Archive for April, 2011
When it comes to ESG metrics, materiality matters
As one of the first employees of Ceres and a leader in developing the Global Reporting Initiative, Mark Tulay has been involved with socially responsible investing for 20 years. His latest project is the Global Initiative for Sustainability Ratings, an effort to identify the most material metrics for measuring a company’s sustainability performance. We caught up with him this week to learn more about the landscape today and the role the GISR will play in the future of sustainability analytics.
GT: When Ceres started out, it was one of the first attempts to use metrics as a foil against environmental disaster. Why did you think that data could help prevent another oil spill?
MT: Around the time of the Valdez oil spill, it was unheard of to have a conversation about environmental performance at the board level. One of the things this effort at transparency did was take accountability to the highest level of the company. You can never tell how many disasters transparency prevents but when you have that disclosure, you have accountability and if you have accountability, you have an effort at performance and a strive for a common goal. And before Ceres, we didn’t have that.
GT: GRI was a game-changer, but a decade later, many publicly traded companies still don’t disclose environment, social and governance (ESG) information. Do you think this will change? If so, why?
MT: More has happened in the last three years than in the previous twenty, combined. When I started twenty years ago, less than one in every $20 of assets under management looked at environmental performance. Now, with the proliferation of investment vehicles such as the Dow Jones Sustainability Index, one of every 10 dollars in the U.S. is associated with at least one component of integrating ESG performance.
One out of ten is significant and many feel this is kind of a tipping point for closer evaluation of these metrics. So that’s the opportunity. These investors are sticky; they’re longer-term, they’re the kind of investors that IR folks usually covet. Until now, the investor relations folks didn’t ask the questions about sustainability or ESG, but now they’re starting to do that. Companies are starting to understand that pension funds are interested in this and if you can find investors that are good, long-term investors, it’s a very profitable endeavor.
It’s amazing to watch where this is going and the impact it’s having.
GT: How well does the current ESG analysis system work? Do you think it needs reform?
MT: I used to work for a research provider so I sort of know this from experience, but the tendency is for research providers to go a mile-wide to collect as much information as possible. That makes sense, it’s important. But there’s a need to go a mile-deep.
What we really need help with is this question of materiality and prioritizing the metrics; looking through all the disclosure and assessing what are the 10-20 key performance indicators that matter most?
GT: What changes would you like to see to the system?
MT: We have all this disclosure, but there’s overload now, so investors don’t know what to do with it. How do they rate things? How do they rank things? Investors, I think, need a standard framework. And so that’s what this initiative called the Global Initiative for Sustainability Ratings will address. It will show investors what to pay attention to and why.
It’s developed as a non-profit and the framework, the output will be free, publicly available and non-commercial. This organization will not try to monetize it. And then we’ll put it out there and invite others to tell us what’s missing and then we’ll strengthen it. It will be an annual process of reviewing and expanding the tent of partners.
It’s amazing to me if I look back over the past 20 years, is the meaningful results that come from through multi-stakeholder collaborations.
GT: What impact do you think this will have?
MT: Right now, there’s a feeling that much of disclosure goes into a black hole. And there’s little transparency, rigor or consistently in how sustainability performance is measured. There’s more than 300 ratings systems and 300 assessments systems and they all do things in different ways and we think that by putting up a standard framework, we can bring convergence to some of these groups and reward the companies that are truly committed and excelling.
The other thing it will seek to do is infuse sustainability content into other ratings, like bond ratings. There’s a feeling that this should be a standard part of due diligence, to look at these environmental and social metrics. We think that just like GRI, certain organizations will pick it up and have their own take on these ratings. We think pension funds will take on these criteria and use them as a way to select managers. And if they select managers by that, then by extension, companies will benefit from following these or reviewing the metrics and seeing how they align. We want them to be consistent and align with what GRI is achieving so that disclosure can be rewarded.
