Tag Archives: ISS
Corporate Sustainability Reporting: Changes in the Global Landscape – What Might 2021 Bring?
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)
CDSB and SSE announce intention to collaborate on capacity building initiatives (Source: CDSB)
IIRC and SASB announce intent to merge in major step towards simplifying the corporate reporting system (Source: IIRC)
GRI welcomes consolidation of value reporting organizations (Source: GRI)
Deutsche Börse acquires leading governance, ESG data and analytics provider ISS (Source: ISS)
S&P Global Agrees to Buy IHS Markit for About $44 Billion (Source: The Wall Street Journal)
Posted in About the Climate Crisis, Business & Society, Climate Change, Community Investing, Corporate Citizenship, Corporate CSR Reporting, Corporate Governance, Corporate Sustainability, Corporate Sustainability Reporting, ESG Issues, Financially Material, Global Reporting Initiative, Human Rights, Materiality, SASB, SDGs, Supply Chain, Sustainability Reporting, The Corporate Citizen and Society	| Tagged 1933 Securities Act, 1934 Securities Exchange Act, Attorney General Eliot Spitzer, CDSB, Climate Change Disclosure, Corporate Sustainability Assessment, Corporate Sustainability Journey, Corporate Sustainability Reporting, CSA, FASB, FSB's Task Force on Climate-Related Financial Disclosure, GAAP, Generally Applied Accounting Principles, GRI, GRI< Global Reporting Initiative, IIRC, ISS, Lou Coppola, President Franklin Delano Roosevelt, Reg S-K, S&P Global, SAM-S&P Global, Sarbanes Oxley, SASB Standards, SDGs, SEC, TCFD, The Martin Act, The Wall Street Journal, UN Global Compact, UN Sustainable Development Goals, UNGC	| Leave a reply
Busy Summer 2020 for the World of ESG Players – Rating Agencies, Information Providers, UNGC & the SDGs…and More
Posted on August 27, 2020 by Hank Boerner
by Hank Boerner – Chair & Chief Strategist – G&A Institute
It's been a very busy summer for organizations managing corporate reporting frameworks and standards, for ESG rating agencies, and for multilateral agencies focused on corporate sustainability and responsibility.
If you are a corporate manager — or a sustainable investment professional — do tune in to some of the changes that will affect your work in some ways. Here's a quick summary:
ISS/Institutional Shareholder Services
For four decades, ISS has been the go-to source on governance issues for proxy voting and corporate engagement guidance for major fiduciaries (pension funds are an example).
Two years ago, "E" and "S" ratings were added for investor-clients.
Now, ISS ESG (ISS's responsible investing unit) is providing "best-in-class fund ratings" that assess the ESG performance of 20,000 firms. Funds will be rated 1-to-5 (bottom is 1) – this to be a broad utility resource for investment professionals. And for corporate managers – ISS ESG scores along with those of other ESG ratings agencies are a factor in whether your company is included in indexes, benchmarks, maybe ETFs and mutual funds that are being rated.
It's launching E, S & G scores for thousands of firms (highlighting environmental and societal risks that are material to a sector).
First sector up is Oil & Gas, with 252 firms rated. Also, there are new Board Composition scores, with Bloomberg assessing how well a board is positioned to respond to certain G issues. (Note that 4,300 companies are being rated – probably including yours if you are a publicly-traded entity.)
And in other news:
UN Global Compact and the SDGs
The UNGC observes its 20th anniversary and in its latest survey of companies, the organization asked about the SDGs and corporate perspectives of the 17 goals and 169 targets. The findings are in the blog post for you.
This major ESG ratings agency expanded its model for evaluating company-level alignment to the Sustainable Development Goals. New tools will help capital markets players to enhance or develop ESG-themed investment services and products.
The GRI continues to align its Universal Standards with other reporting frameworks or standards so that a GRI report becomes a more meaningful and holistic presentation of a company's ESG profile.
GRI Standards were updated and planned revisions include moving Human Rights reporting closer to the UN Guiding Principles on Business and Human Rights and other inter-governmental instruments.
Climate Disclosure Standards Board
The CDSB Framework for climate-related disclosure is now available for corporate reporters to build "material, climate-related information" in mainstream documents (like the 10-k). This is similar to what the TCFD is recommending for corporate disclosure.
This is a small part of what has been going on this summer. We have the two top stories about ISS and Bloomberg and a whole lot more for you in the G&A Sustainability Update blog.
For your end-of-summer/get-ready-for-a-busy-fall schedule!
Bloomberg Launches Proprietary ESG Scores(Source: PR Newswire)
ISS Unveils Innovative & Comprehensive ESG Fund Ratings Solution (Source: ISS)
The G&A Blog with many more organizations and their actions here.
Posted in About the Climate Crisis, Business & Society, Climate Change, Corporate Citizenship, Corporate Governance, Corporate Responsibility, Corporate Sustainability, ESG Issues, Financially Material, Global Reporting Initiative, Global Warming, Human Rights, Materiality, SASB, SDGs, SRI, Sustainability Big Data, Sustainability Reporting, Sustainable & Responsible Investing, Sustainable Investing	| Tagged . Task Force for Climate-Related Financial Disclosures, Bloomberg LP, Board Composition Scores, CDSB Framework, climate change, Climate Disclosure Standards Board, ESG Ratings, ESG Scores, GRI Framework, GRI Universal Standards, Institutional Shareholder Services, ISS, ISS ESG, MSCI, Oil & Gas, SDGs, Sustainable Development Goals, TCFD, UN GC, UN Global Compact, UN Guiding Principles on Business and Human Rights	| Leave a reply
Publicly-traded Companies Have Many More Eyes Focused on Their ESG Performance – And Tracking, Measuring, Evaluating, ESG-Linked-Advice to Investors Is Becoming Ever-More Complex
Some recent developments for consideration by the boards and C-Suite of publicly-traded companies as established ESG ratings agencies up their game and new disclosure / reporting and frameworks come into play.
The "Global Carbon Accounting Standard" will debut in Fall 2020. Is your company ready? Some details for you…
Financial Institutions – Accounting for Corporate Carbon
The Partnership for Carbon Accounting Financials (PCAF) was organized to help financial institutions assess and then disclose the Greenhouse Gas emissions (GhGs) of their loans and investments to help the institutions identify and manage the risks and opportunities related to GhGs in their business activities.
Think: Now, the companies in lending or investment portfolios should expect to have their carbon emissions tracked and measured by those institutions that lend the company money or put debt or equity issues in their investment portfolios.
The financial sector kimono will be further opened. This could over time lead to a company lagging in ESG performance being treated differently by its institutional partners, whether the company in focus discloses their GhG emissions or not.
For companies (borrowers, capital recipients), this is another wake-up call – to get focused on GhG performance and be more transparent about it.
This effort is described as the to be the "first global standard driving financial institutions to measure and track the climate impact of their lending and investment portfolios."
As of August 3, 2020, there are 70 financial institutions with AUM of US$10 trillion collaborating, with 16 banks and investors developing the standard…to be a common set of carbon accounting methods to assess and track the corporate emissions that are financed by the institutions' loans and investments.
Significant news: Morgan Stanley, Bank of America (owners of Merrill Lynch) and Citi Group are all now members of the partnership and Morgan Stanley and Bank of America are part of the PCAF Core Team developing the Standard.
The institutional members of the Core Team leading the work of developing the PCAF Standard are: ABN AMRO, Access Bank, Amalgamated Bank, Banco Pichincha, Bank of America, Boston Common Asset Management, Credit Cooperatif, FirstRand Ltd, FMO, KCB, LandsBankinn, Morgan Stanley, Producanco, ROBECO, Tridos Bank, and Vision Banco.
The work of the PCAF will feed into the work of such climate initiatives as the CDP, TCFD, and SBTi (Science-based Target Initiative).
The work in developing the "Standard" includes an open comment period ending September 30, 2020. The final version of the Standard will be published in November.
Morgan Stanley, in its announcement of participation, explained: MS is taking a critical step by committing to measure and disclose its financial emissions…and those in its lending and investment portfolio. As other institutions will be taking similar steps.
(Morgan Stanley became a bank during the 2008 financial crisis and therefore received federal financial aid designed for regulated banking institutions.)
Tjeerd Krumpelman of ABN AMRO (member of the Steering Committee) explains: "The Standard provides the means to close a critical gap in the measurement of emissions financed by the financial industry. The disclosure of absolute financed emissions equips stakeholders with a metric for understanding the climate impact of loans and investment…"
Bloomberg Announces Launch of ESG Scores
Bloomberg LP has launched proprietary ESG scores – 252 companies are initially scored in the Oil & Gas Sector and Board Composition scores have been applied for 4,300 companies in multiple industries.
This approach is designed to help investors "decode" raw data for comparisons across companies; Bloomberg now presents both (raw data and scores) for investors.
This offers "a valuable and normalized benchmark that will easily highlight [corporate] ESG performance, explains Patricia Torres, Global Head of Bloomberg Sustainable Finance Solutions.
There is usually stronger data disclosure for the Oil & Gas Sector companies, says Bloomberg (the sector companies account for more than half of carbon dioxide emissions, generating 15% of global energy-related Greenhouse Gas emissions).
Governance scoring starts with Board Composition scores, to enable investors to assess board make up and rank relative performance across four key areas – diversity, tenure, overboarding and independence.
Bloomberg describes the "E, S" scores as a data-driven measure of corporate E and S (environmental and social) performance across financially-material, business-relevant and industry-specific key issues.
Think of climate change, and health and safety, and Bloomberg and investor clients assessing company activities in these against industry peers.
This is a quant modelling and investors can examine the scoring methodology and company-disclosed (or reported) data that underly each of the scores.
Also, Bloomberg provides "data-driven insights" to help investors integrate ESG in the investment process. This includes third party data, access to news and research content, and analytics and research workflows built around ESG.
Sustainalytics (a Morningstar company) Explains Corporate ESG Scoring Approach
The company explains its ESG Risk Rating in a new document (FAQs for companies). The company's Risk Ratings (introduced in September 2018) are presented at the security and portfolio levels for equity and fixed-income investments.
These are based on a two-dimension materiality framework measuring a company's exposure to industry-specific material ESG risks…and how well the company is managing its ESG risks.
Companies can be placed in five risk categories (from Neglible to Severe) that are comparable across sectors. Scores are then assigned (ranging from 9-to-9.99 for negligible risk up to 40 points or higher for severe risk of material financial impacts driven by ESG factors).
The company explains: A "material ESG issue" (the MEI) is the core building block of Sustainalytics' ESG Risk Rating – the issue that is determined by the Sustainalytics Risk Rating research team to be material can have significant effect on the enterprise value of a company within an sub-industry.
Sustainalytics' view is that the presence or absence of an MEI in a company's financial reporting is likely to influence the decisions made by a reasonable investor.
And so Sustainalytics defines "Exposure to ESG Risk" and "Management of ESG Risk" and applies scores and opinions. "Unmanaged Risk" has three scoring components for each MEI – Exposure, Management, Unmanaged Risk.
There is much more explained by Sustainalytics here: https://connect.sustainalytics.com/hubfs/SFS/Sustainalytics%20ESG%20Risk%20Rating%20-%20FAQs%20for%20Corporations.pdf?utm_campaign=SFS%20-%20Public%20ESG%20Risk%20Ratings%20&utm_medium=email&_hsmi=93204652&_hsenc=p2ANqtz–uiIU8kSu6y0FMeuauFTVhiQZVbDZbLz18ldti4X-2I0xC95n8byedKMQDd0pZs7nCFFEvL172Iqvpx7P5X7s5NanOAF02tFYHF4w94fAFNyOmOgc&utm_content=93203943&utm_source=hs_email
G&A Institute Perspectives: Long established ESG raters and information providers (think, MSCI, Sustainalytics, and Bloomberg, Refinitiv, formerly Thomson Reuters) are enhancing their proprietary methods of tracking, evaluating, and disclosing ESG performance, and/or assigning ratings and opinions to an ever-wider universe of publicly-traded companies.
Meaning that companies already on the sustainability journey and fully disclosing on same must keep upping their game to stay at least in the middle of the pack (of industry and investing peers) and strive harder to stay in leadership positions.
Many more eyes are on the corporate ESG performance and outcomes. And for those companies not yet on the sustainability journey, or not fully disclosing and reporting on their ESG strategies, actions, programs, outcomes…the mountain just got taller and more steep.
Factors: The universe of ESG information providers, ratings agencies, creators of ESG indexes, credit risk evaluators, is getting larger and more complex every day. Do Stay Tuned!
Posted in About the Climate Crisis, Business & Society, Climate Change, Conservation, Corporate Citizenship, Corporate CSR Reporting, Corporate Governance, Corporate Responsibility, Corporate Sustainability, ESG Issues, Financially Material, Global Warming, Investment Case, Materiality, SASB, Sustainability Big Data, Sustainability Reporting, Sustainable Investing, The Corporate Citizen and Society	| Tagged ABN AMRO, Access Bank, Amalgamated Bank, Banco Pichincha, Bank of America, Bloomberg ESG Scores, Bloomberg LP, Bloomberg Sustainable Finance Solutions, Bloomberg Terminal, BN Amro, Board Composition Scores, Boston Common Asset Management, CDP TCFD, Citi Group., Credit Cooperatif, Data Driven Insights, Eikon, ESG Reporting Standards, ESG Risk Ratings, Financial Services Sector, FirstRand Ltd, FMO, GHGs, Greenhouse Gas Emissions, ISS, KCB, LandsBankinn, Materiality, Materiality Framework, Materialty Framework, MEI, Merrill Lynch, Morgan Stanley, Morningstar, MSCI, Oil & Gas Sector, Patricia Torres, PCAF, PCAF Standard, Producanco, Refinitiv, Robeco, SASB Materiality Frameworkrk, SBTi, Science-based Target Initiative, Sustainalytics, TCFD, The Partnership for Carbon Accounting Financials, Thomson Reuters, Tjeerd Krumpelman, Tridos Bank, Vision Banco	| Leave a reply
Reporting and Disclosing Corporate ESG & Sustainability Results– Key Resources Roundup
Posted on June 16, 2020 by Hank Boerner
By Kelly Mumford – Sustainability Reporting Analyst Intern – G&A Institute
Sustainability, Corporate Responsibility, and Environmental Social Governance (ESG) – these are some of the key buzz words circulating in capital markets' circles that have become increasingly more important to both investors and corporate leaders as the risks of climate change to business organizations steadily increase.
We are now at the critical tipping point where it is necessary for all businesses to publicly report on and in various ways amply disclose how climate related risks — and related opportunities – and other issues such as Human Rights and Human Capital Management (HCM) might affect their business. And, to disclose what they are doing to address and mitigate such risks.
A recent institutional investor survey report by the Harvard Law School Forum on Corporate Governance that focused on ESG risk and opportunities found that investors recognize the growing risks of non-financial factors such as climate change, which is at the top of the agenda.
Climate change issues and human capital management were cited in the 2020 survey as the top sustainability topics that investors are focusing on when engaging with their boards.
Regardless of sector, all companies understand the importance of engaging with these topics. With that said, ESG and sustainability topics are playing a more concrete role in the private sector.
The good news is that there are significant resources available to help companies measure and report on sustainability and ESG, promote greater transparency, demonstrate better risk management, talk about improved performance, and in turn better promote the corporate brand value and reputation.
Such corporate disclosure and reporting have been shown to help to create higher shareholder returns and improve corporate economic performance.
With this in mind, standardized frameworks and indices are being used by corporations to provide more accurate and transparent information to their investors as well as all of their stakeholders.
However, as more diverse resources become available (examples are sustainability and responsibility frameworks, indices, and standards) there is also a need for distinctions to be made among them. To group all of these resources together would be inaccurate and misleading as each has unique advantages and distinction for both investors and corporate reporters.
Some of the key resources available in this space include: SASB, MSCI, Sustainalytics, Institutional Shareholder Services (ISS), Dow Jones Sustainability Index (the DJSI), TCFD, CDP, SDGs, and GRI.
To more easily understand their similarities and differences these can be grouped into broader categories. Such categories include: reporting standards, ESG ratings, indices, disclosure frameworks, investor surveys, and international goals. We'll explain these in this commentary.
ABOUT CORPORATE REPORTING STANDARDS
The leading reporting standards present an effective way for companies to structure and publicly disclose "non- financial" information — such as strategies, actions, performance and outcomes for governance, environmental, and social impacts of the company. (That is, impacts affecting stakeholders, including investors.)
These important disclosures can be identified in the form of "sustainability, corporate responsibility, corporate citizenship" reporting. Many such corporate reports explain how a company measures ESG performance, sets goals, and manages programs effectively – and then communicates their impact to stakeholders.
Reporting standards help to streamline the process of corporate reporting and allow stakeholders to better identify non-financial disclosures against widely used and accepted standards.
THE GLOBAL REPORTING INITIATIVE (GRI)
This is a long-established, independent organization (a foundation) that has helped to pioneer sustainability reporting. Since 1997 the organization has been working with the business sector and governments to help organizations (corporations, public sector and social sector organizations) communicate their impact and sustainability issues –such as climate change, human rights, governance and social well-being.
The current GRI sustainability reporting standards evolved out of four prior generations of frameworks dating to 1999-2000 (when the first reports were published, using "G1") — and today is one of the most commonly-used with diverse multi stakeholder contributions to standards-setting.
GRI has been responsible for transforming sustainability reporting into a growing practice and today about 93% of the largest corporations report their sustainability performance using the GRI Standards.
Advantage of use for reporters: corporate reporting using the GRI standards helps to create consistent disclosures and facilitates engagement with stakeholders on existing and emerging sustainability issues. Further, use of GRI standards helps to create a more consistent and reliable landscape for sustainability reporting frameworks for both the reporters and their constituencies, especially including investors.
THE SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)
These more recent standards enable business leaders to identify, manage, and communicate financially-material sustainability information to investors. There are now 77 industry-specific standards (for 11 sectors) available for guidance. These standards for an industry (and many companies are classified in more than one industry) help managers to identify the minimal set of financially-material sustainability topics and associated metrics for companies in each industry.
SASB standards help company managements to identify topics most relevant to their enterprise, and communicate sustainability data more efficiently and effectively for investors.
Can be used alone, with other reporting frameworks, or as part of an integrated reporting process. The G&A Institute team in assisting companies with their reporting activities use a hybrid approach, using both GRI and SASB as best practice.
ESG RATINGS/ DATA SUPPLIERS
A growing number of independent third-party providers have created ESG performance ratings, rankings and scores, resulting from assessment and measurements of corporate ESG performance over time against peers for investor clients. These ratings often form the basis of engagement and discussion between investors and companies on matters related to ESG performance.
There are several major ratings with varying methodology, scope, and coverage that are influencing the capital markets. Keep in mind there are numerous ESG data providers and ratings providing information to investors and stakeholders; however, for the scope of this post not all are mentioned.
INSTITUTIONAL SHAREHOLDER SERVICES (ISS) — ESG GOVERNANCE QUALITYSCORES(R)
ISS is a long-time provider of "corporate governance solutions" for institutional asset owners, their internal and external managers, and service providers. ISS provides a variety of ESG solutions for investors to implement responsible investment policies. The firm also provides climate change data and analytics and develops a Quality Score (for G, S and E) that provides research findings on corporate governance as well as social and environmental performance of publicly-traded global companies for its investor clients.
The ESG Governance QualityScore is described as a scoring and screening solution for investors to review the governance quality and risks of a publicly-traded company.
Scores are provided for the overall company and organized into four categories — covering Board Structure, Compensation, Shareholder Rights, and Audit & Risk Oversight.
Many factors are included in this score but overall the foundation of scoring begins with corporate governance, the long-time specialty of this important provider.
ISS Advantage: as a leading provider of corporate governance, the ISS ESG Governance QualityScore leverages this firm's deep knowledge across key capital markets. Further, these rankings are relative to an index and region to ensure that the rankings are relevant to the market that the public company operates in.
MSCI ESG RATINGS
MSCI has a specific ESG Index Framework designed to represent the performance of the most common ESG investment approaches by leveraging ESG criteria. Indexes are organized into three categories: integration, values, and impact.
MSCI also creates corporate ESG ratings by collecting data for each company based on 37 key ESG issues. AI methodology is used to increase precision and validate data as well as alternative data to minimize reliance on voluntary disclosure.
MSCI is the largest provider of ESG ratings with over 1,500 equity and fixed-income ESG Indexes. The firm provides ESG ratings for over 7,500 global companies and more than 650,000 equity and fixed-income securities (as of October 2019).
Advantages for investors: Focuses on intersection between a company's core business and industry-specific issues that can create risks and opportunities. ESG ratings gives companies a rated score of AAA-to-CCC, which are relative to industry peers. Companies are rated according to their exposure to risk and how well they manage risks relative to peers. Companies are analyzed on calendar year basis and are able to respond to the profile developed for investors by MSCI analysts.
This organization rates sustainability of exchange-listed companies based on environmental, social, and corporate governance (ESG) performance. The focus is on ESG and corporate governance research and ratings.
What makes them unique: their ESG Risk Ratings are designed to help investors identify and understand material ESG risks at the security and the portfolio level.
The corporate ESG risk rating is calculated by assessing the amount of unmanaged risk for each material ESG issue that is examined. The issues are analyzed varying by industry and depending on industry, a weight is given to each ESG issue.
Key: The assessment focuses on most material risks, using a two-dimensional lens to assess what risks the corporation faces and how well leadership manages the identified risks. Absolute ratings enable comparability across industries and companies for investors; corporate governance ratings are integrated into the ESG risk rating, and controversy research is also considered for the risk ratings. The performance is based on both quantitative metrics and an assessment of controversial incidents, allowing for the complete picture to be demonstrated with the ESG ranking.
Unique point: Total ESG risk score is also presented as a percentile so it can be compared across industries. This allows for a better understanding of how the industry performs as a whole, so to better assess how well a company is performing relatively.
SOME OF THE LEADING INDICES
Indexes / benchmarks help to make capital markets more accessible, credible, and products or approaches better structured for investors. They allow for performance benchmarks to represent how equity and/or fixed-income securities are performing against peers.
Specialized ESG indices specifically have been gaining in favor over the recent years as investors become more interested in responsible / sustainable investing. This out-performance is evident in the time of the coronavirus crisis with ESG funds inflow exceeding outflow of traditional indexes. Investors see this as a sign of resilience and excellence in risk performance for ESG companies.
It is evident that ESG index funds have been outperforming key core indexes — such as the S&P 500 Index(r). (The new S&P 500 ESG Index has been outperforming the long-established sister fund.)
Also, the growing abundance of ESG data and research has helped to promote the development and embrace of corporate ESG ratings, which in turn allows for the construction of even more such indices.
Because these indexes represent the performance of securities in terms of ESG criteria relative to their peers, it helps define the ESG market and availability of sustainable investing options.
There are now numerous ESG Indices available to investors – to cover them all that would require another blog post. So, for the sake of this brief post only DJSI is mentioned, as it is one of the mostly widely-known and frequently used by global investors.
DOW JONES SUSTAINABILITY INDICES (DJSI)
This is a family of indices evaluating the sustainability performance of thousands of publicly-traded companies. DJSI tracks the ESG performance of the world's leading companies in terms of critical economic, environmental, and social criteria. These are important benchmarks for investors who recognize that corporate sustainable practices create shareholder value. The indexes were created jointly with Dow Jones Indexes, and SAM, now a division of S&P Global Ratings (which owns the DJSI).
This was the first global sustainability index – created in 1999 by SAM (Sustainable Asset Management of Switzerland) and Dow Jones Indices. Today, owned and managed by S&P Global Ratings.
Advantage for investors: Combines the experience of an established index provider with the expertise of a sustainable investing analytics to select most sustainable companies for the indexes from across 61 industries. Calculated in price and total return disseminated in real time. This is an important benchmark for many financial institutions.
Selection process is based on companies' total sustainability score from annual SAM Corporate Sustainability Assessment (the important CSA that results in the corporate profile). All industries are included, and the top 10% (for global indices, top 20% for regional indices, and top 30% for country indices) of companies per industry are selected
CORPORATE DISCLOSURE FRAMEWORKS
Disclosure frameworks are used to improve the effectiveness of financial disclosures by facilitating clear communication about certain criteria. There are long-standing frameworks such as created by the Financial Accounting Standards Board (FASB) that establish standards for U.S. corporate financial accounting.
Similarly, there is now a suggested disclosure framework related to the corporation's financial information but that focuses on climate related risks and opportunities — the Financial Stability Boards' "Taskforce on Climate-related Financial Disclosures" — or TCFD. (The FSB is an organization of the G20 countries; member participants are the securities and financial services administrators and central bankers of the largest economies. The U.S. members include SEC, the Federal Reserve System and the Treasury Department. The FSB considers future regulations that could be considered in the member countries.)
As the capital markets players interest in corporate sustainability and ESG grows, and public policy makers recognize the threat of many ESG issues to the health of their nations, it is not surprising that there would be a specific resource developed for corporate climate-related financial disclosures.
Investors have a heightened awareness of the risks that climate change issues poses to their holdings, so it is now considered to be a best practice for company managements to report and disclose on these risks and responses to address them – using among other resources the TCFD recommendations for disclosure. Here is what you need to know:
TASKFORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES (TCFD)
Developed by the Financial Stability Board (FSB) to encourage voluntary, consistent, climate related financial disclosures that could be useful to investors. N.Y.C. Mayor/Bloomberg LP founder Michael Bloomberg serves as the chairman and founder of the task force (which has a 32-member board).
