Reflections on Day 2 of the Aspen ESG Summit: Over-zealous or unfocused reporting requirements?
Day 2 of the?Aspen Institute Business & Society Program's ESG Summit on?#EvolutionofESG?ended with a dinner at the Pine Creek Cookhouse with this stunning view of the Elk Mountains made possible by the generous sponsorship of 波士顿谘询公司 .
Over the course of the day, participants wrestled with a number of the elephants in the room. Two morning plenary panels tacked the latest developments in regulation followed by a break-outgroup looking at the corporate political activity of trade associations, a small group discussion that I led on the divestment vs engagement (and what type/form of engagement) followed by an exciting plenary on the evolving role of the CSO. Across these sessions, I was struck by a common concern on the risk of reporting. Specifically, every hour reporting is an hour not integrating ESG into the P&L.
The morning regulatory panel offered some optimism that regulation need not be subject to the short-term vicissitudes of political posturing. Furthermore, it could be informed by the practice of industry leaders and presented in a manner that asks > tells, listens and educates rather than lecturing, and more broadly pursues a "smart investment" strategy. Challenges remain, however, particularly around the diverse meanings of justice held by different stakeholders whose interests may be competing with each other or the collective interest. Along the way, we highlighted the 1334 data fields required by the new EU disclosure standards, the incredible progress made towards standardized reporting by the ISSB, the mixed track record in holding upstream suppliers and downstream customers accountable, and the challenges of engaging emerging market firms and customers into these conversations.
The final am session turned attention to indirect corporate political activity (i.e., through trade associations) and its frequent misalignment with long-term societal and shareholder value. Optimistically, government affairs teams increasingly find themselves working not just for a company but from a company trying to achieve system-level change. Pessimistically, such efforts often seek to minimize tax or other certain short-term harm rather than focusing attention on long-term net benefits. In order to better align these organizations short-term activities with desired long-term (societal) impacts, we need to strenghten the business case for engagement in such long-term issues and tighten the linkages between frequently siloed issues. I argued further for the accountability provided by disclosure of indirect corporate political activity following the standards of the Wharton School's Zicklin Center for Governance and Business Ethics Index (see here). Beyond disclosure, we also need to tilt the incentives of trade associations away from proving their value on a year on year bases to a longer term perspective and reward system.
In the first afternoon session, I led 10 seasoned participants through a discussion of the cons of divestment and the potential promise of engagement. I highlighted that even the canonical South African divestment case is contested in the academic literature whereas a growing body of empirical work highlights the benefits of engagement. Divestment has little impact because the acquiror of a targeted company are often less motivated by ESG factors (and may be able to acquire on a discount). Such benefits are larger when engagement is coordinated and framed in reference to a business case that is sufficiently credible to capture the attention of the CEO. Divestment can, however, still be an important political act with symbolic meaning. While the consensus around the table firmly swung towards engagement, we highlighted that engagement can not be measured in phone calls or tick boxes but in the presence of a long-term objective towards which firms are on a journey in partnernship with activist investors. Building such partnerships requires that activists frame their efforts in terms of helping the CEOs with their most pressing challenge of running the business and creating value. Partnerships, not compliance, should drive engagement on the most material issues.
In the final segment of our working group we asked what would move the needle and advance the cause of innovative peers. Suggestions included
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In closing, we debated our comfort with the business case as a tool or table stakes for engagement. While executives and investors need to learn from each other and avoid box-ticking as compared to peers, participants varied in their support for a value or values based approach (which need not be in opposition as noted here).
The final session of the day featured the evolving challenge of Corporate Sustinability Officers and the rubrics or frameworks that guide their engagement increasingly contentious issues. The business case and genuine integration of ESG issues reigned ascendant despite an interest in passion or culture.
Overall, the conversation that had the most impact on me was the cost of all encompassing data disclosure requirements? While I have long been an advocate for more disclosure (see previous article) more reporting cannot always be value additive. An hour spent reporting is an hour not spent integrating. Reporting on thousands of data points feeds into data-driven rather than data-informed fundamental analysis. More discrimination among material data and pathways from ESG factors to the P&L is required. Standards and reporting requirements alone cannot solve the pressing challenges of ESG integration. Instead, the key is is the hard work of adapting fundamental models and strategies to incorporate a finite set of material ESG factors. That takes time and resources which reporting requirements may needlessly consume. Better informed regulation would take a more discriminating approach to disclosure of the most material issues.
I still believe, however, that disclosure of indirect (and direct) corporate political activity, as advocated by the Zicklin standards would be among those items and would better align the short-term activity of trade associations and lobbyists with long term societal and shareholder welfare.
Thanks for engaging with us Vit! A great summary of key themes here - and reminder of the opportunity the Summit offered for those of us outside business to learn from those who are working to align vision and goals with strategy - then enhanced by how the change agents and leaders on the inside are going a step further to assure cap ex is vetted against sustainability protocols, and deployed against the best opportunities for long term change. Common sense but still requires a willingness to do things differently. Brilliant exchange in so many of the conversations that Vit highlights in this piece.
ESG Manager
1 年As I respond to four concurrent requests from ratings agencies, each uniquely divergent from reporting standards, this point hits home: "more reporting cannot always be value additive. An hour spent reporting is an hour not spent integrating. Reporting on thousands of data points feeds into data-driven rather than data-informed fundamental analysis." Between collecting and reporting data, correcting coverage of our reporting, and adapting strategy, there's little time left to implement.