Common Sustainability Reporting Standards Remain Elusive

December 21, 2021

by Bernie Kilkelly – VP and Director of Corporate ESG Disclosure, G&A Institute

Efforts by various international organizations to develop common global sustainability reporting standards continue to run into roadblocks, as different groups propose diverging approaches and methodologies to enhance ESG disclosure.

As reported by Responsible Investor (link below in our Top Stories), the G7 Impact Taskforce that was created in July (under the UK’s presidency of the G7), recently commented about reporting standards being developed by the International Sustainability Standards Board (ISSB), an even newer group launched at COP26 in Glasgow.

Rather than helping to find common ground around simplifying the alphabet soup of reporting frameworks and standards, the comments by the G7 Impact Taskforce (ITF) seemed to add to concerns that reporting standards could become more fragmented.

The ITF said it supports the approach of the ISSB, which is governed by the International Financial Reporting Standards (IFRS) body, to develop a global reporting baseline focusing on the impact of sustainability factors on company enterprise values.

But at the same time, it recommended that countries “build upon this” approach to include other impacts on stakeholders that this reporting baseline would not address.

The ITF’s comments seemed to show support for the broader “double materiality” reporting approach that focuses on the impacts of business activities on society and the environment.  The “double materiality” approach is being used by the European Union’s accounting body —  the European Financial Advisory Group (EFRAG) — to develop a new set of corporate sustainability disclosure standards.

While the ITF’s statement calls for mandatory impact accounting for businesses and investors that would include “harmonized standards,” the elusive search for a common global approach to sustainability reporting continues.

As we close out 2021 and embark on a New Year, the G&A Institute team will continue to monitor the efforts of these organizations and help you make sense of the ever-changing world of sustainability reporting and disclosure.

Best wishes from the G&A team to all for a Happy New Year!

Top Stories

It’s Here: G&A Institute’s “2021 Sustainability Reporting in Focus” Trends Report

November 30, 2021

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

Our annual in-depth review of corporate sustainability / ESG reporting trends is  available for your reading. In our 2021 report, you will find detailed analysis of the reporting trends of the S&P 500® Index companies and Russell 1000® Index companies, showing shows that ESG reporting is increasingly being adopted by mid-cap companies.

This is the 10th anniversary of G&A’s annual research on sustainability reporting trends of the largest U.S. publicly-traded companies.

Governance & Accountability Institute, Inc. was established in 2006-07 by a team who had worked together at other management consulting firms.

Since our founding we have been focused on the world of corporate disclosure and structured reporting (and trends), and the increasing transparency (voluntary or not!) of publicly-traded firms for several decades.

The adoption of Sarbanes-Oxley (SOX) package of laws and rules and later Dodd-Frank (DF) rules brought many changes to corporate disclosure in the years following their passage — and significantly shaped the work we do with our client companies.

Our firm’s launch coincided with the morphing of what had been “socially responsible investing” (SRI) into today’s “sustainable and responsible investing” and with the emergence of more cohesive forms of evaluating a company’s corporate sustainability, citizenship, social responsibility… the format we recognize today as “ESG.”

The Global Reporting Initiative (GRI) noticed our work in analyzing and publicly sharing considerable information about best practices in corporate reporting and in 2010 invited G&A to be its Data Partner for the U.S., U.K., and Republic of Ireland.

The work we did in collecting and analyzing literally thousands of corporate reports from 2010 to 2020 helped us in our work with companies, helped GRI to expand its visibility and appeal to the American corporate sector, and helped corporate managers who selected the GRI framework for their reporting.

And a special thank you to our treasured colleague Mike Wallace (then head of GRI operations in the U.S.) for helping to make this happen!

As we gathered and analyzed corporate sustainability reports, we paid close attention to the companies included in the S&P 500 Index® – the preferred benchmark for the majority of asset managers.

In 2011, we released our first report analyzing the sustainability reporting of the S&P 500 companies for the publication year 2010, which showed that just 20% published sustainability reports or disclosures.

Great progress:  Our 2021 report shows that 92% of the S&P 500 companies published a sustainability report in 2020, demonstrating that corporate sustainability reporting is clearly a best practice for the largest companies.

Two years ago, we expanded our research to the next 500 largest public companies in market cap size, as represented in the Russell 1000® Index — another very important benchmark for investors. This was a heavy lift for our research team, and for our 2021 report the COVID-19 crisis created its own headwinds.

