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Date: 2024-03-03 Page is: DBtxt001.php txt00016652
Media: GreenBiz

Taking Care of Business
Some sustainability reporting and collection of other articles!

Original article:
Peter Burgess COMMENTARY ...added December 2023
It will soon be 2024 ... a new year ... and hopefully a year when common sense will prevail and good people will come together to support things that enable a better world.

I have been encouraged during the past two years by some of the initatives that have been promoted by the USA and the Biden administration. I would have liked a lot of the initiatives to have been legislated a decade or more ago, but better late than never.

I have been having a hard time understanding why there are so many critics of the Biden economic initiatives ... but I take comfort in the headline of a Radio commedy show from the late 1940s called ITMA, which always reminded the audience that 'Ignorance is bliss ... 'tis folly to be wise'. I cannot pretend to understand the apparent ignorance of a very large part of the US television audience and the US public at large.

I have lived through decades of change in the media ... and especially the news media. I remember the turmoil when technology made it possible for Radio Luxemburg to broadcast radio into the UK from outside British jurisdiction, and nothing the BBC or any of the official authorities had any power to stop it. Fast forward, and the problem of catastrophic content is many times worse today than it has been in the past, and not much done to address any of the many problems, both big and small.

Though it has been rather slow, and not very effective up to now, there is a substantial movement that is in support of better business practices. There is a long way to go before better practices will be integrated effectively into corporate behavior and corporate reporting everywhere as a matter of course ... but progress is being made. The work of TrueValueMetrics (TVM) fully supports such progress and is setting the stage for significantly better corporate reporting that embraces what used to be called the Triple Bottom Line (TBL) or People, Planet, Profit (3Ps) from the 1990s and is getting there bit by bit starting with ESG.

ESG is potentially an excuse that diverts attention from more meaningful metrics, E ... that stands for Environment is in both ESG and TBL. S ... standing for Society is in both ESG and TBL ... but G standing for Governance is not in TBL, and from TBL, there is no 'Profit' in ESG. From my viewpoint, the widespread adoption of ESG as part of corporate reporting is a total 'cop-out' and should be called out. TVM has one of its goals to highlight this problem in a comprehensive coherent way in ofer to accelerate the adoption of a way better framing of TBL reporting than we have had in the past so that corporate reporting moves away from any and all 'profit on its own' style reporting that has been the norm since Victorian times!

I believe GreenBiz is a huge ally in this endeavor!
Peter Burgess
Taking Care of Business

Written by Joel Makower, Chairman and Executive Editor

May 13, 2019

The world of environmental, social and governance, or ESG, reporting in corporate circles and among mainstream investors seems to be growing by leaps and bounds. Each week brings new reports, tools and other developments in the field.

Case in point: Last week, Walmart released its first-ever Environmental Social & Governance Report, which seems to be the new moniker for what had previously been its Global Responsibility Report, signaling a shift in framing the topic by a leading company.

The report melds governance issues — such as average total compensation and number of promotions for hourly full-time associates in U.S. stores, and data on diversity throughout various segments of the company — with key environmental metrics, which now include the volume of plastic Walmart recycled globally, the volume of food waste reduction and metrics on sustainable supplier contracts.

Walmart’s move reflects the broadening interest in ESG, what until relatively recently had been of concern primarily to “impact investors” and their fellow travelers.

No longer. As we reported in our 2018 State of Green Business report, ESG is moving from the margins to the mainstream. And the financial community is ramping up accordingly.

Last month, for example, the Prince of Wales Accounting for Sustainability Project launched a U.S. chapter comprised of chief financial officers from a handful of large companies, including Autodesk, Caterpillar, Gilead Sciences, Levi Strauss and Salesforce. They have committed to “take action by being a leading source of knowledge and experience” on aligning financial and sustainability value, and to “use their collective influence to engage, enable and collaborate with the wider CFO and finance communities.”

And last week, Moody’s, the venerable credit rating company, proposed a scoring framework for assessing carbon transition risk for publicly traded non-financial companies. Carbon transition assessments, or CTAs, are intended to provide a greater level of visibility and transparency into how Moody’s and others assess risk for companies amid the shift toward a lower-carbon economy.

“We are very focused on carbon transition risks and how those risks are affecting all kinds of sectors globally,” Jim Hempstead, managing director of the ESG Group at Moody's, explained to me during my visit to Moody’s New York headquarters last week. (My interview with Hempstead can be heard in last week’s 350 podcast.)

“They're affecting different sectors with different speeds and with different scope,” he continued. “And so, a carbon transition assessment tool is an ability to provide a common framework that we can use. It's transparent and verifiable, that we could use across all asset classes and all geographies where we speak with a common approach towards how carbon transition risks can translate into credit risk or business strategies or business opportunities.”

Moody’s defines carbon transition risk as the implications of the policy, legal, technology and market changes likely to affect a company in the transition to a lower-carbon economy. They indicate the kinds of risks to which companies may find themselves exposed. They are not credit ratings and don’t directly affect them, although they could feed into Moody’s overall assessment of a company or its creditworthiness.

“It'll inform our indicator of risk,” Hempstead explained.

Moody’s proposed CTA uses a 10-point scale across four key components “that are most relevant to an issuer's ability to successfully manage a shift to a lower-carbon economy”:
  • its current business profile;
  • its technology, market and policy exposure;
  • its medium-term response activities; and
  • its longer-term resilience.
Moody’s is seeking comment on the proposed framework over the next 60 days.

To be sure, the world of ESG is still Wall Street's Wild West. There appears to be no consensus among investors about how to analyze the impact of ESG ratings — a challenge we took up in the GreenFin Summit held at our GreenBiz 19 conference in February, and which we’ll reprise and expand upon at next year’s GreenBiz 20.

Clearly, there’s much more work to do. In another report released last month, the ratings firm MSCI assessed more than 2,000 ESG investment studies to understand “how this has produced a lack of understanding of the link between companies’ ESG characteristics and their financial risk and performance.” It found that the methodologies used in the majority of studies were designed to meet social or ethical values “rather than the more essential financial objectives.”

MSCI noted: “The most difficult question is whether ESG ratings, in general, have been linked to a risk premium like those of traditional financial factors such as quality, value or momentum.”

The answer was inconclusive. ESG ratings have a much shorter history than traditional factors, meaning that the statistical confidence level is fairly low compared to that of other factors. A longer time horizon is needed to authoritatively address this question.

But MSCI observed that: “Companies with higher ESG ratings, on average, had lower frequency of stock-specific risks, avoiding large drawdowns and thus representing a ‘risk-mitigation premium.’” And lower risk can translate to lower cost of capital and higher investor interest. That should be the mantra of every corporate sustainability executive seeking to demonstrate the long-term financial value of what they do.

Circular Thinking —Two important deadlines on the circular economy front:

Next Tuesday, May 21, I’ll be hosting a one-hour webcast, Circular Packaging: The State of Play. Join me, along with Christopher Davidson of WestRock, Deanna Bratter of Danone North America and Nina Goodrich of the Sustainable Packaging Coalition for what should be a fascinating conversation about a fast-moving topic. It's free; register here.

And this Friday, May 17, is the deadline for the Early-Bird Rate for Circularity 19, coming up June 18-20 in Minneapolis. It’s shaping up to be a terrific event, so I encourage you to sign up before the discounts disappear. The event will bring together more than 500 thought leaders and practitioners to accelerate the circular economy opportunity. Through inspirational plenaries, interactive breakouts, networking opportunities and a solutions-focused showcase, Circularity 19 will inform and empower you to turn circular economy concepts into profitable opportunities. Learn more here.

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