Is Your Mutual Fund or ETF Really “Green” or “Sustainable”? How Do You Know? More Disclosure by Fund Managers and Advisors May Be Coming…

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

What is it about an investable product – a mutual fund, an exchange traded fund (ETF) – that would qualify it as an “ESG” or “sustainable investment” offering to the retail or institutional investor?

That’s a question getting more attention recently.

S&P Global has issued a report that says only 12 percent of so-called “green” or “environmental” investment funds are on track to meet the global climate goals agreed to at the Paris Agreement / COP 21 meetings in 2015.

The goals agreed to by the community of almost 200 nations at that time: try to limit the global temperature to below 2 degrees Centigrade above pre-industrial levels and aim for limiting the increase to 1.5C.

We are sharing some analysis of the S&P report by Mark Segal as published in ESG Today (he’s the founder of the web site).

He explains: S&P Global looked at about 12,000 equity funds and ETFs with US$20 trillion in total market value. Findings: about 300 funds (with $350 billion total valuation) used “green” in their name or investment objectives.

Looking then at the holdings (equities of corporations) using the S&P Global Trucost Paris Alignment Data for 17,000 companies in the universe of 12,000 funds, only 11% were really aligned with the Paris Agreement goals.

What about the smaller universe of 300 (the “green” funds)? Only about 12% were on track to meet Paris goals.

S&P Global noted that some funds are screening out publicly-traded fossil fuel companies for portfolios, including renewable energy companies, and some are engaging with portfolio companies to urge the firms de-carbonize their operations.

Conclusion: “Our analysis,” reports S&P, “points to a systemic issue. Few funds, even those that describe themselves as using green or climate-specific language, are on track to meet the goal of the Paris Agreement. Understanding the trajectory is an important step toward planning for a low-carbon future.”

The marketing of mutual funds and ETFs as “green” is being closely looked at by the Securities & Exchange Commission. SEC is focused on “enhancing ESG investment practices” of certain capital market players.

The agency in May proposed amendments to rules and reporting requirements of investment advisors and investment companies (that manage mutual funds and ETFs) to “promote consistent, comparable, and reliable information for investors” about funds’ and advisors’ incorporation of ESG factors.

The proposed rule would aim to categorize types of ESG investment strategies and require funds and advisors to be more specific in disclosures (such as in prospectuses, annual reports, brochures) to inform investors about ESG strategies being pursued.

Funds with strategies focused on the consideration of environmental factors would be required to disclose the greenhouse gas emissions associated with their portfolios. (That is, the GHG emissions of companies in the assembled portfolios of the mutual funds or ETFs.)

And, funds that use proxy voting and engagement with corporate issuers would be required to disclose their voting and engagement with companies on ESG-related matters.

Morningstar rates “sustainable mutual funds” among the thousands of funds rated by the firm’s analysts and its Sustainalytics unit.

Here’s a look into the challenges fund companies may face if the SEC rules are adopted: “This year has been difficult for many ESG funds,” writes Morningstar’s Katherine Lynch. “After years of solid performance, sustainable investing mutual funds have been roughed up, but a handful of strategies have been able to outperform.”

Which ones? Those holding energy stocks, which some investors in ESG try to avoid. Energy stocks are now outperforming, and most sustainable funds hold little or no oil companies in portfolio because of the connection of oil and gas consumption and climate change.

The conversation about “sustainable investing” and the criteria used by mutual fund management companies is sure to get more complicated in the days ahead.

Our G&A Institute team will continue to monitor developments and keep you updated on the changes to the mutual fund / ETF disclosure requirements.

Here are Top Stories for you to learn more:

  1. Less Than 10% of Climate Funds are Aligned with Global Decarbonization Goals: S&P (ESG Today )https://www.esgtoday.com/nearly-90-of-green-funds-are-not-aligned-with-global-climate-goals-sp/
  2. SEC Proposed to Enhance Disclosures by Investment Advisors and Investment Companies About ESG Investment Practices: https://www.sec.gov/news/press-release/2022-92
  3. 2022’s Top Sustainable Fund Weather a Tough Market: https://www.morningstar.com/articles/1097780/2022s-top-sustainable-funds-weather-a-tough-market



The Private Equity World: Broadening Focus on Sustainability – The Blackstone Group is All In

May 17 2021

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

The P/E world:  Private equity firms often have a pool of companies wholly owned or invested in and managed and advised by them in portfolio …this is the ambitious domain of the private equity (P/E) universe.

