World’s Largest Insurers to meet next week, finalize Principles for Sustainable Insurance reported yesterday that some of the world’s largest insurance and reinsurance companies will meet in Ruschlikon, Switzerland, to finalize the Principles for Sustainable Insurance (PSI), the UNPRI equivalent for ESG integration into the insurance sector.

The four principles, similar to the six UNPRI principles, include signing up to look at integrating ESG issues into insurance business lines and promoting ESG across the insurance industry. Members of this working group include Munich Re, Swiss Re and Tokio Marine. The principles will be formally launched after this meeting and were developed under the United Nations Environment Programme Finance Initiatives (UNEP FI) Insurance Commission. The Commission comprises leading insurers and reinsurers committed to considering ESG issues in their business strategies.

The four Principles are:

  1. We will systematically consider ESG issues in our business principles, strategies and operations.
  2. We will engage with insurance industry participants to raise awareness on ESG issues, reduce risk and develop solutions.
  3. We will work together with society to enhance our effectiveness in implementing the Principles.
  4. We will be transparent by reporting on our progress and activities in implementing the Principles.

To read the full article please click here. Do you think these principles are a good idea? Do you think insurance companies should adhere to them? Discuss!

US SIF issues letter in regard to integrated reporting discussion paper

Last week US SIF issued a letter to Mervyn King, Chairman of the International Integrated Reporting Committee (IIRC), regarding its discussion paper, “Towards Integrated Reporting: Communicating Value in the 21st Century”.

US SIF stated that while they support the IIRC’s efforts to develop an integrated reporting framework with both financial and non-financial data (environmental, social and governance (ESG) data), their primary interest is the disclosure of the most robust ESG data possible.

Because of this, US SIF would prefer to see a separate and comprehensive ESG report rather than an abridged version in an integrated report. They acknowledge the fact that there is often a division of labor between Investor Relations and sustainability departments, which results in conflicting messages and absence of internal knowledge. Further, an integrated reporting framework would force companies to understand how sustainability issues relate to every day business practices, as well as long-term strategies. It’s important that ESG data and performance progress should be made known to all types of equity and alternative investment analysts.

US SIF made five broad points in regard to the discussion paper:

  1. Ensure integrated reporting doesn’t diminish the quality of good ESG reporting that currently exists
  2. Reconsider the mandate that only senior management determines what are the most material issues to an organization
  3. While US SIF would prefer to see a separate ESG report, they ask the IIRC to broaden its definition of what must be provided in integrated reports
  4. Less input from accountancy firms and more input from sustainable and responsible investors (who are the primary users of these reports)
  5. Greater synergies between the integrated reporting process and the GRI reporting framework

To read the full letter please click here.

What do you think of US SIF’s position on integrated reporting, and its letter to the IIRC? Do you agree or disagree? Discuss!


Tim Smith Visits Cleveland, speaks at The City Club

Tim Smith, Senior Vice President and Director of ESG Shareowner Engagement for Walden Asset Management, visited Cleveland yesterday to raise awareness around shareholder advocacy and socially responsible investing. Smith was part of an open discussion breakfast and spoke at a First Friday Club lunch, both at The City Club.

Before joining Walden, Smith was the Executive Director of the Interfaith Center on Corporate Responsibility for 24 years. He has won numerous awards in the fields of finance and sustainability, and serves on several boards and committees in these areas.

His address to the First Friday Club covered a variety of issues, including fracking, environmental, social and governance (ESG) issues in regard to investing and non-financial reporting, transparency, responsibility/election of boards of directors and shareholder resolutions.

In an interview after the forum, Smith said that he expects shareholder resolutions focusing on shale fracturing will continue as the practice becomes more widespread, according to The Plain Dealer. Votes in favor of requiring companies to look at the liability of fracking averaged 40% in 2011.

“People voted for it because they saw it as a risk that companies needed to address, and most of the companies understood this,” Smith said. “Significant votes only occur when you have made the case, you being the investor or the company, that it’s good for long-term shareholder value.”

UBS and BrownFlynn were responsible for bringing Smith to Cleveland and are delighted he was able to share his insights and experience with a capacity crowd at The City Club. Thank you to The City Club and First Friday Club of Cleveland for hosting.


Integrated Reporting – thoughts and recommendations

On June 29, Principal and Co-owner Barb Brown had the privilege of attending the New York Roundtable Meeting of the International Integrated Reporting Committee (IIRC). Before the meeting we created a survey to solicit insights on the importance of integrated reporting. The participants provided us valuable feedback that we were able to share with the constituents at the IIRC meeting, and we’re pleased to share our thoughts on the meeting and high-level survey results with you.

We were honored to participate in the Roundtable alongside many thought leaders in this field, including Paul Druckman (Accounting for Sustainability), Bob Eccles (co-author of OneReport and Harvard professor), Dina Dublon (Independent Director of PepsiCo, Accenture and Microsoft Perspective) and others.  The IIRC’s stated goals are to raise awareness around integrated reporting, develop a comprehensive framework for integrated reporting, and help companies along this journey.  Several speakers gave their perspectives on the notion of integrated reporting, the majority of which reinforced stakeholders’ desire to understand the material link of environmental, social and governance (ESG) issues to financial performance.  This led to a discussion emphasizing the need for a clear standard around materiality which factors in how externalities, such as the lack of pricing mechanisms around carbon and water, impact an organization’s ability to adequately report on these issues.