The "TCFD" recommendations for corporate disclosure are intended to help both publicly-traded companies and investors consider the risks and opportunities associated with the challenges of climate change and what constitutes effective disclosures across industries and sectors.
This approach enables users of financial information to better assess risk and helps to promote better corporate disclosure. The recommendations call for disclosure around four core areas — governance, strategy, risk management, and metrics and targets.
To keep in mind:
The initial recommendations applied to four financial sector organizations (bankers, insurers, asset owners, asset managers). And to four industry categories – oil & gas; food & agriculture; transport; building materials and management.
Advantage for companies: following the TCFD recommendations represents an opportunity for companies following the recommendations to bring climate-related financial reporting to a wider audience.
INVESTOR-FOCUSED SURVEYS – CORPORATE RESPONSES
Investor interest surveys — such as those conducted by CDP – can provide an advantage for companies in responding to disclose important ESG data and take part in the movement towards building a carbon-neutral economy.
The information provided to CDP by companies makes up the most comprehensive dataset tracking global climate progress. Investors use these volumes of data on climate change, deforestation, supply chain management and water security to inform decision-making, engage with companies, and identify risks and opportunities.
Corporate response to the annual, global surveys benefits investors and provides companies with ways to inform investor engagement strategies.
Established by investors 20 years ago as the Carbon Disclosure Project, CDP today is an organization that supports the movement of cities and companies toward greater measurement, management and disclosure of key data and information to promote a carbon neutral economy.
These data helps to manage risks and opportunities associated with climate change, water security and deforestation. More than 2,000 companies in North America and 8,000 globally disclose data through CDP.
Disclosure is key, not only for measuring impact but also for setting goals and targets that enable climate action. CDP has been at the forefront of the disclosure movement to track and measure global progress towards building a more sustainable world.
Advantage: reporting to CDP is advantageous because it helps companies get ahead of regulatory and policy changes, identify certain ESG risks, and find new opportunities to manage those risks in a way that is beneficial for both business — and the planet.
TCFD Connection: The CDP response questions have been aligned with the TCFD and a good comprehensive CDP response can provide a baseline for a majority of the necessary disclosures for TCFD.
INTERNATIONAL GOALS – THE SUSTAINABLE DEVELOPMENT GOALS (SDGS)
The United Nations Sustainable Development Goals are unique in that they are a set of widely-accepted international goals. Countries, cities, and companies all over the world and use these goals as a way to inform and inspire action on sustainable development goals. The goals are very broad in aims so it allows for parties to adapt and use the goals that are most relevant. They are non-binding and therefore their implementation depends on local government or corporate polices to be upheld.
These are a United Nations-developed plan to [among the goals] end extreme poverty, reduce inequality, and protect the planet. The SDGs succeeded the Millennium Goals (2000-to-2015) and extend collaborative and independent action out to year 2030 by public, private and social sector organizations. The goals (17 in all with 169 underlying targets) have been adopted by 193 countries and emerged as a result of the most comprehensive multi-party negotiations in the history of the United Nations.
The SDGs focus on ways to generate impact and improve the lives of all people. The goals are related to themes such as water, energy, climate, oceans, urbanization, transport, and science and technology.
The SDGs are not focused on any sector or stakeholder in specific. Instead they serve as a general guidance that can be used at any level.
Distinctions: as one of the most widely recognized frameworks for corporate consideration, companies and stakeholders can use the Goals as a way to guide their sustainability initiatives. Many companies recognize them in corporate reports and many align certain aspects of their mission to relevant SDGs.
AUTHOR'S CONCLUSION
As asset owners and asset managers now expect – and demand – greater corporate disclosure on climate change-related topics and issues, there are numerous resources available for managers to create and inform comprehensive, compelling reports for public access.
It is up to company leaders to identify the category of resources that would best benefit them, whether that be aligning with a disclosure framework, answering a CDP survey, or using ESG ratings. Most leading companies are taking a hybrid approach and utilizing the best features of the most common frameworks to maximize the ROI of their investments in this area. We've identified some of the most-utilized here but there are still many more resources available in each category depending on industry, sector, geography, nature of the business, and other factors.
While the large universe and diversity of sustainability and ESG disclosure and reporting resources might be confusing to make sense of, it is increasingly obvious that investors are relying on ESG factors when making decisions and that the importance of climate change is only growing.
The team at Governance & Accountability Institute are experts in helping corporate clients work with the frameworks, etc. profiled here. I serve as a reporting analyst-intern at, reviewing literally dozens of corporate sustainability / ESG / citizenship – responsibility – citizenship et al reports each month.
ABOUT KELLY MUMFORD
Kelly Mumford is a graduate of the Development Planning Unit at the University College London. She graduated with a Master's of Science in Environment and Sustainable Development (with Merit). Her course focused on environmental planning and management in developing countries and culminated with a month of field work in Freetown, Sierra Leone. She led a group during their research on the water and sanitation practices of a coastal community in the city of Freetown. Her work in preparation for this fieldwork includes a policy brief, published by their partner research organization.
Kelly has been very active in the environmental sector and prior to this interned at Natural Resources Defense Council. She holds a Sustainability Associate Credential from the International Society of Sustainability Professionals and has been an active member of the organization, planning and executing a successful N.Y.C. chapter's whale watching event. She holds a B.A. in Environmental Studies and a minor in Spanish studies from the University of Delaware. She plans to pursue a career in sustainability, focusing on ESG and leveraging her research experience and knowledge of sustainability reporting.
https://www.msci.com/esg-indexes
https://www.msci.com/documents/1296102/14524248/MSCI+ESG+Ratings+Methodology+-+Exec+Summary+2019.pdf
https://www.msci.com/what-is-esg
https://www.msci.com/esg-ratings
https://www.robecosam.com/csa/indices/djsi-index-family.html
https://www.sustainalytics.com/esg-ratings/
https://www.cdp.net/en/companies-discloser
https://www.globalreporting.org/Information/about-gri/
https://corpgov.law.harvard.edu/2017/07/27/esg-reports-and-ratings-what-they-are-why-they-matter/
https://insight.factset.com/resources/iss-gqs-datafeed-at-a-glance
https://www.ishares.com/us/literature/whitepaper/an-evolution-in-esg-indexing.pdf
https://corpgov.law.harvard.edu/2020/03/25/institutional-investor-survey-2020/
Posted in About the Climate Crisis, Business & Society, Climate Change, Community Investing, Corporate Citizenship, Corporate CSR Reporting, Corporate Governance, Corporate Responsibility, Corporate Sustainability Reporting, ESG Issues, Global Reporting Initiative, SDGs, Sustainability Big Data, Sustainability Reporting	| Tagged . Task Force for Climate-Related Financial Disclosures, Carbon Disclosure Project, CDP, Climate Change Issues, Corporate Sustainability Assessment, Corporate Transparency, CSA, Dow Jones Sustainability Indices, ESG, ESG Ratings, FASB, Federal Reserve System, G-20, Global Reporting Initiative, GRI, Harvard Law School Forum on Corporate Governance, HCM, Human Capital Management, Institutional Shareholder Services, ISS, ISS QualityScores, Kelly Mumford, MSCI, Reporting Frameworks, Reporting Standards, S&P 500 ESG Index, S&P 500 Index, S&P Global, SAM, SASB, SDGs, SEC, Securities & Exchange Commission, Sustainable Accounting Standards Board, Sustainable Development Goals, Sustainalytics, TCFD, The DJSI, UN SDGs, US Treasury Department	| Leave a reply
For the Board Room and C-Suite –Questions and Advice From the Harvard Business Review About Corporate ESG and Sustainability
Corporate managers & executives: is your board "sustainability/ESG fluent"? And if not – why not?
by Hank Boerner – Chair and Chief Strategist, G&A Institute
Attorney Silda Wall Spitzer and John Mandyck, CEO of Urban Green Council, writing in Harvard Business Review explain that while "some" board members have become increasingly "sustainability/ESG fluent" many companies [still] don't expect their directors to understand sustainability or ESG and don't provide board room education on the subject matter.
Those enterprises are at a competitive disadvantage, the authors believe.
An important game-changer for the board room and C-suite to understand is the profound influence of ESG as investment professionals (institutional asset owners and their management firms) increasingly use ESG data, ratings, rankings, and scores to analyze their portfolio holdings (and screening prospective investments).