The leading publicly-traded P/E leaders are familiar names to institutional investors:

  • Blackstone (NYSE:BX),
  • The Carlyle Group (NASDAQ:CG),
  • Apollo Global Management (NYSE:APO),
  • Kohlberg, Kravis Roberts (NYSE:KKR).

There also well-known P/E companies not publicly-traded such as TPG Capital and Bain Capital (which owns, invests in and advises portfolio entities).

Focusing on one major P/E firm today – Blackstone Group – we see how sustainability is now being driven across the alternative investment of P/E enterprises.

Blackstone owns and manages key asset categories such real estate (owning the huge Stuyvesant Town complex in NYC), hedge funds, credit & insurance, financial advice, investment (partnering for example with Pfizer and SFJ Pharmaceuticals for therapies), and managing private equity funds and funds of funds for its investment clients.

In the Blackstone investment portfolio are companies with familiar names:  SERVPRO, Ancestry, Refinitiv, Bumble, EPL, Aypa Power.

Blackstone Group Inc has asked the top executives running portfolio companies “controlled by its private equity arm” to regularly report on ESG matters to their boards of directors, according to a news story by Reuters corporate governance reporter Jessica Dinapoli (she covers boards of directors and C-suite trends).

She writes that Reuters obtained a letter from Blackstone’s CEO (“the world’s largest manager of alternative assets such as P/E”) to portfolio companies’ CEOs that is basis of her report.

Her takeaway:  The Blackstone firm’s sustainability credibility would be boosted by portfolio companies disclosing more about their climate risk, environmental certifications, diversity & inclusion, and commitments to protection of human rights.

According to the Reuters report, the letter to portfolio companies’ CEOs advised: “ESG factors are attracting greater focus globally and demand careful attention on your part.”

The latest move by Blackstone could help to “standardize” ESG reporting across the firm’s massive global portfolio.

An accompanying story by Reuters tells us that Blackstone recently hired five managers to beef up its internal ESG team as the firm moves to drive sustainability and diversity across its broad portfolio of holdings.

Adding our perspective why this is a very important development: The company is a member of the American Investment Council (formerly, Private Equity Growth Council).

What about P/E and sustainability? 

That organization says in 2020 the P/E industry invested $24 billion-plus just in renewable and sustainability projects… “playing a critical role in the energy transition and moving our economy in a more sustainable direction.”  P/E has invested $100 billion in renewable energy since 2010 says the AIC.

The Blackstone moves to have portfolio companies “be all in” on sustainability should help to bring about much more ESG disclosure by firms not necessarily doing much reporting today (as they are tucked away in P/E portfolios)l

From experience we know at G&A Institute that when firms move out of P/E portfolio (via IPO, SPAC, acquisition by larger firm, management buyout, other means) the proactive burnishing of corporate ESG reputations can be a big plus in the divestment of today’s P/E entity.

We have the link to the Blackstone report in the Top Story this issue.

TOP STORIES

 

Special Mention – IR Magazine Focus – Our Partners, DFIN

Earth Day – Climate Week – The World Celebrates Promises and Actions to Meet Climate Change Challenges

April 21 2021

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

In brief – yes, this is Climate Week, being observed just about everywhere on this precious Blue Orb floating in space. 

The varied observations are “surrounding” the now-50-plus-one years of celebrating Earth Day going back to April 1970, United States Senator Gaylord Nelson of Wisconsin was the moving force behind the very first Earth Day in the United States of America.

Good news for 2021: The U.S.A. is fully “back” in climate change matters with the nation rejoining the Paris Agreement and embracing and promising to surpass the COP temperature-limiting goals. As we write this,

President Joseph Biden and VP Kamala Harris are leading a global leader virtual summit on climate change issues.

Senator Gaylord’s words in Denver, Colorado that first Earth Day continue to speak to us across the decades: “Our goal is not just an environment of clean air and water and scenic beauty. The objective is an environment of decency, quality and mutual respect for all other human being and all living creatures.”

Here we are in 2021 in the USA witnessing the dramatic expansion of the decades of Earth Day celebrations with current and future promises, pledges, and action on many fronts – in many nations as well – and among global institutions (like the arms of the United Nations and many more),

And by tens of millions of people, individuals who care about the state of humanity and state of our planet.

