Articulating ESG performance in the marketplace: How did companies fare in the third quarter?
What is SDROI or the return on investing in sustainable development?
Setting the stage for September's Quarterly Analyst Call, Mark Serwinowski, founder and CEO of MetaVu, chose to lead the call with a clear definition of a hard to understand acronym. The call, aimed at the financial community as a tongue in cheek response to the traditional quarterly calls most finance professionals are familiar with, sought to put some context behind all the news filtering in regarding SRI and environmental, social and governance [ESG] reporting.
"[SDROI] is the result when an enterprise stewards resources and capital efficiently to create value for all stakeholders," he explained, urging listeners to think of three key elements:
- Reporting is fundamental to understanding the performance of a company,
- Operationally, sustainability is foundational to enterprise risk management and is the platform for innovation, and
- Financially, sustainability provides the narrative to frame the story for investments, both internally and externally.
After taking listeners through the quarter's big news -- the new 2012 Conference Board report on sustainability practices, Mercer’s intention to integrate ESG into its mainstream client reports, and a new Ceres reports on supply chain management for the oil and gas sector – Serwinowski and co-host Michael Muyot, president of CRD Analytics, kicked off the Truth in Performance segment.
Sustainability Indexes Outperform Mainstream Indexes
Their first observation: the performance of sustainability indexes like the NASDAQ QCRD Global Sustainability Index, FTSE4Good, and Dow Jones Sustainability World Index was up since July 2009 over other, more mainstream indexes. While NASDAQ QCRD includes companies such as IBM, Dell, Intel, and UPS, FTSE4Good also lists Ricoh, Nomura, Allianz, and – perhaps counter-intuitively – Shell.
Should this be a surprise?
Not necessarily, according to Serwinowski, who explained the convergence between the traditional investment side and ESG performance. “Shell has extended their supply chain protocol throughout their network… when you think about supply chain risk, extractive companies are ahead of the curve."
Does the same rule apply for the DJSI World Composite, which lists companies including IBM, Johnson & Johnson, Nestle, and GE?
"GE, one of the early adopters of sustainability, was able to articulate sustainable development ROI terms in plain financial English: higher market share, higher revenue, better profits, better dividends,” said Muyot, leading Warren Buffet to increase his position in the company and investing another $5 billion in the multinational company, renowned for its ecomagination initiative to integrate sustainability principles into product design and processes.
ESG Reporting: Latest Developments
In the Connecting the Dots segment, the hosts went through the implications of the recent SEC ruling on the use of conflict minerals, associations like the Sustainable Apparel Coalition sponsoring the Higg Index furthering implementation and therefore, providing a methodology for measuring environmental performance in the supply chain for the apparel industry, as well some of the recent developments around the Global Reporting Initiative [GRI], which is currently accepting feedback for its G4 guidelines.
With several changes expected to make the G4 guidelines more complex – or more comprehensive depending on how you look at it – special guest for the call GRI's Mike Wallace joined the hosts for the final segment to discuss the nonprofit's efforts to increase adoption rates of sustainability reporting across the U.S.
The most promising development in CSR reporting according to Wallace: associations and supply chains pushing organizational stakeholders to report on their ESG performance.
Noting associations like the National Association of Corporate Directors, the Society of Corporate Secretaries and Governance Professionals, and the National Investor Relations Institute, Wallace emphasized that these organizations were having impact because of their ability to have a multiplier effect across their members.
G4: Comprehensive or Overly Complex?
As for the GRI guidelines, Wallace noted that there were over 30,000 stakeholders involved during the last 15 years on connecting the linkages between GRI and other reporting frameworks, such as the OECD guidelines, the Carbon Disclosure Project, the UN Global Compact, and ISO. Why not move to a common standard then instead of yet another alliteration of an already comprehensive suite of guidelines?
Answering a question from the simultaneous Twitter chat [#SDROI] – conducted in partnership with CSRwire – about why U.S. companies are lagging behind in disclosure, the panel blamed the country’s litigious nature as a prime suspect in limiting voluntary reporting. However, “because of the momentum and growth in reporting” Wallace explained, “you run a bigger risk by being quiet about these types of things than by saying something.”
A TV Channel Dedicated to ESG News
Clearly, we haven’t even begun to scratch the surface on a marketplace that is quickly evolving. To keep the conversation going – and keep you updated on the news and research as it happens – MetaVu and CRD Analytics also announced the upcoming launch of SDROItv, a new TV channel dedicated to the changing ESG landscape. Stay tuned for more details.
As for the QAC, in its second year and already gaining popularity for its format, quick news bytes and brisk style, join the hosts and sponsors Enablon, CSRwire, and the University of Denver’s Institute for Enterprise Ethics for the final call of the year, scheduled for December 13, 2012.
And join the conversation by tweeting to us at #SDROI, watching a recording of previous Quarterly Analyst Calls or visit http://bit.ly/MJnjJx.