On April 18, Cornerstone Capital Founder and CEO Erika Karp delivered a “TED”-style talk at Big Path Capital’s Impact Capitalism Summit, held in Chicago. She spoke on the unprecedented confluence of trends driving the integration of environmental, social and governance considerations into the analysis of investment opportunities. In the video, Erika states her belief that investment professionals who do not systematically incorporate such considerations into their investment decisionmaking process are “breaking a fiduciary duty and should not be in the market.”

With this edition of The Cornerstone Journal of Sustainable Finance and Banking (JSFB) we’d like to ensure that everyone in the sustainable investing community is aware that we have shifted from a monthly publication schedule to an ongoing series of blog posts enabling us to provide more timely commentary on behalf of the Cornerstone network of clients and colleagues. But at this midway point of the year we offer a compilation of our work focusing on “Governance and Impact.”

In recent months, global markets have been monitoring geopolitical tensions, and at the same time showing heightened sensitivity to prospective unwinding of post-crisis accommodative monetary policy by central banks despite the lack of inflationary pressures. Turning to the US in particular, there seems little concrete evidence of improving economic growth despite the optimism seen at the start of the year around an agenda for infrastructure and tax reform. Yet corporate profits are maintaining a strong trajectory, as are share prices.

All that said, the private sector continues to make efforts to drive the economy forward despite challenges ranging from the threats to globalization and multilateralism, to those of cybersecurity and climate change. What’s most critical is that the voices of reason and pragmatism be raised. And in this edition of the JSFB, we highlight those voices. As an example, we speak out for the freedom of shareholders to be able to submit proposals despite the threat to this ability in the push to reform financial regulation. We speak out for transparency through corporate disclosure of climate risk and opportunities.  And we speak out for the freedoms that will come from addressing critical issues including water scarcity, income inequality, and risks from automation.

At a time when it appears that many freedoms are under threat, we’re reminded of the State of the Union speech by Franklin D Roosevelt in 1941.  FDR spoke of economic and human security, and he spoke of the “Four Freedoms” – Freedom of Religion, Freedom of Speech, Freedom from Fear, Freedom from Want.”  At Cornerstone, we shall seek to do our share in the financial markets to help make this a reality.

To download our first-half JSFB compilation, click here.

On May 5, 2017, I addressed a group of people convened in the Vatican by Cardinal Peter Turkson, President of the Pontifical Council for Justice and Peace.  The subject of the conference was the link between impact investing and the principles outlined in the papal encyclical Laudato Si’ (“Praise Be”): On the Care for our Common Home.

 In Laudato Si’, Pope Francis addresses the subject of the care of the environment.  The central theme of the letter is what His Holiness calls “the integral ecology,” the idea that a culture of excessive consumption and waste threatens both our natural environment as well as our social fabric.  “Caring for our common home” requires a holistic embrace not solely of the physical environment or the social good but both simultaneously, while rejecting materialism and consumerism.   


Cardinal Turkson, let me express my gratitude to you for convening this event, and to my colleagues in the Right Now! Coalition for inviting me to present to you today.  I am going to speak today about the connection between the principles embodied in Laudato Si’ and impact investing.  Specifically, I would first like to explain how I think that Impact investing is one way to bring about an integral ecology, and second to offer some considerations or even cautions to impact investors arising from the text.

To start, I want to point out that there are really only two purposes of investing, whether impact investing or otherwise: a private purpose and a social purpose.  The private purpose is to meet our long-term material needs through prudent management of our wealth.  Some examples are an individual saving for retirement, or a Church organization creating an endowment to carry out its mission.

The social purpose of investing is to deploy capital towards the most effective possible use.  This is the question of what activities we choose to fund with our capital.  The challenge is to decide what “effective” means?  This is an important question, because investment decisions have real influence over which economic activities go forward and which do not.  The priorities of the financial community can play a strong role in shaping the “real economy.”

The problem is that over time, the private purpose has come to overwhelm the social purpose.  An effective investment is seen as one that returns the most to the investor.  The social purpose is not seen as intrinsically valuable except in how it returns cash to investors.  The “real economy” exists for no other reason to serve the “financial economy.”

However, we can see that this approach is self-defeating.  The global financial crisis began because of certain investments that were profitable, for a time.  The results of the global financial crisis were terrible in human terms, but it is also the case that investors themselves suffered as returns fell.  Moreover, it wasn’t just investors who made poor choices that suffered: the financial crisis harmed “saints and sinners” alike.

The unfolding climate crisis is a similar problem.  There is the danger of both environmental damage and human tragedy.  There is also the likelihood that in the long term, the value of investments will be affected if we don’t turn away from investments in fossil fuels and polluting methods of production and consumption.

Beyond this, we can see the effects on certain individual companies who put profit at all costs over the impact on human beings in the experiences of companies like Wells Fargo, Volkswagen and United Airlines.  By ignoring human considerations, these companies have also put shareholders at risk.

So, we see that the philosophy of profit at all costs is not only unacceptable in human terms.  It also is a poor way to serve the private purpose of the investor, when viewed with a long-term perspective.

The integral ecology offers a different perspective.  The investor is not part of a separate “financial economy” that controls the “real economy” to serve its own ends.  Rather, the investor is one participant in the economy along with every other person.  Investors prosper when the economy prospers; the economy prospers when all people and communities are able to participate to their fullest potential.  Therefore, investor serves the economy and society as an enabler of human creativity.

Here I am not just talking about the recipients of capital, but the broader group of people who are affected by business activities supported by investment:  customers, workers, communities, and those who care for the natural environment – the stakeholders.  The impact investor with the perspective of the integral ecology considers the impact of investment on every stakeholder who is affected by that decision.

The integral ecology perspective restores a balance between the private and social purpose of investing, and brings greater sustainability to both.

But how do we do that?  We have two strategies available to us.

First, we have influence through our investment decisions.  Impact investors will look at possible investments through the lens of financial value and also the lens of social values.  There will be some investments that so violate our core values that any investment is unacceptable.  For some people for example, fossil fuels falls into this category because of its damaging effects of the environment.

Most investment decisions are not so clear-cut, however, because investments have both good and bad effects.  For example, many people are concerned about fossil fuels effect on the climate, but also recognize that, at present, society needs fossil fuels to function.  We were all able to come here today because of fossil fuels, for example.

For these more complicated questions, we need criteria to evaluate the consistency of these investments with our values.  There are many such lists of environmental and social issues of concern, many of which are very useful for impact investors.

However, not all issues are important for all companies.  A more general approach is to examine the relationship of the company, project or business activity with its stakeholders.  I suggest three steps, suggested by a framework used frequently in Catholic Social Teaching:  “See, Judge, Act”

And it is in this third criteria where the second tool  —  engagement  — is so important.  An investment is not simply a transaction that ends when money changes hands.  It is an ongoing relationship, where the shareholder is in dialogue with the company to ensure that the commitment to stakeholders remains strong and increases over time.  Because investors have a holistic and long-term view, they are interested in the well-being of all stakeholders and thus can become the “voice of the voiceless”  — or even better, an advocate for all voices to be heard.

Lastly, I want to raise three words of consideration for impact investors that grows out of the perspective of Laudato Si’.  Even as we undertake investments intended to address social and environmental problems, there are some things to avoid.

John K.S. Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Group.  John has close to 20 years of experience in socially responsible investing and corporate governance.  Previously, he was Director of Corporate Governance for TIAA-CREF, where he oversaw the voting of proxies at CREF’s 8,000 portfolio companies and engaged in dialogue with corporate boards and management to promote sustainability and good corporate governance. An Adjunct Assistant Professor at Columbia Business School, John is also a member of the Advisory Council to the Sustainability Accounting Standards Board. He writes and presents widely about the relevance of social responsibility to investment performance.  

Something we hear frequently at Cornerstone Capital Group is that you cannot invest for impact in the public markets. There is a sense that public companies like Apple, General Motors or Coca-Cola are too big, too well-established, too focused on short-term profitability perhaps, to have impact.

In fact, nothing can be further from the truth.

We believe that not only do public equities serve as a core allocation in a diversified, long-term investment portfolio, they are an important part of an impact strategy.

Public companies are some of the most important and powerful actors in the global economy.  Their strategic decisions have social and environmental impact, whether they intend them or not.

In fact, companies that do not take impact into account in their strategic decisions risk having negative effects on the environment, the economy and the society in which they operate —  as well as their own long-term performance.

That is why impact investors must be active, engaged owners of public companies. As a company shareholder, you have the power to influence company boards and management through both your proxy vote and your right to engage in dialogue with management in environmental, social and governance topics.  Thousands of companies over the years have adopted best practices on these issues after dialogue with shareholders.

Cornerstone recently hosted video forum with some leading voices on corporate governance about their role in holding corporate leaders accountable to shareholders and society.  Our panel included:

The panel discussed whether board oversight of corporate strategy include climate and other sustainability issues, and how companies and investors are approaching the issue. The conversation then moved to issues of executive compensation, including whether “say on pay” is working, proper performance incentives overall and for sustainability-related achievements in particular. Lastly, they tackled the question of how involvement by large asset managers like State Street and BlackRock might change the corporate governance landscape.

In an interesting twist, during the call the panelists learned that the ISS (Institutional Shareholder Services) had just issued a statement recommending the entire board of Wells Fargo to be voted out. This led to a spirited discussion of holding corporate leaders accountable to shareholders and society.  Our participants sometimes disagreed about the tactics, but strongly agreed that shareholders have a right and responsibility to hold companies accountable. Here is that portion of the discussion:

Proxy Voting for Impact: Views on Wells Fargo

Cornerstone Capital Investment Advisory recommends public equities fund managers who not only have strong track records of financial performance but are also experts in advocating for a long-term, sustainable approach to corporate governance with portfolio companies.

If you are interested in getting more involved, we have published a primer on how to get started voting proxies.  Our report, A Voice in the Boardroom, details the process for proxy voting, and explains the key issues and how to think about voting on them.

Today we contributed our opinion to the SEC regarding its move to reconsider the Pay Ratio Rule, which would require corporations to disclose the gap between CEO compensation and “median” worker pay. We reprint our letter below.

Dear Acting Chairman Piwowar:

Cornerstone Capital Inc. (“Cornerstone”) appreciates and welcomes the opportunity to submit comments in response to the Commission’s reconsideration of the Pay Ratio Rule (Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act).

Founded in 2013, Cornerstone is a financial services firm based in New York. The mission of the firm is to apply the principles of sustainable finance across the capital markets, enhancing investment processes through transparency and collaboration.  In offering investment consulting and advising, investment banking, and strategic consulting services, Cornerstone works with asset owners, corporations and financial institutions, promoting new research in the field of Environmental, Social and Governance (ESG) analysis, and facilitating capital introductions for organizations around the world engaged in sustainable business practices.

The Commission has received numerous submissions in the years since this measure was initially passed by Congress outlining the rule’s potential benefits and costs.  Reviewing this correspondence, we observe that investor groups have identified substantial material benefit, while representatives of issuers have raised concerns about whether they would be able to provide meaningful information in a cost-effective manner.

As an advisor both to corporations and investors, we would encourage a decision to go forward with the rule as mandated in the statute.  Nevertheless, the Commission should take heed of the concerns of issuers that disclosures provide shareholders with accurate and reliable information.

Because our investor clients seek to invest for the long term, we have a strong interest in urging corporate disclosures that enable investors to evaluate risks and make decisions that will affect the long-term health of our clients’ portfolios.  Our corporate clients believe that meaningful disclosure that communicates how they are managing environmental, social and governance matters helps them to attract long-term capital.

As a matter of good corporate governance, we believe that corporate disclosures should provide holistic information about the compensation strategies.  As Charles Elison and Craig Ferrere have pointed out[1], current disclosure requirements focus entirely on executive compensation, ignoring the company’s governance strategy for compensation throughout the firm.  Peer group comparisons provide useful but limited context for understanding CEO pay, since no two firms’ strategy or business model is perfectly comparable. Peer group comparisons also reinforce the notion that CEO pay should be treated as distinct from other forms of compensation, and may place upward pressure on pay levels.

By providing intra-firm context, pay ratio disclosure will shed light on the role compensation plays generally in its human capital strategy, including the strategic importance of top management relative to the rest of the firm’s talent.  A consistent body of research has determined that compensation strategy has implications for firm strategy, talent retention and employee engagement.  For example, Cornerstone Capital Group has published research demonstrating that quick serve restaurants that invest in both technology and human capital may enjoy higher margins and profitability.[2]

We are sympathetic to concerns that such issues as outsourcing, foreign employment and part-time and seasonal workers may impact pay ratio figures.  However, methodological choices may have a material impact on any accounting metric, and financial data may not be meaningful without context.  Narrative descriptions accompanying pay ratio disclosures will help to provide necessary context to understanding these figures.  Investors will find these disclosures particularly useful in comparison to other companies or as a measure of change over time.

We appreciate that for particularly large global companies, finding the “median” worker may be difficult.  Nevertheless, statistical sampling techniques can be employed to reduce the burden of this research.[3]  Therefore, we are not supportive of allowing companies to exclude workers from the sample, which may distort the pay ratio and creates a moral hazard to manipulate the figures.

We are also sympathetic to the concern that the “median” worker is only one data point and may not fully represent the company’s human capital strategy.  While we believe that the current disclosure represents a meaningful step forward, we recommend that the Commission also require companies to disclose total payroll, which will allow investors a fuller picture of the company’s compensation strategy, without creating additional substantial burden on companies.

We appreciate the opportunity to provide these comments and urge the Commission to move forward with final rulemaking on Section 953(b).


John K.S. Wilson

Head of Corporate Governance, Engagement and Research

Cornerstone Capital Inc.

[1] https://www.sec.gov/comments/s7-07-13/s70713-582.pdf

[2] The Economics of Automation: Quick Serve Restaurant Industry, by Michael Shavel and Andy Zheng, March 2015  /2015/03/the-economics-of-automation-in-the-quick-serve-industry/

[3] https://www.sec.gov/comments/s7-07-13/s70713-1561.pdf


According to Professor Boaz Golany of the Technion – Israel Institute of Technology, collaborations must be SMART: Sustainable, Mutually Attractive, with Reliable, Transparent partners. This is the guiding principle of the Technion’s venture with Cornell University to form the Jacobs Technion – Cornell Institute, a blossoming technology hub on New York City’s Roosevelt Island.

On January 6, Cornerstone  had the pleasure of hosting Professor Golany  for a provocative lunch conversation facilitated by Dr. Derek Yach, Chief Health Officer of the Vitality Group, also a member of the Board of Cornerstone Capital Group.  Professor Golany shared with us the remarkable story of the birth of the Technion – Cornell partnership, which is already becoming a vibrant and innovative addition to the applied research engine of New York.

The conversation touched on these questions and more:


Cornerstone Capital CEO Erika Karp recently participated in BSR’s annual conference, themed “Be Bold.”  She shared her views on the shifting dynamics of the capital markets in recent years and how these changes spurred her to form Cornerstone. Erika also presented her vision for a convergence of priorities across capital markets constituents (particularly asset owners), corporates, regulators and academia in support of investing for long-term, sustainable shared benefit.

Paraphrasing Albert Einstein, Erika notes that imagination is more important than intelligence — but it must be accompanied by execution and pragmatism.

BSR is a global nonprofit business network and consultancy dedicated to sustainability. It works with its network of more than 250 member companies and other partners to build a just and sustainable world.