The results of the in-depth research of our great research team are now available in the “2021 Sustainability Reporting in Focus” trends report. We will stop the backgrounding here and invite you to dive into the report to do your own analysis. It is our Top Story of the week. Please do let us know your comments and questions as you examine the trends.

Our annual reports on corporate ESG disclosure trends have wide readership and long shelf life and have proved useful in informing corporate sustainability managers as they develop their own company’s sustainability report.

It has been a long and rewarding journey for us, these past 10 years of “deep diving” on U.S. corporate sustainability / ESG reporting trends – thank you to all who have followed us as we shared the annual reports with you. And so let us know how we can improve the 2022 report – now underway!

Top Story/Stories

ESG Disclosure – Swirling Public Dialogue on Status & Value Today and in Future for Corporate Constituencies

JULY 1 2021

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

On corporate ESG / Sustainability / CR reporting – and third party assurance.  The trends?

The required financial reporting by publicly-traded companies is assured by third parties (accounting, auditing firms). In the U.S. SEC rules require public companies to have an annual audit; the audited financial statements have an opinion included from the auditing firms.

Objective: includes determining if the statement presents information fairly and in line with GAAP (Generally Accepted Accounting Principles).

What does the outside auditor do in the financial reporting process?

Explains Ed Bannen at BGQ Partners LLC in Ohio: The most rigorous level of assurance is provided by an audit. It offers a reasonable level of assurance that financial statements are free from material misstatement and conform with GAAP. 

But what about the growing volume of corporate ESG / sustainability / responsibility reports flowing out from corporate issuers to investors and other stakeholders? The “non-GAAP stuff” of ESG disclosure at present?

The International Federation of Accountants (IFAC) “warns” that only half of companies at most back up their sustainability reports with assurance (IFAC looked at 1400 companies).  This presents “an emerging investor protection and financial stability risk.”

There is “some” level of ESG reporting by 91 percent of companies in 22 governmental jurisdictions now, but reporting standards used are inconsistent and IFAC urges that assurance practices need to mature alongside corporate ESG reporting.

Of course, the accountants noted that often where there is ESG assurance provided it is not by professional accountants but by other types of consultancies.

We bring you background on this from CFO Drive: Investors representing literally tens of trillions of AUM are looking for consistent, comparable, decision-useful information to determine whether to invest, sell or make a proxy vote…

SEC Chair Gary Gensler was quoted saying:  Therefore, SEC staff will be recommending governance, strategy and risk management practices related to climate risk, and determine whether metrics such as GHG emissions are relevant for investor consideration.”.  Stay tuned to the SEC!

Summing up: the operating environment for leaders of publicly-traded companies is rapidly changing when it comes to ESG / sustainability, public disclosure and structured reporting. In both the U.S. and in the European Union, regulators are proposing dramatic changes in rules or appear to be in the process of developing guidance and rules. (Frequently in the U.S., SEC also issues interpretations that reflect important changes in policy thinking about reporting.)

We bring you four important updates on these public discussions going on in our Top Stories selections.

On a recent webinar hosted by our partner organization, DFIN Solutions, there were 1,000 professionals registered for the session. About half of the attendees answered a survey question about whether or not their firm publishes a sustainability report, with about half saying “no” or “did not know.”

Clearly there is an urgent need for more corporate managements to become informed about ESG disclosure.

Information about the webinar “Navigating the Corporate ESG Journey: Strategies & Lessons Learned Featuring FIS Global, IR Magazine’s 2020 Best ESG Reporting Award Winner,” co-hosted by G&A Institute’s EVP Louis Coppola is here: https://info.dfinsolutions.com/navigating-corporate-ESG-journey-replay

Useful background from Ed Bannen, Senior Manager of GBQ’s Assurance and Business Advisory Services regarding statement assurance, auditing and related topics is here for you:https://gbq.com/levels-of-assurance-choosing-right/

Top Story/Stories – Reporting, Assurance and More in Focus

The EU Has Led on Adopting Corporate ESG Disclosure Rules – The U.S. May Catch Up Soon

July 2021

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

For many years, the European Union moved ahead of the U.S.in developing laws, regulations and rules to address the challenges of climate change and require the expansion of corporate programs and still voluntary related reporting by corporations for their ESG issues.

In the U.S., the major regulatory bodies — Securities & Exchange Commission, the Federal Reserve System and its regional banks, the Treasury Department and other cabinet level and independent agencies avoided mandating disclosure rules for publicly-traded corporations (for many social/S and environmental/E issues).

