreement (or Accord) on climate risk.

In discussions with company managers and in our monitoring of corporate disclosure as the GRI data partner in the U.S.A., we see a wide range of opinions on just what “integrated reporting” should look like.

For some companies (not to be cute here) it boils down to have a 10-k and ESG report at the same time, often combined. Side-by-side, stapled in effect for a printed report.

Other firms may put financial/economic information up top and then build out a sustainability report with volumes of ESG data. We don’t see a lot of tieing the implications of that data to financial results, with top and bottom line impacts clearly spelled out.

Bloomberg – Launching E, S & G Scores – Oil & Gas Sector First Up, Along With Board Composition Scores for Thousands of Firms

This month Bloomberg announced it was launching new, proprietary ESG scores for 252 companies in the Oil & Gas Sector – and Board Composition scores for more than 4,300 companies. The scores are available in the professional services terminals service.

For the “E” and “S” scores of the companies in the Oil & Gas Sector, Bloomberg is highlighting environmental and societal risks that are material to the sector.

For the Board Composition scoring, Bloomberg says it is assisting investors with information to assess how well a board is positioned to provide diverse perspectives, supervision of management, and assess potential risks in the current board structure.

ISS/Institutional Shareholder Services – New Data Points For Investors

The long-time governance ratings and proxy guidance organizations were originally focused on “G” – governance practices – and expanded its work into “E” and “S” scoring and evaluations two years ago. (The “G” work goes back four decades.)

Now, “ISS ESG” (the responsible investment arm) is providing “best in class” fund ratings that assess the ESG performance of 20,000-plus firms around the world.

The new ratings will draw on ISS’s ESG ratings, governance data, norm-based research, energy and extractives’ screens, SDG impact ratings, carbon emissions analysis, shareholder voting outcomes, and more…resulting in a composite, holistic picture of a fund’s ESG performance.

Funds will be rated on a relative scale of “1” (bottom” to “5”, based on the fund’s standing within the Lipper Global Benchmark class.

The service is intended to have broad utility for investment professionals, such as fund managers and investment advisors.

This is still one more layer to add to the complexity of the capital markets competition for public companies.

G&A Institute Perspectives:
Inside the publicly-traded company, there may be a lively discussion going on among participants as the sustainability disclosures are prepared – for example, legal teams may frown certain ESG data revelations at times.

“Who is asking for this” may be a determinant in “what” gets disclosed. Lots of negotiations go on, we can tell you. 

But every year, more and more ESG data sets and narratives are published and corporate leaders in sustainability reporting set the pace for industry and sector.

The various reporting frameworks, guidance, standards that are available to corporate managers are a positive – here, including the framework (guidance) presented by the Standards of the Carbon Disclosure Standards Board. Information: https://www.cdsb.net/

G&A Institute closely monitors the corporate sustainability reporting arena and will share with you more updates as we see the need.  

Lots going on in Summer 2020 — be in touch with us if you have questions about any of this!  We’d like to be your sherpas and guides and navigators on the corporate sustainability journey!

Who Do the Editors of Harvard Business Review Rank Among the World’s Top 100 Performing CEOs?

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

If you are a regular reader of these commentaries you will know that there are frequent references to the Harvard Business Review, the Harvard B-School, and prominent Harvard-affiliated voices.

The “HBR”, packed with management best practices content, is well-read by U.S. and global corporate leaders (circulation was beyond 300,000 [paid subscribers] in 2018 with more than 7 million unique visitors accessing content each month).

The magazine publishes an annual list of “The World’s Top Chief Executives”. The rankings, HBR editors explain, relies on objective performance measures over the CEO’s entire tenure, and are not rankings relying on short-term metrics or subjective evaluations.

Important:  Since 2015 the rank is based not only on financial performance but also on the CEO’s companies’ ESG ratings.

Weighted ESG scores has accounted for 20% of each of the CEO’s ranking – and for 2019 rankings, this was increased to 30%.

As a result, Jeff Bezos of Amazon — the top CEO in the rankings since 2014 – was dropped in 2019 rankings because of the company’s low ESG scores.

ESG – Sustainability…matters!

The ESG data providers assisting the Harvard Business Review staff with rankings are Sustainalytics, now owned by Morningstar, and CSRHub.

Keep in mind well-regarded ESG / sustainability academics are part of the HBR ecosystem: George Serafeim, Robert Eccles, John Elkington, Andrew Winston, and others.

