Posts filed under ‘Wall Street’

Confronting Conflict Minerals

Gary Niekerk

Most environmental professionals don’t hang out with the Wall Street crowd. We don’t typically have a lot of designer suits and six figure bonuses (although I do own  a pair of wing-tipped safety shoes).  However, Wall Street and environmental, health and safety (EHS) are a little more connected these days than you think. What I’m referring to is a piece of legislation buried  in the 800-plus-pages of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, called  “SEC 1502 – Conflict Minerals”.

The intention of SEC 1502 is to increase transparency in the minerals supply chain, with the hopes of reducing the terrible violence in parts of Central Africa related to the minerals trade. This somewhat controversial regulation is garnering  a lot of attention as the final rulemaking is expected in the next few months.

If your company manufactures products where, “conflict minerals (tin, tantalum, tungsten, or gold ) are necessary to the functionality or production” of the product, you could be one of the 5,000 or more public companies the SEC estimates may be impacted by this legislation.

NAEM will be covering the topic at the upcoming  EHS Management Forum on Oct. 19-20, where I’ll talk about Intel’s approach to this complex issue. For more information, please contact our Corporate Social Responsibility team or read the white paper we wrote about trying to achieve a ‘conflict-free’ supply chain.

In the meantime, I’d love to hear from you. What are you doing to address this important issue? What are some of the unique challenges this legislation will present for your company?

Gary Niekerk is the Director of Global Citizenship for Intel Corp., where he works on corporate strategy related to sustainability, corporate reputation and stakeholder management.  He has spent 25 years working with employees, customers, and stakeholders to protect and build the brands and reputation of some of the world’s leading high-tech companies, including Hewlett-Packard Co., Apple Inc. and Intel Corp.

August 23, 2011 at 4:31 pm Leave a comment

Turning environmental metrics inside out

Howard Brown

Since attending NAEM’s “Measuring Corporate Sustainability” conference last month, I’ve been thinking about the enormous quantity of data that environmental, health and safety (EHS) managers have to collect in order to respond to environmental, social and governance (ESG) research surveys.  I am convinced we are measuring the wrong things.

ESG issues are extremely important; the amount of time and money spent on surveys is itself an indicator of corporate recognition of its importance.  But as Bob Kidder, CEO of Chrysler, once told me, “You get what you measure.”  The reason we measure is to learn so we can modify our behavior and improve.

Managers are now spending so much time assembling data and responding to rating surveys, they often find they don’t have enough time to work on making things better, even when the data makes clear which actions would be most effective.  The present cacophony of indicators, measurement systems, and analytical models is scarcely effective for guiding improvements.  A company can do extremely well in one system and be at the bottom of the pack in another.  And it’s hard to know why.  Something is broken – or to put more positively – the system of reporting hasn’t matured enough yet to be really useful.

With more than 100 rating firms, plus dozens of academic, government, and NGO surveys, managers have to do triage to determine which surveys to participate in.  Pick the wrong survey and end up with your CEO asking why the company got a poor rating.  To make things worse, the transparency expected of participating companies doesn’t apply to the rating firms themselves.  EHS managers don’t know how the data will be used, weighted, combined, or analyzed in the process, nor do they know if a particular model is appropriate for evaluating their company.  More importantly, the rating systems are designed for external stakeholders and are rarely designed to be useful to companies themselves for strategic planning.

Perhaps the single most frustrating thing about the status quo is that almost all of the ratings systems rely on negative motivation.  It’s about avoiding negative consequences – risks to brand value, stock price, and legal liabilities – rather than encouraging positive ones.  This leads companies to continue treating environment as a necessary cost of doing business rather than as a tool for improving business performance.

When I spoke with environmental managers at the conference, I heard Bob Kidder’s words ringing in my ears.  The measurement chaos is causing companies to focus more on improving their scores than on improving business performance.  We need to turn our thinking inside out.  Our primary goal has to be performance, not the score.

I’m convinced that solving our environmental challenges calls for an approach that isn’t dependent on coming up with ever more sophisticated models and statistical averaging and indexing techniques for rating the negative impacts of entire corporations.   The world is too complicated to objectively measure those impacts in a consistent and standardized way.   And companies are too different to be compared in this way.  We need an environmental performance measurement approach that is simple and conceptual.

The answer is to focus on managing resource use, rather than on managing the consequences of using the resources. Or in other words, focus more on reducing the inputs than on reducing the unintended outputs.

We also need to focus performance measurement on products rather than whole companies. This can be done if companies identify the real value each of their products delivers to customers. The critical issue is ultimately how much resource mass does it take, and should it take, to deliver a given amount of value to customers.

Think of it this way.  Everything that comes out of a company and causes environmental problems was once a resource and was then lost due to inefficiency or lack of knowledge.  Pollution is nothing more than valuable resources lost in process and released where they don’t belong.  If you don’t use the resource in the first place, you can’t spill it, lose it, or waste it.  You also don’t have to pay for extracting it, refining it, transporting it, making it into useful components, etc.  And you don’t have to worry about the environmental impacts of doing all that.

We need to measure the value we’re delivering to customers in relation to the resource mass required to deliver that value.  Every time that you reduce product mass without reducing the value delivered, the savings are multiplied all the way back through the supply chain.

Companies must learn how to look at their goals in terms of the functions their products serve.  From this perspective, a battery company should not think of itself as a battery company but as a portable energy company, while a washing machine company should think of itself as a clean clothes company.

This is the only way to truly align environmental metrics with business metrics.  When you’re reducing resource inputs, you’re reducing costs, you’re reducing environmental risks, and you’re reducing fines.  But most importantly, you’re gaining competitive advantage.  The more companies think about delivering the most performance for the least mass, the greater advantage they’ll have in the marketplace.

Howard Brown is founder of dMASS and chairman of o.s.Earth. For more than 20 years as CEO of Resource Planning & Management Systems (RPM), Inc., in New Haven, Conn., he worked with companies such as Duracell, Avery Dennison Corp., Exxon Mobil Corp., General Electric Co., Deere & Co., Whirlpool Corp., Warner- Lambert Co. and Pfizer Inc. to establish or enhance their environmental practices and performance.

June 13, 2011 at 9:00 am 5 comments

The effect of sustainability analytics on investment

With all the talk about environmental, social and governance (ESG) metrics, it’s easy to forget that socially responsible investing remains a niche strategy. Last week, we asked Jeff Morgan, President & CEO of the National Investor Relations Institute, to put this trend into context and asked what impact ESG information may have in the months and years to come.

May 26, 2011 at 9:00 am Leave a comment

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.

April 27, 2011 at 6:45 pm 1 comment

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.

April 25, 2011 at 10:15 am 1 comment

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