Upstream Sustainability Services
In January, JLL predicted that this year would mark a step change in how investors expect companies to integrate sustainability issues into their strategy and reporting.
How right have we been?
Things heated up towards the back end of quarter one. BlackRock and other investors pooled together to set out an initiative to engage global stock exchanges, via the World Federation of Exchanges (WFE), on a uniform standard for sustainability reporting by all members of these exchanges. Rob Greifeld, NASDAQ CEO, said “We need a joint solution that will help bring more consistent and comparable information to all markets, and will not leave any one exchange at a competitive disadvantage for taking leadership in this space.” BlackRock added that the initiative “will enable investors to more accurately value companies and make better informed investment decisions.”
By mid-March, shareholders had lodged a record 142 resolutions asking corporations to strengthen their environmental commitments and reporting. Most pressure has been exerted on energy companies, but several resolutions have been made for further disclosure by real estate companies particularly in the US.
By the end of March, in response to shareholder pressure, Exxon Mobil produced reports on its exposure to stranded assets and how it manages climate risk. While their report indicated that Exxon Mobil do not believe they are at risk from climate change, the fact that shareholder calls led them to feel the need to produce such a report was a step change in itself.
In April, JP Morgan stated that they believed a company’s environmental polices relate to financial performance. The company stated that it encourages a level of reporting, “which provides sufficient information to enable shareholders to evaluate the company’s environmental policies and performance.”
During the same month, an EY survey found 89% institutional investors representing over $10 billion in equity assets considered non-financial information when making decisions. It was reported that investors are telling them that they are “using non-financial information to inform their decision making – whether or not the companies are providing it themselves.”
In May, former New York Mayor Michael Bloomberg took up the chairmanship of the Sustainability Accounting Standards Board (SASB), an industry body that develops and promotes sustainability standards for listed US companies. Bloomberg stated that he believed “the more complete and reliable the information that investors have, the better markets work—and that benefits not only individual investors but all of society” and that in his role for SASB would pursue greater disclosure.
Later in May, a survey of Institutional Investors conducted by PwC found widespread dissatisfaction with the level of corporate disclosure on sustainability issues. 79% of investors said they now considered social responsibility in investment decisions during the past 12 months. But 82% said they were dissatisfied with how risks and opportunities related to sustainability are identified and quantified in financial terms.
So how did JLL’s prediction pan out? In the first part of 2014 a clear message from investors has emerged. Broadly there is investor demand for disclosure on how companies manage sustainability risks because it gives them a better grasp of how a company is operated. If they aren’t prioritizing companies for good environmental performance, at the least, they want to use sustainability performance as a proxy for good management to improve investment decisions.
What next? We predict progress will move on steadily during the latter part of 2014. Proposed climate legislation in the US which requires power plants to cut carbon emissions by 30% will shift the debate on climate change several steps forward in the US and globally ahead of the Paris climate summit next year. The implication is that there is greater pressure than ever before for companies to account for their carbon emissions and report on them publicly.