GT: But wouldn’t an ESG research firm object to a standard? After all, it’s the secret sauce…Why would they want to use a single framework if it means eroding their proprietary edge?
MT: If the pension funds, the asset owners, say ‘We want research that’s aligned with the framework,’ then the research companies are likely to embrace that. And we’re not trying to say there’s one way to do it; maybe there’s 15 ways to evaluate companies. Everyone has their own qualitative best practice as to how to do this. The reason we’re calling it a framework is because it provides direction, it provides specificity, but it doesn’t say, ‘This is the only way to do it.’ So I think it’s going to provide the compass and others will find ways to do it and create businesses around it.
GT: Who will be participating?
MT:We’ll reveal the full list of stakeholders at our launch in Washington, D.C. on June 9, but I can tell you that it’s a partnership between Ceres and the Tellus Institute, and that we’ll be joined by asset managers, pension funds and companies stakeholders as well.
Mark Tulay is founder and CEO of Sustainability Risk Advisors and a leader in the Global Initiative for Sustainability Ratings. He will be joining NAEM as part of the ‘Measuring Corporate Sustainability’ stakeholder dialogue on May 4 in Fort Lauderdale, Fla.
The method behind the NASDQ CRD Index
Michael Muyot
What does a company’s environmental, social and governance (ESG) metrics say about its future performance? A lot, according to CRD Analytics’ Michael Muyot. Creator of the NASDQ CRD Index, Muyot says the group of 1200 companies it tracks outperforms the norm. We caught up with him last week to learn more about the origins and methodology behind the index.
GT: How did you start analyzing companies based on their sustainability performance?
MM: Working with business leaders and investment managers around the world, I could see a definite need to develop performance metrics. We read through over 1000 CSR reports and found that only 93 had disclosed quantifiable environmental and social data based on GRI’s G2 Core Guidelines.
GT: How did you select the metrics you used?
MM: When you look closely at all of the data that’s out there, very little is comparable across all sectors, industries and regions. We did years of research and analysis to identify exactly which metrics the leaders were reporting. We also did a lot of statistical analysis to see which metrics had the best correlations with financial performance. The GRI G3 Core guidelines were very helpful in identifying these leaders and outperformers.
GT: How did you come up with the NASDAQ CRD Global Sustainability Index (QCRD)?
MM: At CRD Analytics, we evaluate corporations through the lens of 200 quantitative and qualitative financial and non-financial performance metrics to give investors a truly holistic view of where companies fall within their industries. We focus on a range of key performance indicators, from carbon footprint, energy usage, water consumption, hazardous and non-hazardous waste, employee safety, workforce diversity, management composition and other leading indicators of sustainable performance.
The index is comprised of the 1200 global companies that currently meet our minimum requirement for ESG disclosure. We analyze them using 25 fundamental financial metrics along with 175 non-financial, ESG performance based metrics. We don’t do any negative screening; only companies can exclude themselves by not publicly disclosing their ESG performance information.
The QCRD Index is being licensed by Investment Managers like HIP Investor to create Managed Accounts; the outperformance is attracting more interest and as the Assets Under Management grows companies that are in the index will a see a direct benefit to their stock price. This brings both the carrot and the stick.
GT: How do you account for “greenwashing”?
MM: The only way companies can get into our index is by disclosing their ESG performance data publicly and correctly. We have been able to clearly identify the sustainability champions, leaders, intermediate adopters and laggards. There are 45,000 public companies so with only 1200 report correctly we’re just scratching the surface…
It’s about basic business fundamentals. When C-level executives were asked why they are taking the lead on sustainability-driven management they responded with 1) brand reputation value, 2) competitive advantage, 3) increased profits and 4) increased market share 5) greater potential for product innovation.
GT: What can we learn from watching your index?
