“The 17 Sustainable Development Goals (SDGs) define global sustainable development priorities and aspirations for 2030 and seek to mobilize global efforts around a common set of goals and targets. The SDGs call for worldwide action among governments, business and civil society to end poverty and create a life of dignity and opportunity for all, within the boundaries of the planet.”
SDG 7 Ensure access to affordable, reliable, sustainable and modern energy for all
By 2030, ensure universal access to affordable, reliable and modern energy services
By 2030, increase substantially the share of renewable energy in the global energy mix
By 2030, double the global rate of improvement in energy efficiency
By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency and advanced and cleaner fossil-fuel technology, and promote investment in energy infrastructure and clean energy technology
By 2030, expand infrastructure and upgrade technology for supplying modern and sustainable energy services for all in developing countries, in particular least developed countries, small island developing States, and land-locked developing countries, in accordance with their respective programmes of support
Companies that have reported on SDG 7 include BASF and SAP.
BASF is providing chemicals to the renewable energy industries. One of these examples is by providing chemicals and consulting services for concentrated solar plants (CSP). CSP technology involves using solar radiation that heats a fluid to generate electricity. Use of this technology enables the storage of thermal energy to be used when direct sunlight is absent. BASF’s contribution is the manufacture and supply of salts in storing and transferring heat.
Another example is the coating produced by BASF that protects wind turbine rotor blades, which are exposed continuously to external weather conditions such as UV radiation, rain, and hail. In addition to protection, these costing increase the efficiency of the blades. The coatings extend the service life of the blades, which is around 20 years.
SAP, a German software corporation creates software for businesses to manage their operations and customer relations. In its part to support SDG 7, the company uses 100% renewable energy in all of its data centers and facilities. In addition, SAP’s software is involved with helping utilities in Ethiopia to harmonize and simplify the operations of the Ethiopian Electric Power Corporation. SAP is working in many other countries to increase energy efficiency and promote conservation strategies by installing software specifically designed for use by electric companies to transition to sustainable energy.
1.1 By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day
1.2 By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions
1.3 Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the
1.4 By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology and financial services, including microfinance
1.5 By 2030, build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social and environmental shocks and disasters
1.a Ensure significant mobilization of resources from a variety of sources, including through enhanced development cooperation, in order to provide adequate and predictable means for developing countries, in particular least developed countries, to implement programmes and policies to end poverty in all its dimensions
1.b Create sound policy frameworks at the national, regional and international levels, based on pro-poor and gender-sensitive development strategies, to support
accelerated investment in poverty eradication actions
These targets are ambitious, and businesses have an important role to play in achieving them! Many businesses are already doing so, and there are many examples.
So your next questions are why and how would my business get involved?
…we must invest in people – in education, skills development, health care. This will help equip people for decent jobs and incomes. It will boost purchasing power. The virtuous cycle between human capital, jobs and income is central to building healthy local markets and a healthy world economy. It is good for people and good for business.
Evaluating your entire value chain (i.e., the full lifecycle of your products and services) can help identify areas that can reduce your negative impacts and improve your business simultaneously. Your business decisions about things such as employee wages, working conditions, product pricing, or raw material sources have impacts on people in poverty.
You can measure your direct impacts on the local economy. What proportion of your spending is on local suppliers at significant locations of operations? To illustrate how UPS affects the local economy, here is an excerpt from its 2015 sustainability report.
In 2015, UPS spent approximately US$943 million in procurement with small and diverse businesses in the United States.
A third-party study on the economic impact of our spending with small businesses, as well as minority-, women-, veteran-owned, and other diverse suppliers in 2015, found that UPS contributed more than US$2.3 billion to the U.S. economy (U.S. GDP) and sustained more than 14,200 jobs in the supply chain and local communities. A breakdown of that US$2.3 billion includes US$941 million in direct economic benefit from suppliers’ operations and activities; US$639 million in indirect impact from the economic benefit and employment supported in the suppliers’ respective supply chains from procuring goods and services; and US$743 million in community impact from the wider economic benefits that arise when the suppliers’ employees and those in their supply chains spend their earnings. Overall, for every million dollars that UPS spends with small and diverse suppliers, 15 jobs are created with those companies in their local communities.
