The Needle Continues to Move Forward – Developments in Corporate Sustainability / Responsibility and Sustainable Investing Continue to Shape an Important Year

Third in the 2018 Series

Continuing our commentary on the theme advanced by MSCI’s Linda Eiling Lee – that 2018 would be a year of Volume and Velocity with rapid, dramatic changes in sustainable investing and corporate sustainability, we bring you this update as the “new business year” begins after the passing of Labor Day in the U.S.A.

Oxfam Looks at Ag & Food Industry Risk and Materiality

The NGO Oxfam is organizing an effort to improve transparency and accountability within the food and agriculture segments of the economy:

“Poor management” of the ag/food supply chain leads to operational disruptions, regulatory breaches, headline risk for companies and inequalities that that threaten global growth and stability, says Oxfam.

The campaign is dubbed “The Behind the Barcodes Investment Statement.”

The effort is intended to improve corporate accountability and transparency among supermarkets and other retailers and within the global food supply chain.  The campaign examined the sourcing policies and practices of 16 of the largest and fastest-growing supermarkets in the United States of America, United Kingdom, Germany and the Netherlands in comparison to their peers — and is asking the companies to:

•  Improve the transparency of sourcing of food that they market.
• “Know and Show” and act on the risk of human rights violations faced by women and men in their supply chains.
• Guarantee safe working conditions and equal opportunities for women.
• “Fairly share” the revenues in the food industry with the men and women who produce the food that the retailers are marketing.

The companies will receive a scorecard to analyze their policies in the four areas.  These can be summed up as attitudes, policies and practices (outcomes) regarding (1) transparency, (2) workers, (3) small-scale producers and (4) women.

Part of the motivation of the campaign is to address these issues as small operators are gobbled up in industry consolidation by the larger (and getting still larger) industry players.

A few players are the influences (both positive and negative) in the industry as consolidation continues. (Think about the growing influence of Wal-Mart Stores and Amazon in the U.S.A. in grocery retailing.)

Oxfam, monitoring worldwide, sees the results as including more human rights abuses, poor working conditions as a norm, discrimination against women on the rise and a declining share of value produced allocated to the supply chain workforce.

This trend in the retailing business model, says Oxfam, is unsustainable.

But with lack of transparency into the food retailing business, it is hard to fully evaluate the material risks and opportunities — and so the campaign.

Among the sustainable & responsible investing signing on to the campaign:  Boston Common Asset Management; Domini Impact Investments; Interfaith Center on Corporate Responsibility (ICCR, with its 300 member institutions and $2 trillion in collective AUM); Mercy Investments; Trinity Health; Tri-State Coalition for Responsible Investment; Walden Asset Management; Zevin Asset Management.

Keep in mind for protecting corporate reputation if you are an ag & food company with distributed supply chain:  the campaign slogans include “Human Suffering  Should Never Be An Ingredient in the Food We Buy From Supermarkets.” 

Among the companies named: Whole Foods (now part of Amazon); Stop & Shop; Giant; Wal-Mart; Albertsons; Costco; Kroger.

Oxfam publishes the “Behind the Barcodes” scores for these supermarkets, made available on the organization’s web site. There is a companion list of the human rights allegations in the supply chains of the stores at: www.business-humanrights.org/barcodes

Supermarket industry leaders ranked by Oxfam will not likely to be pleased with the initial results.  But these rankings will serve as an excellent foundation of understanding for the retailers’ boards and senior managements to understand the concerns of stakeholders (including NGOs and investors, and likely some portion of the wholesale and retail customer base) and empower them to address the issues and develop solutions.

Supporters of the campaign are invited to sign on to a pledge.  Click here for more information. 

Guns & Investors – The Shareowners Speak Out to Gunmakers & Marketers

The Second Amendment to the Constitution of the United States of America says this: “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”  (The first ten amendments, adopted at the time of the ratification of the Constitution in 1789, after the original states individually ratified the agreement, are known as The Bill of Rights for American citizens.)

