Summary
Asset managers, Baillie Gifford, and asset owners, Cbus Superannuation Fund, are seeking to report contribution to the UN Sustainable Development Goals (SDGs)
Measuring and managing social impact and contribution to the SDGs is not only compatible with earning long-term returns, but essential to it
Developing a strategy to contribute to the SDGs is compatible with integrated thinking and the integrated reporting framework.
Long-term investors are recognising that young people are concerned about the impacts climate change and environmental degradation will have in their life time. In a globally connected world most are acutely aware of growing global inequality and are directly affected by a lack of affordable housing.
Young people want to invest in and work for companies that are making a positive contribution to addressing the world’s social and environmental challenges. They want a fairer society and to continue to enjoy the world’s natural environment and resources whilst also seeking to have a healthy retirement income. Many recognise that the two go hand in hand, i.e. that companies will not prosper long-term if climate change and inequality are not addressed.
Cbus Superannuation Fund has been taking a lead in responsible investment initiatives for some time. Their Annual Integrated Report 2017 includes a time line showing how their focus on being a responsible investor has increased over a relatively short period of time. They began to incorporate Environmental, Social and Governance (ESG) issues into fund manager and investment manager agreements in 2002 and appointed their first ESG manager in 2009. A few years later, in 2017, with a responsible investment team in place, they publicly supported the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and set about developing an active engagement and investment strategy to contribute to the SDGs.
The Funds’ CEO David Atkin saw a connection between: a long-term focus; the Funds’ leadership in Responsible Investment; and integrated reporting. Over the years that I’ve been working with them on integrated reporting and the integrated thinking that goes with it, I’ve seen a significant shift in the extent to which responsible investment and social and environmental issues have been mainstreamed into strategy through integrated thinking. Integrated reporting has allowed a clear articulation that they work to create long-term value for their members which includes, but goes beyond, being one of the top performing funds in Australia in terms of returns. Everything they do is driven by member needs, including advocacy work. But beyond that, it is a natural to them that this extends to considering human rights, labour rights, climate change and a range of other issues as relevant to their members’ long-term interests.
When I wrote The Sustainable Development Goals, Integrated Thinking and the Integrated Report (Adams, 2017) I had investors, as well as companies, firmly in mind. Investors have the power and the means not simply to switch where money is invested, but to influence the activities and business models of those they invest in. Investors can call on the companies they invest in to identify SDGs which they can make a material contribution to in a way which is aligned with their own strategy to create value. And addressing climate change and other sustainable development issues is clearly in the interests of long-term investors – especially young pension fund members.
Apart from benefitting from a more focussed strategic framework through defining value and recognising the importance of multiple capitals (not just financial capital), the Cbus team have won the best reporting award from the Australian Institute of Superannuation Trustees (AIST) and were one of 12 reports awarded or commended from 2,500 reviewed by Responsible Investor this year.
Of course, value creation statements and contributions to SDGs are only credible if they are supported by internal process and accurate non-financial data. One of the ways to demonstrate this is through external assurance which includes internal processes in scope and seeks evidence beyond management representations.
Baillie Gifford contacted me to discuss how the five steps set out in Adams (2017) might support their development of a (social) Impact Report for their Positive Change strategy. Their Positive Change strategy aims to deliver on two objectives simultaneously, i.e. delivering attractive long-term returns and contributing to a more sustainable and inclusive world. They set out to invest in businesses whose products and services are contributing to a more sustainable and inclusive world and then to prepare an impact report that would enhance the credibility of impact reporting.
Working with US-based Pacific Community Ventures, Baillie Gifford first developed “logic models” around the themes of Social Inclusion & Education, Environment & Resource Needs, Healthcare & Quality of Life, and Base of the Pyramid. “Logic models” are an articulation of business inputs, activities, outputs, outcomes and impacts in much the same way as the “business models” of integrated reporting. And of course, the two-pronged aim of delivering favourable returns and contributing to a more sustainable and inclusive world requires the integrated thinking that is central to developing an integrated report. Whilst the goal to date has not involved preparing an integrated report, the approach set out in Adams (2017) was useful in linking the outcomes and impacts of the “logic models” with contributions to the Sustainable Development Goals.
Through the Impact Report, Baillie Gifford seek to demonstrate that they are measuring, managing and reporting on their objectives concerning both investment returns and impact. Their clients want to know what social and environmental impact their capital is making.
Significantly, Baillie Gifford’s Impact Report identifies gaps and areas of improvement on which they would like to engage with the companies in the fund. This is how investors can really drive change.
A copy of Baillie Gifford’s full Impact Report is available by emailing impactreport@bailliegifford.com
Reference
Adams, C A (2017) The Sustainable Development Goals, integrated thinking and the integrated report, IIRC and ICAS. ISBN 978-1-909883-41-3.
About the author
Carol Adams is a Professor of Accounting working to advance practice and policy with respect to integrating sustainability considerations into organisations through applied research, leadership, standard setting, advisory work and educating the next generation of business leaders. She writes on her website at www.drcaroladams.net.