SILC: Beyond The Conference
Michael Kraten | 05/16/2019
Thank you very much for joining us at our flagship 4th Annual Conference on Sustainability last week. We hope that you enjoyed our full day of professional education and networking, with fellow professionals who care deeply about the long term viability of our economy, our environment, and our society.
So what happens now? How shall we proceed beyond the conference? We invite you to remain subscribed to our blog, and to consider attending our periodic SILC Club weekday evening events.
If you have any questions, comments, or suggestions for us, please let us know. We are focused on serving as the leading business organization for professionals in the field of sustainability, and we would welcome your perspective.
Once again, thank you! And now, if you’ll excuse us, we have a planet to save.
ESG Disclosure: Evaluating SEC’s Peirce and IOSCO’s Comments (Part 2 of 2)
Lee DeHihns, Jack Cox | 05/02/2019
Welcome back. In our most recent post, we looked into Hester Peirce’s recent comments about IOSCO’s call to action for more ESG reporting. This ‘Part 2’ blog will dive deep into some evidence about this topic.
A study from Sustainalytics took a sample of 231 M&As; within that sample “ESG compatible deals” outperformed “ESG incompatible deals” by an average of 21% on a five-year cumulative return basis. This suggests that ESG compatibility may have a positive contribution to the overall financial success of M&A deals. This information can be incredibly useful for investment banks that are supporting M&A deals. It is possible that ESG factors can be used to weigh risk in M&A deals moving forward. The cumulative returns of the study suggest that returns in ESG compatible deals could outweigh returns from ESG incompatible if a longer amount of time has elapsed since the original deal.[1]
A collaborative survey from Principles for Responsible Investment (PRI) and PricewaterhouseCoopers (PWC) suggests that strong ESG factors can increase the likelihood of an M&A deal getting done. Furthermore, poor performance on ESG factors can impact the valuation of an M&A deal, whereas strong performance on ESG factors does not usually facilitate a premium for valuation. PWC believes based on their survey that ESG due diligence will continue to develop in scope and in importance. This can be illustrated by the fact that 63% of surveyed companies think that there has been a large increase in the influence of ESG factors in transactions in the last three years, and that 75% of surveyed companies believe that there will be an immense increase in the influence of ESG factors over the next three years.[2] This information is relevant as it shows an increased need for due diligence in order to quantify the financial performance of ESG factors.
ESG factors could be relevant in brokerage activities. A report from J.P. Morgan took a quantitative approach to see if ESG can enhance an investment portfolio. There takeaway was that present ESG factors in a portfolio can reduce volatility, increase Sharpe ratios, and prevent large losses during times of market stress. This was concluded from various regression analyses comparing ESG indices to regional MSCI indices around the world. In fact, J.P. Morgan ran regressions with ESG combinations from ACWI (quality, dividend yield, PMOM, and low volatility); the results were excess returns of 1.7%-3.4% from the years 2007-2016.[3] This could be incredibly useful information for custodians and brokerage firms offering products, particularly to institutional investors.
Barclays investigated the impact of ESG factors on bond performance. Barclays gathered data from both Sustainalytics and MSCI. High-ESG portfolios have outperformed low-ESG portfolios on average by 0.29% per year and by 0.42% per year over the past seven year for Sustainalytics and for MSCI respectively. Positive governance factors had the greatest impact on returns from both Sustainalytics and MSCI. Although, ESG score providers may use different methodologies, this data suggests that management quality and a long horizon can benefit bondholders.[4]
Besides being informative in the investment decision-making process, some ESG criteria and related risks could have a material impact elsewhere and should be disclosed. For example, picture a retail filer that has a single supplier that supplies all the inventory for said retailer’s stores. Imagine if that supplier is subject to a worker health and safety issue at its only factory in Bangladesh (for example, explosions or a building collapse), or if there were a substantial cost increase in shipping due to compliance with greenhouse gas regulations or severe delays from extreme weather. These are specific ESG criteria/risks that should be disclosed, and are more than just “nice to have.”
In short, ESG criteria is incredibly relevant. Both issuers and investors can get a better grip for their financial making decisions with this information. It appears that Hester Peirce does not understand the current landscape of ESG reporting criteria; she should not shy away from IOSCO’s suggestions.
Thank you for reading! Moving forward, we will have some posts on specific deals that have been impacted by ESG factors.
[1] “ESG Compatibility: a Hidden Success Factor in M&A Transactions.” Sustainalytics, 29 June 2017, marketing.sustainalytics.com/acton/attachment/5105/f-09a7/1/-/-/-/-/ESG%20Spotlight%20Series_MAs
[2] “The Integration of Environmental, Social and Governance Issues in Mergers and Acquisitions Transactions.” PWC, PRI, www.pwc.com/gx/en/sustainability/publications/assets/pwc-the-integration-of-environmental-social-and-governance-issues-in-mergers-and-acquisitions-transactions
[3] ESG – Environmental, Social & Governance Investing. J.P. Morgan, 14 Dec. 2016, yoursri.com/media-new/download/jpm-esg-how-esg-can-enhance-your-portfolio
[4] “The Positive Impact of ESG Investing on Bond Performance.” Barclays Investment Bank, 31 Oct. 2016, www.investmentbank.barclays.com/our-insights/esg-sustainable-investing-and-bond-returns.html?trid=%5B%25tp_AdID%25%5D&cid=disp_sc01e00v00m04GLpa11pv29#tab3
ESG Disclosure: Evaluating SEC’s Peirce and IOSCO’s Comments (Part 1 of 2)
Lee DeHihns, Jack Cox | 04/17/2019
It is no secret that ESG has been a substantial investing theme in recent years. There continues to be added pressure for increased ESG disclosure and ESG standards development. This year, the International Organization of Security Commissions (IOSCO) has outlined the importance of added ESG disclosure. However, one SEC commissioner, Hester Peirce harshly criticized IOSCO’s call to institutional investors to disclose their ESG factors in a recent speech she gave in Washington, D.C.
Who is IOSCO? They are an international body that consists of organizations that regulate securities and futures markets. In fact, IOSCO is recognized as the global standard setter for the securities sector. Whenever IOSCO releases a statement on disclosure, it should be deemed to be significant; moreover, IOSCO never intends to repudiate existing laws or regulations. Their three securities objectives are: to protect investors, to ensure that markets are fair, efficient and transparent, and to reduce systemic risk.[1]
In January, IOSCO published a statement that set out the importance for issuers to consider including Environmental, Social, and Governance factors when disclosing information. Examples of ESG matters could include environmental factors related to sustainability and climate change, social factors about labor practices and diversity, as well as general governance-related factors. This added disclosure, according to IOSCO, is material and holds an impact in investment and voting decisions. Furthermore, ESG matters can represent substantial risks and opportunities to an issuer.[2]
Before moving forward, it is critical to understand the definition of materiality. Under case law, its definition is that there must be “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”[3] In short, for information to be material, it must be useful and informative, and be information that a reasonable investor would like to see.
Disclosure practices vary from issuers, from company to company, and from industry to industry. In other words, specific ESG disclosure may have a more material impact for some issuers than others. Some frameworks that have been developed have come from the Carbon Disclosure Project (CDP), the Global Reporting Initiative (CRI), Integrated Reporting (IR), and the Sustainability Accounting Standards Board (SASB).
