Ep. 55: Alessia Falsarone - 2020: The Year of ESG Data

Alessia's Suggested Resources:



PwC’s 2019 Annual Corporate Directors Survey:
https://www.pwc.com/us/en/services/governance-insights-center/library/annual-corporate-directors-survey.html

 


SASB’s Materiality Map:
https://materiality.sasb.org/
 


EY, What investors expect from the 2020 proxy
season:
https://www.ey.com/en_us/board-matters/what-investors-expect-from-the-2020-proxy-season

 


Alliance for Corporate Transparency 2019 Report:
Analysis of Sustainability Reports of 1,000 Companies Pursuant
to the EU Non-Financial Reporting Directive:
https://www.allianceforcorporatetransparency.org/assets/2019_Research_Report%20_Alliance_for_Corporate_Transparency-7d9802a0c18c9f13017d686481bd2d6c6886fea6d9e9c7a5c3cfafea8a48b1c7.pdf

 


SASB Integration Insights, Building TCFD-Ready
Portfolios with SASB’s Standards, September 2019:
https://www.sasb.org/wp-content/uploads/2019/10/ESG-Integration-Insights-Pinebridge-092719.pdf 




FULL EPISODE TRANSCRIPT:
 Adam: (00:00)


You are now listening to episode 55 of Count Me In, IMA's podcast
about all things affecting the accounting and finance world. I am
your host, Adam Larson and I'll be bringing you right up to the
conversation between my cohost Mitch and Alessia Falsarone.
Alessia joined Count Me In to talk about how and why 2020 is the
year of ESG data. She is the head of sustainable investing for
portfolio management for PineBridge Investments and has a wealth
of knowledge in the area of sustainability and integrated
reporting. Let's head over to the main part of our episode now
and hear Alessia share her valuable perspectives on ESG data.


 


Mitch: (00:43)


What are some typical line items or key data points relating to
ESG and sustainability that accountants should really be
reporting on? 


 


Alessia: (00:57)


Well, first of all, thank you Mitch for inviting me to share the
investor lens with your audience at the IMA today.  2020 is
truly the year of data for ESG. The entire field, not only
investors, I am referring to- but also corporate finance
specialists, controllers, treasurers, CFOs and auditors are
taking a much closer look at what is generated across their
organization as relates to sustainability efforts of the
enterprise and starting to take stock of any linkages 
between sustainability credentials that a company may list for
customer outreach and end-market awareness in their reports and
their website vs. the financially material sustainability factors
that affect the profitability of their business. And that is an
area where either accountants or treasurers or CFOs are spending
in my opinion, as it is the case for the companies I engage with
as an investor, a lot more time, since they're really looking at
them not only as an engagement tool, but as an alignment with
their financial commitments. So where sustainability is adding
value in reporting is at the intersection of enterprise value,
operating efficiency and top line growth. What's interesting
about that is, when we think about corporate governance, and go
back to corporate directors surveys for last year, for example, I
think it was The PwC’s annual corporate directors survey that
found more than half of directors say investors are giving too
much time and focus to ESG – environmental and social governance
considerations – which is nearly twice the percentage in 2018.
What is it eye brow lifting for me as an investor when thinking
about the accounting side of the business? Clearly there is the
need for continued dialogue- if the board does not recognized the
value, nor its audit committee, then investors can continue to
debate the divestment saga or not but we will see little value in
corporate reporting initiatives. So when you compare that survey
to the engagement priorities for institutional investors during
the 2020 proxy season remains environmental resilience and also
the ability of the board to address resilience and capital
planning considerations is clear. My lens remains bias as I am
both a capital markets professional and a certified director with
NACD – the National Association of Corporate Directors - in the
US and a governance fellow for a number of years. I can assure
you that at NACD there has been a strong push to elevate
directors’ skills – certainly those sitting in audit committees –
to see the relevant disruptions. This is something I would like
to make clear to the audience at the IMA. ESG is certainly a
tangible one on a clock – it carries reputational risk that no
sustainability credentialing process could make up for if lost.
Few enlightened board chairs or audit committee members see that
and they are certainly keeping the accounting for ESG data up the
priority list. 


 


Mitch: (04:21)


So that's really interesting. And you know, from this investor
perspective here, you know, aside from the time and the priority
that goes into it, I'm sure there are a number of other
challenges as well that, you know, accountants particularly must
be aware of. So from your perspective, what are some of these
challenges that accountants face with this ESG data when it comes
to giving investors the information that they're really looking
for? 


 


Alessia: (04:45)


It’s quite interesting. When I think about financial innovation
and the headlines surrounding the issuance of
sustainability-linked financial instruments such as traditional
green bonds, loans or even transition-linked capital raising
instruments, they have certainly raised awareness as the treasury
team at a company and the CFO is as involved as the auditors and
the external verifiers in aligning capital raised with capex
associated with a company’s green effort. That’s one part of it.
Certainly, from an accounting perspective, the need for ESG data
is to be aligned with the financial commitments of a firm as data
is about long terms trends that will require as much opex as
capex to build resilience or competitive advantage and top line
growth. Either way, ESG data and the impact on $-Unit measures
are the hardest to address as non-financial risks and
non-traditional sources of risk don’t come in same unit measure.
Clearly you have accounting and finance professionals testing
themselves on kilowatt-hours when aggregating energy efficiency
to metric tons of CO2 per home yearly when discussing home energy
use, or even more esoteric such as “near misses” which is the
count of events with the potential of loss or injury if the
accountant is analyzing health and safety statistics within the
workforce. Who’s domain is that? It is increasingly of financial
professionals. While there is certainly room to define best
practices, it is simply good business management to define E-S-G
indicators at the company level that are associated with
financial outcomes and address them and report them consistently
– they could be in the form of trends or as statics, absolute
levels if there are absolute (sustainability) targets in place.


I will give you an...