Source: https://seproject.org/category/governance/
Timestamp: 2019-04-24 08:35:12+00:00

Document:
The paper also noted that: “more and more investors are looking for corporate boards to steward corporate sustainability in order to both adequately manage risks and maximize business opportunities related to sustainability. Indeed, engagement activities are on the rise in many quarters, and like‐minded investors are increasingly pooling resources to create a stronger and more representative shareholder voice and to ensure that company engagement becomes more effective.
A March 2014 study of board oversight of sustainability issues among S&P 500 companies commissioned by the IRRC Institute and authored by the Sustainable Investments Institute found that just a little over half of the companies had implemented board oversight of sustainability issues. The sustainability executives surveyed in a report released by The Conference Board in June 2016 found that 55% of the respondents said that their boards of their companies met only once a year or never on sustainability issues and 69% of the respondents said that their boards spend four hours or less per year on sustainability issues. Identifying, acknowledging and addressing corporate sustainability issues create new and significant challenges for directors and the management team that range from setting high-level goals and adopting strategies to achieve those goals to extensive changes in day-to-day operational activities. Directors must not only ensure that their companies are conducting full assessments of the entire lifecycle of their products and services but must also provide the resources and incentives to collect, analyze and report information relating to the progress of the company’s corporate sustainability initiatives. Institutional investors and other stakeholders will not be satisfied with vague promises and aspirational principles from their companies, nor will companies be able to simply continue to adopt a reactive approach to ESG-related concerns (i.e., waiting until a shareholder proposal on an ESG-topic is imminent before engaging with the shareholder to resolve the concern). In fact, directors should expect that stakeholders demand that companies demonstrate a proactive approach to developing and implementing sustainability strategies, allocating capital to sustainability-related initiatives and managing the risks associated with failure to respond to ESG issues.
Harper Ho suggested that investor activism around ESG issues and investors’ growing demand growing demand for investment-grade ESG information has important implication for how directors should approach corporate governance, investor engagement, compliance and disclosure practices. First of all, the broadened scope of risks that directors must consider in light of ESG activism means that boards must have new capacities to support oversight of ESG risk. Second, investors want their companies to integrate ESG performance metrics and long-term benchmarks into executive compensation. Third, directors should ensure that investor engagement encourages dialogue and learning and confirm that senior management and investor relations personnel are aware of the increasing overlap between corporate governance and environmental and social concerns. Finally, directors need to improve the quality and formatting of their sustainability-related reporting and ensure that ESG materiality is being considered as part of their company’s financial reporting process. According to Harper Ho, companies that can improve their practices in these areas are likely to see improved financial and operational performance, improved focus on long-term risk and return, better access to “patient capital” (i.e., investors that are less fixated on quarterly earnings and more supportive of R&D and other investments in the company’s future) and be able to identify and exploit new sources of value for the company and keep ahead of emerging risks and opportunities.
In addition to the steps needed to integrate CSR and corporate sustainability at the board level, including allocating various responsibilities and activities among board committees, the directors need to ensure that the company has an effective internal organizational structure. Many companies are creating an additional position among the members of the senior executive team that is specifically focused on corporate sustainability. Appointing these “chief sustainability officers” demonstrates a high level of commitment to the area by the directors and also helps everyone inside and outside the company to identify the person who will likely be the company’s spokesperson on corporate sustainability issues and responsible for managing the resources provided by the board to implement sustainability strategies and satisfy the company’s disclosure obligations. The chief sustainability officer must be prepared to support the board as it considers CSR and corporate sustainability issues, engage with the company’s stakeholders and, not unimportantly, effectively coordinate the efforts of all of the various departments within the company that should be involved in sustainability initiatives (e.g., investor relations, legal, operating heads and risk management).
· Add sustainability discussions to the board agenda.
· Focus on what sustainability means for the company.
· Ask for briefs on industry developments, both in substance and in governance.
· Engage with the company’s chief sustainability officer and investor relations officer.
· Establish an effective board oversight approach.
· Look for balanced perspectives among differing constituencies and stakeholders.
· Consider the appropriate sustainability disclosures for the company.
Source: D. Kuprionis and P. Styles, “Translating Sustainability into a Language Your Board Understands”, The Corporate Governance Advisor, 25(5) (September/October 2017), 13, 17.
 The Global Compact LEAD, Discussion Paper: Board Adoption and Oversight of Corporate Sustainability.
 Id. For further discussion of board oversight of sustainability, see “Board Oversight of Sustainability” in “Governance: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 P. DeSimone, Board Oversight of Sustainability Issues: A Study of the S&P 500 (IRRC Institute, March 2014).
 The Seven Pillars of Sustainability Leadership: CEO Business Implications (The Conference Board, June 2016), 4 (as cited and discussed in V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 15, electronic copy available at: https://ssrn.com/abstract=3080033).