Consider:  The number of pistols and rifles (“guns”) in the U.S.A. total an estimated half of all personal guns in the roster of countries with the most guns, while making up only 5% of the world population.

There were between 90 and 100 guns for every American a few years ago – one per person if distributed.  (330 million population, 300-plus million guns).  But – surveys show the average American has three guns while 3% of the population own half of the civilian guns in the United States.

When things go wrong – as in the tragic Las Vegas shooting – we see headlines that Stephen Paddock, who fired on a concert from a hotel room, had almost 50 guns in various locations.

And those types of headlines generate considerable heat for gun manufacturing companies and the retailers who market guns at the consumer level.

And so the U.S. and other nations’ asset owners and their managers with concern about all of this and more related to “gun issues” in 2018 had the manufacturers in focus.

The 300 member institutions of the Interfaith Center on Corporate Responsibility own/manage about $2 trillion in assets — and they regularly engage with public companies on societal issues, including “guns”.

In 2018 moving toward the fall months the ICCR members waged a proxy resolution campaign targeting weapons manufacturers.

Majority shareholder votes on ICCR campaign resolutions had these results:

Sturm Ruger – 69% in favor

The ICCR statement on Gun Violence notes: “…in light of continuing gun violence and mass shootings in the U.S. involving semi-automatic assault weapons, we call on gun manufacturers, retailers and distributors, as well as companies with financial ties to these industries, to review their operations, supply chains and policies to take meaningful action on this public safety concern.”  Investors representing $600 billion in AUM signed on to the statement.

While the weapons manufacturers – some based in Europe and shipping guns to the U.S. – might ignore the ICCR pleas, this should have them take notice:

“As providers of credit, payment platforms and insurance products, financial institutions can adopt safety measures to ensure they are not facilitating illegal or unauthorized guns sales…or otherwise contributing to gun violence.” 

ICCR suggests, for example, that insurance companies cease issuing insurance liability coverage for owners of assault weapons, and prohibit use of credit cards or platforms (PayPal, Square) for the sale of firearms.

ICCR called on all companies to review their direct operations, trade relationships, and evaluate risks to protect employees, consumers and communities to address gun safety.

This includes ending relationships with the National Rifle Association (NRA), which advocates for the leading gun manufacturers and lobbies against any political reforms proposed that “threaten” the viability of the Second Amendment (in their view).

ICCR commended certain companies that “demonstrated good corporate citizenship” for making commitments to gun safety – MetLife, Delta Airlines, Dick’s Sporting Goods, Kroger, and Wal-Mart Stores.

The influential Institutional Investor magazine published a feature on the ICCR campaigns in August 2018 – “These Churches Buy Shares in Gun Companies. Their Goal: Confront Them.”

The companies named were Sturm, Ruger & Co and American Outdoor Brands.  The Sturm, Ruger shareholder proxy proposal would require Ruger to share plans for monitoring gun violence and developing safer firearms.

The largest investor in the company – BlackRock – and the influential governance rating firm, ISS, both backed the proposal which then received majority vote.  The campaign targeted American Outdoor Brands which was once known (for many years) as Smith & Wesson Holding Corp.

More information is available at: https://www.iccr.org/investor-statement-gun-violence

There’s a comprehensive article at www.institutionalinvestor.com that contains significant information about the history of the ICCR campaigns over a 40 year period.

ICCR member institutions focus on a number of ESG issues.  Note that in 2018 proxy voting, ICCR initiatives won majority shareholder votes at these companies:

• Amerisourcebergen (ICCR’s issues: opiod risks and comp clawbacks)
• Tyson Foods (water)
• Kinder Morgan (climate change)
• Amerisourcebergen (climate change)
• Middleby (sustainability, climate change)
• Anadarko Petroleum (climate change)
• Ameren (water risk and coal ash)
• Range Resources (methane)

Companies where ICCR withdrew resolutions (108 in all) after satisfactory engagement with managements included: Bed, Bath & Beyond; Hershey’s; McDonald’s; American Express; Costco Wholesale; Discover Financial; Hewlett-Packard; KeyCorp; Marriott; CVS Health; Starbucks; Yum! Brands; US Steel; Minerals Technologies; Kinder Morgan; CMS Energy; WEC Energy; and, Dominion Resources.

All of these companies made progress or agreed to implement new policies as the companies engaged with ICCR and its member institutions on various issues of concern to the institutions.

Moody’s Corporation – “Progress” Reported

Among the accused “villains” of the 2008 financial crisis were the leading credit risk rating agencies that issued opinions on collateralized debt issues that contained highly risky subprime or substandard loans. The leaders of the big agencies were hauled before the U.S. Congress and grilled on their practices.  All promised changes would be made.

Here we are a decade later (the market began the terrifying downward slide in earnest in October 2008) and Moody’s is “detailing its progress in opening doors to a better future” in its latest CSR report (issued this summer).

The report, says Moody’s, details the company’s progress in delivering on its goal of empowering people around the world to create a better future for themselves, their communities and the environment.

Moody’s Corporation owns Moody’s Investor Service and Moody’s Analytics – the company is traded on the NYSE (MCO”).  The company has 12,000 employees operating in 42 countries with revenues of US$4.2 billion in 2017.

OK, it’s 2018 – like Dorothy and Toto looking around and seeing they were not in Kansas anymore, we are the operating arena of the present where companies go all out to demonstrate their corporate responsibility, sustainability and good citizenship.  (And we are a pretty far distance in that regard from the bad old days of 2008.)

Include now Moody’s as a leader in the effort to strive for more responsible behaviors (as we will see in its strategies, actions, outcomes).

The company has adopted a host of policies on critical subjects related to good governance, corporate responsibility and so on:

• Policy on Anti-competitive Rating Practices
• Receipt, Review and Retention of External Complaints
• Anti-bribery and Anti-Corruption Policy
• Code of Professional Conduct
• Conflict of Interest Certification
• And many more!

In its current CSR Report, the company talks about “Activating an Environmentally Sustainable Future” that incorporates ESG considerations with its traditional credit analysis.  A dedicated team helps global investors, governments and issuers (the company’s customer base)  understand the links between sustainability and credit risk.

Moody’s Green Bond Assessments (“GBAs”) provide information to investors on new green bond issuances (information disclosed and how the bonds will be used).  At mid-year, Moody’s teams assessed 40 green bonds worth almost $19.5 billion.

There’s more for you in the company’s CSR report at: www.moodys.com

New Forced Labor Screening Platform From Verite

Verite launched the “CUMULUS Forced Labor Screen” ™ membership platform in June at the Global Forum for Responsible Recruitment and Employment 2018 in the city-state of Singapore.  This is described as a technology-driven approach to using shared data for labor supply management and forced labor screening in supply chains.

Member companies share information on a secure platform to map the labor of their supply chain partners – and those companies’ recruiting agencies in both sending and receiving countries.

The project was financed by Humanity United, Skoll Foundation and the Agnes Varis Trust, with concept testing in Southeast Asia (focused on companies in one sector, with 30 suppliers and 250 recruitment agencies in five countries being examined).

Suggestion:  This is something any company sourcing in East Asia should be interested in reviewing for possible impact on their enterprise.

More information at: https://www.verite.org/cumulus-forced-labor-screen/

“Just” Business Behavior – New Goldman Sachs Investment Vehicle

What is “just”?  The Oxford dictionary says this means  “upright, fair, deserved, well-grounded, right” and a bit more.

So investing in a “just company” or investment product means…?

According to Goldman Sachs Asset Management (GSAM), this year the firm launched the JUST U.S. Large Cap Equity EFT (ticker: “JUST”) which enjoyed the status of “single-ever exchange traded fund designed to align with the American public’s priorities for just business behavior.”  Which is based on JUST Capital research – an organization partnering with Goldman Sachs.