If supply chains are a significant part of your business, evaluating them not only on economic criteria but also on social criteria can be an effective risk management tool. Do you have policies to screen for suppliers that adhere to international and your company-specific human rights and labor standards? You can have a positive influence by demanding adherence to these standards. This is a proactive approach that is much less costly than a reactive one.
How you are investing in the economic well being of your employees has a direct economic impact on poverty alleviation. Lower incomes reduce access to adequate housing, quality education, social networks, and social status among others. Evaluating the wages paid along with how they compare to the minimum wages in the local area puts a focus on a company’s economic impact on workers. For example, Abengoa, a Spanish company that applies technological solutions in the energy and environment sectors, disclosed in its 2015 sustainability report the percentage paid to its workers above the local minimum wage.
How does your company change the productivity of organizations, sectors, or the whole economy?
Is your company involved in economic development in areas of high poverty?
Does your company’s economic impact in a particular location improve or deteriorate social or environmental conditions?
What is the availability of your products and services for those on low incomes?
What should you do with your answers to these questions and your evaluation of your business? You can incorporate these issues into your business strategy. You can set targets for improvement. You can publish a sustainability report to measure your progress.
Baxter International is an example of a company that has set targets and reported them its sustainability reports. In its 2015 report, Baxter pledged to increase it spending with diverse suppliers by 50%, from 4% of relevant spending in 2015 to 6% in 2020. These published targets are public commitments that reveal the company’s sustainability strategy and implementation plans.
To be a part of the solution to end poverty, your business can be involved; it can measure its impacts, set targets, and report its progress in a sustainability report.
The next blog will examine how your business can help achieve SDG Goal 2 Zero Hunger.
It was a great training with the ISOS Group in Chicago, August 17-18. The training was interactive and provided insights from the trainers and the participants who were from the transportation sector, NGOs, and consultancy firms. If you missed this opportunity, there are more coming. Two new offerings include a GRI Practitioners Specialty Module and Transition from GRI G4 to GRI Standards. Take a look at the upcoming schedule for San Francisco, New York City, and Boulder, Colorado. Hope to see you there!
This meeting is part of the SEC’s process to seek public comment on modernizing certain business and financial disclosure requirements in Regulation S-K. The SEC Concept Release document, Business and Financial Disclosure Required by Regulation S-K, was issued on April 13, 2016 (click here for link). The purpose of this release is to seek input to determine whether SEC business and financial disclosure requirements still provide important information for investors and how registrants can most effectively present this information.
This discussion is an important step as the SEC considers how sustainability information fits into its disclosure requirements. This meeting focused on information that investors receive and in particular sustainability reports or environmental, social, and governance (ESG) reports. In this video you will find a good overview of the history of SEC sustainability disclosures along with existing sustainability reporting frameworks. There are likely to be more discussions in the future. I highly recommend that you watch the video (click here for link). To give you a preview, I have summarized the discussion below.
Over the last several decades, many perspectives and practices on sustainability reporting have come about. Questions raised at the beginning of the discussion provided context for sustainability reporting and SEC disclosures. Some of the questions included:
How do report issuers engage with investors?
How are sustainability issues identified and reported?
What do investors consider important to decision making?
What methods are used by investors and report issuers to determine material issues?
What do investors want?
What should issuers provide?
How much information should be reported and in what format?
How much information should asset owners be demanding and using?
How much should public companies be reporting?
Although these questions were not intended to be answered in this meeting, they do raise relevant concerns regarding what and how sustainability disclosures will be required.
Daniel Goelzer provided an excellent, concise overview of the SEC’s traditional approach to sustainability reporting. This approach, established in the 1970s, was in response to rulemaking petitions and litigation against the commission. The actions were sought to get the agency to adopt a comprehensive disclosure scheme for environmental and equal opportunity disclosures. After public proceedings to gather information, the SEC issued a release in 1975. Daniel Goelzer summarized the four conclusions from the release.
Disclosure requirement must be necessary to protect investors or inform their investment decisions
Disclosure requirement should have economic significance to investors
A small fraction of investors in 1975 used or were motivated by corporate social responsibility so there was no basis to require public companies disclosure of corporate social practices
Even without specific requirements ESG disclosures are sometimes necessary to make other disclosures materially complete or accurate
In a company’s business description, the company has to disclose the material effects that compliance with environmental protection laws may have on capital expenditures, earnings and competitive position and on estimated expenditures for environmental control facilities.
The threshold for disclosing environmental litigation is less than for other types of cases.
Since 1975, the SEC has made required risk factor disclosures more tangible in a company’s Management’s Discussion & Analysis of Financial Condition and Results of Operations (MD&A). Sustainability trends and events have the potential to be material risk factors for a company’s business in terms of financial position (balance sheet) or results of operations (net income). For example, drought and water scarcity could be risk factors for a beverage company that depends on a dependable supply of clean water. After the 1970s, not much changed with regard to sustainability related disclosures for public companies until 2010. The SEC issued an interpretive release on disclosure requirements related to climate change issues. Companies must disclose the impacts of climate change on their business as a result of legislation and regulation, international agreements, and physical impacts. In addition, with the Dodd-Frank Act, Congress directed disclosures that involved conflict minerals, resource extraction payments, and CEO pay ratios.
Outside of the legal requirements, there has been a major increase in corporate voluntary reports that are not filed with the SEC. Stakeholders such as employees, consumers, NGOs and communities are often the intended report users. Across companies and industries, there is considerable variety in the information and formats used in these reports.
Mr. Goelzer had several recommendations for the SEC on how to proceed regarding ESG disclosure. The current focus on investment decision making of the reasonable investor should be maintained. Although the topics that are material to the reasonable investor have changed since 1975, the SEC should retain its definition of materiality (i.e., information significant to the reasonable investor). The SEC needs to take steps to adopt a disclosure framework that takes sustainability information into account. On that note, sustainability reporting should be principles based rather than prescriptive. To reduce its burden, rather than creating its own reporting framework, the SEC should look at existing frameworks available.
Christianna Wood made a compelling presentation for the use of the GRI standards in SEC disclosures. She presented the history of GRI along with its current standing in the world as the leading sustainability reporting framework. Almost 20 years ago, Ceres (a national coalition of investors, environmental organizations and other public interest groups) created the GRI as the world’s first global sustainability reporting framework. According to a KPMG 2015 study, GRI is used by 74% of the Fortune G250 and by 72% of companies reporting on sustainability issues worldwide that publish stand-alone sustainability reports. In addition, there are thousands of organizations spanning all sectors in over 90 countries using the GRI standards. In response to the Commission’s Concept Release on Business and Financial Disclosure Required by Regulation S-K, the GRI outlined three points that would be in its formal response.
The responsibility to determine material sustainability issues lies with the registrant
GRI supports disclosure of all material issues whether they relate to financial or non-financial information
The use of GRI as an existing robust reporting standard increases the utility and comparability of information
The GRI recommends the GRI Standards be used if the SEC requires companies to file sustainability reports given that 74 percent of the largest global companies use the GRI framework. A potential approach is for companies already preparing comprehensive GRI based reports to include these as an Exhibit in their SEC filings.
Jean Rogers provided a thorough presentation on the SASB perspective on disclosing companies’ sustainability matters in SEC filings. SASB, which is an independent 501(c)3 non-profit, issues standards for disclosure of sustainability topics. The purpose of this disclosure is to help public corporations disclose material, decision-useful information to investors in their mandatory filings such as the Forms 10-K or 20-F. Jean Rodgers covered four topics.