While considerable focus is on the Biden-Harris Administration policy declarations and actions at the Federal level (“the climate administration”), there are many more actions at the state, city – municipality and tribal levels as well in the United States.

And, across the spectrum of firms in “Corporate America” and at many asset management firms there is the rapidly-widening embrace of ESG policies and actions.

‘No doubt the digital climate summit of this week will spur internal debate in corporate suites along the lines of: What are industry and investing peers doing – what else should we be doing! What are our risks and opportunities as the world engages to move toward Net Neutrality!

In this brief post we are sharing timely updates in each of our subject/topic silos that readers find each week in the G&A Sustainability Highlights newsletter.

Reminder – there is much more related current and archived climate change content beyond the silos for you on the G&A’s SustainabilityHQ platform.  And more related content to share on G&A’s Sustainability Update blog.

TOP 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

Public Debate & Actions – Determining Future Directions of Today’s Important Fuels / Energy Sources

June 5 2021

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

Eons ago as then-existent forms of life on Earth died off, decomposing remains became fossils…or relevant to current “heated” conversations about the future of energy, the stuff of today’s “fossil fuels.” Coal, crude oil, natural gas. 

As National Geographic explains for us, these fuels found in the Earth’s crust contain important amounts of carbon and hydrogen, which can be burned to create the energy we need in our modern times.  Consider:

Coal – we have long been extracting the deposits found in sedimentary rock – is the important foundational fuel source for the industrial era of at least the past two centuries.

Oil, more recently (since the mid-1800s) has been pumped out of ample reservoirs deep beneath the Earth’s crust. Or today, from closer deposits found in sedimentary rock, such as in shale layers (see: fracking – hydraulic fracturing).

Natural gas? Often described as a “transition” fuel (between fossilized sources and renewable energy sources) is extracted from the deposits near the deeper oil deposits. Natural gas is mostly comprised of methane, providing significant energy when burned – and also identified as one of the more potent Greenhouse Gases (GhG).

NatGeo tells us that the National Academy of Sciences charts 81 percent of total energy used in the U.S. as coming from these three fuel sources – responsible for three-fourths of global emissions over the recent decades.

So, what to do about the future directions of fossil fuels as primary energy sources, as leaders and institutions of the U.S. and other nations look beyond fossil fuels to create the energy needed to power business, homes, transportation, and more?

The debate about all of this (the “beyond fossil fuels discussion”) plays out in the era of the 2015 Paris Agreement to hold the Earth’s temperatures to below 2-degrees Celsius rise in this century compared to the level of pre-industrial days.

Reducing the use of fossil fuels is one of the ways to accomplish this, say climate change activists; more reliance of renewable fuel sources is being widely embraced as an important transition.

About transition: the industrial era got a big boost in the 1860s when the first oil wells were drilled in Pennsylvania and resulting processed kerosene began quickly knocking off the U.S. whaling oil business…coal extraction was already an important source of energy for industry.

The public debate about the fate of fossil fuel use in many nations, and the future direction of the many companies involved in the extraction, processing, and distribution of these fuels, is ongoing and involves many constituencies with a stake in the outcome of public policy and actions to address the issue…especially in the context of the commitment of almost 200 nations to comply with the terms of the Paris Agreement.

In this week’s G&A Institute’s newsletter (Sustainability Highlights), we shared important developments in the discussion about climate change and energy sources, as investors take action in proxy votes at Exxon and Chevron, and leaders call for “Energy Compacts” (by country, business interest, city) to achieve the goal of clean affordable energy by year 2030 (see SDG 7) and “net zero emissions” by 2050.

Of course, today’s energy source enterprises have to play a significant role in the process; energy transition that will be discussed by the UN’s High-level Dialogue on Energy.

Details on all of this are in the selections for Top Stories and in other of the content silos…and more is on the G&A Institute’s SHQ web information sharing platform: www.sustainabilityhq.com.

TOP STORIES

Note:
The National Geographic content on fossil fuels is in the organization’s Resource Library – this is excellent material for discussing fossil fuels with students (What is a fossil fuel and what is being done to make fossil fuels more environmentally-friendly?). 

Pre-crisis, Critical Event(s) / In Crisis! / Prevention, Mitigation – Where Will the World Act in the Context of Climate Change?

