January 16, 2020

The Rapidly Changing Landscape of ESG Disclosure

Two of the nation’s largest institutional investors recently announced new approaches to evaluating ESG in investments

  • State Street launched their “R Factor”—a proprietary score informed by looking at four different ratings and leveraging the SASB materiality framework.
  • And just this week, BlackRock joined Climate Action 100+, a group of investors seeking to spur corporate action against climate change.
  • Furthermore, BlackRock CEO Larry Fink put climate change at the heart of his annual letter to CEOs outlining a number of initiatives to curb investments in fossil fuels. On NPR Fink said, “The key characteristic [of this letter] is making sure that more and more investors use sustainability as a metric to look at investing.” He continued, “We are a voice to the investors. Our job is to be speaking on behalf of our investors. And I wrote this letter not as an environmentalist. I wrote this letter as a capitalist.”

It was also clear from the recent New York City SASB Symposium that ESG communication is a fast growing focus for the C-Suite. Investors are asking companies for disclosures on these topics. And as a result, corporate boards are starting to encourage the businesses they govern to think more longterm and be more transparent about these issues.

Addison has identified four key insights on ESG disclosure:

    1. Concise, integrated communications are more likely to be read and understood.
      Reports are being issued in new combinations and summaries. Examples cited were global energy company MOL Group’s Sustainability Plan 2020 which focuses on their six focus areas, along with key programs, actions and long-term targets; Traveler’s financial filings that incorporate material issues; and Etsy’s first combined 10-K and ESG Impact Report supported with storytelling through social media platform Medium. National Grid provides an ESG Data Book that helps respond to multiple requests.
    1. Reports are becoming more responsive to investor interests.
      Many corporations are using SASB’s sector guidance as an early step in identifying material issues, and investors are appreciating the focus on specific metrics. SASB now offers reporting guidance customized to 77 different business sectors.
    1. Proxies are spelling out ESG criteria for executive compensation.
      Forward-thinking companies are sharing significant ESG performance goals for executive compensation in their proxies. Examples of companies providing such transparency included Valero Energy, Intel and Xcel Energy.
    1. Companies are starting to share climate change scenario analyses.
      The recently published TCFD Good Practice Handbook contains examples of how companies are reporting on climate-related governance, strategy, risk management, and metrics and targets. One example are the 2018 Unilever annual report climate scenarios tied to business risk and business model resiliency.

To learn how your company can develop effective ESG communications strategies, please contact info@addison.com to request a complimentary 15-minute consultation.