MM: These are the leaders in their respective industries; they’re doing all the right things and benefiting from it in a holistic way. The intermediate adopters and laggards can learn a lot from them. The champions and leaders tend to be in the high tech and computing; healthcare and medical; finance and banking. This group makes up 56 percent of the overall portfolio weight. We’ve seen a top-down mandate from the board room to the mail room. A company needs to get buy-in from the people with their feet on the street to integrate sustainability
GT: What does the future hold with regard to sustainability reporting?
MM: I think if you were to fast forwarded ahead 20 years, all public companies will be required to report their sustainability performance, especially any and all material non-financial risk and opportunities. One effective approach might be to integrate the sustainability report with the annual report. Personally, I think the sustainability report will one day go away because the only way investors will take this seriously is if it’s included in a company’s financial statements and 10-Ks which have been audited by an external third party.
Michael Muyot is President and Founder of CRD Analytics, where he oversees the development of the SmartViewTM 360 Platform, the tool that powers both the NASDAQ CRD Global Sustainability Index (QCRD) and the Global 1000 Sustainable Performance Leaders on Justmeans. He will be speaking about the future of sustainability metrics at NAEM’s “Measuring Corporate Sustainability”conference on May 4.
Recognizing the “unsung” environmental heroes
Carol Singer Neuvelt
In honor of Earth Day, I’d like to take a moment to recognize and thank you, our members, for your contributions to the health and safety of our planet.
While much of the public discourse about improving the environment focuses on individual actions, few understand or know how to address the large scale impacts of corporate activities. This is essentially what environmental, health and safety (EHS) managers do by creating company-wide systems to reduce pollution, improve worker safety and, now today, move the conversation about sustainability forward.
Without your tireless work to lessen corporate environmental impacts, we would not have achieved the return of clean waterways, reclaimed land in urban centers, widespread recycling and the expectation that workers will return home each night safe and sound.
This comfort and security, largely held in the developed world, is a profound luxury we often take for granted.
To take it a step further, we don’t often get the opportunity to learn about what goes into the design, manufacture and delivery of the products that make our lives comfortable. From the ability to cook food in the warmth our well-lit homes, travel freely across the globe and share information instantly using home computers, we all rely on a host of modern industries to sustain our daily lives. But as Dr. Daniel Goleman asserted at last year’s EHS Management Forum, these modern comforts have many unseen impacts. Your work helps minimize these negative impacts, allowing the rest of us to enjoy the benefits of these products we rely on.
So today, I take my hat off you each of you, and join with the rest of the NAEM staff in saying ‘thank you’ for the work you do to protect our environment and keep workers safe on the job.
We’ve come a long way, and I’m excited to watch you address and solve the challenges that come before us.
A delicious way to green your diet
Take a bite out of your carbon footprint with today’s “at home” tip from NAEM’s Green Tips Guide, an employee engagement handbook:
http://www.youtube.com/NAEMorgTV#p/u/28/Oc0QzAyshvk
How to green your ride…safely
Cut your carbon footprint with today’s transportation tip from NAEM’s Green Tips Guide, an employee engagement handbook:
http://www.youtube.com/NAEMorgTV#p/u/29/kYmh1hNnf0A
Tips for greening the workplace
Happy Earth Week! Below is the first of three videos featuring easy ways to minimize your environmental footprint from NAEM’s Green Tips Guide.
http://www.youtube.com/NAEMorgTV#p/u/30/BkFt0BRExGU
How to find an “Ergo Meter”
Walt Rostykus
My previous blog illustrated the improved results achieved by ergonomic processes that focus is on reducing the risk factors which cause musculoskeletal disorders (MSDs) and non-value added motions. In order to identify and measure these risk factors, you need a valid, quantifiable method for detecting and determining exposure to, in the case of MSDs, the causative risk factors of awkward posture, high force,and time (long duration or high frequency).
Wouldn’t it be great to have a simple “Ergo Meter” that would quickly provide direct readout that a job task is within or outside the limits of what a person can perform safely? (Where is Ron Popeil when we need him?)
