US Network Symposium Spring Symposium Notes The UNGC: A New Framework for Progress and Disclosure Tuesday, May 3, 2011 New York 1. WELCOME AND INTRODUCTION Gavin Power, Deputy Director UN Global Compact Today’s conversations will delve into differentiated management models and disclosure models. With so many organizations reporting sustainability data, and so many members of the UNGC, it’s a race to the top. The UNGC now consists of almost 8000 companies, representing 140 countries. Among our membership it is clear that all participants are committed to the principles, however the challenge is in implementing them. Two complementary approaches to UNGC framework, which aim to build convergence with the four main issue areas (human rights, labour, environment, anti-corruption) are: UNGC Management Model (MM) for entry level and mid level companies (developed with Deloitte) Blueprint for Corporate Sustainability Leadership aimed at more advanced companies (developed in consultation with 100 companies). 2. THE NEW GLOBAL COMPACT FRAMEWORK FOR PROGRESS AND DISCLOSURE Ole Hansen, UN Global Compact Jerome Lavigne-Delville, UN Global Compact Blueprint for Corporate Sustainability Program (Ole Hansen) The Blueprint frames sustainability leadership as aspirational, assuming no one company is “there,” but all can adopt all elements of the blueprints to continue moving forward. The goal of the Blueprint is to continue to challenge companies at more advanced stages of implementing sustainability. While we continue to grow in numbers, we also want to be sure we’re growing in terms of quality; continually challenge the leading companies, keeping them engaged at their learning edge. 1 US Network Symposium Three dimensions of Leadership: 1.Implementing the ten principles of the GC (Four elements: full coverage, integration among impact areas, robust policies and procedures, mainstreaming this into all corporate functions) 2. Taking action in support of broader UN goals. More outward looking: core business, philanthropy, social dimensions (outward elements contributing proactively to UN goals in cooperation with others). 3. Defines leadership as a company that is actively engaged at local (US) and at global level. Including active engagement with others thru the GC. What qualifies companies to adopt Blueprint vs. the UNGC Management Model? More advanced companies tend to have engagement from the CEO, oversight by the Board, transparency and disclosure, stakeholder engagement. Leadership in sustainability is both internal and external. These are companies who inspire other companies. Background: 55 companies currently using this framework Developed last year, launched at Leaders Summit Developed in a process facilitated between Deloitte & UNGC Almost 8000 participants in GC, many face challenges in how to implement sustainability & GC principles Blueprint is a guide how to implement GC that makes sense for the business side of things MM has examples of leadership practices for inspiration offering examples of current practices and policies, whereas the Blueprint is more about aspiration and continuing to push edges of learning and implementation A goal was to build convergence Looked at models outside of GC (ISO, etc) The Blueprint frames leadership in sustainability as aspirational, yet achievable. It aims to elevate, challenge companies’ leading edge, so they stay engaged. The Blueprint is part of a larger effort within the GC, which is growing in numbers, but also in terms of improvement in quality. Dimensions of Leadership: implementing GC principles (inward focused) mainstreaming into business units, taking action in support of broader UN goals; reducing risk / impacts on society, outward focused, take action in support of UN goals, etc. (See slides.) The UNGC Management Model (Jerome Lavigne) The Management Model (MM) The Management Model is six integrated steps. The model was designed to work with any company, but designed to fit philosophy of GC, strong emphasis on strategies, policies, procedures. UNGC believes management policy within any company is the best prediction of how well it will be able to implement sustainability. Reflects the idea of circular process, rather than a stairway to heaven, it is more iterative cycles. 2 US Network Symposium Companies can identify themselves as UNGC advanced. They must meet 24 advanced criteria in five areas: Strategy Governance Transparency Verification Supply Chain Once a company declares itself to be advanced, the UNGC can make the results public and they can be fully vetted. Vetting: Social vetting is critical for UNGC. Consumers can make informed choices about the companies they engage with. UNGC gets information into the public domain; the public nature of the information keeps companies in check. UNGC will revise criteria at the end of each year: iterative process; 20 some companies now; stakeholders will criticize it. Third party verification is a part of the criteria (your Communication on Progress (COP) must be verified independently). The key is measuring the impact of implementation. Communication on progress is the “how” of sharing information on implementation to stakeholders. COP is required annually and must be independently verified. Companies that were de-listed from UNGC do have the opportunity to become learners again. Most often a company is de-listed because they did not submit COP reports. The Management Model will work with any company in Corporate Sustainability. A strong emphasis is placed on strategies, policies and procedures within the company (getting those right within the company), it offers best practices within each step and details on suggested activities in each of the six steps. 3. JOIN THE CONVERSATION: WHY SOCIAL MEDIA IS CHANGING CSR REPORTING AND WHAT TO DO ABOUT IT Jen Boynton, Editor in Chief, Triple Pundit Triple Pundit A social media platform, which delivers 10-12 stories daily on companies and sustainable businesses. We review the majority of corporate CSR and sustainability reporting. We are able to see and understand the cutting edge and anticipate what’s coming next. There is no perfect data collection process or reporting mechanism, we understand companies are doing the best they can. The Nature of Disclosure: Reporting will become more conversational and less formal thanks to access to information, like social media. Social media can be used no matter which reporting framework your company uses. Think of social media in terms of making your reporting more effective, offering a platform from which to communicate. Taking your message farther, reaching broader audiences. Compliance: Companies should perceive compliance as just the starting point. 3 US Network Symposium Ask yourselves: o Why do we report? o How could we do it more effectively? o How can we communicate to all stakeholders, to anyone / everyone who may hold a vested interest in your company (NGOs, employees, board members, customers, shareholders, community, governments, etc.) Reporting: Companies report for a variety of reasons. Compliance Identifying what’s happening in your supply chain (because we all know what gets measured gets managed). Enabling you to make comparisons between your organization and competitors. Generating goodwill among your stakeholders; as an additional / better way to engage stakeholders. Tools to Communicate More Effectively: Engagement is a back and forth conversation. What do your stakeholders care about? What is “material” to your company, to your industry? Stakeholder Engagement 1.0: The basics we’ve all done Customer satisfaction Employee surveys Working groups Focus groups Shareholder meetings Stakeholder Engagement 2.0: Getting more personal and more personalized Determined by stakeholders (don’t forget activists, customers, rogue employees). Engage stakeholders in one on one conversations. How can you listen more effectively and efficiently, sorting through the mess and tonnage of information out there (*the digital media world is like a fire hose of dubious information). Key opportunity is generating goodwill among your stakeholders. Tools: Data mining tools take the huge mess of information that’s out there and finds what’s relevant, so you can focus on your biggest supporters and biggest critics. Social media analytics. Keep Stream collects Twitter conversations. Technorati quickly tells you if bloggers are influential or not. Social Mention tells you what is being said about your company. It offers a strength rating (the percentage talking about your firm), sentiment (the ratio of positive to negative comments); passion (the likelihood that the people talking about your company will do it again or not), and more. It’s sort of a litmus test of your corporation in the news, a “snapshot.” (See presenter slides for more details.) 4 US Network Symposium Twitter feeds communicate short, punchy messages. It’s intended for short sound bites and brief messages. For some kinds of companies, this can look more casual than what you would see for bigger firms (example of Zappos CEO, who tweets what he had for lunch, authentic stories of his workday, etc.) Southwest has way to engage its employees online, which includes podcasts, weekly surveys of employee opinions, and more. All of which leads to one of the corporate sector’s most engaged employee bases. Facebook pages for companies are a little higher maintenance, and you really need someone who is specifically monitoring this. (Whoever’s in charge of the Facebook account should be someone who is communicating on behalf of the company in other ways as well, this shouldn’t be an intern’s role). Digital communications are not the only means for sharing CSR and sustainability reporting. Always have a few hardcopies of annual reports and the like on hand, but focus most efforts on online platforms. We’ve described two trends: one that is rigorous and deep and another that is purely lighter, social media. Social media is diverse enough to be used for both, building brand value and being authentic. What to do with your report when you are ready to publish / share it? What are the best avenues for sharing with your stakeholders? Post your report on a dedicated website, where: Stakeholders can search by topic area (social justice, environmental, greening packaging, etc): Two good examples are Symantec and Patagonia. Qualcomm created a phone app to share their sustainability data. Reconsider how / when you do reporting: Is your report static? If so, why? Consider featuring your data online and updating information as new information emerges. . Two examples of dynamic reporting are Patagonia and Seventh Generation. Good reporting tells the whole story: Seventh Generation’s sustainability report hits all the major areas, such as: Materiality Target / goal setting and tracking Stakeholder inclusiveness Completeness and transparency Telling the whole story sometimes means you have to address challenges. This is your opportunity to be in front of issues. Seventh Generation realized palm oil, an ingredient in all of their products, was environmentally devastating. They acknowledged this head on in their sustainability report and discussed that, while it would take time to eradicate palm oil for their products, the company was taking the issues seriously.. Stakeholders rewarded them for their honesty and transparency. 5 US Network Symposium PANEL DISCUSSION 1: UNGC & THE MAIN REPORTING INITIATIVES The UNGC does not prescribe strict guidelines for its COPs and instead encourages companies to use the most relevant framework for their context of operation. This session will explore how the main reporting initiatives, such as GRI, CDP and more recently IIRC, fit into the UNGC framework and how companies can maximize different frameworks under the UNGC umbrella. Moderator: Jeffrey Senne, PwC Speakers: Jerome Lavigne, UN Global Compact Malva Rabinowitz, Deloitte Barb Brown, BrownFlynn Introductory Statements: UNGC: Communication on Progress (COP) is an open source platform to accommodate different types of reporting initiative; it is a flexible platform for different formats. GRI is a complementary reporting platform to COP. “A combined GRI/COP report is a COP on steroids.” GRI focuses on 79 indicators and COP focuses on management models. The two combined platforms make a stronger overall report. GRI is also a good illustration on management models; we want it stronger. The two together are best. CDP (Carbon Disclosure Project) is geared to more advanced companies in the UNGC. UNGC supports CDP at an institutional level; places the ESG factors at the top of the enterprise. It is the first step in internalizing externalities. Deloitte: Each company needs to identify what is the objective, because everything is interrelated, without this perspective you’ll end up missing something, so much to do on limited resources & limited attention, hence the need for interconnectedness. Hopes the Management Model looks really simple, doesn’t need to be unique, metrics should fit into self evaluate metrics, goal is to make sure sustainable frameworks aren’t separable. It’s really simple: basic blocking and tackling: take something complex and break it down into its pieces; set goals; track progress on goals; break it down into its parts; see the single ecosystem and how it operates with the others. Reporting is great but it is because it allows for comparability across organizations. Optimize vs. maximize, sustainability needs to be embedded. Leaders need to be thoughtful to prioritize here what theywill take away from there, and make it understandable to larger community. You cannot separate numbers from context. Look at the numbers as a way to measure progress against goals. Context is how life happens. Explain why it matters or is important to recipient groups, make sure when they’re done reading it they understand why what you / they are doing is really valuable to the company. 6 US Network Symposium Brown Flynn: Management Model is a mirror image of GRI: what are your goals & processes, what kind of governance do you have in place to insure / support sustainability gets implemented? Brown Flynn was the first US certified GRI trainer. There is so much going on; and just when you get executive buy-in, more changes for the better. Sticking data into a report misses the bigger picture. What are your goals and policies? Where are you going and why? What kind of governance do you have in place to ensure enforcement? Materiality is key: what is material (relevant) to stakeholders? Where are you trying to go and how are you going to get there? Michael Porter sustainable value: No static place, reporting frameworks are continuing to evolve because firms are getting better about integrating and incorporating. Trade offs are the main issue areas for sustainability: who benefits & how. Management approaches are a means to sort through, define value. Businesses are experiencing survey fatigue, GRI has links to ISO, CDP, we need a common application for surveys, are we giving our suppliers the tools and skills that they need? GRI is trying to mimic / link formats to make reporting easier. How are we demonstrating that these strategies are paying off? Is sustainability making a difference? Where, how, how does the context influence success or challenge? Going thru the process is where the richness is; the report is the outcome, it gets you engaged in the organization, touching issues, an improvement process, here’s where we were at a snapshot in time UNGC: Uses materiality as an example, a concept from financial reporting, not a choice between content of reporting but to decide which issues to cover, UNGC is a comprehensive framework. “Do and then report” develop a comprehensive framework, in whatever form you’re comfortable with. Questions / Comments: Management excellence is a leading indicator for performance. Reporting is great; but as this evolves; comparability with other organizations is key. Key to management is where are you going and how are you going to get there? Governance itself is in the management process. Saying you are 50/50 men/women doesn’t say much, it could be an accident; tells different stories. What about tradeoffs? Think of it as optimizing vs. maximizing. It’s ok to give up something in one area (as long as you clear the bar), to achieve a higher goal in another area. There will be tradeoffs in place until there are incentives in place. How are we showing that these good decisions are paying? How is embedding sustainability into the organization making a difference? We can stick with this and it won’t be a trade off. So that we can see there is an ROI and the tradeoffs are minimized. The moral aspect of sustainability and the business case may conflict. If you look at materiality (only address what is material to your company), materiality was taken from financial reporting (not a choice of content, but of threshold), so you could say that conflict zones don’t apply to you. But as members of the UNGC, this does apply to you. 7 US Network Symposium Is normalization a simple way to provide context? You can’t ever separate the numbers from its context. 50% who were male had the high paying jobs, and 50% that are women had the lower paying jobs. Is this ok? Look at the numbers as a way to measure progress against goals. Take the context: you have to provide it; it will help some people with their thinking; it also forces the reporter to go through the process of introspection. Unless you are giving your suppliers the tools and information they need, they aren’t benefitting from it, understanding it or really changing. GRI was doing work on EPRL (Financial filings). GRI is trying to make its data available in the same format, so that it can be readily accessed by investors and others. Reporting needs to explain why the points included matter. Don’t assume anything is obvious to anyone. Even if we never published our COP, there is so much value to the process: benchmarking internally, setting goals, etc. Many indicators may never see the light of day; but this doesn’t mean they aren’t providing value. Where is the space for the cultural challenges and unique contexts? How do you sell people in the cultural challenges as you move forward? The UNGC looks at 4 issues: Human Rights, Labour, Environment, Anti-Corruption. Some are about continuous improvement; others are non-negotiable (anti-corruption). UNGC deals with issues of local differences sensitively with the ten principles of the UN. UNGC is a neutral platform to talk about these issues; companies cannot disclose info that could be used against them. This is one of the areas in which there’s mis-information about the UNGC, but there are many big companies that are part of the UNGC and gaining value not losing as a result. We need to tell the stories of how the companies who have signed on have been helped, not hurt by doing so. Data helps a lot; as more and more quantitative data demonstrates the value of the UNGC, this will change the skeptics’ minds. If developed countries still show such a gap between gender incomes, what process could reduce this gap? What processes are you thinking about for the assessing the issue of the status of women on a national level? Human rights not as important in the US, but we need to address this—are women really equally paid? Most companies want to do the right thing but the processes are complicated. Definitely feeling survey fatigue. The training we’re offering helps companies engage their communities, have to work with country networks. Are there guiding principles for engaging communities as stakeholders? The Management Model incorporates engaging stakeholders throughout. UNGC wants to add a component to the Management Model regarding context. Key is to contextualize reporting and data. 8 US Network Symposium Issues will be different based on where you are in the world: i.e. gender issues, environmental issues, values, mental models/paradigms. PANEL DISCUSSION 2: WHAT INVESTORS WANT Investors, both asset owners and investment managers, increasingly take ESG1 factors into account as material for the economic and financial performance of companies. Such integration is dependent upon the availability of ESG data that is complete, accurate, and relevant- in other words ‘material.’ This session explores what ESG information is material for mainstream investors and therefore expected from companies. Moderator: Kathee Rebernak, Framework: CR Speakers: Curtis Ravenel, Bloomberg Paul Hilton, Calvert Investments Marc Fox, Goldman Sachs (GS) Chad Spitler, Blackrock Introductory Statements: Calvert: Largest shop for SRI in the US. All we used to have to do was identify who to exclude from a portfolio. Now Calvert takes a much more active approach with share holder resolutions, etc. Blackrock: Manages sustainability & corporate responsibility / governance department, within portfolio management, views social & ecological practices and authenticity as a governance issue. Portfolio management focus on risk evaluation (governance, environment, social consideration). Want to focus not on niche, but on product and service. Want to look at implementation of PRI. When we look at implementation of the PRI we use our leverage as a large asset owner, we create change mainstreaming of SRI at Blackrock. Goldman Sachs (GS): Advisor to portfolio management wrote original report that launched GS sustainability, we don’t look at ESG data in isolation, but with: Portfolio management focus on returns, and Governance, environment, social does matter, but needs to be quantifiable. Bloomberg: Implements sustainability within own operations, integrates sustainability into various business units as well, magazines, TV, data sets, provides data set to the mainstream in a way that it can be used; Feels that it is their responsibility as a firm to accelerate the adoption of ESG data. Get more coverage of these issues; integrating ESG data sense; tie back to stock/company performance; need to take it to the next level by building it into a valuation model. 1 ESG = Environmental, Social and Corporate Governance 9 US Network Symposium Input ESG into equity products. Should include ESG when evaluate stock performance to company valuation: It is our responsibility to accelerate the adoption of these data sets throughout the investment process. Integrating / building new valuation model. Environmental, Social and Governance issues are increasingly seen as material to investors. Of the 20000 actively traded stocks in the world, 5000 of them are reporting on their sustainability metrics in some way. Companies are new to this: It’s a pain to report on this stuff. It is hard to divert resources to get it done when you come from a background of financial reporting only. A quantitative manager is really looking for data sets; haven’t yet been able to isolate data. Questions / Comments: Fundamental analysis is different from quantitative. The issuers care about their environmental, social and governance risk. There is a debate about CSR reporting vs. putting it into the 10k / financials. Separate or integrated? An integrated approach will help reporting become mainstreamed. Within the ESG community itself, it is all starting to integrate. Integration vs. keeping separate: top issue is management systems. Are management systems an indicator of management quality? Yes, starts with the board of directors. They should be using environmental and social risk mitigation, annually elected directors, majority elections, is there a committee that brings together key business units in terms of ESG data? Compensation must take into account ecological and social risks, etc. Is CSR embedded or siloed? Compensation is key: How is CSR performance linked to compensation, not only at the CEO level but also at other levels of the company? What do you think the roadblocks and drivers are for facilitating convergence between two seemingly different issues: strategy and analysis. (Materiality question) If you’re a company, you’re new to this. You look at peers, competitors, case studies, but the data isn’t quite enough yet, and reporting is difficult. Three hundred companies would do it, but only 100 companies would take risk assessment into consideration. In order of companies to look into ESG/ take risk into consideration. o Need causal study (which they need 10 years coverage of data). o But there is usually data inconsistency. o Both company and investor suffer, therefore they look at peers for best case practice. It’s only voluntary with GRI, UNGC, CDP. As far as reporting goes, standards are really important because we need comparable data; it’s not the quantity of data, it is the quality of data that matters. The three components of ESG that are most material: litigation; regulatory fines; data points which can be used as differentiators. 10 US Network Symposium Data without context is meaningless. Quantification is step one; story is step two. Sometimes a service provider is stronger on the data collection; and another is better at the story telling. We look at what the media is saying, what labor unions are saying—you have to filter through and find what you can rely on. Context is critical, but context with no data is green washing. Is there a system of reporting that you favor? GRI, however the reporting framework gets applied differently over industries. There are too many data points, which results in data being watered down. Models need to be revised. What are the data points you look at for companies that aren’t environmentally impacted (non industrial companies)? Director independence, compensation is standard; on the social and environmental side there are five or six: gender diversity of employees, executives; in ecological sphere: kilowatts of energy or water consumed. For non-industrial companies, the context for impact is different: look more at governance and risk focused metrics and human capital for banks and software companies. Key is a strong independent Board that is actively challenging the CEO and C-suite folks. Investors want as much data as they can get: but we still hear from people inside companies that no investors are asking for this information. What is the disconnect? Terminology issue? Mainstream investors are just starting to ask the questions now. The whole concept of engagement is relatively new in the US. During an earnings report or conference call, the CEO should talk about ESG issues. What data do investors need/ want? Need comparable data (not quantity but quality); It is okay to dial back on data points. Lack of disclosure of information may negatively impact output model. What are the key components in terms of financial risk that investors consider? Litigation, regulatory fines, Data first, then context Source information from different service provider (Media, labor union, environment). PANEL DISCUSSION 3: TRENDS IN DISCLOSURE Better understanding of ESG issues and increased interest from mainstream investors and other stakeholders is increasing the availability of ESG data but it is also leading to an ever-increasing demand for disclosure from corporations. This session explored how corporations can manage these competing requests within strict budgets while still providing the necessary information to their stakeholders. Moderator: Nick Aster, Triple Pundit Speakers: Zoe Tcholak-Antitch, CDP Eric Hespenheide, Deloitte 11 US Network Symposium Valerie Smith, Citigroup Monsanto, Maureen Mazurek Introductory Statements: Monsanto:, Sustainable agriculture group, sustainable engagements around people & ecological goals for reporting is more about engagement, process, issues based or one on one investor dialogues. Monsanto uses UNGC and GRI, no third party validation, could spend every waking hour on sustainability surveys not to mention financial reporting. Citigroup: Drives environmental performance across operations, ecological / social risk, business development, environmental business opportunities (create initiatives). Has reported for 11 years. Got more quantitative as the years went on; it’s a continual journey. When you’ve been reporting for so long it is hard to see what you can do besides incremental improvements. CDP: Helps firms move forward in the new carbon restrained economy. CDP does very little reporting; but spends a lot of time asking companies to report to a large group of investors. CDP spends a lot of time trying to avoid the term ‘survey’ and says “information request” instead. We send a “request for information” on behalf of large groups of investors. Works closely with GRI: all CDP questions on climate change are fully aligned with GRI. In addition, CDP works closely with UNGC. CDP often hears about survey fatigue. Climate change is extremely serious: it will impact investors’ portfolios; we need to make rational decisions. Deloitte: Incorporating and maybe changing business models, involved in US and global sustainability reporting. Serving Deloitte clients and helping them embed sustainability. Questions / Comments: What approach does your company take with reporting? What is material to investors that gets brought to companies? The key to sustainability reporting is stakeholder engagement. What’s material depends on to whom you are talking. Stakeholder engagement is so important for any large company: it is the hardest part of the job and the most important part. How do you choose which requests to respond to? Requests are directed to the 10k and the Citizenship Reports; then if necessary, will give a stakeholder a few minutes on the phone for more specific questions. You should be responsive to any customer who you intend to keep. What ends up in reporting is uniform in nature, CDP adds more color, delighted to see SCC guidelines, and wishes it was a requirement. What is material depends on what sector you’re in. Integrated reporting is the holy grail of reducing the burden of reporting: o Climate change is giving us the first-ever predictable industrial revolution. o More businesses are seeing opportunities from climate change than risks: new types of products and services Conversation should always be focused on risk. Integrated Reporting 12 US Network Symposium IIRC(International Integrated Reporting Committee) looks at types of capital that come into play and how to measure some of those. The IIRC was formed in the fall of 2010. 40 different organizations now: NGOs, company representatives, six large accounting firms, accounting for sustainability, GRI is a co-secretariat. IIRC goal is integration of traditional financial reporting and combining it with the nonfinancial indicators that are material. How is the IRC going to identify what is voluntary and what is required? What will be the minimum set of disclosures to differentiate performance? How do you actually measure some of this stuff? Some science: GHG emissions, water consumption and quality; but we are missing measurement tools on social dimensions. The IIRC is looking at aspects like responsible investing principles, how do you measure the impacts that companies are having? What are the various types of capital: Intellectual capital, natural capital, etc. How do you measure each in a meaningful way? Variety of mandated reporting around the world. How long will it take? Information has to be grounded in fact. The hard stuff is on the social dimension, especially in terms of measurement. If the way sustainability drives engagement by customers it will get attention. Sustainable thinking will ultimately benefit your bottom line, it offers differentiation from other companies. CSR report should not be a series of vignettes with happy endings. It is important to talk about issues and challenges, like the Seventh Generation example in opening presentation. Reporting is complicated due to all the different audiences, social media plays a role here in helping to reach diverse stakeholders. Reporting helps uncover opportunities, the deep look reveals both issues, opportunities, progress, but by no means the end the goal. How do you think you’ll make the decision on which reporting mechanism to use? The key is to look for the benefits, brand, ease, credibility; is it informing some sort of insight you would not have otherwise thought about? Will it lead to customer retention, mutual benefit? 13