March 29  2021

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

At certain times, an unknown unknown may strike, rapidly triggering a serious crisis situation.  Think of a tsunami or earthquake.

Many other times the crisis situation occurs and there are at least a dozen, maybe even dozens of precursor events or activities that over time / if neglected by leadership set up the going over the cliff situation.

The G&A Institute team members have collectively helped to manage literally hundreds of critical events or crisis situations over the years for corporate, fiduciary, social sector and other clients.

Alas, we have seen many critical issues and/or events spin into dramatic crisis situations over time — but none with the scale of the dangers posed to humanity and planet by climate change.  Ignoring this is not an option for humankind.

The crisis situations that can be pretty accurately projected or forecast are often years in the buildup.

Leaders may ignore unpleasant situations until things do spin out of control.  There is the powerful human capacity for denial – this can’t be happening / this won’t happen / there are slim chances that “this” will go wrong, and we will lose control of things.

Until things do go terribly wrong.

Think of the September 11th 2001 terrorist attacks – 20 years ago this year.

What could have been to prevent these? Read the many pages of the report on the attacks published by the US government — you will see page-after-page of factors that illustrate the points made here.

Or, the damages of Hurricane Katrina.  Things were going well in New Orleans – until they were not.

There is the unbelievable, tragic opioid epidemic in the USA. Was anyone tuned in to the unbelievable flow of opiods in the State of West Virginia and other locales?  Many many doses per resident – who was consuming them and why?

Right now – there is the still-out-of-control, worldwide Covid pandemic. There will be abundant case histories published on this in the years to come.

Think about the Exxon Valdez oil tanker spill crisis in vulnerable Alaskan waters 30 plus years back — and what could have been addressed in preventative measures. (We did numerous corporate management workshops on this event, walking through two dozen clearly-visible precursor events.  One factor impacted another than another. And another.

Think about what could have been addressed up front to address these situations and other classic crisis situations well ahead of time to prevent or limit the human and physical costs.  The good news?

We have time today to address the unbelievable potential harm to human and widespread physical damages that we will see in the worst cases in global climate changes.

It takes recognition of these serious risks and dangers, the political will to act, widening public support of the leaders’ actions, and considerable financial investment.  So – ask yourself – are we on target with limiting of damages, mitigation for the worse of possible outcomes, and most important, in taking prevention strategies and actions?

Each of us must answer the question and then take action.  The encouraging news is that collective action is now clearly building in volume and momentum – that’s the focus of some of the Top Stories we selected for you in the current newsletter.  There are valuable perspectives shared in these stories.

The world stands at critical point, said UN Deputy Secretary-General Amina Mohammed to European Parliament Vice President Heidi Hautalan, referencing the 2030 Agenda for Sustainable Development.

The United Nations is working to strengthen its partnership with the EU to deliver on the 17 Sustainable Development Goals (SDGs – with 169 targets for action). “The work is more urgent than ever” was the message.  This is the decade for multilateral engagement and action – we are but nine years away from a tipping point on climate disasters.

Many companies in North America, Europe, Asia-Pacific and other regions have publicly declared their support of the SDGs – but now how are they doing on the follow up “action steps” – especially concrete strategies and actions to implement their statements (walking-the-talk on SDGs)?

The Visual Capitalist provides answers with a neat infographic from MSCI; the powerhouse ESG ratings & rankings organization sets out the SDG alignment of 8550 companies worldwide.

Are they “strongly aligned” or “aligned” or “misaligned” or “strongly misaligned”?  Looking at this important research effort by MSCI, we learn that 598 companies are “strongly misaligned” on Responsible Consumption and Production” (Goal 12) – the highest of all goals.

Could we as individual consumers and/or investors and/or employees of these firms help to change things in time?  (Back to the proposition — Think about what could have been addressed up front to address these situations and other classic crisis situations well ahead of time to prevent or limit the human and physical costs.)

Are we willing to make tough decisions about these enterprises – about the climate crisis overall?

And this from the world’s largest asset manager, BlackRock:  The firm will push companies to step up their efforts to protect the environment from deforestation, biodiversity loss and pollution of the oceans and freshwater resources.  T

his from guidelines recently published by the firm, including the readiness to vote against directors if companies have not effectively managed or disclosed risks related to the depletion of natural capital – the globe’s natural resources.

President Joe Biden, in office now for just over two months, has a full plate of crisis, pre-crisis and post-crisis situations to deal with.