We recently attended the SOCAP conference in San Francisco and came away invigorated by the hive of activity occurring within the social entrepreneurship space.  New businesses are proliferating and tackling some of the world’s most daunting challenges.  However, we noted that systems thinking was often absent from the discussion. It is important for impact entrepreneurs to incorporate this mindset into their business models from the outset, in order to maximize the scale and scope of the impact that they can create.

For purposes of common understanding, Cornerstone Capital Group defines systems thinking as an understanding and consideration of a system by seeking to understand the interactions and linkages of the different components therein.  For impact entrepreneurs, this translates into an understanding of the connections between the social enterprise and the different stakeholders with which it interacts.  It involves thinking about how an enterprise operates within a specific, broad system, such as the immediate ecological environment or the social strata present in a society, and interpreting the needs and limitations of that system in the decision-making process using an ESG lens.

Combining a systems-based approach with an ESG framework involves considering the ramifications of decision-making at the business level on environmental, social, and governance systems.  These are not necessarily mutually exclusive systems, and there is significant room for overlap.  For example, an enterprise that is focused on building solar infrastructure will definitely have an impact on environmental systems by raising the availability of clean energy sources.  However, the entity’s structure and board composition will also have consequences for governance systems, including how the company interacts with other entities due to its governance policies.

While systems thinking is important for any business endeavor, it is especially so for impact entrepreneurs who are looking to achieve a change to the status quo via their business model.  Failure to think about the impact of a business model on the overall system within which it operates, and on the individual components within that system, will constrain the enterprise’s ability to drive the change it is looking to create, and to do so at a meaningful scale.  So what should impact entrepreneurs be doing to facilitate systems level change and thinking through an ESG lens?

This is just a starting point for systems level thinking.  Indeed, impact entrepreneurs face a challenge in building a discrete business model while also factoring in the diverse needs of complex systems in order to maximize their capacity to create change at scale.  However, failure to consider the broader system from an ESG perspective will reduce the potential impact that a social enterprise can have, while also potentially limiting its growth.  It is critical for impact entrepreneurs to consider these factors at the outset of their business plan development if they are to maximize the impact that they can create.

Jennifer Leonard is Director of Manager Due Diligence at Cornerstone Capital Group. Previously, she was vice president of impact investing at The CAPROCK Group, where she co-led the firm’s impact practice and helped clients build customized, impact-mandated portfolios.




In this month’s edition of the Cornerstone Journal of Sustainable Finance and Banking (JSFB), we consider debates from the perspective of the “Loyal Opposition” — because we must look at complex issues from different perspectives while embracing the principle that respecting diverse viewpoints strengthens the quality of the debate. This is a timely theme in the context of a US election season that has witnessed unusually heated rhetoric about issues ranging from trade to national security, and sharp divisions over national identity and role of the US in the broader world. Similar debates have extended elsewhere over continued fallout from slow-moving economies and the crisis of refugees fleeing the horrors of the Syrian civil war, fueling nationalist backlashes in Western Europe.

• Our Global Sector Research team looks at the future of work in the context of gender and finds that women face a greater risk of job loss due to automation, as they hold nearly 60% of the jobs considered “very high risk” for computerization by 2020. They also expand Cornerstone’s work on antibiotics and animal farming in a case study for the Farm Animal Investment Risk & Return (FAIRR) Initiative where leading investors and financial service providers are integrating issues relating to factory farming into their investment processes.

• Contributors Max Gruenig and Brendan O’Donnell of Ecologic Institute look at environmental activism and posit that those who were against the perceived negative forces of globalization in the period leading up to the Paris climate talks were challenged by the breaking Volkswagen emissions scandal, considered a “watershed moment” for transparency achieved through an integrated global market.

• Suz Mac Cormac, partner at the legal firm Morrison & Foerster, addresses the line between profit and purpose in the corporate world with an in-depth review of the range of legal structures available to address the pursuit of mission in the corporate context; Professor Jacob Park of Green Mountain College / Rutgers University looks at the emerging business models being created by the convergence of online commerce, mass customization, and 3-D printing technology, and asks “What are the important sustainability consequences of such business models?  Finally, Cornerstone’s Managing Director David Dusenbury discusses how integrating non-financial metrics into the investment process helps drive investment into higher-quality companies — yet another piece of the mosaic for those engaged in impact enterprises or seeking to bring about a better world.

Highlights from this month’s issue:

Regional and Sector Strategy: September Update
By Michael Geraghty  

Women in an Automated World
By Sebastian Vanderzeil, Fiona Ewing

Cornerstone Contributes to FAIRR’s Investor Case Studies
By Michael Shavel

To “B” or Not to “B”: The Power of Corporate Form
By Suz Mac Cormac, Morrison & Foerster

Changing Business and Sustainability of How Products Are Made,
Purchased and Shipped
By Jacob Park, Green Mountain College / Rutgers University

Hillel’s Voice
By Erika Karp 

Think Locally, Act Globally
By Brendan O’Donnell, Max Gruenig, Ecologic Institute

Solving for Nonfinancial Data as Part of the Investor’s Mosaic
By David Dusenbury

Access the full edition here.


Bloomberg, the NYSSA and The CFA Institute recently held a sustainable investing conference titled “Sustainability and Value – Using Data and Valuation to Drive Returns.” The day included panel discussions from a variety of participants including the Chief Investment Officer of the State of Connecticut, institutional asset managers, a partner from Jeff Skoll’s family office, Capricorn Investment Group, a professor from Yale and Stanford Universities, and sustainability professionals from Waste Management, Huntsman Corp. and Lockheed Martin.

There was widespread agreement that following good corporate behavior will lead to uncovering better-performing companies. Whether the data is quantitative or qualitative does not matter, it’s the avenue of inquiry this process stimulates that is ultimately important, and integrating fundamental and sustainable analysis is critical. Currently, there appears to be an opportunity to generate alpha through better access to data. But as data is standardized and the cost of access to this data declines, this alpha will be competed away. At the end of the day, embracing ESG isn’t a yes or no decision, it’s a “way of looking at things.” It is a holistic approach to long-term investing.

Deborah Spalding, the CIO of the State of Connecticut, offered attendees a view from the asset owner’s perspective. A former sustainable finance portfolio manager, Deborah is attempting to integrate sustainable finance into the state’s asset allocation, security selection and asset manager due diligence process. However, public pension plans face challenges to achieving this goal that foundations and family offices do not, such as:

Participants on a panel titled, “Sustainability Factors & Methodologies” discussed how managers incorporate ESG into their process and the usefulness and reliability of current ESG data providers.  While the quality of the data is not standardized across industries and is inconsistent across time periods, participants agreed that it is improving and that having some data is better than having none at all. As with traditional financial data, however, it’s incumbent upon the investor to dig further and not accept ESG data at face value.  As one panel member pointed out, a number of larger well-capitalized companies understand how to present this nonfinancial data. These companies have established the correct committees, have filed the correct forms, etc., in order to rank well in some of the ESG databases. (Volkswagen being the poster child of this dynamic.)  One participant discussed the desire to be able to get behind these numbers – not to have a static presentation where the numbers just sit there – but to be able to drill down and understand how these factors interact.

As investors, the ultimate decision of whether to invest in a security or not does not depend solely on the data; it’s the mosaic an analyst builds from the data that’s the key driver. ESG needs to be embedded into the fabric of the firm through the integration of fundamental and sustainable analysis at the security level, alignment of compensation programs and improved transparency, all to foster a focus on the long term. The CIO of Connecticut’s pension plan stated that achieving this goal may require better integration of the investment people and the programmatic people. At the investment manager level, one participant stated that the market remains bifurcated, with older firms attempting to overlay ESG analysis onto their traditional investment process and newer firms building ESG into their process from the ground up, weaving it into the core fabric of their company.

Bottom line: There was universal agreement that integrating nonfinancial metrics into the investment process helps drive investment into higher-quality companies — it’s how these metrics are integrated into the process that participants are trying to solve for. To cite a traditional and perhaps overused saying, it’s the journey that’s important, not the destination. It’s the avenue of inquiry stimulated by employing sustainable finance factors into the investment process that’s the key to investing in good companies and generating attractive returns.

David Dusenbury, CFA, serves as Managing Director and Senior Portfolio Manager at Cornerstone Capital Group, where he is responsible for strategic corporate business development. He also serves on the Executive Committee and Investment Policy Committee for Cornerstone Capital Investment Management (CCIM).  David has spent 25 years on Wall Street, analyzing and investing in financial services companies.


A funny thing happened on the way to the Paris Agreement. On September 18, 2015, just six weeks before the most anticipated UN climate negotiations since Kyoto were slated to begin, the world’s most powerful environmental regulatory agency threw down the gauntlet to the world’s largest automaker. In a scathing Notice of Violation made immediately public, the US EPA detailed shocking allegations of blatant impropriety by Volkswagen, a company that had finally begun flourishing in the lucrative US market under the guise of being “green.” Just as 195 countries were finalizing their individualized commitments to address climate change by reducing emissions, the VW emissions scandal exploded. Environmentalists cheered as the sins of their chief nemesis, multinational corporations, were exposed. Free market proponents huddled up, ready to prove that inconsistent regulatory schemes were all that stood in the way of the innovations that would bring about global prosperity.  The stage was set for an epic battle, and Paris was going to be one side’s Waterloo.

But as we mentioned, a funny thing happened. Globalization, environmentalism’s worst enemy, became the planet’s best hope.

Those of us who work at the intersection of environmental and economic policy have long tried to counter the perception that integrated capital markets and global trade are anathema to protecting Earth’s natural resources. Despite overwhelming evidence that interdependence leads to increased efficiencies, hyperbole and anecdotes have framed the debate, causing collaboration and compromise to be seen as Faustian deceptions. But Paris opened the door by linking the goals of environmentalism to international cooperation, and the VW scandal unexpectedly provided the blueprint.

For all the efforts by the EU and Germany over the years to develop strategies to combat climate change and promote sustainable development, companies, particularly large manufacturers, have benefited from inconsistent regulatory compliance mechanisms. In the name of consensus, certification by one EU Member State is certification by all, creating a loophole that critics refer to as the “Race to the Bottom.” Companies such as Volkswagen can build factories in countries that agree to relax standards without jeopardizing their ability to sell to customers in countries with rigid requirements. This form of roving protectionism makes enforcement of ambitious targets nearly impossible, especially when those targets conspicuously excepted the known contaminants emitted from “clean diesel” engines, VW’s revolutionary way of reducing the carbon and environmental footprint of their cars.

The US, however, has a different set of standards when it comes to regulating environmental impact. Yes, carbon emissions are important, but human health has always been the leading factor in turning environmental ambitions into political action. For that reason, the noxious fumes caused by diesel combustion are more tightly monitored, especially in California, where questions began to arise as to how clean VW’s diesel engines really were. When initial tests didn’t seem to match real-world experiences, the EPA contracted an independent research institute, the International Council on Clean Transport, to run a more exhaustive study. ICCT worked with a group of scientists from West Virginia University who uncovered the scandal.

It’s been one year since the scandal broke, and there has been no shortage of drama. Volkswagen agreed to a massive settlement with the US Department of Justice that could amount to $15 billion, a VW engineer has pleaded guilty to conspiracy to violate the Clean Air Act, and investigations continue both in the US and Germany to determine where the buck stops. From an environmental standpoint, VW has signaled it will drop its clean diesel program in favor of electric vehicles.

But the goal here is not to recount Volkswagen’s deceptions and determine if the punishments fit the crimes. Instead, we want to show that globalization enabled the discovery of VW’s crime. There are millions of clean diesel engines on the roads of Europe, and there likely would have been millions more, were it not for the variations in sovereign regulatory policies in the US and EU. Were it not for strong compliance and enforcement mechanisms at the EPA, the health of Americans and Europeans alike would have continued to suffer. It is the integrated global market that produced the transparency necessary to achieve this watershed moment for environmentalism.

Transparency and diversity, the hallmarks of sustainable globalization, are most easily observed as functions of corporate governance. Volkswagen’s position of privilege within Germany and the EU does not serve its investors well in the global marketplace. Questions have been raised as to whether VW will ever be able to be a leader in innovation as long as the national government’s priorities supersede the demands, and opportunities, of the global market. As investors look for companies prepared to meet those demands and take advantage of those opportunities, they will find that organizations which prioritize transparency and diversity, no matter the size, will be the innovators leading the way toward sustainable globalization.

Brendan O’Donnell is a Fellow at Ecologic Institute. His work focuses on sustainable urban development, especially the visibility and accessibility of diverse communities in the decision-making process; post-carbon finance, including the development of vehicles and policies to support sustainable investing; and the future of environmentalism, particularly how art and other cultural influences inform the concept of nature and inspire environmental policy.

Max Gruenig is the President of Ecologic Institute US and has been with the Institute since 2007. His work focuses on sustainable development in the energy and transport sector, as well as urban sustainability and resilient cities. Max Gruenig has lived and worked in Germany, the United States, Iceland, and Japan.


For Goldcorp Inc., one of the world’s largest gold producers with operations throughout the Americas, sustainable and responsible mining is a company-wide commitment. We aspire to be a leader in finding innovative ways to create long-lasting social and economic benefits through every phase of the mining lifecycle – from exploration to operation to the eventual closure and reclamation of a mine. Ultimately, we strive to make sure that the places where we operate are left in as good or better condition than how we found them.

To make our commitments a reality, we’ve established international guidelines, standards and benchmarks to help us set our objectives and track progress. These include the International Council on Mining and Metals (ICMM), the World Gold Council’s Conflict Free Gold Standard, and the United Nations Global Compact (UNGC). In 2015, the UN and its member states adopted 17 Sustainable Development Goals (SDGs), which address issues such as poverty, inequality and justice, and climate change. The goals are ambitious, but they provide an important framework for government, industry and communities to collaborate and achieve progress – together – by the year 2030.

As a signatory to the UNGC, Goldcorp embarked on a materiality analysis to understand issues of key importance to our diverse set of stakeholders, and then mapped our top issues, internal initiatives and strategies to the SDGs. This mapping exercise helped us to understand where synergies exist, where gaps should be addressed, and how our current activities can support the achievement of the Goals. As a result, we’ll be better able to align our efforts with the SDGs over time, in areas such as environmental protection, human rights, education and community building.

While there are multiple SDGs that Goldcorp identified as aligning with our corporate priorities, a few in particular emerged among our most material topics.

Goal #4: Education – Ensure Inclusive and Equitable Quality Education and Promote Lifelong Learning Opportunities for All

Having worked for many years in partnership with communities to improve access to training and skills development, we’ve seen first-hand just how important education can be in creating sustainable legacies. Some of our most innovative educational programs are the first of their kind, such as AMSTEP, a partnership with
the Oshki-Pimache-O-Win Education and Training Institute (OSHKI) to provide career skills to Aboriginal youth in signatory communities of the Musselwhite Agreement in Ontario, Canada. The program involves five months of intensive training and work experience to earn industry-recognized accreditation. The experience is uniquely immersive for students, exposing them to daily mining activity from surface to underground operations. For the community of Carrizalillo near our Los Filos site in Mexico, Goldcorp created a local scholarship program, constructed a kindergarten classroom and community computer center with equipment and internet access, and also improved sanitation in the local primary school.

Goals #7 and #13: Energy and Climate – Ensure Access to Affordable, Reliable, Sustainable and Modern Energy for All, and Take Urgent Action to Combat Climate Change and Its Impacts

Mining is energy-intensive; however, there is great potential in our industry to invest in energy efficiency measures, incorporate renewable energy into our power supply and reduce our carbon footprint. Goldcorp’s Energy Stewardship Strategy ensures that we continue to take active steps to manage our energy use and minimize greenhouse gas emissions. We have made significant progress, with GHG emissions trending downward both on an absolute basis and intensity, since 2013. At our Musselwhite mine, reducing base load electrical consumption and managing peak demand allowed the mine to eliminate the use of diesel in production, which saved approximately 13,000 tonnes of CO2 in 2015 alone.

Goal #12: Consumption – Ensure Sustainable Consumption and Production Patterns

Goldcorp has made several advances in minimizing the waste generated from the mining process and improving the way we transport, use and dispose of waste. Key among these initiatives is a comprehensive Tailings Stewardship Strategy implemented in 2015 as part of our Sustainability Excellence Management System. At our reclaimed Equity Silver site in British Columbia, Canada, we introduced automated monitoring to track information on water levels, pore water pressure, structural integrity of the tailings dam, and other important parameters in real-time, in order to ensure tailings dam safety and reliability. If the pilot program is successful, this innovation will be evaluated for deployment at all of Goldcorp’s sites.

Goal #16: Peace & Justice – Promote just, peaceful and inclusive societies

Last year, we updated our Human Rights Policy to reflect the changing social context in which we operate. Our revised policy better defines Goldcorp’s good business practices as well as our external commitments to the ICMM, the UNGC and the World Gold Council’s Conflict Free Gold Standard. New additions to this policy include clauses on community consultation, grievance mechanisms, resettlement planning, and potential measures in the event of non-compliance.

When we update our policies, each of our sites is trained on how to integrate human rights into its business practices. An example of our approach in action is at our Marlin mine in Guatemala, where all security staff are required to undergo annual training on the Universal Declaration on Human Rights and regularly scheduled reviews conducted by third-party experts include assessments of the background checks, training and interviews with security contractors.
We aspire to ensure that every site upholds fundamental human rights and respects local cultures, customs and values.

Companies like Goldcorp have a tremendous impact on communities through the local jobs and supply chains we create. By aligning our sustainability strategies with global initiatives such as the UN Sustainable Development Goals – and working in partnership within our industries and with governments – we can multiply positive impacts for communities worldwide.

 Brent Bergeron joined Goldcorp in November 2010 and was appointed Executive Vice President of Corporate Affairs and Sustainability in January 2015.  Prior to joining Goldcorp, he served as a senior executive with international experience in the fields of construction and infrastructure development, broadcast and media.





In recent weeks, investors have considered everything from a relatively uninspiring earnings reporting season and the dominance of polarizing forces in the political economy, to growth differentials in developing vs. developed markets and the “responsible” use of Pokémon Go. In this month’s edition of   Cornerstone Journal of Sustainable Finance and Banking (JSFB), we consider “Explorations and Aspirations” with an array of subjects ranging from “smart contracts” in the blockchain to empowering investors with sharper measurement tools. And ultimately, we hope to go beyond “sustainability,” and move towards value creation and regeneration through capitalism.

• Our global sector research team methodically looks at ways to quantify the risks and opportunities of ESG issues for specific industries, sectors and regions, along with two reports on food safety, investigating the state of regulation and technology throughout the supply chain.

• We also offer an excerpt from our new guide to voting proxies by John Wilson, Head of Corporate Governance, Engagement and Research, intended to aid investors who want to explore how they can become “A Voice in the Boardroom.”

• Drawing from industry voices: Brent Bergeron of Goldcorp offers a materiality analysis mapping key issues and strategies in gold mining to the UN Sustainable Development Goals; David Lepper of IPSA Capital explores the challenges ahead for maritime finance; Karla Canavan of Bunge discusses enzyme supplementation to enhance the nutritional value of animal feed, and the potential for combating human malnutrition, while Gugu McLaren of Discovery Ltd. takes a shared-value approach on using behavioral assessments to shape the insurance industry.

Finally, Jon Lukomnik of the IRRC Institute wonders “Why is everyone angry at Wall Street?” as he ponders the misalignments between the financial system and the needs of the real economy. He brightly concludes: “Finance provides neither food nor shelter, but without it, we could have neither, at least not at a scale appropriate for the modern world.”

Highlights from the Summer issue:

Regional and Sector Strategy: June / July Updates
By Michael Geraghty  

An Atypical Analysis of Industry Risks
By Michael Geraghty

Brexit Fallout: Global Uncertainty to Weigh on Multiples
By Michael Geraghty

A Voice in the Boardroom
By John K.S. Wilson, Caleb Ballou 

Our Response to the SEC on Sustainability Disclosures
By John Wilson & Cornerstone Capital Research Team 

Food Safety: In a State of Transformation
By Michael Shavel, Sebastian Vanderzeil 

Tracking Our Thesis on Food Safety Opportunities: A Look at Neogen
By Michael Shavel, Sebastian Vanderzeil

Exploring the Challenges in Maritime Financing
By David Lepper, IPSA Capital

Bitcoin & Ethereum: Exploring How Smart Contracts Work
By Chris Burniske, ARK Invest

Enhancing Food and Feed to Boost Nutrition Efficiency
By Karla Canavan, CAIA, Bunge

Decision-Making in a Context of Uncertainty
By Felicitas Weber, KnowTheChain 

Materiality Fuels Aspirations for Future Generations
By Michael Kinstlick, SASB 

Exploring Ways to Close the ESG Info Gap: Perspective from Canada
By Catherine Gordon, SimpleLogic Inc 

Corporate Sustainability Through Shared Value and Innovation
By Gugu McLaren, Discovery Ltd. 

Aspiring to the Gold Standard in Mining Management
By Brent Bergeron, Goldcorp 

Why Is Everyone Angry at Wall Street?
By Jon Lukomnik, IRRC Institute 

Forest Ecosystems and Climate Uncertainty: Investment Implications
By Sebastian Vanderzeil & Dr. Bruce Kahn, Sustainable Insight Capital Management 

Access the full edition here.



Mr. Brent J. Fields
Secretary Securities and Exchange Commission
100 F Street, NE Washington, DC 20549-1090

Re: Business and Financial Disclosure Required by Regulation S-K (File No. S7-06- 16)

Dear Mr. Secretary,

Cornerstone Capital Inc. (dba Cornerstone Capital Group [“Cornerstone”]) appreciates and welcomes the opportunity to submit comments in response to the Commission’s concept release “Business and Financial Disclosure Required by Regulation S-K” (“the Release”).

Founded in 2013, Cornerstone is a financial services firm based in New York.  The mission of the firm is to apply the principles of sustainable finance across the capital markets and enhance investment processes through transparency and collaboration.  In offering investment advisory, investment banking and corporate advisory services, Cornerstone works with asset owners, corporations and financial institutions to promote new research in the field of Environmental, Social and Governance (ESG) analysis, and facilitate capital introductions for organizations around the world engaged in sustainable business practices.

Because our clients are long-term investors, we have a strong interest in the quality of corporate disclosures, and how well they enable us to evaluate risks and make decisions that will affect the long-term health of our clients’ portfolios.  We believe that although current disclosure standards require companies to report on all material issues, companies currently have insufficient guidance regarding disclosure of long-term issues, particularly those related to ESG concerns.

Voluntary sustainability reports separate from financial disclosures have been commonplace for several years.  Standards for voluntary reporting have risen considerably, and these reports are valuable to many stakeholders such as employees, communities and customers.  Yet current ESG disclosures fail the test of quality, comparability, consistency and materiality that would make them useful to investor decision-making.

Our comments reflect our views on how ESG disclosures could be incorporated into corporate disclosures in a manner consistent with existing disclosure standards and expectations.


Read the full text of the letter from John Wilson and the Cornerstone Capital Research team here


John K.S. Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Group. He leads a multidisciplinary team that publishes investment research integrating Environmental, Social and Governance (ESG) issues into thematic equity research. He also writes and presents widely about the relevance of corporate governance and sustainability to investment performance for academic, foundations, corporate and investor audiences.