That is changing more recently with new leadership at the SEC, the Fed, Treasury, and other agencies as the Biden-Harris Administration continues to move forward with a “Whole of Government” approach to meeting climate change crisis challenges. (This is outlined in a May 2021 Executive Order.)

The U.S. could quickly catch up to the EU and even pass Europe with rigorous national corporate ESG reporting requirements – maybe in 2021 or 2022.

The EU is not sitting still, though. In 2014 there was an Accounting Directive developed at the confederation level and adopted in each of the (then 28) member countries to require large companies to disclose the way they operate and manage social and environmental challenges (this is the “Non-Financial Reporting Directive” or NFRD). Social topics include treatment of employees, respect for human rights, anti-corruption, bribery, and diversity on boards.

This directive was amended in June 2019 with supplements/guidelines for companies to report on climate-related information – applying to listed companies, banks, insurance companies and other entities “designated by national authorities as public-interest entities”); this covers about 11,700 large companies and groups across Europe.

In April 2021, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD) to amend the existing requirements that would extend NFRD to cover all large companies and all companies listed on regulated markets.

The proposed new standards, targeted for adoption by 2022, will require an audit (assurance) of reported information, which would have to be tagged and machine readable to feed into the “capital markets union action plan.” In addition, more requirements will be added to the NFRD rules, which would lead to adoption of European-wide (EU) sustainability reporting standards.

Consider the dramatic impact the actions of the European Union and the United States could have in their respective territories and across other regions:

  • The EU consists of 27 independent sovereign states located on the continent, with collective population of 448 million souls (2020) and combined GDP of US$16.6 trillion (about 1/6th of the global economy).
  • The U.S. has population of 331 million and GDP of US$21 trillion (almost 20% of global economy).
  • The U.S. has almost 6,000 publicly-traded companies in 50 states, according to The Global Economy.com. The average for the EU in 2020 (based on 18 countries examined) was 347 companies per country (where data were available). The largest number of companies listed on a stock exchange in the EU is Spain with 2,711 entities.

We bring you more news from Europe as the “ESG movers and shakers” move ahead with still more dramatic moves to address ESG topics and issues.

And we are watching dramatic moves by the Federal government of the U.S. as well as those actions of the states, cities, and municipalities to address climate change challenges and create greater transparency of involved entities across the corporate, public, and social sectors.

Bringing Your Attention To:

Webinar: BI Analyst Briefing: Global ESG 2021 Mid-Year Outlook
ESG’s momentum continues in 2021 as renewed policy support and increased shareholder engagement propels growth. While climate remains in focus, new risks like cybersecurity emerge. As the ESG asset class grows and regulators increase scrutiny, greenwashing concerns remain in focus. Join Bloomberg Intelligence Analysts on July 21st for a Mid-Year Outlook on Global ESG.  Register here 

TOP STORIES

EU unveils ‘gold standard’ sustainable finance strategy to cut greenhouse gas emissions (Source: CDSB)

New European sustainable finance strategy gives hints on mainstreaming sustainable finance through global standards and frameworks (Source: CDSB)

GRI welcomes role as ‘co-constructor’ of new EU sustainability reporting standards (Source: GRI)

ESG Reporting Frameworks & Standards – Continue to Multiply

Original:  October 14 2021

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

The number of ESG disclosure and reporting guidelines, frameworks and standards continues to expand – here comes the GRI Universal Standards, the SASB XRBL Taxonomy, and much more.

The range of available transparency tools is making it more challenging for corporate management and investors to navigate.

The ESG / Sustainability / Sustainable Investing lexicon for both publicly-traded companies and their providers of capital is today chock-a-block with acronyms and initials. GRI, SASB, TCFD, OECD, IIRC, SDG, PRI, UNGC, GRESB, WEF, IFRS, EFRAG, EC’s NFRD – you get the picture!

And there are a host of industry-focused standards (such as RBA, once known as EICC), IEPC, LEED).

The venerable player is the Global Reporting Initiative (GRI), a comprehensive, ever-expanding, stakeholder-focused reporting framework created by global stakeholders over two decades ago with roots in Boston, in the Ceres Pledge of the early-1990s.

That pledge was created by SRI investors after the Exxon Valdez oil tanker disaster in Alaska and was intended to invite corporate managements to promise to do better in what is now ESG performance.