Intervention is key, of course, President Biden and VP Kamala Harris have set out the “Climate Crisis Agenda” for our consideration.  One of the big challenges?  Our oceans – and the incoming head of the National Oceanic and Atmospheric Administration (NOAA) will be on point for this part of the agenda.

NPR Radio had interesting perspectives to share on the warming of the oceans and what can be done to prevent further damage.

We bring you the details of all the above in our selections of Top Stories for this week’s newsletter.  Of course, there is action being taken.  Is it enough to prevent global disasters as the climate changes?

Your answers and actions (as well as “ours”) can help to determine the answers!

TOP STORIES for you…

“Sustainable Investing” or Just Plain “Investing” – Where Are We in 2021? Important Milestones Provide Answers…

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

February 22, 2021

About Sustainable / or ESG Investing: We have traveled a far distance over the past four decades, beginning with “ethical” and “faith-based” and the more frequent “socially responsible investing” (SRI), morphing over time into “sustainable & responsible investing” (still SRI for the traditionalist) and on to “ESG investing”.

And now to… how about “investing”? That is, just plain investing, as our friend and colleague Erika Karp, CEO of Cornerstone Capital Group has been long saying.

At various conferences, Erika (a former head of UBS research) would often say to the crowd, “one day it will be ‘investing’ without the adjectives”. That day appears to be here! Let’s see how and why.

We can start making that “just plain investing” case with the results of the US SIF biannual survey of professional asset managers in the United States (2020) – $1-in-$3 of professionally-managed AUM follows some type of ESG/sustainable investing approach. That is $17 trillion of a $55T market and growing in leaps and bounds. We can expect the next survey to report $1-in-$2 or better. (Source: US SIF.)

More recent news: Morningstar looked at “sustainable funds” for 2020 and determined that more than $51 billion flowed into new investments (double the record year of 2019) …accounting for one-quarter of all newly invested money.

Morningstar’s Jon Hale (author of the report) explains that the worsening climate crisis, the Coronavirus pandemic, and the Black Lives Matter movement are among the many reasons for this apparent flight to safety investing trend.

And, the sustainable funds outperformed (on average) more than conventional funds, with three out of four sustainable equity funds ranked in the top half of their Morningstar category in 2020. (There are about 400 “sustainable funds” available for investment, says Morningstar, up from 139 in 2015 as the firm began to separate sustainable funds for close examination from the usual mutual funds.)

Morningstar applies a Sustainability Rating for funds to help investors measure portfolio level risk from ESG factors, using Sustainalytics ratings to measure a company’s material ESG risk; the scores are rolled up to company level scores to come up with the portfolio score.

The World Economic Forum (WEF, the Davos meetings folks) points out an important factor in 2020 investing growth – 10 million new individual investors began investing since the start of the pandemic. The newcomers to investing are often younger, and Millennial Generation (born 1980-2000 by most definitions).

The post-Baby Boomers (born after 1965) stand to inherit an estimated US$30 trillion as their Boomer parents pass along their wealth in coming years. (Boomers are categorized as the post-WWII baby boom born 1946 to 1964.)

Asks WEF: “As this great wealth transfers, what might this mean for wealth inequality and long-term sustainable value creation?”

An important “add” here to note is the moves by Goldman Sachs to issue $750 billion in sustainable financing, investing and advisory activity by 2030 (according to the firm’s CEO).

In this issue we share four Top Story items that add considerable information to the above. Are we ready yet to follow Erika Karp’s advice – just call all of this ‘investing’?

TOP STORIES

Expanding Public Debates About the “What” & “How” of Corporate ESG Disclosure

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

March 2, 2021

Corporate sustainability / ESG reporting — What to disclose? How to frame the disclosures (context matters!)? What frameworks or standards to use?  Questions, questions, and more questions for corporate managers to consider as ESG disclosures steadily expand.

We are tuning in now to many more lively discussions going on about corporate ESG / sustainability et al public disclosures and structured reporting practices — and the growing complexity of all this disclosure effort, resulting often in disclosure fatigue for corporate practitioners!

Corporate managers ponder the important question:  which of the growing number of ESG frameworks or standards to use for disclosures? (The World Economic Forum (WEF) describes some 600 ESG guidelines, 600 reporting frameworks and 360 accounting standards that companies could use for reporting.  These do vary in scope, quantity, and quality of metrics.)

