Levi Stewart - Methods and metrics
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Levi Stewart - Methods and metrics
- 1. © 2016 SASB™ Sustainability Accounting Standards Board Outline of sustainability metrics for investor guidance Levi Stewart, CPA Sector Analyst, Consumer Staple Products True Cost of American Food Presentation April 16, 2016
- 2. Driving the Business Case for Sustainability Global megatrends 2 Environmental regulations (e.g., California AB 32, U.S. Clean Air Act, European Directive on Packaging and Packaging Waste) Regulations on product and consumer safety (e.g., FDA, EU Food Safety Authority) Shareholder resolutions (e.g., calls for improved performance on sustainability issues) Sustainable investment strategies Calls for divestment REGULATORY PRESSUREECONOMIC PRESSUREINVESTOR PRESSURE Resource constraints (e.g., water and energy) Commodity price volatility (e.g., oil and natural gas) Climate change Evolving customer demands (e.g., demands for sustainable products) 5/19/2016 © 2016 SASB™
- 3. Focus on Sustainability Becoming Increasingly Evident Increasing share of global assets are managed with sustainability in mind 3 5/19/2016 © 2016 SASB™ Source: Forum for Sustainable and Responsible Investment $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 2005 2007 2010 2012 2014 In 2014, sustainable and responsible investment strategies applied to more than one out of every six dollars (18%) under professional management in the U.S. U.S. Sustainable & Responsible Investing (in millions) 9% 11% 12% 11% 18%
- 4. Investors are Dissatisfied with Current ESG Disclosures Investors do not have material decision-useful ESG information Source: PwC Sustainability Goes Mainstream, May 2014 4 5/19/2016 © 2015 SASB™ Dissatisfied 0 20 40 60 80 100 Focusing specifically on US-listed companies, how satisfied are you with the information currently being provided by these companies on the following topics? Financial quantification of ESG risks Comparability Relevance Materiality of KPI’s Process to identify material issues
- 5. The SASB Mission Improved non-financial disclosure enhances market efficiency 5 The mission of SASB is to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. That mission is accomplished through a rigorous process that includes evidence- based research and broad, balanced stakeholder participation. Facts about SASB Independent 501(c)(3) nonprofit American National Standards Institute (ANSI) accredited standards developer Developing industry-specific standards for 10 sectors and 79 industries Guided by the U.S. Supreme Court’s definition of materiality, SASB prioritizes material sustainability factors for disclosure to investors 3/14/2016 © 2016 SASB™
- 6. 6 Early Indication of Materiality Harvard research validates focus on materiality “Corporate Sustainability: First Evidence on Materiality,” Working Paper by Mozaffar Khan, George Serafeim, and Aaron Yoon Harvard Business School, 2015 Findings: Using SASB’s framework, Harvard researchers found that firms with good performance on ‘material sustainability issues’ and concurrently poor performance on ‘immaterial sustainability issues’ enjoy the strongest financial returns. They also found that 80 percent of disclosures are immaterial, having no correlation to positive performance. 3/14/2016 © 2016 SASB™
- 7. Opportunities: Increasing Consumer Demand 5/19/2016 © 2016 SASB™7 SASB metric: Percentage of agricultural raw materials that are certified to a third-party environmental and/or social standard
- 8. Challenges: Growing Consumer and Regulatory Concerns 5/19/2016 © 2016 SASB™8 SASB metric: Percentage of animal production that receives (1) medically important antibiotics and (2) nontherapeutic antibiotics
- 9. Importance of Measuring and Reporting Sustainability Account for Externalities Transparent Financially Impactful Benchmark Peer Performance A Risk Management Tool Raising Accountability on Sustainability 9 © 2016 SASB™3/14/2016
- 10. Levi Stewart, CPA Sector Analyst, Consumer Staple Products levi.stewart@sasb.org (415) 830-9220 x124 SASB.org
Editor's Notes
- The business case for sustainability is largely being driven by pressure from 3 sources
- Let’s start with Investor pressure, as this is largely a result of the effects resulting from regulatory and economic pressure on corporate financial performance and let’s be honest if there wasn’t a business case for sustainability then investors wouldn’t be interested! Investors understand that performance on sustainability issues can impact the core value of a business and this is seen in: Demands to integrate sustainability considerations into the investment process is increasing in part signified by the expansion in the base of signatories for the UNPRI. We are on our way to a more sustainable world The bad news, and this may not come to you as a surprise, but - Lack of focused, transparent, standardized information on ESG - investors are faced with a slew of data points, many of which were not designed with investors in mind or simply not material in terms of the overall long term performance of a company. However, while the demand to explicitly include ESG factors into the investment process, the supply in the market place of effective solutions to meet this demand has fallen short, leaving investors and asset owner either frustrated or unable to implement and thereby meet their stated goals of ESG integration. Investors have gone through various iterations of ESG focused investing from exclusion of sin stocks to a more integrated approach that requires a focus on the financial impact of ESG-related factors. However, investors are faced with a slew of data points, many of which were not designed with investors in mind or simply not material in terms of the overall long term performance of a company. Investors are increasingly demanding scalable, transparent, high quality disclosures that address factors that have the potential to materially impact the financial performance of companies.
- Yet investors are not satisfied that companies are focusing their efforts and thus disclosure on sustainability issues that truly affect corpate value And this pain if broadly felt. Another study by PwC indicates the current level of dissatisfaction in the marketplace. A majority of investors surveys indicate dissatisfaction with the current availability of susty info: lack of transparency, comparability, materiality to financial performance decision usefulness.
- …and it was to specifically to address this gap in the marketplace that SASB was created. SASB was developed to help companies hone in on those aspects of sustainability that financially impact the company and which investors ae interested in SASB envisions a world where a shared understanding of corporate sustainability performance allows companies and investors to make informed decisions that drive value and improve sustainability outcomes. To that end SASB has developed evidence-based industry-specific susty standards for corporate disclosure Standards cover 10 sectors across the economy with 79 distinct industry standards SASB’s rigorously developed, evidence-based, industry-specific standards for sustainability accounting help companies to disclose material non-financial information to the capital markets in a way that is decision-useful.
- Now let’s take a second to discuss the economic impetus for incorporating sustainability into core business strategy A recent HBS paper found Firms that perform well on material sustainability factors enjoy enhanced (1) accounting and (2) market returns over firms that perform poorly on these factors. Firms that perform well on immaterial sustainability factors do not generate significantly different financial results than firms that perform poorly on these factors. Firms that simultaneously perform well on material sustainability factors and poorly on immaterial sustainability factors achieve the best financial results of all. The implications are clear: Investments in material sustainability factors create value for companies and their shareholders. While investments in immaterial sustainability factors may not destroy value, they may come with an opportunity cost. Companies that create the most value are the ones that most efficiently concentrate their investments on material factors.
- In 2012, U.S. sales of organic foods reached $28 billion, from approximately $11 billion in 2004. The top two organic food categories are produce and dairy, which represent 43 and 15 percent of organic food sales, respectively. However, total organic-certified cropland made up only 0.8 percent of total U.S. cropland in 2011.
- antibiotics used to boost the growth of livestock becoming an increasing concern among consumers and regulators. Humans can become exposed to resistant strains of bacteria linked to animal production. There is little debate that antibiotics can be used on sick animals for medical reasons. The problem lies in the use of subtherapeutic use of antibiotics Studies suggest this contributes to the rise of antibiotic-resistant strains of pathogenic bacteria in animal products. Antibiotic-resistant infections cost the U.S. healthcare system over $20 billion each year $35 billion in other societal costs and more than 8 million additional days that people spend in the hospital. A 2012 Consumer Reports survey found that 72 percent of Americans are extremely or very concerned with the presence of antibiotics in animal feed. According to research firm IRI, sales of antibiotic-free chicken rose by 25 percent during 2014, representing 11 percent of all chicken The E.U. banned the use of antibiotics as farm animal growth promoters in 2006. In June 2015, the FDA issued a new directive that veterinarians must prescribe animals antibiotics starting in December 2016 for any purpose, Tyson Foods plans to stop using antibiotics in its chickens by 2017, and the company has already reduced antibiotic use in broiler chickens by more than 80 percent between 2011 and 2015.
- In conclusion. Help SASB…