Category Archives: Corporate Governance

U.S. Large Cap ESG Progress – Barron’s Magazine Reports the Good News

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March 8, 2023 – by Hank Boerner – Chair and Chief Strategist, G&A Institute

Literally hundreds of thousands of loyal readers closely follow the content of Barron’s magazine, sister publication to The Wall Street Journal — because Barron’s is an important investor-focused publication reaching almost a half-million subscribers each week with keen interest in content about the capital markets.

Six years ago, Barron’s began to focus more intently on ESG and sustainable investment topics.  That was an important signal of the importance of ESG information to capital markets players and a wide range of investors. 

Each year since Barron’s has analyzed the largest U.S. publicly-traded companies and publishes its “100 Most Sustainable U.S. Companies” ranking.

The rankings are done in collaboration with Calvert Research and Management, a major asset manager and mutual fund advisory company that has been focused on sustainable investing for many years.

This year’s results are out; the methodology to rank the 100 most sustainable companies includes:

• Calvert starts with the largest 1,000 publicly-traded U.S. companies by market cap.

• Calvert researchers apply more than 230 ESG performance indicators for these companies using data from seven rating companies, including MSCI, ISS, and Sustainalytics, along with other data and Calvert’s internal research.

• The data is organized into 28 key topics sorted into five categories based on major stakeholder constituencies (Shareholders, Employees, Customers, Community, the Planet). For example, key topics for shareholders included board structure and exec compensation, while key topics for the planet included GHG emissions and water stress.

• Calvert assigned a score of zero to 100 in each category based on company performance and then created a weighted average based on how financially material the category was for that company’s industry. Poor performance by a company in any of the key categories that was financially material would be automatically disqualifying.

The featured story is edited by Lauren Foster, who writes: “ESG may sound like a meaningless acronym. To some politicians, it’s nothing less than a threat to American capitalism, and it needs to be reined in.”

The story goes on to punch holes in the Republican-led arguments that ESG is a threat to capitalism, or to state employee pension funds, or to investing in general.

Barron’s notes for its investment readers that 63 of the 100 ranked companies outperformed the S&P 500 Index® last year and the list overall outperformed the broad index, delivering a negative 9.5% return in 2022 vs a negative 18.1% for the entire S&P 500 Index.

This is an important feature story you will want to read and share with colleagues. The G&A team is pleased and proud to say that a number of our valued clients appeared on the 2022 list, including some for the first time. Onward, sustainable companies, and upward ESG investing!


Top Story:

• https://www.barrons.com/articles/most-sustainable-esg-us-companies-1b5f70fd?mod=Searchresults

Systemic Racism in Corporate America

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by Janis Arrojado, G&A Institute Analyst-Intern
Note: This is the third post in the blog series by Janis:

In the wake of George Floyd’s tragic murder in May 2020, corporate America took action to fight racism. Collectively, by August 2021, America’s 50 largest public companies and their foundations committed at least $49.5 billion to causes and initiatives that advance racial equity. However, 90% of that amount is apportioned as loans or investments that these companies can earn profits from. A total of $4.2 billion pledged is in the form of grants, which represents less than 1% of the profits earned by those companies in the most recent year. Although it is good to see that corporate America is taking strides to address racism, these numbers show how companies run the risk of performative activism, and raises questions of whether companies are making efforts internally in their workplaces to address issues of racism and inequity.

Systemic Racism

Issues of racial inequity are not new to the workplace. Corporate America operates under systemic racism, which is defined as referring to: “the complex interactions of large scale societal systems, practices, ideologies, and programs that produce and perpetuate inequities for racial minorities.” The most important component of systemic racism is that it operates on a large scale independent of individuals, meaning inequality can persist for racial minorities even if individual racism is not occurring. In the workforce, this may manifest itself in racial bias leading to discriminatory policies that impact hiring, starting pay, and professional upward mobility for people of color, especially Black Americans. People of color may face microaggressions, which are subtle behaviors impacting marginalized groups. Professional standards relating to language, dress code, and communication are rooted in white and Western ideals. People of color can face isolation and a lack of support in their workplace.

Representation Gap

Discriminatory policies contribute to a racial representation gap in the workforce. There is an underrepresentation of Black/African American and Hispanic/Latino workers at every career level above the support staff level when comparing representation in the general population. There is a general pattern showing that representation of people of color decreases as career levels rise, with Asians/Pacific Islanders being an exception, as shown in a global equality report released by Mercer in 2020.  In addition to impacting representation, racial bias impacts the advancement and experience of people of color in the workforce.

