growing demand for esg disclosures - pesa€¦ · case study: impact of esg data download esg data...
TRANSCRIPT
The business of sustainability
© Copyright 2019 by ERM Worldwide Group Limited and/or its affiliates (‘ERM’). All Rights Reserved.
No part of this work may be reproduced or transmitted in any form or by any means, without prior
written permission of ERM.
Growing demand for ESG disclosures
ERM PESA ESG Seminar
Presented by: Brad Nemeth
October 31, 2019
www.erm.com
A Glimpse of the Current ESG Ecosystem
Based on sustainability reporting standards and frameworks, there are 100+ organizations producing
lists, rankings, ratings and scorecards of the “top companies” and “most sustainable” companies.
2
Some actively request information, aggregate
data, and add ratings.
Some purchase data and ratings from other
raters and add rankings.
Some organizations simply provide frameworks
for disclosure and do not evaluate companies. Some passively pull information from
sustainability reports, aggregate data,
and add ratings.
View from the Outside: Overview on Rankings
www.erm.com
Investor Confusion Among ESG Raters & Rankers
3
■ The Problem: ESG rating firms take multiple
assessment approaches, emphasizing
subjectivity in analyzing and scoring
environmental, social and governance
issues:
– MSCI ranks Tesla as industry leader;
– FTSE rates the company as a laggard;
– Sustainalytics ranks it in the middle of
the pack
■ Bottom Line: Investors should not treat ESG
scores as objective truth, but as analyses
that need to be understood before acted on.
View from the Outside: Overview on Rankings
www.erm.com
Investors are increasingly incorporating environmental, social and governance factors (ESG) into
investment decisions and corporate engagement.
Increasing Focus on Responsible Investment
Principle 1: We will incorporate ESG issues into investment analysis and
decision-making processes.
Principle 2: We will be active owners and incorporate ESG issues into our
ownership policies and practices.
Principle 3: We will seek appropriate disclosure on ESG issues by the entities
in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles
within the investment industry.
Principle 5: We will work together to enhance our effectiveness in
implementing the Principles.
Principle 6: We will each report on our activities and progress towards
implementing the Principles.$7
$10 $13
$18 $21
$24
$32 $34
$45
$59 $62
$68
$82
$86
63
185
361
523
734
890
1,050
1,186 1,251
1,384
1,501
1,714
1,951
2,372
-
500
1,000
1,500
2,000
2,500
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
20062007200820092010201120122013201420152016201720182019
Assets under management (US$ trillion) Number of Signatories
View from the Outside: Overview on Rankings 5
PRI Growth Over TimePrinciples for Responsible Investment
www.erm.com
PRI Signatories (Sample)
www.erm.com
Bloomberg & ESG Disclosure
The number of users of ESG data on Bloomberg has increased over 300% in the last seven years.
The platform contains over 900 data points for nearly 11,500 companies in 83 countries.
-
5,000
10,000
15,000
20,000
2012 2013 2014 2015 2016 2017 2018
Nearly 18,000 Customers Use ESG DataBloomberg ESG Data
Bloomberg collects, scrubs, verifies and continually
updates ESG data from publicly available company
disclosures, and makes the data available to all
Bloomberg Terminal subscribers.
There are currently over 900 ESG data points in
Bloomberg.
Additionally, the Bloomberg Terminal includes scores
from common third-party ESG research firms, such as
Sustainalytics, CDP, ISS and RobecoSAM.
Source: Bloomberg.com. June 2019.
Retrieved from https://www.bloomberg.com/impact/products/esg-data/
+300%
View from the Outside: Overview on Rankings 7
www.erm.com
Bloomberg Disclosure Scores
0
55
60
57
60
26
16
0
62
49
55
40
30Avg: 44
- 50 100
Alcon Inc
Unilever NV
Novartis AG
Koninklijke
Philips NV
Johnson &
Johnson
Hoya Corp
Cooper Cos
Inc/The
Carl Zeiss
Meditec AG
Baxter
International…
Bausch Health
Cos Inc
Allergan PLC
Abbott
Laboratories
Medtronic PLC
Boston
Scientific Corp
ESG Score
0
50
60
54
64
16
0
0
66
43
59
26
27Avg: 43
- 50 100
Environmental Score
0
51
49
54
44
28
14
0
44
44
32
51
14Avg: 37
- 50 100
Social Score
0
70
70
66
66
46
55
0
71
68
71
61
52Avg: 62
- 50 100
Governance Score
We typically benchmark Bloomberg ESG Disclosure scores for our clients against its peer set. Bloomberg ESG Disclosure scores above 40 demonstrate good transparency; scores between 50–70 demonstrate excellent transparency.