The first two signatories of significant size were General Motors and Sun Oil. G&A team members were involved in encouraging firms to sign on to the pledge in those early years.

By 1999-2000 the first corporate environmental, responsibility, et al reports were being published in the United States and Europe (a few dozen appeared in the first round with the first generation of the GRI framework, G1).

Over the ensuing years the GRI framework evolved and matured on through G3, G4 and finally in recent years to a more formal standards-based approach. And those modular standards for ESG reporting are continuing to evolve as GRI enters its third decade.

The news today about GRI is focused on the launch of what are called “Universal Standards”, which in modular form will be in place for corporate and institutional reports to use if they are going to report in accordance with the GRI Standards.

The now-familiar Core and Comprehensive will go away; it will still be OK to use “GRI-Referenced” (a less strict version which references parts of the GRI reporting standard) in reporting following the Universal Standards, which will go into effect in January 2023.

The new GRI Universal Standards align with the United Nations Guiding Principles on Human Rights, the OECD Governance Standards, and the International Corporate Governance Network (ICGN).

The elements of the Universal Standards to keep in mind are these: what is the impact of the corporation on society, and society on the corporation; materiality of disclosures; due diligence on the part of reporters.

Keep in mind the standards are broad and focused on stakeholder disclosure, of course including providers of capital as stakeholders. All companies can use the Universal Standards to communicate the firm’s impact on the broader society. (Think: how does your firm connect with people?)

Supply chain operations are an important part of GRI reporting going forward. Consider, as one expert recently explained, that of the large, multi-national enterprises of the developed world, more than 90 percent of production is beyond the company’s walls, out there in the world of non-company producers (many in less-developed nations as well as in China).

The European Union is considering adopting corporate sustainability reporting that would use the GRI Universal Standards for mandated disclosure by all companies operating in the 27 EU states (with certain qualifications as to size and other considerations).

GRI standards-focused disclosure is expected to include story-telling and metrics about corporate sustainability actions and activities, governance, strategies, planning, practices, engagements, and more. Materiality assessment activities are critical elements of GRI standards reporting, notes the GRI team.

In addition, GRI is launching a series of Sector Specific guidance, beginning with the new “Sector Standard for Oil and Gas.”

The sector standards will address “how decision and actions of companies address widespread stakeholder concerns about their climate change-related impacts, while ensuring a just transition for workers, communities and the environment”.

We are sharing details of the above developments at GRI with you in the Top Stories this issue.

The G&A Institute team has been focused intently on GRI reporting since 2000 and was designated as the GRI Data Partner for the U.S., and then the U.K. and Republic of Ireland more than a decade ago.

Over this decade, we’ve gathered and analyzed in depth thousands of GRI reports since then. G&A Institute is a Community Member of GRI, and we of course watch the work of GRI very closely.

Whether you are a corporate manager, executive or board member, or provider of capital to the corporate sector, you should also keep a close watch on GRI.  And, the G&A team is available to help answer any questions you have.

TOP STORIES

Attention Finance Officers – The Sustainability Journey & The Company’s Bottom Line

Original:  September 2021

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

When corporate managers talk about their company’s ESG and sustainability efforts it is most often now in the context of “telling the story of our corporate sustainability journey.”

The hallmarks of this journey are typically about the continuous improvement in the enterprise’s ESG performance indicators and ever-increasing and more robust disclosures to inform investors and other stakeholders that this (is indeed!) a most sustainable company..

G&A Institute began tracking the ever-expanding reporting of sustainability journeys by mainly publicly-traded companies in the S&P 500 Index in 2011, when we determined that about 20 percent of those firms published a formal sustainability or corporate responsibility report.

That percentage grew quickly to 50% and on to 70% and to the current 90% of the 500 companies over a decade. As we analyzed the data and narrative that was being shared, it became clear that the corporate financials were an increasingly important element of the company’s ESG story.

The World Economic Forum (WEF) is talking about that now; the WEF posits that there is growing evidence that strong ESG credentials can improve the corporate bottom line, improve access to capital, and lower the cost of capital.

The WEF recommends that corporate CFOs should take on the responsibility of aligning their company’s ESG and financial goals. (Until recently, WEF points out, the CFO would not have included sustainability in an analysis of what affects the bottom line.)

The WEF points to evidence of a strong correlation between financial and ESG performance.

There are cost savings in reducing energy usage, more efficient use of resources, and new business opportunities presented.

Deloitte predicts that by 2030 (only 400+ weeks away), organizations committed to sustainability as embodied in the Sustainable Development Goals will generate US$12 trillion in savings and gain of new revenues (for energy, cities, food, and health).

In our Top Story we’re sharing the WEF’s perspectives as authored by CEO and Executive Director Sanda Ojiambo of the UN Global Compact.

There are examples of “better outcomes” when CFOs embrace sustainability – Enel of Italy, Tesco of UK, Chanel of France. These firms issued sustainability-linked bonds to raise capital. JP Morgan predicts that bonds linked to the issuer meeting environmental goals could reach US$150 billion by the end of this year.

The UN Global Compact organized a “CFO Taskforce” in December 2019 to engage CFOs worldwide; to integrate the SDGs into corporate strategy, finance, and IR; and, to create a broad, sustainable finance market.

There are 50 members in the task force today; the aim, CEO Sanda Ojiambo writes, is to have 1,000 members by 2023.

The shift of corporate business models from focusing primarily on shareowners and short-term expectations to “broader, more sustainable, and equally profitable alternatives” is creating more opportunity for the finance executive to become more instrumental in helping to shape a sustainable future, she writes.

In the G&A team’s conversations with corporations about sustainability topics and issues, the good news is that many more finance and investor relations executives are an important part of the conversations and decision-making about their firm’s sustainability reporting and are focused on the disclosure and organized reporting of their firm’s ESG efforts.

We’re including a report from Entrepreneur about the growth of Sustainability Investing from 2019 to 2020. And, to underscore the importance of sustainability-linked corporate bonds, two other items: the news from Eli Lilly of its issuance of a €600 million sustainability bond; and Walmart will issue a US$2 billion sustainability bond (first for the largest retailer in the U.S.).

TOP STORIES

Pressure is Building on the C-Suite – to Start or Advance the Enterprise’s Sustainability Journey

July 2021

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

Pressure points:  The corporate executive suite in recent months has experienced pressure from both inside and outside the organization in terms of rising expectations related to corporate sustainability, responsibility, citizenship, ESG, and so on.

For example, asset owners and external asset managers are asking many more questions now about the sustainability journey of the companies they are invested in, including the company’s ESG strategies, actions, performance, metrics, outcomes, external recognitions, and more.

The customer base for a growing number of companies is now an important consideration related to the supplier/provider’s positioning in its sustainability journey.

The working principle here:  the large customer especially considers the supply chain “partners” to be part of their own ESG footprint.  Third-party organizations pose questions to supply chain partners on behalf of their client base (Ecovadis being an excellent example of this practice).

Consider, too, that the Federal government is the largest buyer of goods and services in the U.S. and the Biden Administration has instituted sweeping sustainability policies on sourcing of many kinds.

Regulators of different sorts are moving towards strongly urging companies to disclose more about their sustainability journeys and considering mandates to help ensure more comparable, accurate, complete, decision-worthy data and narrative disclosures to help providers of capital (investors, lenders, insurers) in their own portfolio management.  We see that now in the U.S. and in the European Union.

There is peer pressure – corporate issuers moving ahead to leadership positions in sustainability put pressure on industry peers to perform better, disclose more, and attain at least middle-of-the-pack positions. And laggards (those not yet on their journeys) are under even greater pressure today.

One place where the leader board really counts is in the now-numerous ESG ratings and rankings provided to institutional investors by the likes of MSCI, Sustainalytics, Institutional Shareholder Services, and other ESG rankers and raters.

And then there is the internal pressure point – employees want to work for a company demonstrating leadership in sustainability and responsibility.  They want to be an integral part of the journey and be a part of the team making great things happen. All this counts in recruitment, retention, and motivating the workforce.

This week we pulled together some of the contours of these pressures on boards and executive and management teams.  As you read this, thousands of people are gathering virtually for the UN Global Compact Leaders’ Summit to discuss the growing pressure on governments, companies, investors, and other stakeholders to take action on climate change and sustainability issues.  The UNGC released the 2021 Survey of Companies & CEOs ahead of the gathering.

Top line results:  Business interests need to transition to more sustainable business models.  Over the past three years corporate leaders have been experiencing the pressures to do this; and 75 percent of survey respondents expect the next three years to be times of increased pressure on boardrooms and executive suites.

Where is pressure coming from?  Certainly, from the investor side.  For example, 450+ investors managing US$45 trillion in assets released a joint statement calling on world governments to create a race-to-the-top on climate policies…

This is the “2021 Global Investor Statement to Governments on the Climate Crisis” that asks for climate-related financial reporting to be mandatory, recognizing the climate crisis.

