5 Takeaways From the 2020 SASB Symposium

by Leigh Anne Bishop, Jonathan Fisher, and Donovan Buck

Larry Fink of Blackrock

Several members of the ESGRP team joined the important conversation around the financial materiality of sustainability information at the 2020 Sustainability Accounting Standards Board (SASB) Symposium from Nov. 30 - Dec. 1. The two-day symposium featured international speakers including Keynote Speakers, Larry Fink of BlackRock and Brian Moynihan of Bank of America. Sessions covered the progress toward a unified global system for sustainability disclosure and a vision for the future of ESG. We had five key takeaways from the event:

  • Digital data will soon be an imperative. Online reporting makes gathering data easier for investors.
  • It's okay to report the good, bad, and ugly. Once you do, you can better understand your risk and plan for a sustainable future.
  • What gets measured gets managed. You can't improve what you don't know, so reports are playbooks for operational risk management.
  • Even private companies should report. We can't have a "two-faced economy." Data points from private companies will trickle up in the food chain.
  • ESG is more than a focus on environmental impact. The S and the G are growing in importance.

1. Digital data will soon be an imperative.

Online ESG reports make gathering data easier for investors. 

Jonathan Fisher: Investors will go and find numbers wherever they can get it. So there is a push for mining data and making the data more accessible. Since ESG websites are crawlable, they can be indexed by search engines. This results in more opportunities for visibility and makes it easier for ratings agencies and consolidators to find data. 

Leigh Anne Bishop: And I think it's important to note that a lot of these companies, whether they're public or private, have huge swaths of data that they're trying to own and manage. There are really two different sets of data. There's all of that traceability, that audit line. And then there's also the data which you see surfaced in ESG reporting. 

2. It’s okay to report on the good, bad, and ugly.

Once you do, you can better understand your risk and plan for a sustainable future.

Leigh Anne: It's a big passion of mine to say you should value values. You should be concerned about humanity. If you're going to be a successful company, you need to determine what to measure through the lens of your values and what’s relevant to stakeholders. For example, one company may care about what water management issues they have; for another, the focus is on diversity. It’s okay to report on them – good, bad, and ugly. If it’s a company’s first report, it’s okay to set benchmarks for targets in the years to come. Because once you do, you can see what your objectives need to be. And that goes for public or private companies. For any company seeking capital or seeking investors, only good can come from that.

Jonathan: The whole point of future mapping is to talk about what you can report today compared to what you can report tomorrow and how you are working towards those additional disclosures. Nobody's saying disclose every single thing today. But they are saying if you build a culture that's designed around transparency, that's working towards these goals, you're going to improve operations, profitability, sustainability and resiliency over the long haul. And that's what was the big overarching conversation between Larry Fink and Brian Moynihan.

3. What gets measured gets managed.

In his remarks, Larry Fink said, “It is through the process of disclosure that we improve.” ESG reporting is a positive incentive for companies. You can't improve what you don't know, so reports are playbooks for operational risk management. What gets measured does get managed, and ESG reports encourage radical transparency within companies.

Donovan Buck: Companies are not single facet entities. We can talk about what the board of directors wants, but then you have the employees, the people who are out in the field, the people who are making the day-to-day decisions on how to release this waste product or what kind of component to buy. So if their views aren't aligned or they don't even have the same perception of what their organization is currently doing, you don't know where you are and where you're headed.

But if you have a report and you're taking all of those things into account so that the board actually understands what's going on out in the field, then certain issues can be addressed. The first step in reducing risk is knowing you have a problem. So it’s important to dive in and start measuring.

Jonathan: One of the values of ESG reports is that they allow you to address all the various stakeholders from their perspectives. And what gets measured creates opportunity. This was Larry Fink’s point: you can't improve what you don't know.

So once you start tracking these things, you can then improve upon them. And improving upon things makes you more valuable. And that makes investors happier, right? For me, Larry Fink was connecting the dots. One of the things ESG does is it increases the lens by which companies are valued based on their risk. And the more you understand your risks, the more you understand how to manage the risk and mitigate that. So ESG reports are playbooks for operational risk management.

Leigh Anne: And whether you choose to look at it from a financial perspective or a nonfinancial perspective, I think that what 2020 has taught us is that you've got to be prepared because there are things beyond your control. And what can you control and what can you best prepare for?

I think some of these companies in week two or week three of COVID were like, “Well, we're out of business.” Why is that? Do you not have any savings of any kind at all? So those types of stories you want to avoid. And I think that having a solid foundation and having a really good ESG strategy is a key ingredient.

4. Even private companies should report.

Larry Fink said, “If we just focus on public companies, we almost have a two-face economy.” A rising tide lifts all boats, and companies of all sizes, public or private, can reduce risk by reporting. Data points from private companies will trickle up in the food chain.

Leigh Anne: Jonathan always talks about the three-legged stool that helps support a company. That stool analogy is relevant here because it helps you identify your brand, discover who you are, and create an approach for talking to customers, employees, and shareholders. So to me, it doesn’t really matter whether you're a public company or a private company. If you've set some objectives and you're listening to your stakeholders and you value your employees, you should consider reporting.

Jonathan: There are stories that I could use from our clients that are very poignant regarding this. For example, a law firm we were working with had seen its recruiting rates drop from the top 10% of the top law schools to the bottom 50% of the top law schools in the country because of their poor diversity record. At the same time when we were doing customer interviews, one of the general councils for a very, very large global company would not hire them because of their diversity ratings. Once they corrected that they picked up a $10 million retainer. So when you talk about does this work for private companies? It absolutely has a financial impact on a private company’s brand, to the customers that choose to do business with that private company, and it has an impact to the public companies that buy from that private company.

It's trickle up, right? Just like safety data transfers up in the food chain, ESG data points are going to trickle up in the food chain as a private company. They're going to help you with your customers, they’re going to help you differentiate in the marketplace, and they're going to help you with your story.

There is a size when you can start doing this and a cost to doing this formally, but there's probably not that much cost to doing it informally. So I think the smaller you are, the more informal you can attempt to be in this process and at least start to think that way and move that way. You're probably not going to be a $5 million company doing this, but if you're a $100 million company or a $50 million company, it's well worth that investment to get your story down, to do this reporting, and then to bake it into your marketing and your brand. We're even seeing it with lenders now. It may affect your credit rating. It may affect your willingness to receive a loan. It may affect your willingness to receive private equity money. So you may be private but you may be taking capital on. And those lenders may want this ESG data.

5. ESG is more than a focus on environmental impact.

The market still seems to be split on the ultimate goal of ESG reporting. There are those who want standardization for transparency and disclosure purposes. And there are those who want to focus on social issues like diversity and climate change. The S and the G are growing in importance.

Donovan: One of the things that was noteworthy was the emphasis that sustainability is not just about the environment. Primarily, it's about the financial sustainability of the business. That's what the entire conference was about. Companies should be focused on managing risk and how to run their business in a profitable, sustainable way going forward.

Jonathan: I think that goes back to what the differences between the sort of mindset that comes at this from a social justice standpoint and from a climate change standpoint versus the mindset that comes in it from a sustainability and investment standpoint. What the world wants is both, right? I think a big takeaway from the conference was how much these perspectives are not at odds.

They kept saying we need to have better terms for nonfinancial data. A community may report on non-financial data and therefore a certain sector won't care about it because it's not labeled financial. And what they were saying throughout the symposium was that it's all important. We're not at odds with each other, we're all connected to each other, and we can all achieve the same things that we want even if we think about this differently.