The winter issue of Listed, The Canadian Magazine for Listed Companies, features an article by Milla Craig, principal of Millani, a consulting firm specializing in sustainable investing industry analysis for asset owners, asset managers and publicly listed companies. The article is titled “New rules of engagement” and speaks to the continued growth in sustainable investing, and how this growth is changing the dynamic of company-shareholder relations.
The article draws you in with a call-out box at the top, in bright red letters: “Nearly one out of every eight dollars under professional management in the U.S. is now managed according to socially responsible criteria. And North America is low compared with much of the world.” Take a minute and let that statistic sink in. One out of every eight dollars. That’s astounding, considering not only the amount of money under professional management in the U.S., but that socially responsible investing is still in its infancy.
Craig is quick to point out that shareholders around the world are issuing a call to action: engage with us and be transparent, specifically around ESG issues. There has been a significant increase in the amount of shareholder resolutions issued on this topic, special meetings called, proxy contests held and probing questions asked. But Craig poses her own question: is it activism? Or is it investors taking responsibility for stewardship on behalf of their beneficiaries?
Some questions keep repeating: do we pay attention to our stakeholders? Should we give our time and effort to answer their requests? Craig says there is little choice in this matter. Assessing and mitigating risk by integrating ESG factors into investment analysis and decision-making is not an option anymore. The aforementioned call-out box is an interesting example from the November 2010 SIF Report on Socially Responsible Investing Trends in the U.S. She also cites the progress the UNPRI has made (as highlighted in our previous post).
Overall the call to action is driven by the intense need for more transparency, especially around managing risk as it relates to ESG issues. It’s estimated that 75% of a corporation’s stock valuation is intangible value; changes in this value cause stock price fluctuation. Therefore, shareholder requests for ESG disclosure and transparency are being driven by their need to better understand whether a corporation’s current market value is an accurate representation of its long-term value.
Craig concludes her article with 10 things a public issuer can do to engage with shareholders before proxy voting is necessary. Do you agree with these 10 things?
Craig’s article cited some intriguing statistics on socially responsible investing and the increased pressure public companies face regarding disclosing ESG data. Though there has been a dramatic rise in shareholder resolutions and a loud call to action, it seems there is still a knowledge gap between the companies who ‘get it’ and the companies who don’t. Where is the disconnect, and how do we help them make the connections? Discuss!
Statement from the most senior decision-maker of the organization about relevance of sustainability to the organization and the organization’s strategy for addressing sustainability
Name of the organization
Primary brands, products, and services
Location of organization’s headquarters
Number of countries where the organization operates, and names of countries with significant operations or that are specifically relevant to the sustainability topics covered in the report
Nature of ownership and legal form
Scale of the reporting organization
Total workforce by employment type, employment contract, and region, broken down by gender
Percentage of total employees covered by collective bargaining agreements
Description of the organization’s supply chain
Significant changes during the reporting period regarding organization's size, structure, ownership, or supply chain
Whether and how the precautionary approach or principle is addressed by the organization
Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses
Memberships in associations and/or national/international advocacy organizations
Entities included in the organization consolidated financial and nonfinancial reports
Process for defining report content
Material aspects identified in the process for defining report content
For each material aspect, the aspect boundary within the organization
For each material aspect, the aspect boundary outside the organization
Explanation of the effect of and reasons for any restatements of information provided in earlier reports
Significant changes from previous reporting periods in the scope and aspect boundaries
List of stakeholder groups engaged by the organization
The basis for identification and selection of stakeholders with whom to engage
The organization’s approach to stakeholder engagement, including frequency of engagement by type and by stakeholder group, and an indication of whether any of the engagement was undertaken specifically as part of the report preparation process
Key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting. Report the stakeholder groups that raised each of the key topics and concerns
Date of most recent previous report
Contact point for questions regarding the report or its contents
‘In accordance’ option and GRI Content Index
Policy and current practice with regard to seeking external assurance for the report
Governance structure of organization, including committees of the highest governance body
The organization’s values, principles, standards, and norms of behavior such as codes of conduct and codes of ethics
Disclosure on Management Approach for Aspect
Coverage of the organization’s defined benefit plan obligations.
Financial assistance received from government.
Significant indirect economic impacts, including the extent of impacts.
Total number and rates of new employee hires and employee turnover by age group, gender and region.
Average hours of training per year per employee, by gender and by employee category.
Percentage of employees receiving regular performance and career development reviews, by gender and by employee category.