Sustainability Challenges and Reporting Frameworks in the Chemical Industry

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.

Common Sustainability Reporting Standards Remain Elusive

December 21, 2021

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

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

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

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

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

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

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

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

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

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

Top Stories

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

November 30, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Top Story/Stories

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

June 28 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP STORIES

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

And more on the ESG disclosure front:

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

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

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

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

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

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

July 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

Bringing Your Attention To:

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

TOP STORIES

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

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

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

ESG Reporting Frameworks & Standards – Continue to Multiply

Original:  October 14 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP STORIES

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

Original:  September 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP STORIES

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

July 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP STORIES