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

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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)

The U.S. Department of Labor – Proposed Rule Addressing ESG Investment Selections by Fiduciaries – the Drama Continues As Agency Downplays Importance of ESG

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

August 9 2020

In the early 1970s, Congressional hearings featured allegations of abuses by managers of corporate pension funds taking actions to systemically deny men and women approaching retirement age their promised benefits.  A law was passed to protect plan beneficiaries:  The Employee Retirement Income Security Act of 1974.

This was intended by the Congress of that day to create standards for private-sector plans to protect the financial and health of beneficiaries of corporate plans.

The U.S. Department of Labor was designated is the primary designated arm enforcing “ERISA”,  charged with “protecting the interests of employee benefit plans participants (workers) and their beneficiaries”.

Other agencies have plan oversight responsibilities as well – the U.S. Treasury Department (the IRS) and the Pension Benefit Guaranty Corporation (PBGC).

PBGC is like the FDIC protection for bank customers’ money; when a corporate pension plan fails, the PBGC assumes responsibility for providing retirement benefits to retirees. When a company with a retirement plan goes belly up, filing bankruptcy, or giving up responsibility for the plan, the PBGC takes over to help the plan’s beneficiaries (they don’t get all that was promised by the plan when it was managed by the company they worked for).

Among other elements of the ERISA law and operating rules, there are standards set for fiduciaries and managers of worker retirement plans and welfare benefit plans.

ERISA has been updated since passage 40+ years back and the DOL rules have changed over time.  So have related Internal Revenue Service rules.  In 1978 the Internal Revenue Code was amended to allow taxpayers to have a tax-deferred, defined, voluntary retirement plan of their own – the familiar 401 (k) plan that millions participate in.

In the latest summary from the DOL’s Employee Benefits Security Administration of DOL (“EBSA“) for FY 2013(!) — ERISA rules [then] applied to 684,000 retirement plans, 2.4 million health plans and 2.4 million additional welfare benefits.

These plans covered 140 million workers and beneficiaries – at the time, that was about half of the American workforce – and assets under management of the plans exceeded US$7 trillion.

To simplify what follows here, the rules adopted by federal regulators are intended to explain and enforce the statute passed by Congress – in this case, protection of worker rights and oversight of fiduciaries managing workers’ assets in plans.

There is a structured process for creating the enforcing agency rules-of-the-road for those organizations being overseen (for ERISA, fiduciaries, plan managers) and these rules could be changed from time-to-time and also be “interpreted” by regulators through communications intended to clarify the rules.

ESG Investment and the Department of Labor Perspectives

As “sustainable” or “ESG” investing became a preferred approach for individuals in plans and managers of plans, many more institutions and individuals preferred those investments, alongside or instead of more traditional investments.

Investors want to be able to invest in an ESG-themed mutual fund or ETF along with or instead of a traditional version that may track a benchmark of the same type.

Example:  There are many investment managers whose fund track the widely-used S&P 500 benchmark (from S&P Global) and investable products with an S&P 500 ESG benchmark.

State Street a few days ago launched an S&P 500 ESG Exchange Traded Fund (ETF) “to provide investors an opportunity to tap into ESG investing at the core of their portfolio” (with a very low expense ratio). This “EFIV” tracks the new S&P 500 ESG Index.

SSgA explains: “ESG investing is approaching a critical inflection point…the collective call for change is growing louder and investor increasingly taking a stand through their investment choices.”

How do the regulators of ERISA react to such progress?  To the call for change?  To respond to investors’ call for action?

By moving backward in rule-making with changes in rules to make it more difficult for plan managers and beneficiaries to invest in ESG vehicles.

To be sure, rules are subject to change. The DOL’s first guidance on ESG investment issues as issued back in 1994.

More recently, in 2008 (during the Administration of President George W. Bush) guidance appeared to be designed to restrict ESG investments by plan fiduciaries.

In 2015 (during the Administration of President Barack Obama) DOL guidance gave the green light to ESG investments…if the investment is appropriate based on economic considerations including those that may derive from ESG factors. (See our perspectives here from November 2015: https://ga-institute.com/Sustainability-Update/big-news-out-of-the-u-s-department-of-labor-for-fiduciaries-opportunity-to-utilize-esg-factors-in-investment-analysis-and-portfolio-management/)

And now in 2020, in June DOL’s EBSA proposed a “new investment duties rule” with “core additions” to the regulations.  (“Financial Factors in Selecting Plan Investments” — this to address “recent trends involving ESG investing”).

Among the comments of DOL that really wrankled the ESG investor universe:

  • New text was added to codify DOL’s “longstanding position” that plan fiduciaries must select investments based on financial considerations relevant to the risk-adjusted economic value of an investment (or “course of action”).
  • The reminder that “Loyalty” duty prohibits fiduciaries from subordinating interests of plan participants and beneficiaries to “non-pecuniary goals”.   ESG factors could be “pecuniary” factors — but only if they present economic risk/opportunity under generally-accepted investment theories.
  • New text was added on required investment analysis and documentation for the “rare circumstance” when fiduciaries are choosing among “truly economically-indistinguishable” investments.  (Huh?)
  • A provision that fiduciaries must consider “other” available investments to meet prudence and loyalty duties.
  • A new provision for selection of investment alternatives for 401-K plans describes what is required for “pursuing” one or more ESG-oriented objectives in the investment mandate (or include ESG “parameters” in the fund name).

DOL Comments On These:

“ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy…is to subordinate return or increase risk for the purpose of non-financial objectives.”  And

“Private [Sector] employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives…not in the interest of the plan…ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”

After the rule changes were published, numerous investors pushed back – some summaries for you that were published on the 401K Specialist web platform of the responses of some fiduciaries who object to the proposed rule (“Commenters Hammer DOL of Proposed  ESG Rule”).

More than 1,500 comments have been submitted so far to DOL, calling for changes in the proposed rule, withdrawal, and the very short comment period (just 30 days, ended August 3, vs. the usual 90 days).

Investor/Fiduciary Pushback:

T. Rowe Price:   The proposed rule is attempting to solve a problem that does not exist. Worse, the proposed rule discourages fiduciaries from taking into account ESG factors that should be considered.

ICCR/Interfaith Center on Corporate Responsibility:  The rule would impose significant analytical and documentation burdens on fiduciaries of benefit plans governed by ERISA wishing to select (or allow individual account holders to select) investments that use ESG factors in investment analysis, or that provide ESG benefits (signed by 138 member institutions).

ESG Global Advisors: The Proposal has misunderstood and/or mischaracterized the nature and purpose of ESG integration…this is likely to lead to confusion for ERISA fiduciaries and additional costs to plan savers. Plan fiduciaries will struggle to fulfill their obligation to integrate all financially-material ESG risk factors into their investment process.

Morningstar: The Department’s rule is out of step with the best practices asset managers and financial advisors use to integrate ESG considerations into their investment processes and selections. The proposed rule would…erect barriers to considering ESG factors that many financial professionals consider as a routine part of investment management…

Voya Financial Inc.: The Proposal is fundamentally flawed for two reasons…among the many qualitative factors an ERISA fiduciary may appropriately consider…the Proposal singles out ESG factors and subjects them to special tests…second, the Proposal fails to account for the positive effect on investment behavior that the availability of ESG-focused investment options can have…

American Retirement Association: …appropriate investments that include ESG factors should not be prohibited from qualifying as Qualified Default Investment Alternatives (“QDIAs”)…

The Wagner Law Group:  The proposed amendment is inconsistent with existing law and guidance…it would require fiduciaries to only consider pecuniary factors instead of using their judgment and discretion to evaluate investments under the totality of circumstances…a narrow list of permissible factors is inconsistent with the notion that prudence is not determined by a checklist and is a fact-specific determination…

BlackRock:  …the Proposal creates an overly prescriptive and burdensome standard that would interfere with plan fiduciaries’ ability and willingness to consider financially-material ESG factors…we urge DOL to engage with the industry to understand how investment options incorporating ESG factors are used in ERISA plans…

Members of Congress – the body that passed ERISA during its 93rd session in 1974 – reacted along partisan lines.