E
X
A
M
P
L
E
www.erm.com
Sustainalytics Scores
0
54
82
98
93
38
26
60
86
76
75
87
67Avg: 65
- 50 100
Alcon Inc
Unilever NV
Novartis AG
Koninklijke
Philips NV
Johnson &
Johnson
Hoya Corp
Cooper Cos
Inc/The
Carl Zeiss
Meditec AG
Baxter
International…
Bausch Health
Cos Inc
Allergan PLC
Abbott
Laboratories
Medtronic PLC
Boston
Scientific Corp
ESG Rank
0
42
72
98
95
47
22
78
86
90
70
88
84Avg: 70
- 50 100
Environmental Rank
0
50
91
94
85
30
36
64
75
69
78
80
72Avg: 64
- 50 100
Social Rank
0
92
63
99
91
50
36
17
83
86
69
76
15Avg: 60
- 50 100
Governance Rank
Sustainalytics ESG Rank encompasses a company’s level of preparedness, disclosure and controversy involvement across all three ESG themes—environmental, social, and corporate governance—and shows performance percentile relative to industry peers.
E
X
A
M
P
L
E
www.erm.com
RobecoSAM (DJSI) Scores
0
100
94
97
71
24
5
13
92
65
100
79
66Avg: 63
- 50 100
Alcon Inc
Unilever NV
Novartis AG
Koninklijke
Philips NV
Johnson &
Johnson
Hoya Corp
Cooper Cos
Inc/The
Carl Zeiss
Meditec AG
Baxter
International…
Bausch Health
Cos Inc
Allergan PLC
Abbott
Laboratories
Medtronic PLC
Boston
Scientific Corp
Total Rank
0
100
82
100
67
39
11
33
95
88
97
71
45Avg: 65
- 50 100
Environmental Rank
0
100
94
97
80
26
8
31
92
67
100
82
61Avg: 66
- 50 100
Social Rank
0
100
90
97
65
26
29
5
87
67
100
79
68Avg: 63
- 50 100
Economic Rank
RobecoSAM Sustainability Rank shows companies’ relative performance on theCorporate Sustainability Assessment (Dow Jones Sustainability Index questionnaire).
E
X
A
M
P
L
E
www.erm.com
ISS Governance QuickScore
0
1
2
2
8
1
3
7
6
8
6
6
5Avg: 5
-
Alcon Inc
Unilever NV
Novartis AG
Koninklijke Philips NV
Johnson & Johnson
Hoya Corp
Cooper Cos Inc/The
Carl Zeiss Meditec AG
Baxter International
Inc
Bausch Health Cos
Inc
Allergan PLC
Abbott Laboratories
Medtronic PLC
Boston Scientific Corp
ISS Governance QuickScore
ISS Governance QuickScore is an overall score assigned by Institutional Shareholder Services (ISS) to a company's governance practices. The score ranges from 1 (best) to 10 (worst).
E
X
A
M
P
L
E
www.erm.com 12
Key Take away
Publicly traded companies are evaluated, whether or not they engage with
ESG research and rating firms.
■ Disclose requested information publicly for firms to find:
■ SEC filing (10-K, proxy statement, etc.)
■ Investor Relations or Sustainability/Corporate Responsibility section of corporate website
■ Corporate sustainability report
■ GRI content index, ESG investor data download, etc.
View from the Outside: Overview on Rankings
www.erm.com
Ways Companies Engage
13
Approach Company Action Level of Effort
Own your narrative • Materiality assessment
• Reporting and transparency
• Proactive engagement
High
Verify data
(Sustainalytics, MSCI,
Vigeo Eiris, etc.)
• Correct data
• Provide links to public information
• Share company’s response to “controversies”
Medium
Respond to surveys
(CDP, RobecoSAM, etc.)
• Answer extensive list of survey questions
• Provide supporting documentation/ evidence
– often in public domain
High
View from the Outside: Overview on Rankings
www.erm.com
Evolution of Corporate Sustainability:Strengthening Focus & Performance
Materiality to Goals to Disclosure 14
www.erm.com
Materiality in Leading Corporate Sustainability Frameworks
Materiality to Goals to Disclosure 15
Please describe how your risk and opportunity identification
processes are applied. How do you prioritize the risks and
opportunities identified?