The 2019 rankings were:

#1 position, Jensen Huang of NVIDIA (classified as an IT firm, U.S.A. headquartered.
#2 – Marc Benioff, Salesforce, IT, U.S.A.
#3 – Francois-Henry Pinault, Kering, Consumer Goods, France.
#4 – Richard Templeton, Texas Instruments, IT, U.S.A.
#5 – Ignacio Galan, Iberdrola, Utilities, Spain

The story and 2019 list are available here: https://hbr.org/2019/11/the-ceo-100-2019-edition

These days we’re watching for the HBR Top 100 CEO list for 2020 – Stay Tuned!

So Where Is The Corporate Sustainability Journey a Half-Year Into the Dramatic Impacts of the Coronavirus?

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August 19, 2020 — in the midst of a strange summer for all of us

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

The questions may be going around in your universe and the answers offered up, say, inside the corporate enterprise as the senior executives and function, business unit and other managers meet the challenges posed by the virus pandemic, related economic disruption and civil protests on a number of topics.  This is about Quo Vadis, Our Sustainability Journey!

The Conference Board is a century-old, well-regarded business organization founded by corporate CEOs who were focused on “knowledge-sharing” at the beginnings of modern corporate management theories.

Today, 1,200 companies are involved as member organizations, typically with varying managers’ participation in sections devoted to specific topics and issue areas. These include Economy, Strategy & Finance; ESG (including Corporate Citizenship and Corporate Governance); Human Capital Management (including Diversity, Equality and Inclusion) …and other focus areas that fit the functional needs of today’s companies.

At G&A Institute we closely follow the extensive research and insights regularly shared by the Board as part of its foundational mission – sharing knowledge. This week The Conference Board issued its survey results for the question(s) asked of corporate connections: “What impact, if any, do you expect the COVID-19 crisis to have on your company’s overall sustainability program?”

If we asked our corporate colleagues that question, we could expect the answers to be all over the place. The Board did ask, and the answers were “sharply divided”, staff reported.

The Conference Board conducted two different surveys — one at more than 200 companies, focused on generating responses from general counsel, corporate secretaries and investor relations execs; the other queries, at 40 companies with questions asked of dedicated sustainability executives.

Top line: Three-in-ten sustainability execs expect the current health crisis to increase emphasis on their “E” and “S” efforts – while only one-in-ten of their fellow governance execs agree with that premise.

Example: responding to whether or not COVID-19 “put general sustainability efforts on temporary hold,” only 7% of sustainability executives said yes, while 19% of legal, governance and IR folks felt that way.

The short survey results are available for you in a Top Story.

Says The Conference Board staff: “This divergence of opinions reveals companies need to reach an internal consensus on the crisis’ impact on their sustainability programs and be prepared to communicate [it] in a cohesive and consistent manner.”  Good advice!

Inside the corporate structure, people may have differing views on what is “sustainability,” what their own company’s sustainability programs are about, (Strategy? Actions? Engagements? Achievements? Third-Party Recognitions?) And senior execs may have different opinions about the real impact of the virus on the company’s operations — not all impacts are yet fully understood as the pandemic roars on around the world.

But there are positives being reported. For example, we are seeing reports every day now of increased productivity at some companies because people are at home and not wasting hours commuting.  Emails are being answered early in the morning and way after dark — increasing the firm’s communication and productivity.

What is the outside view of this, beyond the corporate sector?

While inside the corporate enterprise there may be differences of opinion on the direction of the sustainability journey, here’s some important “outside” news from Sam Meredith at CNBC: “Sustainable investment funds just surpassed US$1 trillion for the first time.”

He cited recent UBS research that the global public sector has been stepping up support for green projects. And, he cited a Morningstar report that spelled out factors contributing to the record 2Q inflows to ESG mutual funds.  Investors are putting their money where their “sustainability beliefs” may be, we could say.

Adding some intelligence to the results of our reading of The Conference Board survey results, Morningstar says: “…the disruption caused by the virus highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations…”

Of course, there are no easy answers “inside” to harmonize the views of the executives responding to surveys about their company’s sustainability efforts.  But we can offer some advice.  Looking at the almost 2,000 corporate sustainability et al reports our team analyzed over the past year, we are seeing the formulas for success in the corporate sustainability journey.

People at the top (board room and C-suite) are the champions of the corporate sustainability efforts.  Strategy is set at the top and communicated effectively throughout the organization.  (“Strategem” is the root of the work — in ancient Greece, this was the work of the generals.  The leaders inside the company must lead the sustainability journey!)

Goals are to be set (carbon emissions reduction, increased use of renewable energy, reduction of waste to landfill, water usage and water discharge, and much more); progress is regularly measured and managed. And disclosed.

Serious attention is paid to the firm’s diversity & inclusion efforts and results; effective human capital management (HCM) is a priority at all levels, and in all geographies.

Meaningful engagements — internally and with external parties — are top priorities at multiple levels. Supply chain and sourcing efforts are monitored and bad actors and bad practices are eliminated, with management understanding that the firms in their supply network are part of their ESG footprint.

And the periodic public reporting on all of the above and more is based on the materiality of data and information — the stuff the investors want to know more about for their analysis and portfolio management.

Senior leadership understands that corporate sustainability is not about just “feeling good” but an important element of playing to win in the competition for capital and achieving industry leadership and being recognized for their efforts and accomplishments.  As Morningstar advises, sustainability is part of the business model.

So in the context of the ongoing Covid-19 crisis, the resulting economic and financial dislocations, the caring for the firm’s valuable human assets..quo vadis for your corporate sustainability journey?

Interesting conversations going on, for sure.  Read the survey results from The Conference Board survey and see what you agree/disagree.  Thanks to our colleagues at the board for all the management knowledge that they share.

Top Stories

Research We Can Use As We Consider the Changes To Come in a Lower-Carbon Economy

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

There certainly is a large body of research findings and resulting projections of what to expect as society moves toward a lower-carbon global economy.  The research comes from the public sector, academia, NGOs, capital market organizations, and scientific bodies.  One of the most comprehensive of analysis and projections is the National Climate Assessment produced periodically by the U.S. federal government. 

One reliable source of research that we regularly have followed for many years is the The National Bureau of Research (NBER), a not-for-profit “quant” research organization founded 100 years ago in Boston, Massachusetts.  The organization boasts of a long roster of economic experts who issue many Working Papers during the year (1,000 or more) with permission granted to reproduce results.

Such is the stature of NBER over many years that this is the organization that issues the official “start and end” of recessionary periods in the U.S. (you probably have seen that mentioned in news stories).

Lately NBER researchers have been focused on ESG-related topics.  We are sharing just a few top line research results here for you.

Research Results: California’s Carbon Market Cuts Inequality in Air Pollution Exposure

In NBER Working Paper 27205, we learn that California’s GhG cap-and-trade program has narrowed the disparity in local air pollution exposure between the disadvantaged populations and others.  The state’s is second largest carbon market in the world after the European Union’s cap-and-trade (based on total value of permits).

Early on there were concerns that market forces could worsen existing patterns in which disadvantaged neighborhoods would be exposed to even more pollution that better-off counterparts.  Not so, say researchers Danae Hernandez-Cortes and Kyle C. Meng, who examined 300 facilities in the 2008-2017 period.

Findings:  The gap in pollution exposure between disadvantaged and other communities in California narrowed by 21% for nitrogen dioxide; 24% for sulfur dioxide; and 30% for particulates following the introduction of cap and trade. (This between 2012, the start of the state’s program, and 2017).  The researchers labeled this the “environmental justice gap”.

California’s law caps total annual emissions of GhGs, regulating major stationary GhG-emittting sources, such as utilities.  Putting a price on carbon encourages firms to buy emissions permits or carbon offsets.  The researchers say that shifting emission cuts from high-to-low abatement cost polluters, cap-and-trade can be more cost-effective than imposing uniform  regulations on diverse industries.  But – “where” pollution is generated could be altered by market forces and either exacerbate or lessen existing inequities in pollution exposure.

Research Findings:  Building in Wildland-Urban Interface Areas Boosts Wildlife Fire Costs

Speaking of California, over the past few years (and even today as we write this commentary) wildfires have affected large areas of the state.  Who pays the cost of firefighting as more people build homes in high fire-risk areas near federal and state-owned public land?

Researchers Patrick Baylis and Judson Boomhower in NBER Working Paper 26550 show that a large share of the cost of fire fighting is devoted to trying to prevent damage to private homes and borne by the public sector…where there is “interface” between wild areas and urban areas. The guarantee of federal protection generates moral hazard because homeowners do not internalize the expected costs of future protection when they decide where to live or how to design and maintain their homes.

The net present value of fire protection subsidies can exceed 20% of a home’s value.  For 11,000 homeowners in the highest risk areas of the American West, the researchers calculated a subsidy rate of 35% of a home’s value…compared to only 0.8% in the lowest risk area.  And, about 84,000 more homes have been built in high risk areas (than would have been the case) had federal wildlife protection not lowered the cost of homeownership in those areas.

Fire protection provided by the public sector effectively subsidizes large lot sizes and low-density development and may reduce the private incentive to choose fireproof building materials and clear brush around the home.  Fire protection costs level off about 6 acres per home (suggesting cluster development is more preferable).

As we consider the impacts of climate change (drought, high winds, other factors becoming more prevalent), the role of local and state governments in zoning, land use and building code decision-making is key to addressing fire prevention.  Nice to live near to preserved state and federal land…but not sometimes.

Research to Consider:  Environmental Preferences, Competition, and Firm’s R&D Choices

In NBER Working Paper 26921, we learn that consumers’ environmental preferences do affect companies’ decisions to invest in environmentally-friendly innovations.  Buyers care about the environmental footprint of the products they buy.  And so companies do consider these preferences when they make R&D decisions.  (That is, choosing “dirty” or “clean” innovations to invest in.)

Companies use data on patents, consumers’ environmental preferences, and product-competition levels in the automobile manufacturing  industry.  Researchers Philippe Aghion, Roland Benabou, Ralf Martin and Alexandra Roulet looked at 8,500 firms in 42 countries, studying the period 1998-2012 to try to determine how companies in the industry respond to detected changes in consumer preferences.

Findings include:  Firms in auto-related businesses whose customers are environmentally-focused are more inclined to develop sustainable technologies, particularly in markets defined by higher levels of competition.

One effect reported is that for firms with more sustainability-minded consumers, the growth rate of “clean” patents is 14% higher than for “dirty” patents…and is 17% higher in more competitive markets.

Individual consumer preference for “buying green” may not have a direct impact on pollution short-term — but over time such preferences can alters an auto company’s willingness to invest in R&D focused on environmentally-friendly products.

Research Investors Think About:  Could Undeveloped Oil Reserves Become “Stranded” Assets?

If the vehicle shopper wants to “buy green” and is seeking “environmentally-friendly” products, what is the long-term effect on vehicle manufacturing if that segment of the market grows — especially in highly-competitive markets?  Do these preferences mean buyers will move away from fossil fuel-powered vehicles…and over time the in-the-ground assets of energy companies will become “stranded”?

Researchers Christina Atanasova and Eduardo S. Schwartz examined the relationship between an oil firm’s growth in “proved” assets and its value.  The question they posed for their research NBER Working Paper 26497 was: “In an era of growing demands for action to curb climate change, do capital markets reflect the possibility that some reserves may become “stranded assets” in the transition to a low-carbon economy?”

They looked at 679 North American producers for the period 1999-2018; the firms operating (as they described) in an environment of very low political risk and foreign exchange exposure…and with markets that are liquid, with stringent regulation and monitoring (unlike companies in countries with markets that are more easily manipulated, among other factors).

Findings: Capital markets only valued those reserves that were already developed, while growth of undeveloped reserves had a negative effect on an oil firm’s value.  The negative effect was stronger for producers with higher extraction costs and those with undeveloped reserves in countries with strict climate policies.  This reflects, they said, consistency with markets penalizing future investment in undeveloped reserves growth due to climate policy risk.

These are a small sampling of NBER research result highlights.  The full reports can be purchased at NBER individually or by annual subscription.  Contact for information about Working Papers and other research by the organization is:  NBER, 1050 Massachusetts Avenue, Cambridge, MA 02138-5398.

 

 

Publicly-traded Companies Have Many More Eyes Focused on Their ESG Performance – And Tracking, Measuring, Evaluating, ESG-Linked-Advice to Investors Is Becoming Ever-More Complex

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

Some recent developments for consideration by the boards and C-Suite of publicly-traded companies as established ESG ratings agencies up their game and new disclosure / reporting and frameworks come into play.

The “Global Carbon Accounting Standard” will debut in Fall 2020. Is your company ready? Some details for you…

Financial Institutions – Accounting for Corporate Carbon

The Partnership for Carbon Accounting Financials (PCAF) was organized to help financial institutions assess and then disclose the Greenhouse Gas emissions (GhGs) of their loans and investments to help the institutions identify and manage the risks and opportunities related to GhGs in their business activities.

Think: Now, the companies in lending or investment portfolios should expect to have their carbon emissions tracked and measured by those institutions that lend the company money or put debt or equity issues in their investment portfolios.

The financial sector kimono will be further opened. This could over time lead to a company lagging in ESG performance being treated differently by its institutional partners, whether the company in focus discloses their GhG emissions or not.

For companies (borrowers, capital recipients), this is another wake-up call – to get focused on GhG performance and be more transparent about it.

This effort is described as the to be the “first global standard driving financial institutions to measure and track the climate impact of their lending and investment portfolios.”

As of August 3, 2020, there are 70 financial institutions with AUM of US$10 trillion collaborating, with 16 banks and investors developing the standard…to be a common set of carbon accounting methods to assess and track the corporate emissions that are financed by the institutions’ loans and investments.

Significant news: Morgan Stanley, Bank of America (owners of Merrill Lynch) and Citi Group are all now members of the partnership and Morgan Stanley and Bank of America are part of the PCAF Core Team developing the Standard.