With increased international calls for corporations to disclose how investments can impact socioeconomic issues, the SEC’s Hester Peirce states that there is no political will within The United States to incorporate ESG criteria into corporate disclosures. She remarks, “I do not speak for the commission or for my fellow commissioners, but I found the statement to be an objectionable attempt to focus issuers on a favored subset of matters, as defined by private creators of ESG metrics, rather than more generally on material matters.” She argues further and says that ESG criteria is immaterial and that existing fundamental disclosure should be the focus of both issuers and regulators and that it could distract the regulated community from existing federal mandates. She explains, “Issuers already spend considerable amounts of money complying with existing disclosure requirements. Requiring disclosures aimed at items identified by organizations that are not accountable to investors unproductively distracts issuers.”[4] Peirce elaborates that the SEC would be required to define ESG factors as well as possibly enforce existing regulation and procedures in order to ensure that disclosed ESG criteria is honest and accurate.
Hester Peirce should reevaluate her comments on IOSCO’s statement. ESG disclosure adds value and the opportunity to further evaluate sustainability whether it be narrow in scope at the entity level, or broader in scope at an industry level. ESG disclosure has a positive and a material impact from the perspective of both issuers and investors. In Part 2 of this piece, we will look into some evidence to support this theory.
Co-authored by Lee Dehihns & Jack Cox
[1] “About IOSCO.” IOSCO, 2019, www.iosco.org/about/?subsection=about_iosco.
[2] STATEMENT ON DISCLOSURE OF ESG MATTERS BY ISSUERS. IOSCO, 18 Jan. 2019.
[3] Deane, Stephen. “The Rulemaking Process: Two Accounting and Auditing Mini-Case Studies.” SEC Emblem, U.S. Securities and Exchange Commission, 22 Aug. 2017, www.sec.gov/news/speech/deane-speech-rulemaking-process.
[4] Noon, Alison. “SEC’s Peirce Bucks Call For Corporate Responsibility Rules.” Law360, LexisNexis, 6 Mar. 2019, www.law360.com/articles/1135612/sec-s-peirce-bucks-call-for-corporate-responsibility-rules.
Opinions expressed in the blog are those of the authors, and do not reflect the positions of SILC or of any other party.
Sustainability and Integrated Reporting
Michael Kraten | 03/20/2019
Three years ago, at SILC’s inaugural conference, Dr. Mervyn E. King took to the podium on two occasions to present and discuss the “Six Capitals” Integrated Reporting Framework. As the founder of the International Integrated Reporting Council, he followed AICPA President and CEO Barry Melancon on stage to discuss the emerging field of sustainability reporting. Later, in the afternoon, he delivered a plenary presentation on sustainable capitalism.
The following year, Dr. King made a return appearance at our annual conference. And each of the following two years, Mr. Melancon did so as well. Their continuing message? That sustainability reporting is necessary for the survival of our planet, and thus represents the ultimate priority of the investment industry.
And now, three years later, where are these gentlemen? Mr. Melancon continues to serve as President and CEO of the AICPA. In addition, he has succeeded the retiring Dr. King to become the Global Chairman of the Board of the International Integrated Reporting Council.
And what of SILC? Continuing in its role as a pioneer of the integrated reporting movement, we are delighted to offer a pair of groundbreaking sessions at our Annual Conference on May 9, 2019.
At the first session, SILC will present a panel discussion that will address various considerations when developing an integrated reporting system. In addition, the panelists will discuss a dashboard reporting approach for firms that are launching an integrated reporting process for the first time.
Then, at the second session, SILC will present an experiential workshop that reviews the efforts of a Fortune 500 firm that has adopted a dashboard approach. Analysts from the Sustainability Accounting Standards Board (SASB) will join this workshop.
Are you interested in developing an integrated report for you or your clients? Then join us at our Annual Conference, and take away pragmatic guidance about a system that you can implement in your own workplace.
Session Descriptions:
Applying the Principles Of Sustainability To Integrated Reporting: A Panel Discussion
How do organizations synthesize the various standards, metrics, and frameworks of sustainability to develop an integrated reporting system for internal management and external disclosure purposes? Our panel of specialists and experts will describe “state of the art” practices for designing and implementing such systems for the C-Suites of global organizations.
An Action Plan For Developing ESG And Integrated Reports: An Experiential Workshop
Roll up your sleeves and join a break-out session that will present a pragmatic action plan for developing integrated reports. Participants will review the publicly disclosed financial and non-financial information of conEdison, a Fortune 500 firm. They will then join a discussion of the relative benefits of presenting information in an integrated report, and will learn to utilize an action plan for designing such reports for their own organizations.
Blog Submission Process:
Thank you for considering a submission to our blog! Whether you are thinking about a brief news item or a longer editorial essay, we welcome your interest.
A news item can be as brief as a few sentences, or as lengthy as a few paragraphs. Any relevant information about an organization, an activity, or an economic, environmental, or social trend is potentially newsworthy if it addresses the mission of our organization.
Editorial essays are longer pieces. Although we do not rigidly enforce word limits, such content usually consists of several hundred to one thousand words. We require thoughtful opinions that are supported by citations and other evidence, so please do not send us your unsubstantiated “off the cuff” assertions!
After a brief initial review, we will guide your submission through a peer review process.
Our criteria are: (1) relevance to mission, (2) accuracy of content, and (3) overall value to our readers.
If you have any questions about our process, please send an email message to blog@silcny.com. We look forward to hearing from you!
SILC, Latham & Watkins LLP, and Mintz Group Host A Panel on Reputation and Sustainability
Erin O’Brien | 01/31/2018
On November 9th, 2017, the SILC Club led a panel discussion on the topic of Reputation and Sustainability, hosted by Latham & Watkins LLP and in collaboration with Mintz Group, a global corporate investigations firm.
The panel featured Jim Mintz, private investigator and founder of Mintz Group, and Sara Orr, an environmental, energy, and natural resource attorney at Latham & Watkins LLP. The panel was moderated by SILC’s own Deborah Goldstein, founder of DRIVEN Professionals, an organization that advises companies on topics related to human capital.
Sara Orr shared stories from her experiences working on environmental, energy, and natural resource-related projects, both in the US and Australia, and emphasized the importance of fully understanding the reputation of your local partner and the overall environment in which they do business when doing deals internationally. Jim Mintz spoke about the tools private investigation firms use to vet both business counterparties and new hires and the ability to customize a search to achieve the right balance of thoroughness and cost efficiency. Audience members raised thought-provoking questions about the reputational risk of not performing sufficient due diligence and the cost-benefit analysis of sometimes pricey background checks.
Please join us for our next event on Wednesday, February 7th at Thomson Reuters, where we will discuss stranded assets, climate change, and corporate disclosure. Register here!
