It is encouraging to see how investors are increasingly requesting information on sustainability with emphasis on environmental, social and governance (ESG) issues. Europe has been ahead of the U.S. with the Global Reporting Initiative (GRI) and many U.S. companies have been following these standards in response to investors’ needs. In 2018, the Sustainability Standards Board (SASB) issued standards which are designed for voluntary use in disclosures required by existing U.S. regulation in filings with the SEC.
On his recent remarks to the SEC Investor Advisory Committee, Chairman Jay Clayton expressed his views on ESG reporting. I applaud his emphasis on sustainability disclosures being voluntary. He acknowledged the value of ESG standards but noted: “that does not mean that issuers should be required to follow these frameworks in order to comply with SEC rules.”
The very essence of sustainability is about companies achieving long-term success. A sustainable strategy entails companies reinvesting in the company’s capital, their employees and their communities. Like a good long-term profitable strategy, ESG disclosures should be tailored rather than required.
An example of a voluntary ESG measure that is particularly encouraging and heartwarming is community investment. While comparing sustainability reports of Fortune 500 companies, Nike’s report captured my attention for the simplicity in which they report their investment in the community. Their goal is to annually invest 1.5% of Pre-Tax Income (PTI) to drive positive impact in the community through charitable contributions, involvement, and volunteerism. Nike has exceeded this goal for the last three years. Community investment as a percentage of PTI is a simple and voluntary ESG measure. It is also self-motivating because it requires a company to be profitable. And best of all, it is universally applicable because the formula can be used by any company regardless of size, capital structure or country. This measure, while perhaps monetarily immaterial in some instances, can have significant impact because it connects business profits to the community and to an individual’s sense of meaning. Giving to one’s fellow human beings is a central part of human spirituality.
What would our world look like if every company gave back at least 1% of PTI to the community? What if every company (private and public) voluntarily disclosed the percentage of PTI they give to their communities? What impact would this disclosure have on attracting and retaining talent? What if we started a movement with the goal of giving at least 1% of PTI back to the community by 2020? If you would like to join, add #GIVE1BY2020 to your social media.