The institutional members of the Core Team leading the work of developing the PCAF Standard are: ABN AMRO, Access Bank, Amalgamated Bank, Banco Pichincha, Bank of America, Boston Common Asset Management, Credit Cooperatif, FirstRand Ltd, FMO, KCB, LandsBankinn, Morgan Stanley, Producanco, ROBECO, Tridos Bank, and Vision Banco.

The work of the PCAF will feed into the work of such climate initiatives as the CDP, TCFD, and SBTi (Science-based Target Initiative).

The work in developing the “Standard” includes an open comment period ending September 30, 2020. The final version of the Standard will be published in November.

Morgan Stanley, in its announcement of participation, explained: MS is taking a critical step by committing to measure and disclose its financial emissions…and those in its lending and investment portfolio. As other institutions will be taking similar steps.

(Morgan Stanley became a bank during the 2008 financial crisis and therefore received federal financial aid designed for regulated banking institutions.)

Tjeerd Krumpelman of ABN AMRO (member of the Steering Committee) explains: “The Standard provides the means to close a critical gap in the measurement of emissions financed by the financial industry. The disclosure of absolute financed emissions equips stakeholders with a metric for understanding the climate impact of loans and investment…”

Bloomberg Announces Launch of ESG Scores

Bloomberg LP has launched proprietary ESG scores – 252 companies are initially scored in the Oil & Gas Sector and Board Composition scores have been applied for 4,300 companies in multiple industries.

This approach is designed to help investors “decode” raw data for comparisons across companies; Bloomberg now presents both (raw data and scores) for investors.

This offers “a valuable and normalized benchmark that will easily highlight [corporate] ESG performance, explains Patricia Torres, Global Head of Bloomberg Sustainable Finance Solutions.

There is usually stronger data disclosure for the Oil & Gas Sector companies, says Bloomberg (the sector companies account for more than half of carbon dioxide emissions, generating 15% of global energy-related Greenhouse Gas emissions).

Governance scoring starts with Board Composition scores, to enable investors to assess board make up and rank relative performance across four key areas – diversity, tenure, overboarding and independence.

Bloomberg describes the “E, S” scores as a data-driven measure of corporate E and S (environmental and social) performance across financially-material, business-relevant and industry-specific key issues.

Think of climate change, and health and safety, and Bloomberg and investor clients assessing company activities in these against industry peers.

This is a quant modelling and investors can examine the scoring methodology and company-disclosed (or reported) data that underly each of the scores.

Also, Bloomberg provides “data-driven insights” to help investors integrate ESG in the investment process. This includes third party data, access to news and research content, and analytics and research workflows built around ESG.

Sustainalytics (a Morningstar company) Explains Corporate ESG Scoring Approach

The company explains its ESG Risk Rating in a new document (FAQs for companies). The company’s Risk Ratings (introduced in September 2018) are presented at the security and portfolio levels for equity and fixed-income investments.

These are based on a two-dimension materiality framework measuring a company’s exposure to industry-specific material ESG risks…and how well the company is managing its ESG risks.

Companies can be placed in five risk categories (from Neglible to Severe) that are comparable across sectors. Scores are then assigned (ranging from 9-to-9.99 for negligible risk up to 40 points or higher for severe risk of material financial impacts driven by ESG factors).

The company explains: A “material ESG issue” (the MEI) is the core building block of Sustainalytics’ ESG Risk Rating – the issue that is determined by the Sustainalytics Risk Rating research team to be material can have significant effect on the enterprise value of a company within an sub-industry.

Sustainalytics’ view is that the presence or absence of an MEI in a company’s financial reporting is likely to influence the decisions made by a reasonable investor.

And so Sustainalytics defines “Exposure to ESG Risk” and “Management of ESG Risk” and applies scores and opinions. “Unmanaged Risk” has three scoring components for each MEI – Exposure, Management, Unmanaged Risk.

There is much more explained by Sustainalytics here: https://connect.sustainalytics.com/hubfs/SFS/Sustainalytics%20ESG%20Risk%20Rating%20-%20FAQs%20for%20Corporations.pdf?utm_campaign=SFS%20-%20Public%20ESG%20Risk%20Ratings%20&utm_medium=email&_hsmi=93204652&_hsenc=p2ANqtz–uiIU8kSu6y0FMeuauFTVhiQZVbDZbLz18ldti4X-2I0xC95n8byedKMQDd0pZs7nCFFEvL172Iqvpx7P5X7s5NanOAF02tFYHF4w94fAFNyOmOgc&utm_content=93203943&utm_source=hs_email

G&A Institute Perspectives: Long established ESG raters and information providers (think, MSCI, Sustainalytics, and Bloomberg, Refinitiv, formerly Thomson Reuters) are enhancing their proprietary methods of tracking, evaluating, and disclosing ESG performance, and/or assigning ratings and opinions to an ever-wider universe of publicly-traded companies.

