Feature 1: Is ESG investment going to end with a boom?Global ESG trends and driving information disclosure to investors

apan Head, Bloomberg L.P. Chairman, Tokyo Office Committee

Kunihiro Ishibashi

Kunihiro Ishibashi began his career at Bloomberg in 2000. He has been in his current position since August 2012. Since September 2013 he has served as Regional Sales Manager responsible for sales over all areas of Japan. Previously he has served as Sales Manager in Europe and as Head of Analytics in Asia-Pacific. He has developed and delivered original Japanese business strategies that focused on product development, cultivating new markets, nurturing human resources and improving customer service. He is also the Asia-Pacific executive sponsor for Bloomberg’s Diversity and Inclusion policy, working actively to increase diversity in the workplace.

The Abe administration has made stronger corporate governance a core measure for its national growth strategy. Governance is one of the three fields encompassed by the concept of ESG (Environment, Social, and Governance), which has been gaining popularity in the global investment community since it was first presented with the public announcement of the United Nations Principle for Responsible Investment (PRI) at the New York Stock Exchange in 2006.

PRI received a major boost in 2015 with public support for accelerated investment based on PRI from leading U.S. public pension fund California Public Employees’ Retirement System (CalPERS), leading asset management firm BlackRock, Inc. and others, while Japan’s largest owner of assets, the Government Pension Investment Fund (GPIF), became a PRI signatory in September of the same year. Bloomberg is also committed to mainstreaming sustainable finance and business, engaging our employees and communities, and reducing our carbon emissions as a signatory institution of the PRI.

In the summer of 2015, then Goldman Sachs chairman and former U.S. Secretary of the Treasury Hank Paulson and Bloomberg founder, major shareholder, and former New York City Mayor Michael Bloomberg compiled a report entitled “Risky Business,” detailing the environmental threats to the U.S. economy. The report made a strong impact on the public, raising awareness of the importance of ESG investing.

Bloomberg also works to ensure that the data investors and companies rely on to make decisions is comparable and standardized. That’s a shared goal of two organizations that Michael Bloomberg chairs — the Sustainability Accounting Standards Board (SASB) and the FSB Task Force on Climate-related Financial Disclosures (TCFD). Both of these organizations are industry-led initiatives aimed at improving the quality and usefulness of sustainability and climate-change information — and both took important steps forward last year. In March of 2016, SASB released provisional standards for 79 U.S. industries, and in December of last year, the Task Force released a set of preliminary disclosure recommendations to improve transparency on climate change risks and opportunities for financial markets. TCFD had released its final recommendations in its report on June 29th this year.

Bloomberg Provides ESG Data on an Industry- Leading Scale

Since its founding in 1981, Bloomberg has been guided by the principle that transparent markets empower investors, fuel entrepreneurs, and support economic growth. Better data leads to better decisions. As the world changes, we are committed to making sure that our clients have the data they need to understand and navigate those changes and act on them.

Bloomberg’s ESG data, including governance, is gathered from company publicly disclosed reports such as CSR reports, annual reports, and corporate website. We also check the data to ensure accuracy and comparability before entering into our database. We provide over 700 ESG data items on over 10,000 companies around the world.

We also provide data and analysis on the growing green bond market, and Bloomberg New Energy Finance’s independent analysis and insight enables our customers to navigate the rapidly evolving energy industry.

In Japan, we provide ESG data on all companies listed on the TOPIX index at a global standard in a common globally comparable format. Our coverage is one of the largest in Japan in terms of number of companies. Data items related to governance include cumulative votes, executive remuneration, shareholder rights, anti-takeover measures, staggered terms of office for directors, and the appointment of outside directors. [⇒Page 7]

The gap between ESG Information Investors Want to Know and Information Disclosed

Bloomberg has achieved growth by providing investors with the data and information they need.

We see the gap which often arises between the ESG information sought by investors and that disclosed by companies as a result of the production of CSR reports aimed at multiple stakeholders, such as customers, employees, and suppliers.

Materiality assessment is necessary if information is to be disclosed solely to investors. It is important to assess the most pressing ESG risks in your company’s industry, business segments, products and services.

In determining this materiality, what should be taken into consideration? One obvious reference point is the standards for each industry that have been presented by the aforementioned private-sector NPO SASB, directed by Michael Bloomberg.

In the U.S., private-sector NPO FASB has formulated standards for corporate financial reports, but the SASB has formulated standards for non-financial reports. The SASB aims to establish standards for listed companies in the U.S. submissions of sustainability information in mandatory financial disclosures.

SASB provides guidance on determining materiality and information disclosure for more than 70 sub-fields across 10 industries such as healthcare, finance, and infrastructure.

Furthermore, our Bloomberg Professional Services notes that the following items tend to be of particular interest to investors, irrespective of industry.

  • Percentage of independent directors
  • Board of Directors size
  • Percentage of women on the Board of Directors
  • Percentage of women in management
  • Total greenhouse gas emissions
  • Emissions, use of energy/water

Bloomberg also provides a proprietary disclosure score which indicate level of disclosure overall. While it does not measure performance, it provides insight into where a company is in its ESG disclosure evolution, and it is one of our most popular fields.

Examples of Providing Data Needed by Investors

(1) Cases where ESG items of interest are disclosed due to pressure from investors.

There have been campaigns by investors to get oil & gas companies and coal mining companies, to issue reports on their asset risk from potential carbon constraints / low-carbon transition.

Started by the U.K. church investment group, CCLA in 2012, the movement was picked up by a number of investors and has won majority shareholder support at the annual meetings of BP, Shell (and Statoil) in 2015; Glencore, Anglo American, Rio Tinto and Suncor in 2016; and importantly Occidential Petroleum in mid-May this year-- the first time the resolution has passed without company endorsement.

According to Bloomberg news on May 12, 2017, Occidental Petroleum Corp.’s shareholders approved a proposal on that day to require the oil and gas exploration company to report on the business impacts of climate change, marking the first time such a proposal has passed over the board’s objections.

The resolution, initiated by a group of investors including the CalPERS, received more than 50 percent of the votes at Occidental’s shareholder meeting in Houston,Texas according to spokesmen for the company and CalPERS.

The proposal received the backing of Occidental’s largest shareholder, $5.4 trillion asset manager BlackRock Inc. BlackRock, which owns a 7.8 percent stake in the oil explorer, said it took action due to the “lack of response” on the issue by the company and a lack of improvement in its climate-change related reporting following a similar proposal last year that received more than 40 percent support.

Asset managers, including BlackRock, are also beginning to evaluate how companies they invest in grapple with climate change. Earlier this year, some of BlackRock’s own shareholders submitted a proposal asking the asset manager to clarify how it will vote on environmental and social issues. BlackRock published a clarified proxy voting policy in March.

(2) Recent Examples by Bloomberg

In 2016, we launched the Bloomberg Financial Services Gender-Equality Index (BFGEI). The index was spearheaded by Angela Sun, Bloomberg’s Global head of Strategy & Corporate Development, and is positioned within Bloomberg’s existing ESG product and data suite. The index provides investors with objective, standardized aggregate information around difficult-to-measure areas in the gender-equality space that affect a company’s reputation and performance. The index was not created by Bloomberg as a diversity and inclusion initiative; rather, it was built to address an information gap in the market and to arm investors with information they care about.

The Index’s unique four-lens approach measures a company’s diversity health based on statistics, policy, product, and community engagement, including data such as a company’s paternity leave policy, their gender wage gap, and return-to-work and mentorship programs. Bloomberg makes all index-level and firm-specific data fully transparent on the Bloomberg Professional® service.

At the 2017 index launch this past January, we were particularly pleased to announce the addition of four Japanese major financial services firms to the Index –Daiwa Securities Group, Inc., Mitsubishi UFJ Financial Group, Inc., Mizuho Financial Group, Inc. and MS&AD Insurance Group Holdings, Inc., expanding total index membership from its inaugural 26 to 52 firms. The overwhelmingly positive response to the Gender-Equality Index reflects the power of data transparency. Once information becomes investor-facing, it attracts just as much attention from peers and competitors as it does from shareholders and industry stakeholders, who recognize diversity as a game changer and competitive advantage.

Joe Keefe, President and CEO of Pax World Funds, rightly pointed out that there’s an arbitrage opportunity today that won’t exist for long given the growing body of evidence that supports a correlation between diverse leadership and more sound decision making, better risk practices, and ultimately share price performance. Fortune 500 companies like Merrill Lynch, Goldman Sachs, and Bank of America are breaking new ground through their innovative return to work programs for women.

The lack of standardization around diversity values and the varying degrees to which diversity fits with distinct cultures and traditions places the Bloomberg Gender-Equality Index at the frontier of data analysis. Diversity must be championed from the very top of organizations as a performance differentiator, and it begins with data disclosure. Index member firms recognize that they will be able to attract new investor capital by showcasing their efforts to mitigate operational risks, such as sound corporate governance, and employee retention and attraction.

Companies have long been instrumental in bringing about environmental changes that have safeguarded their businesses, people, shareholders, and environment. Just as the environmental movement began with awareness, discussion about gender equality has evolved enormously from a workplace taboo to a critical area of reform and performance evaluation.

It is irrefutable that women constitute a significant wallet share and investors want to be assured that the companies in which they invest are connected to these segments in their policies and practices.

We hope that the Bloomberg Gender-Equality Index inspires firms of all sizes operating in all markets to evaluate their policies and practices and disclose more social data. The more diversity data that is disclosed, analyzed and measured, the greater its power to drive behavioral change and cultural reform, just as it has done for a safer, cleaner environment. In today’s uncertain world, where there is less faith in government and legislative systems than ever, society is looking to companies to enact the change.