These ratings, rankings, scores and comprehensive ESG profiles provide a foundation of corporate ESG data and information from the independent ratings agencies that the asset owners and managers use to refine their models and apply to portfolio management policies and practices.
The HBR authors explain the basics of this for the publication's broad management audience – those men and women at the top of the corporate pyramid who should be aware of, understand and be focused on their company's ESG strategies, actions and outcomes (or current lack thereof!).
The company's sustainability scores provided by third party organizations are based on corporate disclosure and performance in three main categories (environmental, social, governance).
Here at G&A Institute we see the leaders in large-cap space embracing sustainability / ESG as evident by the results of our annual survey of the S&P 500 Index® companies' sustainability & responsibility reporting.
From the rate of about 20 percent eight years ago, we now find 86% of the 500 large-cap firms are now publishing such reports — many using very innovative and robust approaches.
We're seeing that the mid-cap and small-cap companies are catching on to the trend and beginning their own sustainability journey that will result in still broader disclosure and reporting. But not all mid- and small-caps are on board yet.
This is an area of tremendous opportunity for leadership by companies who make the first move in their sectors and differentiate themselves from their industry and investment peers.
In our conversations with managers at companies just starting out on their sustainability journey (or contemplating same), we explain that there is already a "public ESG profile" of the company "out there" and being studied by investors.
Perhaps, being studied by a good portion of the company's current shareowner base, depending on the size of the company (the market cap), geography, sector or industry classification, or other factors.
The often- scattered and diverse elements of the existing ESG public profile come from the company's financial filings, regulatory filings (such as for environmental data), financial and other analyst reports, the company's web site postings, ESG "brochure-type" reports — and a host of ratings and scores created by the ESG ratings providers and used by investors.
There are more than 200 such ESG / sustainability ratings organizations of varying size and type. The major influencers for institutional investors include ESG raters such as MSCI, Sustainalytics, and Institutional Shareholder Services (ISS), and ESG data providers such as Bloomberg and Thomson Reuters.
What directors and executives of all public companies need to understand is that important decisions about their companies are being made in large measure now by the foundational work of these organizations and their many peers around the world.
And if the company does not tell the story of its sustainability journey, others will (and are).
Potential Impacts:
The work of the ESG ratings firms also can affect company-customer relationships; employee recruitment and retention; business partnerships and collaborations; relations with civic leaders and the communities the company operates in; for global players, the countries they operate in; the stock exchanges their issues trade on; their insurers and re-insurers views of the enterprise…and other aspects of corporate finance.
While "ESG" and "sustainability" may be seen as touchy-feely and "non-financial" concepts in some board rooms and C-suites, the material ESG issues are really about the company's risk management profile, the quality of leadership at the top, competitive advantage, sustainability in the traditional investment view (the company has lasting power and is a long-term value proposition), and more.
As for being "non-financial", the HBR authors point to a Harvard B-School study that found that $1 invested in a company focused on ESG resulted in $28 return vs. $14 for those companies not yet focused on ESG. What director would not want to brag about this kind of achievement that is real and financial? It's time to stop thinking of ESG as being touchy feely and squishy!
The HBR commentary is good basic overview for directors to help them understand the role of the board in overseeing and helping to shape the strategies and actions that will comprise their company's sustainability journey.
Author Silda Wall Spitzer is the former First Lady of New York State and co-founder and CEO of New York Makers, which curates NYS-made gifts and events that "define New York State". She is a former private equity director. Information at: https://newyorkmakers.com/
Co-author John Mandyck is CEO of Urban Green Council; its mission is to transform buildings in New York City and around the world through research, convening, advocacy and education. More information at: https://www.urbangreencouncil.org/aboutus
This Week's Top Stories
What Boards Need to Know About Sustainability Ratings
(Friday – May 31, 2019) Source: Harvard Business Review – Corporate boards of directors must tackle questions about sustainability in a new and urgent manner. If they don't, they will hear from investors about their lack of action. In just the latest indication of the investor…
Posted in Business & Society, Climate Change, Corporate Citizenship, Corporate Governance, Corporate Sustainability, Global Reporting Initiative, Global Warming	| Tagged Bloomberg, Corporate Board Room, Eikon, Harvard Business Review, Institutional Shareholder Services, ISS, John Mandyck, MSCI, New York Makers, Refinitiv, Silda Wall Spitzer, Sustainalytics, Thomson Reuters, Urban Green Council	| Leave a reply
Breaking News: $12 Trillion in Professionally Managed Sustainable Investment Assets — $1-in-$4 of Total U.S. Assets
Posted on October 31, 2018 by Hank Boerner
by Hank Boerner – Chair and Chief Strategist – G&A Institute
Call it "sustainable and responsible investing" or "SRI" or "ESG investing" or "impact investing" – whatever your preferred nomenclature, "sustainable investing" in the U.S.A. is making great strides as demonstrated in a new report from US SIF.
The benchmark report issued today – "The Report on US Sustainable, Responsible and Impact Investing Trends 2018" – by the U.S. Forum for Sustainable and Responsible Investment (US SIF) puts things in perspective for investors and corporate managers:
At the beginning of 2018, the institutional owners and asset management firms surveyed reported total sustainable investment at US$12 trillion AUM – that is 26% of the total assets under professional management in the U.S.A. — $1-in-$4 of all investable assets!
That's an increase of 38% since the last US SIF report at the start of 2016. The AUM of sustainable investments then was $8.72 trillion. That was $1-in-$5.
And that was an increase of 33% since the survey of owners and managers at the start of 2014.
Sustainable investing jumped following the 2008 financial crisis, with growth of 240% from 2012 to 2014.
The US SIF bi-annual survey of investors began in 1995, when the total of sustainable investments professionally managed was pegged at $639 billion. There has been an 18-fold increase in sustainable investing assets since then – at a compound rate of 13.6% over the years since that pioneering research was done.
The researchers queried these institutions in 2018:
496 institutional owners (fiduciaries such as public employee pension funds and labor funds – these represented the component of the survey results at $5.6 trillion in ESG assets**).
365 asset/money managers working for institutional and retail owners;
private equity firms, hedge fund managers, VC funds, REITS, property funds;
alternative investment or uncategorized money manager assets);
1,145 community investing institutions (such as CDFIs).
What is "sustainable investing"? There are these approaches adopted by sustainable investors:
Negative/exclusionary screening (out) certain assets (tobacco, weapons, gaming);
Positive/selection of best-in-class considering ESG performance (peer groups, industry, sector, activities);
ESG integration, considering risks and opportunities, ESG assets and liabilities);
Impact investing (having explicit intention to generate positive social and environmental impact along with financial return);
Sustainability-themed products.
The top ESG issues for institutional investors in 2018 included:
Conflict Risk (terror attacks, repressive regimes) – $2.97 trillion impact;
Tobacco related restrictions – $2.56 trillion
Climate Change / Carbon-related issues – $2.24 trillion
Board Room issues – $1.73 trillion
Executive Pay – $1.69 trillion
Asset managers identified these issues as among the most important of rising concerns:
Climate change and Carbon
Conflict risk
Prominent concerns for asset owners included:
Transparency and Corruption
Civilian firearms / weapons
a range of diversity and equal employment opportunity issues.
The Proxy Voting Arena
The shareowners and asset managers surveyed regularly engage with corporate executives to express their concerns and advocate for change in corporate strategies, practices and behaviors through presentation of resolutions for the entire shareholder base to vote on in the annual corporate elections.
From 2016 to 2018 proxy seasons these resolutions were focused on:
Proxy access for shareowners (business associations have been lobbying to restrict such access by qualified shareowners).
Corporate Political Activity (political contributions, lobbying direct expenses and expenses for indirect lobbying by business groups with allocated corporate contributions).
A range of environmental and climate change issues.
Labor issues / equal employment opportunity.
Executive compensation.
Human Rights.
Call for independent board chair.
Board Diversity.
Call for sustainability reporting by the company.
Public employee pension systems/funds led the campaigns with 71% of the resolutions filed in 2016, 2017 and 2018.
Labor funds accounted for 13% of filings.
Asset/money management firms accounted for 11.5%.
A total of 165 institutional owners and 54 asset managers filed or co-filed resolutions on ESG issues at the beginning of the 2018 proxy voting season.