Meaning that companies already on the sustainability journey and fully disclosing on same must keep upping their game to stay at least in the middle of the pack (of industry and investing peers) and strive harder to stay in leadership positions.

Many more eyes are on the corporate ESG performance and outcomes. And for those companies not yet on the sustainability journey, or not fully disclosing and reporting on their ESG strategies, actions, programs, outcomes…the mountain just got taller and more steep.

Factors:  The universe of ESG information providers, ratings agencies, creators of ESG indexes, credit risk evaluators, is getting larger and more complex every day. Do Stay Tuned!


In Focus: Climate Change Challenges for Financial Sector Players and the Companies They Provide With Capital – Measuring and Managing the Risk

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August 2 2020

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

Some encouraging developments for you from the (1) capital markets community and (2) the corporate sector and (3) the combining of forces of each.

To start: Morgan Stanley has become the first major U.S. bank to join the Partnership for Carbon Accounting Financials and will begin measuring and disclosing the emissions generated by the businesses that it lends to and invests in.

Big deal, we say:  the sources of capital telling the world what the companies they lend to, invest in, are emitting…whether the company discloses that or not. 

PCAF is a global collaboration of financial institutions aiming to standardize carbon accounting for the financial sector.

The work of the partnership could profoundly change the way that financial institutions and their corporate clients address climate change issues (and disclose the result of same).

Morgan Stanley will lend its insights and expertise to help the coalition development global standard that can be used by all financial institutions to measure and reduce their own climate impact.

In addition to measuring its Scope 3 emissions – including financed emissions, defined by the Greenhouse Gas Protocol as Category 15 emissions.

Morgan Stanley’s announcement comes a year after the institution released a report outlining the financial benefits of decarbonization for businesses — with an earnings potential between US$3-to-$10 billion.

Also involved in the standards project on the Steering Committee: ABN AMRO, Amalgamated Bank, ASN Bank, Tridos Bank, and the Global Alliance for Banking on Values (GABV).

Today there are 66 institutions involve in the partnership, with $US5 trillion-plus in collective AUM. The partnership is planning on releasing the standard at the COP 26 global gathering.

The Morgan Stanley Institute for Sustainable Investing builds “finance solutions” that seek to deliver competitive financial returns while driving positive “E” and “S” solutions.  Audrey Choi is the bank’s Chief Sustainability Officer and CEO of the Institute.  More information is at: www.morganstanley.com/sustainableinvesting.

And here is the encouraging news from the corporate sector and the investor service provider community:  Microsoft (MSFT) is teaming with MSCI – the global investment community advisor on risk and ESG issues – to “accelerate innovation among the global investment industry”.

MSFT’s cloud and AI technologies along with MSCI’s portfolio of tools will be aligned to “unlock innovations for the industry and enhance the ESG ratings agency’s products, data and services”.

The collaboration begins with migration of MSCI’s products onto the Microsoft Azure cloud platform with Index and Analytics solutions and then on to the MSCI ESG products and ratings.

Going forward MSFT and MSCI will explore possibilities to further drive development of climate risk and ESG solutions for investors and corporates.

Third item:  Microsoft is aiming to become a Zero-Carbon Enterprise.  The company announced a “suite” of  initiatives to wipe out the carbon “debt” acquired  — get ready – over the lifetime of this tech company.  Every bit of carbon “debt” ever generated over several decades!

MSFT is joining forces with Maersk, Danon, M-Benz, Natura, Nike, Starbucks, Unilever and Wipro to create a new coalition – Transform to Net Zero. (Environmental Defense Fund/EDF is a founding member).  MSFT peer/competitor/fellow transformation of society company Apple is aiming to have net-zero impact on every product in the next 10 years.

These Top Stories are of a “fit” – as financial institutions develop new approaches to meeting climate change challenges the Global Carbon Accounting Partnership moves forward to bring a new standard to the financial services community.

And the MSCI / MSFT collaboration will be developing tools and resources that align with the standards effort.  MSFT itself is moving toward to become Zero Carbon tech company.  Do stay tuned!  Some details for you….

Morgan Stanley Becomes First U.S. Bank To Measure Carbon Footprint Of Its Loans (Source: OilPrice) Morgan Stanley has become the first U.S. bank to start measuring the emissions generated by the businesses it lends to and invests in, the bank said in a press release.

The news from Microsoft and MSCI on their collaboration:
https://www.msci.com/documents/10199/b8849622-7a48-1901-123e-29d39cca3814

As we prepared the above perspectives in our weekly newsletter, more related news came in:  Stefanie Spear, our colleague at As You Sow, alerted us that Bank of America and Citi Group joined Morgan Stanley in the commitment to publicly disclosure carbon emissions from loans and investments. (The two institutions are part of the Partnership for Carbon Accounting Financials, a global framework for financial institutions to measure and disclose the emissions from their lending and investment portfolios.)