 C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework, available at https://www.academia.edu/2172462/CORPORATE_SOCIAL_RESPONSIBILITY_LITERATURE_REVIEW_AND_THEORETICAL_FRAMEWORK (citing L. Digman, Strategic management: concepts, decisions, cases (Homewood IL: BPI/Irwin, 1990).
 D. Kuprionis and P. Styles, “Translating Sustainability into a Language Your Board Understands”, The Corporate Governance Advisor, 25(5) (September/October 2017), 13, 16.
This entry was posted in Corporate Social Responsibility, Governance, Sustainability & Corporate Governance on November 13, 2018 by agutterman.
A number of commentators have suggested that there are actually two models of corporate governance. The first model, which is based in the economic tradition of Friedman, is the “shareholder governance” system in which the directors and managers of the corporation are the agents for the shareholders as the principals of the corporation and the responsibility of the agents is to maximize shareholder value. The second model is the “stakeholder governance” system, which does not ignore shareholders but also extends the responsibility of directors and managers to different groups of stakeholders upon which the corporation is dependent for its operations and survival. The second model has been used as the basis for the argument that CSR is, in fact, an extended corporate governance system whereby the responsibilities of corporations and their directors range from fiduciary duties towards the owners to the analogous fiduciary duties towards all of the firm’s stakeholders. Certain of these duties, primarily those that have been imposed by law, are enforced by litigation and activities of governmental regulators, while the “softer” duties associated with social and environmental issues are being enforced by self-regulatory codes of conduct and stakeholder activism (including pressure from institutional shareholders).
In this model, corporate governance is one of the basic building blocks of CSR and suggests that when boards are exercising their responsibility over CSR they need strategic good corporate governance practices in place in order to effectively leverage the company’s crucial sources of capital: human, stakeholder and environmental.
Ho explained that her framework viewed corporate governance more holistically and Jamali et al. observed that this was consistent with the work of other scholars, such as Kendall, who considered good corporate governance as “ensuring that companies are run in a socially responsible way and that there should be a clearly ethical basis to the business complying with the accepted norms of the society in which it is operating”. It is interesting to note that Ho’s study provided evidence that higher commitments to CSR were strongly and positively related to the qualifications and terms of directors, boards that exercise strong stewardship and strategic leadership roles and the management of capital market pressures, all of which are also hallmarks of good corporate governance.
Jamali et al. explained that “the continuum reflected varying degrees of compliance with laws and legally enforceable standards, with stress placed on corporate conformance on the left end of the continuum and attention shifting to corporate performance on the right end, where codes/standards are extremely difficult to apply, and oversight mechanisms are much less evident”. The continuum approach also illustrates that companies approach their expanding corporate governance responsibilities must understand and balance “binding” legal requirements that require formal compliance and reporting and the self-regulatory initiatives commonly associated with CSR that, while still technically “voluntary”, have increasingly become expectations of investors and other stakeholders.
 See, e.g., C. Mayer, “Corporate Governance, Competition, and Performance”, Journal of Law and Society, 24 (March 1997), 152, 154.
 L. Sacconi, Corporate Social Responsibility (CSR) as a Model of “Extended” Corporate Governance. An Explanation based on the Economic Theories of Social Contract, Reputation and Reciprocal Conformism (UE Research Project, 2004).
 D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 447-448.
 J. Hancock (Ed.), Investing in Corporate Social Responsibility: A Guide to Best Practice, Business Planning & the UK’s Leading Companies (London: Kogan Page, 2005).
 J. Elkington, “Governance for sustainability”, Corporate Governance: An International Review, 14 (2006), 522.
 C. Ho, “Corporate governance and corporate competitiveness: An international analysis”, Corporate Governance: An International Review, 13 (2005), 211.
 N. Kendall, “Good corporate governance”, Accountants’ Digest: The ICA in England and Wales, 40 (1999).
 D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 447.
 A. Bhimani and K. Soonawalla, “From conformance to performance: The corporate responsibilities continuum”, Journal of Accounting and Public Policy, 24 (2005), 165.
This entry was posted in Corporate Social Responsibility, Governance, Sustainability & Corporate Governance on November 1, 2018 by agutterman.
While, as discussed below, certain CSR and corporate sustainability disclosures have now become minimum legal requirements in some jurisdictions, in general such disclosures are still a voluntary matter and directors have some leeway as to the scope of the disclosure made by their companies and how they are presented to investors and other stakeholders. Some companies continue to limit their disclosures to those are specifically required by regulators; however, most companies have realized that they need to pay attention to the issues raised by institutional investors and other key stakeholders and make sure that they are covered in the disclosure program. At the other extreme, there are companies that have embraced sustainability as integral to their brands and have elected to demonstrate their commitment by preparing and disseminating additional disclosures that illustrate how they have woven sustainability into their long-term strategies and day-to-day operational activities. These companies understand that not only are investors paying more attention but that more and more people everywhere are considering ESG performance when deciding whether to buy a company’s products and/or work for a particular company and that it is therefore essential to lay out their specific CSR and corporate sustainability goals and the metrics used to track performance and provide regular reports to all of the company’s stakeholders on how well they are doing against those goals.
