In response to heavy lobbying by institutional shareholders who see climate change as an existential risk, some 25% of U.S. public companies now include some form of environmental or social metric as part of their executive incentive plans, says proxy advisory firm Glass Lewis & Co. That’s up from just 16% two years earlier.

How fast are things moving? Just a year ago, U.S. financial giant Mastercard said that it would tie bonuses for its senior executives to three factors: cutting the company’s carbon usage, building financial inclusion and improving gender pay parity. Just this April, CEO Michael Miebach went one giant step further. In a sign that climate action and social development are everyone’s business, he announced Mastercard would offer sustainability-linked pay to all employees.

“Each and every one of us shares the responsibility to uphold our ESG commitments,” Miebach said. “That’s why we’re extending that model to our annual corporate score and all employees globally, taking our shared accountability and progress to the next level.”

Canadian companies lag behind in tying top executives’ pay to long-term ESG (environmental, social and governance) targets. For instance, mining giant Teck Resources ties 5 to 8% of its top five executives’ annual incentive payments to site-specific environmental risk management (e.g., reducing spills) and to social risks, such as community incidents or disputes. CIBC applies 10% of top executives’ business performance bonus to meeting diversity and sustainable-finance targets. 

Surprisingly, a 2019 survey of the proxy circulars of 196 Toronto Stock Exchange companies, conducted by advisory firm Compensation Governance Partners (CGP), found that 61% of those companies included sustainability metrics in their incentives. But researchers noticed a few flaws. While setting and achieving difficult ESG targets is long, complex work, just 3% of those programs involved long-term incentive plans. As well, only 1% of those companies weighed sustainability at more than 20% of their bonus payouts. 

How do we get more progress? In Canada, “shareholders and executives have been reluctant to fully embrace the integration of ESG targets into compensation metrics,” noted a recent report by CGP managing director Christopher Chen and Dov Begun, a lawyer with Osler, Hoskin & Harcourt. Sticking with the theme of “you get what you incent,” the authors invite Ottawa to get involved, “particularly through tax policy.” 

Among their recommendations: Ottawa should make it easier for taxpayers to defer income related to achieving ESG objectives and extend deferral periods to six years from today’s three-year standard. “Achieving critical objectives with a global and societal impact such as climate and social change will require innovative approaches in every corporate boardroom,” the authors say. “Canadians should demand the same commitment to innovation and agility from governments.”

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Given corporations’ contributions to climate change — and other environmental issues — executives need to understand both the impacts and solutions to the world’s environmental concerns. As a corporate strategy and innovation researcher, I was curious about the level of sustainability understanding and innovative problem-solving among top executives at companies that operate at sea, including oil and gas, shipping and logistics, mining and minerals, cruise lines and agriculture.

The United Nations’ Sustainable Development Goals provide a blueprint for sustainable organizational practices. Corporations should be cognizant of these areas and make productive efforts toward sustainable development. For companies operating at sea, marine conservation and the sustainable use of oceans, seas and marine resources should be a top priority.

Growing marine traffic is expected to add to friction, such as collisions or the introduction of invasive species, between ships and ocean life. Global transportation and logistics forecasts suggest maritime traffic could increase by as much as 1,209% by 2050. The preservation of ocean life requires deliberate measurement and management in the form robust environmental, social and corporate governance (ESG) reporting by those companies operating at sea.

ESG reporting, however, is still in its infancy and marine impact measures are more qualitative than quantitative. My recent research shows that reporting practices on environmental, social and corporate governance among companies operating at sea are not a top priority and puts the health of the marine environment at risk.

The rise of CSR and ESG

Today, most CEOs subscribe to the stakeholder theory that argues a firm’s purpose is to create value beyond its shareholders.

Since the 1960s, stakeholder theory has been the dominant perspective among businesses. Corporate social responsibility (CSR) is a firm’s commitment to fulfil its social and environmental obligations in pursuit of its economic objectives. Not only does CSR benefit society, it also enhances competitiveness and business performance among participating enterprises.

According to a 2006 study by leading strategy researchers, Michael Porter and Mark Kramer, CSR “has emerged as an inescapable priority for business leaders in every country.”

Over the past 20 years, businesses have also focused on measuring their environmental and social responsibility efforts. In contrast to the ideals and goals CSR qualitatively identifies, environmental, social and corporate governance (ESG) reporting quantitatively measures firms’ CSR impacts and progress.

My research explores current ESG reporting practices among companies operating at sea. Based on 14 interviews with large multinational companies operating at sea and an examination of their ESG reports, I found:

1. A lack of consistency among reporting measures.
2. Superficial organizational knowledge and reporting.
3. Industry change will only occur as a result of consumer advocacy or regulation.

Lack of consistency

Preserving life below water is one of the UN’s sustainable development goals. But many of the reports examined in my study excluded marine life and ocean sustainability metrics.

Among the reports that included information on marine life, the approaches to measure impact and progress had not been standardized, yielding poor and ineffective quantitative environmental. The executives of these companies described the importance of action and disclosure of progress in this area, but lacked the specific knowledge to measure and manage their impact.

It is evident from the reports and interviews that ESG reporting standards must be established, and precisely indicate how companies can fulfil their social responsibility in this area.

Superficial metrics

My research also confirmed prior work that suggests ESG reporting in the area of marine life is qualitative and superficial.

Many executives communicated that they face a myriad of public issues and do not prioritize reporting on marine life, such as the impacts their operations might have on marine animals, their efforts to preserve biodiversity, and ocean pollution. Instead, they said their ESG reports were designed to provide a high-level summary of their commitments and progress toward ocean sustainability.