Benefits of Racial Diversity

Changing the norm of systemic racism is integral for minorities to feel welcomed and included in their workplace. Having a diverse workplace offers different cultural perspectives that can inspire innovation and foster collaboration. Additionally, cultural insight and local knowledge can create more informed and targeted marketing and production of products. Addressing the gap in racial representation is also financially beneficial, as companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns higher than their competitors.

What Companies Can Do

Corporations have power in fighting systemic racism in their workplaces. Devoting resources toward enhancing the experience of minorities through training in topics such as racial equity, unconscious bias, and microaggressions is a start. Inclusion is an integral component for minorities to feel a sense of belonging in the workplace. Through initiatives such as employee resource groups (ERGs) for different identity groups, employers can create a space for employees to feel supported and raise issues with work environments. Incorporating more equitable hiring processes is also important, which can look like asking all prospective employees the same exact set of questions in the same order. Corporations can also recruit candidates from historically Black colleges and universities (HBCUs) and minority-serving institutions (MSIs) to gain diverse talent.

Conclusion

Although discussing racism outright may be a taboo topic, it is important to understand how companies operate within systemic racism and how systems of racial inequity negatively impact workers of color. Being proactive in addressing systemic racism can improve the experience and livelihood of people of color and is integral to creating a more diverse and equitable workforce.

ABOUT THE AUTHOR

Janis Arrojado is a senior at the University of North Carolina at Chapel Hill, studying Environmental Science and Geography.  Her interests include corporate sustainability, environmental justice, and sustainable development. She currently is an analyst-intern at G&A Institute.

 

 

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Common Sustainability Reporting Standards Remain Elusive

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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

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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

Springtime in North America – A Time Featuring Corporate-Investor Engagement and Proxy Voting on Critical Issues

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April 20 2021   Spring is in the air!  Proxy Season 2021 getting underway.  So how did we get here?  Some history and springtime news. 

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

Springtime comes to the USA and and the Northern Hemisphere countries with pretty flowers in bloom, trees budding, the onset of warmer weather.  And…

Asset owners and their managers participating willingly or reluctantly in the peak months of corporate proxy voting season in North America.

Typically, the corporate issuer develops the resolution(s) for voting by the shareholder base – for example, election of slate of nominees for the board and approval of the outside auditing firm.

And then… there are the resolutions prepared by the shareholders, and these are usually not to board and executives’ liking.

Thought you might be interested in some of the history of shareholder activism.  In the earlier days of shareholder activism certain “gadflies” would offer up their resolutions for inclusion in the voting (typically then, by individual investors).

Brothers John and Lewis Gilbert and a few others of similar thinking would gin up their resolution drafts and then face the challenge by the target company could be expected.

Some still around remember the ever-present at annual meeting Evelyn Davis, a Dutch Holocaust survivor with strong feelings and lots to say about how companies she invested in were being managed .

The Gilbert siblings operated “big time” in proxy season; they owned shares in 1,500 companies and attended at least 150 corporate annual meetings each year. T

They were often characterized as showmen (kicking up a storm at companies like Chock Full o’ Nuts and Mattel and other companies’ meetings.) Right after WW II John Gilbert got the SEC on the shareholders’ side; the regulatory agency started to require that companies include relevant shareholder resolutions in the annual proxy statement (of course certain conditions applied then and now).

Over time, this process became more sophisticated as many institutional owners put corporate equities in portfolios and steadily a certain number became activist investors. (

It really helped that the US Department of Labor leveraging ERISA statutes and rules  reminded US institutional investors that their proxy was an asset and voting was a clear responsibility of the fiduciary-owner.

In 1988, Assistant Secretary of Labor Olena Berg reminded pension fund managers of the “Avon Letter” that posited that corporate proxies are a pension plan asset and should be taken seriously and voted on.

One of today’s proxy voting / corporate governance experts with wide recognition and respect is California-based James McRitchie (principal of Corpgov.net).

In a communication to the US SEC in November 2018, he explained that he and other investors engage companies on ESG issues “to enhance their long-term value and to ensure corporate values do not conflict with the long-term interests of a democratic society.”

He suggested: “Corporations should welcome shareholders into the capitalist system as participants in major decision.”

In proxy season 2021, the “crisis stories” of 2020 and earlier years continue as public dialogue at least in the form of shareholder requests / demands / expectations of the companies that are in the portfolio on important societal issues.

Climate change action, racial justice/injustice, diversity & inclusion, inequality – these are high on the list for this year’s voting.

We have selected three Top Stories for you on the themes of 2021 voting. The not-for-profit Ceres organization, long active in ESG proxy voting issues, highlights the focus on science-based emissions reduction plans, and corporate policies aligned with the goals of the 2015 Paris Agreement. There are 136 climate-related shareholder-sponsored resolutions submitted to public companies as of April 2nd for 2021 voting.

The good news is that a number of these have been resolved in investor-corporate dialogues at Domino’s Pizza, Citigroup, JPMorgan Chase, and other firms. Others were withdrawn at Duke Energy, CSX, and Valero.

Climate-related themes for resolutions include “Banking on Low Carbon”, “Carbon Asset Risk”, and “Say on Climate”.

Long-time shareholder activist Tim Smith is Director of ESG Shareowner Engagement at Boston Trust Walden and member of the Ceres Investor Network. Ceres continues to track such resolutions and information is available at www.ceres.org.

The authoritative Pensions & Investments publication shares news about a new website — Majority Action’s “Proxy Voting for a 1.5 C World”.

Four key sectors are in focus: electricity generation, oil & gas, banking, and transportation, with summaries of corporate current emission targets, capital allocations and policy activity relate to climate change. (Reaching net-zero emissions by 2050 is an example of issue in focus.)

The web site offers recommendations for voting against director nominees at companies failing to implement plans “consistent with limiting global warming” by industry/sector.

In banking the web site names Wells Fargo, Goldman Sachs, and JPMorgan Chase. Issues in focus overall include Climate Change, Community Development / Investment, Gender Equality, and more.

Third – the Yield Positive web platform offers excellent background on shareholder resolutions and the current state of affairs following the dramatic events of 2020 – racial inequality highlighted by the killing of George Floyd; worker health and safety protections in the Covid pandemic; climate change issues – with examples of the resolutions coming up for vote in 2021.

These include Home Depot – Report on racism in the company; Target – Report on/end police partnerships; Wells Fargo – report on financing Paris Agreement-compliant GHG emissions cut, and more.

The 2021 spring season of corporate proxy voting and then the voting at company issues to Fall 20231 will be closely followed by business media and of course, the global investing community. We will continue to share news and perspectives about this annual exercise of “shareholder capitalism”.

TOP STORIES – April 2021

It’s Proxy Season 2021: Investors Focus on Climate Action

FYI

 

“APAC” & Corporate Sustainability Journeys – Monitoring Progress & Demonstrated Leadership on the Rise in This Vital Global Region

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May 24 2021

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

Business and financial activities in “APAC”, the Asia / Pacific Basin Region are vital to the economies of the rest of the world.

Think of the region’s leading sovereign economies…in order of magnitude, consider the impact of the economies of China, Japan, India, South Korea, Australia, Indonesia (the top economies).

These six countries are;

  • home to some of the world’s lower cost manufacturing and assembly centers,
  • sources of financing for companies and other government entities, sourcing points for many of the world’s natural resources and food and industrial ingredients,
  • sources of value-added manufactured products (such as the chips used in a multitude of consumer and business IT applications such as smartphones and electric vehicles).

The good news is that the region is also home to a growing number of corporate sustainability leadership companies. 

For example, CDP reports that “despite many challenges in 2020” companies disclosing on TCFD-aligned reporting reached a global high — and that included more than 3,000 companies in 21 Asia Pacific Region (“APAC”) countries responding to CDP for the first time…and that now account for almost a third of CDP’s global corporate responses.

ESG Leadership Progress:  The majority of the 3,000 APAC companies report having a board-level oversight on climate-related issues (79%) and say that they are beginning to integrate climate issues into business strategy.

Half say they have integrated incentives in management of climate issues, including attainment of targets.

Three of four APAC companies responding to the CDP survey say they have identified climate risk as maybe having substantive impact on their business and 60% of these are transition risk.

Climate Change Impact:  CDP in its Global Climate Risk Index 2021 found that 60% of countries most affected by climate change from 2000 to 2019 are in Asia.

McKinsey consultants estimates that the impact on labor productivity due to chronic increases in heat and humidity could cost Asia as much as US$4.7 trillion in of annual GDP by 2050.

We are sharing CDP’s recap of the survey responses for 2021 as a Top Story.

Looking at the smaller economy of the region, Sustainalytics’ manager Frank Pan focuses on ASEAN-6 nations and reports that in the context of sustainable investing moving from “niche” to mainstream, this trend is still limited those Southeast Asian countries — even though the region is an economic block with one of the world’s fast-growth rates.

The ASEAN-6 countries: Singapore, Malaysia, Thailand, Vietnam, Indonesia, the Philippines.

All six of these countries, Pan points out, do have some form of ESG disclosure required and the governments have guidelines to help companies in their ESG disclosures; all the nations have stock exchanges that are members of the Sustainable Stock Exchange Initiative to encourage ESG reporting by listed companies.

He points out the nature of the ESG disclosure regimes of the six nations in another Top Story selection this week.

Sustainability Reporting:  The Global Reporting Initiative (GRI) is the world leader in number of corporate reports published following the organization’s standards; while some ESG standards are designed to inform the investment community, GRI’s were developed over 30-plus years with stakeholders in mind, including providers of capital (today’s standards were preceded by GRI’s reporting frameworks, “G1 through G4”).

GRI in our third Top Story this week reports growing momentum for sustainability reporting in South Asia and especially for three target countries (India, Bangladesh, Sri Lanka).

GRI’s research examined 1,100 companies in the region; of these, 503 are in India, 320 in Bangladesh, and 284 in Sri Lanka.

The “2020 Sustainable Reporting Trends in South Asia” research found that GRI’s Standards are the most widely-used for ESG reporting across all the countries; 64% of listed companies in Sri Lanka use the standards; the number of reports published in Bangladesh increase by more than a third from 2018 to 2019; in India, 99% of organizations analyzed by GRI have integrated sustainability reporting into their management practices.

While the usual flow of content that we monitor and share in the newsletter each week at times has a focus on Asia and the Pacific Basin region and subregions, we are bringing you much more detail in these stories – where you will find more information about the above research efforts and respective organizations’ reports in the Top Stories.

TOP STORIES

Investors & Climate Change – Leading Institutions and their Growing Networks are Urging Expanded Corporate Disclosure

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June 28 2021

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

What about the steadily-rising investor expectations for the corporate sectors’ climate change actions and expanded ESG disclosures?

We are able to more closely examine the rising expectations of leading asset owners/key fiduciaries and their asset managers to understand the investors’ views on the ESG / sustainability disclosure practices of issuers they provide capital to.

This includes keeping close watch on individual institutions and especially the collaborations of investment organizations they participate in.

For example, this news out of London: Some 168 investors hailing from 28 countries are now collaborating to urge companies with “high environmental impact” to use CDP’s system to disclose their environmental data.

And note:  The companies being targeted by investors represent US$28 trillion in market cap and emit an estimated 4,700 megatonnes (Mt) of carbon dioxide equivalent…every year.

The investor collaboration is part of CDP’s 2021 Non-Disclosure Campaign, created to put pressure on companies that have not disclosed their carbon emissions through CDP or have discontinued the practice. Beyond carbon concerns,

CDP and its collaborating investors and investor groups are also zeroing in on companies with forest or water security concerns. (Note that some firms disclose to CDP on one theme of concern to the investor but not others – some companies report on climate change but not on water or forestry issues.)

Targeted companies for investor action in the U.S. included at the “top of the As” are such firms as Apple, Amazon, Aramark, Abbott Laboratories, Activision Blizzard, Albemarle Corp, and Alliant Energy. In Switzerland, Alcon; in Sweden, Alfa Laval Corporate AB; in Canada, Allied Properties REIT; in Brazil, Ambev S.A.; in the U.K., Arrow Global Group. The complete list is available here for your searching.

The bold name asset management firms joining the CDP campaign for greater corporate disclosure this year include HSBC Global Asset Management, Legal and General Investment Management, Nuveen, and Schroders.

Investors supporting the campaign include asset managers and separate activist investor collaborations that are part of The Investor Agenda, which has produced a comprehensive framework recently for these investors (HSBC Global Asset Management, Legal and General Investment Management, Nuveen.)

This effort was founded by seven partners including Ceres, CDP, UN PRI, and UNEP Finance Initiative. In the United States, National Association of Plan Advisors, The Forum for Sustainable and Responsible Investing  (U.S. SIF) and Interfaith Center on Corporate Responsibility (ICCR) have joined the effort.

The approach is to set out “expectations” in four areas:

  • corporate engagement,
  • investment (managing climate risk in portfolio),
  • enhancing investor disclosure, and
  • policy advocacy (urging actions to drive to the 1.5C pathway). Part of this is an urging of governments to take action to address climate change, moving toward this year’s COP 26 gathering in Glasgow.

The CDP Non-Disclosure campaign is now in its fifth year, enjoying a 39% year-on-year growth in investor participation since the start in 2017, with investor participation up more than 50% since 2020.

This effort is part of a broad movement of investor participants and investor alliances aiming to drive change in the companies they provide capital to, as governments, investors and corporations adopt goals to be part of the societal move to achieve “Net Zero” by the year 2050.

These alliances include the Glasgow Financial Alliance for Net Zero (GFANZ), gathering signatories to set science-based targets (SBTs).

Members of GFANZ include 43 banks participating in the Net Zero Banking Alliance (NZBA). The United Nations convened the NZBA to aim for a carbon-neutral investment portfolio by mid-century and will leverage the CDP campaign to target specific companies not disclosing their environmental data.

The opportunity for corporate managements to respond to the CDP disclosure campaign and be eligible for scoring and inclusion in CDP reports is at hand; the CDP disclosure system is open until July 28, 2021.

Here at G&A Institute, our team is assisting our corporate clients in responding to this year’s disclosure request from CDP.

For corporate managers: If your firm received the CDP request for disclosure for 2021 and you have questions about responding, or about your responses in development, the G&A Institute team is available to discuss. Contact us at info@ga-institute.com.

The details of the CDP campaign and the broad investor network focused on climate change actions and disclosure is our Top Story selection for you here.

TOP STORIES

A record 168 investors with US$17 trillion of assets urge 1300+ firms to disclose environmental data (Source: CDP) 

And more on the ESG disclosure front:

House-Approved Legislation Would Mandate ESG Disclosures (Source: National Association of Plan Advisors)

What’s the plan? Corporate polluters lag on setting climate goals (Source: Reuters)

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

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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

Crystal Clear Now – ESG Focus Must Be at the Top of the Corporation, for the Board Room & Executive Suite

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July 2021

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

Remember those 1970s /early ‘80s ubiquitous TV commercials with the tag line, “When EF Hutton Speaks, People Listen?” The point was that when the EF Hutton financial services firm “said” something about investing possibilities, we would be wise to sit up and listen carefully to the advice.

These days we are tuning in to the Securities & Exchange Commission to discern the future directions of corporate sustainability / ESG disclosure. To us it is clear: the broadening flow of comments indicates something is about to happen regarding corporate ESG disclosure.

Prime example: the keynote address of former Acting Chair and current Board Member Commissioner Allison Herren Lee, sharing important points of view with those gathered at the Society for Corporate Governance 2021 National Conference. Herren Lee put ESG in the context of the recent proxy season for the corporate secretaries (who are on the front lines of the proxy voting).

2021 proxy season shareholder proposals included those focused-on climate change. Manufacturing giant General Electric saw 98% of shareholders voting to approve a proposal for disclosures on how the company would achieve Net Zero.

At ConocoPhillips, 58% of shareholders approved a measure to have the large fossil fuel firm achieve Scope 3 emissions reductions. At United Air Lines, 65% voted in favor of a resolution to have the transport giant provide more information about how its lobbying efforts align with the goals of the Paris Agreement.

Said the influential Commissioner (“D” members now are the agency’s board majority) about the backdrop of these types of resolutions coming from the providers of capital: “This is a broad reckoning with the need for advanced transparency on sustainability…also occurring amid ever-more powerful signals from major institutional investors of their commitment to sustainability.”

Commissioner Herren Lee talked about top-of-mind issues for board rooms and C-suites for mid-year 2021 (six months into the Biden-Harris Administration) on the “climate change crisis”: board challenges — climate, racial injustice, economic inequality, corporations and social & economic well-being of people and communities); public input on climate change disclosures; mitigating risks and maximizing ESG opportunities; enhancing board diversity; increasing board expertise; inspiring management success; public pledges on ESG issues that are actually backed by corporation action…and much more.

The Commissioner explained that the SEC itself is “listening” as well to the “thousands of comments in response to the request for public input on climate change disclosures.”

There is much more in the Commissioner’s comments to the corporate secretary universe that we bring to you in this post (including 58 footnotes). Safe to say these days – in board rooms and executive suites, when the SEC leaders speak, many in the corporate sector and capital markets are indeed listening.

Two related items are also on top for you. One is a recap from GreenBiz about this year’s “angst-filled proxy year” and another from Bloomberg Law about corporate leaders calling on their law firms to help “navigate the world of ESG governance.”

Here at G&A Institute, since the time of our founding 15 years ago, as the “ESG lockup” was coming together, we have advised that it could be “GES” – the governance (“G”) of the “E” and the “S” is a critical task up top of the organization…the details of this are neatly spelled out in abundance in the SEC Commissioner’s keynote address and in the many items that we bring you each week. If you are not already sharing these with board room and C-suite, please consider doing that!

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ESG Reporting Frameworks & Standards – Continue to Multiply

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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.

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