Williams noted that to the extent that governments have regulated corporate responsibility per se, such regulation has focused on disclosure and during the period 2000-2015 over 20 countries enacted legislation to require public companies to issue reports including environmental and/or social information. Many of these countries are in Europe and the EU has implemented a directive that requires approximately 6,000 large companies and “public interest organizations,” such as banks and insurance companies, to “prepare a nonfinancial statement containing information relating to at least environmental matters, social and employee-related matters, respect for human rights, anti-corruption and bribery matters.” In addition, several stock exchanges around the world require social and/or environmental disclosure as part of their listing requirements including exchanges in Australia, Brazil, India, South Africa and the London Stock Exchange. Also, pension funds in countries such as Australia, Belgium, Canada, France, Germany, Italy, Japan, Sweden and the UK are required to disclose the extent to which the fund incorporates social and environmental information into their investment decisions. All things considered, surveys show that more and more jurisdictions are implementing mandatory ESG disclosure requirements and that “there is a clear trend towards an increasing number of environmental and social disclosure requirements around the world”.
Proposals from shareholder activists often help create the list of CSR and corporate sustainability topics that garner the most attention from companies and trigger movement toward greater transparency and disclosure. In recent years, companies have frequently been required to respond to call for changes in corporate policies and activities with respect to political and lobbying activity, sustainability reporting, gender pay gap reporting, and child labor issues. In many cases, companies have been able to calm the concerns of activists, sometimes getting them to withdraw their proposals, by promising to provide fuller disclosure; however, once a commitment is made to expanded disclosure the company needs to fulfill its promises and allocate sufficient resources to the effort since activists will be watching closely to ensure that their expectations are satisfied. When formulating voluntary CSR-related disclosures it is important to engage with activists to ensure that they understand the approach that the company is willing to take and the company’s need to balance disclosure against the need to protect sensitive and strategically important information.
A large number of parties providing non-form comments to the Securities and Exchange Commission (“SEC”) on its April 2016 concept release on disclosure required by Regulation S-K, the prescribed regulation under the Securities Act of 1933 that provides the framework for mandated disclosures in filings with the SEC, recommended that CSR disclosure be expanded and strengthened. While it is not likely that more CSR-related disclosures will be formally mandated in the immediate future, companies must nonetheless give greater consideration to CSR and corporate sustainability when responding to several current items in Regulation S-K include those related to describing the business activities of the company (Item 101); legal proceedings (Item 103); disclosures of material known events and uncertainties in the Management’s Discussion and Analysis (Item 303) and risk factors (Item 503(c)). Public companies must also be mindful of the SEC’s guidance regarding disclosures relating to climate change, which was issued in 2010, and Rule 13p-1 under the Securities Exchange Act of 1934 relating to conflicts materials disclosure.
Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure must specify if the verification was not conducted by a third party.
Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
The exclusive remedy for a violation of the disclosure obligations is an action brought by the California Attorney General for injunctive relief.
When companies were first attempting to provide voluntary disclosures relating to their CSR and corporate sustainability initiatives they often struggled with the format and depth of their reporting. Fortunately, as time went by, a consensus began to emerge about the benchmarks that companies should use for guidance in preparing their CSR and corporate sustainability reports. Of particular note is the Global Reporting Initiative (“GRI”), which is a multi-stakeholder developed international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others. The Global Sustainability Standards Board (“GSSB”) issues and maintains the GRI Standards for organizations to use in their “sustainability reporting”, described by the GSSB as “an organization’s practice of reporting publicly on its economic, environmental, and/or social impacts, and hence its contributions–positive or negative–towards the goal of sustainable development”. GRI has pioneered sustainability reporting since the late 1990s, transforming it from a niche practice to one now adopted by a growing majority of organizations. The GRI Standards are the world’s most widely used standards on sustainability reporting and disclosure and available for use by public agencies, firms and other organizations wishing to understand and communicate aspects of their economic, environmental and social performance.
Organizational overview and external environment: What does the organization do and what are the circumstances under which it operates?
Governance: How does the organization’s governance structure support its ability to create value in the short, medium and long term?
Business model: What is the organization’s business model?
Risks and opportunities: What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium and long term, and how is the organization dealing with them?
Strategy and resource allocation: Where does the organization want to go and how does it intend to get there?