Photo Credit: A Panel on Reputation and Sustainability. L-R: DRIVEN Professionals Founder Deborah Goldstein, Mintz Group Founder Jim Mintz, and attorney Sara Orr of Latham & Watkins LLP
Integrated Reporting: The South African Experience
09/29/2017
By Leigh Georgia Roberts, CA (SA)
Featured, News & Views, July 2017 Issue
See: https://www.cpajournal.com/2017/07/28/integrated-reporting-south-african-experience/
From Financial Capitalism to Sustainable Capitalism
By Mervyn E. King, PhD, LLD
Featured, News & Views, July 2017 Issue
See: https://www.cpajournal.com/2017/07/20/financial-capitalism-sustainable-capitalism-2/
Transforming Integrated Reporting into Integrated Information Management
By Michael Kraten, PhD, CPA
Featured, News & Views, July 2017 Issue
See: https://www.cpajournal.com/2017/07/19/transforming-integrated-reporting-integrated-information-management/
The Accounting Profession and Sustainability
By Barry C. Melancon, CPA/CGMA
Featured, Feature Articles, Trending, July 2017 Issue
See: https://www.cpajournal.com/2017/07/18/accounting-profession-sustainability/
Driving Revenue Growth Through Sustainable Products and Services
Sustainability: A Unique Opportunity for the Accounting Profession
By Edward A. Weinstein, CPA and Stanley Goldstein, CPA
Featured, News & Views, July 2017 Issue
See: https://www.cpajournal.com/2017/08/03/sustainability-unique-opportunity-accounting-profession/
The Comprehensive Business Case For Sustainability
Tensie Whelan and Carly Fink | 01/24/2017
The authors of the article which follows do not know me or the Sustainability Investment Leadership Conference nor the meeting we put on on May 6, 2016 but we appear to be closely aligned in our thinking. In fact, this writing articulates the essence of what we are all about and so is deeply appreciated. The authors explain how Sustainability amounts to enlightened self-interest to which we would add that the reputation of an enterprise is more important than its balance sheet. Sustainable practices are a mighty force in enhancing reputation. It is flattering to see our work reflected in so prestigious a journal.
Stanley Goldstein, CPA
Chairman
Sustainability Investment Leadership Conference
HBR - The Comprehensive Business Case For Sustainability
By Tensie Whelan and Carly Fink
Today’s executives are dealing with a complex and unprecedented brew of social, environmental, market, and technological trends. These require sophisticated, sustainability-based management. Yet executives are often reluctant to place sustainability core to their company’s business strategy in the mistaken belief that the costs outweigh the benefits. On the contrary, academic research and business experience point to quite the opposite.
Embedded sustainability efforts clearly result in a positive impact on business performance. Drawing from our own research and our colleagues’ research in this area, we have created a sustainability business case for the 21-century corporate executive. Hoping to alleviate their concerns, this article also provides concrete examples of how sustainability benefits the bottom line.
For the purpose of this article, we define sustainable practices as those that: 1) at minimum do not harm people or the planet and at best create value for stakeholders and 2) focus on improving environmental, social, and governance (ESG) performance in the areas in which the company or brand has a material environmental or social impact (such as in their operations, value chain, or customers). We exclude companies with a traditional CSR program that supports employee volunteering in the community – this does not by itself qualify as sustainability.
Driving competitive advantage through stakeholder engagement
Traditional business models aim to create value for shareholders, often at the expense of other stakeholders. Sustainable businesses are redefining the corporate ecosystem by designing models that create value for all stakeholders, including employees, shareholders, supply chains, civil society, and the planet. Michel Porter and Mark Kramer pioneered the idea of “creating shared value,” arguing that businesses can generate economic value by identifying and addressing social problems that intersect with their business.
Much of the strategic value of sustainability comes from the need to continually talk with and learn from key stakeholders. Through regular dialogue with stakeholders and continual iteration, a company with a sustainability agenda is better positioned to anticipate and react to economic, social, environmental, and regulatory changes as they arise.
When firms fail to establish good relationships with their stakeholders, it can lead to increased conflict and reduced stakeholder cooperation. This can disrupt a firm’s ability to operate on schedule and budget. A study of the gold mining industry, for example, found that stakeholder relations can heavily influence land permitting, taxation, and the regulatory environment, thus playing a substantial role in determining whether a firm has the right to transform gold into shareholder capital – therefore, as the study authors wrote, stakeholder engagement “is not just corporate social responsibility but enlightened self-interest.”
Improving risk management
Supply chains today extend around the world, and are vulnerable to natural disasters and civil conflict. Climate change, water scarcity, and poor labor conditions in much of the world increase the risk. McKinsey reports that the value at stake from sustainability concerns can be as a high as 70% of earnings before interest, taxes, depreciation, and amortization.
In the largest study on climate change data and corporations, 8,000 supplier companies (that sell to 75 multinationals) reported on their level of climate risk. Of the respondents, 72% said that climate change presents risks that could significantly impact their operations, revenue, or expenditures. Unlike traditional forms of business risk, social and environmental risks manifest themselves over a longer term, often affect the business on many dimensions, and are largely outside the organization’s control. Managing risks, therefore, requires making investment decisions today for longer-term capacity building and developing adaptive strategies.
In the agriculture, food, and beverage sector, the impacts of climate change have the potential to alter growing conditions and seasons, increase pests and disease, and decrease crop yields. Disruptions in the supply chain may affect production processes that depend on unpriced natural capital assets such as biodiversity, groundwater, clean air, and climate. These unpriced natural capital costs are generally internalized until events like floods or droughts cause disruption to production processes or commodity price fluctuation.
For example, Bunge, an agribusiness firm, reported a $56 million quarterly loss in its sugar and bioenergy segments due to drought in 2010. Flooding in 2011 in Thailand, harmed 160 companies in the textile industry and halted nearly a quarter of the country’s garment production, increasing global prices by 28%.
To address these threats along their supply chain, companies like Mars, Unilever, and Nespresso have invested in Rainforest Alliance certification to help farmers deal with climate volatility, reduce land degradation, and increase resilience to drought and humidity—all of which ensure the longterm supply of their agricultural products. Certification also improves productivity and net income: According to an independent study by COSA, Rainforest Alliance reported that certified cocoa farmers in Cote d’Ivoire, for example, produced 1,270 pounds of cocoa per hectare, compared with 736 pounds per hectare on non-certified farms. Net income was also significantly higher on certified cocoa farms than noncertified: $403 versus $113 USD per hectare.
Companies are also experiencing risks in their manufacturing due to resource depletion – particularly water. Water has largely been considered a free raw material and therefore used inefficiently, but many companies are now experiencing the higher costs of using the resource. Coca-Cola, for example, faced a water shortage in India that forced it to shut down one of its plants in 2004. As the 24 biggest industrial consumer of water, Coca Cola has now invested $2 billion to reduce water use and improve water quality in the communities in which it operates. SabMiller has also invested heavily in water conservation, including $6 million to improve equipment at a facility in Tanzania affected by deteriorating water quality.
Water-related risks threaten to strand billions of dollars for mining, oil, and gas companies. “Stranded assets” are investments that become obsolete due to regulatory, environmental, or market constraints. For example, social conflict related to disruptions to water supplies in Peru has resulted in the indefinite suspension of $21.5 billion in mining projects since 2010.
Fostering innovation
Investing in sustainability is not only a risk management tool; it can also drive innovation. Redesigning products to meet environmental standards or social needs offers new business opportunities. 3M, for example, integrates sustainability into its innovation pipeline through its “Pollution Prevention Pays” program, which aims to proactively minimize waste and avoid pollution through product reformulation, equipment redesign, process modification, and waste recycling. 3M’s Novec fire suppression fluids are the first viable, sustainable alternative to hydrofluorocarbons.
Nike embedded sustainability into its innovation process and created the $1 billion-plus Flyknit line, which uses a specialized yarn system, requiring minimal labor and generating large profit margins. Flyknit reduces waste by 80% compared with regular cut and sew footwear. Since its launch in 2012, Flyknit has reduced 3.5 million pounds of waste and fully transitioned from yarn to recycled polyester, diverting 182 million bottles from landfills.
Recognizing the growing consumer interest in sustainable products and looking to solve consumer challenges such as high energy costs, CPG companies have developed new products to gain access to this market. Proctor & Gamble, for example, conducted a life cycle assessment of its products and found that U.S. households spend 3% of annual electricity budgets on heating water to wash clothes. In 2005, they launched a U.S. and European line of cold-water detergents that require 50% less energy than warm water washing.
Facing strict regulation on chemical release and competition from flowers from Africa, the Dutch flower industry developed a closed-loop system that grows flowers hydroponically in greenhouses, lowering risk of infestation and reducing the use of fertilizers and pesticides. The system also improves product quality by creating regulated growing conditions. Their innovative system has increased productivity and quality, reduced environmental impact and costs, and increased global competitiveness.
Improving Financial Performance
Many business leaders have the erroneous perception that one can have profits or sustainability, but not both. This probably has its roots in Milton Friedman’s 50-year old, but still influential, thesis that the only business of a business is profit as well as a hangover from the 1970s and 80s, when low quality, high priced environmental products failed in the market and early socially responsible investing delivered low returns. That conventional wisdom has now reversed.
In addition to the financial benefits that accrue from increased competitive advantage and innovation as discussed earlier, companies are realizing significant cost savings through environmental sustainability-related operational efficiencies. Moreover, investors are now able to track the high performers on ESG (environmental, social and governance factors) and are correlating better financial performance with better ESG performance.
Significant cost reductions can result from improving operational efficiency through better management of natural resources like water and energy, as well as minimizing waste. One study estimated that companies experience an average internal rate of return of 27% to 80% on their low carbon investments.
Since 1994, Dow has invested nearly $2 billion in improving resource efficiency and has saved $9.8 billion from reduced energy and wastewater consumption in manufacturing. In 2013, GE had reduced greenhouse gas emissions by 32% and water use by 45% compared to 2004 and 2006 baselines, respectively, resulting in $300 million in savings.
A focus on sustainability can also unlock opportunities for process and logistics savings. Wal-Mart, for example, aimed to double fleet efficiency between 2005 and 2015 through better routing, truck loading, driver training, and advanced technologies. By the end of 2014, they had improved fuel efficiency approximately 87% compared to the 2005 baseline. In that year, these improvements resulted in 15,000 metric tons of CO2 emissions avoided and savings of nearly $11 million.
Mounting evidence shows that sustainable companies deliver significant positive financial performance, and investors are beginning to value them more highly. Arabesque and University of Oxford reviewed the academic literature on sustainability and corporate performance and found that 90% of 200 studies analyzed conclude that good ESG standards lower the cost of capital; 88% show that good ESG practices result in better operational performance; and 80% show that stock price performance is positively correlated with good sustainability practices.
Here are some other datapoints to consider: Between 2006 and 2010, the top 100 sustainable global companies experienced significantly higher mean sales growth, return on assets, profit before taxation, and cash flows from operations in some sectors compared to control companies. During the 2008 recession, companies committed to sustainability practices achieved “above average” performance in the financial markets during the 2008 recession, translating into an average of $650 million in incremental market capitalization per company. Additionally, companies with superior environmental performance experienced lower cost of debt by 40-45 basis points. Studies also suggest that companies with strong corporate responsibility reputations “experience no meaningful declines in share price compared to their industry peers during crises” versus firms with poor CSR reputations whose reputations declined by “2.4-3%; a market capitalization loss of $378M per firm.”
Investors are paying attention. According to the 2015 EY Global Institutional Investor Survey, investors are increasingly using companies’ nonfinancial disclosures to inform their investment decisions. In its survey of over 200 institutional investors, 59.1% of respondents view nonfinancial disclosures as “essential” or “important” to investment decisions, up from 34.8% in 2014. Some 62.4% of investors are concerned about the risk of stranded assets (i.e. assets that lose value prematurely due to environmental, social, or other external factors) and over one-third of respondents reported cutting their holdings of a company in the past year because of this risk.
Building Customer Loyalty
Companies are skeptical about consumer interest in sustainable products – especially where willingness-to-pay is concerned. Some of that is self-inflicted, as early on companies tended to increase “sustainable” product prices substantially and in some cases sold inferior products (e.g. pricy natural cleaning products that did not work).
However, a shift is occurring in the minds of consumers. Today’s consumers expect more transparency, honesty, and tangible global impact from companies and can choose from a raft of sustainable, competitively priced, high-quality products. In fact, one study found that among numerous factors surveyed, the news coverage regarding environmental and social responsibility was the only significant factor that affected respondents’ evaluation of a firm and intent to buy.
Nearly two-thirds of consumers across six international markets believe they “have a responsibility to purchase products that are good for the environment and society” — 82% in emerging markets and 42% in developed markets. In the food and beverage industry, a growing number of consumers are considering values beyond price and taste in their purchasing decisions, such as safety, social impact, and transparency.
Far from feeling skittish about buying sustainable products, today’s consumers perceive a higher level of product performance in products from sustainable companies and sustainability information has a significantly positive impact on consumers’ evaluation of a company, which translates into purchase intent. The results of these studies support that consumers in a post-Recession era are shifting purchasing decisions to brands with integrity, social responsibility, and sustainability at their core. In fact, Unilever claims its “brands with purpose” are growing at twice the rate as others in their portfolio.
Companies can also charge higher price premiums based on positive corporate responsibility performance. These premiums can reach 20% according to some estimates. Moreover, some studies show that overall sales revenue can increase up to 20% due to corporate responsibility practices. Another study found that revenues from sustainable products and services grew at six times the rate of overall company revenues between 2010 and 2013, among the 12 members of the S&P Global 100 sampled (Singer, 2015). GE’s Ecomagination division, for example, has generated $200 billion in sales since 2005. IKEA’s line of sustainable products like LED bulbs and solar panels from its Products for a More Sustainable Life at Home now generate a billion dollars.
Attracting and Engaging Employees
Corporate sustainability initiatives aimed at improving ESG performance and proving value to society can increase employee loyalty, efficiency, and productivity and improve HR statistics related to recruitment, retention, and morale.
Research is finding that 21 century employees are focusing more on mission, purpose, and worklife balance. Companies that invest in sustainability initiatives tend to create sought-after culture and engagement due to company strategy focusing more on purpose and providing value to society. In addition, companies who embed sustainability in their core business strategy treat employees as critical stakeholders, just as important as shareholders. Employees are proud to work there and feel part of a broader effort.
One study found that morale was 55% better in companies with strong sustainability programs, compared to those with poor ones, and employee loyalty was 38% better. Better morale and motivation translate into reduced absenteeism and improved productivity. Firms that adopted environmental standards have seen a 16% increase in productivity over firms that did not adopt sustainability practices.
Corporate responsibility performance also positively impacts turnover and recruitment. Studies show that firms with greater corporate responsibility performance can reduce average turnover over time by 25-50%. It can also reduce annual quit rates by 3-3.5%, saving replacement costs up to 90%-200% of an employee’s annual salary for each retained position.
The preponderance of evidence shows that sustainability is going mainstream. Executives can no longer afford to approach sustainability as a “nice to have” or as solid function separated from the “real” business. Those companies that proactively make sustainability core to business strategy will drive innovation and engender enthusiasm and loyalty from employees, customers, suppliers, communities and investors.
Tensie Whelan is the Director of NYU Stern School of Business’s Center for Sustainable Business, which she launched in January 2016. Prior to launching CSB, Whelan served as President of the Rainforest Alliance for 15 years, transforming the engagement of business with sustainability and recruiting 5,000 companies in more than 60 countries.
Carly Fink was a special projects assistant at Rainforest Alliance, a research scholar at Stern CSB, and is now working for Edelman PR Worldwide.
Nell Derick Debevoise on 03/02/2017 at 02:42
"It's a thrill to see SILC partnering with Tensie and her team to get the memo out that sustainability is no longer a 'nice to have'. Working with over 100 top MBA students and alums each year, I can confirm that the best professionals out there now *demand* that their employers are paying attention to, and making concrete progress toward, more sustainable practices throughout their business.
Truly forward-looking companies are finding ways not just to avoid harm, but to create positive social and environmental value in their supply chains. That's what gets me out of bed in the morning..! Looking forward to meeting like-minded others at SILC 2017."
The importance of Sustainability in Accounting
11/16/2016
Interview with Mervyn E. King, Jane Gleeson-White, and Stanley Goldstein on the importance of Sustainability in Accounting.
See: https://www.youtube.com/watch?v=DHE0HzG6vko
Investment Industry Continues to Focus on Sustainability at Second Annual SILC Conference in New York
Britt Tunick | 09/15/2016
New York, NY (September 14, 2016) – The second annual Sustainability Investment Leadership Conference (SILC) will take place in New York on Wednesday, May 17, 2017. Adam Weinstein, President of the New York Hedge Fund Roundtable (NYHFR), a non-profit organization focused on promoting ethics and best practices within the alternative investment industry, is pleased to announce that the NYHFR will again partner with the New York State Society of CPAs’ Foundation for Accounting Education (NYSSCPA) to present the Conference. SILC, the first and only conference of its kind in the United States, provides a unique forum featuring some of the world’s most renowned thought leaders in sustainability and integrated corporate accounting. SILC speakers and attendees include accounting firms, law firms, and investment firms, among others, and the conference helps the investment industry consider and integrate sustainability as part of a firm’s overall growth strategy.
“We are honored to be in the company of such esteemed partners, and we are especially pleased to be collaborating again with the New York State Society of CPAs, one of the largest and most eminent state accounting organizations in the U.S.,” said Adam Weinstein, President of the Roundtable. “The 2017 SILC event represents nearly a decade in which the Roundtable has convened annual events with luminaries from the alternative investment world to discuss sustainability and its impact on companies and the financial community. We look forward to the important conversations at next year’s event, as we believe they will continue to shape how the investment community measures, addresses and incorporates sustainability.”
The NYHFR and NYSSCPA are proud to announce several new premier sponsors of this year’s conference, including:
• American Institute of Certified Public Accountants (AICPA), the world’s largest member association representing the accounting profession, with more than 412,000 members in 144 countries;
• Columbia University’s Earth Institute, the world’s leading academic center for the integrated study of the Earth, its environment, and society;
• 100 Women in Hedge Funds, a global, practitioner-driven non-profit organization serving more than 13,000 alternative investment management investors and professionals through educational, professional leverage and philanthropic initiatives.
“We need CPA leadership in the global effort to introduce integrated corporate accounting to the U.S., and partnering with the New York Hedge Fund Roundtable to produce this conference was the first step toward that goal,” said Joanne S. Barry, Executive Director, and CEO of the NYSSCPA. “For the first time in the U.S., international thought leaders in sustainable corporate accounting from as far as South Africa and Australia convened to discuss the path forward for the U.S. Next year, we will build on that progress. I’m excited to see such a high level of support from these new sponsors –it tells me we are headed in the right direction.”
About SILC
The Sustainability Investment Leadership Conference (SILC) works with accounting, legal and investment companies and employees to integrate sustainability as part of a firm’s overall growth strategy. SILC was founded in 2015 to provide insight on ways accountants and attorneys can incorporate best business practices to align economic opportunity with sustainable policies. SILC’s mission is to educate, encourage and expand the global understanding of sustainability and the impact it has on profitability based on policy, measurement, and standards. SILC seeks to spark innovation by discussing ideas that align with economic opportunities and environmental, social, governance and other stewardship to firms’ shareholders and stakeholders. For more information, visit www.silcny.com.
Media Contact:
Britt Erica Tunick
britt@bestbetcommunications.com
646-283-3244
NYU Just Launched a Corporate Reporting/Integrated Reporting Course
08.12.2016
NYU has taken the initiative to launch a new course in corporate reporting and Integrated reporting. Check out more details on the NYU website:
https://www.sps.nyu.edu/professional-pathways/courses/FINA1-CE9020-corporate-reporting-2-0-integrated-reporting.html#more-details
Trustlaw Training
07.31.2016
Join the TrustLaw team and social innovation experts for practical legal training on social enterprise and impact investing in San Francisco on 13 September 2016. The course will explore key legal issues and trends in the burgeoning social innovation space and provide lawyers and professionals in the sector with the skills they need to advise key stakeholders. Through a mixture of lectures, panel discussions and interactive workshops, participants will gain an in-depth understanding of critical legal matters facing the sector.
TrustLaw-Brochure-EN-April 2016
TrustLaw Training Brochure SF 2016 (letter size online)
Keynote Address
Barry Melancon 07.22.2016
The accounting profession has a role to play in achieving a very important aspect of sustainability—being part of the fabric of our capital market systems and our economy. It’s not about the people in this room being convinced about the importance of sustainability. It’s about how we achieve the successes that we are all passionate about. The people in this room can, in fact, make a difference. But we have to have a vehicle that the economy— potentially regulators, certainly investors, all participants in our capital market systems—can rally around in a way that is efficient and effective and drives better information flow and better decision making.
The United States Is Making Progress
There are examples of our economy lagging behind in the world in certain areas. Sustainability is an example. Clearly, it got stigmatized and politicized here in the United States and it is viewed by some as about delivering messages when they are in trouble.
Fortunately, I do think that we have come a long way, and events such as this help us to move forward. But I am here to convince you that it’s not simply about sustainability: the way we address sustainability is by elevating sustainability to be on par with all of the capitals that affect our capital market system, so that the messaging and reporting can be seen in an integrated way, in a way that delivers the right type of messaging to investors and other stakeholder groups and also drives management thinking and change inside an organization.
Why is it that we have some difficulties from a U.S. perspective? I have probably spent more time thinking and being in meetings on this particular topic than anyone. We have an environment in the U.S. that we know is highly regulated. We know it’s highly litigious. We know it in many ways rewards short-termism. And I think that in fact creates some of our challenges.
We have a lot of great examples of the marketplace producing positive results. In the sustainability area, we have companies like Wal-Mart and Costco, who have demanded their suppliers be part of a sustainability reporting notion in order to get adequate shelf space for their products. And that type of market pull is a very significant and powerful driver to cause change.
But in spite of that, we still lag behind. How do we make progress, and what is this real integrated reporting aspect?
If you look at how businesses should be managed—and therefore what businesses should be reporting about to their stakeholder groups—we can conclude sustainability is important. But there are other elements not presently part of the business reporting landscape that also need to be covered.
Traditionally, the information flow associated with that capital market system has revolved around the traditional elements of business information: financial information focused on tangible assets and financial assets, such as cash and investments. Today—different reports put these numbers at different places— about 80% of the value of the S&P 500 companies is actually captured in nontraditional financial assets. How does the reporting model change? My message here today is that integrated reporting—and integrated thinking, which actually comes before integrated reporting—is the vehicle in which that can occur.
Integrated Reporting
What is integrated reporting? It’s an external perspective of the key issues in the key six capitals—traditional capitals and new-thinking capitals that reflect what really drives a business—and a way of communicating it in a simpler fashion such that people can digest and understand the strategies driving a business and where value is being generated.
It’s an external force, and it is, just as sustainability, being embraced around the world much more aggressively than here in the United States. Integrated reporting was brought forward after various bodies and groups around the world had made attempts at changing the footprint of business reporting. Here in the United States, the AICPA has led many initiatives over a 20-year period to try to change the footprint of business reporting. And they ran into the same hurdles that I just described.
Integrated reporting, led by Mervyn King, became the notion of, “Let’s change the landscape on a global basis for all business and try to do it in a consistent way.” The IIRC [International Integrated Reporting Council] is a non- profit organization. It has a feedback group, a council made up of all types of different players in the system—people in the sustainability area, people in the governance area, people in accounting— who participate in the process.
The IIRC’s mission was to produce a framework that this reporting could actually look at. This framework was adopted in 2013, a very historic element. It envisions value creation and this broader notion of capitals six different ways: traditional financial capital, manufacturing capital, intellectual capital, human capital, social and relationship capital, and natural capital. Sustainability would fall into many of those—most directly into social and relationship and natural capital areas. What integrated reporting does is elevate sustainability on par with traditional financial capital and manufacturing capital. Integrated reporting covers elements of sustainability reporting in its substance, but it does it in a way that sustainability reporting is measured and communicated in an integrated thinking context—one that is about how business drives its own value—and it does so with a focus on long-term value creation.
How does integrated thinking move this needle on sustainability? The notion is that leaders should try to connect the dots in their organization and not look at sustainability reporting or financial reporting being the cause of the day, but instead look at what drives value as a whole. Many companies obviously do this integrated thinking but need to conceptualize it with an eye to ultimately reporting it to the public.
The official definition of integrated thinking is the active consideration of the relationships between an organization’s various operating and functional units and the capitals that the organization uses or affects—so “affects” obviously has an external component. Integrated thinking leads to integrated decision making and actions that consider the creation of value over the short, medium, and long-term. Clearly, long-term thinking and long-term decision making is something that’s very critical to the sustainability of a business enterprise, and obviously sustainability, in an environmental sense, as well.
Integrated reporting applies principles and concepts that are focused on bringing greater cohesion and efficiency to the reporting process, and adopting integrated thinking is a way of breaking down silos in companies and reducing duplication. The intended result is the more effective sustainable management of the business, as well as more transparent, decision-useful corporate reporting.
The world of business has changed from our traditional financial and manufacturing capital approaches. What we know from more than 100 years of history is that businesses are looked at primarily by that financial and capital measure. Integrated reporting is about looking at those things that really are part of the CEO and the board’s decision-making processes and reporting on them. Companies that adopt this approach stand to benefit from integrated thinking and integrated reporting with more sustainable business mode and better access to capital. These benefits span the spectrum from small private companies to large public companies.
Leadership
There is evidence in the marketplace of support. It takes leaders and companies who are committed to a new type of business reporting for this to be successful. For instance, we have something called the IR Business Network, and companies in the United States, such as PepsiCo, Prudential Financial, Edelman, JLL, the Clorox Company, are all active participants. GE just issued its first integrated report, with significant fanfare. In the first 24 hours of GE’s integrated report being issued, there were 2,400 downloads. For the entire prior year, there were 684 downloads of GE’s traditional financial information.
Companies that embrace this are seeing benefits. They’re seeing better strategic planning. They’re seeing more sustainable business models, and they are seeing better access to capital. The hedge fund organizations in this country and different types of investor groups can help drive it from that standpoint.
If we’re going to be successful in sustainable reporting, the key is not to view that as a silo, but to view that in the change management process of what businesses as a whole need to be reporting on. The vehicle that’s being adopted globally for that is integrated reporting.
Our mission is to help momentum be built here in the United States so that, like in the rest of the world, the totality of what drives business and what creates value and what’s important to humankind from a business perspective can be captured in a meaningful communication and thinking process called integrated reporting.
I do believe that we are on a journey here in the United States, and this is a very critical part of building momentum for that journey.
Six Capitals, or Can Accountants Save the Planet?
Stanley Goldstein | 06/15/2016
Editor’s Note: On May 5 and 6, 2016, the NYSSCPA and FAE, in partnership with the New York Hedge Fund Roundtable, hosted a breakfast meeting on sustainability reporting at the Society offices at 14 Wall Street. On May 4 and 6, 2016, they will present their first annual conference on sustainability. Author Jane Gleeson-White, IIRC Chairman Mervyn King, and AICPA President and CEO Barry Melancon will be featured speakers at the event.
Jane Gleeson-White’s previous book, Double Entry (covered by this reviewer in The CPA Journal, April 2013, p. 12), is the beautifully written history of accounting from its beginnings in Venice in 1494 to its contributions to our current prosperous economic system. Double Entry ended with a plea to accountants to become the heroes of sustainability and save the planet— because only we can do it. Six Capitals, her current work on sustainability, tells us how.
The author’s thesis is that we need action to save our planet—now. Gleeson emphasizes integrated reporting as an essential component of our new thinking: A demand that we count six types of capital—not merely financial, manufactured, and intellectual but also human, social/relationship, and natural—when assessing the output of an enterprise. According to the author, who hails from Australia, CPAs are the heroes of this story and will be far into the future.
Integrated Reporting
Integrated reporting—disclosing all the information the investing public deserves to see—is the key to what the author defines as “a concise communication of value over time.” The integration process calls for the inclusion of nonfinancial information and externalities, which will affect the fortunes of the enterprise in years to come. Integrated reporting is becoming institutionalized, and has been recently mandated in France and South Africa.
For example, Puma, the German sporting goods manufacturer, reported that it had used up $198 million worth of natural resources (its profit was $255 million). Infosys, an Indian technology consulting firm, valued its “human-capital externality” at $1.4 billion. Much of the theoretical underpinning of the complex system of integrated reporting stems from Robert G. Eccles and Michael P. Krzus’s 2010 book, One Report: Integrated Reporting for a Sustainable Strategy.
In 2013, the International Integrated Reporting Council (IIRC) published a framework for a new way of business thinking and reporting. In a story told by Mervyn King, a South African jurist, the creation of the IIRC began with a invitation to tea from Michael Peat (great-grandson of the founder of Peat Marwick & Mitchell, now KPMG), followed by a call from Charles, Prince of Wales, who hosted the meeting that gave birth to this powerful organization.
The Sustainability Accounting Standards Board (SASB) was launched in the United States in 2011. Although SASB has no official role in the accounting profession, its voice is heard due in part to Bloomberg LP’s substantial role in supporting its mission. According to Bloomberg’s Andrew Park and Curtis Ravenel, as long as these externalities are unpriced, they are effectively invisible to financial markets, and so cannot inform investment decisions.
Six Capitals
Gleeson’s six capitals are: 1) financial, 2) natural, 3) manufactured, 4) human, 5) social/relationship, and 6) intellectual.
Natural capital is heavily emphasized because, as Park and Ravenel say, “if you don’t measure it, you ignore it.” If an oil driller produces 1 million barrels per day that are worth $10 each, and its costs for labor, parts, and depreciation come to $9 million, the driller (under GAAP) shows a profit of $1 million. But if in order to extract the oil the driller uses one million gallons of water (natural capital that afterwards becomes unusable), which is worth $1 per gallon in the open market, then that venture is merely breaking even, once the cost of natural capital has not been accounted for.
On the other hand, if, for example, IBM spends $50 million per year sponsoring education programs for inner city youths, it has improved its relationship capital, which also affects its brand. This positive gain does not enter into an accountant’s presentation of profit and loss.
The challenge Gleeson-White lays down is for accountants to measure these things—because, if we do, accountants will be independent, trusted heroes who can financially measure the six capitals.
Accountants should be interested in human capital because we invest so much money and effort into improving our profession and its members, starting with first-year recruits. Perhaps these expenses should be amortized in the United States. Yes, this is complicated, but we can do it.
The Role of Corporations
As Gleeson-White builds on the work of those who first suggested “one report” (also the title of the first major work in this field), integrating all aspects of the outputs of an enterprise and the many stakeholders of that enterprise (i.e., community, local government, local charities), she returns to accountants as the only professionals capable of measuring these outputs in financial terms.
The author is powerfully biased against corporations, which she deems as corrupt, greedy, selfish, and capable of evil deeds, but she sees accounting firms as saviors. (Forget for the moment that Deloitte is a huge, corporate enterprise.) Since no one else is taking the initiative to save the planet, this makes another case for accountants to lead the charge.
Robert Eccles was the first to write about the one report in One Report: Integrated Reporting for a Sustainable Strategy (Wiley, 2010). Eccles called for a report combining a balance sheet, statement of operations, statement of cash flows, and an environmental assessment, thus setting the stage for quantifying the “externalities” that must be included in order to tell the whole story of an enterprise. These externalities include the depletion of natural resources and harm to workers, as well as positive acts like training employees and supporting communities. This is intense transparency. Eccles’s book resonated around the world and affected the business communities and accounting professions in Great Britain, South Africa, Germany and The Netherlands. Eccles wished for the law to proliferate to many countries. His work was directly influenced by that of journalist Mervyn King, whose work culminated in the formation of the IIRC and today impacts the activities and reporting methods of businesses around the world.
Carrying the Torch
Nothing written since Eccles’s book seems to push the cause of integrated reporting forward as much as Six Capitals, because Gleeson-White advises monetizing all costs and all additions to the assets of an enterprise. It cuts both ways—which brings us back to “Why accountants?”
Who else is capable of doing this? I believe the author’s voice will be heard, clearer and louder around the world, and the message of her book will attract followers at the May 5 and 6, 2016 conference sponsored by the New York Hedge Fund Roundtable and the NYSSCPA.
Accountants are catching on to the value of Gleeson-White’s message, thanks in part to her first book. In that same April 2013 issue of the Journal in which I reviewed Gleeson-White’s Double-Entry, publisher, Joanne Barry wrote about the challenges facing integrated reporting and the possibilities for CPAs to get involved as standards are still being developed (“The Future of Sustainability Reporting Needs CPAs,” page 7). We are at the fulcrum of the action, and Gleeson-White deserves a bit of the credit.
When Prince Charles held the plenary session put together by Mervyn King that gave birth to the IIRC, all of the Big Four was seated at the table. Many second-tier firms are doing work in the field of integrated reporting, and see this as a growth area.
According to the author of Six Capitals, accountants are now and will long be the heroes of this story. We measure the impacts, results, and financial outcomes in every area of sustainability. More important, however, is that Gleeson-White charges us with the responsibility to take the lead in making sustainability and integrated reporting intrinsic to the business process. To me, the message of the April 2013 CPA Journal issue on sustainability was that the field represents good business for accountants, who can do the work better than anyone else—so let’s welcome the opportunity.
Hedge Fund Industry Embraces Merits of Sustainability Reporting
Britt Tunick | 06/15/2016
Sustainability reporting is rapidly moving from a niche issue focused on by a handful of companies to one of global importance. Amidst growing worldwide concerns about the environmental, social and governance impact that businesses contend with internally and the impact their activities have on their stakeholders, institutional investors are putting greater emphasis on sustainability reporting. As the Global Reporting Initiative works to transition its sustainability guidelines into global standards, it is clear that interest in sustainability isn’t likely to diminish anytime soon. Given the rising importance of sustainability, the New York Hedge Fund Roundtable recently held its first day-long Sustainability Investment Leadership Conference, hosted in conjunction with the New York State Society of Certified Public Accountants, where conference attendees were surveyed about the topic.
“How a company makes its money has become a critical factor in the 21st Century, because how it makes its money will have an impact on society,” Mervyn E. King, former chairman of the International Integrated Reporting Council and chairman emeritus of the Global Reporting Initiative, told conference attendees. “Integrative reporting has captured the attention of people around the world… it is an idea whose time has come,” said King, who was among several high profile speakers and panelists at the conference.
Roundtable members are becoming increasingly optimistic about the merits of sustainability reporting, based on a comparison of the survey responses from a Roundtable sustainability panel last year compared to this year. 60% of respondents from this year’s survey indicated that they believe sustainability is worth the additional time and money such reports require, up from a year ago when only 46% of respondents felt this way. Similarly, 65% of respondents think sustainability reporting is of equal importance for all companies, regardless of size, compared with a year ago when only 41% of respondents felt this way. “Though sustainability reporting and the guidelines surrounding it remain nascent areas, there is no doubt that the data within these reports is of paramount importance for understanding how well any individual company is poised to succeed over the long-term,” said Timothy P. Selby, President of the New York Hedge Fund Roundtable and a partner at Alston & Bird.
New York Hedge Fund Roundtable members had the opportunity to weigh in on sustainability reporting both at the Sustainability Investment Leadership Conference as well as through an online electronic poll.
*Of the respondents to this survey, 20% were fund managers; 12% were allocators; 18% were risk management or trading; 32% were service providers; 14% were CPAs; and 4% were other industry participants.
Following are some of the other key findings of that survey:
When asked whether their firms consider sustainability reporting when choosing where to invest, 54% of respondents said it is a factor, while 46% said it is not something they worry about. These responses were identical to those given by respondents when the exact same question was asked last year.
Asked whether sustainability reporting is worth the added costs and the additional time necessary to produce such reports, 60% of respondents believe it is, compared with 46% of respondents who were asked this same question a year earlier; 31% think it is still too early to know whether investors will eventually hold it against companies that don’t report on their sustainability efforts, compared with 49% of respondents a year ago; and 9% believe the focus on sustainability will be short lived, compared with 5% of respondents a year ago
When asked if a company’s size influences the importance of whether or not it produces sustainability reports, 35% of respondents said they think it is far more important for large, international companies with global footprints to produce such reports, compared with 59% of respondents asked this same question a year ago; while 65% of respondents think sustainability reporting is equally important for all companies, compared with 41% of respondents asked this question last year
Asked whether integrated sustainability reporting could ever become a common practice among companies without regulatory involvement, 49% of respondents said the issue has become important enough among investors that companies now realize it is in their best interest, compared with 46% of respondents to this same question a year ago; 26% of respondents think that while companies may voluntarily produce reports, consistent, high quality reports will not happen without regulatory involvement, compared with 30% of respondents to this same ]question a year ago; and 25% of respondents think that regulatory requirements are the only thing that will bring about market-wide sustainability reporting, compared with 24% of respondents a year ago.
When asked whether sustainability reporting will become more or less important within the next decade, 43% of respondents think investors are putting enough emphasis on such reports that companies that don’t produce them will risk the loss of investor support, compared with 61% of respondents asked this same question a year ago; 20% of respondents think investors remain uncertain about how such reporting can translate to stronger long-term performance companies, compared with 21% of respondents a year ago; 33% of respondents think sustainability reports will need to become more uniform and concise before they become a critical factor for investors, compared with 15% of respondents to this question a year ago; and 4% of respondents think that sustainability reporting is merely a fad that is unlikely to gain long-term traction, compared with 3% of respondents a year ago.
If sustainability focused more on things like building a company’s reputation, community involvement and good employee relations, versus environmental issue like global warming, 45% of respondents said they would be more likely to embrace the concept; 9% said they would be less likely to embrace the concept; and 46% said their opinion of such reporting would remain unchanged.
May’s “bonus” question: With the field of presidential hopefuls having narrowed significantly, Roundtable members were asked who they believe will be elected the next President of the United States. 54% of respondents believe Hillary Clinton will be the next president; 39% believe it will be Donald Trump; 5% believe Bernie Sanders will win the election; and 2% think it will be John Kasich.
First Annual Sustainability Investment Leadership Conference
Robert Eccles | 06/15/2016
The Integrated Reporting Movement explores the meaning of the concept, explains the forces that provide momentum to the associated movement, and examines the motives of the actors involved. The book posits integrated reporting as a key mechanism by which companies can ensure their own long-term sustainability by contributing to a sustainable society. Although integrated reporting has seen substantial development due to the support of companies, investors, and the initiatives of a number of NGOs, widespread regulatory intervention has yet to materialize. Outside of South Africa, adoption remains voluntary, accomplished via social movement abetted, to varying degrees, by market forces. In considering integrated reporting’s current state of play, the authors provide guidance to ensure wider adoption of the practice and success of the movement, starting with how companies can improve their own reporting processes. But the support of investors, regulators, and NGOs is also important. All will benefit, as will society as a whole.
Prof. Robert G. Eccles
Professor, Harvard Business School
Chairman, Arabesque Partners
Guide for General Counsel On Corporate Sustainability
05.25.2016
our view is clear. General Counsel are more well placed, better equipped and increasingly able to drive change and deliver value to their companies through an increased focus on “corporate sustainability”.
Sustainability disclosure Getting ahead of the curve
05.02.2016
Sustainability reporting has traditionally been voluntary in the United States for the most part. However, heightened regulatory and legal scrutiny, along with other market developments, indicates that the transparency and accuracy of sustainability reporting is increasingly important.
Business and society in the coming decades
04.20.2016
In the long term, corporate and societal interests converge. Walmart CEO Doug McMillon and SVP of sustainability Kathleen McLaughlin argue companies have an opportunity to use their scale and expertise to reshape global systems and mitigate complex problems.
Sustainability Reporting: The Lawyer’s Response
04.15.2016
With ever-increasing frequency, clients are seeking advice about reporting and communication on sustainability issues. “What are we legally required to communicate?” “What are we permitted to communicate?” “What can or should we say to stay competitive and protect business relationships, profitability, and our social license to operate?” “What standards should we use?” This article will help lawyers understand and advise clients on their sustainability communications pressures and needs.
Driving Revenue Growth Through Sustainable Products and Services
03.10.2016
A corporate sustainability program can be more than just a commitment to adhering to the best environmental, social, and governance (ESG) standards in the field; it can drive innovation and be a key element of a company’s growth strategy. As corporate sustainability practices evolve and mature from isolated initiatives focused on compliance and environmental footprint reduction to more integrated sustainability strategies that align with a company’s core business, there is an increasing recognition of the potential of sustainability initiatives. This report aims to further the conversation by illustrating some of the ways companies are recognizing this potential and driving topline growth through sustainability.
BUSINESS FOR THE RULE OF LAW FRAMEWORK
03.04.2016
The UN Global Compact is a call to businesses everywhere to align their values, strategies and operations with its Ten Principles in the areas of human rights, labour, environment and anti- corruption, and to take action in support of UN goals and issues. The UN Global Compact, along with over 85 Global Compact Local Networks around the world, serves as a critical enabler for businesses – regardless of their size, location or industry – to advance corporate sustainability through activities and collaboration with various other societal actors.
Corporate Social Responsibility
02.15.2016
In her regular column on corporate governance issues, Holly Gregory explores corporate social responsibility issues that are likely to gain attention in the 2014 proxy season and provides guidance for boards on their oversight of corporate social responsibility strategies.
World Exchanges Encouraged to Report Indicators of Long- Term Sustainability
02.15.2016
On November 4th, the World Federation of Exchanges (http://www.world-exchanges.org/home/index.php) (WFE) released (http://www.world-exchanges.org/home/index.php/news/world-exchange- news/world-exchanges-agree-enhanced-sustainability-guidance) a set of 34 sustainability measures that include environmental, social and governance indicators. WFE recommends that its member exchanges implement these indicators into the disclosure requirements for listed companies.
Protecting Endangered Species While Promoting Wind Power
02.12.2016
Every day, we make decisions based on ratings, from the cars we drive and appliances we buy, to the restaurants we eat at and movie we see. Increasingly over the past few years, the theory has been that investors too could be persuaded by so-called green ratings for corporate sustainability. That has led to a proliferation of green ratings groups: CDP, DJSI, Bloomberg Sustainability Reporting Initiative, Newsweek’s Green Ranking, CK Capital Inrate, Oekom, ETC.
Is Sustainability the Future of the NYSSCPA?
Sarah Tomolonius | 01/31/2016
Ten years ago, if you were to ask American CPAs about corporate sustainability practices, your questions would most likely be met with blank stares, if not downright skepticism. That’s changed. Today’s CPAs know you don’t have to be an environmental zealot in order to evangelize for sustainable business practices. In fact, in a few years, you’ll most likely be able to assess a company’s social responsibility performance right from its balance sheet.
The majority of Fortune Global 500 companies already provide investors with an annual report [some companies call it a corporate social responsibility (CSR) report, other companies refer to it as a sustainability report] that measures a business’s environmental, social, and corporate governance performance. The challenge has been, and remains, comparability∷ to ensure that the way companies measure and assess their impact on the environment, their employees, their customers, and their communities is consistent across all companies. That is what the international business community is working on now. The NYSSCPA is working on it too, through its newly established Sustainability Committee, which holds its first meeting January 28.
More than 90 members have already joined the committee, which tells me that members either understand the importance of sustainability accounting and want to learn more about it or have experience in this area and want to share their expertise with their fellow members. It also confirms that creating these types of resources is what makes NYSSCPA membership valuable. Over the past five years, the Society has worked hard to reallocate its resources in order to be more responsive to the needs of New York CPAs. The creation of the Sustainability Committee and our members’ interest in it is proof that those efforts are bearing fruit. In fact, when Sustainability Committee Chair Renee Mikalopas-Cassidy asked new committee members how they defined sustainability, one replied: “Sustainability is the future of the NYSSCPA.” I couldn’t agree more.
Nearly 90% of a company’s value can be found in its intangible assets, according to Ocean Tomo, an intellectual property (IP) consulting firm. Operational processes, branding, employee culture, customer experience, IP, and strategic partnerships are what creates value for a successful business in 2016. Yet, as Mikalopas-Cassidy has pointed out, most companies assign the production of the CSR report to the human resources or public relations departments—not the accounting department, which houses the experts best equipped to measure, manage, and report on a company’s assets and business strategies.
As usual, it’s CPAs to the rescue. And that’s what the member of our nascent committee meant by saying that sustainability is the future of the NYSSCPA. We are a large CPA society; we have the know-how of 28,000 members and the country’s financial center here in our state. We are about to embark on the process of creating an entirely new system of accounting that meets the needs of today’s business world. The high level of engagement we are seeing around this new committee shows us what members value about this organization, and we intend to provide more of it.
If you’re interested in becoming a Sustainability Committee member, contact NYSSCPA Committees Manager Nellie Gomez at ngomez@nysscpa.org. And if you can, you should join me on May 5–6, when our Foundation for Accounting Education holds its first conference on sustainability in New York City, featuring some the world’s most respected thought leaders on the subject. It might be your first step in helping us build the NYSSCPA of the future.