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October 05, 2006
Investors Call on S&P 500 Companies to Use New Global Reporting Initiative G3 Guidelines
    by Bill Baue

Only 13 percent of the S&P 500 issues GRI reports--those that do see the move as insulating them against the possibility of future mandated disclosure on issues such as climate risk.


Today in Amsterdam, the Global Reporting Initiative (GRI) officially launched the third generation of its Sustainability Reporting Guidelines, dubbed G3. The Investor Network on Climate Risk (INCR), a coalition of 50-plus institutional investors managing over $3 trillion, and its secretariat Ceres used the occasion to ask S&P 500 companies to use GRI to report on environmental, social, and governance (ESG) issues. Early next week Ceres, which midwived GRI in 1997, will send a letter to S&P 500 CEOs signed by 10 INCR members, most prominently the California Public Employees Retirement System (CalPERS) and the New York City Comptroller's Office, which jointly manage $300 billion.

Currently, just over 1,000 companies use GRI guidelines in their corporate social responsibility (CSR) reports, but a mere 103 US companies--and only 66 of the S&P 500--do so.

"Institutional investors are increasingly understanding that the traditional narrow financial reporting does not alone represent the true impact and long-term viability of the companies in which they invest," said Ken Sylvester, assistant comptroller for pension policy for the New York City Comptroller's Office, an INCR member that manages $95 billion in assets. "They understand that the environmental, social, and governance factors are significant because they do have material risk associated with them--take, for example, the whole issue of the risk posed by climate change to companies with respect to regulations in the US and internationally."

"In additions to corporations adopting GRI, I think it's important that Wall Street investment analysts begin to look at the information in these reports in making their assessment and analysis of companies," Mr. Sylvester added. "I think that will help motivate companies to begin to look at these issues more seriously."

INCR members also want the US Securities and Exchange Commission (SEC) to look closer at company disclosure of material risks such as those posed by climate change. Almost 30 INCR members sent a letter to SEC Chair Chris Cox this June reiterating three requests they made to former Chair William Donaldson in 2004. The investors want the SEC to enforce existing disclosure requirements on material risks such as climate change, strengthen these requirements, and revise the SEC staff's interpretation of the so-called "ordinary business" rule letting companies omit shareowner resolutions on climate change.

"The SEC has not taken any further steps," said Mindy Lubber, director of INCR and president of Ceres. "However, we are seeing more information on the 10-Ks filed with the SEC every year."

John Nester, SEC director of public affairs, did not respond to SocialFunds.com's query on the status of the Commission's response to the INCR letter.

"Companies must provide disclosure about material risks they face," is all he said.

Companies using the GRI reporting guidelines view them as a wise hedge against the possibility of more stringent reporting requirements in the future.

"I think the companies that are voluntarily disclosing this kind of information now do have a distinct advantage if the SEC does ever require mandatory disclosure," said Robert Barkanic, director of environmental management at PPL Corporation (ticker: PPL), which issued its first GRI report yesterday. "I'm not weighing in one way or the other on whether they should or would, but we certainly are ahead of the curve in pulling this kind of information together--which was not easy for a big company--but I think it will be rewarding as we perfect the process."

"I think the only challenge comes when, there's a perception within a company that the SEC is pushing for mandatory reporting in areas that are less material to the stakeholders of that company," added Yalmaz Siddiqui, environmental strategy advisor at Office Depot (ODP), another GRI reporter. "Are you forced to report on everything, or can you focus on the areas that your key stakeholders care about?"

The issue of mandating GRI reporting is a matter of debate--ultimately, Ms. Lubber comes down on the side of mandating.

"In the end, I believe the information that's in these reports--particularly under these new G3 guidelines--is about material risk and it ought to be part of mandatory disclosure, not unlike accounting disclosure and other material that goes to the SEC for publicly traded companies," said Ms. Lubber. "That said, I'm not taking my crystal ball out yet and saying when I think mandatory disclosure of this information may come to pass, if at all."

"At the moment, it's voluntary--I think we ought to keep pushing it because it is best practice, without any question," she added.

 

 
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