The revenues for the first day of trading in June 2018 were $250 million.  Which also makes the product “the most successful ESG ETF launch ever, and in the Top 10 Equity ETF launches in history,” says GSAM.

What are the characteristics of a “JUST” U.S. company that would attract the investors’ interest?

Corporate behavior in “some of the most pressing social issues of our time” explains the company.

Consider:   Worker pay and well-being. Customer treatment. Privacy protection. Beneficial products.  The Environment. Job creation. Strong community relations.

These are “anchored directly to the values and priorities of the American public” as identified through JUST Capital polling.

The ETF tracks the JUST U.S. Large-Cap Diversified Index (“JULCD”), comprised of the top 50% of the Russell 1000 in each industry.

So what are the characteristics of the companies that are included (not excluded) in this approach?

• They are companies 2x more likely to pay nearly every worker a living wage.
• The companies create U.S. jobs at a 20% greater rate than peers.
• They employ 2x as many workers in the United States of America.
• These companies pay 70% less in fines for consumer-sales-terms violations.
• Their GhG emissions are 45% lower per dollar of revenue.
• They give 2x more to charity.
• They pay 94% less in Equal Employment Opportunity Commission fines.
• And – they have a 7% higher ROE than excluded firms.

We also could define these companies at demonstrating leadership in Corporate Citizenship.

Says GSAM/JUST:

“We believe that business, and capitalism, can and must be a positive force for change.  Our polling, rankings, indexes, and data empower all market participants – investors, business leaders, consumers and workers – with the information they need to invest in, purchase from, and work for companies that perform best on the issues they care about.” (See above bullets.)

The JULCD returned 32% (4.3% above the overall Russell 1000) for the period November 30, 2016 through June 1, 2018, says GSAM.

The JUST Capital “100” companies include (at the Top 5)  Intel (ranked #1), TI, NVIDIA, Microsoft (at #4) and IBM.

Billionaire investor Paul Tudor Jones II built the foundation (JUST Capital) around the idea that companies could be an instrument for goodness…focusing capital on human and financial – and being a change agent for societal betterment, a change agent for justness.  There’s a profile of Jones and the origins of JUST in this June New York Times article by the well-known financial writer Andrew Ross Sorkin. (https://www.nytimes.com/2018/06/11/business/dealbook/goldman-sachs-paul-tudor-jones.html)

For information on JUST Capital:  https://justcapital.com/

The JULCD Index: https://justcapital.com/news/julcd-index-update-q2-2018/

To see Goldman Sachs’ performance through JUST Capital analysis: https://justcapital.com/companies/goldman-sachs/

The SEC, ESG & Sustainable Investing – Here’s Your Opportunity to (Still) Weigh In Two Years After the Concept Release Was First Published

The staff of the U.S. Securities & Exchange Commission during the Obama Administration years issued a “Concept Paper” seeking public input on how corporate financial and business disclosure could be improved.

The good news that we saw was that in the 200-page outline, about a dozen pages addressed the issue of corporate ESG transparency and disclosure for investors.

Hopes were high as the public responded with suggestions – sustainable investing as a topic might be near to be considered “material” information by the SEC … and perhaps when the results of the examination were released there would be new interpretations, guidelines – something of recognition.

The November 2016 election results changed many of the progressive ideas that were part of the public dialogue in the nation’s capital.  New players came to town.  Policies changed – not for the better, in the view of champions of sustainable investing.

Alas, “ESG”, “sustainability” and “sustainable investing” and related topic areas were ignored by SEC staff and the scope of action narrowed in 2018 when the SEC finally issued its ruling.

In August the SEC adopted amendments to address corporate disclosure requirement that the Agency said were duplicative, overlapping or outdated due to other SEC disclosure requirements, U.S. GAAP  — or changes “in the information environment”.

The rules apply to public reporting companies (including foreign private issuers).