The program was both interesting and provocative with the IIRC openly seeking pilot companies to help co-create what integrated reporting might become.  The IIRC plans to release a discussion paper within the next few weeks, the content of which we will share with you.  From our perspective, it remains clear that integrated reporting is in the very nascent stages of development.  Seasoned sustainability reporters, most likely companies within the Global 250, will be the first to consider this avenue for future reporting.  For first-time or small and mid-cap reporters, we would continue to recommend the Global Reporting Initiative (GRI) Framework.  When used as a management process, we believe the GRI is an effective tool for organizations to identify and manage their material ESG impacts.  We are also enthusiastic about the development of GRI’s G4 reporting framework, and are confident it will lead to more effective sustainability reporting until a truly integrated reporting solution is established by the IIRC.

To view the survey results please click here.

BrownFlynn & Cleveland State University to Host World’s Largest GRI Training

BrownFlynn and the Nance College of Business at Cleveland State University (CSU) have partnered to facilitate and host the world’s largest Global Reporting Initiative (GRI) certified training on April 17-18, 2011 at CSU. The event is sponsored by PricewaterhouseCoopers and several other local companies, and is being offered free-of-charge.

Select MBA candidates and college seniors from 14 institutions across Ohio will be participating in this first-of-its kind event. The training not only provides the students with an overview of the GRI as a sustainability reporting framework and management process, but addresses the growing importance of environmental, social and governance (ESG) impacts and its relationship to business value.

BrownFlynn is proud to celebrate its 15th year in business. This training is the cornerstone event in a year-long effort to educate our community and the world about the importance of sustainability. To read the press release, please click here.

Bloomberg pushes Corporate Responsibility

Last week Fast Company ran an article on why Bloomberg got into the business of measuring other companies’ corporate responsibility performance. In 2006 sustainability director Curtis Ravenel launched an initiative to green Bloomberg’s operations. At the same time, he began to wonder how other businesses measure their non-financial impacts on society and in turn if they reported these impacts.

Soon after this thought he found himself browsing corporate responsibility and sustainability reports by firms that not only classified themselves as ‘green’, but catered to socially responsible investors. And shortly after this the light bulb went off. He asked his colleagues if Bloomberg collected non-financial data on its clients; the answer was no.

Ravenel knew that European companies had been pushing this for years, but admitted that it never really caught on in the states – mainly because it “never made it up to C-level”. This missed opportunity had motivated Ravenel to expand financial analysis to include environmental, social and governance (ESG) impacts. Historically ESG data was never factored into investment decisions, and was considered ‘extra financial data’.

Most are under the assumption that ESG impacts pertain just to the social aspect of a business. But its proponents are just as concerned about profits as any company in the U.S. Further, there’s increasing evidence that companies who take ESG impacts into account are forward-thinking and well-managed, making them highly attractive to investors.

It’s believed that the biggest indicator in ESG analysis right now is environmental, because it’s easy to quantify (specifically carbon footprint). Recent EPA rules regulate CO2, which affects everyone’s bottom line. Ravenel used this argument to persuade Bloomberg to add ESG data to its terminals. And investors are using it. Recently, Goldman Sachs, Deutsche Bank, UBS, Merrill Lynch and Credit Suisse launched internal divisions to analyze ESG data from Bloomberg and its competitors.

Adam Kanzer, managing director of Domini Social Investments was quoted as saying: “Every Wall Street analyst has a Bloomberg and looks at it every day. Analysts are going to say, “If Bloomberg thinks this is important, maybe I ought to be paying attention.”

Well – should you be paying attention? And are you paying attention?

EU close to making ESG disclosure mandatory reported today that the Executive Commission of the EU is close to making ESG disclosure mandatory, as told to them by Matt Christensen, Eurosif’s Executive Director.

Already in place is the Alternative Investment Fund Managers (AIFM) directive to curb bank bonuses, and underway is an EU consultation on corporate governance in financial institutions. In its response to the EC’s consultation on Non-Financial Reporting, Eurosif calls for institutional investors to disclose the extent to which ESG factors are integrated into their investment decisions.

Further, Eurosif is working with the European Fund and Asset Management Association (EFAMA) to collaborate on future initiatives such as framing language around ESG disclosure to make it more clear, especially in the financial services industry.

This is certainly good news for Europe, but what does this mean for the U.S.? Do you think this will get the wheels in motion for non-financial reporting to be mandatory here? Or will it take more push from shareholders to influence the government? Discuss!

To read the full article please click here.

ESG investing gains wider acceptance

Pensions & Investments posted a blog on Jan. 24 stating that ESG investing had moved into the mainstream. This type of investing has been thriving despite the recession, gaining global momentum as investors have put more importance on non-financial factors in regard to investing. ESG investing increased 13.3% to $3.07 trillion in the U.S., and 85% to %6.5 trillion in Europe.

“Investors no longer think that there’s a trade-off between responsible investing and performance. This is a powerful idea that’s taking hold around the world,” said Colin Melvin, CEO of London-based Hermes Equity Ownership Services Ltd., which advises clients on ESG investing with aggregate assets of about £60 billion ($95 billion) globally. EOS is a division of Hermes Fund Managers Ltd., the asset manager owned by the £33.9 billion BT Pension Scheme.

Few investment institutions have moved assets into special ESG funds, but rather advisors are have been implementing ESG overlays, expanding proxy-voting policies and  considering other ways to incorporate ESG trends into existing portfolios.
Global, multiasset managers such as Aberdeen, Goldman Sachs and SSgA have expanded their investment teams to accomodate the demand for ESG integration. APG Asset Management began a program to systematically integrate ESG criteria in 2007. They don’t take a ‘one size fits all’ approach to this type of investing because it’s so diverse and complex that there aren’t simple solutions to everyone problem.
Though the U.S. is viewed as lagging behind its European counterparts, CalPERS and CalSTERs have led the nation in ESG investing to improve the ROI for its investors.
“We’re seeing genuine changes that we didn’t see five years ago in the way that ESG data is being integrated into the decision-making process coming from asset managers,” said Emma Hunt, senior investment consultant in the sustainable investment team at Towers Watson & Co., London. “I think we’re going to see a lot more opportunities around sustainable investing.”
Is this a turning point for investing in the U.S.? Will ESG criteria become mandatory in the near future for investors? How will this type of investing be mandated and measured, and how will this affect businesses around the country? Discuss!
To read the full article please click here.

US BCSD & Markit to present webinar with BrownFlynn

The United States Business Council for Sustainable Development and one of its member organizations, Markit, have partnered to present a webinar entitled: “Sustainability as a Strategic Initiative: Establishing and Monitoring Sustainability Programs” in conjunction with BrownFlynn. This is the second webinar in a series that focuses on the rising importance of Environmental, Social and Governance (ESG) reporting and management, establishing sustainability as a Business Enterprise strategic initiative and monitoring the effectiveness of sustainability programs using an external benchmarking lens.

Jonathan Pressman, Vice President at Markit, will moderate and panelists include Marina Goche, Director of Strategic Product Development, Markit; David Walker, Director of Environmental Sustainability, PepsiCo; and Mike Wallace, Director, Focal Point USA, Global Reporting Initiative.

The webinar takes place on February 4, 2011 from 1-2pm EST. To register, please click here.

New Rules of Engagement: Sustainable Investing

The winter issue of Listed, The Canadian Magazine for Listed Companies, features an article by Milla Craig, principal of Millani, a consulting firm specializing in sustainable investing industry analysis for asset owners, asset managers and publicly listed companies. The article is titled “New rules of engagement” and speaks to the continued growth in sustainable investing, and how this growth is changing the dynamic of company-shareholder relations.

The article draws you in with a call-out box at the top, in bright red letters: “Nearly one out of every eight dollars under professional management in the U.S. is now managed according to socially responsible criteria. And North America is low compared with much of the world.” Take a minute and let that statistic sink in. One out of every eight dollars. That’s astounding, considering not only the amount of money under professional management in the U.S., but that socially responsible investing is still in its infancy.

Craig is quick to point out that shareholders around the world are issuing a call to action: engage with us and be transparent, specifically around ESG issues. There has been a significant increase in the amount of shareholder resolutions issued on this topic, special meetings called, proxy contests held and probing questions asked. But Craig poses her own question: is it activism? Or is it investors taking responsibility for stewardship on behalf of their beneficiaries?

Some questions keep repeating: do we pay attention to our stakeholders? Should we give our time and effort to answer their requests? Craig says there is little choice in this matter. Assessing and mitigating risk by integrating ESG factors into investment analysis and decision-making is not an option anymore. The aforementioned call-out box is an interesting example from the November 2010 SIF Report on Socially Responsible Investing Trends in the U.S. She also cites the progress the UNPRI has made (as highlighted in our previous post).

Overall the call to action is driven by the intense need for more transparency, especially around managing risk as it relates to ESG issues. It’s estimated that 75% of a corporation’s stock valuation is intangible value; changes in this value cause stock price fluctuation. Therefore, shareholder requests for ESG disclosure and transparency are being driven by their need to better understand whether a corporation’s current market value is an accurate representation of its long-term value.

Craig concludes her article with 10 things a public issuer can do to engage with shareholders before proxy voting is necessary. Do you agree with these 10 things?

Craig’s article cited some intriguing statistics on socially responsible investing and the increased pressure public companies face regarding disclosing ESG data. Though there has been a dramatic rise in shareholder resolutions and a loud call to action, it seems there is still a knowledge gap between the companies who ‘get it’ and the companies who don’t. Where is the disconnect, and how do we help them make the connections? Discuss!

To read the full article please click here.