TheCorporateCounsel.net

Recently, Lawrence Heim – himself the author of the book “Killing Sustainability” – sent me this 17-page essay on “greenwishing.” It’s written by Duncan Austin – a former investment manager at a large sustainable investment firm – and traces the rise in investor & consumer interest in sustainability. While it seems like that might be a good thing, Duncan opines that pushing sustainability as a cost-free endeavor – or a half-baked profit-driver – is hurting the cause. Of course, here’s the current problem with trying to do it any other way:

Today, companies can only pursue sustainable behaviors that are profitable. This rules out many sustainability actions that corporations are uniquely positioned to offer–and used to provide–though certain initiatives can make the grade as long-term investments, with characteristic extended payback periods. Yet, corporate pronouncements of such long-term investment plans are precisely the klaxon calls that bring activist investors running to restore short-term profit-maximizing order.

So here we have some evidence that deep down, even the most ardent proponents of sustainability reporting know that those metrics are always going to be “second class” compared to financial figures (even though financials don’t reflect external costs). In other words, reporting on sustainability metrics isn’t the answer. Duncan calls on people in the sustainable business community to take a more collaborative approach – e.g. by prodding their companies to disclose political contributions, not lobbying against environmental protection policies and adding disclosure – but not the type we’ve been focused on:

The disclosure now required is not more detail about a company’s own greenhouse gas emissions or water use, but rather what companies publicly stand for regarding the changes in rules and prices needed for a more sustainable world–and what, exactly, they are doing about it. This is the critical question we must now ask our portfolio managers and corporations.

It’s an interesting idea and aligns with the BRT’s recent statements. A few companies are even forming “public policy” board committees (see this Diligent video). Investors & lawmakers will probably have to take up the mantle on this before directors would do anything drastic…but some companies might actually benefit from supporting legislation that “levels the playing field.”

Better The Devil You Know? ISS ESG Business Keeps Growing

Most of us primarily think of ISS as a proxy advisor, but it’s also been not-so-quietly building its ESG business since acquiring oekom research last year. According to this announcement, ISS ESG (the “responsible investment arm of ISS”) now employs nearly 400 people and offers a slew of new products:

– Climate research & impact services – to help investors “reflect & vote their views on a company’s climate-change risks, disclosure & performance”
– Indexing services – for investors who want to build turnkey or custom indexes
– Publication of a broad range of data about 7800 companies on the “FactSet” marketplace – which aggregates data & analysis from many vendors for investors to access
– Absolute & relative ESG rankings of companies – see our “ESG” Practice Area for more info on the types of ratings & methodologies

I’ve blogged that State Street already uses ISS data in its “R-Factor” scoring. And to further appeal to investors, the press release says that ISS is showing how its ratings align with the SASB reporting framework:

ISS ESG has mapped its ESG Corporate Rating against the Sustainability Accounting Standards Board’s (SASB) industry standards to identify the degree of alignment and completion of accounting standards and performance ratings. The mapping shows meaningful alignment with the SASB view on the relevance of ESG performance information for investors and the status of ESG materiality within the rating.

Furthermore, a mapping of the ESG Corporate Rating methodology against the recent EU taxonomy proposal also showed great alignment, enabling investors to prepare and align their investments towards the EU taxonomy objectives.

ISS: “Climate Change” Voting & Research

Of course, ISS is also capitalizing on E&S interest through its proxy advisory services. The “climate research & impact services” offered by ISS ESG include a “climate change” voting service that scores disclosure, climate performance & sector-specific materiality. It’s marketed as a service that helps investors create & act on their own customized voting policies – in other words, it’s not a set of ISS-dictated voting recommendations. But it’s probably worth noting that ISS’s annual policy survey included questions about director accountability for climate change risk, so maybe that will be coming in some form.

This ISS blog says that select research reports will now also include the “ISS Climate Awareness Scorecard.” The blog gives some info on how the research report & voting service scoring will work – e.g. here are some of the TCFD-based disclosure topics that will win brownie points:

– Climate change strategy
– Climate change risk management – and how the processes are integrated into the overall risk management program
– Climate change targets & metrics

– Liz Dunshee