Rising investor demand for sustainability information
The current inadequacies of sustainability disclosure
The need for a market standard for the disclosure of material sustainability information 4) SASB’s qualifications to fill this need
Lisa French made an excellent presentation covering the IIRC perspective. The IIRC is a coalition of some 70 organizations around the world representing businesses, investors, policy-makers, the accounting profession and civil society. Its concern is that traditional financial reporting is not providing capital markets the full range of information that could materially affect a company’s value creation in the long run. The IIRC perspective is that the Integrated Reporting Framework is complementary to the existing sustainability and financial reporting frameworks. Rather than issuing standards for performance metrics and methodologies, the IIRC’s focus is on encouraging discussion and connection of a company’s business model, strategy, governance, performance and prospects. The IIRC sees strong alignment between Integrated Reporting and the concepts supporting Management Discussion and Analysis. Lisa French discussed how the three pillar of integrated reporting drive their work. These pillars are
Strategic focus and future orientation,
Simplicity, conciseness and the use of plain language
Connectivity of information Corporate Reporting Experience.
The GE Story
Christoph Pereira presented the GE experience with its Integrated Summary Report and approach to disclosure. The summary report has the CEO letter, summary of 10k, summary of its proxy statement and summarized at information from its sustainability website. Based on feedback to GE, the level of interest in sustainability in the US is focused on the risk factors. GE’s general philosophy for determining whether to disclose something is their consideration of its impact on investors’ ability to underwrite the risks and opportunities of owning GE stock. By including sustainability pages in its Integrated Summary Report, the company sought to answer the following four questions:
How does sustainability relate to its overall business strategy?
What is their governance process for sustainability?
What are sustainability priorities and the process used to pick them?
What is their progress on the stated sustainability priorities?
Their approach on reporting focuses on the process in order to provide flexibility as sustainability reporting evolves over time.
The discussion following the presentations is great as well.
Last week in Washington DC, I participated in a World Bank Conference on Subnational Reporting: Strengthening Governance Systems through Nonfinancial Reporting. This event, which was organized by Monika Kumar and Lydia Habhab, provided information about the importance of nonfinancial reporting for subnational governments units (e.g., cities).
My role involved writing a framing paper for the conference. In the paper, I discussed many of the relevant issues for nonfinancial reporting at the subnational government level. I want to share some of issues in this blog.
What is nonfinancial reporting and why is it important?
Nonfinancial reporting covers a wide range of areas such as performance measurement and sustainability reporting. Nonfinancial metrics are important because they complement financial reporting by providing a systems view of an organization. Financial reporting is essential but insufficient to assessing and addressing economic, environmental, and social risks. Reporting on social and environment impacts are keys to understanding progress toward sustainable development. Nonfinancial metrics such as a city’s greenhouse gas emissions or workforce composition can provide information that is relevant to assessing an organization’s opportunities and risks associated with its operating activities. Poor air quality is only one of the risks that cities face. The curbing of greenhouse gas emissions can go a long way in reducing health consequences for citizens in a city. Measuring and managing these emissions should be part of the governing process. These nonfinancial metrics provide information that has major consequences for financial resources. Prevention costs are usually much less expensive than cleanup ones.
Why are subnational governments relevant to this discussion?
Cities are becoming the focal point of addressing the effects of climate change, inequality, poverty, hunger, and problems for humanity. In 2014, slightly over half of the world’s population was living in urban areas with the expectation that it would be 66 percent by 2050. Because of the resources they use and services they provide, city governments have the opportunity to have positive impacts on sustainable development. Problems that affect local areas may vary substantially within one country because of vastly different environmental and social influences in the different regions. City governments deal with local issues and can often identify needed services. The issues and problems need to be examined at the local level to be addressed most effectively. To assess the issues, there is a need for nonfinancial reporting at the subnational level.
What are some of the important factors that might be reported?