And one more for you – Polly Ghazi of Triple Pundit (part of 3BL Media) prepared an excellent roundup of recent news that includes Morgan Stanley, BlackRock and Boston Consulting.  (And thank you to her for the mention of the G&A Institute’s S&P 500 research results on corporate reporting.)

We present 3BL media roundups in the weekly G&A newsletter, Sustainability Highlights — here is Polly’s post: https://www.triplepundit.com/story/2020/sustainability-reporting-new-highs/121006

America’s Tech Giants Address Climate Change, Global Warming With Bold Initiatives in 2020

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August 12 2020

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

It’s global warming, you say?  Well, we have to say that it certainly is a hot summer in many parts of the world (north of the Equator) and the U.S. National Hurricane Center has a large list of names for the storms to come.

That’s Arthur and Bertha on to Vicky and Wilfred – 21 named storms so far, with “Isaias” whipping through as tropical storm and causing hundreds of thousands of homes and business to lose power this past week in the NY region. And it was not even a full hurricane in the U.S. Northeast!

And during this week, many communities in the American Midwest lost electric power. Not be provincial here – in the Eastern North Pacific there are storms to come named Amanda and Boris on to Yoland and Zeke.

For the Central Pacific? – Akoni and Ema, and Ulana and Wale are possibly coming your way.  So, can we say this is an effect of global warming or not?  Let’s say…yes, with a number of contributing factors.

Like steadily-rising Greenhouse Gas Emissions trapping heat in the atmosphere.

Think of methane (CH4), carbon dioxide (CO2), nitrous oxide (N2O-or-NOX), ozone, and a host of chlorofluorocarbon gasses steadily drifting upwards into the atmosphere and over time, changing weather patterns to create more super storms. Think: tornadoes, floods, more torrential rain coming down (hello, Houston and New Orleans!)

In the U.S.A. major companies have been steadily addressing their carbon emissions and putting in place important programs to reduce emissions, such as by adding renewable energy sources, and taking small and larger steps to conserve electric power use, and more.

But if you are a company using a lot of power…and constantly adding power…there are ever more challenges to address.

That’s the case as the world continues to move online for many activities in business, education, healthcare, investing, shopping, and more.  And coming online — we are seeing more AI, robotics, approaches to develop self-driving vehicles, machine-to-machine learning, more and more communication…5G systems…all coming our way.  All needing more power generated.

Over the past few days some of the major U.S.-headquartered, powerhouse tech firms have been announcing their plans to address GHG emissions…and in the process the companies have or are putting significant strategies and initiatives in place to protect the planet and do their part of address climate change.

Eight companies launched the Transform to Net Zero coalition, to accelerate action toward a net zero carbon economy. (The firms are A.P. Moeller-Maersk, Danone, Mercedes-Benz, Microsoft, Natura & Co, Nike, Starbucks, Unilever, Wipro, along with the Environmental Defense Fund.)

The examples for you this week in our Top Story choices are familiar names in the U.S. corporate sector: Microsoft, Apple, Facebook, Alphabet/Google.  Read on!

Top Stories

Progress on our goal to be carbon negative by 2030
(Source: Microsoft)
By year 2030, MSFT intends to be carbon negative and by 2050, will remove from the environment more carbon than the company ever emitted since its founding.  The company launched a new environmental sustainability initiative in January 2020 focused on carbon, water, waste and biodiversity.

Microsoft commits to achieve ‘zero waste’ goals by 2030
(Source: Microsoft)
By the year 2030, Microsoft will divert at least 90% of the solid waste headed to landfills and incineration from its campuses and datacenters, manufacture 100% recyclable Surface devices, use 100% recyclable packaging, and achieve 75% diversion of construction and demolition waste for all projects.

Facebook to buy 170MW of windpower in landmark renewables deal 
(Source: Power Engineering International)
Renewable energy developer Apex Clean Energy has announced a power purchase agreement (PPA) with Facebook for approximately 170MW of renewable power from its Lincoln Land Wind project in the US state of Illinois, making the social media giant Apex’s largest corporate customer by megawatt.

Apple commits to be 100 percent carbon neutral for its supply chain and products by 2030 
(Source: Apple)
Already carbon neutral today for corporate emissions worldwide, Apple plans to bring its entire carbon footprint to net zero 20 years sooner than IPCC targets. That “footprint” includes the company’s supply chain and products… every device sold! (Apple is already carbon neutral for its global corporate operations.)