Performance: To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
Outlook: What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
Basis of presentation: How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?
Other helpful resources are available from the Sustainability Accounting Standards Board, or SASB, which publishes the SASB Implementation Guide for Companies that provides the structure and the key considerations for companies seeking to implement sustainability accounting standards within their existing business functions and processes. The Guide helps companies to select sustainability topics; assess the current state of disclosure and management; embed SASB standards into financial reporting and management processes; support disclosure and management with internal control; and present information for disclosure. The SASB’s online resource library also includes annual reports on the state of disclosure, industry briefs and standards and guidance on stakeholder engagement. Companies should monitor CSR disclosures by their peers and the SASB library has examples of disclosures made by companies in annual reports filed with the SEC on Form 10-K. Companies can also follow the reporting practices of competitors by reviewing sustainability reports that have been registered with the GRI.
While the efforts of the GRI and the SASB indicate that some progress has been made regarding the development of measurement and disclosure frameworks relating to corporate sustainability and ESG practices, companies and their stakeholders are not yet able to rely on universally accepted guidelines. Hurdles that still much be overcome, and which may never be totally resolved, include variations in ESG rating methodologies and a lack of uniformity in disclosure expectations and requirement across jurisdictions. For the time being, the most effective approach for directors and their companies may be engaging with their own key investors and other stakeholders to understand how those parties view and prioritize ESG issues and their preferences regarding measurement and disclosure with respect to the initiatives taken by the company relating to those issues. Such an approach not only reduces the likelihood of misunderstanding between the company and its primary stakeholders but will also contribute to the improvement of measurement and disclosure tools and the development of best practices that can be widely disseminated. In the meantime, work continues among corporate governance groups and consulting to develop performance measurement tools and disclosure frameworks that integrate traditional measures of financial value with new metrics that afford proper weight to projects launched primarily to pursue and achieve long-term value creation.
 C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 15, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784 (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at http://hausercenter.org/iri/wpcontent/uploads/2011/08/CR-3-12-15.pdf). These countries included Argentina, China, Denmark, the EU, Ecuador, Finland, France, Germany Greece, Hungary, India, Indonesia, Ireland (specific to state-supported financial institutions after the 2008 financial crisis), Italy, Japan, Malaysia, The Netherlands, Norway, South Africa, Spain, Sweden, Taiwan, and the U.K.
 See ¶ 6 of Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, Official Journal of the European Union L330/1-330/9.
 C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 16, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784 (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at http://hausercenter.org/iri/wpcontent/uploads/2011/08/CR-3-12-15.pdf).
 Id. at 19 (citing KPMG, UNEP, Global Reporting Initiative and Unit for Corporate Governance in Africa, Carrots and Sticks: sustainability reporting policies worldwide 8 (2013), available at https://www.globalreporting.org/resourcelibrary/carrots-and-sticks.pdf.).
 H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 4.
 Sustainability Accounting Standards Board, “Business and Financial Disclosure Required by Regulation S-K—the SEC’s Concept Release and Its Implications”, (2016), 3-4, available at sasb.org.
 SEC Release Nos. 33-9106, 34-61469, FR-82 (February 8, 2010).
 California Civil Code § 1714.43.
 GRI 101: Foundation 2016 (Amsterdam: Stichting Global Reporting Initiative, 2016), 3.
 For detailed discussion of the GRI Standards, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 P. DeSimone, Board Oversight of Sustainability Issues: A Study of the S&P 500 (IRRC Institute, March 2014), 7.
 The International <IR> Framework (London: The International Integrated Reporting Council, December 2013), 5. For detailed discussion of the International Integrated Reporting Framework, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 For detailed discussion of the activities of the SASB, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
This entry was posted in Corporate Social Responsibility, Governance, Sustainability & Corporate Governance on October 5, 2018 by agutterman.
Interest in CSR and corporate sustainability among institutional investors has logically been accompanied by a sharper focus on whether and how companies are adopting the long-term perspective necessary for committing resources to projects that will likely have the highest value to the business at some point beyond the traditional short-term performance window. A study published in 2017 by the McKinsey Global Institute claimed to provide systematic evidence that companies that adopted a “long-term approach” outperformed companies that emphasized the short-term strategies typically associated with maximizing shareholder value on a range of key economic and financial metrics including revenue and earnings, investment, market capitalization, and job creation.
Ensuring the board oversees the definition and implementation of corporate strategies that pursue sustainable long-term value creation.
Encouraging periodic review of corporate governance, long-term objectives and strategies at the board level as well as clear communication between corporations, investors and other stakeholders about the outcomes.
Promoting meaningful engagement between the board, investors and other stakeholders that builds mutual trust and effective stewardship, and promotes the highest possible standards of corporate conduct.
Publicly supporting the adoption of the Compact and implement policies and practices within my organization that drive transformation towards the adherence to long-term strategies and sustainable growth for the benefit of all stakeholders.
Similarly, the corporate governance principles for US listed companies endorsed by the Investor Stewardship Group include guidance that boards should develop management incentive structures that are aligned with the long-term strategy of the company.
One interesting approach to instilling long-termism into mainstream corporate governance is the call for the creation of a “Long-Term Stock Exchange” which would supplement existing requirements imposed by the Securities and Exchange Commission and other exchange regulators with additional conditions such as tenured shareholder voting power (i.e., permitting shareholder voting to be proportionately weighted by the length of time the shares have been held), mandated ties between executive pay and long-term business performance and disclosure requirements informing companies who their long-term shareholders are and informing investors of what companies’ long-term investments are.
While sentiment for encouraging long-termism and promoting a broader range of stakeholder interests has been around in some form for decades, the attacks on the primacy of shareholder value creation have never been as strident and are likely to accelerate in the future and become a permanent fixture among governance issues. Politicians in more than 30 states and the District of Columbia have formalized the constituency theory by adopting statutes that permit the formation of “benefit corporations”, a new form of for-profit corporation that explicitly expands the fiduciary duties of directors beyond maximizing shareholder value, which is still one of the primary goals of a corporation, to include consideration of whether or not the corporation’s activities have an overall positive impact on society, their workers, the communities in which they operate and the environment. While the rate of adoption of benefit corporation status has been slow, particularly among public companies, the recognition of benefit corporations has contributed to sharpened focus on the separate interests of non-shareholder stakeholders and created a host of new issues and challenges for directors of all types of corporations such as ­­how to measure and compare non-financial performance aspects of corporate activities; how to hold corporations accountable to stakeholders who do not have the rights to vote that are held by shareholders; and how to structure incentive packages for executives and managers tied to complex multi-stakeholder goals and commitments.
 M. Lipton, S. Rosenblum, K. Cain, S. Niles, V. Chanani and K. Iannone, “Some Thoughts for Boards of Directors in 2018” (Wachtell, Lipton, Rosen & Katz, November 30, 2017), 7, accessible at http://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.25823.17.pdf.
This entry was posted in Corporate Social Responsibility, Finance, Governance, Sustainability & Corporate Governance on October 5, 2018 by agutterman.
A reported prepared by The Conference Board in November 2017 highlighted several important market and regulatory drivers of increased ESG activism among institutional investors. First, there seems to be a clear shift in expectations among institutional investors’ own shareholders with respect to ESG voting and engagement and institutional investors must now contend with the demands of their shareholders to support environmental and social proposals in line with their fiduciary duties. Second, in 2015 the US Department of Labor amended its guidelines interpreting the “prudent investor” standard for Employee Retirement Income Security Act (“ERISA”) fiduciaries to affirm that although ERISA does not allow fiduciaries to sacrifice the economic interests of their beneficiaries to promote public policy goals, fiduciary duties do permit consideration of ESG factors in investment analysis and voting practices when necessary to advance beneficiaries’ economic interests. The DOL’s change in position aligned the US with guidelines that had already been approved in a growing number of other countries that directly endorsed or encouraged public pension funds and other investment fiduciaries’ incorporation of ESG considerations in investment analysis. Third, consortiums of investors are being formed to exert influence on their peers to promote better oversight of ESG risk. One example is the voluntary Framework of US Stewardship and Governance formed in 2017 by a group of institutional investors representing over $20 trillion in US equity investments to encourage investors “to continue to engage directly with companies and to make their proxy voting and engagement practices and policies more transparent as part of a balanced approach to corporate and shareholder accountability”.
Investors are embracing “responsible investment”, which has been described in the Principles for Responsible Investment (https://www.unpri.org/about/the-six-principles) backed by the United Nations (“PRI”) as “an approach to investing that aims to incorporate environmental, social and governance (“ESG”) factors into investment decisions, to better manage risk and generate sustainable, long-term returns”. Investors that have committed to adherence to the PRI have undertaken to incorporate ESG issues into their investment analysis and decision making processes, be “active owners” of the companies in which they invest, incorporate ESG issues into their own ownership policies and practices, seek appropriate disclosure on ESG issues from their portfolio companies and report on their own activities and progress toward implementing the Principles. The PRI are based on the assumption that institutional investor have a fiduciary duty to act in the best long-term interests of their beneficiaries and that ESG issues can affect the performance of investment portfolios and must be attended to in order for the investors, and their portfolio companies, to improve their risk management and generate sustainable, long-term returns. In other words, attention to ESG not only helps investors achieve better long-range investment returns, thereby meeting the goals of their beneficiaries, but also aligns investor priorities with broader societal goals.
· Address ESG issues in investment policy statements.
· Support development of ESG-related tools, metrics, and analyses.
· Assess the capabilities of internal investment managers to incorporate ESG issues.
· Assess the capabilities of external investment managers to incorporate ESG issues.
· Ask investment service providers (such as financial analysts, consultants, brokers, research firms, or rating companies) to integrate ESG factors into evolving research and analysis.
· Encourage academic and other research on this theme.
· Advocate ESG training for investment professionals.
· Develop and disclose an active ownership policy consistent with the Principles.
· Exercise voting rights or monitor compliance with voting policy (if outsourced).
· Develop an engagement capability (either directly or through outsourcing).
· Participate in the development of policy, regulation, and standard setting (such as promoting and protecting shareholder rights).
· File shareholder resolutions consistent with long-term ESG considerations.
· Engage with companies on ESG issues.
· Participate in collaborative engagement initiatives.
· Ask investment managers to undertake and report on ESG-related engagement.
· Ask for standardized reporting on ESG issues (using tools such as the Global Reporting Initiative).
· Ask for ESG issues to be integrated within annual financial reports.
· Ask for information from companies regarding adoption of/adherence to relevant norms, standards, codes of conduct or international initiatives (such as the UN Global Compact).
· Support shareholder initiatives and resolutions promoting ESG disclosure.
· Include Principles-related requirements in requests for proposals (RFPs).
· Align investment mandates, monitoring procedures, performance indicators and incentive structures accordingly (for example, ensure investment management processes reflect long-term time horizons when appropriate).
· Communicate ESG expectations to investment service providers.
· Revisit relationships with service providers that fail to meet ESG expectations.
· Support the development of tools for benchmarking ESG integration.
· Support regulatory or policy developments that enable implementation of the Principles.
· Support/participate in networks and information platforms to share tools, pool resources, and make use of investor reporting as a source of learning.
· Collectively address relevant emerging issues.
· Develop or support appropriate collaborative initiatives.
· Disclose how ESG issues are integrated within investment practices.
· Disclose active ownership activities (voting, engagement, and/or policy dialogue).
· Disclose what is required from service providers in relation to the Principles.
· Communicate with beneficiaries about ESG issues and the Principles.
· Report on progress and/or achievements relating to the Principles using a comply-or-explain approach.
· Seek to determine the impact of the Principles.
· Make use of reporting to raise awareness among a broader group of stakeholders.
The company has identified the sustainability issues material to the business.
The company has analyzed and incorporated sustainability issues, where relevant, into its long-term strategy.
The company considers long-term sustainability trends in capital allocation decisions.
The board is equipped to adequately evaluate and oversee the sustainability aspects of the company’s long-term strategy.
The company’s reporting clearly articulates the influence of sustainability issues on strategy.
The board incorporates key sustainability drivers into performance evaluation and compensation programs.
As for the specific CSR and corporate sustainability issues that are most important to investors, and which should therefore be priorities for directors and members of the executive team, reference can be made to surveys of CSR-related shareholder proposals compiled by organizations such as the Institutional Shareholder Services Inc. (“ISS”) Governance Analytics Database. In 2016 and early 2017, for example, the most popular topics among shareholder activists included lobbying disclosure, climate change reporting, political contributions disclosure, gender pay gap disclosure and sustainability reporting, a list that highlighted a decided shift in shareholder engagement toward sustainability and away from some of the issues that had dominated in previous years such as proxy access. A little more than half of the CSR-related shareholder proposals submitted to companies in 2016 were actually voted upon since some did not meet the criteria for voting established by the company and others were removed from the ballot before the meeting based on undertakings by the company following engagement with the proponents of the proposal to voluntarily provide expanded CSR-related disclosures. Average support for those proposals that were voted upon was around 20%; however, nine proposals focusing on the following topics received majority support: board diversity, political contributions disclosure, methane emissions management, sustainability reporting, animal welfare, prohibition of sexual orientation and gender identity discrimination and gender pay gap disclosure. Companies can gather further insights by closely reviewing the proxy materials of other firms in their industry and the published voting records and pronouncements of their major institutional investors.
In the 2017 proxy season, shareholders at ExxonMobil, Occidental Petroleum, and PPL Corp. voted by overwhelming majorities in favor of proposals urging these boards to assess and report on the financial risks their companies face as a result of climate-related regulation. These proposals passed with the support of BlackRock, State Street Global Advisors, and Vanguard, all of whom have voting and investment policies that include environmental, social, and governance (“ESG”) considerations and risk assessment. In 2017, Fidelity followed suit and revised its proxy voting guidelines to state that it “may support shareholder proposals calling for reports on sustainability, renewable energy and environmental impact issues” as well as proposals on board and workplace diversity.