The ESG Checklist
The institutions and asset managers queried could answer queries that addressed these ESG, community, product factors in describing their investment analysis, decision-making and portfolio construction activities. This is a good checklist for you when discussing ESG issues and topics with colleagues:
The "E" – Environmental:
Climate change / carbon (including GhG emissions)
Fossil fuel company divestment from portfolio, or exclusion
Green building / smart growth solutions
Pollution / toxics
Sustainable Natural Resources / Agriculture
Other E issues
The "S" – Social (or "societal"):
Conflict risk (repressive regimes, state sponsors of terrorism)
Equal employment opportunity (EEO) / diversity
Gender lens (women's socio-economic progress)
Prison-related issues (for-profit prison operators)
Other S issues
The "G" – Corporate Governance:
Board-related issues (independence, pay, diversity, response to shareowners)
Political contributions (lobbying, corporate political spending)
Transparency and anti-corruption policies
Product / Industry Criteria:
Animal testing and welfare
Faith-based criteria
Military / weapons
Community Criteria:
Community relations / philanthropy
Fair consumer lending
Microenterprise credit
Place-based investing
Small and medium business credit
The report was funded by the US SIF Foundation to advance the mission of US SIF.
The mission: rapidly shift investment practices towards sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. Both the foundation and US SIF seek to ensure that E, S and G impacts are meaningfully assessed in all investment decisions to result in a more sustainable and equitable society.
The bold name asset owners and asset managers and related firms that are members of US SIF include Bank of America, AFL-CIO Office of Investment, MSCI, Morgan Stanley, TIAA-CREF, BlackRock, UBS Global Asset Management, Rockefeller & Co, Bloomberg, ISS, and Morningstar.
Prominent ESG / sustainable investment players include Walden Asset Management, Boston Common Asset Management, Clearbridge, Cornerstone Capital, Neuberger Berman, As You Sow, Trillium Asset Management, Calvert Investments (a unit of Eaton Vance), Domini Impact Investments, Just Money Advisors, and many others.
The complete list is here: https://www.ussif.org/institutions
Information about the 2018 report is here: https://www.ussif.org/blog_home.asp?display=118
About the US SIF Report: The report project was coordinated by Meg Voorhees, Director of Research, and Joshua Humphreys, Croatan Institute. Lisa Woll is CEO of US SIF. The report was released at Bloomberg LP HQs in New York City; the host was Curtis Ravenel, Global Head of Sustainable Business & Finance at Bloomberg. q1
Governance & Accountability Institute is a long-time member. EVP Louis D. Coppola is the Chair of the US SIF Company Calls Committee (CCC) which serves as a resource to companies by providing a point of contact into the sustainable investment analyst community
** Institutional owners include public employee retirement funds, labor funds, insurance companies, educational institutions, foundations, healthcare organizations, faith-based institutions, not-for-profits, and family offices.
Posted in Business & Society, Climate Change, Community Investing, Corporate Citizenship, Corporate Sustainability, ESG Issues, Global Warming, Human Rights, Impact Investing, Investment Case, Investor Engagement, Shareowner Activism, SRI, Sustainability Professionals, Sustainable & Responsible Investing, Sustainable Investing	| Tagged AFL-CIO Office of Investment, As You Sow, Bank of America, BlackRock, Bloomberg, Boston Common Asset Management, Calvert Investments, Clearbridge, climate change, Community Investment, Cornerstone Capital, Corporate Philanthropy, Corporate Political Spending, Corruption Risk, Croatan Institute, Curtis Ravenel, Diversity & Inclusion, Domini Impact Investments, Eaton Vance, Forum for Sustainable and Responsible Investing, human rights, Institutional Shareholder Services, ISS, Joshua Humpreys, Just Money Advisors, Labor Pension Funds, Lisa Woll, Meg Voorhees, Morgan Stanley, Morningstar, MSCI, Neuberger Berman, Nuveen, Product Safety, Proxy Access, Proxy Resolutions, Public Employee Pension Funds, Responsible and Impact Investing Trends 2018", Rockefeller & Co, Shareholder Proxy Resolutions, TIAA-CREF, Trillium Asset Management, UBS Global Asset Management, US SIF, Walden Asset Management, "The Report on US Sustainable	| 1 Reply
About Sustainability Ratings: CPAs Are Being Educated by Their Profession's Journal – A Good First Effort to Push Information to All Levels of CPAs
Posted on August 6, 2018 by Hank Boerner
The professional CPAs working inside a public company, or in the outside accounting firm working with a company may or may not yet be involved in assisting corporate managers in responding to a growing number of third-party surveys focused on the company's ESG strategies, actions and achievements. Responses to these periodic surveys and engagements by other means with the ratings and rankings organizations are increasingly shaping outcomes – that is, investor opinions of the company.
Many more companies are now receiving surveys from and responding to a growing number of third-party ESG rating providers – and as we are told by our corporate connections, very often managers are straining under the effort to effectively respond given the breadth of information sought and the information available in the corporation.
As we advise corporate managers, it is important to know that there is a publicly-available ESG profile of your company that investors are considering in various ways – and either you will shape the profile and tell the company's sustainability progress story, or someone else will. That "someone else" would be the global universe of ESG rating providers — and their output is directed to their investor clients. The ones who invest in, or could invest in, your company.
Savvy corporate managers of course "get it" and really make the effort to effectively respond to as many queries and surveys as possible. But what about the internal financial managers and outside accountants – are they involved? At some firms, yes, and other firms no — or not yet.
The Big Four are tuned in to corporate ESG / sustainability disclosure and reporting. But many smaller CPA firms are not.
And among small- and mid-cap publicly-traded firms, the role of the ratings and rankings service providers could still be an unknown and under-appreciated factor in shaping the firm's reputation, valuation, access to and cost of capital, and other considerations. The article in the influential CPA Journal this month is a worthwhile attempt to educate professional CPAs, whatever their position.
Five professors — co-authors and colleagues at the Feliciano School of Business, Montclair State University — explored the question, "Are Sustainability Rankings Consistent Across Rating Agencies?" One obvious element in the piece that we noticed is something happening in both the corporate sector and investment community: the fluid interchangeability of terms of reference.
Is what is being explored by the ESG ratings and rankings service providers and their investor clients performance related to …CSR (corporate social responsibility)…ESG performance factors (environment/social/governance)…corporate sustainability…corporate citizenship…sustainable investing? Combinations? All of these?
The authors use the terms interchangeably, as do company managers and capital markets practitioners in discussing the ever-more important role that "corporate sustainability rating providers" play in investor decision-making.
They cite the 2014 overview of rating agencies by Novethic Research (7 international rating agencies, 2 non-financial data providers, 8 specialized agencies and 20 local/regional agencies). Several studies and books are identified as reference sources.
Specific CSR rankings examined for 2015 results: Newsweek's Greenest Companies; Forbes Global 100 Most Sustainable Corporations; and, CSR Magazine Top 100 Global RepTrak companies.
We offer the perspectives of the Journal authors in our Top Story so that you can see what CPA's will be reading in their Journal.
There are important points raised — but the three rankings examined do not cover the full breadth of the expanding universe of ESG rating organizations. And we are light years away from 2015 in terms of the rating agencies' influence.
The three rankings cited are not as "investor decision-useful" as would be the analytical work of teams at such firms as MSCI, Sustainalytics, Institutional Shareholder Services (ISS); what was offered in 2015 doesn't compare to the depth of ESG data available today via Bloomberg and T-R Eikon terminals; the RobecoSAM Corporate Sustainability Assessment (CSA) ratings that influence inclusion in the DJSI; and, volumes of information made available by CDP (formerly the Carbon Disclosure Project).
The G&A Institute team assists corporate managers in responding to these important players and an ever-widening range of third-party ESG service providers.
We'd like to share three basic observations with you and with CPAs: (1) the third party queries are becoming more probing in the information and data sought; (2) the corporate response effort is much more organized and thorough these days; (3) the results of both of these efforts are increasingly important to, and utilized by, the institutional investment community (both asset owners and their managers).
So — the more information that CPAs have about sustainable investing and corporate ESG performance, the better equipped they'll be to support their clients. The article is a good start in this regard.
The journal authors are academics Betsy Lin, Silvia Romero, Agatha Jeffers, Laurence DeGaetano, and Frank Aquilino.
Are Sustainability Rankings Consistent Across Ratings Agencies?
(Thursday – July 26, 2018) Source: CPA Journal – As more and more companies begin to devote serious attention to sustainability reporting, many different systems of rating the depth and effectiveness of sustainability efforts have arisen. The authors compare three leading…
Posted in Corporate Responsibility, Corporate Sustainability, Financially Material, Investment Case, SRI, Sustainable & Responsible Investing, Sustainable Investing	| Tagged Agatha Jeffers, Asset$, Betsy Lin, CDP, Corporate ESG Public Profile, corporate responsibility, Corporate Sustainability Assessment, Corporate Sustainability Reporting, CPA, CPA Journal, CR, CSA, CSR Magazine, Eikon, ESG Performance Factors, ESG Ratings, Forbest, Frank Aquilino, Global 100 Most Sustainable Companies, Greenest Companies, Institutional Shareholder Services, ISS, Laurence DeGaetano, Montclair State University, MSCI, Newsweek, Novethic Research, RobecoSAM, Silvia Romero, Sustainability Rankings, Sustainable Investing, Thomson Reuters	| Leave a reply
Barron's Magazine Heralds the Arrival of Sustainable Investing to the Mainstream In Special Issue This Week – Sustainable Investing Version 2.0 Is Here!
