By Steven E. Shamrock, CPA, MBA, FSA. Founder and CEO of Sustainability Reporting Partners
The Chartered Financial Analyst Institute, the organization that administers the CFA exam is updating its examination content to include more information about sustainability because investors are demanding it. Here is an excerpt from the article reporting the news:
CFAs are “telling us loud and clear that investors are demanding ESG, and there’s increasing academic evidence that sustainable companies are better-managed companies and have higher risk-adjusted returns,” Steve Horan, managing director of credentialing for the Charlottesville, Virginia-based institute, said in an interview.
The article also underscores the importance of investors having standardized information to refine investment choice. The Sustainability Accounting Standards Board (SASB.org) released in 2015 79 industry-specific standards that define metrics and disclosure that are likely to have a material impact on financial performance.
As natural resources dwindle, the risk for conflict to obtain or remain in control of those resources will increase. This increases the risk that a company’s supply chain will be adversely impacted. Companies that do not explain to their investors how they are mitigating that risk imperils their stock prices and costs of capital. The most prominent example of how supply chain disruptions are linked to conflict is the section of the Dodd-Frank Act that requires disclosure of a company’s use of certain minerals and metals (“Conflict Minerals”) that are used by warring factions in the Democratic Republic of the Congo to finance their war efforts.
A with any effort, prioritization is key to extract the most value. Over four years, from 2011 through 2015, the SASB engaged over 2,300 investors, activists, business people, managers, and executives, among others, to prioritize for each industry the top sustainability risks and how to report on them to investors. The SASB has done the “leg” work” on how to report on sustainability factors. Lack of transparency depresses securities prices. It is now up to public companies to unlock appreciation in their share prices by telling their investors and stakeholders how they manage these risks. In other words, they need to proclaim their value. Otherwise, investors will wonder when the next disruption will occur and price securities accordingly.
The time is now for companies to step boldly into sustainability reporting when they can define the space. The standards are frameworks. How companies demonstrate their approach to the sustainability risks can vary by company. Companies that move first will force competitors to catch up.
Sustainability Reporting Partners was found in 2016 and is focused exclusively on offering a turkey solution to US public companies to implement SASB standards. They can be reached at firstname.lastname@example.org or 877.674.8154.