The published voting guidelines of ISS for the 2017 proxy season reflected the growing support among institutional investors for ESG-related proposals. Among other things, the guidelines called for generally supporting resolutions requesting that a company disclose information on the risks related to climate change on its operations and investments, such as financial, physical, or regulatory risks; generally voting for proposals requesting that a company report on its policies, initiatives, and oversight mechanisms related to social, economic, and environmental sustainability; and supporting proposals seeking reports of company’s efforts to respond on a range of ESG issues, including climate impact mitigation, board and workplace diversity. Proposals that called for the adoption of GHG reduction goals from products and operations were to be considered on a case-by-case basis and proposals seeking a company’s endorsement of social/environmental issue principles that support a particular public policy position were opposed.
By 2016, more than half of all publicly traded debt and equity worldwide was held by investors who were signatories to the PRI, and US signatories accounted for nearly 20% of the total participation and included both traditional backers of environmental and social proposals and mainstream investment companies like BlackRock, Fidelity, State Street and Vanguard. Not to be forgotten is that in addition to the assets managed by these well-known mainstream investors, more than 20% of all assets under management in the US were invested based on sustainable, responsible or impact investing strategies.
A survey of whether institutional investors affected a firm’s commitment to CSR for a large sample of firms from 41 countries over the period 2004 through 2013 found that institutional ownership was positively associated with firm-level environmental and social commitments. A July 2017 report issued by US SIF Foundation indicated that managers of $8.72 trillion of the overall total of $40 trillion assets under management in the US, about 22%, included sustainability in their investment decision making. A November 2017 reported by The Conference Board stated that surveys of institutional investors by major consulting firms since at least 2014 have found, on average, that 70% to 80% saw ESG information as important or essential to their investment analysis.
 Parliamentary Joint Committee on Corporations and Financial Services, Corporate responsibility: Managing risk and creating value (2006), 68.
 V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 10-12, electronic copy available at: https://ssrn.com/abstract=3080033 (based on information available at UNPRI, Signatories, https://www.unpri.org/signatory-directory/).
 Interpretive Bulletin Relating to the Fiduciary Standard under ERISA in Considering Economically Targeted Investments, 29 C.F.R. § 2509.15-01 (October 26, 2015). The guidance in effect prior to October 26, 2015, which had been in place since 2008, generally prohibited ERISA from selecting investments on the basis of any non-economic factors. Interpretive Bulletin Relating to Investing in Economically Targeted Investments, 73 Fed. Reg. 61,734 (October 17, 2008).
 According to the Report, many jurisdictions in the midst of changing their conceptions of fiduciary duty to permit, or even impose a positive duty on, investors to incorporate financially material ESG factors into their investment decision making. Sources cited included UNEP-FI, A legal framework for the integration of environmental, social, and governance issues into institutional investment (2005), http://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf; UNEP-FI, Fiduciary Duty in the 21st Century (2015), http://www.unepfi.org/fileadmin/documents/fiduciary_duty_21st_century.pdf; and OECD, Investment governance and the integration of environmental, social, and governance factors, (2017), 48-50.
 Investor Stewardship Group, “Framework for U.S. Stewardship and Governance”, https://www.isgframework.org/. Stewardship codes have also been introduced in a number of foreign countries as a means for encouraging or requiring institutional investors as asset owners or managers to disclose how their investment strategy contributes to the medium and long-term performance of the investor’s assets.
 Letter from Ronald P. O’Hanley, President and CEO, SSGA, to Board Members, 1-2 (January 26, 2017), available at ssga.com.
 Tomorrow’s Investment Rules: Global Survey of Institutional Investors on Non-Financial Performance, 5 (Ernst & Young, 2014).
 Annual Letter from Larry Fink, Chairman and CEO, BlackRock, to CEOs (January 24, 2017), available at blackrock.com.
 SSGA, Incorporating Sustainability Into Long-Term Strategy (January 23, 2017), available at ssga.com.
 SSGA, Performing for the Future: ESGs Place in Investment Portfolios Today and Tomorrow (2017), available at ssga.com.
 https://www.ussif.org/sribasics. The Forum for Responsible and Sustainable Investment is a valuable online resource with information and educational materials on sustainable and responsible investing trends, performance and sustainable investment, proxy voting, shareholder proposals and community investing.
 H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 5-6 (citing Institutional Shareholder Services Inc., United States 2016: Proxy Season Review—Environmental and Social Issues (October 26, 2016), available at isscorporatesolutions.com (subscription required)).
 V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 2, electronic copy available at: https://ssrn.com/abstract=3080033. See also V. Harper Ho, “’Comply or Explain’ and the Future of Nonfinancial Reporting”, Lewis & Clark Law Review, 21 (2017), 318; and V. Harper Ho, “Risk-Related Activism: The Business Case for Monitoring Nonfinancial Risk”, Journal of Corporate Law, 41 (2016), 648.