Alphabet issues sustainability bonds to support environmental and social initiatives
(Source: Google)
As part of a $10 billion debt offering, Alphabet has issued US$5.75 billion in sustainability bonds — the largest sustainability or green bond by any company in history. During the past three years Google has matched the company’s entire electricity consumption with renewables…and has been carbon neutral since 2007.

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

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August 10 2020

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

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

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

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

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

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

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

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

Governance & Accountability Institute succinctly captures the breadth of concern,

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

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

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

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

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

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

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

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

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

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

 Company leadership may find that…

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

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

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

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

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

Questions We Are Thinking About in the Midst of Major Disruption on Sustainable Investing Trends & Corporate Sustainability Journeys

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

As the global coronavirus pandemic continues to uproot our normal business, financial, economic and personal pursuits, questions that we could logically ask are…

(1) what impact does the virus crisis have on the ongoing corporate sustainability / ESG / citizenship efforts; and

(2) what is the investor reaction – does the move into more sustainable / ESG investment vehicles continue?

Some answers come from Sanghamitra Saha, of Zack’s, writing in Yahoo Finance – “Here’s Why ESG ETFs Are Hot Amid Pandemic”.

He begins by explaining that ESG investing has remained “hot” since the pre-outbreak period, and as Wall Street recorded its worst quarter overall since Q 2008, ESG ETFs appeared [somewhat] resilient to acute selloffs in Q1 2020. (Read, he says: “ESG ETFs Appear Unscathed by the Coronavirus Carnage”.)

These investment vehicles had US$8 billion-plus inflow in 2019, four times their total 2018 inflow. In the first three months of 2020 the flow into ESG Exchange Traded Funds was $6.7 billion — pushing total assets in such funds to $19 billion (only a bit less than the total in February 2018).

Several of these ETFs outperformed the S&P 500® and came close to the Nasdaq performance (which has been the hot place for returns in 2020, bouncing close to the 9000 mark as we write this).

What are some of the reasons for such outperformance even during the virus crisis?

The author shares perspectives from Morningstar and Bloomberg, and presents data on performance on some of the ETFs offered by Nuveen, State Street SPDRs, Vanguard, and iShares MSCI.

We’ve been seeing news and commentary about this trend since the start of the virus crisis as investors seek out what they consider to be more resilient, “safer” companies as packaged in the respective ESG ETFs.  What are public company managements doing to be part of this trend?

Mary Mazzoni, Senior Editor of Triple Pundit and Managing Editor of CR Magazine, shares news from the corporate sector in “Sustainability Isn’t Stopping:  Just Ask These Companies.”

The firms and the stories of their continuing sustainability journeys that she profiles include Bayer and Microsoft.

She begins by addressing the comments of business columnist John D. Stoll in The Wall Street Journal…that “several top companies are starting to put the brakes on their ESG programs due to economic strain…”

Pushing back in TriplePundit:  “Right now we’re all understandably consumed with the human suffering and economic strain posed by the pandemic…but we’re not convinced we’ll see a sunsetting of sustainability – and the eight corporate examples are just some of the reasons why…”

The two Top Stories present the two answers to the questions posed up top.  And throughout the collection in this week’s newsletter you’ll see other answers presented in slightly different form.

The good news from the G&A Institute offices is that our corporate clients continue with vigor and strong commitment on their respective sustainability journeys, even as operations are disrupted by the virus crisis.

Managers tell us that questions from their investors about sustainability, ESG and related issues continue to increase, and major customers continue to ask questions related to their own supply chain management.

2020 is a challenging year – and sustainable, resilient companies are stepping up to meet the challenges, setting a welcome pace.

Top Stories

Here’s Why ESG ETFs Are Hot Amid Pandemic
Source: Yahoo Finance – Environmental, social and governance (“ESG”) investing has remained a hot favorite among investors since the pre-outbreak period. Wall Street recorded the worst quarter to start 2020 since the fourth quarter of 2008. But ESG ETFs appeared somewhat resilient to acute selloffs in Q1 (read: ESG ETFs Appear Unscathed by the Coronavirus Carnage).

Sustainability Isn’t Stopping: Just Ask These Companies
Source: Triple Pundit – Over the weekend, a sustainability-focused Wall Street Journal article started making the rounds on social media. In it, business columnist John D. Stoll notes that several top companies are starting to pump the brakes on their…

And here’s some additional perspectives on the two questions to mull over:

Seven Ways To Make Business Truly Sustainable Post-COVID
Source: Forbes – We humans are a spectacularly resilient species. Wars, famines, plagues, economic crashes – we dust ourselves off and press on. So we will get beyond COVID-19. But is it too much to hope that, devastating as the virus’s effects…

Can companies still afford to care about sustainability?
Source: FT – Note — Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy….