Standardizing ESG Data Achieving standardization for ESG data to promote comparable reporting is a years-long evolution that will continue indefi- nitely. Calusdian asked if this would help de-politicize the ESG conversation. Benjamin said, “Over the years, we’ve seen improved disclosure
around material issues and many different reporting frameworks, not just in the United States but globally. Tere is more harmoniza- tion. We’re not there yet, but it is reducing the reporting burden. Increasing the focus on transparency and disclosure for material issues provides value internally because it helps strengthen the disclosure systems and processes within companies. I continue to see more integration and collaboration within the business. I lead the sustainability function, but we have a very close working relationship with our IR team. “I give the Sustainability Accounting Standards Board (SASB)
a lot of credit for bringing the need for standardization to the forefront. Te material issues are going to vary depending on what sector you’re in, but there are some common issues that different sectors face. Ten, the question is: what are the best measures of performance? Having standard measures enables us to benchmark and assess our own performance and figure out where we should be focusing from a continuous improvement standpoint.” Bertinetti added, “When we looked at ESG we felt that we
weren’t getting credit for the work we are doing in areas that are material to our business. We have a couple hundred ESG-focused investors in our top 50%, which differs from some of our peers. We need to talk to investors around the world and understand them. So we hired more people to do that. We also made sure that we weren’t just talking to stewardship people; we are talking to the entire investment community. We use very broad strokes and directed messages toward passive and active asset manag- ers. We mapped it right down to every individual we know, their experience with ESG, and so forth. “We built an IR program that is as good on the ESG side as
it is on traditional IR and we are winning awards for it. We want to be best in class. We built an ESG controller’s office within our finance operation. We now treat ESG information with the same rigor and standards as any financial information disclosure. We believe that is a very good way to ensure we give the market con- fidence that all the information we put out there is at the same standard and level of rigor. “If you don’t have the resources for something like that, look
at SASB and the International Sustainability Standards Board (ISSB). Tey cut out the noise and focus on the top five or six metrics in your industry.”
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On the investor side, Danhof noted, “Our task is to review a few thousand proxy ballots every spring, and I task my team with finding if there is objective, real change behind their ESG propos- als. Te term ESG was in one proxy 79 times last year and zero this year. But I want to know if the company has dropped its scope three emissions program or its diversity, equity and inclusion (DEI) pro- gram. Tat is the second level of review that I task my team to do. He added that while the media reported on “the year of ESG
retreat,” 76% of companies in the S&P 500 tied a portion of their executive compensation to ESG and DEI metrics. “It’s a funny ‘retreat’ if you ask me,” Danhof continued. “I
read corporate DEI reports, and executive compensation tied to DEI is my number-one engagement topic. Tere is a lot of legal risk when you tie a portion of executive compensation to DEI, which can be illegal under Title Seven of the 1964 Civil Rights Act. D’Amore added, “Company progress on social issues is among the factors positively correlated to stock performance. Companies are managed by people. Tey are trying to keep employees safe and engaged in their work. Tere are many different ways to do that, and my job as an investor is to figure out if a company is doing that well and if it can do it better.”
Engaging With Investors In closing, Calusdian asked the corporate practitioners on the panel for their advice on engaging with investors regarding ESG issues. Bertinetti said, “Make sure you’re not just talking to the same
people at investment firms. If you start digging, you may find that your portfolio manager is not always the person making decisions on your proxy or other ESG-related issues. It might be the steward- ship person. Or it could be someone else within the organization. “Ask your investors what data providers and service providers they use and then look at that research so you understand what’s influencing the decisions your investors are making. You can de- termine whether they’re making a values-based judgment based on political views or sustainability views.” Benjamin offered, “Engage more with the investment com-
munity and your industry. Help them understand the most im- portant issues and the key metrics to measure progress. As an industry, we developed a template that many utilities use to provide data, so it is comparable and easy for investors to find. It is also continually updated based on the feedback we receive from inves- tors. We also pay a lot of attention to the various ESG ratings and rankings and what issues are bubbling up as gaps.” IR
Al Rickard, CAE is Editor of IR Update;
arickard@associationvision.com.
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