Disclosure of material sustainability issues is important to
investors, companies, regulators and the public.
Is your company publicly reporting the processes and tools used to
identify and prioritize critical issues within the sustainability
strategy, including a consideration of impact on the company’s
business performance (i.e., materiality analysis/matrix)?
The information in a report should cover [topics] that reflect the
organization’s significant economic, environmental and social
impacts or substantively influence the assessments and decisions
of stakeholders.
www.erm.com
Traditional Universe of Sustainability Topics
Materiality to Goals to Disclosure 16
Environmental
Materials
Energy
Water
Biodiversity
Emissions
Effluents and Waste
Products and Services
Environmental Compliance
Transport
Supplier Environmental
Assessment
Environmental Grievance
Mechanisms
Economic
Economic Performance
Philanthropy
Market Presence
Indirect Economic Impacts
Economic Inclusion
Procurement Practices
Human Rights
Non-discrimination
Freedom of Association &
Collective Bargaining
Child Labor
Forced /Compulsory Labor
Security Practices
Indigenous Rights
Supplier Human Rights
Assessment
Human Rights Grievance
Mechanisms
Labor Practices
& Decent Work Training and Education
Employment
Labor/Management Relations
Occupational Health & Safety
Diversity & Equal Opportunity
Equal Remuneration for Men
and Women
Supplier Assessment for
Labor Practices
Labor Practices Grievance
Mechanisms
Society
Anti-Corruption
Public Policy
Anti-competitive Behavior
Local Communities
Supplier Assessment for Impacts
on Society
Grievance Mechanisms for
Impacts on Society
Product Responsibility
Customer Health & Safety
Product & Service Labeling
Marketing Communications
Customer Privacy
Product Compliance
www.erm.com
Materiality Assessment Concept Overview
IDE
NT
IFY
R
EL
EV
AN
T T
OP
ICS
PR
IOR
ITIZ
E
00
0
Stakeholder Engagement
Industry/Competitor Benchmarks
Customer Issues/Inquiries
GRI/SASB Topics
Business Strategy
DJSI Applicationand Investor Inquiries
Material Topics
Significance of Impact
Imp
ort
an
ce
to
Sta
keh
old
ers
Materiality Filter
Criteria recommended
in the GRI standards
The assessment process typically involves:
■ identifying a broad list of
relevant topics and then
■ screening them against a
set of criteria to
determine which are
most important.
It is informed by
benchmarking, stakeholder
engagement and an
understanding of the
investor ESG landscape
ESG Materiality Laying a Foundation for Corporate Sustainability
18
Current & Potential Focus Areas Prioritized Focus Areas
Significance of Impact
Infl
uen
ce o
n S
takeh
old
er
Deci
sio
ns
www.erm.com
Going from Materialityto Strategy
NEXT 6 MONTHS 6-18 MONTHS 18+ MONTHS
GO
VE
RN
AN
CE
PR
OD
UC
T
WORKFORCE
SU
PP
LY
CH
AIN
SOCIAL &
COMMUNITYENVIRONMENT
COMMUNICATIONS,
OTHER
Material
issues
Risks and
OpportunitiesActions
Once the material issues are
identified:
■ Management effectiveness
should be assessed;
■ Risks and opportunities
identified (with consideration
of the UN Sustainable
Development Goals); and
■ A strategy map and action
plan developed.
A strategy map can then be
built out, with the engagement
of key subject matter experts
and functional leaders.
www.erm.com
Case Study: Impact of ESG Data Download
ESG data disclosures organized in an
easily accessible way for ratings and
rankings analysts and investors
may lead to ESG performance and
disclosure score improvements.
View from the Outside: Overview on Rankings 20
ESG Environmental Social Governance
Bloomberg Disclosure Scores
Before ESG Data Download After ESG Data Download
+41%+64%
+25%
+23%
Edwards Lifesciences
http://ir.edwards.com/investor-relations
21
www.erm.com
ESG Opportunities
■ Stay on top of the evolving ESG landscape
■ Take control of the ESG narrative
■ Strengthen sustainability efforts by identifying management and data gaps
■ Understand key stakeholder expectations and improve relationships
(i.e., investors, suppliers, customers)
■ Seize potential opportunities to “stand out” among peers/competitors
22View from the Outside: Overview on Rankings
The business of sustainability
Thank you Brad Nemeth
Consultant Director
+1 214-395-3687
Dallas Texas