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The Future of ESG Investing and Disclosure

| Tuesday November 2nd, 2010 | 0 Comments

By Cindy Mehallow

Green actions and rhetoric are no longer sufficient to maintain a strong reputation as a sustainability leader. Companies which fall short in disclosing their ESG (environmental, social and governance) performance will bear increasing consequences as investment analysts, shareholders and stakeholders demand greater transparency.  That was the clear message I heard from two of the top voices in ESG investing and reporting who spoke at the Just Means “Social Media, Technology and Change” conference yesterday in New York.

Michael Muyot, founder and president of CRD Analytics, spoke from his experience in developing the SmartViewTM Platform, a methodology which drives the new  The Global 1000 Sustainable Performance Leaders as well as the NASDAQ OMX CRD Global Sustainability 50 Index.  The G1000 ranking includes companies which are publicly traded on a major global exchange, have a minimum market capitalization of $1 billion USD  — AND have published a sustainability report with a full year of ESG data. The SmartView methodology relies on 200 individual qualitative and quantitative performance metrics composed of traditional financials, as well as ESG data.

Muyot noted a compelling instance in which several major corporations with strong sustainability stories suffered a loss of face nonetheless because of deficiencies in their reporting.

Despite a strong sustainability-oriented mission statement, array of green product offerings and environmental initiatives, Microsoft was removed http://www.triplepundit.com/2010/04/05/microsoft-gri-sustainability-csr/ from the NASDAQ Global Sustainability Index (QCRD) last October for failing to disclose at least two out of five quantitative environmental metrics that adhere to theGlobal Reporting Initiative (GRI) G3 guidelines.   And Microsoft wasn’t alone — two other NASDAQ-listed companies were removed (Cisco and Oracle) for similarly inadequate disclosure. 

For companies that wish to score well on sustainability rankings, transparency via comprehensive, regular reporting is essential.  “Without quality disclosure, you’ll never rank high,” admonished Muyot at yesterday’s conference.  Companies such as Merck  and Novartis, long-accustomed to rigorous government scrutiny, have a tradition of transparency and regularly score well in sustainability rankings.

Many companies’ scores are not as high as they should because they skipped a reporting cycle or their reports lack key metrics.

But reporting isn’t all about a quest for rankings.  Shareholders have a right to expect the companies they invest in to provide relevant data that is verified, according to Mike Wallace, sustainability reporting framework director for the Global Reporting Initiative (GRI).

“It’s important to be an active investor,” urged Wallace. Muyot noted that there is $7 trillion in cash waiting to be invested.  Millennials, who are the forefront of the Responsibility Revolution,    want to buy products and invest in companies that share their values. These customers and investors are hungry for information, and companies that hope to capture their loyalty would do well to understand what information they want and provide it via the media they favor.

“We are all buyers, and we have the right to information on the products and investments we purchase,” Wallace emphasized.


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