Tag Archives: UN Sustainable Development Goals

Corporate Sustainability Reporting: Changes in the Global Landscape – What Might 2021 Bring?

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

Change is a-coming – quite quickly now – for corporate sustainability reporting frameworks and standards organizations.  And the universe of report users.

Before the disastrous October 1929 stock market crash, there was little in the way of disclosure and reporting requirements for companies with public stockholders. The State of New York had The Martin Act, passed in 1921, a “blue sky law” that regulates the sales and trades of public companies to address fraud issues.  That was about it for protecting those buying shares of public companies of the day.

Under the 100 year old Act, the elected New York State Attorney General is the “Sheriff of Wall Street — and this statute is still in effect. (See: AG Eliot Spitzer and his prosecution of the 10 large asset managers for analyst shenanigans.)

President Franklin Delano Roosevelt, elected two-term governor of NY before his election to the highest office in November 1932, brought along a “brains trust” to Washington and these colleagues shaped the historic 1933 Securities Act and 1934 Securities Exchange Act to regulate corporate disclosure and Wall Street activities.

Story goes there was so much to put in these sweeping regulations for stock exchanges, brokerage houses, investor protection measures and corporate reporting requirements that it took two different years of congressional action for passage into law in the days when Congress met only briefly and then hastened home to avoid the Washington DC summer humidity and heat.

The Martin Act was a powerful influence on the development of foundational federal statutes that are regularly updated to keep pace with new developments (Sarbanes-Oxley, 2002, updated many portions of the 1934 Act).

What was to be disclosed and how? Guidance was needed by the corporate boards and executives they hired to run the company in terms of information for the company’s investors. And so, in a relatively short time “Generally Applied Accounting Principles” began to evolve. These became “commonly accepted” rules of the road for corporate accounting and financial reporting.

There were a number of organizations contributing to GAAP including the AICPA. The guiding principles were and are all about materiality, consistency, prudence (or moderation) and objectivity like auditor independence verifying results.

Now – apply all of this (the existing requirements to the Wild West of the 1920s leading up to the 1929 financial crash that harmed many investors — and it reminds one of the situations today with corporate ESG, sustainability, CR, citizenship reporting.  No generally applied principles that all can agree to, a wide range of standards and frameworks and guidance and “demands” to choose from, and for U.S. companies much of what is disclosed is on a voluntary basis anyway.

A growing chorus of institutional investors and company leaders are calling for clear regulatory guidance and understanding of the rules of the road from the appointed Sheriffs for sustainability disclosures – especially in the USA, from the Securities & Exchange Commission…and the Financial Accounting Standards Board (FASB), now the two official keepers of GAAP.

FASB was created in the early 1970s – by action of the Congress — to be the official keeper of GAAP and the developer of accounting and reporting rules.  SOX legislation made it official; there would be two keepers of GAAP — SEC and FASB.  GAAP addressed material financial issues to be disclosed.

But today for sustainability disclosure – what is material?  How to disclose the material items?  What standards to follow?  What do investors want to know?

Today corporates and investors debate the questions:  What should be disclosed in a consistent and comparable way? The answers are important to information users. At the center of discussion: materiality – everyone using corporate reports in their analysis clamors for this in corporate sustainability disclosure.

Materiality is at the heart of the SASB Standards now developed for 77 industry categories in 11 sectors. Disclosure of the material is an important part of the purpose that GAAP has served for 8-plus decades.

Yes, there is some really excellence guidance out there, the trend beginning two decades ago with the GRI Framework in 1999-2000. Publicly-traded companies have the GRI Standards available to guide their reporting on ESG/sustainability issues to investors and stakeholders.

There is the SAM Corporate Sustainability Assessment (CSA), now managed entirely by S&P Global, and available to invited companies since 1999-2000. (SAM was RobecoSAM and with Dow Jones Indexes managed the DJ Sustainability Indexes – now S&P Global does that with SAM as a unit of the firm based in Switzerland.)

Since 2000, companies have had the UN Global Compact principles to include in their reporting. Since 2015 corporate managers have had the UN Sustainable Development Goals (SDGs) to report on (and before that, the predecessor UN Millennium Development Goals, 2000-2015). And the Task Force on Climate-Related Financial Disclosure (TCFD) recommendations were put in place in 2017.

The Securities & Exchange Commission (SEC) in February 2010 issied “guidance” to publicly-traded companies reminded corporate boards of their responsibility to oversee risk and identified climate change matters as an important risk in that context.

But all of these standards and frameworks and suggested things to voluntarily report on — this is today’s thicket to navigate, picking frameworks to be used for telling the story of the company’s sustainability journey.

Using the various frameworks to explain strategy, programs, actions taken, achievements, engagements, and more – the material items. Profiling the corporate carbon footprint in the process. But there is no GAAP to guide the company for this ESG reporting, as in the example of financial accounting and reporting.

Institutional investors have been requesting more guidance from the SEC on sustainability et al reporting.  But the commission has been reluctant to move much beyond the 2010 risk reminder guidance even as literally hundreds of publicly-traded companies expand their voluntary disclosure.  And so we rely on this voluntary disclosure on climate change, diversity & inclusion efforts, political spending, supply chain management, community support, and a host of other ESG issues. (Human Capital Management was addressed in the recent Reg S-K updating.)

We think 2021 will be an interesting year in this ongoing discussion – “what” and “how” should companies be disclosing on sustainability topics & issues.

The various providers of existing reporting frameworks and standards and those influencing the disclosures in other ways are moving ahead, with workarounds where in the USA government mandates for sustainability reporting do not yet exist.

We’ve selected a few items for you to keep up with the rapidly-changing world of corporate ESG disclosures in our Top Stories and other topic silos.

There are really important discussions!  We watch these developments intently as helping corporate clients manage their ESG / sustainability disclosures is at the heart of our team’s work and we will continue to keep sharing information with you in the Highlights newsletter.

More about this in The Wall Street Journal with comments from G&A’s Lou Coppola: Companies Could Face Pressure to Disclose More ESG Data (Source: The Wall Street Journal)
TOP STORIES

Moving The World Forward Toward a More Sustainable Future: The Member Nations of the United Nations, Working Collaboratively For Progress in the 21st Century

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

“The United Nations” began as a World War II-era strategy as President Franklin D. Roosevelt talked about the allies of the United States of America partnering in the fight to save democracy and collectively battling the regimes of fascist dictators in Europe and Asia.

On January 1, 1942, 26 nations “united” in Washington DC to coordinate the battle with the “Axis” powers.  (“Axis” – the axis line, said President Roosevelt, ran from Berlin (Germany) through Rome (Italy) and to Tokyo (Japan) – the clear linkage in his mind of the fascist leadership.)

In February 1942 the president addressed the nation in his 20th “fireside chat” (broadcasting nationwide on “the radio”) to talk about the progress of the war.

The U.S. was coming from far behind in terms of preparedness for a global battle, and so an important part of the progress in this, the start of the first year of U.S. involvement in the global conflict, President Roosevelt explained to the nation of 125 million souls:

“The United Nations constitutes an association of independent peoples of equal dignity and equal importance. The United Nations are dedicated to a common cause. We share equally and with equal zeal the anguish and the awful sacrifices of war. In the partnership of our common enterprise, we must share in a unified plan in which all of us must play our several parts, each of us being equally indispensable and dependent one on the other.

“We have unified command and cooperation and comradeship. We of the United Nations are agreed on certain broad principles in the kind of peace we seek. The Atlantic Charter applies not only to the parts of the world that border the Atlantic [Ocean)] but to the whole world; disarmament of aggressors, self-determination of nations and peoples, and the four freedoms – freedom of speech, freedom of religion, freedom from want, and freedom from fear.”

The leader of the free world of that era envisioned an global organization that could bring about a new world ordering, to assure greater peace and prosperity to many peoples of the world.  President Franklin Roosevelt passed away in April 1945; soon the global conflict ended; and then what he long envisioned became the possible:

On October 24, 1945, 50 nations gathered in San Francisco to sign on to the “United Nations Conference on International Organizations” – and the UN as we know it today was launched.  (We celebrate UN Day on 24 October in commemoration of that historic event.)

Today the UN has 193 members – sovereign states that have equal representation in the UN General Assembly. The UN is the world’s largest intergovernmental organization – a forum for governments, not a world government.  And within the organization are important initiatives that have been shaping corporate responsibility, corporate citizenship, sustainability, and for capital markets, as well as for sustainable investing.  These are agencies, programs, institutes, global collaborations, and other entities.

You know some of them as the UN Principles for Responsible Investing (PRI); the UN Global Compact (UNGC); the UN Sustainable Development Goals (SDGs); the work of the UN Environmental Programme (UNEP).

Today we are hearing quite a bit in the corporate sector and in the capital markets about the Universal Declaration of Human Rights (adopted 1948); the UN has been the driving force behind 80-plus “human rights laws”.  Consider:  the declaration has been translated into 380 languages to date, says the UN High Commissioner for Human Rights..

We are sharing with you three recent highlights from the UN universe.   First, an update from the UNGC CEO Lisa Kingo, stressing that now is the time for society to invest in the 1.5C future…”there never has been a time”, she points out, “like today for coming together and jumpstarting a worldwide transformation towards a more inclusive and sustainable net-zero economy.”

Also from the UNGC, news of the launch of the Ocean Stewardship 2030 Report – to be a roadmap for how ocean-related industries and policymakers can jointly secure a healthy and productive ocean by 2030.

We are now in the Decade of Action on the Global Goals (the SDGs). The UNGC is an initiative of the UN Secretary General, a call to companies everywhere to align their operations and strategies with 10 universal principles focused on human rights, labor, environment and anti-corruption.

The Global Reporting Initiative (GRI) is today an independent global foundation that was birthed by the United Nations, building on the principles advanced for corporate responsibility by the NGO Ceres (based in Boston). An organization known for a philosophy of “constant improvement”, GRI recently organized an Agriculture and Fishing Project Working Group that will lead the work to create a new sustainability standard for ag & fishing.

This is part of the work of GRI’s New Sector Program – a multi-stakeholder group will move forward the initiative to help companies with ag and fishing in their value chains promote transparency and accountability, and better understand their role in sustainable development.

It’s almost 80 years now since President Franklin Delano Roosevelt – one of the most progressive leaders in U.S. history – conceived of the “united nations”, as a necessity to bring together the resources of other nations to fight a war on all of the continents, whose outcome was then uncertain.  And then to assure the peace and work to end wars, or at least settle disputes peacefully.

In November 2010 Secretary General Ban Ki-Moon noted:  “Sadly, FDR never saw the fruits of his efforts.  He died weeks before the founding conference. Yet his vision lives on in the UN Charter’s collective commitment to peace and security, economic and social welfare, tolerance and fundamental human rights.  Franklin Roosevelt’s Four Freedoms. This legacy of multilateral cooperation guides us today…”

Well said!

Top Stories

OOPS
In the June 8th issue of our newsletter (Highlights), with headline “Will We Ever See SEC Rules/Guidance for Corporate ESG Disclosure and Reporting?  The Question Hangs in the Wind..”  We incorrectly identified the corporate reporting regulations being reviewed by the Securities & Exchange Commission – should have said “Reg S-K” (not Reg F-D).  Sorry for the any confusion caused.  A more complete commentary on all of this is here on our blog.

Economic Growth, Protecting & Preserving Our Ecological Systems – Are These Conflicted, Or Complementary As We Strive For Greater Global Sustainability?

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

The continued drive toward greater societal sustainability is very encouraging.  The public sector, multilateral organizations, companies, investors, NGOs, and other stakeholders are adopting new strategies and embracing new approaches and best practices.  Picture the installation of the vast array of a desert solar generating “farm” – that’s progress to cheer.

But there are substantial societal challenges that will require much more effort than we see today if we are to achieve greater, widespread sustainability — worldwide.

Growth is good/growth is an issue.  We are on track, demographers tell us, to see the global population grow from today’s 7.6 billion to 9.6 billion by the year 2050.  We recall a description that describes the challenge of meeting this particular situation: It is like changing tires on an automobile that is moving.

The imagery of that is tantalizing to consider.  This could apply to the challenges of developing solutions to vexing social, environmental and governance issues of 2018 as we steadily move towards 2050.

The United Nations Sustainable Development Goals (the SDGs) comprise an excellent roadmap for us to (1) look at the vexing societal issues and (2) collaborate and innovate to develop solutions, even as economic, population, demographic, political, financial, and other issues throw up still more challenges to meet as we strive to meet today’s challenges.

Reality:  We have to continue “growing”, right?

The 17 SDGs include such laudable and aspirational goals as ending poverty (#1), proving education (#4), providing clean water and sanitation (#6), and achieving “zero” hunger (#2).

Governments, industry, investors, civic leadership, NGOs, and other stakeholders are busily trying to figure out the “how” of addressing the challenges.  (And, how to pay for the work to be done.)  This week the UN Secretary General spoke about the lack of progress in general since the goals were structured in 2015.  Only 12 years are left until the 2030 deadline for having solutions in place, observers noted.

So the question:  Can sustainable development logically co-exist with current economic growth?  The Phys.Org organization provides an interesting (brief) exploration of the topic in a feature article in September. There’s an elephant in the room, say the authors, and that is the “trilemma of population growth, economic growth, and environmental sustainability” – which (they say) reveals the vast incompatibility of current models of economic development with environmental sustainability.

These are some of the findings of a study published in the Proceedings of the National Academic of Sciences (USA); the lead author is Professor Graeme Cumming of the ARC Centre of Excellence for Coral Reef Studies at James Cook University.

An example of the research results:  High-income countries often rely more on non-extractive industries, such as manufacturing and services, but consume more per capital and import more raw materials.

In low-income countries, populations depend more on the extractive industries (agriculture, mining, logging), but have lower per capita consumption rates and higher population growth (and will have more mouths to feed).

The world is divided into two distinct groups of national economies, the authors posit in the Proceedings, roughly equated to developed and less developed nations…and both are pushed toward two different equilibrium points that are unsustainable under population growth. (They studied data and models that are described in the Journal report.)

The solution that we can all agree on:  We need to find ways to make economic development and good standards of living compatible with ecological sustainability.  We can use this knowledge to steer economic growth towards win-win outcomes for people and the environment (so say the authors).

The Journal article is available to you at:
Linking Economic Growth Pathways and Environmental Sustainability by Understanding Development as Alternate Social-Ecological Regimes http://www.pnas.org/content/early/2018/09/04/1807026115

Our Top Story provides highlights of the report authored by Professor Cumming and his colleague, Stephan von Cramon-Taubadel); Dr. Cumming presents brief highlights for you.

This Week’s Top Story

Can sustainable development co-exist with current economic growth?
(Thursday – September 06, 2018) Source: Phys.org – New research confronts the elephant in the room—the ‘trilemma’ of population growth, economic growth and environmental sustainability—and reveals the vast incompatibility of current models of economic development with…

Dispatch From London and The Economist Sustainability Summit 2018

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Guest Post By Juliet Russell – Sustainability Reporting Analyst, G&A Institute

The Economist’s third annual Sustainability Summit was convened in London on March 22nd, 2018. I attended as a representative of G&A Institute.

The discussions focused on how to shift from “responsibility to leadership”: how to lead and encourage co-operation on the path to progress.

I was impressed that significant players from a diverse range of sectors attended the conference, including representatives of Government, NGOs, Business and Academia. Panelists ranged from the CEO of Sainsbury’s, to Google’s Lead for Sustainability, to the Chair of the Board of Directors for Greenpeace and to a Deputy Mayor of London.

Each provided their own views and experiences of sustainability leadership and how to really see actions, instead of ‘just talk and promises’.

The key themes from the day centered around the need for collaboration, communication, shared responsibility, disruptive innovation, combatting short-termism and internalizing sustainability into core strategy and business models.

 

One of the most poignant messages for me was the need for understanding the urgency of the issues we are facing today, particularly in relation to climate change – “we are behaving as though the delta is zero and the delta is clearly not zero” (Jay Koh, The Lightsmith Group).

An attendee told a story of new LEED Platinum Certified buildings in Seattle that everyone is of course proud of — but in 30 years these super energy-efficient buildings will be underwater because we’re too busy focusing on small wins and continual growth, failing to act fast enough or understand the urgency when it comes to climate change and sea-level rise.

As quoted from Baroness Bryony Worthington of the Environmental Defense Fund – “…winning slowly with climate change is the same as losing!”

The conference was incredibly insightful, with such a breadth of timely and interesting topics, which highlighted different areas of debate and offered up potential solutions. Four of the panel discussions I feel are particularly worth highlighting:

1)    ‘A TALE OF THREE CITIES’
Discussion led by Mark Watts, Director of C40 Cities Climate Leadership Group and featuring three city government representatives: Shirley Rodrigues, Deputy Mayor of London (Environment and Energy); Solly Tshepiso, Mayor of Tshwane, South Africa; and,  Karsten Biering Nielsen, Deputy Director of Technical and Environmental Administration for the City of Copenhagen.

The lack of adequate and strategic government action is failing so far in preventing climate change and also in reaching the United Nations Sustainable Development Goals (SGDs).

Mayor Solly discussed as example how slow progress on Paris Agreement targets were partly due to the lack of communication from top Government-level down to the city-level in South Africa. City-to-city communication and partnerships were touted as solutions to these kind of problems, as well as being vital in reaching the SDGs.

The C40 Cities Group facilitates this kind of partnership and network through the sharing of best-practice and successful innovation among their 92 affiliated cities around the world.

2)    ‘PIECES OF THE PUZZLE’
Discussion led by Christopher Davis, International Director of Corporate Responsibility and Campaigns from The Body Shop International.

This panel discussion focused around how to “do good and do well,”; Chris suggested that we need to be gearing business to be truly sustainable based on what the planet needs – not the economy or the shareholders – and creating benchmarks against planetary and societal needs.

Essential consideration for creating a sustainable business:  when sustainability is not an add-on function but embedded in the strategy and business model and thus integral to all activities. The Body Shop International management will know that they have been successful in their sustainability mission when sustainability is ingrained in everything the company is doing and they no longer have a need for a separate sustainability team.

3)    ‘CHANGING MINDS’
Discussion led Dr. Simone Schnall from the University of Cambridge and Prerana Issar from the UN World Food Programme.

This discussion revolved around the relevance of ‘nudging’ in changing behaviour (a behavioral economics approach) to push progress in sustainability. Dr. Simone discussed the concept of ‘nudging’ – creating a choice architecture, which is set up so that people are more inclined to go for the ‘beneficial’ option, gently pushing people to do the right thing.

An example of this might be in putting the recycled paper products at eye-level, with the products made from less sustainable materials at a more awkward height to see and reach.

Essentially, using nudging, we bypass the attempt at changing minds but still change the behaviour.

This can help to reduce problems such as ‘moral licensing’, where people feel licensed to do something ‘bad’ if they have just done something morally good (and vice versa). For example, when using energy efficient products, some people then feel they are able to use them more often because they are doing a ‘good’, which actually negates the positive efficiency benefit.

Nudging may be more and more necessary as actions towards sustainability become more urgent, as we can’t generally rely on society to make the best and informed decisions all the time. Though as nudging still relies on choice, is this enough to make us change? In reality, society may need more guidance and regulation and here, there’s a role for stricter governance and policy.

4)    ‘PIECES OF THE PUZZLE’
Discussion led by Marie-Claire Daveu, Chief Sustainability Officer for Kering.

Touching on the themes of innovation, partnerships and collaboration, Marie-Claire discussed a tool that Kering developed and are using: their Environmental Profit and Loss (“E P&L”).

Many people around the world and across sectors acknowledge that over-exploitation and degradation of the environment and our resources are partially due to the fact that these resources, our ‘natural capital’, have not been accounted for in economic decision-making and cost-benefit analyses.

Because of this, we are failing to internalize the negative externalities, which is crucial if we are to properly be accountable and responsible for our actions in society today, thus failing to understand the true environmental consequences of our actions.

Many businesses would fail to acknowledge the environment as a stakeholder unless it explicitly showed up on their profit and loss accounting.

Kering, a first-mover in their field, created and proposed an E P&L accounting tool as a way to do this and it can be applied throughout the entire value chain. This tool allows identification of impact areas and thus increases ability to reduce it.

Kering also provide their E P&L methodology open-source, to encourage other companies to follow and increase their accountability. This hones in on the knowledge-sharing and sharing of best-practice theme.

During the final session of the day, editors from The Economist newspaper came up with their main takeaways, the “four Ps”:

  • Pragmatic – that is, moving from debating who is responsible and asking, ‘is it really happening?’ to understanding that the situation “is what it is” — and we need to just get on with it. For this, collaborations at all levels will be key.
  • Persistent – sustainability needs to be talked about and implemented persistently, in order to become deeply embedded – not something that has the ‘fickleness of fashion’ – being ‘in’ the one day and passé the next. Persistence can help to bring a necessary sense of depth to the issues and challenges we are facing, in order to trigger action.
  • Problem – understanding reality and assessing our achievements: if we add up all of our efforts today, is it anywhere near enough? I’m sure you’ll all agree that the answer is most definitely not. How do we scale up these efforts effectively? We need to be mindful of the scale of the threats the planet and society face – increasing measurement and transparency can help to uncover this.
  • Prioritization – at present, we can’t robustly value different externalities, which is necessary for internalizing them and dealing in the most efficient and effective way. We must remember to be aware that each trade-off has consequences and consider alternative actions.

Coming away from this wonderful conference, it was clear to me that the main takeaway was of the potential of collaboration – within companies, within industries, between industries, and across sectors. This was picked up on in nearly every talk.

We need a whole ‘ecosystem’ featuring collaboration (involving business, NGOs, government, academia and citizens) in order to win with the current challenges we’re facing; to really progress in sustainability and work towards meeting the United Nations’ Sustainable Development Goals. The conference was undoubtedly a timely and powerful call for action.