This week we attended an ESG webinar organized by NYSE on ESG reporting standards. The two key speakers were the CEO of GRI (Tim Mohin) and the CEO of SASB (Janine Guillot). Since both organizations announced their intentions to collaborate around a month ago, companies have been trying to understand the rationale behind this decision and how this may impact their ESG reporting efforts going forward. For this, we want to share some of our notes from the webinar:
- Some facts:
o GRI has been working towards the standardization of ESG measures and targets in the private and public sector for over 20 years.
o SASB has ESG reporting guidelines for 77 different industries.
o Companies which operate in different sectors must consider the individuals standards of each sector where they participate.
- Where do GRI and SASB come from?
o Trying to make the concept of “sustainability” and the way it can be measured much more tangible, allowing it to become something specific, measurable, and reportable.
o Companies needed a vehicle to disclose their sustainability performance to their stakeholders, and both GRI and SASB try to tackle that.
o “Sustainable investors” also wanted a guideline to integrate sustainability into their business strategy and wanted to understand how those choices impacted the risk and return for their investors.
- What is the difference between GRI and SASB?
o GRI addresses a broad universe of ESG issues that could impact society and investors, aiding companies in the process of understanding which topics are relevant to ALL their stakeholders and to the company’s operation.
o SASB is like a subset of that, focusing more specifically on the financial impact that certain things could have on a company, serving investors’ interest mainly.
- How are the standards set?
o GRI standards are set through a Due Process Protocol, which involves working closely with experts in different sectors, whom are independent to GRI and collaborate in the construction of the most appropriate frameworks to be followed.
o SASB standards are set through a project-based system in which companies participate, giving the group insights on the changes experienced by the market, the difficulty or efficiency of implementation of a certain metric, etc.
- Should companies report through GRI or SASB, or both? What is the new initiative between the two groups?
o A company should use both since the standards are complementary. Both organizations want to make the standards easier for the company to use together, and from this idea comes the new initiative to collaborate. Differences in terminology or metrics complicate things, so both organizations are working to making it more clear what standards exist and to what purpose, as well as make them easier to use.
- How important is it to get externally verified?
o Quite. Investors want assurance, and demand is high as ever. That being said, make sure you have all of your practices and metrics in shape, otherwise your certification process will cost a lot and get you very little.
- How important will ESG be post COVID?
o ESG funds, ETFs, and indices all over hit record highs in transaction volume and capital inflow during the second quarter of this year. People are realizing that some of the companies that are weathering the storm the best are the ones with the best ESG practices. There is resilience in those companies who looked ahead and identified issues that were relevant beyond the balance sheet.
One concept that came up several times during the conversation was that people in the financial industry should not forget financial accounting standards have not existed forever. Before companies and investors reached a consensus on what should be reported and how, companies’ disclosure on financial topics was much worse than it is today. A similar thing is happening and will happen with ESG disclosure. As companies, investors, and organizations like SASB and GRI work towards homogeneous and high-quality disclosure, it can be confusing. But eventually we will get there.
I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.
Partner, Miranda ESG
P.S. Last week a couple of FIBRAs reached out to show us they have made more progress than we initially thought (and reflected in our heatmap). We always appreciate the feedback on all topics we analyze and are excited to see more work is being done on these topics. Below you can see the heatmap incorporating the feedback (which was also reflected last week in our online blog for those of you who read this online). Looking forward to seeing more green in the coming months! We will be sharing the data for the next 2 sectors in our next weekly.
Contacts in Miranda Partners