The influential Barron's magazine is published on Mondays by Dow Jones & Company with distribution to almost a half-million retail and institutional investors (300,000+ for print version, the rest digital or combination).
Barron's says it has been "delivering market-beating stock picks and investment advice to wealthy readers since 1921…"
In Fall 2017, the Barron's editors picked up the pace on coverage of sustainable investing, adoption of ESG approaches and related topics and positioned its expanding coverage with the statement: "Sustainable Investing is a Powerful Force in Today's Capital Markets." T
he October 7, 2017 issue was devoted to sustainable investing and the cover story was "The Top Sustainable Funds" for investors.
Editor Beverly Goodman explained: "As a team of seven writers and I began work on Barron's first special edition devoted entirely to sustainable investing, we realized something – we could not get people to stop talking about it! CEO's wanted to tout the strides they are making in labor practices and protecting the environment. Fund managers wanted to talk about how adding ESG criteria to stock picking isn't that much of a stretch from the multitude of decisions they routinely use."
And so: Barron's would now cover this burgeoning style of investing on a regular basis. "We are only in Version 1.0 of sustainable investing – 2.0 is where ESG is not a separate category but a natural part of active management."
The October 2017 issue's cover story was about sustainable mutual funds based on data provided by Morningstar using Sustainalytics data – 37% of the 203 funds achieved a "high" or "above average rating" and beat the S&P 500® Index returns. (Only 28% of all large-cap mutual funds managed to do that.)
The Editors Began Steady Coverage of Sustainable Investing
Each of the issues that followed there would be some kind of coverage of sustainable investing. Barron's followed up with another significant issue in February 2018 naming the sharing the magazine's first ranking of sustainable companies for investor-readers.
Calvert Research and Management helped with the choices (using data from Sustainalytics, ISS and Thomson Reuters ASSET4) for the "Top 100 Sustainable Companies" rankings.
The top five positions were held by Cisco (#1), salesforce.com, Best Buy, Intuit, and HP (at #5). Said Calvert CEO John Streur: "This list gives people insight into companies addressing future risks and into the quality of management."
Now – The Mainstream Impact of This Week's Issue
The editors continued to ramp up coverage in each issue since late-2017. And this week's issue (dated June 25) positioned Sustainable Investing Version 2.0 for its audience. This week's content included:
The cover story is about "The New Conscience of Wall Street" – focused on BlackRock CEO Larry Fink and his "Investing With Purpose Theme." (Subtitle: Larry Fink's Mission: How the BlackRock CEO is leading a sustainable revolution on Wall Street.")
One of the articles is a debate between George Serafeim (Harvard B School professor and stalwart advocate for sustainable investment) and Adam Sessel (CEO of Gravity Capital Management): "Does Sustainable Investing Lead to Lower Returns?"
The traditional Barron's approach to a panel of expert to explore an investing topic is this week's "ESG Roundtable: Great For the World, Good For Investors" – featuring Erika Karp of Cornerstone Capital; Todd Ahisten, Parnassus Investments; Jon Hale, Morningstar; and Roelfien Kuijpers of DWS Group (the asset management spin off of Deutsche Bank).
There is a "Getting Started in Sustainable Investing" guide for readers, including a Glossary and suggestions for mutual funds "with a purpose".
The feature about Larry Fink is entitled, "In Defense of Social Purpose" – and his argument for sustainable investing that editors say has "ignited a burning debate about his concept…and him."
Fink's words in his CEO letter, says writer Leslie Norton, "…amounted to a Rorschach test for a polarized nation. As the debate rages on over immigration, climate change, guns, income inequality, and other issues, even considering their economic impact on a company looks like a political statement. Yet Corporate America and Wall Street are increasingly doing that…"
To hear CEO Fink tell it, writes Norton, "…short termism is a scourge of corporate thinking and is encouraged by the financial media…" And…ignoring ESG can take a toll…
With this feature there is a neat "Road to Sustainability" chart showing the evolution of SRI from the 1960s to today with many societal issues described along the way to 2018.
Other features include "The Trump Bump: A Silver Lining for ESG Investors" – telling readers that in the month after the November 2016 election results were in, investors' money flowed into ESG mutual funds and ETFs; the flow into the 275 mutual funds and ETF's focused on ESG was 10-fold over the prior month!
And, the backlash continues; since November 2016, inflows to ESG-focused mutual funds and ETFs is averaging $700 million per month, which is three times the pace of the prior 12 months. This lifted ESG focused funds to $118 billion to date.
Looking at fiduciaries, the editors say that $23 trillion is not invested in pension, separately managed accounts and other funds using ESG approaches.
Barron's editors have selected "The 20 Most Influential People in Sustainable Investing" – the Who's Who in ESG – you will want to see that list.We are cheered to see our US SIF colleagues Lisa Woll, Tim Smith, Amy Domini, Matt Pasky, and John Streuer in the Top 20!
There is also an interview in the special issue with Jeremy Grantham and how the respected value investor (he's on the list) is a force in increasing awareness of climate change.
Finally, the Barron's conference unit scheduled its first "Impact Investing Summit" in San Francisco (last week) and Crystal Kim reports on that event, with focus on the Millennials and their generation's increasing impact on investing trends.
We at G&A Institute think this is a tipping point moment for investors, as the Barron's editors position sustainable investing as now a mainstream
Footnotes: We prepared a brief about Barron's coverage in October 2018 on our "G&A Institute's To the Point!" web platform, and a follow up brief in February 2018. You can find the in-depth briefs at:
https://ga-institute.com/to-the-point/the-authoritative-barrons-magazine-now-sets-the-pace-sustainable-investing-is-a-powerful-force-in-todays-capital-markets-so-say-the-editors/
https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/
There is information about Morningstar's focus on sustainable investing mutual funds and ETFs at: https://www.morningstar.com/articles/745467/morningstar-sustainability-rating.htm
Be sure to check out the special issue of Barron's at:https://www.barrons.com/this_week
Posted in Climate Change, Corporate Sustainability, ESG Issues, Impact Investing, Investment Case, SRI, Sustainability Professionals, Sustainable & Responsible Investing, Sustainable Investing	| Tagged Adam Sessel, Amy Domini, ASSET4, Barron's, Best Buy, Beverly Goodman, BlackRock, Calvert Research and Management, Cisco, Cornerstone Capital, Crystal Kim, Dow Jones & Company, DWS Group, Erika Karp, George Serafeim, Gravity Capital Management, HP, Institutional Shareholder Services, Intuit, ISS, John Streuer, John Streur, Jon Hale, Larry Fink, Leslie Norton, Lisa Woll, Matt Pasky, Morningstar, Parnassus Investments, Roelfien Kuijpers, salesforce.com, Sustainalytics, Thomson Reuters, Tim Smith, Todd Ahisten	| 1 Reply
The "100 Best Corporate Citizens 2018" Roster -– Published by CR Magazine
Posted on May 17, 2018 by Hank Boerner
by Hank Boerner – Chair, G&A Institute
Now in its 19th year, the well known CR Magazine "100 Best Corporate Citizens 2018" list was just unveiled; this effort recognizes the ESG performance of public companies in the United States. (The publication is now titled Corporate Responsibility Magazine, published by 3BL Media LLC.)
Top Companies:
Microsoft (MSFT) earned top ranking (#1), followed by Accenture, Owens Corning, Intel, and Hasbro (at #5).
The next five ranked companies are (#6) Altria Group, Cisco Systems, Ecolab, Johnson & Johnson, and NVIDIA Corp (at #10).
The biggest gainers for the year were Becton, Dickenson; IBM; Owens Corning; and Biogen. The complete list is available in our Top Story (below).
Assembling the list does not rely on responding to a survey, publisher Dave Armon explains. Each year the rankings measure the success of the "Brands Taking Stands" movement by celebrating the most successful, most transparent companies that report on their responsible practices. "We congratulate the company on the 2018 list for their commitment to corporate responsibility," he said in announcing the rankings.