However, executives acknowledged that their operations at sea are deemed to be less concerning to general public as compared to other issues, because they were less visible. Accordingly, ocean life sections of ESG reports were not as in-depth as others, such as clean energy.

Reluctant to change

The final and most concerning finding was the reactionary approach for the executives to change. They described how they would take necessary steps toward change, but only out of necessity for survival.

As one CEO stated: “There are so many issues and we can’t always be proactive. If we were required to make changes to how we operate and report, we always would. But the push would have to come from the public or regulators.”

This is a problem given the importance of the ocean’s ecosystem to overall planetary health. Tiny ocean plants called phytoplankton, for example, produce 50% of the oxygen in the air we breathe. There is, however, some hope.

As Peter Drucker, an Austrian American management consultant, educator and author, aptly stated: “What gets measured gets managed.” Without meaningful, specific and quantitative measures to assess progress and innovations that support change, success in reaching environmental goals is unlikely.

The findings of my research are somewhat promising, as they show executives are willing to commit more resources to sustainability efforts. However, it is evident that there needs to be a clear path and support for such efforts from all stakeholders. It is concerning that sustainability efforts of our most precious resource are nebulous and not considered a top priority.

Grant Alexander Wilson is an assistant professor in the faculty of business administration at the University of Regina.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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In 2020, 10,000 companies, cities, states and regions disclosed data on environmental performance through our global environmental non-profit CDP (formerly the Carbon Disclosure Project), making us the largest repository of information on climate change, deforestation and water security issues. Companies and investors commonly look to CDP for data on basic information such as greenhouse gas emissions. 

Standardized disclosure allows the analysis of distinct yet related metrics that, when read in tandem, reveal whether a company is as committed to the environment as it claims. These four questions from our annual questionnaire can reveal whether a corporation is merely setting lofty goals or is backing up those goals with deep and impactful action. 

         1. Is the company linking emissions-reduction targets to executive compensation – and are there incentives in place that encourage progress toward meeting these targets?

Many companies are setting net-zero targets, but if they don’t have the governance structures in place to drive them forward, it’s difficult to believe they are seriously committed to meeting them. Linking targets to executive compensation is one of the most effective ways a company can entwine ESG into its corporate strategy and is a critical measure to build top-down momentum toward rapid decarbonization.

CDP data shows that just 10% of global companies disclosing through CDP indicate that a board member, C-suite member or other high-ranking executive receives compensation based on meeting emissions-reduction targets. In North America, HP Inc. and Canadian National Railway are among vanguard companies that have set science-based emissions-reduction targets and have tied these targets to executive compensation. Less than 10% of companies globally have taken this ambitious step.

         2. Is the company identifying risks in its supply chain related to climate change – and is it engaging its suppliers to manage those risks? 

One difficult lesson of COVID-19 for many companies has been that vulnerabilities within their supply chains can put them at risk. Supply chain emissions are on average 11.4 times higher than operational emissions. Of the companies disclosing through CDP, only 12% identify upstream risks in the value chain related to environmental impacts and are trying to manage those risks by engaging with their suppliers around sustainability. 

Manufacturer Stanley Black & Decker sources steel and copper from countries experiencing severe weather due to climate change, specifically Western Australia (which suffers through droughts) and Chile (which struggles with droughts and floods). To meet its target of having two-thirds of its supply chain develop science-based Scope 1 and Scope 2 targets by 2025, Stanley Black & Decker collects primary emissions data annually from suppliers, representing 67% of its total procurement spend, via CDP Supply Chain. And to preempt potential supply chain disruptions, the company uses software to track inclement weather and other events affecting their sites in real time.

         3. Is the company identifying risk related to regulation – and is it engaging with policy-makers on behalf of particular legislation that supports environmental resilience?

Many companies identify regulatory uncertainty around environmental issues as a risk to their business. For some, the shifting regulatory landscape – or worse, the absence of national climate policy – was a greater concern than the impact of any particular climate policy itself.

Companies that engage with the government to support pro-environment policy are demonstrating their commitment to a sustainable future. For example, the software company Salesforce discloses its public support for federal carbon-pricing legislation and clean energy policy, and last year signed a joint letter urging the U.S. to remain in the Paris Agreement. Strong climate policy is vital to confront the climate crisis. Even if companies are taking action within their own operations, they should not be considered true environmental leaders unless they support public policy that drives forward the low-carbon transition.

         4. Is the company identifying business opportunities related to the low-carbon transition – and is it investing in these low-carbon products and services? 

Companies that are truly in the vanguard when it comes to sustainability are not only identifying risks and addressing them – but are also seeking opportunities related to the low-carbon transition. In 2019, CDP found that global companies identified US$2.1 trillion in potential opportunities on the table if they take sustainable action. Technology company Cisco sells smart building products that improve building operational energy efficiency and reduce emissions – a market it pegs as a US$2-billion opportunity. Cisco has invested for years in such products and services; the company calculates that 64% of its 2019 revenue can be considered “green.”

In the years to come, we’ll no doubt see more companies integrate their environmental goals into their marketing strategies. While all of the above are indicators of a company’s seriousness about sustainability, the first vital step in any company’s commitment is disclosure. That disclosure must be backed up with real structures within the company, including ambitious (ideally science-based) decarbonization targets and tangible action. With the clock ticking on the climate crisis, we simply don’t have time for half-baked promises. Companies need to follow the through-line across their entire operations, translating sustainability goals into serious, immediate action.

Simon Fischweicher is the head of corporations and supply chains at CDP North America.

The post Sustainable or sellout? Four revealing questions in a company’s environmental disclosure appeared first on Corporate Knights.

The global spread of COVID-19 is deeply affecting each of us. It’s taking a devastating toll on lives, businesses and communities. It’s upending how companies operate and is shattering supply chains around the world. Yet, even during this time of upheaval, there are companies mobilizing in unprecedented ways to protect lives and to defeat the disease. We are witnessing inspiring leadership, with so many companies – large and small – stepping up to help their communities and pivoting their businesses to supply essential products and to provide humanitarian relief.

Leading the way are social purpose businesses that have already defined an aspirational societal reason for being and that aim to create value for all stakeholders. They protect their employees, minimizing job loss and providing paid sick leave. And they go beyond simply donating to charity by redeploying their assets to address the most urgent needs. Whether small firms or multinational corporations, purpose-driven businesses are reimagining their role in the time of COVID.

How social purpose-driven companies have responded to COVID-19

Unilever, the global consumer-goods company, launched a sweeping Sustainable Living Plan in 2010 with the aim of improving the health and well-being of more than one billion people by 2020. It’s now leveraging its social purpose “to make sustainable living commonplace” by donating $155 million worth of soap, sanitizer, bleach and food to help protect people’s lives around the globe. It’s also providing $775 million of cash flow relief for early payments to its small suppliers and extending credit to small-scale retail customers to help them manage and protect jobs. According to its CEO, Alan Jope, “Our strong cash flow and balance sheet mean that we can, and we should, give this support.”

Google’s corporate mission “to organize the world’s information and make it universally accessible and useful” drives its global response. It’s providing a total of US$800 million to support small- and medium-sized businesses, the World Health Organization, governments and health workers. Nearly US$600 million of that comes in the form of ad grants and credits. It has established a US$200 million investment fund for non-profits and financial institutions to help provide small businesses with access to capital. It’s also making available US$20 million in Google Cloud credits for researchers to leverage Google’s computing resources to study potential therapies and vaccines to combat the virus. Its employees are bringing engineering, supply chain and healthcare expertise to facilitate increased production of ventilators, working with equipment manufacturers, distributors and government in this effort.

3M – with a mission “to improve lives” – established a unique partnership with Ford Motor Company to build respirators, including a new design that uses existing parts from both companies, such as the Ford F-150 truck’s cooled seating and 3M’s HEPA filters to increase efficiency and scalability. 3M has doubled its global output of N95 masks and is producing 100 million respirators per month.

HP Inc., whose purpose is “to create technology that makes life better for everyone, everywhere,” is mobilizing its 3D printing teams, technology, experience and production capacity to create 3D printing parts to help contain COVID-19. HP’s 3D R&D centers are collaborating with manufacturing partners around the world to increase production of face masks and shields, hands-free door openers, respirator parts and more. “HP and our digital manufacturing partners are working non-stop in the battle against this unprecedented virus. We are collaborating across borders and industries to identify the parts most in need, validate the designs, and begin 3D printing them,” said Enrique Lores, President and CEO, HP Inc.  Through its HP Foundation, the company also donated $1 million to direct COVID relief.

SAP, the European multinational software corporation, is leading through its purpose “to help the world run better and improve people’s lives” in its COVID response. It recently launched the SAP Purpose Network Live, a virtual platform that provides a space that brings together change-making companies, startups, government agencies, non-profits and consumers to co-innovate COVID solutions together. Through pro-bono consulting, SAP employees are also hosting webinars for non-profits on remote work and coaching social enterprises on business continuity. It set up a €3 million Emergency Fund to support the World Health Organization, the Centre for Disease Control and others working on the front lines. Recognizing the massive COVID disruptions impacting global supply chains, the company is offering free access to its SAP Ariba Discovery service so buyers can post immediate sourcing needs and suppliers can respond with their offerings.

With a mission “to raise the good in food,” the Canadian packaged meats and protein company Maple Leaf Foods donated $500,000 in financial and food contributions to food security organizations. It’s using its scale and reach to launch a matching campaign to raise an additional $2 million to support emergency food relief efforts. Maple Leaf has also contributed $2.5 million to the Canadian Frontline Healthcare Professionals Protection Fund, established by hospital foundations to provide support for frontline healthcare workers. As well, it’s contributing its food-safety know-how to others seeking to create pathogen-free environments.

Web Express, a Coquitlam, BC-based printing company, is pivoting its business to offer online publication services within a new Community Hub enabling ethnic media, industry publications, community centres, readers and advertisers to connect with one another. The Hub will be offered free for a time starting with ethnic community newspapers hit hardest by the pandemic, so they can continue their operations virtually – a matter of survival for small publications.

Traction on Demand, a purpose-led software company based in Burnaby, BC, partnered with Thrive Health, Salesforce and the BC government to create a new, life-saving healthcare app that has been deployed in almost 40 hospitals so far. The app, known as Traction Thrive, helps view, track and allocate critical healthcare personnel, personal protective equipment and ventilator availability in real time. Traction on Demand has since made the application available globally, at no cost, as a contribution to the global fight against COVID-19.

Hemlock Printers, a North American purpose-driven printing company also based in Burnaby, is printing Public Health Agency of Canada COVID-19 workplace posters for businesses and non-profits free of charge. Hemlock’s social purpose partner, Novex Delivery Solutions, is donating the “no-contact” carbon-neutral delivery of those posters. Hemlock is also printing floor decals (to indicate proper space apart while physical distancing), plexiglass shields and other signage products that protect employees and customers.

Within days of BC’s COVID shutdown, Community Savings Credit Union, a purpose-based regional financial institution headquartered in Surrey, BC, offered a range of services for people facing financial difficulty. Financial hardship services include an interest-free line of credit, postponement of loan and mortgage payment and service fees, and early redemption of non-redeemable term deposits so customers can gain quick access to needed funds. Its CEO, Mike Schilling, says, “We could do all this so quickly precisely because we are a purpose-driven organization.”

By focusing on their purpose, rather than on their bottom line, these businesses could make clear and quick decisions when they were needed. Purpose-led companies have a beacon they can turn to when steering through turbulence.

However, the bottom line will eventually benefit too, as pointed out by Larry Fink of BlackRock in his recent annual letter to shareholders. As the CEO of the world’s largest asset manager (with an estimated US$6 trillion in assets) says, “Companies with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.”

As we head deeper into the COVID storm, and as our collective instincts rally, more and more companies will become humanitarian businesses. The time is ripe for all business leaders to reboot their companies along social purpose lines – or risk becoming irrelevant in the future marketplace. The rapid purpose pivots of these 10 leader companies shine a light on what’s possible. These and many other pivots are listed in this “COVID-19 Social Response Checklist for Business” we developed to help business leaders identify their unique COVID social response.

Let’s build a new future together. Now is not the time to be on the sidelines. We can envision the economy and society we want to live in in the post-pandemic era and make it happen. These purpose-driven businesses are showing us how.

Coro Strandberg is president of Strandberg Consulting and Mary Ellen Schaafsma is director of the Social Purpose Institute. Strandberg and Schaafsma partnered to create the Social Purpose Institute at the United Way of the Lower Mainland (SPI) in 2018. The SPI is creating a social purpose business movement in Canada and beyond and offers services that help business leaders, company boards, investors, industry associations and chambers of commerce advance social purpose in business.

The post Covid Knights: Corporate social purpose in the time of COVID-19 appeared first on Corporate Knights.

Born and raised in a small village near Sidon, Lebanon, Dagher immigrated to Canada a little over thirty years ago during the last few years of the country’s crushing civil war. When she arrived in 1989 as a 17-year-old new mother, she was fleeing political strife and a challenging arranged marriage. She didn’t speak a word of English.

“I’m incredibly proud of all the hardships I’ve gone through from being born and raised in a war zone and spending most of my early life in a bomb shelter to coming here and learning everything from scratch.”

Dagher had studied accounting and finance in Lebanon at Middle East College, but finding a job in Canada was initially challenging. Her earliest role in telecommunications was as a Bell telemarketer. By the end of her fifteen years there, she had climbed through the ranks to a director post.

“I don’t have a master’s degree in technology or engineering or anything like that, I was just determined to succeed no matter what.”

Dagher left Bell to take an executive sales director job at Dell Canada before eventually becoming vice president of the computer firm’s data storage division. In 2019, she joined Cisco Systems Canada—the networking hardware and telecommunications equipment and service provider—as president.

“I got to where I am today because of my determination and the passion I have for technology and people,” says Dagher.

This passion for people shows up in her leadership. “My style is very simple,” she remarks, “it’s servant leadership.” She believes in empowering her team and is adamant about the importance of building and supporting the people she works with. “People join organizations, but people leave people,” she says matter-of-factly.

But she agrees that it’s not that easy for women to succeed in the tech sector. While it’s even more challenging for someone with her earlier history, the industry has a long way to go. Dagher’s three-pronged recipe for success for women in the corporate world: advocate for yourself, find a mentor and raise your hand.

“I’m incredibly proud of all the hardships I’ve gone through from being born and raised in a war zone and spending most of my early life in a bomb shelter to coming here and learning everything from scratch.”

She also stresses the importance that failure had in her life, clarifying that she was always keen to learn from it. “Giving up,” she goes on, “was never an option.”

Dagher likes to pay those lessons forward. Case in point: She heads a Cisco career development group called Connected Women that makes sure young female employees and interns feel like they belong and can have influence within the company.  “Our summer internship program is very well paid and we’re very proud of it. We fly them out to San Jose [Cisco headquarters] for a week or two of training and they actually work on innovative challenges,” she explains. The competitive program last year saw 700 applicants for 22 positions.

And with her own experience with forced displacement, Dagher made it a point for Cisco Canada to be involved with Lifeline Syria—a not-for-profit organization that assists in sponsoring, welcoming, and resettling Syrian refugees in Canada—by training and hiring refugees in the tech sector.

These days, the private sector’s foot-dragging on environmental issues is what worries her most. “We’re not moving fast enough. Not enough companies are jumping on it, and a lot are still parking it in the back.”

In an era of accelerated progress, technology is at the heart of every industry disrupting business as usual. If, as a tech corporation, you’re not thinking about the environment and sustainability in relation to your technology, Dagher argues it will be very difficult to succeed.

“At Cisco we take a lot of pride in ensuring we are part of giving back from a responsibility perspective.” For one, Cisco’s Bridge to Possible campaign highlights all the ways in which the company aims to connect people, places, ideas and things through a secure network, and to minimize emissions generated by transportation. That includes enabling workers at companies around the world to work from home and call in through WebEx technology instead of driving into the office.

“We’re not moving fast enough. Not enough companies are jumping on [sustainability], and a lot are still parking it in the back.”

Cisco’s sustainable procurement practices aim to eliminate one million tons of greenhouse gases from the company’s supply chain by next year. Circularity, like for other tech companies, is also a critical point. The company’s products are designed to be maintained and upgraded, ensuring that they remain within the market and away from landfills. Nearly 14,000 metric tonnes of those products were returned and recycled last fiscal year.

Dagher’s achievements are hard to miss. She was named 2019’s Woman of the Year by Women in Communications and Technology—a national association that provides opportunities for networking and professional development for women in these notoriously male-dominated industries.

She is the kind of successful immigrant that Canada loves to embrace. She worked tirelessly within the challenging corporate system to rise to the top and now makes sure to help others in return. “I’m a very proud Lebanese and a grateful Canadian,” Dagher likes to say. As an Arab immigrant woman myself, Dagher is a role model. I tell her that I recently obtained my Canadian citizenship and that interviewing her is moving for me. “Ahlan wa sahlan ou alf mabrouk [welcome and congratulations in Arabic]” she responds warmly.

“You can be anything you want to be here if you have determination.”

The post Women in leadership: Cisco’s Rola Dagher says giving up was never an option appeared first on Corporate Knights.

It is true that many asset managers have taken steps to integrate ESG data into the way they manage their portfolios, but the vast majority of the world’s $60 trillion in assets under management is not subject to this type of analysis.   

The mainstream’s skepticism about ESG is understandable. On a theoretical level, it is not always obvious that a good ESG performer would be a good portfolio performer. And even for those investors that are keen to explore ESG investment strategies, there are other, more practical challenges. For instance, ESG data has only been around for about a decade – a pittance in an industry that spans more than 140 years.

While this doesn’t mean that ESG analysis isn’t valuable, or that companies with good ESG performance cannot be good financial bets, it does mean that investors can’t conduct the kind of long-term financial backtests that they’re accustomed to building to evaluate new investment theses.

Another challenge is that many of the third-party vehicles that investors have historically used to integrate ESG into their portfolio decision making, including ESG ratings, are often “black boxes” – that is, they’re difficult for outsiders to break down, test and understand.  

To help investors overcome some of these barriers, Corporate Knights Capital built a new application that we call Sustainable Beta – what we believe to be the world’s first interactive sustainable portfolio construction tool. It’s not a panacea, we know, but it can help demystify sustainable investment strategies and, perhaps most importantly, it can transparently show how ESG data can be used to boost – not harm – portfolio performance.

(To test-drive Sustainable Beta, go to corporateknightscapital.com, select “Our Services” and then go to “Portfolios.”)

Users of Sustainable Beta are invited to build their own equity portfolios using five different inputs. First, select your market. Options include Australia, Canada, Europe, Japan and the United States. Next, select the specific ESG factor you would like to test. Five factors can currently be tested: Board Diversity, Carbon, Energy, Water and Tax.

Once these two fundamental decisions are made, you then decide how the portfolio should be normalized (e.g., how the ESG factor should be measured), how it should be weighted (e.g., by market capitalization or equal weight) and how often you would like it to be rebalanced (annually, semi-annually, quarterly or monthly).

After selecting all of the inputs and generating a portfolio, you can see how the portfolio would have performed against the major benchmark in your selected market (e.g., S&P 500 in the United States) from as far back as January 2008 up to the end of June 2014. 

The tool typically builds portfolios by scanning all companies that are available in the chosen market and selecting those that perform favourably on the chosen factor.  

Many of the portfolios that can be built on Sustainable Beta fail to beat their benchmark. For instance, an annually rebalanced market capitalization-weighted portfolio of Canadian carbon leaders (normalized by sales) would have underperformed the S&P/TSX Composite by 9.9 per cent from January 2010 to June 2014.  

But some portfolio permutations significantly outperform their benchmarks. For instance, an annually rebalanced, equally weighted portfolio of U.S. carbon leaders (normalized by number of employees) would have outperformed the S&P 500 by an astonishing 41 per cent from January 2008 to June 2014.

More analysis would be needed to properly attribute this outperformance – the weight scheme, for example, is sometimes a more significant determinant than the sustainability factor – but these and other results certainly call into question the orthodoxy that sustainable investing is doomed to underperform.  

Sustainable Beta is unique because of its transparency and flexibility. We are not aware of any other publicly available portfolio construction tool that lets users explore such a wide range of sustainable investment strategies. If it can play some role in the mainstreaming of ESG investing, it will have been a success.

We encourage you to give it a try.

The post Create a sustainable portfolio appeared first on Corporate Knights.

The Montreal Carbon Pledge launched today at the PRI conference in Montreal, which will encourage institutional investors to measure and publicly disclose how much carbon is contained within their investment portfolios on an annual basis.

The pledge adds to existing measurement tools, reporting standards and low-carbon investment options that have created a “perfect storm” for building a low-carbon economy, says Toby Heaps, Chief Executive Office of Corporate Knights.

This comes only days after Ban Ki-Moon, Secretary General of the United Nations, called on the private sector at Tuesday’s Climate Summit in New York City to “redirect investment commensurate with the scale of the challenge,” including disclosing carbon asset exposure.

“Climate change is a risk to businesses and financial markets everywhere,” said Ki-moon on Tuesday. “It threatens to undermine financial resilience, and efforts to alleviate poverty and maintain sustained economic growth.”

While he said carbon pricing was a critical first step, it would be insufficient if not complemented by urgent direct action. And with over $75 trillion (U.S.) in investable assets, institutional investors play a leading role in the transition to a climate resilient economy.

That is why the Montreal Carbon Pledge is aiming to get commitments from portfolios worth $3 trillion before the United Nation climate meeting in Paris in December 2015.

The PRI – an international network of investors supported by the United Nations, which represents more than $45 trillion (U.S.) in assets under management – will manage the online portal where investors can endorse the Montreal Carbon Pledge, report the size of their portfolio’s carbon footprint and list their carbon-reduction targets.

These actions will not only help to mitigate the climate crisis, they also have the potential to generate new markets and new employment opportunities, as well as generate economic growth while meeting our social and environmental needs, said Ban Ki-moon on Tuesday. But, in order for this to happen, investors need to enter a new era of global cooperation, he said.

The Montreal Carbon Pledge will bring institutional investors together so that they can “translate climate talk into walk,” said Fiona Reynolds, Managing Director of the Principles for Responsible Investment in a statement.

The post Investors cooperate on climate appeared first on Corporate Knights.

Given the casual dress code, the big black dog resting in front of the bar and the beautiful interior of glass, wood and steel, the brewery appears a nice place to work. So do the other boutique businesses on this trendy stretch of Toronto’s Ossington Avenue. What makes the brewery different is the formal commitment made to its workforce as one of the original signees of Wagemark – a recently launched international standard for workplace wage ratios.

To receive Wagemark certification, an organization’s top-paid employee cannot make more than eight times the average compensation of the bottom 10 per cent. The foundation of research the non-profit builds on suggests the wider the income gap, the poorer the performance of both companies and countries. But will the idea sell?

“We actually are pro-capitalist,” says Peter MacLeod, Wagemark’s founder and interim executive director. “We just want everybody to enjoy the fruits of their productivity. It’s about competitiveness. It’s about business, sustainability, the durability, the resilience of an organization.”

MacLeod argues places such as Scandinavia and Japan are examples for the rest of the world. “You look to societies with low income disparities and you see that they not only outperform us around [quality of life], they also outperform us on some important economic indicators, whether it’s productivity, whether it’s a social-economic indicator, like generational mobility.”

In a report published by the University of California, Berkeley, in September, economist Emmanuel Saez found that post-recession income gains made in the U.S. from 2009 to 2012 were 31.4 per cent for the top 1 per cent compared to 0.4 per cent for the remainder. Bloomberg reported in April that J.C. Penney’s CEO had been paid 1,795 times as much as the average company employee.

MacLeod says Wagemark isn’t about “naming and shaming” companies and their leaders, nor does he expect such companies to sign up. But J.C. Penney could learn something from the fallout after its CEO’s golden parachute, when the company’s share price slid, MacLeod points out. “The company has rarely been in a weaker position. They can take whatever lesson from that they like.”

Income disparity has received increased political attention in the United States lately. The Securities and Exchange Commission (SEC) is preparing to vote on a proposal that will require companies to reveal the pay gap between CEO compensation and the median compensation of their workforce, based on a sample of employees. The proposal is a mandate of the 2010 Dodd-Frank Act and expected to pass with three out of five SEC votes; two Democratic and one independent versus two Republican.

While not as extreme as those in the U.S., pay gaps in Canada have also increased. According to the Canadian Centre for Policy Alternatives, the 50 highest paid CEOs made over 200 times as much as the average Canadian wage in 2011, compared to 85 times in 1995.

Wagemark, which is Toronto-based, was inspired in part by The Spirit Level, a book written by British epidemiologists Kate Pickett and Richard Wilkinson. The two researchers argue that equal societies are better for all who live in them. Wilkinson has served as an advisor to Wagemark. “It’s at work we have most to do with each other, yet it’s at work we are most divided by hierarchy. We can change that,” says Wilkinson on the phone from London. “Work ought to be the place where we can get our sense of purpose and our sense of self-worth and appreciation by others.”

Taking a step back, Wilkinson argues, “The big, long-term objective for progressive politics, as well as dealing with sustainability, has got to be to democratize our economic institutions, to extend democracy by pursuing all forms of economic democracy. I do regard the bonus culture as an indication of a lack of any democratic constraint on people at the top. They think they can do just what they like.”

When The Spirit Level was published in 2009, it was predictably lauded by the left and lambasted by the right. As Pickett and Wilkinson write in a postscript to their 2010 edition, the criticism has often been political, not scientific. They maintain that mental health, physical health, obesity, educational performance, teenage births, violence, social mobility and imprisonment all relate to levels of inequality.

The authors dedicate a chapter of their book to the connection between inequality and sustainability. “Given what inequality does to a society, and particularly how it heightens competitive consumption, it looks not only as if the two are complementary, but also that governments may be unable to make big enough cuts in carbon emissions without also reducing inequality,” they write. Interestingly, according to data cited in The Spirit Level, business leaders in more equal countries tend to be more positive towards public policy that complies with international environmental agreements than their peers in more unequal countries.

MacLeod says he doesn’t expect every company to agree with the worldview Wagemark represents, but he’s not necessarily going after the Fortune 500. His focus instead is on medium-sized organizations that have hundreds of employees, not tens of thousands; that have tens and hundreds of millions of dollars in revenue, not billions; and that have strong corporate cultures where people still have a sense of being a part of the same organization.

He also doesn’t expect Wagemark to be a silver bullet for workplace inequality, but more of a long-term contribution to a broader movement for societal equality. Included in this movement are Pickett and Wilkinson’s organization, the Equality Trust, and other national and international advocacy groups and policy initiatives, such as those pushing for increases to minimum wage or “living wage” levels.

It’s a work in progress, and adjustments could become necessary in some scenarios. Take outsourcing. What if a profitable company meets Wagemark’s standard within its own facilities, but not when taking into account the factory workers who produce the company’s product through a contractual arrangement?

“We can’t write a licence that prohibits explicitly all sorts of business activities,” says MacLeod. “But to be perfectly frank, I don’t think those kinds of businesses are going to be attracted to Wagemark initially.”

Some big American companies, on the other hand, have demonstrated a commitment to maintaining modest wage gaps relative to others in their industries since long before Wagemark. Costco is one frequently cited example. In the midst of the economic downturn, while competitors struggled and tightened belts, Costco raised employee salaries, which are over double minimum wage – yet the company has thrived. According to Businessweek, the company plans on expanding internationally, opening outlets in France, Spain, Japan, Taiwan and South Korea over the next five years.

But falling within Wagemark’s 8:1 pay ratio will be a huge challenge for big companies, more so in specific sectors that have a proportionately higher number of low-skilled, lower-paid workers. According to data compiled by Corporate Knights Capital – which looks at CEO compensation relative to a company’s average worker pay (as opposed to an average of the bottom 10 per cent) – the global average ratio is 133:1 and 113:1 for consumer discretionary and consumer staples, respectively.

At 139:1, Costco is above the global average, according to U.S. union federation AFL-CIO. But compared to Walmart, which comes in at 597:1, Costco still looks like a champion of the people. On the other hand, ratios for the high-skilled utilities and health care sectors are 57:1 and 53:1, respectively.

“We completely accept that in different industries it could be more difficult,” says MacLeod. “We’re starting with 8:1, and it’s our hope and intention over the next two years to bring on several thousand organizations. On the issue of how we evolve the standard, it’s a question we’ll have to pose to our membership, so stayed tuned.”

Already, Wagemark is preparing this fall to unveil its Tier 2 certification designed to appeal more to larger companies. The pay ratio standards would range from 9:1 to 30:1 depending on a company’s revenues. The higher the revenues the wider the allowable pay gap.

Small and medium-sized companies, meanwhile, continue to sign up to Wagemark. Mike Clark, co-owner of Bellwoods Brewery, doesn’t see the current standard too much of a burden. As one of the more than 20 companies that have so far joined, the brewery is aiming to have a pay gap of between 3:1 and 4:1 over the next few years. Today, it has 35 employees, but Clark has plans to expand. Complying with Wagemark, he says, shows employees they are being treated fairly and with respect, and helps retain them.

“It just makes me feel so good about the people that I’m working for and the fact that they’re conscious of building a team that’s going to progress together,” says Bellwoods staffer Kristi Porter.

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But what happens to all that packaging after its purpose has been fulfilled?

According to Statistics Canada, in 2008, the latest year data was available; 8.5 million tonnes of residential solid waste, such as used packaging, food scraps, old computers and newspapers, was generated in Canada. That is the per capita equivalent in weight to 600 soccer balls, or 725 cans of soup.

The cost to manage all that waste is equally staggering. Canadian governments in 2008 spent a whopping $2.6 billion to manage municipal solid waste, an increase of $1.1 billion since 2002. The United States Environment Protection Agency reported that, in 2010, packaging represented 30% of all municipal solid waste countrywide.

Walmart steps up to the waste challenge

In 2005, to address the sustainability challenge caused by the waste issue, Walmart publicly committed to three long-term sustainability goals:

1. To be supplied 100% by renewable energy
2. To create zero waste
3. To sell products that sustain people and the environment

Serving over 245 million customers in 27 countries, Walmart has an enormous footprint. So when they decided to step up to the critical sustainability challenge caused by waste, they attracted a great deal of attention.

To reach their sustainability goals, Walmart chose a collaborative approach. It formed a number of technical working groups called Sustainable Value Networks (SVNs), which were made up of a diverse group of internal resources and outside experts.

One of the first working groups focused on packaging reduction and waste diversion, bringing together representatives from the packaging and waste management industries, government, universities, industry associations, and Walmart vendor partners.

The Walmart Canada Packaging SVN launched the Sustainable Packaging Scorecard in 2009. The Packaging Scorecard evaluates the sustainability of product packaging based on several criteria such as material type and weight, product to package ratio and cube utilization. They also collaborated with representatives of several other organizations to form the Material Optimization Committee – aimed at exploring how to improve recycling rates for packaging and increase the volume of waste diverted from landfill. Committee members included the Retail Council of Canada, the Food and Consumer Products of Canada, the Packaging Association of Canada, the National Association for PET (polyethylene terephthalate) Container Resources (NAPCOR), the Canadian Plastics Industry Association, the Adhesive Sealants Council, Eco-Entreprises Quebec, Stewardship Ontario, the Recycling Council of Ontario, resin manufacturers, converters, consumer products companies, waste management processors, and recyclers.

“This collaborative and whole systems approach to addressing the issues is essential,” says Christian Shelepuk, Walmart Canada, waste reduction manager. He believes that collaborating with packaging and waste networks on the material optimization committee enabled Walmart to proactively explore ways to reduce the environmental impact of packaging.

The Material Optimization Committee ultimately elected to focus on thermoformed non-bottle rigid plastic containers. These are often used as clear food containers for salads, strawberries, veggies and take-out meals, as well as non-food clamshell packaging used for toys and electronics.

Canadian grocery retailer Loblaw Companies Limited, who serves over 14 million customers a week, came on board to address the same challenge. To better understand the core issue, they approached NAPCOR regarding recycling thermoformed plastic packaging. In their 2011 Corporate Social Responsibility report, Loblaws indicated that all clamshells (except hot case items such as roasted chicken) – had been transitioned to PET representing more than 250 control brands in their bakery and produce categories.

“All clamshells used in our stores, except for hot case items, are now made from a single type of PET resin, better enabling recycling through curbside collection. In 2011, we converted 34 control brand products to PET bringing our total to more than 250 control brand products primarily in our bakery and produce categories.” –Loblaw 2011 CSR report

NAPCOR collects data on the volume of PET thermoforms in the North American market and estimates the thermoforms available for recycling at more than 1.6 billion pounds and growing. “Very little of this material was being recycled in North America in 2009,” says Kate Eagles of NAPCOR.

NAPCOR identified three key barriers affecting the recycling of PET thermoform containers:

1. The presence of lookalike materials such as poly-vinyl chloride and poly-lactic acid that are difficult for Materials Recovery Facilities to manually sort and separate
2. Labels and adhesives on containers that are difficult for re-processors to remove
3. Fluorescent additives that are a contaminant for end markets such as the carpet industry

To address these concerns, NAPCOR partnered with the Association of Postconsumer Plastic Recyclers to develop an industry protocol for evaluating PET thermoform labels and adhesives for compatibility with PET Recycling. Labels and adhesives that meet the protocol and other guidelines are posted on the APR website.

“It is important to work through the technical and design features before bringing new packaging to market,” according to Resa Dimino, director of public policy at NAPCOR.

Expanding the group of collaborators

In 2010, other major retailers (Sobeys, Metro, Costco and Safeway) joined Walmart and Loblaws on the Sustainable Packaging Working Group to pursue the recycling of PET thermoforms as a grocery industry initiative, and encouraged all major grocery retailers to use APR protocol compliant labels and adhesives. The group continues to operate under the Retail Council of Canada, led by Allen Langdon, the Retail Council’s vice-president of sustainability.

“To expand this initiative, we are working with all our members to encourage recycling of all PET thermoforms, regardless of size, and the adoption is growing rapidly as several general merchandise retailers are proactively addressing this important issue,” states Langdon.

Stewardship Ontario joined the zero waste mission too, recycling thermoforms on behalf of retailers and brand owners in Ontario by working with the Continuous Improvement Fund as well as with participating municipalities – launching a ‘Plastic Is In” campaign promoting the collection of thermoform containers.

NAPCOR supported the zero waste mission by conducting production trials with several PET bottle re-claimers, backed by staff and financial support from Stewardship Ontario, Waste Diversion Ontario, Canadian Plastics Industry Association; and, the Association of Postconsumer Plastic Recyclers.

In 2011, Walmart Canada informed their suppliers of their intention to further advance their zero waste goal by making several changes: Removing PVC from all rigid plastic private label packaging by January 2012, “Non acceptance” of fluorescent additives in private label packaging; and transitioning in-store thermoformed rigid plastic packaging to PET where possible to address the issue of lookalike containers. Similar independent actions were taken by Canadian grocery retailers Loblaw, Sobeys, Metro, Safeway and Costco.

Is it working? Evidence-based evaluation reports are optimistic

Recovery of PET thermoformed Packaging

NAPCOR reported, in 2010, that eight million pounds of PET thermoformed packaging was recovered in North America. By 2011, the first year Canadian grocery retailers started taking actions to address the barriers to efficient recycling of PET thermoforms, that number jumped to 45 million pounds. Preliminary 2012 estimates indicate the volume of recovered material should be over 100 million pounds.

GHG Reduction

NAPCOR’s 2010 report showed GHG reduction associated with the recycling of PET thermoforms at 4,600 metric tonnes. During the first year of implementation in 2011, this figure increased to 25,900 metric tonnes. In 2012, preliminary GHG reduction estimates are 57,000 metric tonnes and are on a trajectory to reduce GHG’s by additional 80,000 metric tonnes this year.

Increased Economic Value

Prior this collaborative initiative, less than 1% of the 1.2 billion pounds of PET thermoformed packaging in North America was recycled. Thus, the material market value was very low. Today is a different story. The current value of blended bales of PET bottles and thermoforms is in the range of $375 – $460 per metric tonne picked up at the material recycling facility.

Closing the Loop

Blue Mountain Plastics, a division of Ice River Springs Water Company, developed a unique process to recycle post-consumer PET thermoforms co-mingled with PET bottles. Blue Mountain has been very active in engaging municipalities in Ontario to encourage them to begin collecting thermoform plastic containers in the Ontario Blue box program. Ice River Springs operates the largest “closed-loop” PET recycling system in Canada and sells private-label bottled-water to Canadian & US retailers. This means that “Ontario consumers now have the convenience of recycling both their PET bottles and PET thermoforms using the curbside Blue Box program,” says Ryan L’Abbé, Vice President of Blue Mountain Plastics. Blue Mountain Plastics purchases PET thermoforms and bottle bales at over sixty Ontario materials recycling facilities and reprocesses them at their facility in Shelburne, Ontario. Washed flakes are then sent to Ice River Springs who then produce food-grade PET pellets and new bottles using the recycled PET. Ice River Springs then fills these “re-born” bottles with water at one of their nine bottling facilities located across Canada and the United States, beginning their trip through the system all over again.

Backed by evidence-based results, more North American retailers, importers and brand owners are encouraged to adopt strategies to remove barriers to the efficient recycling of PET thermoforms. On the collection side, more municipalities have a real stake in supporting the recycling industry too. In addition to benefiting the environment, recycling creates ten times more jobs than simple waste disposal, and seven jobs are created for every 1000 tonnes of waste recycled.

Collaboration has been a powerful ally. The urgency of the sustainability issues affecting the future of business, people and the environment, requires a holistic and integrated approach that taps into the collective strengths of the diverse partners – like that practiced by this powerful food packaging collaborative.

To view the complete collaboration series, click here.

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