RI Interview: Ceres’ Mindy Lubber on making ESG integration part of the US mainstream

Sustainability advocacy group celebrates its 25th anniversary this year

As Ceres, the Boston-based sustainable advocacy group, celebrates its 25th anniversary this year, it can be very proud of its accomplishments over the past quarter-century. In 1997, Ceres co-launched the Global Reporting Initiative (GRI), the first set of standards ever for corporate sustainability reporting. Today, more than 3,000 companies use the GRI, making it the de-facto standard for such reporting.

In 2005, Ceres launched the Investor Network on Climate Risk (INCR). Backed by 117 institutional investors, including the likes of CalPERS, CalSTRS and the New York pension schemes, INCR coordinates shareholder resolutions dealing with climate change risk at investee companies. The proposals range from issues such as carbon footprints to demanding that fossil fuel firms say how they are dealing with the threat of ‘stranded assets.’

Ceres President Mindy Lubber explained that when INCR was started, investor support was very low for proposals dealing with climate change. She said: “This past AGM (annual general meeting) season, it was up to 35% for the 167 proposals we tracked. “This shows that investors increasingly want to know if companies are aware of the climate change risks and what they are doing about them.”

The INCR’s efforts have been supported by the Securities and Exchange Commission (SEC), which in 2010 formally advised companies that climate change needs to be examined as a material risk which companies should report on.

Lubber notes, however, that even if one INCR member proposal were to get majority support say in the 2016 AGM season, it may make no difference. “That’s because in the US, such proposals are always non-binding.”

On the other hand, votes above about 25% do tend to get companies’ attention, and about a third of the resolutions don’t even go to a vote because they are withdrawn after dialogue, Ceres says.

Besides, shareholder proposals coordinated by Ceres have made a difference. According to Lubber, a campaign against palm oil linked with deforestation during the last few proxy seasons resulted in 16 companies agreeing to purchase only deforestation-free palm oil.

Ceres was started in 1990 as a small non-profit by Joan Bavaria, a former President of Trillium Asset Management. It has grown considerably since then, sporting a budget of around $10m and a staff of 72 ESG (environmental, social and governance) analysts and other specialists. As per its mission, Ceres’ advocacy for sustainability is not just limited to investors but extends to companies and public policy.Regarding companies, Ceres says it advises almost 70 firms on sustainable development, including well-known brands like Coca-Cola, Apple and Walt Disney. Regarding public policy, Ceres is represented by a Washington-based law firm and has launched the BICEP (Businesses for Innovative Climate and Energy Policy) initiative.

Under BICEP, Ceres says it works with corporate executives to get energy and climate legislation passed “that will enable a rapid transition to a low-carbon economy that will create jobs and stimulate economic growth.” Among the 35 companies that have joined the initiative are cereal maker Kellogg’s, food giant Nestlé, apparel firm GAP and sports giant Nike. Finally, Ceres ranks the ESG performance of all companies traded in the broad-based Russell 1000 equity index and also compares that performance to what the companies it has already won over are doing.

Lubber says that although Ceres has made inroads with companies and investors in the US, there is still a huge amount of resistance in the US to the idea of sustainability – especially from policymakers. “We have to change the debate in the US, as there are still climate change deniers and doubters. That’s why we are targeting the capital markets. Things will change when a majority of players recognise that climate change is nothing but a material risk (to their money).”

While acknowledging that the US financial industry is not yet where it should be on sustainability – big banks still finance coal, for example – Lubber says the industry now sees ESG integration as part of the mainstream. “Five years ago, they thought it was a joke. Now they’re all doing it – BlackRock, Goldman, Deutsche, Morgan Stanley you name it – because the data reflects that you can generate alpha from it and because investors like high-net worth individuals and millennials are increasingly demanding it.”

But what about the bigger buy side? Do institutional investors in the US see ESG integration as part of their fiduciary duty? Lubber says not necessarily, as there is no federal or state legislation mandating such a view. “But that’s it’s why it’s key to make them understand that poor management of ESG issues is a material risk. You have to make them see that the drought in California has dire consequences for the agricultural industry and pushes up prices on foods for consumers. Or that the flooding in Texas which has wiped out the cotton crop affects companies like (jeans maker) Levi Strauss.”

She adds: “We’re making the case that while the investor may not have analysed these risks, they are no different than currency risks or macroeconomic ones like unemployment. And that kind of analysis is part of the fiduciary duty.”