Category Archives: Corporate Sustainability Reporting

Beware, The Culture Warriors Have New Strawmen: Dangers of “ESG” and “Woke Capitalism”

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End of February 2023

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

New threats to ESG detected in America’s Red-controlled states:  The internal culture wars now include an unlikely frontal assault on the alleged “dangers” posed to institutional investors (state and city pension funds and the states; public financing) by professional asset managers who embrace sustainable investing approaches and who factor ESG analysis for their portfolio decision-making (in the management of client assets).  

Corporate sustainability leaders and savvy investment managers are asking, “huh?  “why”?

The threat of “ESG” joins such current strawmen as Critical Race Theory, “Woke” Capitalism, Don’t Say Gay (in the State of Florida), the allegations of certain “grooming” books being found in school libraries, and other specious arguments set up by political conservatives and Red state public sector leaders to gain points with the Republican base.  And with right-wing media outlets. 

The assault on ESG is mainly focused on the prominent asset management firms that serve state and city public employee pension plans and healthcare plans. These asset management firms are told to abandon ESG principles (and their focus on the risks brought by the climate change crisis to investments) and related portfolio management approaches — or lose the state and/or city investment and capital raising client.

Political leaders in such states as Florida, Texas, West Virginia, Louisiana, and Missouri are openly opposed to “woke capitalism” as they see it and have targeted BlackRock, State Street, Vanguard, and other large asset management firms embracing sustainable investment.  (Consider that these three organizations have significant levels of investments in many publicly-traded companies.)

The leading ESG ratings firms are also in the cross hairs; 20-plus Republican state attorneys general also challenged ISS and Glass Lewis as both advisory firms expanded their traditional governance work to including “S” and “E” issues through a more comprehensive ESG lens. (These firms advise and provide services to public sector pension plans.)

Some Red state leaders are cutting ties with BlackRock and other firms and moving to prohibit the Wall Street organizations from management of state monies (such as their public employee pension systems).

BlackRock CEO Larry Fink fired back at the annual Davos gathering to say that his firm, while losing about $4 billion in the public sector pullback of funds to be managed, has seen the flow of new money into BlackRock to manage dwarfing that – new funds to be managed by BlackRock topped $200 billion in year 2022, he told the Davos crowd.

In his annual letter to corporate CEOs, Larry Fink wrote in 2022 that “stakeholder capitalism is not about politics, it is not ‘woke’, it is capitalism….” Helping clients transition their investments toward a lower-carbon economy is helping BlackRock (with $9 trillion-plus AUM) to attract new assets to manage, CEO Fink explained.

The underlying concern of the Red state officials is really about protecting fossil fuels interests  – like their home states” oil, natural gas, and coal assets. Texas and Louisiana economics are heavily dependent on production of fossil fuels and that no doubt leads to  the political opposition to ESG and minimizing recognition of the dangers posed by the climate crisis.

While BlackRock and other asset managers may not yet eliminating fossil fuels from the assets managed, or in products offered to investors, there is trimming going on (at other major asset management firms and in a number of state investment funds).  There is also pressure being applied to traditional oil & gas firms to innovate and invest in renewable energy production. 

Consider:  in 2022, renewable sources accounted for 22 percent of energy production while coal accounted for 20%. 

Responding to the misguided opposition to ESG in nine states, Democrats in the House of Representatives formed a sustainable investment caucus to advocate for ESG policies and actions.

Said caucus chair Sean Casten of Illinois to The Hill editors: “Given the significant growth of AUM in funds that prioritize ESG factors, Congress has a duty to craft policies that provide investor protection and transparency ofd information to market participants.”

In an opposition move, House Republicans at month’s end moved to block the Biden Administration action on “allowing” pension plan administrator’s to consider ESG factors in their management of fiduciary funds.  The Republicans passed a resolution that would reverse the U.S. Labor Department rule that allows such consideration.  

This is a see-saw event; depending on which party is in the White House, under ERISA rules, fund managers have been allowed to consider ESG/and prevented from using ESG considerations in fund management.  

The House Republicans claim that using ESG would results in higher fees for “less-diversified” investments in “lower-performing” fund portfolios. (Read:  less fossil fuel investments in sustainable funds.)  

The Securities & Exchange Commission has a rule under consideration to mandate disclosure of GHG emissions by publicly-traded companies. It is expected that the Final Rule could be issued sometime in Q1 2023.

This move no doubt will set off a firestorm in Red state territory, and among the congressional delegations from those states. For public companies operating in those states that have, with sizeable operations in the European Union, new ESG disclosure rules are also being put in place in the EU.  

This year we will see significant conflict in the culture wars over climate change measures at the national, state and even city levels. 

The Federal government leads now in addressing the climate crisis, and Red state congressional leaders could challenge to the SEC’s legislative authority (to enact corporate ESG disclosure rules) when the Final Rule is issued (bringing legislative and judicial action).

The G&A team selected the Top Stories (below) on these conflicts.  We’ll keep you updated throughout 2023 on the culture war battles focused on climate change.

We are at an important inflection point in the effort to seriously address the climate crisis, and in ultra-partisan power circles now, the question posed is: which side are you on?

Top Story/Stories

• This group is sharpening the GOP attack on ‘woke’ Wall Street (The Washington Post) https://www.washingtonpost.com/climate-environment/2023/01/30/climate-change-sustainable-investing/
• House Democrats launch sustainable investing caucus (The Hill)  https://thehill.com/policy/equilibrium-sustainability/3830314-house-democrats-launch-sustainable-investing-caucus/
• Disclosure Rules On Track for Issuance by June (Thomson Reuters) https://tax.thomsonreuters.com/news/new-climate-and-sustainability-disclosure-rules-on-track-for-issuance-by-june/
• Politicians Want to Keep Money Out of E.S.G. Funds. Could It Backfire? (The New York Times – subscription required)  https://www.nytimes.com/2023/01/30/your-money/red-states-esg-funds-blackrock.html
• What’s Behind The ESG Investment Backlash (Forbes)  https://www.forbes.com/sites/christinero/2023/01/29/whats-behind-the-esg-investment-backlash/?sh=5929816c3158
• Davos 2023: BlackRock U.S. inflows dwarf $4 bln lost in ESG backlash -CEO (Reuters)  https://www.reuters.com/business/finance/davos-2023-blackrock-us-inflows-dwarf-4-bln-lost-esg-backlash-ceo-2023-01-17/

Going Green and Still Pumping Oil? The Challenges of Climate Change and Potential “Solutions” For Fossil Fuel Producers

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October 19, 2022
by Hank Boerner – Chair & Chief Strategist, G&A Institute

We were thinking the other day about the enormous challenges posed by climate change to our global society — and therein of the challenges of meeting the ambitious goals being set by governments, the private sector, and investors to achieve “a net zero economy” by mid-century. That’s not so far away.

And so the pumping of tens of millions of gallons of crude oil every day by OPEC countries and other nations (like the U.S.A.) to meet the insatiable demands of society is not helping in the short term.  But we need the oil!

Not so far back the United States was a very different country (meaning, at the end of the 19th Century). Not so dependent on “oil” from below the ground (yes, we did rely on kerosene lamps and before that whale oil!)

The majority of people lived outside of cities, mostly on farmlands and ranches and wilderness places. Horses and boats provided the main means for transport of people and goods. (Remember stage coaches and canal boats towed by mules?) Homes were heated by wood and coal fuels.

Coming into their own in the early 20th Century: miracle developments like electric power, telephony, radio, gasoline-powered cars & trucks, powered flight, modern chemicals, modern medicines. And people were moving en masse to rapidly-expanding cities and the newly-identified “sub-urban” communities.

One such place was Queens County, New York, where some of the G&A team live and work or grew up in (today home of JFK International).  After World War One ended, 100,000 people a year (!) moved in to the new suburbs, rapidly replacing farms that dated back to Dutch settlement in the 1600s.

After World War Two ended, neighboring Nassau County (where some of us live and work today) saw the same growth pattern – in just four years “Levittown” replaced the sprawling farmlands of the former Island Trees (NY) on the largest prairie in the Eastern U.S.. (That was the Hempstead Plains.)

Which required more railroads and roads for autos & trucks to move commuters to city-center offices and factories. And so, more more more drilling for oil & gas and mining of coal.

All of this dramatically changed how Americans today live, work, and play, and s0 many aspects of our family and business lives. The same things were happening in Europe, the British Isles, Japan, and many other places.

And here we are in the 21st Century enjoying the fruits of all of this progress and at the same time trying to undo the negative sides of the sweeping progress made over the past 125 years or so.

To put some of this change and resulting challenges in perspective: TIME magazine had an essay recently about Saudi Arabia, its state-owned oil company (Saudi Aramco) and the ambitions of the world’s leading oil exporting sovereignty to lean toward green while still pumping 12 or more millions of gallons of oil per day (to help meet global demand of 100 million BBLs a day!).

Today, Saudis talk of the dreams of carbon capture, of moving to hydrogen power for autos, of building a new “green” city (NOEM) from scratch.  The Saudi goal is Net Zero emissions) by 2060!

The dreams include the desert blooming with new green (cities)…and yet that Saudi oil keeps moving to distant points on Earth through pipelines and on oil tankers. Missing: the plan to reduce oil & gas production by 2030.

To help companies around the globe to meet ambitious 2030, 2040, and 2050 (net zero!) goals. Challenging. 

To contrast the astonishing changes of the recent decades: The Saudi Arabia we know today as a top oil & gas producer was a desert kingdom populated by Bedouin tribes and often shown on maps as “the Empty Quarter”.

Discovery of oil reservoirs changed all of that – today the kingdom has a Sovereign Wealth Fund (the SWF is the Public Investment Fund) with US$600+ billion and more in treasury thanks to oil & gas pumping and invests in many publicly -traded companies like Netflix (so dependent on fossil fuels to ever more power servers!).

About the impacts of climate change and the inherent challenges of our present society to achieve solutions – we see the story-telling of this everyday now in our favorite media!

Our editors and G&A team members carefully track and curate the coverage for you in the issues of our Highlights newsletter and here in our G&A Institute Sustainability Updates blog.

In our newsletter we regularly feature many news and feature stories about the efforts of public and private sector organizations taking actions to protect the planet and help the global society achieve a sustainable (and livable) planet in the decades ahead.

That’s the good news we try to share.  At the same time, as we think about the world’s progress from wilderness1800s to dramatic changes of the 1900s and into challenges of the 2000s and the negative aspects of progress…we cheer on the strategies, policies, actions, actions of leaders of organizations in the capital markets, corporate community, activist organizations, multilateral organizations, and more to address climate change challenges.. 

Ah, to save the planet while still making progress – that’s the ambitious goal of so many now.  After all, there is no Planet B for we, the billions on Earth (at least not yet).  

Top Story:

We bring you the fascinating story of Saudi Arabia and its plan to go green while remaining the world’s number one oil exporter over the coming years: https://time.com/6210210/saudi-arabia-aramco-climate-oil/

And a personal note:  A  durable book that has been around telling the story of the first half of the 20th Century (since 1952) may be of interest to you. This is “The Big Change, American Transforms Itself, 1900-1950” by Frederick Lewis Allen. He was the long time editor of Harper’s Magazine and authored such books as “The Lords of Creation” (about key capitalists like the Rockefellers, Morgans, Vanderbilts, and other of the Gilded Age wealthy). 

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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Sustainability Challenges and Reporting Frameworks in the Chemical Industry

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Chemical Industry Challenges

By Lauryn Power, G&A Institute Analyst-Intern

Overview:

The chemical sector faces the third-highest number of environmental and social risks of all sectors, based on a 2020 analysis published by S&P Global. In the U.S., the chemical sector generates around $758 billion annually, contributing 25% of the U.S. GDP and providing many raw materials for industries including agriculture, consumer goods, and pharmaceuticals.

Major Sustainability Challenges:

According to a report from Ecovadis partner DFGE, the chemical sector faces a large number of sustainability challenges including scrutiny over impacts on water quality and discharge of effluents. It can be very costly to remove impurities from wastewater.

Chemical production is often energy intensive and leads to significant GHG emissions. There are many chemical processes which require high temperatures often generated by fossil fuels.

There is major concern over worker and consumer health and safety in producing and using the products. There are chemicals which are still being used despite being hazardous. These chemicals are often supplied to other industries and can be polluted into water streams, causing health problems for workers, local residents, and ecosystems. The products themselves can remain in the environment for centuries, possibly forever.

In 1985, the International Council of Chemical Associations (ICAA) created the Responsible Care program. This initiative’s main goals are to promote safe chemical management, promote environmental health and safety, and contribute to sustainable development. By 2021, 580 chemical companies (96% of the industry) had committed to the program globally. Many of the Council’s sustainability recommendations align with chemical companies’ plans. They are often focused on prevention rather than mitigation. They have extensive plans for spills, contaminations, and waste disposal which are all regulated in the United States. These plans also include details for worker health and safety, which require hours of training before workers can perform hazardous work.

Many chemical companies are working towards improving the composition of plastics so they are more readily recyclable, as well as developing more accessible methods of recycling to more efficiently recycle the plastics that already exist. They are pushing to use renewable energy in as many operations as possible and to continue innovating in that sector. Additionally, they are focusing on creating strong plans for wastewater disposal, whether it is disposed carefully or if it is treated to be reused.

ESG Reporting:

All chemical manufacturers in the U.S. are required to report certain practices and metrics to the U.S. Environmental Protection Agency, including the types of chemicals they are producing.

In terms of voluntary ESG reporting, there are many different frameworks chemical companies can use to build their reports.

Sustainability Accounting Standards Board (SASB):

SASB provides sector-specific recommendations for disclosures on ESG metrics for chemical companies. These disclosures are what SASB considers to be financially material topics to the industry. They require disclosure of global Scope 1 greenhouse gas emissions and a discussion on plans to manage emissions both short-term and long-term. Air quality emissions of key hazardous air pollutants should be disclosed. Energy, water, and hazardous waste management require the specification of the amount used/generated. The water disclosure requires a further discussion of the company’s strategy to reduce potential damages from wastewater.

Global Reporting Initiative (GRI):

GRI is the most common sustainability reporting framework. While it does not currently provide specific chemical sector disclosures, it is planning on expanding the list of sector specific disclosures to include chemicals in the next few years. Still, many of the general disclosures are applicable to chemical companies and touch on some of their most critical issues. Chemical companies should first perform the GRI’s materiality assessment to help them determine which disclosures are most impactful to their business.

Some general disclosures chemical companies may report on are: GRI 303: Water and Effluents requiring companies to state the amount of water withdrawn, by source and the amount discharged; and GRI 403: Occupational Health and Safety requiring companies to state the type of required trainings for workers to do certain hazardous work, the number of work-related injuries, a description of the company’s strategy for managing worker health and safety, and other key information/metrics on this topic.

Other potentially important disclosures include: GRI 306: Waste which covers hazardous waste disposal methods; and GRI 307: Environmental Compliance which would involve chemical companies required disclosures by the EPA and other actions taken to keep operations within legal standards. Note: The updated 2021 GRI Standards, officially in effect in 2023, include environmental compliance as a general disclosure, meaning reporting on this topic will be required for accordance with the Standards.

Task Force on Climate-related Financial Disclosures (TCFD):

While TCFD does not provide chemical-specific disclosures, the general disclosures about climate-related risks and opportunities are applicable to chemical companies. The TCFD framework as a whole approaches sustainability from a risk perspective, which helps chemical companies directly state the most critical components of their businesses and their action plans to mitigate that risk.

In 2019, TCFD held a forum with five major chemicals companies to discuss how to improve sustainability reporting in the chemical sector. One finding was that disclosures should include more specific metrics to measure sustainable development and that companies need a stronger approach to governance with sustainability in mind. For example, given that TCFD is focused on financial risk disclosures, the forum suggested adding metrics such as revenues from low-carbon products and low-carbon solution R&D expenditures. For strategy disclosures, the forum recommended having more scenario analysis to better understand the impact of different climate-change strategies.

United Nations Sustainable Development Goals (SDGs):

Chemical companies can play a major role in contributing to the success of the UN SDGs. The goals that the World Business Council for Sustainable Development (WBCSD) has identified as most critical for the chemicals sector are shown here.

How can the sector impact these goals? For Goal 2 – Zero Hunger, the chemical sector can make a huge impact on sustainable food development by producing more efficient fertilizers to boost crop yields. For Goal 7 – Affordable and Clean Energy, the sector can develop important materials used for solar panels, wind turbines, and carbon capture technology. More information on how the sector can support the SDGs can be found here.

Lauryn PowerABOUT THE AUTHOR

Lauryn Power is a G&A Institute Analyst-Intern, currently pursuing a MS in Sustainability in the Urban and Environmental Planning department at Tufts University. She has a BS in Chemistry from the University of Virginia where she also earned a minor in Mathematics. She also received a certificate in Business Fundamentals at the McIntire School of Commerce at the University of Virginia.

She has worked in various chemistry research labs and has a scientific background on climate change. She also has experience in sustainable fashion. She interned for the U.S. Green Chamber of Commerce doing research on current issues with fast fashion globally.

Through her educational background and experiences in the industry, she hopes to work in the intersection of sustainability and business, helping corporations to improve their practices and find ways to make their business more sustainable.

Focus on European Green Deal & “Fit for 55” Approaches – Impacts Will Be Far Beyond the European Continent

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August 2021

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

The European Union is a collaborative effort of 27 sovereign nations on the continent organized to marshal the resources and collective capabilities of these member states to address economic, military, trade, travel, and other important issues.

The EU grew out of early post-WWII efforts to create a “common market” on the continent and to encourage closer peacetime relations among the disparate nations and cultures of western Europe.

The initial focus on economic issues has considerably broadened in recent years and ESG issues including climate change, GHG emissions, and carbon credits are very much in focus for the EU and its members in 2021.

The European Commission is the EU’s executive arm that addresses long-term strategies, sets the priorities agenda, and implements rules, policy changes, directives, and other measures.

They set six important priorities for the period 2019-2024:

(1) the European Green Deal, a set of climate action initiatives;

(2) a Europe “fit” for the digital age;

(3) an economy that works for people;

(4) a stronger Europe in the world;

(5) protecting the European way of life; and

(6) a new push for European democracy.

The challenges of climate change run throughout the six priorities but are addressed in the greatest detail in the European Green Deal.

The European Green Deal is an ambitious package of measures designed to address climate change and environmental degradation, which the European Commission has identified as existential threats to Europe and the world. Consider these ambitious goals:

  • No net emissions of GHG by 2050, to make Europe the world’s first climate-neutral continent.
  • Economic growth to be decoupled from resource use.
  • No person/place left behind.
  • 8 trillion Euros to be invested in the NextGeneration EU Recovery Plan.

In July, the European Commission adopted proposals to reduce net GHG emissions by 55% or more by 2030, compared to 1990s levels.

This is the “Fit for 55” package that includes policies on climate, energy, transport, and taxation that could affect many business enterprises as well as sovereign governments within Europe and around the globe.

It would be wise for all of us to consider the impact of these initiatives beyond Europe – in just one example, in 2023 all importers to the EU will have to submit declarations annually on the carbon emissions attributable to their imported goods, and after 2026 importers will need to surrender certificates for those emissions.

There are many more details to consider, and our Top Stories for you this week (as well as many of our content silos in the Highlights) provide important details about what is happening as the European Green Deal policy concepts move forward.

If you have questions, the G&A team is available via email at info@ga-institute.com. We’re closely following ESG/sustainability topics and issues in Europe and around the world and advising our clients on developments that could affect their organizations in the short- and long-term.

TOP STORIES

EU’s “Fit for 55” Climate Policy

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

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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)

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

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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

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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

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

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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:

Looking Back at 2020 and Into 2021-Disruptions, Changes, But Consistency in Climate Change Challenges

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January 11 2021

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

Seems like just yesterday we were celebrating the great promise of the 21st Century – the Paris Accord (or “Agreement”) on climate change. Can you believe, it is now five years on (260 weeks or so this past December) since the meeting in the “City of Lights” of the Conference of Parties (“COP 21”, a/k/a the U.N. Paris Climate Conference). This was the 21st meeting of the global assemblage focused on climate change challenges.

For most of us the calendar years are neat delineations of time and space – helps us remember “what” and “when” in near and far-times. But often important trends will not fit neatly in a given year. There is for example so much uncertainty in 2020 that continues in 2021.

As we cheered and toasted each other on 31 December 2019 around the world (with tooting horns, fireworks, lighted spheres dropping on famed Times Square in New York City and fireworks on the Thames in London) we probably were looking eagerly into the new year 2020 and the promise of things to come. Oh well.

Now here we are embarked into new year 2021, starting the third decade of the 21st Century, and groping our way toward the “next normal”.  What ever that may have in store for us.

The next normal for when the Coronavirus, now taking many lives and infecting hundreds of millions of us…at last subsides. For when the economies of the world stabilize and everyone can get back to work, in whatever the workspace configurations may be. For when the long-term issues that are generating civil unrest and widespread – and now very violent! — protests can be addressed and we can begin to resolve inequality et al.

Our world has certainly been dramatically interrupted as the calendar changed in both 2020 and now as we begin year 2021.

One consistency, however, has been in our business and personal lives in all of the recent years and is accelerating in 2021: the effort to address the challenges of climate change, with all sectors of our society engaged in the effort.

There is greater effort now to limit global warming and the impact on society in the business sector (especially for large companies); in the public sector (at local, state, and national levels, among the almost 200 nations that are parties to the Paris Agreement); for NGOs; leaders of philanthropies; and we as individuals doing our part.

We all have a role to play in the collective striving to limit the rising temperatures of seas and atmosphere and forestall worldwide great tragedy and cataclysmic events if we fail.

And so now on to 2021. The Top Stories we’ve selected for you, and additional content in the various silos, focus our attention on what has been accomplished in 2019 and 2020 — and what challenges we need to address the challenges of 2021 and beyond.

As we assembled this week’s G&A Institute’s Highlights newsletter, we learned from the U.S. National Oceanic and Atmospheric Administration (NOAA) that the year 2020 just ended was a period (neatly marked in “2020” for our historical records) of historic weather extremes that saw many billion-dollar weather and climate disasters…smashing prior records.

There were 22 separate billion-dollar events costing the United States of America almost US$100 billion in damages in just the 12 months of 2020.

And this troubling news: in 2020 Arctic air temps continued their long-term warming streak, recording the second warmest year on record. (Since 2000 Arctic temperatures have been more than twice as far as the average for Earth as a whole). When air and sea continue to warm, massive ice fields melt and ocean seas rise, ocean circulation patterns change, and more. Learn more at climate.gov.

Our selection of news and shared perspectives here bridge 2020 and 2021 trends and events. We can expect in the weeks ahead to be sharing content with you focused on climate change, diversity & inclusion, corporate purpose discussions, risk management, corporate governance, ESG matters, corporate reporting & disclosures, sustainable investing…and much more!

Best wishes to you for 2021 from the G&A Institute team. We’re beginning the second decade of publishing this newsletter as well – let us know how we are doing and how we can improve the G&A Institute “sharing”.

If you are not receiving the G&A Institute Sustainability Highlights(TM) newsletter on a regular basis, you can sign up here: https://www.ga-institute.com/newsletter.html

 

TOP STORIES

A year in review and looking ahead to 2021: