Measuring What Matters

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🛋️ Sitting down with Jean Case

I’ve always been a goal-setter in business and in my personal life. I’ve come to truly appreciate the role of goals and measurement in helping to achieve desired outcomes. The old saying “measure what matters” could not be more near and dear to my heart.  

In the world of finance and investing, we rely on measurement to tell us if our investments are increasing in value or not and how we’re doing against others who invest similarly. For those who want to align their investments with their values, another kind of measurement matters. Specifically, how can we determine if the companies or funds we hold, or intend to invest in, live up to their stated commitments in areas we care about such as the environment, diversity and fair practices, or even good corporate governance?

This issue of FWIW takes a look at measurement and the emerging standards that are being established to help investors gain insight into what is meaningful action and progress in these areas and what is not. Measurement and standards will be a recurring theme in FWIW, but this issue is exclusively dedicated to the subject. We hope it helps you in your values-aligned investing journey.

All the best,

J.

Tidying up ESG measurement

You know that drawer in your kitchen, the one stuffed with gadgets, utensils, and sauce packets? All those tools are handy but definitely need ‘The Home Edit’ treatment to maximize their use. ESG measurement isn’t all that different — the sheer number (over 30!) and the varying applications of these measurements have created a sense of overload. Facing this confusing abundance are the growing majority of retail, or individual, investors who want to invest their wealth in efforts that spur positive impact. Don’t worry though, several initiatives are underway to streamline it all.

Back in the fall of 2020, the World Economic Forum announced “The Stakeholder Capitalism Metrics Initiative” (SCM) to bring consistency and comparability to ESG measurement. SCM drew from existing measurement standards and tools for ESG to try to create a cohesive standard. These include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD) — great resources for big, institutional investors, but honestly not super useful to the average retail investor yet. But, with this new effort, we’re moving in the right direction. It would be like if Gap, Madewell, and Levi jean sizes actually matched.

Another major endeavor to streamline all these measurements is on the horizon. This fall, ahead of the United Nations climate change conference COP26 (the Coachella of sustainability policy), a new board will be revealed whose task is to create a standard set of guidelines for reporting climate change impact. The International Sustainability Standards Board (ISSB) may even have standards ready to go by this time next year.

As this simplification process comes to fruition, the thinking is that more retail and institutional investors and financial advisors will use these crucial tools, leading to more informed investments and, ultimately, greater positive impact.

Measuring to combat climate change

This week, 200 of the world’s leading climate scientists are meeting to address the urgency of global warming. Increasingly, consumers are feeling that same urgency too. They want to know that companies are not greenwashing but instead actively combating climate change. While the message is getting through to many — 90% of companies in the S&P 500 index published sustainability reports in 2019, up from about 20% in 2011— there is still much work ahead. Just because a company puts out a sustainability report doesn't mean they’re measuring the full impact of their emissions or making progress in the most pressing areas for improvement.

In fact, data released in April found that less than 25% of companies in the world's largest stock indexes are on track to achieve the goals of the Paris Agreement by 2050. This report is just one of many suggesting that the vast majority of companies who have made recent commitments aren’t taking fast or drastic enough action to meet even the minimum goal of limiting the global temperature rise to 1.5 degrees Celsius.

We see some hopeful steps, though: there are efforts underway to get us back on track and reliable tools to help us start assessing and measuring the carbon footprint of our investments. Check out tools like this one from Fossil Free Funds, which allows you to search for funds in your investment portfolio. And if you want to dig even deeper on individual companies, break out your Google Sheet skills and check out this Carbon Removal Corporate Action tracker from American University.

Tracking the data behind DEI efforts

Many companies have beefed up their commitments to track diversity, equity, and inclusion (DEI) data and their disclosure publication efforts. This movement is the result of stakeholder activism and public pressure. In addition to the moral imperative, there is ample evidence that diverse and inclusive companies are more likely to make better, bolder decisions—a critical capability that can translate to better financial returns for shareholders.

But if you want your portfolio to reflect a commitment to DEI, it can be hard to know where to turn to find helpful data and tools. DEI gets wrapped up in the “S” of ESG, which has lagged behind its “E” and “G” counterparts when it comes to measurement and reporting. But valuable resources are starting to pop up, like Fortune’s recently introduced diversity measurement tool, including a list of the top 20 Fortune 500 companies on diversity. Using Refinitiv — a global data provider — diversity and inclusion stats sourced from public disclosures, Fortune was able to identify which companies were the best at addressing 14 key metrics, including the percentage of people of color on the board, the percentage of women employees, and the percentage of employees with disabilities, among others. Adasina’s free impact data set is another good tool to help you invest with intention.

We’ve seen progress over the past year, and hope disclosures and other measures continue to expand, so we have even more data to make informed investment decisions.

Before you go -

“For us to continue with this kind of business, the planet and society must be sustainable and healthy. Otherwise, Sony cannot exist.” Sony is currently one of the top-ranking companies on The Wall Street Journal’s list of the world’s 100 most sustainably managed companies.