City governments depend on a variety of resources or inputs such as environmental capital (e.g., water, biodiversity), social capital (e.g., common values, reputation), human capital (e.g., people’s competencies, experience), intellectual capital (e.g., patents, software), and manufactured capital (e.g., buildings, infrastructure). Metrics that provide information about these factors can be useful in addressing global problems of climate change, human rights violations, poverty, and human development.
There are numerous useful reporting frameworks that are available for nonfinancial reporting. The CDP is an example of a nonprofit organization that collects environmental and social information from companies and city and national governments on single topics such as emissions, water risk, supply chains, and forests. Other organizations that provide city-specific sustainability reporting tools include the Compact of Mayors and ICLEI. In addition, voluntary guidelines and standards such as the Global Reporting Initiative (GRI) Sustainability Reporting Standards and Integrated Reporting <IR> Framework are continually updating their frameworks to keep pace with the demand for sustainability-related information. Both are adaptable to cities’ needs. The International Organization for Standardization (ISO) has published ISO 37120, Sustainable development of communities — Indicators for city services and quality of life. It is intended as a means “…to help city managers, politicians, researchers, business leaders, planners, designers and other professionals to focus on key issues, and put in place policies for more livable, tolerant, sustainable, resilient, economically attractive and prosperous cities.”
These issues were discussed at the World Bank Conference chaired by Samia Msadek, Director, Governance Global Practice World Bank.
The panel of experts included the following people:
Bill Baue is co-founder of several organizations including: ThriveAbility Foundation, Reporting 3.0, Sustainability Context Group.Bill has also authored several publications, including A Leader’s Guide to ThriveAbility; Hairshirts, Rattlesnakes, and Shoelaces: Toward A Net Positive Movement; and Raising the Bar – Advancing Environmental Disclosure in Sustainability Reporting. He teaches in the Marlboro Sustainability MBA, and serves on the Technical Advisory Group of the WWF / WRI / CDP /UNGC Science Based Targets initiative. He blogs for Huffington Post, Sustainable Business and Sustainable Brands, where he also co-curates the #NewMetrics Channel.
John Morrill is the energy manager for Arlington County, Virginia. Arlington County is a signatory of the Compact of Mayors and has established sustainability goals. John leads a broad portfolio of work in energy management and policy, including climate mitigation and resilience. In 2008 he won a Climate Protection Award from the U.S. EPA for his work on the Arlington Initiative to Rethink Energy (AIRE), the county’s climate action program that now implements Arlington’s Community Energy Plan. John serves on the Board of Directors of the Virginia Energy Efficiency Council (VAEEC), and also the Virginia Energy Purchasing Governmental Association (VEPGA). Prior to joining the County, John held a variety of research and management positions during 17 years with the American Council for an Energy-Efficient Economy (ACEEE) in Washington DC.
Punji Leagnavar is the Manager of Sustainable Development Policy and Government Affairs at GRI where she leads GRI’s program on the UN Sustainable Development Goals and oversees GRI’s engagement with governments. She has over a decade of experience in sustainable development and mitigation, working for organizations such as the Global Environment Facility and the United Nations Environment Program.
Monali Ranade is Senior Operations Officer, World Bank Climate Change. Ms. Ranade focuses on Knowledge Engagement and Innovations to scale-up low carbon development and green growth and to strengthen participation of private-sector.Prior to this, Ms. Ranade worked with the Carbon Finance Unit of the World Bank developing methodologies and programmatic approaches to reduce greenhouse gas emissions in the Energy and Urban sectors. Prior to joining the World Bank, Ms. Ranade worked with United Nations Development Program (UNDP) and as a Consultant to the Ministry of Environment & Forest, Government of India. Ms. Ranade started her career as a small business owner, moving on to a social marketing company focused on rural consumers, followed by several years with the International Institute for Energy Conservation (IIEC) providing consulting services to government agencies. Ms. Ranade’s educational background is in Mathematics and Economics.