Blah Blah Blah … Less Talk, More Work

One of the more common criticisms of corporate sustainability efforts is that companies make plenty of high-level sustainability claims on their website and in their corporate presentations, yet offer very few tangible examples of actions supporting those claims.  Of course this is not always the case; many companies are well down the sustainability path.  And even when the observation is correct, it is not necessarily a calculated strategy of deception. It may well be simply a management team with a genuine desire to make their operations more sustainable but who are both overwhelmed by the scope of the task at hand and unsure where to begin.

I came across a helpful article today in Forbes which provides some suggestions on actionable initiatives for companies looking for some logical first steps.  While the author is in the textiles business (where it is estimated that 87% of textiles end up in landfills, even though over 90% are reusable or recyclable), the suggestions are applicable to businesses in any industry and of any size.  I found them to be logical and straightforward.

If you want to move your company along in its sustainability journey, the suggestions in this article are worth your consideration.  My preferred approach with clients is to work with them to craft a customized Sustainability Strategy, but there is absolutely nothing wrong with beginning with some common-sense initiatives to get the ball rolling.

It’s important to share your company’s sustainability aspirations with your many stakeholders.  They do care, and they want you to speak to it.  But they also want to see you act on it.  It’s time to roll up your sleeves and get to work.

Trust, But Verify – The Rise of Sustainability Assurance

You knew it was coming.  Financial auditors have been chomping at the bit for years on this, and their furious lobbying appears to have paid off (well, at least in the EU).

The European Union’s Corporate Sustainability Reporting Directive (CSRD) includes the requirement for third party verification of reported sustainability data.  An interesting piece in Forbes today offers some thoughts on the logistical challenges associated with this requirement, the most serious of which is a dearth of qualified assurance experts to complete the work.

These are serious challenges, without question.  However, I am equally concerned with another capacity issue – the capacity of companies to produce and mark-up (using the correct digital tags) sustainability data which is compliant with both the reporting standards and all associated regulations (ie the EU taxonomy).  And while initially the assurance providers will be mandated to undertake “limited assurance”, that will graduate to a “reasonable assurance” standard within a couple of years.  The difference is important.

A “limited assurance” mandate’s focus is to understand the process used to compile the reported sustainability information. It concentrates on inquiry, observation, and analytical procedures, looking at data at a more aggregated level.  Conversely, a “reasonable assurance” mandate requires additional effort, utilizing many of the methodologies commonly employed in a financial audit (ie. a more rigorous review of internal controls & procedures).

It is also worth considering who will be deemed as qualified to complete this assurance work.  In the EU, each member state will be empowered to determine its own set of qualifications.  That said, it is likely going to be a mix of traditional accounting/audit firms and built for purpose specialist assurance shops.

Notwithstanding the recent EU decision to push back the implementation of CSRD for some companies by two years, those who begin reporting soon must navigate yet another complexity.  The alternative would be to simply take them at their word on the quality of sustainability data they will report.  But trust seems in short supply these days.  So trust, but verify.

One More Light Bulb

Has this ever happened to you?  You are speaking with someone, perhaps explaining something, and they aren’t getting it.  So you try a different approach vector, but they still don’t understand.   You try again, with the same result.  But the fourth time you see the light bulb go on; they see what you are trying to communicate and they agree.

While I have never had a conversation with anyone at the Wall Street Journal, I must confess I have seen numerous pieces (in fairness, not all) in that particular publication disparaging the very concept of ESG.  I have also had many conversations with ESG nay-sayers.  I’m talking about folks who, for any number of reasons, are either unable or unwilling to grasp my ESG message.  And what message is that, you ask?  First, that investors who incorporate ESG analysis within their due diligence will enhance both the quality of their analysis and the quality of their investment decision.  Second, that companies who consider the interests of their many stakeholders in constructing strategy and policy will outperform those companies who do not consider those interests.  And third, using the term “non-pecuniary” to describe ESG factors makes no sense … all ESG factors are financially relevant to a company.

Now on to the matter at hand … an article in the Wall Street Journal yesterday highlighted a recent analysis of the impact of ESG factors on corporate performance.  The Drucker Institute at Claremont Graduate University, working with the Wall Street Journal and Bendable Labs, produces The “Management Top 250”, a company quality ranking using 32 indicators drawn primarily from the work and philosophy of the late American business guru Peter Drucker.  The study’s primary conclusion was that companies showing the greatest positive ranking movement over the last five years were those whose ESG metrics improved the most over that same period.  As one company CEO who provided data to the study noted, “in general, better responsibility and better sustainability means better cash flow, better risk management and better value creation.”

And there we have it.  One more light bulb glowing brightly.

At the risk of sounding self-serving, perhaps if you pass along this article to someone you know we can continue to light the path forward.



A Reprieve, But The Winds of Change Still Blow

If you close your eyes and listen closely, you can almost hear a simultaneous sigh of relief from 50,000 CEOs.  As noted in Forbes yesterday, the European Parliament  has agreed to delay the full implementation of the CSRD (Corporate Sustainable Reporting Directive) by two years.

Specifically, this affects both those who are within scope (and must report according to the new requirements) and those who were scheduled to be in scope shortly and would soon have to report.  The change means that those European companies still within scope will be relieved of the supplemental requirement of providing sector-specific sustainability disclosures; those additional requirements have been pushed back by two years.  And non-EU domiciled companies will be given an additional two years before any CSRD mandated reporting kicks in for them.

I can certainly appreciate the corporate pushback which must have surfaced over the past year, given the sizeable effort needed to meet these broader reporting protocols.  That said, this should not be seen as the first step in the dismantling of the CSRD.  The longer-term plan remains in place.  While perhaps they can take the foot off the accelerator, companies had better keep their eyes on the road.  There remains broad consensus in Europe that these are important and necessary disclosures.  What is new is the recognition of the burden this new reporting is placing on companies, and a decision was taken to allow them some room to breathe and grow as they continue to emerge from a pandemic-induced economic slowdown.

Much work has already been completed in anticipation of these reporting requirements, and there is a wonderful opportunity to capitalize on the data already collected.  The revised implementation timeline will allow forward-thinking companies to review this new data and fine-tune their sustainability strategies.

Two years isn’t as long as it might seem.  The winds may have calmed, but the next storm is just around the corner.

Fool Me Once, Shame On You. Fool Me — You Can’t Get Fooled Again …

In the good old days, some of you may recall there were these things called activist investors.  They focused on forcing companies to divest unprofitable divisions, change out a management team or pursue business combinations to achieve economies of scale.  Essentially they pushed companies to undertake corporate actions which they believed would increase the value of the shares which they (the activist investor) had recently acquired.

Then along came Engine No 1.  They appeared to offer new flavour of activist investing, one that understood the critical challenge of climate change and how it would impact both our world and the outlook for energy companies.  The new spin was that Engine No 1 identified that climate change was going to damage the company’s long-term financial outlook (and possibly its long-term viability), and that board changes were necessary to push the company to commence a significant business transformation.  And to everyone’s surprise, they successfully rallied a number of other Exxon shareholders to the cause and actually won.  They placed three new board members and started the ball rolling.

Fast forward a couple of years and Engine No 1 are activists no more.  More importantly, the Exxon board appears to be acting as the Exxon board of old.  As this article describes, not only is Exxon once again fighting climate-related shareholder proxies, it is going on the offensive to prevent them from coming to a vote at all.

I will leave it to you to ponder the series of events which brought energy companies (and not just Exxon) back to their good old days.  What I might humbly suggest is that we adhere to the wisdom of former US President George Bush, and don’t get fooled again.