Speaking to the moves, the new chair of the SEC, Jay Clayton, had this to say:

“The President (Trump) has highlighted a key consideration for American companies and importantly, American investors and their families – encouraging long-term investment in our country. Many investors and market participants share this perspective on the importance of long-term investing. Recently, the SEC has implemented – and continues to consider – a variety of regulatory changes that encourage long-term capital formation while preserving and in many instances, enhancing key investor protections.

“In addition, the SEC’s Division of Corporation Finance continues to study public company reporting requirements, including the frequency of reporting.  As always, the SEC welcomes input from companies, and other market participants as our staff considers these important matters.”

The SEC issued “Disclosure and Simplification” Final Rule (for Regs S-X and S-K) in Spring 2018 — and ignored the input of the many asset owners, asset managers and other market players responding to the agency’s Concept Release.

“Many” includes the responses by sustainable investing advocates and practitioners. The Agency says the Final Rule contains “relatively more discrete changes” than those proposed in response to the Concept Release.

Those making positive suggestions in response to the invitation of the Concept Release included the AFL-CIO; CalPERS; Public Citizen; Domini Funds; the FACT Coalition; and many other sustainable & responsible investing players.   Of course, we can assume that these are not generally viewed with favor by the new SEC players in this current political era.

We should not give up — the invitation is out to send your views to the chair of the SEC for further discussion on the Concept Release (that was issued April 13, 2016 (“Business and Financial Disclosure Required by Regulation S-K”).  The pressure for greater corporate disclosure related to ESG performance, et al, is greater than two years ago and continuing to rise.

To refresh our memories, here is the text in the Federal Register: https://www.federalregister.gov/documents/2016/04/22/2016-09056/business-and-financial-disclosure-required-by-regulation-s-k

There are about four dozen references to “sustainability” in the document and 1,100 comments to review.

Printing Industry Sustainability / Certification

The printing industry is still with us, despite the continuing shift out of “paper” and to digital publishing of all kinds.  Printing companies are adapting in many ways including the adoption of sustainable practices to guide the industry’s companies in prioritizing environmental stewardship and other considerations.

Two certification organizations for the industry have merged.  These are TLMI and SGP, a non-profit organization.

TLMI is merging is L.I.F.E. (“Label Initiative for the Environment”) certification with the Sustainable Green Printing Partnership (“SGP”) certification program.

SDG certifies printing facilities’ sustainability best practices; it is supported by Printing Industries of America (PIA); Flexographic Technical Association (FTA); Specialty Graphic Imaging Association (SGIA); and, the National Association of Print Ink Manufacturers (NAPIM).

The SDG brand leaders program engages with print buyers and retail brands – companies such as 3M, International Paper, EFI, ECOR, FlexCOM, North American Plastics, Piedmont Plastics, Gilman Brothers, and other leading brand companies.

Check and see if these companies are in your supply chain.  There is information at:  www.sdgpartnership.com

Perspective from the Governance & Accountability Institute Team

The developments in Q2 and into Q3 of calendar year 2018 continued to move the needle forward for corporate sustainability / responsibility / citizenship / ESG and for sustainable investing approaches by asset owners and their managers.

Despite a pushback by the national government in the United States  on environmental protection measures and the move to withdraw from the Paris Agreement on climate change (“COP 21”), the good news is that public company boards and managements, leaders of states and cities in the U.S. and domestic and international civic organizations are pressing forward to implement the measures needed to address climate change challenges.  And to meet the goals of the Paris Agreement.

We’ll continue to update this series going into Q3 and Q4, especially after the coming climate change and sustainability events scheduled for September (such as at the United Nations in New York and the California climate summit) and on to December.

You’ll find other management briefs on this platform dealing with single subject / topic developments.

As always, we would like to hear from you and know what you are interested in learning more about in these briefs.

We invite you again to download a complimentary copy of G&A Institute Chair & Chief Strategist Hank Boerner’s book – Trends Converging.