Seven investment management partners created “The Investor Agenda” to be shared at the recent G7 meeting to encourage advocacy for “ambitious climate policy action” leading up to the Glasgow, Scotland meeting of “The Conference of the Parties” (COP 26) in November.

The Investor Agenda is in the Top Stories below for your reading, along with comments from heads of NYS Common Fund, State Street/SSgA, Alliance Bernstein, Legal and General Investment Management, Fidelity International, and others.

In the U.S., 160 investors with U$2.7 trillion in AUM joined by 155 corporate leaders and 58 not-for-profit organizations are advocating for the Securities & Exchange Commission to protect investors from risks including systemic and financial risks related to climate change by mandating climate disclosure.

By doing this, corporate issuers can clarify the risks they should measure and disclose so that investors can make sound investment decisions.  SEC rules are needed, say the advocates, to provide comparable and consistent information.

Who are these advocates?  A group of state financial officers —  Illinois State Treasurer Michael Frerichs, California State Controller Betty Yee, New York State Comptroller Tom DiNapoli – as well as Steven Rothstein, Managing Director for the Ceres Accelerator for Sustainable Capital Markets and others.  Their suggestions for moving to an SEC mandate is another Top Story selection for you.

G&A is closely monitoring the various pressure points being placed on organizations to start or advance your sustainability journey, and you can detect other pressure points in the story selections in the topic silos.

TOP STORIES

Corporate Sustainability – A Converging Opportunity to Simultaneously Reduce Carbon Emissions and Optimize Multi-Tier Supply Chain Risk?

April 2021

by Pam Styles – Fellow, G&A Institute and Principal & Founder of Next Level Investor Relations LLC

There may be a converging opportunity for companies to accelerate total carbon emissions reductions (Scopes 1, 2 and 3) in collaboration with critical efforts to better understand and mitigate multi-tier supply chain risks that were revealed by the COVID-19 pandemic.

Expansive coverage of emerging trends supporting this thesis is presented in the Resource Paper, The Carbon Key: Transcending ESG Disclosure Frameworks Consolidation and Accelerating Supply Chain Awareness, newly published on the Governance & Accountability Institute website.

HIGHTLIGHTS

✔  A noticeable increase in the number of new articles combining observations about CO2 and supply chain, including articles from the World Economic Forum, The Wall Street Journal and CDP, formerly known as the Carbon Disclosure Project.

✔  Articles supporting the idea that conditions may already exist for the commercial business sector to make real and lasting emissions reductions on its own – sooner and better – than to wait for geo-political negotiations and distant reduction target dates.

✔  Introduction to complementary opportunities for individual companies and the commercial business sector to focus on supply chain CO2 contributors and reductions that are material.

✔  A challenge to imagine if carbon emissions disclosure and performance tracking were prerequisites to resume sourcing from pre-Covid suppliers.

Thinking of these trends from an Investor Relations and ESG communications vantage, with some rudimentary optimization modeling exposure, it is suddenly compelling to take a look at Scope 3.

SCOPE 3 – “THE CARBON KEY”

Scope 3 CO2 emissions include both upstream and downstream categories.

Using guidelines published by the Global Reporting Initiative (GRI) for layman’s interpretation, Scope 1 (direct) and Scope 2 (indirect) CO2 emissions are defined as coming from sources owned or controlled by an organization; Scope 3 CO2 emissions are a consequence of an organization’s activities, but occur from sources not owned or controlled by the organization.

An excerpt from the Scope 3 guidelines points to, “The reporting organization can identify other indirect (Scope 3) emissions by assessing which of its activities’ emissions… contribute to climate change-related risks, such as financial, regulatory, supply chain, product and customer … “

Upstream categories, at least the first four listed below, could be constructive additions to supply chain optimization models. In this way, companies could assess Scope 3 emissions improvement performance indicators for each potential supplier in a similar way as cost inputs are compared for low-cost sourcing optimization in supply chain modeling and actual procurement decision-making.

SCOPE 3 – CO2 EMISSIONS

Upstream categories

Downstream categories

1. Purchased goods and services

1. Downstream transportation and distribution

2. Capital goods

2. Processing of sold products

3. Fuel- and energy-related activities (not included in Scope 1 or Scope 2)

3. Use of sold products

4. Upstream transportation and distribution

4. End-of-life treatment of sold products

5. Waste generated in operations

5. Downstream leased assets

6. Business travel

6. Franchises

7. Employee commuting

7. Investments

8. Upstream leased assets

Other downstream

Other upstream

 

Source: Global Reporting Initiative Standards GRI KPI 305 – Emissions

CONTEMPLATE & CONSIDER
The Carbon Key article introduces several questions and things to contemplate:

  1. How might companies quickly re-evaluate their supply chain optimization decisions in the immediate post-Covid recovery?

  2. Imagine how different management decisions might be if all layers of CO2 emissions were factored into the total cost of ownership (TCO) in supply chain decisions and risk mitigation.

  3. Notice similarities between companies’ struggle to capture and report Scope 3 CO2 emissions and of supply chain tiers mapping challenges.

    A recent study found, that while 91% of companies can identify the physical location of most or all of their Tier 1 supplier facilities, only 17% could do so of their Tier 3 supplier facilities.

  4. Companies’ leadership and understanding of its complete carbon footprint may be rapidly put to the test as capital markets and respective raters’ increase their attention on this issue.


The ESG/Sustainability field has been quietly maturing in the business sector, while the U.S. and global government sector has been distracted by the pandemic.

✔  The latest annual trends tracking conducted by the Governance & Accountability Institute shows 90% of S&P 500 and 65% of Russell 1000 companies produced sustainability reports as of 2019.

✔  In September 2020, five of the most globally recognized ESG voluntary reporting frameworks – GRI – CDP – SASB – IIRC – TCFD – announced they have pledged to work together in harmonizing ESG framework guidelines.

✔  As these five entities attempt to harmonize guidelines, other entities and collaborations have recently announced development of new ESG disclosure frameworks, i.e., CFA, the Big Four accounting firms, International Business Council (IBC).

✔  ESG-related data suppliers and aggregators continue to assert influence with frequent announcements of new ESG ratings and syndication arrangements to meet the growing information demand.

✔  Carbon emissions is one topic that transcends differences across most of the major voluntary ESG reporting frameworks. No matter which framework guideline(s) a company chooses to use, Scope 1, 2, or 3 CO2 emissions guidelines generally refer to the globally accepted methodology referred to as the Greenhouse Gas (GHG) Protocol. The carbon key can unlock interconnections to aid ESG framework harmonization.

CLOSING THOUGHTS
Talk to each other! Forget about internal silos and collaborate between teams.

There is every reason to believe that company experts can look at the carbon key to find faster, focused and efficient ways to mesh two seemingly different challenges – supply chain tiers risk and Scope 3 CO2 emissions reduction – for optimization that delivers real return on investment.


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

 

On Corporate Risk Strategy, Sustainable Actions & Outcomes – What’s the Best Ways to Report on ESG to Stakeholders?

April 2021

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

Buzz… Buzzz… Buzzzzz! The current buzz among key stakeholders – investors, corporate boards & management, NGOs, government regulators, stock exchanges, ESG raters & rankers, ESG corporate disclosure standards and frameworks managers – is centered on “Quo Vadis”…where do we go from here!

The good news is that the lively discussions underway appear to be indicating progress in the global drive to achieve more holistic, meaningful, accurate, comparable, understandable corporate ESG disclosure approaches.

One, to help publicly-traded company managements understand and provide transparency for the data sets, metrics and narratives that asset owners and their managers, and (2) to help creators of sustainable investing products in their expanding analysis of companies of all market cap sizes.

Influential players are part of the discussion.

Example: The World Economic Forum (WEF) published a White Paper in January 2020 to set out a framework to bring sustainable reporting frameworks & standards into a common and consistent system of metrics. This, to help investors and companies attain sustainable value creation and accurately disclose on same. WEF suggests a set of 22 Core metrics and a range of Expanded metrics to start with.

At the same time the “Big Five” of the global corporate sustainability disclosure and reporting frameworks and standards organizations are collaborating and recently published a shared vision of the elements necessary for achieving more comprehensive and holistic corporate sustainability reporting.

The five organizations are: CDP; the Climate Disclosure Standards Board (CDSB); Global Reporting Initiative (GRI); International Integrated Reporting Council (IIRC); Sustainability Accounting Standards Board (SASB). Plus TCFD, the Task Force for Climate Related Financial Disclosure, created by the Financial Stability Board (FSB), a G20 nations organization.

Joining the effort: The European Commission; IOSCO (global government securities regulators organization); WEF’s International Business Council; and IFRS.

Each issue of the G&A Sustainability Highlights newsletter we bring you information about the above and much more related to the increasing tempo of the buzzzzz on corporate sustainability disclosure and reporting.

The discussions are taking place worldwide as leadership in public sector, private (business/corporate) sector and social sector address a widening range of ESG issues that will over time determine what kind of world we’ll live in.

See: meeting the challenges of climate change multiple issues, diversity & inclusion, populations deciding on democracy or authoritarianism, having ample food supplies or facing starvation, providing equality of opportunities & outcomes, pandemics to come, rapidly disappearing natural resources, political financing, a range of labor/workforce challenges…and more.

The content silos in our newsletter are designed to help you scan and select the news and perspectives we gather for you each issue.

The G&A Institute’s “Sustainability Headquarters” (SHQ) web platform has many more items selected by our editorial team led by EVP Ken Cynar for you. He’s assisted in these efforts by G&A’s Amy Gallagher, Reilly Sakai, Julia Nehring, Elizabeth Peterson, Lucas Alvarez, Lou Coppola, and Hank Boerner. All of this is team effort! Check the expanded related contents not in the newsletter on SHQ!

We constantly monitor all of the above issues — the global ESG disclosure buzz! — and participate in certain of the conversations as guiding the ESG disclosure and reporting of our corporate clients is at the core of the G&A Institute mission.

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Eyes on Financial Accounting and Reporting Standards – IASB & FASB Consider “Convergence” and Separate Actions

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

March 2021

Investors Call For More Non-Financial Standards for Corporate Reporting, Less Confusion in “Voluntary” Disclosure.

Should there be more clarity in the rules for corporate sustainability accounting and reporting as many more investors embrace ESG/Sustainable analysis and portfolio management approaches?

Many investors around the world think so and have called for less confusion, more comparability, more credible and complete corporate disclosure for ESG matters.

Accounting firms are part of the chorus of supporters for global non-financial disclosure standards development.

Where and how might such rules be developed? There are two major financial accounting/reporting organizations whose work investors and stakeholder rely on: The International Accounting Standards Board (IASB) and in the United States of America, the Financial Accounting Standards Board (FASB). Both organizations develop financial reporting standards for publicly traded companies.

There are similarities and significant differences in their work. The US system is “rules-based” while the IASB’s approach has been more “principles-based” The differences have been diminishing to some degree with the US Securities & Exchange Commission more recently embracing some principles-based reporting.

By acts of the US Congress, FASB (a not-for-profit) was created and has governmental authority to impose new accounting rules — while the IASB rules are more voluntary.

The US system has “GAAP” – Generally Accepted Accounting Principles for guidance in disclosure. The adoption of IFRS is up to individual countries around the world (144 nations have adopted IFRS).

The IASB standards are global; these are the “IFRS” (International Financial Reporting Standards) issued by the IASB.

The FASB standards are used by US-based companies. For years, the two organizations have tried to better align their work to achieve a global financial reporting standard – “convergence”.

The IFRS Foundation is based in the United States and has the mission of developing a single set of “high-quality, understandable, enforceable and globally-accepted accounting standards (the IFRS), which are set by IASB.

In 2022 IASB and FASB will have a joint conference (“Accounting in an Ever-Changing World”) in New York City to “…strengthen connections between the academic and standard-setting communities…” and explore differences and similarities between US GAAP and IFRS Standards.

Consider that the Financial Stability Board (FSB), which launched the TCFD, is on record in support of a single set of high-quality global accounting standards.

Convergence. In the USA, the “whole of government” approach to the climate crisis by the Biden-Harris Administration may result in encouragement, perhaps even rules for, corporate ESG disclosure. The IASB is not waiting.

The IFRS Foundation Trustees are conducting analysis to see whether or not to create another board that would issue global standards for sustainability accounting and reporting.

A proposal will come by the time of the UN Climate Change Conference this fall. Should the IFRS foundation play a role? The International Federation of Accountants (IFAC) thinks so.

Many questions remain for IASB and FASB to address, of course. This is a complex situation, and we bring you some relevant news in the newsletter this week.

TOP STORIES

Here’s an update from the IFRS Foundation and what is being considered:

Meanwhile, the European Commission separately is exploring how to strengthen “non-financial” reporting – there’s the possibility that there could be EU standards developed:

Helpful information about the FASB-IASB differences: