Category Archives: Risk Management

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/

It’s 2023 – What Will We See in Climate Crisis Action in the Public Sector? Stay Tuned!

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January 2023

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

Here we are weeks into Year 2023 – and so as we plunge into the new year, we could ask, what is in store for public sector action to address critical climate change challenges?

To remind us, we are now in year three of the Biden-Harris Administration’s “Whole of Government” strategies (they took office January 2021).

Upon settling in the Oval Office President Joseph Biden quickly returned to the historic Paris Agreement that was abandoned by his predecessor.

In just a few more days, the president’s Executive Order (issued January 27 2021) created a sweeping approach to aligning Federal government strategies, action, finances and more — formalized in an Executive Order titled, “Tackling the Climate Crisis at Home and Abroad”.

Main sections with volumes of details for actions included:

• “Putting the Climate Crisis at the Center of US Foreign Policy and National Security”;
• “Taking a Government-Wide Approach to the Climate Crisis;
• “Use of the Federal Government Buying Power and Real Property and Asset Management”;
• “Empowering Workers Through Rebuilding Our Infrastructure for a Sustainable Economy”;
• “Empowering Workers by Advancing Conservation, Agriculture, and Reforestation”;
• “Empowering Workers Through Vitalizing Energy Communities”;
• “Securing Environmental Justice and Spurring Economic Opportunity”.

The introduction to this sweeping Executive Order stated: “The U.S. and the world face a profound climate crisis. We have a narrow moment to pursue action at home and abroad in order to avoid the most catastrophic impacts of that crisis and to seize the opportunity that tackling climate change presents.”

President Biden enlisted all of the cabinet agencies and many important organs of the Federal government in the effort, and instructed that “the buying power of Federal procurement and real property, public lands and waters, and financial programs” be aligned to support robust climate action. 

Keep in mind the Federal government of the United States of America is the largest buyers of goods & services in the nation.  Just think about all of the government vehicles on the road today – and the EV’s that could replace them.  And the many buildings that the Federal agencies lease, rent or own.  (These will have to meet new climate resilience measures.)  Think about the huge purchases by the Department of Defense.  And on and on!

The President explained in 2021:  An “immediate, clear, and stable source of product demand, increased transparency and data, and robust standards for the market…will help to catalyze private sector investment into, and accelerate the advancement of America’s industrial capacity to supply, domestic energy, buildings, vehicles, and other [necessary] products and materials.”  The stuff of the American nation’s sustainability efforts. 

The power and prestige of the United States would be a priority in relations with other nations and such multilateral organizations as the G7, the G20, and other forums on climate change actions. In focus: clean energy, aviation, shipping, the oceans, the Arctic, sustainable development, and migration (a 2023 critical issue for sure).

How are we doing?  We’ve selected for you a few timely updates on “how we’re doing” with the very comprehensive Biden climate crisis plan.

The recent storms battering California, the Heartland states, and coastal areas, are constant reminders of how serious the climate crisis has become. Snow, volumes of rainfall, floods, tornadoes, hurricanes (cyclones), high winds, fires and more fires — all signs the climate is changing (for the worse). 

We are seeing public sector action increasing along the same lines on the European continent as well, and European Union climate change actions that will affect many U.S. multinational companies,

As we think about all of this, despite political pushback in 2032 we should not lose sight the sweep of the January 2021 Executive Order issued as the very first days of the Biden Administration.

Here’s the document for you: https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/

And here is a brief example of the kinds of follow up f- rom July 2021:
https://www.whitehouse.gov/briefing-room/statements-releases/2022/07/20/fact-sheetpresident-bidens-executive-actions-on-climate-to-address-extreme-heat-and-boost-offshore-wind/

Top Stories – Focus on the U.S.

Biden-Harris administration releases first-ever blueprint to decarbonize America’s transportation sector (US Department of Transportation)

What to expect on climate change from the New US Congress (Brookings Institution)

Inflation Reduction Act will see US get serious on climate action in 2023 (New Scientist)

Davos 2023: EU to counter U.S. climate game changer with own green deal (Reuters)


COP 27 in Egypt: The United States Got Back To the Table

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November 2022

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

The top stories in ESG and sustainability in November included the coverage of the annual global climate meetings that took place in Egypt – COP 27 (the Conference of Parties), convened by the United Nations.

These meetings of about 200 sovereign nations’ leaders and other global influentials began in Rio de Janiero in 1992 (President George H.W. Bush was in his last year in office).

The position of the United States in the global talks (and the agreements that result) have see-sawed over the years in terms of staying at the table, and exerting leadership or not. The welcome news for 2022 is that the U.S. is back at the table. And at least for now, attempting to lead. 

This year’s meetings saw President Joseph Biden drop in to address the gathering. ormer Secretary of State John Kerry, now the U.S. Special Presidential Envoy for Climate, appeared to be playing a much more visible role than was the case during prior years (during when the Trump Administration was in charge and moving away from the COP talks and the Paris Agreement of 2015).  

It is fitting for the United States of America attempting to lead in the global efforts to address climate changes and the challenges posed  — the U.S. is the world’s largest economy and the second largest emitter of Greenhouse Gas Emissions. Use of oil and natural gas define the American economy and the culture of the nation.  The US is a major producer of and user of fossil fuel products. 

In his remarks at COP 27, President Biden “reclaimed” the country’s role as global leader in climate change actions and committed to help to address global warming at home and abroad.

The Biden Administration’s “Whole of Government” comprehensive approach to climate change was the centerpiece of his commentary to the gathered at COP 27.

Emphasizing the U.S. commitment to address climate change, President Biden told the summit participants: “I introduced the first piece of climate legislation in the United States Senate way back in 1986, 36 years ago. My commitment to this issue has been unwavering.

“And today, finally, thanks to the actions we’ve taken, I can stand here as President of the United States of America and say with confidence: The United States of America will meet our emissions targets by 2030. We are racing forward to do our part to avert the ‘climate hell’ that the U.N. Secretary-General so passionately warned about earlier this week. We’re not ignoring the harbingers that are already here.”

For domestic U.S. audiences, President Biden had this important news: “The United States became the first government to require that our major federal suppliers disclose their emissions and climate risks and set targets for themselves that are aligned with the Paris Agreement.

“As the world’s largest customer, with more than US$630 billion in spending last year, the government of the United States is putting our money where our mouth is to strengthen accountability for climate risk and resilience.”

However, while the U.S. government could leverage almost US$400 billions committed by Congress and the Administration to make investments in climate change solutions, “missing” are major investments to help other less-wealthy nations in climate change mitigation.

Not that President Biden was unsympathetic about helping other nations — . he has pledged to help developing countries with $11 billion each year to 2024 for transitioning to wind, solar, and other renewable energy sources.

Who Will Pay?  A Question Floating Above the Conversations

“Reparations” was the a key word circulating at COP 27 — who will help the less fortunate nations to address climate change issues? The expectations of less developed economies is that the rich peers, who generate the carbon emissions that affect the climate, will come to the aid of the nations they are negatively affecting.

While the U.S. expresses ambitions to help, with a divided U.S. Congress (keepers of the purse strings), the U.S. is not likely near-term to commit funds for other countries to address their climate change challenges.  The present state of affairs in US governance poses the question of whether the nation itself can continue on course to meet the goals of the “whole of government” approach to addressing climate change over changes of administrations. 

The “reparations” are about “loss and damage”. As The New York Times pointed out in its coverage of the COP meetings –  determining “loss and damage” funding is very difficult to define and loaded with potential legal liability for donating nations (such as for the U.S. and European powers).

Not that President Biden was unsympathetic about helping other nations. He has pledged to help developing countries with $11 billion each year to 2024 for transitioning to wind, solar, and other renewable energy sources.

One of continuing stories we see as this conference (COP 27) ends and the almost 200 nations that participate in the Conference of Parties are back at home dealing with climate change will be increasing focus among the participants on the “who pays” question going forward. The G&A team will be being staying tuned and will keep you updated as we move toward COP 28.

President Biden’s Comments at COP 27:
https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/11/11/remarks-by-president-biden-at-the-27th-conference-of-the-parties-to-the-framework-convention-on-climate-change-cop27-sharm-el-sheikh-egypt/

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). 

The U.S.A. & the 2015 Paris Accord: Five Years On, the Largest Economy on Earth Promises to Return – With a Cabinet of Climate Change Champions Preparing for Action

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December 20 2020 – published again in the blog in October 2021 as President Joe Biden travels to the Stockholm meeting of the COP 26.

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

Seems like just yesterday we were celebrating the great promise of the 21st Century in 2015 – the Paris Accord. Can you believe, it is now five years on (260 weeks or so this December 2020) 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.

The Promise of Paris was the coming together of the world’s sovereign states – the family of nations — to address once more what for many if not all of the states is an existential threat: climate change.

The parties agreed to a binding, universal agreement – the Intended Nationally Determined Contributions (“NDC”) to attempt to limit global warming to 2.7C by 2100.

The United States of America was [then] prominent among leading economies of the world at the Paris gathering, signaling the intention to play a significant role in addressing climate change matters. In fact, the final agreement was signed in New York City on Earth Day in April 2016.

Promises made, promises broken – in his campaigning and then almost immediately upon taking office, President Donald J. Trump said the U.S. would leave the historic agreement and nearing the end of his term in 2020 had just about completed the exit.

To the family of the world’s nations was this message: Do it without the United States of America.

Then, the recent good news: President-Elect Joseph Biden has indicated that his would be the “climate administration” beginning in January 2021 and quickly named former Secretary of State John Kerry to be his “climate czar”, the influential voice on the world stage to signal the USA is back in addressing the challenges of climate change.

Secretary Kerry was the U.S. representative to the COP 21 meetings in Paris and guided the nation’s inclusion in the Paris Agreement.

Forward to the last days of 2020: This is a climate emergency, President-Elect Biden said, and former US Senator and Secretary of State Kerry would lead the effort to elevate the nation’s response to the ever-escalating crisis, influencing policy and diplomatic initiatives on the world stage. (

Secretary Kerry will officially be on the National Security Council and report to the President of the United States after January 20, 2021.

Speaking to ProPublica, Secretary Kerry said “…the issues of climate change and human migration are intertwined… people are moving to places where they think they can live…and they will fight over places they want to move to… we will have millions, tens of millions of climate migrants…”

Come 2021, the family of nations can begin to celebrate – the United States of America will be back on the front lines in meeting myriad challenges related to the climate crisis.

As we prepared our commentary for the G&A Sustainability Highlights newsletter, President-Elect Biden named his dream team of climate change champions to lead the nation’s efforts:

Gina McCarthy, former head of the US EPA, will be the domestic climate change advisor (heading the White House Office of Climate Policy).

Governor Jennifer Granholm is the nominee to head the Department of Energy (her home state of Michigan is the home of the auto industry – she was the state’s governor).

Congresswoman Deb Haaland will be the first Native American when confirmed to be named to a cabinet post. She’s member of the federally-recognized Pueblo of Laguna, the New Mexico tribe whose 500,000 acres of land are near to Albuquerque. They refer to themselves as “Kawaik People”.  As Secretary of the Interior, she will have responsibility for jurisdiction over tens of millions of acres of tribal lands). Interior’s Department of Indian Affairs (BIA) is charged with “…promoting safe and quality living environments, strong communities, self-sufficiency and enhancing protection of the lives, prosperity and well-being of American Indians and Alaska Natives”.

Michael S. Regan, who worked in both George W. Bush and Bill Clinton administrations, and who is head of North Carolina’s Department of Environmental Quality, is Biden’s nominee to head the US Environmental Protection Agency.  He will have the daunting task for rebuilding the nation’s environmental regulations that were unraveled during the Trump Administration.

Brenda Mallory, experienced federal government attorney, will had the Council on Environmental Quality.

This is also a team, Biden and supporters point out, “that looks like America”.

Leveraging the strategies, policies, actions, and programs designed to address climate change challenges, the team and colleagues will “build back better” with green infrastructure initiatives at the core.

In the December 2020 issue we brought readers a selection of current news and opinion and shared perspectives on the Paris Accord, now five years in.

As we neared year-end 2020 much of the news was about climate, climate, climate in the context of the peaceful transition of power in this, the world’s most influential democracy.

A nation that for many years had been that Shining City on a Hill for other peoples and nations.  Will the USA be that again?

Stay Tuned to climate change crisis responses that have the potential to be at the heart of many of the new administration’s public policy-making efforts. On to year 2021…

TOP STORIES in the Newsletter Dec 20 2020

Against the above context, we share here a selection of the perspectives on the 5-Year Anniversary of the Paris Agreement.  Where we are now as we prepare for the transition year 2021 in the USA:

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

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)

More Details Roll Out – Biden-Harris Administration’s “Whole of Government” Climate Policies & Actions

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June 2021  – This is a biggie!

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

The Biden-Harris Administration continues to roll out details of new or proposed or adjusted policies, rules, programs, Federal government financing and various actions to address what the leaders characterize as “the climate crisis”.

What we have now more details of the “Whole of Government” approach for these United States in addressing a widening range of climate change issues. 

In most crisis situations for large organizations, dramatic changes-of-course are always necessary – new paths must be followed.  And so we see…

President Joe Biden certainly being ambitious in navigating the way forward for the public sector in meeting the many climate change challenges (for actions by Federal, state, region, local governments).

President Biden signed yet another order for policy changes and various actions by the many agencies of the national government: “Executive Order #14030 on Climate-Related Financial Risk”.

The new EO #14030 sets out policy and actions to be taken by the whole of America’s public sector, a number of actions intended to be implemented in partnership with state & local governments and financial services sector institutions, and corporate and business interests…”designed to “better protect workers’ hard-earned savings, create good paying jobs, and position America to lead the global economy”.

EO  #14030 builds on the framework for climate change policies and actions set out in President Biden’s January 27th action: “Tackling the Climate Crisis at Home and Abroad” (that is EO #14008).

This and other execute branch orders are designed to “…spur creation of well-paying jobs and achieve a net-zero emissions economy no later than 2050”.

The new EO is intended to “…bolster the resilience of financial institutions and rural and urban communities, States, Tribes, territories…by marshalling the creativity, courage and capital of the United States…and address the climate crisis and not exacerbate its causes to position the U.S. to lead the global economy to a more prosperous and sustainable future…”

The latest order addresses the need for greater financial transparency of the Financial Services Sector — addressing banking, insurance, fiduciary duties of those managing assets — as well as addressing the aspects of Federal financing for business, governments and institutions, and Federal government budgeting both short- and long-term.

For example, the Secretary of the Treasury as chair is instructed to work with the other members of the Financial Stability Oversight Council (FSOC) to assess climate-related risk to the stability of the U.S. financial system; to facilitate sharing of climate-related financial risk data among the members of FSOC; to publish a report in six months on actions / recommendations related to oversight of Financial Institutions.

FSOC members are the influential of Financial Services regulation and oversight:  Treasury Department; the Office of Comptroller of the Currency (inside Treasury, overseeing national banks and foreign banks operating in the USA); chair of Securities & Exchange Commission; chair of the Federal Reserve System; head of FDIC; head of Commodity Futures Trading Commission; as well as a state insurance commissioner; a state banking commissioner; a state securities commissioner.

Addressed in the Executive Order:

  • disclosure and reporting by publicly-traded entities;
  • insurance industry “gaps” of climate-change issues that need to be addressed at Federal and state levels for private insurance;
  • the protection of “worker savings and pensions” (with ERISA and the Department of Labor in focus);
  • Federal level lending and underwriting, including financial aid, loans, grants of such agencies as the Department of Agriculture (farm aid);, and
  • Housing and Urban Development (funneling funds to local and state agencies as well as Federal level financial transactions); and,
  • Department of Veterans Affairs.

For companies providing services and products to the Federal government (largest buyer in the United States), there are numerous policy changes and actions to be taken by agencies that will affect many businesses in the U.S. and abroad.

For many companies this will mean much more disclosure on GHG emissions data, adoption of Science-based Emissions Reduction Targets, and disclosure of ESG policies and actions.

Federal agencies will be guided by policies to look more favorably on companies that bid on contracts [and have] more robust climate change policies and targets in place.

We are bringing here you news coverage and shared perspectives on the important new order and a link to the White House Executive Order in our Top Stories (below).

G&A Institute Perspective:  This EO builds on standing orders of recent years by prior presidents and the orders issued “since Day One” of the Biden-Harris Administration to address what is characterized as the “climate crisis” by President Joe Biden in his campaigning and since taking office.

There are announcements of actions taken and new and proposed policy changes just about every day now, following out of cabinet departments and other agencies of the Federal government.

This is all of the “Whole of Government Approach” to addressing climate change challenges, short- and long-term.

We’re seeing both significant and subtle changes taking place throughout the public sector, at Federal, State and local levels, actions that will increase the pressure on the corporate sector and capital market players to start or to enhance their “sustainability journey” and greatly increase the flow of ESG data and information out to both shareholders and stakeholders/constituencies.

The disclosure and reporting practices of publicly-traded and privately owned/managed corporate entities will be addressed through a variety of Federal agencies, including of course the Securities & Exchange Commission.

SEC has an invitation out to individual and organizations to suggest ways to enhance reporting of the corporate sustainability journey (or lack thereof).

The instructions to Federal agencies in the latest EO will result in stepped up demands by Federal agencies for companies to disclosure more ESG information, such as in bidding on projects and contracts, or seeking financing of various types.

There are many more details in the G&A Institute’s Resource Paper, click here to download a copy.

Let our team know what questions you have!

Top Stories

And related information:  The International Energy Agency (IEA) Report coverage:

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

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April 2021

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

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

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

HIGHTLIGHTS

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

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

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

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

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

SCOPE 3 – “THE CARBON KEY”

Scope 3 CO2 emissions include both upstream and downstream categories.

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

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

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

SCOPE 3 – CO2 EMISSIONS

Upstream categories

Downstream categories

1. Purchased goods and services

1. Downstream transportation and distribution

2. Capital goods

2. Processing of sold products

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

3. Use of sold products

4. Upstream transportation and distribution

4. End-of-life treatment of sold products

5. Waste generated in operations

5. Downstream leased assets

6. Business travel

6. Franchises

7. Employee commuting

7. Investments

8. Upstream leased assets

Other downstream

Other upstream

 

Source: Global Reporting Initiative Standards GRI KPI 305 – Emissions

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

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

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

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

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

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


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

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

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

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

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

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

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

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


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

 

Overview: Select Sessions, “SB21” Trendwatching – Mapping the New Brand Purpose Landscape

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April 2021

by Kirstie Dabbs – G&A Institute Sustainability Reports Analyst and G&A Sustainability Analyst Intern Team Leader

BACKGROUND
Sustainable Brands hosted its “SB ’21 Trend Watching“ event (virtually) on February 23, 2021. Covering the intersecting crises from 2020 and opportunities that lie ahead for stakeholders in 2021, the event was full of information about the increased value of purpose for consumers, brands, and leaders.  

I present here brief recaps of select sessions with content that will be of value to many of our blog readers. 

Session Spotlight: “What We Learned About Ourselves in 2020”

Dimitar Vlahov, Senior Sustainability, Regeneration & Brand Transformation Expert at SB kicked off the event with an overview of key trends reflecting the state of our planet, society, and business environment, including:

  • Increasing existential risks related to biodiversity collapse. This, he said, is “very real and very close.” With one million species currently at risk, and global wildlife populations down 68% since 1970, humans and livestock now comprise 96% of all existing mammals. Only 4% of mammals on earth are in the wild. This is a tragic and very dangerous imbalance, he posited.
  • Growing presence of climate grief and climate anxiety in youth and young adults
  • Erosion of social /societal cohesion.
  • Increased focus on racial justice. Because this is such an important trend, Sustainable Brands will host a Just Brands event devoted exclusively to social and racial justice in May 2021.
  • Widening digital inequality.
  • Rise of intentional (and unintentional) spread of false news. False news stories on Twitter travel six (6x) times faster than true / factual stories, according to a recent MIT study.
  • Declining trust in institutions, specifically national governments, global companies, and the media.
  • Signs of collapsing multilateralism.
  • Rising inequality of stock market holdings in the United States of America. U.S. families in the top 1% of net worth hold nearly 40% of overall equities, while families whose net worth falls in the bottom 50% hold only 1% of overall equities, according to Survey of Consumer Finances data presented by The New York Times.
  • Growing commitments to Stakeholder Capitalism have yet to be supported by appropriate levels of action. Despite the promise made by 180 members of the Business Roundtable (BRT) to redefine the purpose of a corporation as benefiting all stakeholders (employees, customers, suppliers and local communities in addition to shareholders) very few have apparently amended their governing purpose guidelines beyond the long-term focus on the Professor Milton Friedman school of shareholder primacy.
  • Increase in Science Based Targets on climate. Over 1,000 companies worldwide are working on science-based emissions reduction targets through the Science Based Targets initiative (SBTi). Exciting news: methodologies are also being developed for setting science-based targets for water, land use, forests, biodiversity, and oceans as well – described below.

Session Spotlight: “Goal Setting & Innovation: Critical Environmental Thresholds”

Kevin Moss, Global Director of the Center for Sustainable Business at the World Resources Institute (WRI) and Chair of the Science Based Targets Network, moderated this discussion with Lina Constantinovici, Founder and Executive Director of Innovation 4.4 and Roberta Barbieri, PepsiCo VP of Global Water and Environmental Solutions.

The session covered new developments around science-based targets (SBTs) for all aspects of nature: biodiversity, climate, freshwater, land, and oceans.

This, of course, in addition to SBTs for climate, which are gaining popularity. This important work is being performed by the Science Based Targets Network, comprised of 20 nonprofits including World Resources Institute. Science-based targets for nature, geared toward cities and companies, will be released by 2022. Initial guidance for business is already available in this 2020 report.

Developing methodologies for these targets poses a challenge, due to contextual variations of resources based on region, accessibility, and use. Freshwater use in a water-scarce region has different limitations than in a non-water-scarce region.

Nevertheless, these targets will be critical in the management of the global commons that power not only our economy, but our very existence.

The SBT Network is currently partnering with private sector companies to pilot targets to determine their feasibility and effectiveness.

Important news:  PepsiCo has signed on to pilot a freshwater target wherein each water-scarce watershed in its supply chain will have a unique target for water management.

PepsiCo knows that freshwater is material to its business and has been focused on water stewardship for years. Adopting a science-based freshwater target will inform the Company about what is required to alleviate water risks, and how far it is from achieving its own water targets.

As Roberta Barbieri pointed out, if PepsiCo is water insecure, other companies are as well. She hopes that this pilot will influence other companies to participate in such work going forward.

Lina Constantinovici shared the mission of Innovation 4.4, which is to accelerate the commercialization and deployment of water, energy, health, materials science and space technology most critical to the achievement of the Paris Agreement and the United Nations Sustainable Development Goals.

Her session highlighted the critical issues facing oceans today, sharing that oceans are Earth’s most valuable asset, contributing US$70 trillion to global GDP annually and over 50% of the oxygen we breathe.

Yet — the quantity of plastic in oceans is expected to outnumber fish by 2050, and UN Sustainable Development Goal 14 – Life Below Water – is second to last in terms of the funding it receives compared to the other SDGs.

For this reason, Innovation 4.4 developed a multi-pronged strategy to innovate for better oceans. Initiatives include Oceans Funders, which enables a more aligned and informed approach to funding ocean solutions, and Oceans Prize, a contest to find plastic alternatives and remove existing plastic from oceans.

Global collaboration and ambitious thinking will be required to tackle our global challenges, of which oceans and freshwater are only two examples. The forthcoming SBTs for nature will allow organizations to measure and take responsibility for their environmental resource use.

Perhaps in a few years’ time we’ll be so lucky as to hear about 1,000 companies working toward such targets. This SB ’21 Trendwatching event provided cause for stakeholder to be optimistic that the rise of brand purpose will help to move us in that direction.

About Author Kirstie Dabbs
2021 Intern Team Leader
G&A Sustainability Reports Research Intern

Kirstie Dabbs is currently pursuing an MBA in Sustainability, with a focus on Circular Value Chain Management, at Bard College in New York. Her fluency in corporate disclosure stems from the program’s emphasis on the Integrated Bottom Line. As an MBA student she has enjoyed developing sustainability strategies for public, private and nonprofit organizations.

In her role as an Associate Consultant for Red Queen Group in New York City, Kirstie provides organizational analyses and support for nonprofits undergoing strategic or management transitions. Her rich background as a project manager at The Metropolitan Opera has informed this role, and she remains an enthusiastic supporter of the visual and performing arts.

Kirstie is also a member of the Climate Reality Leadership Corps, an organization led by former Vice President Al Gore that promotes awareness of climate change worldwide, and is a contributor to GreenHomeNYC, a resource for green building and career development in the New York metropolitan area.