The list examines 260 data points of performance measures and disclosure, harvested from publicly-available information for every company in the Russell 1000® Index, in seven categories (environmental, climate change, employee relations, human rights, corporate governance, financial, and philanthropy & community support). The underlying research is conducted by ISS Corporate Solutions (Institutional Shareholder Services).
The inaugural list was published in 1999 by the former Business Ethics Magazine, which segued into CR Magazine.
Coming up soon, CR Magazine in collaboration with the 3BL Association (formerly the Corporate Responsibility Association), presents the well known annual COMMIT!Forum conference, now re-branded as the 2018 3BL Forum by its new owners.
This year's event is at MGM National Harbor near Washington DC, October 23-25; the theme is "Brands Taking Stands – The Long View".
3BL Media LLC is the global leader in disseminating CR and sustainability content. Its brands include Triple Pundit; CSR Wire; 3BL Wire; 3BL Report Alert; Justmeans, 3BL Studio, and others. Corporate clients utilize the platforms for their sustainability, CR and related content distribution, communications and campaigns.
G&A Institute has collaborated with the 3BL Media staff and Corporate Responsibility Magazine on a long-term basis. 3BL content is carried daily on G&A's news and opinion web-based distribution platforms.
The details for the "100 Most are in the Top Story:
Corporate Responsibility Magazine Announces 2018 100 Best Corporate Citizens
(Wednesday – May 09, 2018) Associated Profiles : CSRwire Source: CSR Wire — Corporate Responsibility Magazine (CR Magazine) announced today its 19th annual 100 Best Corporate Citizens list, recognizing the standout environmental, social and governance (ESG) performance of…
Posted in Business & Society, Business Case, Corporate Citizenship, Corporate Responsibility, Corporate Sustainability, ESG Issues, Investment Case, Sustainability Professionals	| Tagged 3BL, 3BL Association, 3BL Media Group, 3BL Report Alert, 3BL Studio, 3BL Wire, Accenture, Altria Group, Becton, Biogen, Business Ethics Magazine, Cisco Systems, COMMIT!Forum, Corporate Responsibility Association, Corporate Responsibility Magazine, CR, CSR, CSR Wire, CSRwire, Dave Armon, Dickenson, Ecolab, ESG, ESG Ratings, Hasbro, IBM, Institutional Shareholder Services, Intel, ISS, ISS Corporate Solutions, Johnson & Johnson, Justmeans, Microsoft, NVIDIA Corp, Owens Corning, Russell 1000® Index, Triple Pundit, "100 Best Corporate Citizens 2018", "Brands Taking Stands"	| Leave a reply
Proof of Concept for Sustainable Investing: The Influential Barron's Names the Inaugural "The Top 100 Sustainable Companies — Big Corporations With The Best ESG Policies Have Been Beating the Stock Market."
By Hank Boerner – Chairman and Chief Strategist, G&A Institute
Barron's 100 Most Sustainable Companies
Barron's is one of the most influential of investor-focused publications (in print and digital format) and a few months ago (in October), the editors published the first of an ongoing series of articles that will focus on ESG performance and sustainable investing, initially making these points:
Barron's plans to cover this burgeoning style of investing on a more regular basis. A lot of possible content that was developed was left on the cutting room floor, the editors note.
Says Barron's: "We are only in Version 1.0 of sustainable investing. 2.0 is where ESG is not a separate category but a natural part of active management."
And: "Given the corporate scandals of recent days (Wells Fargo, Equifax, Chipotle, Volkswagen, Valeant Pharmaceuticals), it is clear that focus on companies with good ESG policies is the pathway to greater returns for investors!"
The current issue of Barron's (Feb 5, 2018) has a feature article and comprehensive charting with this cover description:
"The Top 100 Sustainable Companies – Big Corporations With the Best ESG Policies Have Been Beating the Market."
Think of this as proof of concept: The S&P 500® Index Companies returned 22% for the year 2017 and the Barron's Top 100 Sustainable Companies average return was 29%.
The 100 U.S. companies were ranked in five categories considering 300 performance indicators. Barron's asked Calvert Research and Management, a unit of Eaton Vance, to develop the list of the Top 100 from the universe of 1,000 largest publicly-held companies by market value, all headquartered in the United States.
Calvert looked at the 300 performance indicators that were provided by three key data and analytic providers that serve a broad base of institutional investors:
Sustainalytics,
Institutional Shareholder Services (ISS)
and Thomson Reuters ASSET4 unit.
Five umbrella categories were considered:
There were items considered in the "shareholders" category, like accounting policies and board structure; employee workplace diversity and labor relations; customer, business ethics and product safety; planet; community; GHG emissions; human rights and supply chain.
We can say here that "good governance" (the "G" in ESG) is now much more broadly defined by shareholders and includes the "S" and "E" performance indicators (and management thereof), not the formerly-narrow definitions of governance. Senior managers and board, take notice.
Every company was ranked from 1-to-100, including even those firms manufacturing weapons (these firms are usually excluded from other indexes and best-of lists, and a number of third party recognitions).
Materiality is key: the analysts adjusted the weighting of each category for how material it was for each industry. (Example: "planet" is more material for chip makers using water in manufacturing, vs. water for banking institutions – each company is weighted this way.)
The Top 100 list has each company's weighted score and other information and is organized by sector and categories; the complete list and information about the methodology is found at Barron's.com.
The Top 5 Companies overall were:
Cisco Systems (CSCO)
salesforce.com (CRM)
Best Buy (BBY)
Intuit (INTU)
HP (HPQ)
The 100 roster is organized in categories:
The Most Sustainable Consumer Discretionary Companies (Best Buy is at #1)
The Most Sustainable Financials (Northern Trust is #1) – Barron's notes that there are few banks in the Top 100. Exceptions: PNC Financial Services Group and State Street.
The Most Sustainable Industrials (Oshkosh is ranked #1)
The Most Sustainable Tech Outfits (Cisco is at the top)
Familiar companies names in the roster include Adobe Systems, Colgate-Palmolive, PepsiCo, Deer, UPS, Target, Kellogg, Apple, and Henry Schein.
Singled out for their perspectives to be shared in the Barron's feature commenting on the ESG trends: John Wilson, Cornerstone Capital; John Streur, Calvert; Calvet Analyst Chris Madden; Paul Smith, CEO of CFA Institute; Jon Hale, Head of Sustainability Research at Morningstar.
Calvert CEO John Streur noted: "This list gives people insight into companies addressing future risks and into the quality of management."
Top-ranked Cisco is an example of quality of management and management of risk: The company reduced Scope 1 and 2 GHG emissions by 41% since 2007 and gets 80% of its electricity from renewable sources.
This is a feature article by Leslie P. Norton, along with a chart of the Top 100 Companies.
She writes: "…Barron's offers our first ranking of the most sustainable companies in the U.S. We have always aimed to provide information about what keenly interests investors – and what affects investment risk and performance…" And…"what began as an expression of values ("SRI") is finding wider currency as good corporate practices…"
The complete list of the top companies is at Barron's com. (The issue is dated February 5th, 2018) You will need a password (for subscribers) to access the text and accompanying chart.
For in-depth information: We prepared a comprehensive management brief in October 2017 on Barron's sustainable coverage for our "G&A Institute's To the Point!" web platform: https://ga-institute.com/to-the-point/proof-of-concept-for-sustainable-investing-barrons-weighs-in-with-inaugural-list-of-top-100-sustainable-companies/
Posted in Corporate Citizenship, Corporate Governance, Corporate Responsibility, Corporate Sustainability, ESG Issues, Financially Material, Human Rights, Investment Case, Materiality, Sustainability Reporting, Sustainable Investing	| Tagged "G&A Institute's To the Point!", Adobe Systems, Apple, ASSET4, Barron', Barron's, BBBY, Best Buy, Calvert, Calvert Research and Management, CFA Institute, Chipotle, Chris Madden, Cisco, Cisco Systems, Colgate Palmolive, Cornerstone Capital, Corporate governance, CRM, CSCO, Deer, Eaton Vance, Equifax, ESG, Henry Schein., HP, HPQ, Institutional Shareholder Services, INTU, Intuit, ISS, John Streur, John Wilson, Jon Hale, Kellogg, Leslie P. Norton, Materiality, Morningstar, Northern Trust, Oshkosh, Paul Smith, PepsiCo, PNC Financial Services Group, Research, salesforce.com, State Street, Sustainable Investing, Sustainalytics, Target, Thomson Reuters, UPS, Valeant Pharmaceuticals, Volkswagen, Wells Fargo., "The Top 100 Sustainable Companies – Big Corporations With the Best ESG Policies Have Been Beating the Market."	| Leave a reply