What would it mean if companies were required to report on sustainability issues as part of being listed on a stock exchange? Brazil and South Africa exchanges have already taken this step, and last year at the Rio+20 Summit the United Nations launched the Sustainable Stock Exchange initiative to build on these efforts and encourage all members of the World Federation of Exchanges to require corporate disclosure of environmental, social, and governance (ESG) risks and solutions as part of their integrated financial reports. The SSE’s purpose is “to enhance corporate transparency, and ultimately performance, on ESG issues and encourage responsible long-term approaches to investment”. The idea has had a tepid response in this country until now, but engaging the stock exchanges in supporting responsible corporate behavior complements sustainable investors’ strategies with the Securities and Exchange Commission, trade associations, and companies directly via engagement and filing shareholder resolutions.
In April, The Investor Network on Climate Risk’s Listing Standards Drafting Committee issued draft recommendations for sustainability disclosure exchange listing requirements. The group includes a consortium of investors, including the AFL-CIO, Ceres, and Blackrock along with sustainable investment stalwarts Domini, Pax World, and Boston Common.
And NASDAQ OMX, which owns 24 markets across six continents, has already expressed support for the process. “Creating a corporate sustainability reporting standard across all exchanges will encourage a shift in how companies assess the importance of their efforts in environmental, social and governance issues,” said Meyer Frucher, vice chairman at NASDAQ OMX. “It is a win-win for both companies and investors, encouraging sound business practices and responsible investing.” The final version of the standards will be presented at the WFE’s annual meeting in October, and there is some degree of anticipated support for its passage.
Proposed disclosures by companies as part of a listing standard include:
Michael’s latest GreenBiz.com column is out, and it’s a good one, looking at a wide range of ways that climate change is coming on to the radar as a clear and explicit business risk that needs to be addressed. Read the whole thing at GreenBiz; here’s a teaser:
Shareholders and managers understand that managing risk is an important aspect of running a company. Elected officials who may disallow the rebuilding of homes on hurricane-prone coastal lands are, in essence, determining that the risks outweigh the benefits. In the corporate world, there is a need to understand that the unprecedented risks we’re facing can serve as a tremendous impetus for strategic planning that averts or mitigates climate change risk.
The SEC agrees. In 2010, it issued its Commission Guidance Regarding Disclosure Related to Climate Change, which states that increases in storm intensity, sea-level rise, thawing permafrost, temperature extremes, changes in the availability or quality of water or other natural resources, floods, and decreased agricultural production capacity can materially affect companies in the areas of personnel, physical assets, and the supply and distribution chains. It also affects the prices of raw materials, particularly ores, agriculture, food, energy, and clothing. Travel and tourism is highly vulnerable to climate impacts as well.
Last year, Calvert Investments, Ceres, and Oxfam America issued a guide to disclosing and managing Physical Risks from Climate Change, and offers specific suggestions to companies specifically in the areas of food, apparel, electric power, insurance, mining, oil and gas, and tourism. Questions are posed in various categories: value chain; climate resistant and resilient systems and policies; vulnerable regions; disaster strategies; water risks; impacts on prices, capital, markets, and opportunities; and impacts on stakeholders and communities.
According to the Chicago Booth/Kellogg Financial Trust Index, 79 percent of investors have no trust in the financial system. Sixty-four percent of Americans believe, according to The 2012 Ethics and Action Survey: Voices Carry, that corporate misconduct was a significant factor in bringing about the current economic crisis.
Four years ago, the receptivity of the President’s transition team to these issues gave reason for hope among sustainable and responsible investors that systemic financial reforms would be put into place and that the business risks associated with climate change would be viewed as material to the financial bottom line. But financial institutions (and the power they wield over Congress) has delayed the implementation of important financial reform laws and regulations since 2009.
Michael Kramer’s most recent Sustainable Investor column on GreenBiz.com addresses the continuing risks to the financial system that are introduced by computerized high-frequency trading, which accumulates profits by buying and selling stocks multiple times per second. You may recall the “flash crash” of 2010, when computers drove a quick 1000-point drop in the Dow Jones average. Kramer notes, “the problem with this approach is that a company’s fundamental financial value is completely overlooked by this type of investor.”
An existing transaction tax of .00257% raises about $1 billion per year to fund the SEC; other major economies, including the UK, Hong Kong, Switzerland, and India also impose FTTs on at least some asset classes. Kramer makes the case for raising the FTT enough to discourage some of most egregious high-frequency trading. The simple truth is that investors need to trust the markets if they’re going to invest in them again. As long as people are afraid that the system has run amok, can’t moderate volatility, and is not accountable for severe losses or unethical practices, they will take their capital elsewhere, which one could argue is precisely why the economic remains stagnant.
Here’s the opening; click the link above to read the whole thing:
A bill just introduced in the U.S. House of Representatives would support the $7.5 billion Clean Energy Victory Bond Act. HR 6275, by California’s Bob Filner and Dennis Kucinich of Ohio, promotes the domestic development and deployment of clean energy technologies. These Series EE and I bonds, available in $25 increments, would be sold to the general public, and are reminiscent of the World War II Victory Bonds that generated more than $185 billion at the time — $2 trillion in today’s dollars.
