How can the investment community get a handle on sustainability indexes, ratings and ESG investing as they evolve in an economy fraught with tension?
Last year, MetaVu and CRD Analytics kicked off a Quarterly Analyst Call [QAC] to address these very questions in a format that investors and analysts are most familiar with: the quarterly analyst call. With hundreds of cross-sector executives participating in the most recent call; there is reason to believe that MetaVu CEO Mark Serwinowski and President of CRD Analytics Michael Muyot are on to something.
Held on June 14th and presented in association with Enablon and broadcast live from the University of Denver, the event was the fourth in a series of calls addressing this rapid evolution and is the only analyst-presented, regular event of its kind. The QACs, according to the two hosts, raise the bar for sustainability index transparency by establishing a two-way communication between corporate reporters and the investment community on the challenges they face.
Highlights: What is SDROI?
Serwinowski and Muyot kicked off the discussion by providing the definition of sustainable development ROI, or SDROI, in the context of executive and investor perspectives: SDROI is the result when an enterprise stewards resources and capital efficiently to create value for all stakeholders.
"This meta definition is not only simple, but it’s actionable,” Muyot explained. "It allows investors to help identify the companies that are actually walking the talk – these companies are doing it, they’re measuring it, they’re performing it, and they’re communicating it."
SASB Chartered to Establish Materiality ESG Issues; Sustainable Investing Goes Mainstream
The call then transitioned to the News segment, where recent events and developments were discussed including the Global Reporting Initiative (GRI). Key highlights included:
- The progress of the GRI's G4 Guideline Development Process.
- The Sustainability Accounting Standards Board (SASB) has been chartered to establish materiality ESG issues to be reported on 10-K and corporate SEC reports. The SASB industry working groups are scheduled for a global launch in September 2012.
- The mainstreaming of sustainable investing has also gained momentum, Muyot said. In fact, a professional asset manager invests $1 in every $8 using some type of ESG or SRI screening methodology today. Examples include Morgan Stanley Smith Barney, Blackrock, and Bank of America.
Analysis: ESG and Sustainable Development
The hosts then turned to Truth in Performance analyses, presenting some financial indexes, regional rankings, and new midcap companies driving the sustainable supply chain and global clean energy markets, including the NASDAQ CRD Global Sustainability Index, Southeastern Corporate Sustainability Rankings, and SeaCrest Global Clean Energy Index.
Many energy companies made these global indices, they said.
While this might sound counterintuitive, Serwinowski described the opportunity in terms of sustainable development. "Before the company begins its drilling process, they do an environmental and social impact assessment that’s foundational to establishing the regulatory compliance protocols as well as the operating permit; so when we talk about social license to operate, that’s a foundational investment," he said.
But connecting environmental, social, and governance components to operational and financial performance remains key. Two companies that seem to be on the right path in this area according to the hosts are UPS and Coca-Cola, with both announcing environmental initiatives around logistics and water, respectively.
But “connecting the dots” also has negative implications, exemplified by Hershey’s and the cocoa industry’s struggles with the social risk of child labor as reported by the CNN Freedom Project. Or JPMorgan Chase’s recent governance debacle of failing to prevent a trading loss of over $5 billion.
NAEM and EHS & Sustainability Best Practices
The call also featured special guest Carol Singer-Neuvelt, executive director of the National Aassociation for Environmental Management (NAEM), who discussed NAEM’s new study Green Metrics that Matter, which promotes better decision-making by both corporate users and the broader ESG community. Additionally, the study provides insights on key trends across global sectors in partnership with 1,500 corporate members.
Are companies collaborating to invest in sustainability?
"Most companies are vertically oriented, and sustainability requires a cross-fertilization," Singer-Neuvelt explained.
"Companies are putting together teams that are collaborating. These teams can come from the environment, health and safety function, but they bring on new product development, R&D, operations and manufacturing, marketing, sales and procurement; it’s requiring a very different approach which is a horizontal approach to decision-making."
But the measurements and narrative around sustainability are not necessarily straightforward, she added. Given that Wall Street’s data measurements by nature are lagging indicators, there is an inherent limitation when trying to achieve a holistic view; thus, context is extremely important.
The next QAC will be held on September 13, 2012, with GRI's Mike Wallace. Wallace will discuss the latest sustainability reporting developments and provide a United States context to the conversation. Topics include:
- Next generation sustainable development and integrated reporting frameworks,
- Leading performance indicators as a predictive measure of risks and opportunities in the supply chain, and
- Further signs of the mainstreaming of sustainable investing.
Whether you are a sustainability manager, a chief sustainability officer, a veteran impact investing professional or an analyst new to ESG and the world of socially responsible investment, this call should be a permanent addition to your quarterly calendar.
Register for the free live broadcast and join us on Twitter at #SDROI.