Reliable, comparable and relevant non-financial information for companies
A significant amount of work is currently being done in the ESG space aimed at highlighting the relationship between ESG issues, financial risk-and-return and societal impact. However, for this to truly make an impact, stakeholders need to see reliable, comparable, and relevant non-financial data from companies. Companies are confused about what to disclose and to who.
Thankfully, the market has seen significant recent advancement to this problem in the form of disclosure frameworks and standards. This work is being led both by regulators and organizations.*
This is enabling non-financial reporting to shift from an un-standardised, voluntary disclosures form to a regulated and standardised environment. This period is comparable to accounting standards while the Generally Accepted Accounting Principles (GAAP) were being developed.
A major piece of legislation in this space is the EU’s Non Financial Reporting Directive (NFRD) which is undergoing revisions after a public consultation. SASB, a non-profit standards setter, has issued a response to the Public Consultation on the Revision of the Non-Financial Reporting Directive.
As part of it’s response SASB declares:
“By laying essential groundwork for a globally accepted system of non-financial disclosure standards, the NFRD can help establish the market mechanism necessary to scale up sustainable finance in Europe and beyond, fuelling a 21st century global economy that will support shared prosperity and sustainable economic growth.”
The regulatory work being done in Europe as part of the NFRD and it’s support is putting us closer and closer to the ESG north star of: Reliable, comparable and relevant non-financial information.
Below is a showcase of how to major frameworks, GRI and SASB, complement one another:
Thanks to reporting standardization I believe we are moving towards a future where companies operate with a triple bottom line:
People | Planet | Profit
I am working on building a technology company that helps companies report on their non-financial information, Nossa Data. If any subscribers would like to learn more about what I am working on, please reply to this email to schedule a call.
What Value Do Different ESG Standard Setters Provide?*
- Task force on Climate-related Financial Disclosures (TCFD)’s Recommendations: Governance, strategy, risk management, and metrics and targets as a useful rubric for assessing climate risk.
- Climate Disclosure Standards Board (CDSB) Framework: Detailed guidance to help companies report environmental and natural capital information with the same rigor as financial information.
- Global Reporting Initiative (GRI) Standards: Focus on the economic, environmental, and social impacts of the activities of a company towards sustainable development. The GRI standards are intended for use by all stakeholders, including customers, employees, civil society, governments, and investors.
- Sustainability Accounting Standards Board (SASB) Standards: Designed to meet the unique information needs of providers of financial capital, such as investors, lenders, and underwriters.
- Industry-specific SASB Standards: Identify the sustainability-related risks and opportunities most likely to affect a company’s financial condition (i.e. its balance sheet), operating performance (i.e. its income statement), or risk profile (i.e. its market valuation and cost of capital) in the near, medium, or long term.
Top stories
ESG investing cries out for trained finance professionals
Over the past year, investors have poured money into stocks and portfolios with an ESG focus. Evidence shows that they perform well and may even weather global crises such as the coronavirus pandemic better than other funds. Unfortunately, there are very few finance programmes that include social responsibility, ESG and sustainability as dominant themes. Meanwhile, in countries such as Norway, asset managers are coming forward as they need to run ESG funds, but do not have people who can run them.
Financial Times.
ESG and Earnings Calls
Issuers are starting to convene environmental, social, and governance (ESG) calls, which are opportunities to focus an investor-facing call on ESG themes (e.g., climate change, employee diversity and inclusion, and board diversity). These calls often follow the publication of the issuer’s annual sustainability report. Examples of companies hosting such calls include Jones Lang LaSalle, Johnson & Johnson, and Phillips. These efforts follow earlier pilot programs, such as the UN Global Compact’s ESG Investor Briefing Project, in which several companies (SAP, Enel, etc.) experimented with approaches to improve corporate communication with investors on material ESG issues. The concept did not catch on at the time, but has been rejuvenated by the volume and specificity of requests for ESG information from investors we are seeing today.
Harvard Law.
Pale Blue Dot is a new early-stage fund targeting ‘climate focused’ startups in Europe
Pale Blue Dot, a new “climate only” venture capital firm located in Malmö, Sweden had a first close of €53 million. The fund primarily targets startups in Europe at pre-seed and seed, the VC plans to back companies that are using technology to help solve climate problems. The aim is to invest in up to 40 companies out of this first fund, with investment tickets ranging from €200,000 to €2 million. The fund is described as sector agnostic and will consider software and technology investments with a strong positive climate impact. Current focus areas include food/agriculture, industry, fashion/apparel, energy, and transportation.
TechCrunch.
Investors and Corporates Perceive Future ESG Risks Differently
Global investors and corporates are divided in their perception of sources of future environmental, social and governance (ESG) risks, according to a joint metals and mining survey. Stark differences emerged between corporate and investor respondents when asked to identify the most material ESG risks in the next five years. Corporates point to carbon, air and water emissions as key risks, while investors identify concerns regarding water scarcity, labour relations and human health as those most likely to increase or substantially increase in the next five years.
Fitch Ratings.
After the Norilsk Spill, can Russia Turn Over a New Leaf in Terms of ESG?
The waters of Siberia’s Ambarnaya River have turned red after an accident at a thermal power plant owned by Nornickel spilled some 20,000 metric tons of diesel fuel into the waterway. The environmental disaster, which prompted Russian President Vladimir Putin to declare a state of emergency, would be severe enough on its own. It’s compounded, however, by allegations that Nornickel covered up the incident in the crucial first days after it took place. Stunningly, the regional governor claims he only found out about the disaster after reading reports on social media.
International Policy Digest.
Report Highlight of the Week:
Industry Guide to the Sustainable Development Goals
SASB
Today, 65 percent of global asset owners and managers say they have aligned their investment framework with the SDGs.3 Meanwhile, 72 percent of companies mention the SDGs in their annual corporate or sustainability report.4 (See Figure 2.) These figures indicate a clear recognition that the Goals are important considerations for the users and providers of financial capital.
How could a specific company influence the SDGs?
What does a company need to do to effectively communicate about SDGs?
- Identify financially relevant SDG targets by industry.
- Prioritize activities to address the SDGs that are aligned with industry-specific drivers of value.
- Gather decision-useful performance information on company-specific activities related to key SDGs.
Other interesting readings / news:
TruValue Labs has released a Developer API: Check out their documentation.
Leadership for the Decade of Action: By UNGC and Russell Reynolds Associates:“Commitment to sustainability is at an all-time high. Ninety two percent of CEOs believe integration of sustainability will be important to the future success of their business. However, there is a gap between rhetoric and reality. Only 48 percent of CEOs say they are implementing sustainability in their operations, and only 21 percent of CEOs actually feel that business is currently playing a critical role in achieving the SDGs.” Read the Report.
Investors and advisors are recognizing that Responsible Investment (RI) is about financial performance. A recent Nuveen report indicates a significant rise in the view of RI as a strategy to outperform.