NI Managing Partner Michael Kramer’s most recent “Sustainable Shareholder” column is now up on GreenBiz.com; in it, he addresses one of the themes he’s been covering in the NI newsletter for years, shareholder activism. Here’s a teaser, but be sure to go read the whole thing on GreenBiz!
Socially responsible investors have long practiced the art of saying no. Now, many are learning that saying “Yes, but” can be just as effective — and sometimes even more so.
A growing number of investors are using the power of share ownership to engage management in dialogue about corporate practices. Their reasoning: environmental, social, and governance (ESG) issues can pose material financial risks to companies, and therefore shareholder value may be affected.
Several hundred institutional investors totaling over $1.5 trillion in assets have filed nearly 2000 resolutions in the past few years, and through this work have persuaded numerous companies to make changes from better disclosing climate risk to allowing employees to unionize.
Shareholders want to know which companies are leading the way towards responsibility and accountability, and which ones are resistant. More and more investors want to invest in companies that can turn a profit without comprising the health and welfare of people or degrading the environment that supports our communities and economy. And those investors are becoming increasingly willing to encourage the laggards to embrace corporate responsibility.
You’ve probably seen the Think Local Buy Local logo in Big Island Weekly or in retail stores around the island. The Think Local Buy Local initiative was launched last year to raise awareness about how our spending choices can impact our families and communities. Think Local Buy Local is run by The Hawai‘i Alliance for a Local Economy (HALE) and is funded by the County of Hawai‘i, Department of Research and Development.
Hawai‘i Island’s consumers believe they are receiving greater value when they buy local. HALE recently asked over 200 shoppers about their most important purchasing criteria, and they indicated product quality, locally made products, price, and friendliness of staff, in that order. Hawai‘i island residents revealed in the survey that they feel a strong obligation to buy locally made products from retailers.
Purchasing locally made and grown products and services is better for the environment. Shipping things in and out of Hawai‘i burns carbon, which makes things more expensive here and heats up the planet — contributing to climate change, which threatens the ecosystems upon which life depends. Here in Hawai‘i, these changes damage our reefs and oceans, and the erratic weather patterns cause droughts that harm local agriculture. Building a local green economy can reduce the use of fossil fuels, decrease pollution and hopefully reverse global warming.
There is a quality of life aspect to “buy local,” as well.
NI Managing Partner Michael Kramer is writing a regular column for GreenBiz.com; this month’s piece looks at the growing trend of companies linking executive compensation to a broad range of performance measures. The piece, entitled “Momentum builds to link CEO salaries to sustainability measures,” can be read in full here on the GreenBiz site. Here’s a teaser:
The most publicized 2012 say on pay vote occurred in April at Citigroup’s annual meeting, where 55 percent of shareholders rejected management’s proposed executive compensation package. Citi’s compensation committee now will assess the CEO not on profitability, but on measures such as talent management, organizational culture and risk management. It’s a marked departure from the longstanding tradition of evaluating management on financial performance alone.
Many sustainable investors believe that linking executive compensation to Environmental, Social and Corporate Governance (ESG) performance is an appropriate incentive model that supports long-term shareholder value while benefiting society and the environment. And sustainable and responsible investors acknowledge that executive accountability has a direct correlation to long-term share price. Dozens of companies are beginning to agree, and while a handful are using a broad array of sustainability performance criteria in their executive compensation evaluation, most are focused primarily on workplace diversity in areas of hiring, promotion, and management. Others assess performance by using health and safety issues as measures.
Natural Investments won the “Commitment to Green” business achievement award at the 2nd Annual Business Achievement Awards Gala held on May 31, 2012 in Honolulu and presented by Pacific Edge Magazine. The award honors an individual or business that has shown a commitment to sustainable, green living in:
promoting education and training
advocating green lawmaking and policies at the legislative level
engaging in green practices within their own organization
creating, sustaining or promoting programs in response to environmental issues
developing, implementing or sponsoring green events to get their community involved
The firm received the award in part due to its work in Hawaii to help pass the Sustainable Business Corporation status into Hawaii law in 2011, its leadership in forming the Kuleana Green Business Program, directing the Sustainability Association of Hawaii, and founding the Hawaii Alliance for a Local Economy, which it operates the Think Local Buy Local campaign.
A new column by NI Magaging Partner Michael Kramer has debuted on the website GreenBiz.com. The column, The Sustainable Shareholder, will share the type of thinking that underpins Natural Investments with a wider international audience.
When the Netherlands’ biggest pension fund, Algemeen Burgerlijk Pensioenfonds (ABP), with more than $300 billion in assets, announced earlier this year that it was blacklisting the largest retailer in the world for noncompliance with the United Nations’ Global Compact principles, many sustainability experts may have been shocked. After all, Walmart has become an innovator in evaluating its supply chain and ramping up its commitment to purchase from manufacturers that meet its new sustainability standards.