 Ban Ki Moon, UN Secretary General Speech at the NYSE announcing the UN Principles for Responsible Investment (April 26, 2006).
 V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 3 and Table 1, electronic copy available at: https://ssrn.com/abstract=3080033 (based on information available at UNPRI, Signatories, https://www.unpri.org/signatory-directory/).
 A. Dyck, K. Lins, L. Roth and H. Bocconi, “Do Institutional Investors Drive Corporate Social Responsibility? International Evidence” (November 18, 2015). Interestingly, the researchers found that while domestic institutional investors and non-U.S. foreign investors accounted for the identified positive associations, U.S. institutional investors’ holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds.
While corporate social responsibility, or CSR, is generally associated with ensuring the corporations contribute to sustainable economic development at the macro-level, the concept of corporate sustainability can be seen as primarily concerned with the survival, or sustainability, of the corporation itself, something that is necessary in order for the corporation to make the contributions to society that are expected from being a “responsible corporate citizen”. Corporate sustainability goals and programs are focused on issues that not only impact society as a whole but must also be addressed by the directors and managers of a corporation in order for it to survive and thrive: climate change; resource scarcity; demographic shifts; and regulatory and political changes.
Institutional sustainability comes from having a mission, a process in place to develop long-term strategic plans, an annual planning process, a process for managing the operational activities included in the strategic and annual plans and, finally, processes for monitoring and evaluating the flow of work to ensure that it is contributing to the organization’s goals and objectives.
Financial sustainability means having access to the financial resources that the organization needs in order to collect the resources—human, physical and technological—necessary for it to carry out its mission. This does not mean that the organization is self-sufficient with regard to capital (i.e., it can fund operations out of its own cash flow), but rather that it can obtain needed funds from outside sources without compromising its mission. A financially sustainable organization also practices prudent financial management to ensure that its resources are used efficiently.
Moral sustainability requires that organizational leaders have a clear vision of, and commitment to the mission, and communicate it effectively to all stakeholders; that all staff rally around the organizational leaders and become committed to the mission as well; that staff who are committed to the mission are rewarded by career development opportunities, adequate compensation and dynamic work environment, all of which improves morale and builds a unity of purpose and commitment that will overcome challenges; and that leadership, management and staff act ethically and are perceived as doing so.
While Coblenz’s model of organizational sustainability does not explicitly mention environmental and social issues, it does paint a picture of a deliberative process throughout an organization that operates on a vision of a mission that is clearly communicated and shared by everyone and which understands that results will take time and require steady and prudent general and financial management and a commitment to acting in an ethical manner. Financial sustainability in the model includes engaging with investors that understand the company’s mission and do not place conditions on funding that will conflict with the mission. For example, when the mission of the organization is to achieve environmental efficiencies that may not be realized for several years, investors will refrain from applying pressure for short-term economic returns provided that management is transparent about progress and acts in an ethical manner in its engagement and relationships with investors.
Porter and Kramer argued that sustainability and responsible business practices are integral parts of a corporate strategy that can create “shared value” for the company, its shareholders and other key stakeholders of the company. Porter, along with others such as McWilliams and Segal, has also maintained that companies should use the CSR initiatives as part of their business strategies to promote competitive advantage and, in fact, a large percentage of Global 250 firms have explicitly identified issues such as climate change and material resource scarcity as opportunities for the development of new products and services.
One threshold issue for directors with respect to embracing “corporate sustainability” is that it remains a broad topic when the time comes to putting together a framework for implementation. For example, when the subject is environmental responsibility, issues can range from climate change to carbon footprints, water and energy. Social responsibility can involve issues and projects relating to supply chain management, product stewardship and consumer protection and human rights. CSR and corporate sustainability requires attention to risk management and stakeholder engagement and investment of resources in new management and information systems that can generate data needed to track performance and prepare the reports necessary to meet expectations of investors and other stakeholders with respect to transparent disclosure of the nature and effectiveness of the company’s CSR and corporate sustainability initiatives.
 J. Coblentz, “Organizational Sustainability: The Three Aspects that Matter” (Washington DC: Academy for Educational Development, 2002).
 M. Porter and M. Kramer, “Creating Shared Value”, Harvard Business Review (January-February 2011).
 See M. Porter and M. Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, Harvard Business Review, 78 (December 2006); and A. McWilliams and D. Siegel, “Creating and Capturing Value: Strategic Corporate Social Responsibility, Resource-Based Theory, and Sustainable Competitive Advantage”, Journal of Management 37 (2011), 1480.
This entry was posted in Corporate Social Responsibility, Governance, Sustainability & Corporate Governance on October 4, 2018 by agutterman.

References: V. 
 § 1714
 V. 
 V. 
 § 2509
 V. 
 V. 
 V. 
 V.