Well, your wait is over.
Several qualitative and quantitative “ergonomic assessment tools” are available on the market today. The trick is to pick a few, effective, and easy-to-use tools to use as your assessment tool kit.
Qualitative assessment tools use visual indicators to identify and record awkward postures and high forces performed in work tasks. These simple checklists and memory cards are a quick way for supervisors and employee teams to screen the work area, and in many cases, find and fix obvious problems with a workstation setup.
Like many professionals, I suffer from ‘Industrial Hygienists Disease’: That is; if I can’t measure it, I don’t know how bad or good the exposure is. This is where quantitative ergonomic risk assessment tools come into play. Just like a noise dosimeter, these assessment tools combine the exposure to awkward posture and high force, with the duration or frequency of exposure, and compare them to the known limits of what the human body can tolerate without damage.
Unlike noise, which affects only one part of the body (the ears), quantitative ergonomic risk assessment tools have to account for the differences in body joints, i.e. wrist vs. elbow vs. shoulder vs. back, etc. Some of these tools evaluate exposures to all joints of the body (e.g. Rapid Entire Body Assessment and Baseline Risk Identification of Ergonomic Factors). Others are specific for exposures to one part of the body (e.g. Rapid Upper Limb Assessment and the NIOSH Lifting Equation).
When choosing the quantitative tools for your assessment tool kit, consider the following attributes:
1) Quality
- Validity: The assessment tool should include a limit value for force and frequency and excessive ranges for posture. To assure validity, look for limits based on at least two independent research studies reported by two independent refereed journals.
- Differentiation: The tool should be able to differentiate exposures between different job tasks and within a job task.
- Reliability: This is the ability to obtain similar results at different times, all other factors being equal. This is dependent to some degree on the person using the tool for follow the correct rules for use, and within the limitation of use.
- Reproducibility: Refers to the ability of different assessors to obtain similar results independently, all other factors being equal.
2) Application:
Know the scope and limitations of assessment tool. Not all risk assessment tools measure exposures on all parts of the body. There are limitations for the applicability of all tools.
3) Quantitative Results:
The tool should provide a valid numerical score measuring exposure to risk factors relative to a threshold or limits for humans. This provides a reference point to determine if the exposure is above or within the capabilities of the human body.
4) Ease of Use
In the workplace, as opposed to a research application, the ergonomic risk assessment tool should be easy to use, identify risk factors and root causes, and determine the level of exposure quickly. The method should not be invasive, interrupt or negatively affect the person being assessed. So portability and ease of use are critical.
In Humantech’s recent benchmarking study with companies with effective ergonomic processes, we found that:
- 85% of participants used a qualitative tool to screen the workplace for ergonomic issues
- Most used an observation-based tool for office and computer self assessments. This enables individuals to complete self-assessments and make adjustments at their own office workstation, reducing the need for assessments by an “expert”.
- 92% of participants used quantitative tools ( tool set of 2-3) to measure the actual exposure to MSD risk factors.
- 69% specified the tool(s) to ensure consistency in reporting and communication, and to simplify training.
- 77% – used employee teams (e.g., Ergonomics Team, Safety Team, ad hoc team) to conduct assessments at non-office job tasks.
- 77% of participants use the risk assessment score to prioritize jobs/tasks to identify and select jobs for improvement.
So where does your organization stand with management of ergonomics?
- Are you using subjective or objective methods for assessments?
- Do you use an “ergonomic dosimeter” to quantify the exposure to MSD risk factors?
- Are your current risk assessment tools valid? Do you trust the assessment findings?
- Are your tools getting you results, or just keeping assessors busy?
Progressing beyond the current ESG reporting system
Sandy Nessing
“Survey season” is here and environmental, health and safety (EHS) and sustainability leaders are already finding new rules for reporting on sustainability progress. This week, we caught up with Sandy Nessing, Managing Director of Sustainability & ESH Strategy & Design for American Electric Power Co. to learn more about some of the challenges and opportunities for public environmental, social and governance (ESG) reporting.
