Thursday, July 18, 2019

Achieving Workplace Inclusion: Three Steps Toward A Sustainable Organization

Editorial Note: SILC is delighted to share this article that the author, a presenter at our Annual Conference, originally published on Forbes.com as a Forbes Councils Member.

The author, Deborah Goldstein, is a recovering restauranteur. Moving on from the restaurant business to pursue a more integrated life, Deborah soon found herself on her current mission to support individuals and companies as they identify and then strive towards their greatest aspirations. As the founder of DRIVEN Professionals, she specializes in Women's Leadership, Intentional Productivity, and creating workplace cultures of inclusion and trust by implementing her self-designed platform GRACE in the Workplace℠.


Research now confirms that workplace inclusion is the company-wide effort that can most dramatically affect the bottom line, either positively or negatively. Quite simply, co-created ideas tend to be better than ideas created by a segment of the population. For these ideas to be shared and massaged into game changers, contributors must feel safe and heard, not fearful, stressed or ignored. This, like many studies in workplace culture, is based on science and logic.

For instance, a mind fogged by cortisol, the stress hormone, doesn’t think clearly. By contrast, employees who feel valued, safe and included are experiencing a more consistent flow of oxytocin, the comfort and belief hormone, and are less likely to leave their positions. The latter yields productivity, engagement and the sustainable workforce that 21st-century companies strive for, while the former disrupts the flow of a team and can be extrapolated as being more detrimental than replacement and training costs.

Whether or not these facts are new to you, the billion-dollar question remains: How can you create inclusion in your firm? Here are three small steps that can add up to a giant impact.

Embrace Bias

“If you have a brain, you have bias.” It’s been said in various ways by different neuroscientists and business coaches. Yet company leaders are not quite sure how to deal with it. The ones I’ve interviewed are convinced they’re not doing enough to suppress workplace bias.

My answer: Don’t suppress it. Instead, create a safe environment to explore how professionals have arrived at their biases.

To help with this experiment, think of bias as one’s personal “terroir." This French term derived from the Latin for “land” is usually applied to wine and refers to the soil and climatic elements that converge to yield grapes that deliver the flavor of a specific location. If the terroir is ordinary, the result is jug wine, but if the terroir is special, so is the wine, and collectors will spend big bucks on a single bottle.

By comparison, the brain’s terroir consists of one’s ethnicity, social class, geographic location and gender. Just as two vineyards sitting side by side may create entirely different wines from their contrasting land composition, two people growing up as next-door neighbors can develop different biases based on something as fundamental as their contrasting ethnic traditions. This could even be true for two individuals raised in the very same household, based on gender. The point is, we each look at the world through different eyes and for legitimate reasons. Embracing this truism is the first step toward workplace inclusion.

Recognize Your Blind Spots

Despite my mother’s claim to have eyes in the back of her head, we as humans are not all-seeing. Drawing conclusions based on our own biases is a more realistic explanation of our apparent shrewdness and is completely natural. But we make a mistake when we assume everyone else sees and feels things in the same way we do.

Here’s how to prove it to yourself and resolve your social blind spots: Ask a friend or colleague to jot down five or six endeavors that would constitute an ideal day off for them. Write down some of your own as well and compare notes. The odds are that although you’ll have one or two activities in common, most will be drastically different. Take this into consideration before you respond to the next Monday morning inquiry about your weekend with, “It was perfect!” That colleague might be imagining you sleeping in, watching a football game and eating nachos, while you’re silently reminiscing about catching that sunrise, taking that adventurous hike and preparing that meal over a campfire.

Understand How 'Words Create Worlds'

That last exercise constitutes a low-stakes experiment about how the simple words “an ideal weekend” conjure up very different scenarios and can expose our blind spots. It’s strange how words can tell different stories based on the listener’s interpretation.

As author and organizational anthropologist Judith E. Glaser eloquently put it, “words create worlds." Why not put this profound knowledge into action?

Consider a word that’s been popping up in companies’ mission statements, like "respect." Challenge yourself to do the “ideal weekend” exercise with your team by asking what respect means to each of them. Have a conversation about what they write. Ask yourselves how you can adopt meeting protocols to represent respect. Would you change the way projects are assigned? How about the way feedback and reviews are conducted? Make sure each person has a chance to share their words, uninterrupted. The next thing you know, you’ll be having an inclusive conversation that will result in a more inclusive environment.


Sunday, June 16, 2019

New York WILD Film Event


Many thanks to Deidre and David Brennan for bringing New York WILD to our attention. As noted on their home page, New York WILD presents “the first annual documentary film festival in New York to showcase a spectrum of topics, from exploration and adventure to wildlife, conservation and the environment, bringing all things WILD to one of the most urban cities in the world.”

This week, on June 19, New York WILD & Wildlife Conservation Society will present a program of films and talks entitled WILD in New York. The event will occur from 6:00 pm to 9:30 pm at The Explorer’s Club at 46 East 70 Street.

A detailed program and tickets are available on the New York WILD web site. Please let us know if you decide to attend; Deidre and David will be happy to greet you there!

Thursday, May 16, 2019

SILC: Beyond The Conference

Thank you very much for joining us at our flagship 4th Annual Conference on Sustainability last week. We hope that you enjoyed our full day of professional education and networking, with fellow professionals who care deeply about the long term viability of our economy, our environment, and our society.

So what happens now? How shall we proceed beyond the conference? We invite you to remain subscribed to our blog, and to consider attending our periodic SILC Club weekday evening events.

If you have any questions, comments, or suggestions for us, please let us know. We are focused on serving as the leading business organization for professionals in the field of sustainability, and we would welcome your perspective.

Once again, thank you! And now, if you’ll excuse us, we have a planet to save.

Thursday, May 2, 2019

ESG Disclosure: Evaluating SEC’s Peirce and IOSCO’s Comments (Part 2 of 2)

Co-authored by Lee Dehihns & Jack Cox

Welcome back. In our most recent post, we looked into Hester Peirce’s recent comments about IOSCO’s call to action for more ESG reporting. This ‘Part 2’ blog will dive deep into some evidence about this topic.

A study from Sustainalytics took a sample of 231 M&As; within that sample “ESG compatible deals” outperformed “ESG incompatible deals” by an average of 21% on a five-year cumulative return basis. This suggests that ESG compatibility may have a positive contribution to the overall financial success of M&A deals. This information can be incredibly useful for investment banks that are supporting M&A deals. It is possible that ESG factors can be used to weigh risk in M&A deals moving forward. The cumulative returns of the study suggest that returns in ESG compatible deals could outweigh returns from ESG incompatible if a longer amount of time has elapsed since the original deal.[1]

A collaborative survey from Principles for Responsible Investment (PRI) and PricewaterhouseCoopers (PWC) suggests that strong ESG factors can increase the likelihood of an M&A deal getting done. Furthermore, poor performance on ESG factors can impact the valuation of an M&A deal, whereas strong performance on ESG factors does not usually facilitate a premium for valuation. PWC believes based on their survey that ESG due diligence will continue to develop in scope and in importance. This can be illustrated by the fact that 63% of surveyed companies think that there has been a large increase in the influence of ESG factors in transactions in the last three years, and that 75% of surveyed companies believe that there will be an immense increase in the influence of ESG factors over the next three years.[2] This information is relevant as it shows an increased need for due diligence in order to quantify the financial performance of ESG factors.

ESG factors could be relevant in brokerage activities. A report from J.P. Morgan took a quantitative approach to see if ESG can enhance an investment portfolio. There takeaway was that present ESG factors in a portfolio can reduce volatility, increase Sharpe ratios, and prevent large losses during times of market stress. This was concluded from various regression analyses comparing ESG indices to regional MSCI indices around the world. In fact, J.P. Morgan ran regressions with ESG combinations from ACWI (quality, dividend yield, PMOM, and low volatility); the results were excess returns of 1.7%-3.4% from the years 2007-2016.[3] This could be incredibly useful information for custodians and brokerage firms offering products, particularly to institutional investors.

Barclays investigated the impact of ESG factors on bond performance. Barclays gathered data from both Sustainalytics and MSCI. High-ESG portfolios have outperformed low-ESG portfolios on average by 0.29% per year and by 0.42% per year over the past seven year for Sustainalytics and for MSCI respectively. Positive governance factors had the greatest impact on returns from both Sustainalytics and MSCI. Although, ESG score providers may use different methodologies, this data suggests that management quality and a long horizon can benefit bondholders.[4]

Besides being informative in the investment decision-making process, some ESG criteria and related risks could have a material impact elsewhere and should be disclosed. For example, picture a retail filer that has a single supplier that supplies all the inventory for said retailer’s stores. Imagine if that supplier is subject to a worker health and safety issue at its only factory in Bangladesh (for example, explosions or a building collapse), or if there were a substantial cost increase in shipping due to compliance with greenhouse gas regulations or severe delays from extreme weather. These are specific ESG criteria/risks that should be disclosed, and are more than just “nice to have.”

In short, ESG criteria is incredibly relevant. Both issuers and investors can get a better grip for their financial making decisions with this information. It appears that Hester Peirce does not understand the current landscape of ESG reporting criteria; she should not shy away from IOSCO’s suggestions.

Thank you for reading! Moving forward, we will have some posts on specific deals that have been impacted by ESG factors.

[1] “ESG Compatibility: a Hidden Success Factor in M&A Transactions.” Sustainalytics, 29 June 2017, marketing.sustainalytics.com/acton/attachment/5105/f-09a7/1/-/-/-/-/ESG%20Spotlight%20Series_MAs

[2] “The Integration of Environmental, Social and Governance Issues in Mergers and Acquisitions Transactions.” PWC, PRI, www.pwc.com/gx/en/sustainability/publications/assets/pwc-the-integration-of-environmental-social-and-governance-issues-in-mergers-and-acquisitions-transactions

[3] ESG – Environmental, Social & Governance Investing. J.P. Morgan, 14 Dec. 2016, yoursri.com/media-new/download/jpm-esg-how-esg-can-enhance-your-portfolio

[4] “The Positive Impact of ESG Investing on Bond Performance.” Barclays Investment Bank, 31 Oct. 2016, www.investmentbank.barclays.com/our-insights/esg-sustainable-investing-and-bond-returns.html?trid=%5B%25tp_AdID%25%5D&cid=disp_sc01e00v00m04GLpa11pv29#tab3

Wednesday, April 17, 2019

ESG Disclosure: Evaluating SEC’s Peirce and IOSCO’s Comments (Part 1 of 2)

Co-authored by Lee Dehihns & Jack Cox

It is no secret that ESG has been a substantial investing theme in recent years. There continues to be added pressure for increased ESG disclosure and ESG standards development. This year, the International Organization of Security Commissions (IOSCO) has outlined the importance of added ESG disclosure. However, one SEC commissioner, Hester Peirce harshly criticized IOSCO’s call to institutional investors to disclose their ESG factors in a recent speech she gave in Washington, D.C.

Who is IOSCO? They are an international body that consists of organizations that regulate securities and futures markets. In fact, IOSCO is recognized as the global standard setter for the securities sector. Whenever IOSCO releases a statement on disclosure, it should be deemed to be significant; moreover, IOSCO never intends to repudiate existing laws or regulations. Their three securities objectives are: to protect investors, to ensure that markets are fair, efficient and transparent, and to reduce systemic risk.[1]

In January, IOSCO published a statement that set out the importance for issuers to consider including Environmental, Social, and Governance factors when disclosing information. Examples of ESG matters could include environmental factors related to sustainability and climate change, social factors about labor practices and diversity, as well as general governance-related factors. This added disclosure, according to IOSCO, is material and holds an impact in investment and voting decisions. Furthermore, ESG matters can represent substantial risks and opportunities to an issuer.[2]

Before moving forward, it is critical to understand the definition of materiality. Under case law, its definition is that there must be “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”[3] In short, for information to be material, it must be useful and informative, and be information that a reasonable investor would like to see.

Disclosure practices vary from issuers, from company to company, and from industry to industry. In other words, specific ESG disclosure may have a more material impact for some issuers than others. Some frameworks that have been developed have come from the Carbon Disclosure Project (CDP), the Global Reporting Initiative (CRI), Integrated Reporting (IR), and the Sustainability Accounting Standards Board (SASB).

With increased international calls for corporations to disclose how investments can impact socioeconomic issues, the SEC’s Hester Peirce states that there is no political will within The United States to incorporate ESG criteria into corporate disclosures. She remarks, “I do not speak for the commission or for my fellow commissioners, but I found the statement to be an objectionable attempt to focus issuers on a favored subset of matters, as defined by private creators of ESG metrics, rather than more generally on material matters.” She argues further and says that ESG criteria is immaterial and that existing fundamental disclosure should be the focus of both issuers and regulators and that it could distract the regulated community from existing federal mandates. She explains, “Issuers already spend considerable amounts of money complying with existing disclosure requirements. Requiring disclosures aimed at items identified by organizations that are not accountable to investors unproductively distracts issuers.”[4] Peirce elaborates that the SEC would be required to define ESG factors as well as possibly enforce existing regulation and procedures in order to ensure that disclosed ESG criteria is honest and accurate.

Hester Peirce should reevaluate her comments on IOSCO’s statement. ESG disclosure adds value and the opportunity to further evaluate sustainability whether it be narrow in scope at the entity level, or broader in scope at an industry level. ESG disclosure has a positive and a material impact from the perspective of both issuers and investors. In Part 2 of this piece, we will look into some evidence to support this theory.

[1] “About IOSCO.” IOSCO, 2019, www.iosco.org/about/?subsection=about_iosco.

[2] STATEMENT ON DISCLOSURE OF ESG MATTERS BY ISSUERS. IOSCO, 18 Jan. 2019.

[3] Deane, Stephen. “The Rulemaking Process: Two Accounting and Auditing Mini-Case Studies.” SEC Emblem, U.S. Securities and Exchange Commission, 22 Aug. 2017, www.sec.gov/news/speech/deane-speech-rulemaking-process.

[4] Noon, Alison. “SEC’s Peirce Bucks Call For Corporate Responsibility Rules.” Law360, LexisNexis, 6 Mar. 2019, www.law360.com/articles/1135612/sec-s-peirce-bucks-call-for-corporate-responsibility-rules.

Opinions expressed in the blog are those of the authors, and do not reflect the positions of SILC or of any other party.

Wednesday, March 20, 2019

Sustainability and Integrated Reporting

Three years ago, at SILC’s inaugural conference, Dr. Mervyn E. King took to the podium on two occasions to present and discuss the “Six Capitals” Integrated Reporting Framework. As the founder of the International Integrated Reporting Council, he followed AICPA President and CEO Barry Melancon on stage to discuss the emerging field of sustainability reporting. Later, in the afternoon, he delivered a plenary presentation on sustainable capitalism.

The following year, Dr. King made a return appearance at our annual conference. And each of the following two years, Mr. Melancon did so as well. Their continuing message? That sustainability reporting is necessary for the survival of our planet, and thus represents the ultimate priority of the investment industry.

And now, three years later, where are these gentlemen? Mr. Melancon continues to serve as President and CEO of the AICPA. In addition, he has succeeded the retiring Dr. King to become the Global Chairman of the Board of the International Integrated Reporting Council.

And what of SILC? Continuing in its role as a pioneer of the integrated reporting movement, we are delighted to offer a pair of groundbreaking sessions at our Annual Conference on May 9, 2019.

At the first session, SILC will present a panel discussion that will address various considerations when developing an integrated reporting system. In addition, the panelists will discuss a dashboard reporting approach for firms that are launching an integrated reporting process for the first time.

Then, at the second session, SILC will present an experiential workshop that reviews the efforts of a Fortune 500 firm that has adopted a dashboard approach. Analysts from the Sustainability Accounting Standards Board (SASB) will join this workshop.

Are you interested in developing an integrated report for you or your clients? Then join us at our Annual Conference, and take away pragmatic guidance about a system that you can implement in your own workplace.