Republican members of the House Committee on Education and Labor submitted a letter of support of the DOL action.

Democrat Party members (41 of them) of the House and 20 members of the House Education and Labor Committee expressed opposition to the rule changes.

The Securities & Exchange Commission is looking at ESG investments as well – soliciting public comment “for the appropriate treatment for funds that use terms such as ESG in their name and whether the terms are likely to mislead investors” (also in the Federal Register post).

In May 2020 the SEC Investor Advisory Committee / Investor-as-Owner Subcommittee issued their perspectives on ESG disclosure:  https://www.sec.gov/spotlight/investor-advisory-committee-2012/recommendation-of-the-investor-as-owner-subcommittee-on-esg-disclosure.pdf

There are more details for you here (the investor response summaries): https://401kspecialistmag.com/commenters-hammer-dol-on-proposed-esg-rule/

The Department of Labor’s EBSA proposal highlights are here as published in the Federal Register, June 30, 2020: https://ga-institute.com/Sustainability-Update/big-news-out-of-the-u-s-department-of-labor-for-fiduciaries-opportunity-to-utilize-esg-factors-in-investment-analysis-and-portfolio-management/

Notes:  The Secretary of Labor is Eugene Scalia, a nominee of President Donald Trump.

Acting Assistant Secretary for EBSA is Jeanne Klinefelter Wilson (appointed in June 2020).

There is an ERISA Advisory Council with six members.  Effective July 14, 2020:

  • Glenn Butash is chair; he is managing counsel at Nokia Corp.
  • David Kritz is vice-chair; he is deputy counsel at Norfolk Southern Corp.
  • John Harney is partner at law firm O’Donoghue and O’Donoghue.
  • Peter Wiedenbeck is Washington University School of Law professor.
  • James Haubrock is CPA and shareholder, Clark Schaefer Hackett.
  • Lisa Allen is compliance consultant, Altera Group.

Stay Tuned:  We will update you when decisions are announced by the Department of Labor.

Boston Common Asset Management – Staying the Course, With Adjustments

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

Boston Common Asset Management with offices in Boston and San Francisco has been a sustainable and responsible investor since its founding in 2003.  The clients served are endowments, foundations, religious/faith-based groups, pension funds, family offices, and mission-driven organizations.

Part of its mission is to strive to improve corporate behaviors and responsibilities through engagement with corporate boards and executives and being active in proxy season with filing of resolutions, supporting other institutions doing the filing (often through collective actions) and voting practices.   Of course, like other asset managers, Boston Common is challenged as well by the changes brought about by the spreading coronavirus.

The Earth Day message from Lauren Compere, Managing Director of Boston Common included these points:

  • The firm’s focus is on both local and global issues – such as the health and safety of our community, planet and Boston Common’s impact as an active, engaged investor. Even as the impacts of COVID-19 are addressed, the work must go on in addressing systemic risk, especially the climate crisis.
  • Engagements (with companies) have not changed, but the tenor and lens through which public companies are evaluated and act will change.
  • Boston Common feels it is important in the crisis for portfolio companies to prioritize stakeholder well-being and the firm commends those companies that step up to show leadership.
  • At the same time, some companies are being called out – those firms that are price gouging, firing employees who are concerned about their health, and limiting access to much-needed products on the front lines.

What Boston Common is doing:

  • Having direct dialogue with company managements.
  • Working with investor networks and partners.
  • Looking at its own “responsible business” practices.
  • Planning and re thinking its future work.

Some specifics:

Company Engagements — Issues include human rights, eco-efficiency, climate risk. The changed tone is having more empathy, with more personal tone in these engagements.  Company responses are applauded and accountability is discussed – balancing interests of shareholders and stakeholders.

Working in Partnerships and Coalitions — The ICCR is a key partner of Boston Common, which is a signatory of the “ICCR Coronavirus Investment Statement” on workplace and supplier practices, and engagement of pharma companies to coordinate & collaborate on urgent medical needs. Link: https://ga-institute.com/Sustainability-Update/watching-the-watchers-what-investors-esg-raters-are-doing-in-the-virus-crisis/

PRI:  The firm joined the Principles for Responsible Investment (PRI), which has awarded Boston Common an A+ rating for our consecutive years.

Boston Common itself, a B-Corporation, is taking these actions:

  • Continuing to pay composting, cleaners, other contract vendors who rely on the income.
  • Supporting local food banks and social agencies addressing urgent community needs in Boston and San Francisco, contributing to date $26,630 in firm and employee-donated funds.
  • “Future Focus” includes a “refresh” of engagement priorities and investor and private sector actions.  A range of societal issues that have been in the spotlight during the crisis must be addressed:  how work is valued; the need for a sustainable living wage; public health risks posed by industrial agriculture and food insecurity; unequal healthcare access and outcomes for low-income and communities of color; corporate tax practices, need for investment in healthcare infrastructure, social safety nets…and more.
  • Boston Common is adjusting the lens through which the firm examines its “asks” of companies and actions, and keeping systemic risk in focus (such as for issues like climate change, digital human rights, environmental protections as EPA rolls back the regs, controversial energy projects.)

Much will change with the virus crisis, MD Lauren Compere points out. “We must ensure that as investors we memorialize the lessons learned in this crisis, empowering companies to manage for the long-term, with a focus on joint recovery and prosperity as the world emerges from lockdown.”

Boston Common has long been a proponent for responsible behavior of corporations and investors and regularly joins with other asset managers in initiatives to drive change.

The issues involved include Amazon de-forestation, climate change and the portfolio risk posed by fossil fuel, urging the Detroit Big 3 (GM, Ford, Fiat-Chrysler) to drop opposition to California’s waiver authority on auto emissions standards, encouraging boards to include more diversity in director choices, and bank financing of controversial projects such as the Dakota Access Pipeline.

About the name:  Many people have visited the beautiful Boston Commons in the middle of this New England city.  The firm’s name comes from the concept of standing at the intersection of the economic and social lives of the community; the “universal commons” is the firm’s shared mission and vision.

Information: https://bostoncommonasset.com/Membership/Apps/Boston_HP_Input_App.aspx 

 

Watching the Watchers – What Investors & ESG Raters Are Doing in the Virus Crisis

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

As we have numerous times in this space commented about the dramatic shift from a shareholder primacy focus (for public companies and investors) to today’s stakeholder primacy operating environment, the views of key stakeholders – investors, and their service providers – are critical during the virus crisis.

Today we’re sharing the actions and perspectives of the investor-stakeholders…as the investor coalition in our first item notes…

“…the long-term viability of the companies in which we invest is inextricably tied to the welfare of their stakeholders, including employees, suppliers, customers and communities…”


Investor Coalition Focuses on Corporate Response to the Crisis

The Interfaith Center on Corporate Responsibility, a coalition of 300 institutional investors long focused on corporate responsibility and sustainability, joined forces with the Office of New York City Comptroller Scott M. Stringer and Domini Impact Investments LLC to develop an “Investment Statement on Coronavirus Response” — to urge the business community to take what steps they can and offered five (5) steps for corporate managements to consider.

These include:

  • Providing paid leave – emergency leave for all employees, including temps, part-timers, and subcontracted workers.
  • Prioritizing health and safety – limiting exposure to COVID-19, rotating shifts, enhancing protective measures, closing locations, setting up remote work, additional training where appropriate.
  • Maintaining employment – retain workers as much as possible; a well-trained and committed workforce will help companies resume operations quickly; also, companies should watch for potential discriminatory impact during and after the crisis.
  • Maintaining supplier/customer relationships – As much as is possible, companies should maintain timely or prompt payments to suppliers and work with customers facing financial challenges to help stabilize the economy, protect communities and small businesses, and ensure a stable supply chain will be in place when operations return to normal.
  • Practice financial prudence – the investors state they expect the highest level of ethical financial management and responsibility in the period of (acknowledged) financial stress. As “responsible investors” (the signatories) the expectation is that companies will suspend share buybacks, and limit executive and senior management compensation for the duration of the crisis.

Beyond these, the investors urged companies to consider such measures as childcare assistance, hazard pay, assistance in obtaining government aid for suppliers, paying employee health insurance for laid off/furloughed workers, and deploying resources to meet societal needs related to the pandemic.

Over the past few years, the investor coalition points out, corporations have shown leadership by using their power as a force for tremendous good. This kind of leadership if critically needed now. And, business reputation and social license to operate is at stake.

As we prepare this about 200 long-term institutional investors with AUM of US$5 trillion had signed on to the effort, including: the AFL-CIO funds, American Federation of Teachers, Aviva Investors, Boston Common Asset Management, the Chicago City Treasurer, Communications Workers of America, Connecticut State Treasurer Shawn T. Wooden, Delaware State Treasurer, Illinois State Treasurer Michael Frerichs, International Brotherhood of Teamsters, Investor Environmental Health Network, Office of Rhode Island General Treasurer Seth Magaziner, Oregon State Treasurer, Robeco, SEIU, UAW Retiree Medical Benefits Trust, Treasurer of the State of Maryland, Vermont State Treasurer, and a large roster of faith-based institutions and religious denomination funds.

#  #  #

Walking-the-Talk of Corporate Responsibility

Refinitiv provides investors with ESG ratings and perspectives on corporate ESG performance and builds ESG / sustainability considerations into products and services for investor clients. The company announced what it is doing to maintain its forward ESG momentum during the crisis.   And the changes will over time affect the public companies that are rated and ESG news distributed worldwide by Refinitiv. 

On Earth Day 2020, the folks at Refinitiv – this is one of the world’s largest providers of financial information – announced the beefing up of their own operations…walking the talk of what they provide to investor clients in terms of ESG Data and solutions for evaluating public companies’ ESG performance.

Refinitiv is putting in place for itself more stringent, science-based emissions targets, climate change reporting standards to meet the TCFD’s recommendations, and is joining the RE100 initiative to source 100% of its electricity from renewables.

Refinitiv had made three core pledges on the environment, social impact and sustainable solutions to support the UN SDGs. Part of this was a goal of achieving carbon neutrality before the end of 2020. The company is joining the Business Ambition For 1.5C commitment; aligning its own corporate reporting with the Task Force for Climate-Related Disclosures (the TCFD); and by this coming summer should be 100% in terms of how they source energy from renewables.

Refinitiv recently launched “The Future of Sustainable Data Alliance” to accelerate the mobilization of capital into sustainable finance, and will work to sustainability “at the core of product offerings”. Refinitiv serves more than 40,000 institutions in 190 countries, providing ESG data for 15+ years.

We can expect that these moves will result in the intensifying of the evaluation of corporate sustainability efforts by this major financial information provider. As the Refinitiv CEO David Craig comments:

“The pandemic is clearly providing humanity with a re-set moment: a stark reminder about our fragility as a species and a sharp lesson about what happens when we mess with nature. It is also a moment when the old rules about the role of the state no longer apply. We can therefore attack the twin challenges of COVID-19 and climate change simultaneously, not sequentially. After all, when again will we be at a moment when governments are injecting such unprecedented sums into the economy just as the world needs up to $7 trillion a year of renewable investments to hit 2030 development and climate targets.”

Luke Manning, Global Head of Sustainability and Risk Enterprise at Refinitiv, adds:

“Our commitment is going further than before and aiming for more ambitious emissions reductions that – if repeated by businesses across the world – should limit atmospheric warming to 1.5C above pre-industrial levels. If we want to truly progress the climate agenda we need to help everyone understand that tackling it is in all our personal and financial self-interest. It’s not just about the impact we are having on the environment, but the impact the environment is having on us.”

# # #

Morningstar Acquires Full Ownership in Sustainalytics

Morningstar, a leading firm in providing investment research to individual and institutional investors in North America, Europe, Asia and Australia-Pacific region, began measuring the performance of ESG-focused mutual funds and ETFs three years ago. As part of the initiative, Morningstar acquired a 40% interest in the ESG ratings organization, Sustainalytics.

Now, that interest will be 100% as Morningstar solidifies its competitive advantage in measuring the performance of ESG investable products. Says CEO Kamal Kapoor:

“Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company’s economic moat or the stability of its credit rating, this is the future of long-term investing.

“By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics’ mission of contributing to a more just and sustainable global economy.”

#  #  #

As companies large and small, public and private, step up to help society during the virus crisis, they burnish their reputation and social license to operate.And help society cope with the impact of the crisis on individuals, families, communities and institutions. 

We’re bringing you the news of those corporate actions.  And, we’re watching the investment community for their reactions, and their intention to encourage public companies to stay the course of their sustainability journey during the virus crisis.  Stay Tuned to this blog. 

Perspectives – Bloomberg, McKinsey, Leading ESG Investors, Mark Cuban – on Corporate Purpose and the Virus Crisis

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Excellence in Corporate Citizenship on Display in the Coronavirus Crisis – Post #8   

“Corporate Purpose – Virus Crisis”   #WeRise2FightCOVID-19

April 1, 2020

By Hank Boerner, Chair & Chief Strategist, and the G&A Institute team members

On Corporate Purpose – Words and Actions – Thoughts From Influentials As The Virus Crisis Deepens Worldwide — the Focus on Purpose Can Help Corporate Generals Lead From the Front

In summer 2019, The Business Roundtable (BRT), the association of the CEOs of 200 firms, revamped the organization’s mission statement to read…

…“as leaders of America’s largest corporations, BRT CEOs believe we have a responsibility to help build a strong and sustainable economic future in the United States.”

This followed the publication of the January 2019 CEO-to-CEO letter of Larry Fink, who heads BlackRock, the world’s largest asset manager (and therefore a major fiduciary investing in the BRT companies). He regularly writes to the CEOs of companies that BlackRock invests in to let them know where of the major investors stands.

He wrote at the start of 2019…

…Purpose is not the sole pursuit of profits but the animating force for achieving them. And, profits are in no way inconsistent with purpose; in fact, profits and purpose are inextricably linked.

And again in his January 2020 letter to CEOs, Chair & CEO Larry Fink said:

…“As I have written in past letters [to CEOs in 2019, 2018] a company cannot achieve long-term profits without embracing purpose and considering the needs of considering the needs of a broad range of stakeholders. Ultimately, purpose is the engine of long-term profitability.”

Fast forward to March 2020 and now into April. What is the walk-of-the-talk of the CEOs (181 of them) who were signatories as the coronavirus crisis grips the U.S. and the world — and the actions of the signatories’ firms as stakeholders look for aid, comfort, security, payroll, taxes paid, and more?

And what other companies not necessarily in the Roundtable? What actions are taken leveraging corporate power to help society?

The stakeholders are watching. And a good number of the Business Roundtable companies are responding to address societal needs.

And what are the perspectives shared about all of this? We bring you some of these today. Here are some of the views and advice of experts and  influentials.

McKinsey Speaks – On How to Demonstrate Corporate Purpose

Says the influential management consulting firm, McKinsey & Company: Companies will define what they do in the crucible of COVID-19 response – or be defined by it.

So what could company managements be doing when the primary purpose of their efforts is to help the enterprise survive? McKinsey acknowledges this — and provides some advice. This is from their bulletin today.

Questions are being asked, of course, related to survival. How long will the crisis last? What are peers doing? How do we pay our people?

“WIN” – what is important now? (The G&A team has asked and helped to answer that question many times in our three decades of crisis management support for client companies over the years.)

First up, advises the McKinsey team members — understand your stakeholder needs and then with the understanding gained, prioritize your response. There will be tradeoffs among stakeholders – prepare for that.

Then, bring the greatest strengths of the organization to bear – consider, how can you make a difference?

McKinsey advises “collaborate with suppliers and customers and they may identify strengths you didn’t know you had”.

Examples offered:  Car makers can make ventilators (GM, Ford etc). Perfume companies can rapidly turn to manufacture hand sanitizer (LVMH and Estee Lauder are doing that today as we’ve reported in these briefs).

As you move forward, test the assumption and decisions you are taking against your stated purpose – communicate – explain (how and why).

Banks have a commitment to lend money in their community. If the bank pulls away – why? The action could help to define that institution in and after the crisis.

Give people something to do! (We also shared this advice a number of times early in the crisis.)

Involve employees in solutions. Give them a sense of purpose. Your team is looking for signals of leadership. And how to help.

And McKinsey says, the positive is that you may in the process be identifying the next generation of your company’s leadership!

Try new ways. Try using “cross-cutting” teams to develop new solutions, new ways to do things.

When in 2005 Hurricane Katrina hit, Wal-Mart Stores asked employees to deliver supplies to areas that were hard to reach. And we remember that the company’s store managers on their own ordered extra supplies and kept the stores open – even as their own homes were being destroyed.

That led to the CEO embarking on a strategic sustainability journey that revolutionized the whole company and in the process formed the Sustainability Consortium!

And like the best of the military leaders, you should yourself lead from the front. Communicate – often, early. Don’t sugarcoat the news. Adapt to changing conditions (and then communicate again). Your enterprise looks to its leaders for guidance.

Things that stand out for us that McKinsey explains:

  • Executives are uniquely poised now to bring corporate power, guided by social purpose to aid millions of dislodged and vulnerable lives. Done well, your actions can bridge the divide between shareholders and stakeholders. And leave a lasting, positive legacy.
  • Credibility is both essential and fragile element of executive leadership. Authentic actions demonstrate the company’s genuine commitment to social purpose.

Thanks to McKinsey’s Bill Schaninger, senior partner in Philadelphia, and Bruce Simpson, senior partner in Toronto, and their colleagues Han Zhang and Chris Zhu, for the valuable insights and guidance offered to corporate leaders.

* * * * * * * *

Mark Cuban on COVID-19 – Words & Action

We are often entertained by the antics of Mark Cuban on the courts (he’s owner of the Dallas Mavericks NBA team) and appearances on the hit TV show, “Shark Tank”. He was serious this week in addressing the virus crisis.

On Twitter he advised the federal policymakers: “Dear government, here is why you require companies that receive bailouts to retain 100% of their employees. The cost of the bailout loan – eventual payments will cost taxpayers less than the cost of government assistance programs for fired employees. Case closed.”

And…

“If you run a business, BEFORE YOUR FIRE ANYONE (or any more), you have an obligation to yourself/employees to find every gov loan option available today and those soon to come. Find the time. When the gov loans start you want to be already an expert and in line.”

Mark Cuban then walked-the-talk, setting up a way to pay his team’s venue employees (American Airlines Arena) even though games are cancelled and no one is coming. Then sent $100,000+ to the area’s not-for-profits aiding the Big D residents.

* * * * * * * *

Investor Coalition Speaks Its Mind on Corporate Purpose

Nearly 200 long-term institutional investors (with AUM of US$4.7 trillion) called on company managements to protect their workers – difficult to do, the investors acknowledge. Board directors are accountable for long-term Human Capital Management strategies (they remind board members on both domestic U.S. and global companies).

The steps companies could take, says the investor group:

  • Provide paid leave – including emergency leave) for full-time, part-time and subcontracted workers.
  • Prioritize health and safety – meaning, worker and public health safety, and to protect social license to operate. That may include closing facilities as precautionary step.
  • Maintain employment levels – your workers are well-trained (we hope!) and will enable the company to ramp up quickly once the crisis is resolved.
  • And be on the watch for any moves that may be discriminatory.
  • Maintain customer – and supplier — relationships to ensure that you can help stabilize them if necessary (such as financial challenges to suppliers) and to protect your own and other communities and businesses.
  • Practice financial prudence – demonstrate, the advisors strongly urge, the highest levels of ethical financial management and responsibility. And, limit executive and senior management compensation during the crisis (not repeating the practices of companies in the 2008 financial practices with money provided by the taxpayer).

Corporate leadership is critically-needed, the coalition stresses, to help society get through the crisis.

Among the investors in the coalition issuing the advice to public company managements: the Interfaith Center on Corporate Responsibility (ICCR) coalition (with 300 institutional members); the New York City public employees pension fund, led by Comptroller Scott Stringer; AFL-CIO fund; the state treasurers of Connecticut, Maryland, Rhode Island, Oregon, Vermont; American Federation of Teachers (AFT); the British Columbia Government and Services Employees Union; Aviva Investors; APG; Boston Common Asset Management; Coalition on Corporate Responsibility in Indiana & Michigan; Cornerstone Capital Group; Communications Workers of America (CWA); Robeco Asset Management; numerous foundations and religious orders and denominations.

Information: https://www.iccr.org/program-areas/human-rights/investor-action-coronavirus

All of this is spelled out in the “Investor Statement on Coronavirus Response” being circulated among fiduciaries.

* * * * * * * *

Believe the Investor’s Urging Will Pay Off?

Bloomberg LP provides us with some of the early answers.  Bloomberg Intelligence’s (BI) Shaheen Contractor (ESG Team BI Industry Analyst) in a brief for terminal users noted that an analysis of ESG Exchange Traded Funds (ETFs) during the selloff for the week ending February 28 provided a buffer for their investors and outperformed their benchmarks. The data: only 8% of ESG ETFs had outflows while 22% of all U.S. ETFs saw outflows.

This, she writes, suggests ESG is seen by investors as a long-term investment and not a trading strategy.

And the flow to ESG ETF’s suggests that these instruments are “sticky” and less cyclical. Where where the flows to ESG ETFs? BlackRock, JPMorgan, BNP Paribas, Societe Generale, DWS, State Street, and Vanguard all saw inflows during the drawdown.

Good news for investors looking for “proof of concept” of ESG/sustainable investing from Shaheen Contractor – thanks to her and Bloomberg for sharing this good news.

Her email is: scontractor2@bloomberg.net

The brief: “ESG ETFs See Relative Outperformance, Inflows During Drawdown”

For information, it is on the Bloomberg: https://blinks.bloomberg.com/news/stories/Q6RT29T0G1L2

* * * * * * * *

Lead from the front.  The general who led the effort to win WW II for the U.S.A. and the democracies, General Dwight D. Eisenhower (President, 1953-1961) observed:   “Leadership is the art of getting someone else to do something you want done because he wants to do it.  You don’t lead by hitting people over the head–that’s assault, not leadership.”

* * * * * * * *

G&A Institute Team Note
We continue to bring you news of private (corporate and business), public and social sector developments as organizations in the three societal sectors adjust to the emergency.

The new items will be posted at the top of the blog post and the items today will move down the queue.

We created the tag “Corporate Purpose – Virus Crisis” for this continuing series – and the hashtag “WeRise2FightCOVID-19“ for our Twitter posts.  Do join the conversation and contribute your views and news.

Send us news about your organization – info@ga-institute.com so we can share.   Stay safe – be well — keep in touch!

Which Are the “Best Of” Sustainable Companies in the Important Annual Rankings? Mirror, Mirror on the Wall – What Reflection for Our Company?

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February 7 2020

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

Mirror, mirror on the wall – who is the most sustainable company of them all?  (Paraphrasing that most memorable line from the Queen in the Walt Disney Studios’ 1930s big screen classic, Snow White and the Seven Dwarfs,)

“Best Of” is being regularly applied now by a ever-widening range of third party players in examining the performance and achievements of U.S., North American and global companies’ sustainability efforts (and applying their methodologies to focus on an ever-widening list of ESG criteria for users of the lists, rankings and so on). 

The results are published for many or all to see – such as this week’s Corporate Knights’ “2020 Global 100” unveiling at the World Economic Forum in Davos — which we are sharing in our Top Stories of the week.

Looking at (or for) the “fairest” of them all, or the best-in-class, or most sustainable, or leading in corporate citizenship rankings, et al — there are now many more ESG ratings organizations, publishers, NGOs, investor coalitions, trade / professional associations, and others in the “ratings, rankings, scores and other recognitions” arena.

And these ratings, rankings, scores, best-of lists are published in many more forms and value-added variations.  Keeping current and in the ESG ratings & rankings game is a full-time job at many companies today.

The third party evaluation approach can be better understood in how they apply their research to arrive at rankings and ratings, and assigning scores, with shared (privately or publicly) rationale to explain the selections of the individual company for benchmark, or the rankings assigned. 

Therein, important stories are being told about companies on the list or assigned a high ranking or in an index. Investors can better understand the why and how of the selection.

(And, we should say, stories are told in the ratings & rankings et al processes about those companies that are omitted or not selected or having a lower rating compared to peers).

For example, look at investable products. S&P Global recently launched an index based on the widely-used benchmark, the S&P 500(R), focused on ESG performance. The bottom 25% — 100 companies! — were not included in the first go-round. Story subtly told – company is in or out.

Besides the welcomed opportunity for corporate leaders to bask in the sunshine of the valued third party recognitions (“look, we got in this year’s best companies list focused on…”), and to admire the reflection in the “best of mirror mirror” on the board room or C-Suite wall, there are very practical aspects to these things.

Such as: As explained, the inclusion of a corporation in a key ESG equity index / investing benchmark or investable product offering and more recently, reflections of the company in the mirror mirror of credit risk ratings and ratings opinions on fixed-income instruments.  

The decision to issue a “green” bond to the market may or will be affected by third party views of the planned issue – green enough or not! That’s beginning to happen in the EU markets.

The Positives

With the many in-depth third party examinations of companies’ ESG strategies and resulting outcomes (considering company’s actions, performance, achievements) now taking place, and with the results becoming more transparent, some of the scoring / ranking / etc results have the effect of enabling a more complete, accurate and comparable corporate ESG profile to be developed by the company.

With better understanding of the ranking & rating etc the issuer’s leadership can assign more resources to improve their public ESG profile, especially those developed by the key ESG rating agencies for their investor clients.

Important to understand in 2020: These close examinations of companies’ ESG performance are becoming more and more decision-useful for portfolio management for asset owners and managers.

And lenders, And bankers. And the company’s insurers. And business partners. And customers. And present and future employees wanting to work for a more sustainable, doing-the-right-thing company.

As board room top leaders better understand the importance of these ratings, rankings etc. exercises (and the importance of engaging with raters & rankers & list makers), with more internal resources allocated to the task of improving the profile — the company will tend to make more information publicly-available for the third party examinations.

The virtuous cycle continues — more information disclosed and explained, better ratings could result, year-after-year. As we always say, it is a sustainability journey.

More ESG information is now being made public by companies for delivery on critical ESG delivery platforms (such as on “the Bloomberg” and the Refinitiv Eikon platforms, in S&P Global platforms).

This in turn leads to better packaging of ESG data and narrative to inform and influence investors; and, leads to improved investment opportunity for being recognized as a leader in a particular space by key investor coalitions (ICCR, INCR, Investor Alliance on Human Rights, Climate Action 100+, and other).

The latter means a multiplier effect — quickly bringing the company’s sustainability news to more investors gathered in a community-of-interest on a topic.

(Think of the volumes of information now being made available by companies focused on GHG emissions, climate change risk, diversity & inclusion, labor rights, human rights, reducing ESG impacts on communities, greater supply chain accountability, use of renewable energy, water conservation, and more,)

Mirror, Mirror 2020: At the recent World Economic Forum meeting Davos, Switzerland, the “100 most sustainable companies of 2020” report was announced. 

Publisher Corporate Knights’ much-anticipated annual ranking of “most sustainable companies in the world” was the basis of the announcement. 

That annual survey looks at 7,400 companies having more than US$1 Billion in revenues, examining 21 KPIs. The stories of the companies from Fast Company and The Hill provide the details for you.  (This is the 17th year of the survey.)

At the Davos gathering this year, participants learned that almost half of the most sustainable companies were based in Europe (49); 17 were HQ in the U.S.A; 12 in Canada; 3 in Latin America, 18 in Asia, and one company in Africa.

For the U.S.A., Cisco Systems is highest ranked (at #4, thanks to $25 billion generated for “clean revenues” from products with “environmental core attributes”). The #1 company is worldwide is Orsted of Denmark (renewable energy).

Our G&A Institute team closely monitors these and many other third party rankings, ratings, scores, corporate ESG profiles, and other critical evaluations of companies. 

This is an example of the knowledge we gain in this [ratings/rankings] arena, which becomes a vital part of the various tools and resources we’ve created to help our corporate clients qualify for, get selected for, and lead in the various “best of lists”.

In sum, achieving better rankings, ratings, scores — so their mirror mirror on the wall question reflects back a very welcoming image! 

In these newsletters, we work to regularly share with you the relevant news items and other content that helps to tell the story of the dramatic changes taking place in both the corporate community and in the capital markets as as the focus on corporate ESG sharpens. Like this week’s Top Stories.

Top Stories for This Week

The 100 most sustainable companies of 2020   
Source: The Hill – A ranking of the most sustainable organizations was unveiled at the World Economic Forum in Davos, Switzerland, Tuesday. 

These are the most sustainable corporations in the world   
Source: Fast Company – Canadian research firm Corporate Knights releases its annual list of most sustainable corporations in the world, with some new entries in the top 10. 

For a the complete list and important background, go to:
Corporate Kings’ 2020 Global Ranking 

And also from Davos:
World Economic Forum calls on business chiefs to set net-zero targets   
Source: Edie.com – In a letter from the Forum’s Founder and executive chairman Klaus Schwab and the heads of Bank of America and Royal DSM Brian Moynihan and Feike Sijbesma, businesses have been urged to respond to climate science through the… 

INSTITUTIONAL INVESTORS LAUNCH ALLIANCE FOCUSED ON HUMAN RIGHTS

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

ICCR Provides Leadership for Investor Collaboration To Advance Corporate Sector and Investor Action on Human Rights Issues

The recently-launched Investor Alliance for Human Rights provides a collective action platform to consolidate and increase institutional investor influence on key business and human rights issues.

For nearly 50 years, the Interfaith Center on Corporate Responsibility (ICCR) has been engaging with corporate managements and boards, coalescing with asset owners and managers and waging campaigns on key E, S and G issues.

ICCR has become a major influence for investors at corporate proxy voting time, and in ongoing investor-corporate engagements.

Consider:  The member institutions have AUM of US$400 billion and influence many other investors (depending on the issue in focus at the time).

ICCR has 300-plus institutional investor members, many (but not all) are faith-based organizations. A good number of member institutions are leaders in making available sustainable & responsible investment products and services. (See representative names in references at end.)

Key issues in focus for ICC members include:

  • Human Rights (key: human trafficking, forced labor, fair hiring practices)
  • Corporate Governance (board independence, CEO comp, lobbying)
  • Health (pharma pricing, global health challenges)
  • Climate Change (science-based GhG reduction targets)
  • Financial Services (risk management for financial institutions, responsible lending)
  • Food (antibiotics in food production, food waste, labor)
  • Water (access, corporate use of water and pollution)

HUMAN RIGHTS IN FOCUS FOR NEW ALLIANCE

On the last issue – Human Rights – ICCR has long been involved in various Human Rights issues back to its founding in 1971 and has been organizing the Investor Alliance for Human Rights since late-fall 2017.  Here are the essentials:

  • Investor Alliance participants will have an effective “Collective Action Platform” for convening, information sharing, and organizing collaboration on action to make the case to corporate decision-makers and public sector policymakers (and other stakeholders) on the need for urgency in addressing human rights issues.
  • The umbrella of a formal alliance will help individual participants to build partnerships and develop collaboration within their own universes of connections (such as NGOs, other investors, community-based organizations, trade groups, corporate leaders, multi-lateral organizations, and other institutions and enterprises).
  • Among the work to be done is the encouragement and support of building Human Rights criteria and methodology into asset owner and manager guidelines, investing protocols, models, and to integrate these in corporate engagements and proxy campaigns, as well as to guide portfolio management. (Buy/sell/hold decision-making.)
  • All of this will help to expand investor reach and influence and strengthen advocacy for best practices in Human Rights by both companies and investors. Leveraging of broader investor influence is key in this regard.

The Alliance will provide participants with a “rapid response” resource to assure that the “investor voices” are clearly heard in corporate board rooms and C-suites, in public sector leadership offices, and in media circles when there are threats posed to effective actions and reforms in Human Rights issues.

The Alliance is outreaching to NGOs, faith-based institutions, academics, media, labor unions, multi-lateral global institutions, trade and professional associations, corporate managements and boards, and of course to a wide range of asset owners and managers.

# # #

The key player at ICCR for the Alliance is David Schilling, a veteran staff member who is Senior Program Director – Human Rights & Resources. (email:  dschilling@iccr.org)

David joined ICCR in 1994 and has led initiatives on human rights in corporate operations in Africa, Asia and Latin America, often visiting factories and meeting with workers on the ground.

David is currently Chair, Advisory Board of the Global Social Compliance Program; member, International Advisory Network of the Business and Human Rights Resource Centre; member, RFK Center Compass Education Advisory Committee; UNICEF CSR Advisory Group; and, Coordinator (with ICCR member institutions) of the Bangladesh Investor Initiative (a global collaboration in support of the “Accord for Fire and Building Safety”.

# # #

ICCR stresses that it sees its work “through a social justice lens.”  For more than two decades members and staff have worked to eradicate human rights abuses in corporate operations and across global supply chains, such as forced child labor in cotton fields in Uzbekistan.

The organization has an Advisory Committee of Leaders in Business and Human Rights (formed in late-2016).  Members include representatives of Boston Common Asset Management; Shift; Landesa; The Alliance for a Greater New York; Oxfam America; Mercy Investment Services; International Corporate Accountability Roundtable; and Global Witness.

# # #

ICCR has a long history in Human Rights progress.  The organization came together as a committee of the mainstream Protestant denominations under the  umbrella in 1971 to organize opposition to the policies and practices of “Apartheid” in South Africa.

Over time, the U.S. corporations operating in South Africa stopped operations there.  More than 200 cities and municipalities in the United States of America adopted anti-Apartheid policies, many ending their business with companies operating in South Africa.

Protests were staged in many cities and on many college & university campuses, and U.S. and European media presented numerous news and feature presentations on the issue.

In time, the government of South Africa dismantled Apartheid and the country opened the door to broader democratic practices (the majority black population was formerly prohibited to vote).

Over the years since the Apartheid campaign, ICCR broadened its focus to wage campaigns in other societal issues, including:

  • Focus on fair and responsible lending, including sub-prime lending and payroll lending.
  • Putting climate change issues on the agenda for dialogue with corporations, including the demand for action and planning, and then greater disclosure on efforts to curb GHG emissions.
  • Encouraging investment in local communities to create opportunities in affordable housing, job development, training, and related areas.
  • Promoting greater access to medicines, including drugs for treatment of AIDS in Africa, and affordable pricing in the United States.
  • Promoting “Impact Investing” – for reasonable ROI as well as beneficial outcomes for society through investments.
  • Promoting Islamic Finance.
  • On the corporate front, requesting greater transparency around lobbying by companies to influence climate change, healthcare and financial reforms, both directly and through trade associations and other third-party organizations.
  • Opposing “virtual-only” annual corporate meetings that prevent in –person interaction for shareholders.

Proxy Campaigns – Governance in Focus:

ICCR members are very active at proxy voting time.  Among the “wins” in 2017:

  • Getting roles of (combined) Chair & CEO split – 47% support of the votes for that at Express Scripts and 43% at Johnson & Johnson; 39% at Chevron.
  • More disclosure on lobbying expenditures – 42% support at Royal Bank of Canada and 41% at First Energy; 35% at Cisco and 25% at IBM.

# # #

Notes and References:

Information on the new Alliance is at: http://iccr.org/iccr-launches-new-alliance-amplify-global-investor-influence-human-rights

ICCR’s web site is at: www.iccr.org

And at http://iccr.org/our-issues/human-rights/investor-alliance-human-rights

The Alliance initiative is supported with funding from Humanity United and Open Society Foundations.

Influence and Reach:  The ICCR member organizations include the AFSCME union fund, Walden Asset Management, Boston Common Asset Management, Oxfam, The Maryknoll Fathers and Brothers, and Maryknoll Sisters, American Baptist Churches, Mercy Investments, Christian Brothers Investment Services (CBIS), Wespath Investment Management, Everence Financial, Domini Social Investments, Church of England Ethical Investment Advisory Group, Gabelli Funds, Trillium Asset Management, Calvert Group, Clean Yield, The Nathan Cummings Foundation, and other institutional investors.

 

 

 

 

 

Are We Making Progress? Considering Recent News About “Apparel Fashion and Sustainability” — and the Investor Initiative to Help Make East Asian Factory Workers Safer and Better Paid…

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by Hank Boerner – Chair, G&A Institute

In monitoring the growing abundance of news stories and commentary about “supply chain,” “globalization” or “trade” topics and issues, our editors often see the focus is on apparel, clothing, textiles, fashion, and related topics & issues.

Companies in the developed economies widely source apparel footwear and related items in the developing and under-developed nations – and what happens there can quickly make news that travels around the globe.

Example:  The focus five years ago about this time was on the East Asian nation of Bangladesh and the Rana Plaza vertical factory tragedy in the capital city of Dhaka (or Dacca) that killed more than 1,000 garment industry workers.  The labels of leading western nation marketers were scattered about the debris and ashes — and those familiar brand images as well as images of the collapsed building and details of the tragedy helped to focus attention on worker conditions in the East Asian region in both North America and Europe.

The Interfaith Center on Corporate Responsibility (ICCR) investor coalition is keeping the focus on worker safety as the “Bangladesh Accord on Fire and Safety” is renewed for another three years.

ICCR institutions and their investor allies organized as “The Bangladesh Investor Initiative” (with collective AUM of US$4.5 trillion) on the 5th anniversary are urging a stronger corporate response and demonstrated commitment to local worker safety and adequate wage levels.  The link to our blog commentary on recent developments and background information for companies and investors is below.

Some good news to share is that sustainability is catching on in the fashion industry.  The uber fashion magazine from publishers Conde Nast – Vogue, with more than one million readers — just published a story about the embrace of “eco-friendly” fashion, spotlighting “the best designers of a new generation are stitching sustainability into everything they do…”

“While sustainability has long been considered a “byword for hemp-heavy bohemia,” writer Olivia Singer explains, “a new generation of designers is building brands with a more conscious approach to fashion at their core.”

Fabrics are sourced through collectives in India empowering female weavers as just one example.  In the article designers explain why sustainability is important to their brands (Richard Malone, Le Kilt, Elliss, E.L.V. Denim, Alyx, Marine Serre, Richard Quinn are featured interviews).

A number of creative approaches being adopted by the designers is explained — just think about the contribution to global sustainability of turning recycled plastics and viscose into yarn and fringing, using organic cotton as well as recycled polyester for “new” fashions, creating ECONYL from fishnets to make swimwear, and using recycled cotton and plastics as part of the effort of making sustainability a “pillar of luxury”.

The encouraging details are in our Top Story this week – a cautionary note:  some of the fashion photos are edgy and might offend.

Top Stories

The Young Designers Pioneering A Sustainable Fashion Revolution
(Thursday – April 26, 2018) Source: Vogue – While eco-friendly fashion has never had particularly glamorous connotations, the best designers of a new generation are stitching sustainability into everything they do.

And of interest, our own related content on G&A’s Sustainability Update Blog:  The Bangladesh Garment Factory Workers Tragedy and Investor and Corporate Response Five Years On…

The Bangladesh Garment Factory Workers Tragedy — and Investor and Corporate Response Five Years On

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By Hank Boerner – Chair, G&A Institute

We are five years on from the Rana Plaza “Savar” five-story factory building collapse and fire that killed more than 1,000 garment workers in Dhaka (Dacca), the crowded capital city of Bangladesh. (The accident was on April 24, 2013). In the ashes and debris there were the labels of prominent developed nations’ apparel marketers. Reputations were at stake — “Reforms” discussions were immediately underway in Europe and North America.

The Europeans moved on with the “Bangladesh Accord on Fire and Safety” while in North America brand marketers were moving on “The Alliance on Bangladesh Safety.”

Where are we today?

The Interfaith Center on Corporate Responsibility (ICCR) is keeping the accident and aftermath in the focus of the investment community and stakeholders. Yesterday ICCR (a coalition of 300-plus institutional members managing $400 billion AUM) and the group of allied investors issued a statement that helps to explain where we are.

About The Accord

Right after the building collapse, the Bangladesh Accord on Fire and Building Safety was created as a model for collective action by brand marketers and retailers that source in Bangladesh.

The Accord is now being extended (as the five-year deadline is reached in May) for another three years to complete the remediation of the 1,600 factories and companies that have not signed on (yet) are being invited by the investor coalition to become signatories and to implement the reforms spelled out in the Accord.

The Accord, the investors point out, is still serving as a model that can be adopted and applied to other at-risk countries and sectors.     

The Bangladesh Investor Initiative – led by ICCR – was a catalyst that brought together 250 institutional investors with US$4.5 trillion in AUM in May 2013 to urge a stronger corporate response to the Rana Plaza tragedy, including urging companies to sign on to the Accord.

The coalition invited companies to commit to strengthening local worker trade unions to ensure a “living wage” for all workers, and to engage with the Bangladesh government.

About the Accord:

  • Corporate signatories agree that global and local trade unions and NGOs could be invited to inspect the country’s apparel factories and implement reforms to protect workers.
  • Companies were asked for transparencies in publicly disclosing their suppliers – including those located in the nation of Bangladesh.
  • Worker grievance mechanisms and effective remedies (including compensation) should be put in place for all workers and their families.
  • The investor coalition argued that supply chain transparency is critical to safeguarding workers and employer responsibility – including information on sub-contractors.
  • Note that the Accord is legally-binding for signatories.

Making the Case

Lauren Compere, Managing Director of Boston Common Asset Management makes the case for companies: “Stakeholders, including investors, rely on transparency as a tool for evaluating corporate performance on a range of social, environmental and corporate governance issues. The Accord has been very transparent in requiring disclosure of each of the 1,600 companies it covers, which helps investors track progress. This is a ‘best practice’ that all companies need to implement, beginning with Tier One suppliers, then throughout their supply chain.”

Progress Report – 5 Years On

To date, 220 brands and retailers have signed on to the original Accord. Remediation plans have made 2.5 million workers in “Accord factories” have been made “meaningfully safer”. A steering committee made up of an equal number of brand and union representatives and a neutral chair from the International Labor Organization govern the Accord.

The Accord provided for in-depth health and safety training to personnel in 846 factories, reaching 1.9 million workers. A grievance process is in place; to date, there have been 183 worker complaints investigated and resolved.

Detailed information is required for each factory.

The Rana Plaza Donors Trust Fund has been established to compensate workers injured in the collapse and families of workers who were killed (note that Bangladesh has no national employment injury system). $30 million has been raised to date; companies sourcing garment/apparel work in the country were asked to contribute; 30 companies did so, along with several union funds and foundations. The ILO is the trustee and oversees distributions.

The investor coalition is pleased with the progress made to date – but stresses that there is much work still be done (therefore the 3-year extension is necessary). “The job of mediating all of the issue is far from done and we will continue to urge those companies that have not signed on to the 2018 Accord and its three-year extension to do so.”

The New Elements to the Accord

The 2018 Transition Accord has gathered140 signatory companies to date, with 1,332 factories covered. The new elements include:

  • Safety Committee & Safety Training at all covered factories;
  • Training and Complaints Protocol on Freedom of Association;
  • Severance payments for affected workers in factory closures and relocations.
  • Voluntary expansion of the scope to include home textiles; fabric and knit accessories;
  • Transition of Accord functions to a national regulatory body.

We’ll bring you updates as the Transition to the new Accord continues.

About the Nation of Bangladesh

Located in Southeast Asia, the People’s Republic of Bangladesh is the world’s 8th most populous country, according to Wikipedia (163 million estimated). It was once part of “British India” until East Bengal became part of the Dominion of Pakistan, was re-named East Pakistan and then became independent in the early -1970s. It is characterized as a “developing country,” one of the poorest, and trades with the USA, EU, China, Japan, India, and other nations. Per capita income was estimated at US$1,190 in 2014.

The largest industries are textiles and ready-made garments; leather-goods (footwear is the second largest in exports. Bangladesh is the second largest exporter of clothes in the world.

# # #

Notes / Information:

There’s more information for you on the ICCR web site: www.iccr.org

Information about the Accord: http://bangladeshaccord.org/

The Accord Update for April is at: http://bangladeshaccord.org/wp-content/uploads/ACCORD_FACTSHEET_Apr2018.pdf

There’s information for you in G&A Institute’s “To the Point!” management briefing platform:

https://ga-institute.com/to-the-point/a-big-year-2018-for-developments-in-corporate-sustainability-sustainable-investing-the-two-halves-of-the-great-whole-of-the-new-norms-of-capitalism/

CNBC in commenting on the five year anniversary (on April 24) noted the factories still pose a life-threatening risk, with 3,000 of 7,000 factories endangering the lives of low-paid garment workers (according to a New York University Centre for Business and Human Rights Study).

The story is at: https://www.cnbc.com/2018/04/24/bangladesh-factories-still-pose-life-threatening-risks-five-years-on-from-rana-plaza-disaster.html

The NYU report authored by Paul M. Barrett, Dorothee Baumann-Pauly and April Gu is at: https://static1.squarespace.com/static/547df270e4b0ba184dfc490e/t/5ac9514eaa4a998f3f30ae13/1523143088805/NYU+Bangladesh+Rana+Plaza+Report.pdf

Human Rights Watch also weighed in with “Remember Rana Plaza: https://www.hrw.org/news/2018/04/24/remember-rana-plaza

News From the Sustainability Front as The Trump White House Makes Controversial Moves on ESG Issues — Actions and Reactions

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

February 23, 2017
Forward Momentum! – Sustainability 2017

Are you like many of us having sleepless nights and anxiety spells as you watch the antics of the Trump White House and the creeping (and similarly moving-backwards) effects into the offices of important Federal agencies that the Administration is taking over?

Consider then “other news” — and not fake news, mind you, or alt-news — but encouraging real news that is coming from OTHER THAN the Federal government.

We are on track to continue to move ahead in building a more sustainable nation and world — despite the roadblocks being discussed or erected that are designed to slow the corporate sustainability movement or the steady uptake of sustainable investing in the capital markets.

Consider the Power and Influence of the Shareowner and Asset Managers:

The CEO of the largest asset manager in the world — BlackRock’s Larry Fink — in his annual letters to the CEOs of the S&P 500 (R) companies in January said this: “Environmental, social and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth:
(1) sustainability of the business model and its operations; (2) attention to external and environmental factors that could impact the company; (3) recognition of the company’s role as a member of the communities in which it operates.

A global company, CEO Fink wrote to the CEOs, needs to be “local” in every single one of its markets. And as BlackRock constructively engages with the S&P 500 corporate CEOs, it will be looking to see how the company’s strategic framework reflects the impact of last year’s changes in the global environment…in the ‘new world’ in which the company is operating.

BlackRock manages US$5.1 trillion in Assets Under Management. The S&P 500 companies represent about 85% of the total market cap of corporate equities.  Heavyweights, we would say, in shaping U.S. sustainability.

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As S&R investment pioneer Steve Viederman often wisely notes, “where you sit determines where you stand…” (on the issues of the day).  More and more commercial space users (tenants and owners) want to “sit” in green spaces — which demonstrates where they “stand” on sustainability issues.

Consider:  In the corporate sector, Retail and other tenants are demanding that landlords provide “green buildings,” according to Chris Noon (Builtech Services LLC CEO). The majority of his company’s construction projects today can easily achieve LEED status, he says (depending on whether the tenant wanted to pursue the certification, which has some cost involved). The company is Chicago-based.

This is thanks to advances in materials, local building codes, a range of technology, and rising customer-demand.

End users want to “sit” in “green buildings” — more than 40% of American tenants recently surveyed across property types expect now to have a “sustainable home.” The most common approaches include energy-saving HVAC systems, windows and plumbing. More stringent (local and state) building codes are also an important factor.

Municipalities — not the Federal government — are re-writing building codes, to reflect environmental and safety advances and concerns. Next week (Feb 28) real estatyer industry reps will gather in Chicago for the Bisnow’s 7th Annual Retail Event at the University Club of Chicago to learn more about these trends.

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Institutional investors managing US$17 trillion in assets have created a new Corporate Governance framework — this is the Investor Stewardship Group.

The organizers include such investment powerhouses as BlackRock, Fidelity and RBC Global Asset Management (a dozen in all are involved at the start). There are six (6) Principles advanced to companies by the group that including addressing (1) investment stewardship for institutional investors and (2) for public corporation C-suite and board room. These Principles would be effective on January 1 (2018), giving companies and investors time to adjust.

One of the Principles is for majority voting for director elections (no majority, the candidate does not go on board). Another is the right for investors to nominate directors with information posted on the candidate in the proxy materials.

Both of these moves when adopted by public companies would greatly enhance the activism of sustainable & responsible investors, such as those in key coalitions active in the proxy season, and year-round in engagements with companies (such as ICCR, INCR).

No waiting for SEC action here, if the Commission moves away from investor-friendly policies and practices as signaled so far. And perhaps – this activism will send strong messages to the SEC Commissioners on both sides of the aisle.

Remember:  $17 trillion in AUM at the start of the initiative — stay tuned to the new Investor Stewardship Group.  These are more “Universal Owners” with clout.

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Not really unexpected but disappointing nevertheless:  The Trump Administration made its moves on the Dakota Access Pipeline (DAPL), part of the Bakken Field project work, carrying out a campaign promise that caters to the project’s primary owners (Energy Transfer Partners**) and other industry interests, S&R investors are acting rapidly in response.

The company needed a key easement to complete construction across a comparatively small distance. Except that…

  • The Standing Rock Sioux Tribe says the route would cross their drinking water source, impact their sacred sites, and threaten environmentally-sensitive areas;
  • would violate treaty territory without meeting international standards for their consent; (this is the 1868 Fort Laramie Treaty, which according to the U.S. Constitution, should be the supreme law of the land);
  • and ignore alleged shortcomings in the required environmental review (under the National Environmental Policy Act – NEPA).

These are “abuses”, and banks and financial services firms involved may be complicit in these violations by the nature of their financing, S&R investors note. Their involvement in the project financing could impact their brands and reputations and relationships with society. And so S&R shareholders are taking action.

Boston Common Asset Management, Storebrand Asset Management (in Norway) and First Peoples Worldwide developed an Investor Statement to Banks Financing the DAPL. The statement — being signed on to by other investors — is intended to encourage banks and lenders to support the Rock Sioux Tribe’s request for re-routing the pipeline to not violate — “invade” — their treaty-protected territory. The violations pose a clear risk, SRI shareholders are saying.

The banks involved include American, Dutch, German, Chinese, Japanese, and Canadian institutions.  They in turn are owned by shareholders, public sector agencies, and various fiduciaries — “Universal Owners,” we would say.

The banks include: Bayerische Landesbank (Germany); BBVA (Argentina); Credit Agricole (France); TD Securities (Canada); Wells Fargo; ABN AMRO (The Netherlands); Bank of Tokyo-Mitsubishi UFJ; and Industrial and Commercial Bank of China, and others.

The shareholders utilizing the Investor Statement say they recognize that banks have a contractual obligation with the respect to their transactions — but — they could use their influence to support the Tribe’s request for a re-route…and reach a “peaceful solution” acceptable to all parties.

As The Washington Post reported on January 24th, soon after the Trump Administration settled in, President Trump signed Executive Orders to revive the DAPL and the Keystone XL pipelines. “Another step in his effort to dismantle former President Barack Obama’s environmental legacy,” as the Post put it.

One Executive Order directed the U.S. Army Corps of Engineers to “review and approve in an expedited manner” the DAPL. Days later the Corps made their controversial decision, on February 7th reversing course granting Energy Transfer Partners their easement. This week the remaining protestors were removed from the site (some being arrested).

The sustainable & responsible & impact investment community is not sitting by to watch these egregious events, as we see in the Investor Statements to the banks involved. The banks are on notice — there are risks here for you.

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May be what is happening in the asset management and project lending activities related to the project is the IBG / YBG worldview of some in the financial services world:  I’ll Be Gone / You’ll Be Gone when all of this hits the fan one day.  (Like the massive Ogalala Aquifer being contaminated by a pipeline break. The route of the extension is on the ground above and on the reservation’s lake bed.  Not to mention the threats to the above ground Missouri River, providing water downstream to U.S. states and cities.)

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Energy Transfer Partners, L.P:  (NYSE:ETP)  This is a Master Limited Partnership based in Texas.  Founded in 1995, the company has 71,000 miles of pipelines carrying various products. The company plans to build other major pipelines — the Rover Project — to carry product from the shale regions (Marcellus and Utica) across the Northern U.S. state east of the Mississippi.  ETP LP acquired Sunoco (remember them?).

Mutual Funds – Bond Holders – other key fiduciaries with brands of their own to protect — are funding the operations of ETP LP.

Brand names of equity holders include Oppenheimer; Goldman Sachs Asset Management; CalPERS; JPMorgan Chase.  Bond holders include Lord Abbett, PIMCO, Vanguard.  There are 567 institutional owners — fiduciaries — with some 45% of ownership, according to Morningstar. Partners include Marathon Petroleum Company (NYSE:MPC) and Enbridge (NYSE:ENB). (Bloomberg News – August 2, 2016 – both firms put $2 billion in the project and related work.)

The Partnership used to have an “Ownership” explanation on its web site — now it’s disappeared. But you can review some of it in Google’s archived web site pages here: http://webcache.googleusercontent.com/search?q=cache:http://www.energytransfer.com/ownership_overview.aspx&num=1&strip=1&vwsrc=0

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We are seeing in developments every day (like these above with non-governmental strategies and actions) that hold out promise for corporate and societal sustainability advocates and sustainable investment professionals that with — or without — public sector support, the Forward Momentum continue to build.

We’ll share news and opinion with you — let us know your thoughts, and the actions that you / your organization is taking, to continue the momentum toward building a better future…a more sustainable nation and world.

Out the Seventh Generation, as the Native American tribes are doing out in the American West in protecting their Treaty lands.  In that regard we could say, a promise is a promise — the Federal and state governments should uphold promises made in treaties.  Which are covered as a “guarantee” by the U.S. Constitution that some folk in politics like to wave around for effect.

FYI — this is Article VI:  “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land, and the Judges in every State shall be bound thereby…”