GT: What are some of the challenges of reporting sustainability metrics?
SN: One of the biggest challenges is not having standard industry metrics. For example, in the electric utility industry there is no universal metric (yet) for measuring environmental performance. Now we measure it based on internal metrics that include numbers of significant environmental enforcement actions, compliance with National Pollutant Discharge Elimination System permits, opacity and oil and chemical spills at our power plants. These are internal metrics that are tied to compensation but there is no way to compare our performance to our industry peers because no two companies have the same metrics. How can you get to best in class when there’s no standard you can compare yourself to?
The Global Reporting Initiative (GRI) covers some of this, but because not all companies use this framework or report on the Electric Utility Sector Supplement, there is still a void on comparability.
GT: What do you think could be improved about the current reporting system?
SN: Two things. First, more companies need to report their sustainability performance and put it into context with their financial performance. That is the future of reporting, but I’m afraid it will take a while to get there. There are still so many companies that are not reporting at all. However, once we achieve a higher level of transparency and integrated reporting, the investment and financial communities will have no choice but to start paying greater attention to the linkages when rating companies or weighing credit-worthiness or investment potential.
While there is an International Integrated Reporting Committee (IIRC) working on this, it is not expected to have a framework in place for some time. GRI is just beginning to develop G4, which should be a bridge to the IIRC’s work. For companies like mine, that have already started down this path it’s a challenge. This year, South Africa began mandating that any public company listed on the Johannesburg Stock Exchange must produce an integrated report – or explain why not. They put together a framework for doing it and it’s a great guide for any company intending to head down this path.
Second, we have to find a better way for research firms to analyze and rank sustainability performance other than sending companies surveys every year. There should be standard agreement that such firms first search out the information on the company’s website first and populate the surveys as best they can before requesting additional data. These surveys are valuable but they consume enormous resources within companies. There has to be a better approach.
What role could stakeholder dialogue have in improving the current system?
Having the right people at the table and a willingness to have a candid discussion about the challenges and benefits of the rankings would be very useful. We need a forum to listen and learn from each other and, hopefully, come away with a better understanding of expectations and ideas to help us manage the process more efficiently.
Sandy Nessing will be speaking about sustainability reporting as part of NAEM’s “Measuring Corporate Sustainability: Understanding the Metrics that Matter” event on May 4 in Fort Lauderdale, Fla.
Why readers make better leaders
Alex Pollock
“The man who does not read good books has no advantage over the man who can’t read them” — Mark Twain
Last summer, I attended a two-day meeting focused on improving leadership effectiveness. More than a dozen speakers gave their perspectives on what makes leaders effective. I was struck by the one trait nearly everyone viewed as essential — a ferocious appetite for reading.
I noted the speakers didn’t just target books or articles in their chosen field, but also included works that would broaden their worldview . What these leaders all had in common was a commitment to self-improvement and an interest in translating this insight into value for others.
For me, reading has also shaped how I see the world. In particular, the books that have had a life-altering effect on me include:
“The Power of the Servant Leader” by Robert Greenleaf
“The 7 Habits of Highly Effective People” by Stephen Covey
“The Leader of the Future” edited by Frances Hesselbein for the Drucker Foundation
“Bringing Out the Best in People” by Aubrey Daniels
“Leadership by the Book” by Ken Blanchard, Bill Hybels and Phil Hodges
“12: The Elements of Great Managing” by Rodd Wagner and James Harter
“The Leadership Challenge” by James Kouzes and Barry Posner
Through insights from authors like those listed above I came to view leadership as a “relationship between those who aspire to lead and those who choose to follow.” Effective leadership goes way beyond a title on a business card; it’s about building relationships.
What are some books or articles that were game changers for you? Please take a few moments to share how the authors changed your paradigm. We can all benefit from the journey of others.
