Global Head of ESG Research and Data, S&P Global
Head of ESG Benchmarking, S&P Global
Welcome to the Sustainability Yearbook 2020.
Last August the U.S.-based Business Roundtable, which represents over 200 leading U.S. CEOs, unveiled its new definition of the “purpose of a corporation.” The statement placed customer value, ethics in the supply chain, and supporting communities, rather than purely serving shareholders and maximizing profits, at the forefront of business goals.
Such a move from a body of global business leaders collectively employing over 15 million people and generating upwards of US$17 trillion in annual revenue was widely reported. It thus served as an affirmation that the interconnected systems within which corporations exist has never been more complex.
Distant threats and imminent dangers
It is in part such complexity that presents many companies with the need to mitigate the risks of unforeseen negative events, or “emerging risks.” The opening article of this Yearbook highlights that many companies are aware of the clear and present dangers, or the material risks, that they face. But it is often the distant threats, the emerging risks, that many are less equipped to properly manage, which can have significant and damaging consequences for corporations.
The article examines the need to target such risks early to minimize the potential for negative scenarios. Data from the SAM Corporate Sustainability Assessment (CSA) for two key risk areas, climate change and data security and privacy, illustrate the connection between companies’ perceptions of risk, their risk control, and the impact on risk actualization or risk avoidance.
Addressing the threats posed by emerging risks highlights the significance of companies understanding both the internal and external impacts of their behaviors – positive and negative. Hence, companies simply cannot consider themselves in isolation from their stakeholders. Their actions impact the environment, social equity, and ultimately their profits.
Holding sustainability to account
Impact valuation, a relatively new concept, is a tool that companies can use to help identify, measure, and value their externalities beyond products and profit. Our second article focuses on the rationale for management teams to assess their business activities for a better understanding of impact, risk, and value creation for society.
Corporate behavior that produces both positive and negative internalities and externalities reaches beyond financial markets. Therefore, companies must understand their impact on a broader group of stakeholders – customers, employees, and communities, as well as shareholders – for strategic management decision-making. This requires corporations to look critically at their environmental, social, and governance (ESG) efforts, holding sustainability to account.
As part of a more holistic view, impact valuation aids companies in better anticipating and managing future risks from multiple sources, as well as in gaining an understanding of the promising opportunities to explore. Only when all externalities are properly factored into the decision-making process can companies make viable business decisions that positively impact their profits and growth without putting “the commons” or society at a disadvantage.
The further development of impact valuation criteria is just one way in which the CSA will evolve in its third decade since being established in 1999. Collaboration will continue with industry standard-setters such as the World Business Council for Sustainable Development, the Natural Capital Coalition, the Social & Human Capital Coalition, and the CDP.
Companies must understand their impact on a broader group of stakeholders by looking critically at their ESG efforts, holding sustainability to account.
Climate disclosure – a first step toward change
Later in 2020 will come the five-year anniversary of COP 21, the Paris Climate Conference, which firmly and ominously marked out the climate emergency as the issue of our age. Fittingly, our interview on climate disclosure with Faye Bennett-Hart, Associate Director, Reporting at CDP, reveals the organization’s progress in helping companies and governments track and disclose their environmental impact.
A knowledge-partner of RobecoSAM for over six years, the CDP helps investors, companies, and cities take action to build a truly sustainable economy by measuring and understanding their environmental impact.
Improved climate disclosures are a prerequisite for meaningful change in both corporate business practices and capital allocation to address the climate emergency. Understanding the challenges of data collection and material impacts is the first step in transforming business models and setting ambitious goals.
Describing this as an “exciting transformational time,” Ms. Bennett-Hart explains the importance of having the best data available for companies, governments, and investors to use in critical decision-making for future-proof growth in a low-carbon economy.
A fresh start to the new decade for the CSA
In late 2019, RobecoSAM and S&P Global agreed to build on their successful 20-year relationship by transferring the SAM ESG Ratings and Benchmarking businesses to S&P Global, the holding company of S&P Dow Jones Indices (S&PDJI), RobecoSAM’s longtime partner for the Dow Jones Sustainability Indices (DJSI). The transcation was completed early January 2020 and SAM is now a part of S&P Global.
The transaction covering all assets branded “SAM” and “Corporate Sustainability Assessment” includes all future Sustainability Yearbooks, which will be published by S&P Global. The embedding of the CSA activities of RobecoSAM into S&P Global will enhance the scale of the operations, usage, and volume of the data and services, which will benefit all stakeholders. S&P Global assuming ownership of the SAM CSA is an excellent strategic fit.
As the next CSA campaign begins shortly, we look forward to engaging with all CSA stakeholders more intensively than ever.