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This month in the Cornerstone Journal of Sustainable Finance and Banking (JSFB), we consider the issue of “Relativity” in the capital markets. Einstein showed that even though the laws of physics are the same everywhere, people experience time and space differently.  It follows that individual perspectives on change are relative to one’s own current position.

So, in this edition of the JSFB, we seek some investment insight from Einstein and we think longer term about sustainable global economic value creation rather than short-term market performance.  Einstein said that one should “Try not to become a person of success, but rather become a person of value.”  The same goes for market participants, who should know of the efforts of the World Ocean Council (WOC) to create sustainable economic value by engaging private sector stakeholders in working on “complex, intertwined, international ocean sustainable development issues,” as outlined in WOC CEO Paul Holthus’s Accelerating Impact article.

From J.D. Lindeberg of Resource Recycling Systems, we learn that the differences in relative effectiveness of strategies to reduce food waste are laid out in a new report by the nonprofit initiative “ReThinking Food Waste through Economics and Data.” Further, in our Open-Source Excellence section, Levi Strauss & Co VP of Sustainability Michael Kobori discusses the firm’s decision to offer its proprietary denim-finishing technology to industry competitors, illustrating the greater relative value the firm places on tackling water scarcity than on maintaining a cost-reduction edge.

We also note the importance of language to any discussion. Two contributions to our Sustainable Editorial section tackle issues of language.

Highlights from the May issue:

Regional and Sector Strategy: May Update
By Michael Geraghty  

The World Ocean Council, Corporate Ocean Responsibility and the Ocean Investment Platform
By Paul Holthus, World Ocean Council 

ReFED: Impact Investing in Food Waste Reduction
By J.D. Lindeberg, Resource Recycling Systems Inc.

ESG “Infractions” a Predictor of Accounting Issues
By Shivaram Rajgopal, PhD, Columbia University

The Power—and Danger—of Suggestion
By Kate Rebernak, Framework LLC

The Water Imperative: Open Sourcing Pushing Change in Apparel Industry
By Michael Kobori, Levi Strauss & Co

Your Doctor, Your Data
By Alex Cahana, MD, Ark Investment Management

Establishing Common Ground with Data and Language
By Linda Cornish, Seafood Nutrition Partnership

The Inaugural Peter G. Peterson Distinguished Lecture on National Security and Fiscal Policy
By Sebastian Vanderzeil

NYSE Cyber Investing Summit
By Sebastian Vanderzeil

If you are a subscriber click here to login and read the complete edition.  For more information about the JSFB click here  or contact us to learn more about Cornerstone’s research and service offering.


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This month in the Cornerstone Journal of Sustainable Finance and Banking (JSFB), we consider the issue of “Relativity” in the capital markets. Einstein showed that even though the laws of physics are the same everywhere, people experience time and space differently.  It follows that individual perspectives on change are relative to one’s own current position.

So, in this edition of the JSFB, we seek some investment insight from Einstein and we think longer term about sustainable global economic value creation rather than short-term market performance.  Einstein said that one should “Try not to become a person of success, buy rather become a person of value.”  The same goes for market participants, who should know of the efforts of the World Ocean Council (WOC) to create sustainable economic value by engaging private sector stakeholders in working on “complex, intertwined, international ocean sustainable development issues,” as outlined in WOC CEO Paul Holthus’s Accelerating Impact article.

From J.D. Lindeberg of Resource Recycling Systems, we learn that the differences in relative effectiveness of strategies to reduce food waste are laid out in a new report by the nonprofit initiative “ReThinking Food Waste through Economics and Data.” Further, in our Open-Source Excellence section, Levi Strauss & Co VP of Sustainability Michael Kobori discusses the firm’s decision to offer its proprietary denim-finishing technology to industry competitors, illustrating the greater relative value the firm places on tackling water scarcity than on maintaining a cost-reduction edge.

We also note the importance of language to any discussion. Two contributions to our Sustainable Editorial section tackle issues of language.

Highlights from the May issue:

Regional and Sector Strategy: May Update
By Michael Geraghty  

The World Ocean Council, Corporate Ocean Responsibility and the Ocean Investment Platform
By Paul Holthus, World Ocean Council 

ReFED: Impact Investing in Food Waste Reduction
By J.D. Lindeberg, Resource Recycling Systems Inc.

ESG “Infractions” a Predictor of Accounting Issues
By Shivaram Rajgopal, PhD, Columbia University

The Power—and Danger—of Suggestion
By Kate Rebernak, Framework LLC

The Water Imperative: Open Sourcing Pushing Change in Apparel Industry
By Michael Kobori, Levi Strauss & Co

Your Doctor, Your Data
By Alex Cahana, MD, Ark Investment Management

Establishing Common Ground with Data and Language
By Linda Cornish, Seafood Nutrition Partnership

The Inaugural Peter G. Peterson Distinguished Lecture on National Security and Fiscal Policy
By Sebastian Vanderzeil

NYSE Cyber Investing Summit
By Sebastian Vanderzeil


Access the full edition here.




Recidivism is a fundamental idea in law enforcement.  Past bad behavior, sometimes even in unrelated fields, tends to predict an individual’s proclivity to cross the line in the future.  Might the same insight hold for irresponsible ESG behavior of a firm?  Will a company’s record of violations related to worker welfare, product safety or environmental damage predict reporting shenanigans?

To evaluate this conjecture in the corporate context, my co-authors (Shuqing Lo and Simi Kedia) and I combined ESG data from several sources for 4,621 unique firms spanning the years 1994 to 2011.  Product safety data comes from the Food and Drug Administration (FDA).  Information on worker safety and worker civil rights is drawn from four different federal government agencies, which include the Mine Safety and Health Administration (MSHA), the Occupational Safety and Health Administration (OSHA), the Office of Federal Contract Compliance Programs (OFCCP), and the Wage and Hour Division (WHD) of the Department of Labor (DOL).  Environmental violations are collected from the Environmental Protection Agency (EPA).

As hypothesized, we found that a firm’s prior noncompliance record on ESG activities is statistically associated with the likelihood of subsequent financial misreporting measured as (i) a material earnings restatement; (ii) the issue of a subsequent Accounting and Auditing Enforcement Release (AAER) by the SEC; or (iii) the violation of disclosure laws or GAAP (Generally Accepted Accounting Principles) alleged via a securities class action lawsuit.  Although all these misreporting outcomes are serious, an AAER is issued by the SEC only for the most egregious cases of accounting misconduct.

Before you conclude these are small unknown companies, let me tell you that the persistent ESG violators tend to be older, larger and more profitable.  Pfizer, Waste Management and Caterpillar feature among our top violators.  Caterpillar has been charged with recurrent violations of the Clear Air Act.  Pfizer has been labeled a “repeat offender” by the DOJ, has pleaded guilty to illegal marketing of drugs, and has faced allegations of bribery of foreign officials.  Waste Management has been accused of violating antitrust laws, labor contracts, and environmental regulation.  Interestingly, all these firms have either restated their books or have been hit with a lawsuit for violating GAAP or an AAER in future periods.

The statistical patterns we observe are economically important as well.  A one standard deviation increase in ESG noncompliance relative to its mean is associated with a 12.5% increase in the likelihood of a restatement, a 25% increase in the likelihood of an AAER, and an 11% increase in the likelihood of a private class action lawsuit.

So, why do we observe this statistical association?  We suspect that the cultural forces driving ESG violations influence financial misreporting as well.  A cultural climate in which corporate leadership looks the other way when violating an environmental rule is perhaps a few steps away from tacitly endorsing cooking the books. These are usually environments where the unstated message from leadership is that hitting the financial target or getting the job done is much more important than the means of getting there.  New employees to the firm initially get co-opted into this line of thinking.  A slippery slope of small but repeated increases in unethical behavior eventually leads to a hardened attitude whereby employees rationalize such behavior by telling themselves, “everyone else in our industry is doing the same thing.”

The remarkable finding is that the firm’s culture, as opposed to the impact of a few errant CEOs, explains the data better.  Even when we look at firms where CEOs have been replaced, the firm’s ESG noncompliance record predicts future financial reporting risk.  Hence, “bad barrels,” or a persistent culture at the firm, as opposed to “bad apples,” or ethically challenged CEOs, are more likely to drive our findings.

So, keep an eye on how companies treat their stakeholders (workers, the environment, their communities and of course their customers).  A firm’s ESG record can serve as an early warning about serious offenses such as fraud down the line.

Shiva Rajgopal is the Kester and Byrnes Professor of Accounting and Auditing at the Columbia Business School.  He is widely published in finance and accounting journals. His research is frequently cited in the popular press, including The Wall Street Journal, The New York Times, Bloomberg, Fortune, Forbes, Financial Times, Businessweek, and The Economist.


There is ample evidence that our minds consistently distort our perception of the world when making decisions under uncertainty, even within our own constructs of reality. Distortion in perception can stem not only from differences in experience and education but also the necessary use of heuristic judgments.

We use heuristics[1] — mental shortcuts that help us to make decisions in complex or uncertain situations without exceeding our cognitive capacity — in our work and daily lives. Like many shortcuts, however, heuristics do not always yield accurate results.

In the early 1970s, psychologists Amos Tversky and Daniel Kahneman found that the employment of heuristics results in cognitive biases that lead people to make “systematic and predictable errors” when making judgments under uncertainty.[2]

One well-known heuristic, “anchoring and adjustment,” stems from estimating a (usually numerical) value from a relevant initial value by adjusting therefrom.[3], [4] The use of this heuristic leads to a consistent bias in making judgments, as adjustments from the anchor are typically insufficient to arrive at an accurate value.[5]

An example: Asked if the population of Colombia is more or less than 10 million, and then asked to estimate the population, most will estimate that it is closer to 10 million than the correct figure — approximately 48 million.[6]

An anchor may be created to intentionally exploit this bias. A retailer may, for example, advertise a significant “mark-down” from an artificially inflated retail price, luring shoppers, through the false promise of a bargain, to buy more.

Another heuristic that relies on the availability of relevant information will skew one’s assessment of the probability of an event occurring. In some cases, availability bias stemming from the retrievability of an instance — how readily it is recalled — alters one’s perception of the likelihood of an occurrence.
For example, we might inaccurately perceive a higher crime rate in an area merely by having witnessed or heard of a recent crime.  Imaginability — how easily we can imagine an occurrence — can also lead to availability bias.[7]

The anchoring/adjustment and availability biases can both cause people to overemphasize the importance of past information. It may not be surprising that people tend to underemphasize the probability of events that are relatively less visible or those that occur relatively infrequently. Conversely, we tend to overemphasize the probability or frequency of an occurrence that looms large in our consciousness whether due to availability or imaginability.

Take auto accidents versus airplane crashes: Rarely do the former make big news, precisely because they are so frequent and kill or maim only a few people at a time. Though relatively rare, airplane crashes result in hundreds of fatalities at a time, can decimate whole communities, and often linger through dozens of news cycles. In this case, imaginability and retrievability may work in concert to lead us to overestimate the likelihood of one’s dying in a plane crash as opposed to an auto accident.

Cognitive Bias Related to Corporate Sustainability Issues

Anchoring/adjustment and availability heuristics may be particularly prevalent within the realm of corporate sustainability or attention to environmental, social, and governance (ESG) issues. The fact that awareness of these concepts in business management is not yet widespread means that relevance of ESG issues to financial performance are still unclear to many investors and company managers. Lack of familiarity with ESG issues (irretrievability and unimaginability) can skew downward perceptions of their associated risks. Conversely, over time many companies have become increasingly attuned to the materiality of certain ESG issues to their business and focused on them in public reporting; in this case, heuristics can lead to elevated perceptions of ESG risk.

Can Widespread Use of Integrated Reporting Counter Cognitive Bias?

Context would seem to be critical in countering cognitive biases, wouldn’t it?

In the retailer example above, if nearby shops are offering the same product at an undiscounted price that is lower than that of the “discounting” shop, consumers may be less likely to buy more from the latter. The anchor loses its impact in the context of the competition, and the market operates as it should.

Integrated reporting is intended to provide the context that is so critical for stakeholders, primarily investors, to make informed decisions vis à vis the reporting entity. Done relatively well, an integrated report presents both performance and strategy within the broader societal, economic, and environmental context in which the company operates. An integrated report is most useful to investors when it demonstrates how the company is deploying and conserving not only financial but a variety of other capitals: natural, human, manufactured, intellectual, human, social and relationship.

The Value Creation Process

rebernak diagram

Capital inputs and outputs in the value-creation process, taken in the broader context in which a company operates, are important components of integrated reporting. Source: IIRC.

If only one or two companies within a sector engage in integrated reporting, however, we may have an anchoring problem. Moreover, estimates of the broader operating context may be skewed via unavailability of relevant, accurate information. Investors, particularly those less schooled in the application of ESG factors to investment processes, might make assumptions regarding performance that are based on a dearth of relevant information.

Companies should be able to provide context and relevant information sufficient to defend their own assumptions around their performance. The more companies that do, the better investors will be able to make informed decisions. An integrated approach to public reporting is one vehicle for doing so. Likewise, investors will serve themselves and their clients by being attuned to potential biases embedded in information they receive from companies as well as their own heuristics and biases.

Indeed, we could all benefit from awareness of our very human tendency toward cognitive bias. We must always question our assumptions. In doing so, we have enormous opportunity to make better decisions in all human pursuits.

Then again, what’s “better” depends on where you start.

Kate Rebernak is the founder and CEO of Framework LLC, a specialty management consultancy that helps companies create value by understanding, managing and communicating performance on environmental, social, and governance issues that are likely to have direct and indirect financial impacts on their business.

[1] Wikipedia describes a heuristic as “any approach to problem solving, learning, or discovery that employs a practical method not guaranteed to be optimal or perfect, but sufficient for the immediate goals.” Merriam-Webster defines heuristic as “involving or serving as an aid to learning, discovery, or problem-solving by experimental and especially trial-and-error methods.”

[2] A. Tversky and D. Kahneman, “Judgment under Uncertainty: Heuristics and Biases,” Science (Washington, DC.), 185, 1124–1131 (1973).

[3] Ibid.

[4] “Behavioral Finance: Cognitive Errors – Information-Processing Biases, CFA Tutor, https://cfatutor.me/2013/10/03/behavioral-finance-cognitive-errors-information-processing-biases/.

[5] A. Tversky and D. Kahneman, “Judgment under Uncertainty: Heuristics and Biases,” Science (Washington, DC.), 185, 1124–1131 (1973).

[6] As of 2013. Source: the World Bank.

[7] A. Tversky and D. Kahneman, “Judgment under Uncertainty: Heuristics and Biases,” Science (Washington, DC.), 185, 1124–1131 (1973). Tversky and Kahneman noted that “the risk involved in an adventurous expedition, for example, is evaluated by imagining contingencies with which the expedition is not equipped to cope.”




At Levi Strauss & Co., our business depends on water. From cotton to manufacturing to consumer care, this precious resource plays a vital role over the lifetime of our products. We’ve studied this issue in great depth, including two comprehensive life cycle assessments. We know exactly how much water a pair of Levi’s® 501® jeans traditionally uses over its lifetime — and where.

That knowledge helped us make a lot of changes in our business to reduce our own water impact. And it’s helped us educate consumers about the impact of their laundering habits. But for us, that’s not enough. As a leading apparel company we have a responsibility to be a catalyst for change — because time and again we’ve found that where we lead, others follow.

That’s why we took a cue from our neighbors in the tech industry and opened up our innovative Water<Less finishing techniques for anyone to use. The Water<Lessprocess can save up to 96% of the water used in the denim finishing process. Since 2011, we have used the process to save more than 1 billion liters of water in our own manufacturing, and we’ve set a goal to use Water<Lesstechniques for 80% of our products by 2020.

Water scarcity is too important for us to keep these techniques to ourselves. Just as tech companies open their APIs in order to accelerate change, LS&Co. is welcoming our industry partners to build on what we have done to accelerate water conservation. We believe our Water<Less innovations could save the apparel industry at least 50 billion liters of water by 2020 — enough to supply every family in New Orleans for a year.

This isn’t the first time we’ve joined with others to address water issues. In 2009, we were one of the founding members of the Better Cotton Initiative (BCI), aimed at fundamentally changing how cotton is grown. Seventy percent of the water used by a pair of jeans is from cotton agriculture. BCI farmers use up to 18% less water than non-BCI farmers in comparable locations.

We’ve also saved 30 million liters of fresh water through the industry’s first Water Recycling and Reuse Standard, which we piloted with one of our vendors in China; we’re sharing that standard across our industry as well.

We are committed to doing even more in the future. We’ve committed by 2020 to train 100% of LS&Co.’s corporate employees in a water education program we developed in partnership with the Project WET Foundation. The goal is to increase employee awareness of the social and environmental impacts of apparel, and to train our employees to become water conservation ambassadors so they can share what they have learned in their communities.

Lastly, we’re working hard to educate consumers about reducing their impact through care labels, awareness campaigns including the “Are You Ready to Come Clean” consumer quiz and “Don’t Be a Drip” water education program as well as through
e-commerce sales channels.

This sounds like a lot of work, and it is. But it’s absolutely vital to our business, our employees, and workers in our supply chain, their communities – and our entire planet. We want to use our leadership position in the apparel industry to spur even more innovative ways we can all work together to preserve this scarce, vital resource.

Michael Kobori is Vice-President, Sustainability at Levi Strauss & Co. He leads the development of LS&Co.’s environmental vision and strategy, including its efforts to collaborate with other brands on sustainability and to extend its standards throughout the supply chain.



The global challenges that we face as a human race will require collaboration from parties that can find common ground. This type of collaboration will many times involve the use of data so that all parties can have an agreed-upon baseline from which to develop plans to address a particular issue. We all have our own frames of reference and agendas that we bring to the table. Different parties may interpret data quite differently. Leveraging data and then using language to get a message out in a powerful and coherent way — and recognizing the inherent challenges that come from our own points of reference as potential roadblocks — is important to truly understanding an issue thus developing effective solutions.

An example of how a standard report that is meant to serve as baseline data has been interpreted in multiple ways is the Food and Agriculture Organization of the United Nations’ (FAO) annual report, “The State of the World Fisheries and Aquaculture.” The most recent report, from 2014, shows that 10% of the world’s fisheries were “under fished”, 61% of the world’s fisheries were “fully exploited”, and 29% were “over exploited.” The terms under fished, fully exploited, and over exploited are scientific terms that indicate whether fisheries are within their biological sustainable levels. So the word “exploited” in scientific terms means that a fishery has the stock available for capture and of the quantity that is available for capture whether they have been under captured, fully captured, or over captured. In reviewing the infographic provided by the FAO, they interpret the data as meaning “71% of the commercially important marine fish stocks monitored by FAO are fished within biologically sustainable levels.”  This 71% is an improvement from the 2012 report, when the sustainable stock fished within biologically sustainable levels was at 68%. Still, 29% of the fisheries being over exploited is something we need to continue to work on.

When using common spoken language, the terms “fully exploited” and “over exploited” sound extremely alarming relative to the scientific definition. It’s very understandable to see some conservation groups use these terms to support their cause with their constituents. This paints a picture suggesting that 90% of wild fisheries are over captured. Unfortunately, this interpretation does not recognize the efforts of those organizations working so hard to maintain sustainable fisheries. It becomes demoralizing to know that their efforts are not viewed as making a difference. So when we work with multiple stakeholders with diverse backgrounds, it’s imperative that we understand how they are using language to convey their concepts. This builds a case for multi-stakeholder efforts to be open to possible meanings from data that had not considered before.

We had an excellent interaction in reaching out to another non-profit conservation group on their interpretation of the FAO report. They listened to our explanation of the scientific meaning behind the term “exploited” and updated their interpretation of the data by recognizing the scientific definition. In turn, we learned from them that the data collection is a global effort and that there are imperfections to the report. This particular non-profit is raising awareness that improvements need to be made to the actual data collection process.

Our oceans are our lifeline and we need to do everything in our power to protect them and leave them in a better state for our future generations. As we work to address human health and environmental health, we should be mindful of how we are interpreting data to support issues that we are addressing. Some questions to consider: Are we viewing the data from all perspectives that could impact the development of solutions? Are we solving the right problems in the right ways? Are we asking the right questions? We can tell the story we want to tell based on our interpretation of data from our own lens. It will take courage to understand the story the data is trying to tell us.

 Linda Cornish is Executive Director for the Seafood Nutrition Partnership. She has held leadership and management positions with Arthur Andersen, Hitachi Business Consulting, Harrah’s Entertainment, Greater Memphis Chamber of Commerce and the Bill of Rights Institute.


The inaugural Peter Peterson Lecture on National Security and Fiscal Policy was held by the Foreign Policy Association on April 19. The session featured John O’Neill, former U.S. Treasury Secretary and former Chairman and CEO of Alcoa.

The far-ranging lecture featured topics such as defense spending, the changing nature of global threats, national debt, wage stagnation, the presidential election, and tax reform. Mr. O’Neill’s overarching message was that we, the people, need to be better fiscal stewards of our country. Within this message he sees the responsibility of broader society to set expectations, manage responsibilities and frame a stronger future for America.

On national defense, Mr. O’Neill sees the reduction in defense spending over recent years as a worrying development given the rise of turmoil across the globe and America’s historically expansive role in international security. He also argues that spending should focus on investments that derive real results, citing that of the 11 aircraft carriers owned by the US Navy, at least half are in maintenance at any one time. He believes investments in cyber security and other innovative threat detection and management technologies should be a priority.

The reduction in defense spending has coincided with growth in the entitlement system, with tax exemptions and social spending rising at significant rates. The growth in national debt to $19 trillion, which includes $6 trillion borrowed from social security, indicates that American society is living beyond its means, according to Mr. O’Neill. Student debt has now topped $1.23 trillion and 40% of graduated student loans are in default. Mr. O’Neill points to this phenomenon as a sign that the core principles of contracts are no longer respected. Fiscal responsibility should, therefore, hinge on paying for what we, as the people, agree is important and what we can afford to pay for.

Mr. O’Neill called for fundamental tax reform. In his view, the system should remove tax credits and exemptions which create inequities and generate perverse incentives. The current system, for instance, provides a greater mortgage tax credit for larger mortgages, effectively providing higher tax relief for higher earners.

On the election, he called for candidates that have a better understanding of the key elements of government such as defense and tax. He referenced President Jimmy Carter as someone who already had a working knowledge on key issues so his decisions were not so dependent on the briefing system. Mr. O’Neill did not see a plethora of candidates with this knowledge.

Finally, he opined on wage stagnation and the plight of the American worker. He noted that when he sat on the board of General Motors in 1995, the average production line worker was paid $145,000 per year including benefits. With the advent of non-union factories, the average wage fell to $60,000 per year. In effect, GM workers had benefited from the ocean as a trade barrier and the belief that no other country could make a good car. While Mr. O’Neill did not discuss potential solutions to wage stagnation, he noted that free trade remained a good ideal and globalization had delivered benefits. He finished saying that if the US does not have a vibrant economy, then we cannot “be the light.”

Sebastian Vanderzeil is a Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.