On Corporate Risk Strategy, Sustainable Actions & Outcomes – What’s the Best Ways to Report on ESG to Stakeholders?

April 2021

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

Buzz… Buzzz… Buzzzzz! The current buzz among key stakeholders – investors, corporate boards & management, NGOs, government regulators, stock exchanges, ESG raters & rankers, ESG corporate disclosure standards and frameworks managers – is centered on “Quo Vadis”…where do we go from here!

The good news is that the lively discussions underway appear to be indicating progress in the global drive to achieve more holistic, meaningful, accurate, comparable, understandable corporate ESG disclosure approaches.

One, to help publicly-traded company managements understand and provide transparency for the data sets, metrics and narratives that asset owners and their managers, and (2) to help creators of sustainable investing products in their expanding analysis of companies of all market cap sizes.

Influential players are part of the discussion.

Example: The World Economic Forum (WEF) published a White Paper in January 2020 to set out a framework to bring sustainable reporting frameworks & standards into a common and consistent system of metrics. This, to help investors and companies attain sustainable value creation and accurately disclose on same. WEF suggests a set of 22 Core metrics and a range of Expanded metrics to start with.

At the same time the “Big Five” of the global corporate sustainability disclosure and reporting frameworks and standards organizations are collaborating and recently published a shared vision of the elements necessary for achieving more comprehensive and holistic corporate sustainability reporting.

The five organizations are: CDP; the Climate Disclosure Standards Board (CDSB); Global Reporting Initiative (GRI); International Integrated Reporting Council (IIRC); Sustainability Accounting Standards Board (SASB). Plus TCFD, the Task Force for Climate Related Financial Disclosure, created by the Financial Stability Board (FSB), a G20 nations organization.

Joining the effort: The European Commission; IOSCO (global government securities regulators organization); WEF’s International Business Council; and IFRS.

Each issue of the G&A Sustainability Highlights newsletter we bring you information about the above and much more related to the increasing tempo of the buzzzzz on corporate sustainability disclosure and reporting.

The discussions are taking place worldwide as leadership in public sector, private (business/corporate) sector and social sector address a widening range of ESG issues that will over time determine what kind of world we’ll live in.

See: meeting the challenges of climate change multiple issues, diversity & inclusion, populations deciding on democracy or authoritarianism, having ample food supplies or facing starvation, providing equality of opportunities & outcomes, pandemics to come, rapidly disappearing natural resources, political financing, a range of labor/workforce challenges…and more.

The content silos in our newsletter are designed to help you scan and select the news and perspectives we gather for you each issue.

The G&A Institute’s “Sustainability Headquarters” (SHQ) web platform has many more items selected by our editorial team led by EVP Ken Cynar for you. He’s assisted in these efforts by G&A’s Amy Gallagher, Reilly Sakai, Julia Nehring, Elizabeth Peterson, Lucas Alvarez, Lou Coppola, and Hank Boerner. All of this is team effort! Check the expanded related contents not in the newsletter on SHQ!

We constantly monitor all of the above issues — the global ESG disclosure buzz! — and participate in certain of the conversations as guiding the ESG disclosure and reporting of our corporate clients is at the core of the G&A Institute mission.

TOP STORIES

Picking Up Speed – Adoption of the FSB’s TCFD Recommendations…

January 21 2021

by Hank BoernerChair & Chief StrategistG&A Institute

Countries around the world are tuning in to the TCFD and exploring ways to guide the business sector to report on ever more important climate related disclosures.  Embracing of the Task Force recommendations is a key policy move by governments around the world.

After the 2008 global financial crisis, the major economies that are member-nations of the “G20” formed the Financial Stability Board (FSB) to serve a collective think tank and forum for the world’s leading developed countries to develop strong regulatory, supervisory, and other financial sector policies (guidance, legislation, regulations, rules).

Member-nations can adopt the policies or concepts for same developed collectively in the FSB setting back in their home nations to help to address financial sector issues with new legislative and/or adopted/adjusted rules, and issue guidance to key market players. The FSB collaborates with other bodies such as the International Monetary Fund (the IMF).

FSB operates “by moral suasion and peer pressure” to set internationally-agreed to policies and minimum standards that member nations then can implement at home. In the USA, members include the SEC, Treasury Department and Federal Reserve System.

In December 2015, as climate change issues moved to center stage and the Paris Agreement (at COP 21) was reached by 196 nations, the FSB created the Task Force on Climate-related Financial Disclosures, with Michael Bloomberg as chair.  The “TCFD” then set out to develop guidelines for corporate disclosure on climate change-related issues and topics.

These recommendations were released in 2017, and since then some 1,700 organizations endorsed the recommendations (as signatories); these included companies, governments, investors, NGOs, and others.

Individual countries are taking measures within their borders to encourage corporations to adopt disclosure and reporting recommendations. There are four pillars -– governance, strategy, risk management, and metrics & targets.

A growing number of publicly-traded companies have been adopting these recommendations in various ways and publishing standalone reports or including TCFD information and data in their Proxy Statements, 10-ks, and in sustainability reports.

The key challenge many companies face is the recommendations for rigorous scenario testing to gauge the resiliency of the enterprise (and ability to succeed!) in the 2C degree environment (and beyond, to 4C and even 6C),,,over the rest of the decades of this 21st Century.

Many eyes are on Europe where corporate sustainability reporting first became a “must do” for business enterprises, in the process setting the pace for other regions.  So – what is going on now in the region with the most experienced of corporate reporters are based?  Some recent news:

The Federal Council of Switzerland called on the country’s corporations to implement the TCFD recommendations on a voluntary basis to report on climate change issues.

Consider the leading corporations of that nation — Nestle, ABB, Novartis, Roche, LarfargeHolcim, Glencore — their sustainability reporting often sets the pace for peers and industry or sector categories worldwide.

Switzerland — noted the council — could strengthen the reputation of the nation as global leader in sustainable financial services. A bill is pending now to make the recommendations binding.

The Amsterdam-based Global Reporting Initiative (GRI) is backing an EU Commission proposal for the European Financial Reporting Advisory Group (EFRAG) to consider what would be needed to create non-financial reporting standards (the group now advises on financial standards only). The dual track efforts to help to standardize the disparate methods of non-financial reporting that exist today.

The move could help to create a Europe-wide standard. The GRI suggests that its Global Sustainability Standards Board (GSSB) could make important contributions to the European standard-setting initiative.

And, notes GRI, the GSSB could help to address the critical need for one global set of sustainability reporting standards.  To keep in mind:  the GRI standards today are the most widely-used worldwide for corporate sustainability reporting (the effort began with the first corporate reports being published following the “G1” guidelines back in 1999-2000).

The United Kingdom is the first country to make disclosures about the business impacts of climate change using TCFD mandatory by 2025.

The U.K. is now a “former member” of the European Union (upon the recent completion of “Brexit” process), but in many ways is considered to be a part of the European region. The UK move should be viewed in the context of more investors and sovereign nations demanding that corporations curb their GhG emissions and help society move toward the low-carbon economy.

In the U.K., the influential royal, Prince Charles — formally titled as the Prince of Wales — has also launched a new charter to promote sustainable practices within the private sector.  He has been a champion of addressing climate challenges for decades.

The “Terra Carta” charter sets out a 10-point action plan designed to reduce the carbon footprint of the business sector by year 2030.  This is part of the Sustainable Markets Initiative launched by the prince at the January 2020 meeting in Davos, Switzerland at the World Economic Forum gathering.

Prince Charles called on world leaders to support the charter “to bring prosperity into harmony with nature, people and planet”. This could be the basis of global value creation, he explains, with the power of nature combined with the transformative innovation and resources of the private sector.

We closely monitor developments in Europe and the U.K. to examine the trends in the region that shape corporate sustainability reporting — and that could gain momentum to become global standards.  Or, at least help to shape the disclosure and reporting activities of North American, Latin American, Asia-Pacific, and African companies.

It is expected that the policies that will come from the Biden-Harris Administration in the United States of America will more strenuously align North American public sector (and by influence, the corporate sector and financial markets) with what is going on in Europe and the United Kingdom.  Stay Tuned!

TOP STORIES FOR YOU FROM THE UK AND EUROPE

Items of interest — non-financial reporting development in Europe: