Sustainability, Master of Arts: Sustainability
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Alan Palmiter
Jacques Pierre
April 29, 2015
Law 443 Final Paper – Ceres Analysis
Executive summary
Ceres was created by a group of investors in 1989 as a response to the Exxon Valdez oil spill in Prince
William Sound, Alaska. They developed a 10-point code for corporate environmental conduct with
the main principles consisting of addressing environmental and social issues throughout the world.
Some of their successful initiatives include the Global Reporting Initiative (GRI), which was launched
in 2002. The GRI has become the industry standard for environmental reporting. Ceres has also been
instrumental in engaging with the SEC through the Investor Network on Climate Risk (INCR). This
engagement resulted in the SEC’s issuance of interpretive guidance on climate risk disclosure in
20101. In 2010, Ceres published The 21ST Century Corporation: The Ceres Roadmap for
Sustainability. Two years later, Ceres issued a report (The road to 2020: Corporate Progress On The
Ceres Roadmap For Sustainability) detailing the successes of the Roadmap and the areas that showed
opportunity for growth. In this paper, I analyze the two Ceres publications while adding possible
alternatives for sustainability practices in the end.
Report Format
The Road to 2020: Corporate Progress on The Ceres Roadmap for Sustainability provides an analysis
of how U.S. corporations are evolving in the arena of sustainability based on the guidelines that were
established by The 21st Century Corporation: The Ceres Roadmap for Sustainability. The report
provides informational analysis about the evaluation of 600 publicly traded corporations. The
categories that comprise the rankings include Governance, Stakeholder Engagement, Disclosure, and
Performance. The tiers of performance used in each section are as follows:

Tier 1: Setting the Pace
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Tier 2: Making Progress
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Tier 3: Getting on Track
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Tier 4: Starting Out
The majority of the companies that are featured in this report are based in the U.S. and only 10 are
headquartered in international locations. The companies are organized into 19 sectors based on
operational procedures and business models. The information used for this report was compiled and
analyzed by Sustainalytics; an independent environmental, social and governance (ESG) research
provider2.
Report Summary
Governance For Sustainability
The daily decision-making process must reflect the commitment of the board of directors to
sustainability practices. This is a case where leadership sets the tone and dictates what eventually
comes to be implemented on the factory floor or call centers. As the board members assess various
risks that the corporation may face such as economic downturns or environmental disasters that arise
from climate change, they must continually link the corporation’s core competencies with sustainable
practices in order to fulfill their fiduciary duties to the stakeholders. The 4 areas of governance are
examined below with the rankings that encompass 600 companies. The results show that only 26
percent of the entities that were evaluated reached Tier 1 and 2 for this category.

Board Oversight of Sustainability – This section clearly spells out the board’s responsibilities
and the need to factor sustainability into decision-making. The numbers show that 28% (170
corporations) of companies have incorporated board oversight of sustainability while oversight
at the management level was 39 percent (235 corporations). Companies that implement both
board and management oversight reached 23 percent(135 corporations). The companies that
led in this category have a diverse board composition that allows the members to contribute
based on individual attributes such as race or gender. This diversity is important because of a
world economy where companies eventually must deal with issues of social justice and climate
change. Some companies like Prudential Financial have introduced new guidelines for
selecting board members that include sustainability and corporate responsibility skills. In
addition, there are numerous practices that are shaping board oversight such as involvement of
members setting up social and environmental policies and guidelines. Consolidated Edison,
Merck, and Weyerhaeuser are leading the efforts in that category. Another leader, Nike
conducts timely training sessions on sustainability issues for board members.

Management Accountability – At the managerial level, oversight of environmental, social,
and governance (ESG) issues will reflect the corporation’s commitment to sustainability.
Oversight for this group is more prevalent than for the board of directors. The numbers show
that 28 percent of companies (167 corporations) in Tier 1 and 11 percent in Tier 2 (68
corporations). The Tier 1 entities have designated formal committees to handle ESG oversight
while the Tier 2 corporations had developed informal systems. The leaders in this category
implement sustainability in the decision making process as well as other sectors such as
operations and human resources. Dell’s Sustainability Council is featured in this section as an
example of a corporation that has established a truly cross-departmental committee. The
council includes members of Investor Relations, Communications, Procurement, and Finance.

Executive Compensation Tied to ESG Performance – Corporate executives have traditionally
been compensated based on the company’s financial performance. Most recently, investors
started requiring companies to create incentives for executives that are based on sustainability
performance and include ESG in the compensation matrix. We see that only 7% (39
corporations) have a structure that incorporates ESG performance into executive
compensation. 9 percent (53 corporations) have implemented ESG performance for executive
pay but have no set guidelines. A common trend among companies that incorporate ESG
performance into the executive compensation is that those companies place an emphasis on
health and diversity targets. Intel is featured as a leader in this category. They link the
compensation packages of each employee to energy efficiency and greenhouse gas reduction.
Their numbers show a reduction of 23 percent in greenhouse gas emissions 4 years after they
initiated their program.

Corporate Policies and Management Systems – This section deals with evaluating social and
environmental sustainability policies and the vehicle for the implementation of those policies.
The majority of the companies that were evaluated have accepted rules and regulations that are
based on international norms bust a smaller number of companies are selecting location and
sector specific rules that effect individuals in those locations. The International Labor
Organization (ILO), and the United Nations’ Global Compact (UNGC) are two standards used
to gauge corporations’ commitment to sustainability issues and their desire to introduce
change. The data shows that only 7 percent of companies (42 corporations) are signatories to
the international standards. The Equator Principles are features in this section as “a credit risk
management framework for determining, assessing and managing environmental and social
risk in project finance transactions.2” Indigenous groups can be negatively affected by
companies that operate in the realm of natural resource extraction. We see data within the
Materials and Oil & Gas sectors that shows 23 percent of companies (10 corporations) with
active policies relating to indigenous people and land rights. In addition to those policies,
many stakeholders are looking into the environmental management systems (EMS) that
corporations have in place for managing the location specific issues.
Stakeholder Engagement
Stakeholders provide a mechanism for corporations to understand and mitigate their environmental
impacts. They cause companies to create possible solutions to sustainability issues. That group is
comprised of internal individuals such as employees and also external groups such as competitors.
Employees are by nature a key group of internal stakeholders because the lobby for their own rights
within the corporation. External stakeholders can often be represented by competitors who introduce
new products in the marketplace. Companies participate in stakeholder engagement to disclose
potential issues and minimize negative effects. The leading companies that are in constant
engagement with the stakeholders will also prove to be leaders in risk management. The three levels
of stakeholder engagement and the corresponding data are listed below.

Focus Engagement Activity – The key areas for this section are public disclosure of
stakeholder mapping, the method for engagement, and the organization’s response to the
feedback they received. 30 percent of companies (171 corporations) provide information of
the intensity of their efforts to engage external stakeholders. The use of stakeholder mapping
will enable companies to identify stakeholder groups and gain insight into the issues that are
prevalent for those groups. Also, as companies disclose their responses to stakeholder input,
the actual process of engagement become more credible.

Substantive Stakeholder Dialogue – It is important to incorporate stakeholder feedback in
future business decisions. The data that was collected for evaluating the companies’
stakeholder engagement shows that 28 percent of companies (165 corporations) disclose
information about the stakeholder outreach programs. Tiers 1 and 2 that include the
engagement of diverse stakeholder groups had participation rates of 5 percent. Ingersoll Rand
is listed in this section as a company that has taken a leadership role by implementing “multistakeholder Advisory Panels comprising prominent external leaders on material issues, to help
guide integrate sustainability into daily operations2.”

Investor Engagement – It has been established that investors possess and can exercise great
influence on sustainability strategy and performance. The ranking for this section shows no
data for Tier 1 but shows 45 corporations (7.5%) that are in the Tier 2 category. Those
corporations are working toward increased engagement with the investment world. The low
results for this section may also explain why some external entities are providing this service to
the marketplace. One such example is Bloomberg’s addition of ESG data to its financial
reporting platform. This platform allows the public to view sustainability information in
addition to the financial conditions of the corporations.
Disclosure
The managers of corporations will ultimately focus on information that is relevant to the performance
of their companies and corporation will display integrity by adhering to the principles that have been
disclosed. We now place greater emphasis on environmental and social reporting. This is made
evident by the SEC’s 2010 issuance of the guidance for climate risk disclosure. The U.S.
Environmental Protection Agency followed a similar path a year prior by requiring large emitters of
greenhouse gasses to report their emissions. The disclosure section first outlines the standards that
have been established for companies to provide their information as well as the format and verification
method.

Standard for Disclosure – The two most common standards for creating financial filings are
the Generally Accepted Accounting Principles (GAAP) and the International Financial
Reporting Standards (IFRS). For sustainability, the Global Reporting Initiative (GRI) is the
internationally accepted reporting standard. The group of companies surveyed showed that 49
percent (293 corporations) published sustainability reports and of that number, 29 percent (176
corporations) use the GRI guidelines.

Disclosure in Financial Filings – Companies must examine all potential material
sustainability risks in order to conclude the information that must be disclosed. Data shows
that 39 percent of companies (232 corporations) are meeting the minimum requirements to
address ESG risk in their financial filings. 20 percent of the companies are positioned in Tiers
1 and 2 provide more detailed assessments of ESG risks such as water scarcity and supply
chain vulnerability to climate change. PepsiCo is features as one of the leaders in this category
because they examine the possible effects of climate change on their supply chain. PepsiCo
looks at increases in water prices because droughts and fluctuating weather conditions. The
fact that PepsiCo constantly identifies these material risks will place the company in a better
position to address the issues.

Vehicles for Disclosure – Corporations can disclose sustainability data through various
mediums such as social media and web-based applications. One of the leaders in this section is
Hewlett-Packard whose data dashboard displays information on energy, greenhouse gas
emissions, waste, and recycling. The dashboard allows the stakeholders to be engaged and to
seek more information about the company.

Verification and Assurance – Companies have an obligation to accurately report their ESG
performance data. There must be verification by a 3rd party using established international
standards. 6 percent of the companies reviewed (37 corporations) fell in the Tiers 1 and 2
while only 1.5 percent (9 corporations) actually had 3rd party verify their disclosure using an
international standard such as the International Standard on Assurance Engagements (ISAE).
Performance
Under this main category, corporations receive rankings based on whether or not their efforts to
implement sustainability principles in governance, stakeholder engagement, and disclosure actually
lead to positive changes within their business units. When corporations adopt sustainability principles,
the resulting benefits can be tracked in waste reduction, increased operational efficiencies, and supply
chain conflict minimization. In addition to generating innovative ideas for product and services,
employees become more engaged on environmental and social issues. The main sections where
performance is closely monitored are operations, supply chain, transportation and logistics, products
and services, and lastly employees. The results for each section are presented below.

GHG Emissions & Energy Efficiency – The Roadmap expectations for this section were
designed according to the Intergovernmental Panel on Climate Change (IPCC) recommended
greenhouse gas reduction requirements. The U.S. reduction targets require 80 percent decrease
in GHG emissions below 1990 levels by 2050. Companies can contribute to this reduction
effort by implementing energy efficient principles in addition to investing in renewables such
as solar and wind. Almost 50 percent of the companies that were evaluated (284 corporations)
are working of strategies that will reduce emissions for all three scopes. 193 corporations have
implemented targets for GHG emissions reduction for daily operations. Exelon is highlighted
in this section as a company that aggressively sets goals for greenhouse gas emissions
reduction. They have made a commitment to reduce 15 million metric tons of GHG emissions
per year by 2020. Exelon’s investments in energy efficiency exceed $100 million and the
program includes home energy reduction tools for customers.

Facilities and Buildings – Looking at the global energy consumption trend, we see that
buildings use about 40 percent of the total energy while contributing 38 percent of carbon
dioxide emissions. Companies can reduce their operational built environment emissions by
implementing green construction and renovation principles such as LEED. The data for this
section shows that the groups of companies that form Financial Services, Footwear and
Apparel, Retail, and Technology Hardware have a 60 percent (61 corporations out of 102)
participation rate in sustainable building investments. One of the leaders in the group is Best
Buy. That company has obtained LEED certification for 22 of the stores it operates. Their
greenhouse gas emissions in 2010 for U.S operated stores were 15 percent.

Water Management – Water is widely used in agricultural irrigation in addition to power
generation. For example, the U.S. electric power industry uses approximately 136 billion
gallon of water per day. Water availability and quality represent areas of extreme concerns
because of rapid population growth that is accompanied by industrialization in the developing
world. The data analysis for this section is centered on a group of companies whose businesses
are both water-sensitive and water-intensive. That group includes Food and Beverage,
Footwear and Apparel, Oil and Gas Producers, and Utilities. The results show that 28 percent
of the 105 companies in that group (30 corporations) have reached Tiers 1 and 2 by
implementing tracking mechanisms for water use.

Human Rights – Corporations should meet the minimum baseline requirements for
implementing policies that address human rights and other basic needs such as proper working
conditions. For such a critical section, the fact that only 13 percent of companies (80
corporations) were ranked in the top Tiers bring about great concerns about the how companies
view their possible (change agent) roles in society.

Policies & Codes – Corporations must implement policies and procedures that dictate
sustainable expectations to contractors and suppliers. Those expectations should include health
and safety requirements, the quality of working conditions, and knowledge of environmental
regulations. The numbers in this section show that 43 percent of companies (259 corporations)
have implemented supplier expectations guidelines. A sub-section of those companies, the
group formed by Food and Beverage, Footwear and Apparel, Retail, and Technology
Hardware have a 38 percent disclosure rate.

Align Procurement Practices – Policies for procurement and purchasing can be used as a tool
for corporations to establish sustainability procedures throughout their supply chains. The
analysis for this section reveals that 20 percent of companies (113 corporations) have
established formal environmental procurement programs. The Tier 1 companies that are
defined as having policies that requires suppliers to comply to established company standards
comprise of only 6 percent (35 corporations). Starbuck is listed in this section as a company
that encourages compliance to environmental and social standards through its partnership with
Conservation International. The company developed a series of procedures that ensure third-
party verification of its coffee by either the Coffee and Farmer Equity Practices (C.A.F.E) or
by Fairtrade in 2015.

Engaging Suppliers – This section focuses strengthening long-term supplier relationships.
The results of the analysis for this section reveal that over 70 percent of the companies (425
corporations) are ranked in Tier 4 for general supplier engagement.

Measurement and Disclosure – Auditing plays a key role in evaluating supplier performance.
The highly rated companies must constantly verify their supplier’s sustainability performance.
Of the 600 companies, 25 percent (149 corporations) disclose supply chain monitoring
performance.

Transportation Management and Modes – The main requirement for this section is that
companies develop transportation procedures that take into account distances traveled from
product origin to final destination. Only 114 companies were reviewed in this section and 50
percent are implementing steps to decrease the environmental impact of their fleets.

Design For Sustainability – As companies design new products, they must take into
consideration the potential environmental and social impact of those products throughout their
life cycle. The data for this section shows that about 50 percent of companies (280
corporations) look for opportunities to leverage sustainable product service.

Training and Support – A company that fosters employee engagement will ultimately
increase morale and productivity. The section provides an overview of company initiatives
such as internal newsletters and training programs for sustainability. The numbers reveal that
30 percent of the companies reviewed have implemented a form of employee sustainability
engagement.
Conclusion/Possible Alternative
While Ceres attempts to resolve environmental issues through corporate disclosure, the Federal and
State Governments have been addressing the problem using technology and the free market economy.
Below is an example of such a process:
Prior to 1985, Energy Service Companies (ESCO) provided human capital and implemented systems
for utilities so that they could comply with federal and state mandates for energy conservation.
Between 1985 and 1993, the utilities transitioned from buying the simple services and systems audits
such as plant energy consumption analysis, to acquiring substantial amounts of kilowatt hours as part
of their integrated resource plans. During that time, ESCOs competed for contracts that would deliver
the required kWh to the utilities. The ESCOs also began offering energy savings projects to large
industrial customers. Those projects were self-financed by the energy service companies. The ESCOs
achieved great success with their business model from 1994 to 2002. Entities such as the Lawrence
Berkeley National Laboratory conducted in depth studies of the PC model and this enabled the
National Association of Energy Service Companies to lobby the federal and state governments to
promote PCs. The creation of a standard method for documenting the contracted savings paved the
way for commercial lenders to begin financing large-scale energy savings performance contracts.
Banks relied on the International Performance Measurement and Verification Protocol (IPMVP) for
ranking the ESCO and project worthiness. There was a slight pause in growth for the ESPC (20022004) due to the collapse of Enron and the suspension of the federal ESPC program. Today however,
PCs are growing at an annual rate of more than 20%. Federal and state energy saving directives,
volatility of energy prices, and the lack of capital for performing timely equipment maintenance have
all contributed the growth in the ESPC arena3.
Process Mechanics – How does it work?
 The ESPC provides a funding mechanism for agencies to complete facility repairs and resolve
energy efficiency problems that have resulted from years of deferred maintenance due to
budget constraints. The process begins with a comprehensive energy audit of the facilities by
the ESCO to identify areas of improvements that will yield energy savings. The ESCO then
collaborates with the agency to design a project that will reduce the agency’s energy
consumption. The guaranteed energy savings generate a surplus in utility account that is used
to fund the project for the duration of the contract. The maximum contract term for the ESPC
is 25 years and the additional cost savings accrue to the agency after the completion of the
contract. The concept (ESPC) has proven to be a viable tool for reducing energy consumption
and utility cost.
The ESPC is a turnkey project that follows a standard format.
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Once the ESCO is awarded a contract by a client (governmental entity), they proceed to
complete an Investment Grade Audit (IGA). The IGA gives a detailed account of current
energy and water use. It also lists the potential areas for savings through the implementation of
energy conservation measures (ECM). The ESCO also provides a financing plan for the
energy conservation measures a part of the IGA.
Once the client has approved the IGA, the ESCO’s engineering department designs the
required ECMs in collaboration with the client’s internal engineering team.
The next steps involve securing the necessary financing for the project and assigning a
construction management team to the client. The construction manager works closely with the
client to ensure that the ECMs are implemented according to the IGA specifications.
There is a commissioning process after the completion of each ECM. This is where an
independent third party verifier audits the work that has been completed and also certifies that
the ECM was implemented according to federal and state regulatory guidelines.
The client has the obligation to maintain the equipment associated with each ECM so that the
proposed guaranteed savings can be realized.
The ESCO performs a yearly measurement and verification for the entire life of the contract and
reimburses the client if the projected savings are not realized. However, this is contingent upon
timely and verifiable maintenance of the installed equipment.
Works Cited
1. Ceres. The 21ST Century Corporation: The Ceres Roadmap For Sustainability
<http://www.ceres.org/resources/reports/ceres-roadmap-to-sustainability-2010/view >
2. Ceres. The Road To 2020: Corporate Progress On The Ceres Roadmap For Sustainability
<http://www.ceres.org/resources/reports/the-road-to-2020-corporate-progress-on-the-ceresroadmap-for-sustainability/view >
3. ICF International. National Association of Energy Services Companies. Introduction to
EnergyPerformanceContracting.<https://www.energystar.gov/ia/partners/spp_res/Introducti
on_to_Performance_Contracting.pdf >
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