In deciding the what and how for their reporting, public companies consider then the specifics of relevant metrics and the all-important accompanying narrative to be shared to meet users’ rising information needs…in this era of emergent “stakeholder capitalism”.

Of course, there is the question for most companies of which or what existing or anticipated public sector reporting mandates will have to be met in various geographies, for various sectors and industries, for which stakeholders.

We here questions such as — how to get ahead of anticipated mandates in the United States if the Securities & Exchange Commission (SEC) does move ahead with adoption of new rules or at least strong guidance for corporate (and investor) sustainability reporting.

The European Union is today ahead in this area, but we can reasonably expect the USA to make important moves in the “Biden Climate Administration” era.  (The accounting standards boards are important players here as well as regulatory agencies in the sovereign states.)

Company boards, executive committees, professional staff, sustainability team managers wrestle with this complex environmental (for ESG disclosure) as their enterprises develop strategies, organize data flows, set in place data measurement protocols, and assemble the ESG-related content for public disclosure. (And, for expanded “private sharing” with ESG ratings agencies, credit risk agencies, benchmark/index managers, to meet customer ESG data requests, and more).

The list of issues and topics of “what” to disclose is constantly expanding, especially as institutional investors (asset owners and their managers) develop their “asks” of companies.

Climate change topics disclosure is at the top of most investor lists for 2021. Human Capital Management issues have been steadily rising in importance as the COVID-19 pandemic (and spread of variants) affects many business enterprises around the globe.

In the USA, SEC has new guidance for corporate HCM disclosures.  Political unrest is an issue for companies.  Anti-corruption measures are being closely examined.

Diversity & Inclusion (including in the board room and C-suite) is growing in importance to investors.

Also, physical risk to corporate assets in the era of superstorms and changing weather patterns – what are companies examining and then reporting on?  Exec compensation with metrics tied to performance in ESG issues is an area of growing interest.

We are monitoring and/or involved in multiple discussions and organized initiatives in the quest to develop more global, uniform, comparable, reliable, timely, complete, and assured corporate sustainability metrics, and accompanying narrative.  And, to provide the all-important context (of reported data) – what does the data mean?  It’s a complicated journey for all involved!

This week we devote the content of this week’s Highlights newsletter to various elements of the public discussions about the many aspects of the journey.

Here at G&A Institute, our team’s recommended best practice:  use multiple frameworks & standards that are relevant to the business and meet user needs; these are typically then disclosed in hybridized report where multiple standards are harmonized and customized for the relevant industries and sectors of the specific company’s operations and reflect the progress (or even lack of) of the enterprise toward leadership in sustainability matters.

This approach helps to reduce disclosure fatigue for internal corporate teams challenged to choose “which” framework or standard and the gathering of data and other content for this year’s and next year’s ESG disclosures.

We shared our thoughts in a special issue of NIRI IR Update, published by the National Investor Relations Institute, the important organization for corporate investor relations officers:


Here are our top selections in the content silos for this week that reflect the complexity of even the public debates about corporate ESG disclosure and where we are in early-2021.

TOP STORIES

The ever-evolving world of ESG investing from a few different points of view. What are the providers of capital examining today for their portfolio or investable product decision-making?  Here are some shared perspectives:

Turmoil in the USA / Washington Capitol Terror Attacks – Corporate Sector Responses to Threats to the Nation

Prepared January 20 2021 – Inauguration Day in the USA

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

These are troubled times in the United States of America. After the national elections in November 2020, political and social rhetoric became even more heated and widepread sharing of rumors and lies intensified than even in the weeks leading up to the ballots being cast by well more than 155 million citizens in the 50 states of the Republic.  (There are more than 200 million registered voters in all of the states.)

Moving toward the inauguration of the new president the major social media platforms unfortunately served as rioter assembly stations and important [negative] information sharing tools that helped to spread lies, rumors, and volumes of false and dangerous information.  The large platforms stand accused now of having helped to enable many thousands of protestors to travel to and assemble in Washington, D.C. for a January 6 rally that quickly spun out of control.

There will likely be short- and longer-term fallout here: What was a growing public debate on the role of social media and the focus on tech companies at the center of controversy (think of Facebook, Twitter, Google, others) quickly became a public ranting from all sides of the political spectrum.

The tempo of the public policy debate has sharply increased:  What actions should be taken to address concerns about the tech leaders and their role in spreading false and dangerous-to-democracy content? (Stay tuned to this important public policy debate in 2021.)

To recap what happened:  On January 6th, 2021 a mob of an estimated 8,000-plus men and women attended a rally and then took the point to travel with an even larger group behind them, along the major thoroughfares that lead from the White House and nearby National Mall to the Capitol Hill complex that houses the U.S. Congress (the House of Representatives and US Senate) -– ranting slogans and waving their flags along a brisk and angry 3.6 mile march (4.8 kilometers).

By the time the government complex on the hill was reached the point of the mob was out of control. The “tip of the spear” leadership group quickly pierced the Capitol Hill ramparts and the mob poured in behind to do their damage inside the halls of Congress.

The mob -– characterized by many now as being in fact domestic terrorists -– swarmed the complex, confronted a police force numbering about 1,400, swept past those guardians and into the Capitol Building to wreak havoc, steal items such as the Speaker of the House’s office laptop, and destroy government property.

They were there for hours. And much of this was broadcast live, on various news platforms and including on social media — by participants!

The mob even seemed to be threatening the very lives of the Members of House and Senate — and it seems, the well-being and maybe the life of the Vice President of the United States (Michael Pence) who also served as presiding officer of the US Senate during the crucial vote to accept the 2020 Presidential voting results. (The mob’s intention was to overthrow Congress and change the vote outcome to make Donald Trump the winner.)

The  widespread criticism of these actions was immediate; much of the American public was outraged. Anger was directed at the mob, at the social media platforms helping to spread the messages of the insurrection leaders and participants, at the President of the United States and his political allies for encouraging the unrest.

24/7, major news media published, broadcast and telecast news and the volumes of criticism — and, indeed the collective outrage of most of the nation – out to all of the nation and world.

A Day of Infamy for the USA – and Corporate Response

In Utah, the Deseret News described this in its headline as “Jan. 6, 2021: Another day that will live in infamy for Americans”.

An important sea change:  The corporate community, including major players in financial services sector industries, quickly became very visible among the critics. For some companies the silence about the “Steal the Vote” protests was a form of diffidence or even support. That changed!

Prominent corporate leaders and their trade associations blasted the actions, of both rioters and supporters, and took (and continue to take) actions in response to the horror that they witnessed. We bring you highlights of some of this initial response this week.

Following the attack there was dramatically expanding news of what was to come as a new legislative and executive branch was taking shape  -– the days after January 6th were climaxed by the inauguration of the new president and vice president on January 20th (done!) and the convening of a new US Senate leadership team (in process as we write this).

All of this news and opinion was being shared in the context of the continuing threat posed to the American nation by homegrown, domestic terrorists.

This is usually a time of great celebration of the peaceful transfer of power, a 200-plus year tradition in the USA that occurs every four years following the presidential elections.  Instead, these January days became a time of sorrow and sadness and disappointment.  All that was being reported out to the world as well.

The days leading up to the January 20th inaugural event had most Americans very jittery, with media reports of continued threats (such as possible physical harm to the national and state capitals, more heated partisan political talk, even the possibility of threats to human life posed by armed citizens in so-called ragtag “militias”).

There were more U.S. military members present in Washington DC on Inauguration Day  to protect our capital city than were present in the Middle East conflict zones.

The ongoing turmoil poses a serious threat to the American Experiment in Democracy as well as to the long-term symbolism of the Capitol Hill complex that many citizens of America (and even many in the world) consider to be a shining city on a hill, the citadel of democratic rule.

With this commentary we bring you some highlights of the immediate corporate sector response, and what some see as the responsibility of the corporate leadership to help move the nation forward.  The tempo of the corporate response is quickening and we’ll share more with you in our G&A Institute’s Sustainability Highlights newsletter and in this blog. 

TOP STORIES

Here is some of the immediate Corporate Sector responses to the mob’s January 6 attack on the US Capitol – with specific corporate responses that target the financial of candidate campaigns. The corporation’s role in society is in even sharper focus now.

Looking forward:  The news media is now also focused on the future – there is a new administration in place now, led by President Joseph Biden, VP Kamala Harris, and a  House and Senate led by the Democratic Party.  The focus on ESG issues is intensifying:

We will be sharing considerably more news along these lines in the days ahead. Stay Tuned!