I was just catching-up on the SEC‘s guidance on materiality (what a reasonable investor would want to know before making a decision, which is the standard for deciding what publicly-traded companies must disclose), and came across commentary in the Washington Post by Senator Jay Rockefeller and Michael Chertoff supporting the SEC Division of Corporation Finance‘s views that risks and incidents related to cybersecurity should be disclosed.

The argument (essentially) is that it’s both in our collective self-interest and the best interest of investors for companies to publicly report on risks and incidents related to cybersecurity (for example, when the information system of a company is hacked and private information of clients is stolen). While the authors don’t explicitly elaborate, the reasoning is that companies manage more carefully issues about which they need to publicly report. That is the same argument that many have been making about risks and data related to societal and environmental issues. Several thousand organizations engage in sustainability reporting, including 95% of the Global Fortune 250. An important question, however, is whether more encouragement from governments (through laws, regulations, or guidance) of disclosure of societal and environmental impacts would be constructive.

The next time this topic comes up, let’s remember that the SEC and its divisions do encourage disclosures of non-financial data such as, in this instance, the security of information systems. Is it any less relevant, from a public policy perspective or to the self-interested investor, when a company amplifies or mitigates risks, costs, and harms related to issues ranging from use of coerced labor to the collapse of planetary life support systems? If we generally support government encouragement of disclosure in analogous situations (security of information systems), shouldn’t we also support more explicit government encouragement disclosing a broader array of societal and environmental risks and data?

Some of the themes of my upcoming articles will be (1) whether existing materiality standards already behoove disclosure of a wider range of societal and environmental impacts and (2) would more explicit and specific guidance from regulators be helpful and (3) that cooperation between regulated companies (most of whom already have expertise in disclosure of societal and environmental impacts) and regulators would both be the most efficient reaction on the part of executives and yield the best results.

So what’s the hubbub about?  Why was this noticed in Amsterdam?

The students prepared, on behalf of Fall River, the first sustainability report by a city in USA consistent with the world’s most widely used standard for such reports (G3.1 of the GRI) – it’s also the first city report in the world to meet the A application level, meaning that the students found and published over 62 measures of economic, societal, and environmental impact. A few weeks later, the Town of Dartmouth voted to publish the draft report we prepared for them. Dartmouth will therefore be the first town in the USA to have a GRI-guided report, and looks like it also will score a world first as well, in that no other town appears to have published over 62 measures of progress. Dartmouth town leaders even discussed and decided to use the data in the report on an ongoing basis to evaluate decisions and make plans for the future.

Finally, an independent accountant confirmed the sources that students cited in preparing the most recent iteration of the annual sustainability report of UMass Dartmouth (in 2011, it was the first in the world by a university to meet the criteria of the A application level of the GRI’s G3.1 standard), making our report the first in the world to meet the criteria to be called an A+ GRI-guided sustainability report. I’m delighted to be sharing our best practices at Verdexchange 2013 as an invited speaker.

4,000 organizations, including 95% of the Global Fortune 250, publish reports of their impacts on the economy, society, and environment. The reasons include attracting, retaining, and inspiring talent, as well as winning trust of financial backers, branding, and simply managing better. Universities and the public sector face the same challenges. So why not adopt the same practice?  Better yet, why not make it a class project and learn some employable skills?

Below: after a lengthy editing session with his staff, we briefed Mayor Flanagan and took a moment to document the day he decided to make the announcement about Fall River adopting sustainability reporting. Left to right: Perry Long, Robert Muller (UMass Dartmouth MBA), Mayor William Flanagan, Shawn Cadime, Adam Sulkowski).

Kyle Potvin (JD/MPP, UMass Dartmouth, 2013) and Amie Tailor (MBA, UMass Dartmouth, 2013) just finished checking and sorting the HQs of the 1,686 U.S. companies in CSRHub’s database (the world’s largest collection of ratings and information related to corporate responsibility – including 93% of the Fortune 1000 and more than 95% of the S&P 500) among states (ranging from ultra-blue to ultra-red, depending on the number and margin of victories of Democratic vs. Republican nominees in the past four presidential election cycles).  Results & possible interpretations below.

Clarification: this is NOT intended to be partisan – Kyle & Amie chose this project and my intent is to post a surprising observation to provoke further thought & conversation, not to advocate for a candidate or party.

(1) By a margin of about 7:1, companies favor having their HQ in Ultra-blue v. Ultra-red states. Median # of company HQs per state variety (states by category are listed at the bottom of this post): Ultra-blue 47, Blue 36, Purple 30, Red 7.5, Ultra-red 7.

(2) The pattern persists when we compare lists of most popular business HQ locations: 

Top 5 Blue State HQ Locations: CA (252 company HQs), NY (159), IL (101), PA (84), MA (73).

Top 5 Red State HQ Locations: TX (176 company HQs), GA (49), VA (45), NC (37), TN (27).

Next 5 Top Blue State HQ Locations: MN (50), CT (47), MI (41), WA (31), MD (28).

Next 5 Top Red State HQ Locations: OK (17), AR (15), LA (14), KY (12), AZ (10).

So what?  There are four possible interpretations:

(1) Since the sample includes 93% of the Fortune 1000 and more than 95% of the S&P 500, one could interpret these patterns to simply mean that, by a large margin, U.S. companies perceive the best locations for running a business to be in bluer states.  As none other than Jack Welch (former GE CEO and University of Massachusetts alumnus) said during a visit to our campus in 2005, he’d favor locating a business where there’s an educated workforce and good transportation infrastructure.  Public investments in education and infrastructure tend to be favored more in blue vs. red states, so this “election result” shouldn’t surprise us.

(2) Inasmuch as the 1,686 companies in the CSRHub database tend to be publicly-traded companies about whom there is more information (either good or bad, related to environmental, societal, and economic impacts) the implication could be that companies that are comparatively more transparent tend to favor bluer states.  Depending on how follow-up regression tests turn-out, we may see a headline like this one: “Companies That Are More Transparent Tend to Locate HQs in Ultra-Blue States.”

(3) Considering that about 95% of the Global Fortune 250 now actively report on environmental, societal, and economic impacts, we ought to also test the following interpretation: ”Do Companies That Engage in Sustainability Reporting Tend to Locate in Ultra-Blue States?”

(4) Presuming further that we can also test and discover that there is a connection between being transparent and/or reporting and actually being more responsible, we may see a headline that “Companies That Are More Responsible Tend to Locate HQs in Blue States.”  On a somewhat related note, Co-Founder and CEO of CSRHub Bahar Gidwani recently published an analysis of whether better performing companies tend to be located in more sustainable cities.

Regardless of which interpretation(s) one favors, the raw numbers above should provoke some substantive debate about which political, cultural, regulatory, and tax climates really are “pro-business” – it would seem that the answer is contrary to a lot of unquestioned assumptions.

We welcome comments and critiques and hope to test (soon) for causality between variables.  In case you are wondering, below is the sorting of the states based on outcomes of the most recent four presidential elections (blue states being those that tend to favor Democrats and red states being those that lean Republican, and “ultra-blue” and “ultra-red” being states with consistently greater margins of victory for the dominant party, and purple designating swing states):

With that growth has come tough choices – often under immense pressure, but where is the company going in the future?

This July in Mongolia, Pierre Lorinet, Trafigura’s CFO, commented on what would make for the most intriguing educational case studies related to the company’s recent history and future plans. Here is a sampling of ideas:

(1) “how we responded” – the company has taken a beating for not only (alleged and/or real) wrongdoing, but its reaction to negative press and protests. In MBA curricula we still sometimes refer to “Shell and Ken Saro-Wiwa’s court-sanctioned murder in Nigeria” or use as shorthand “Shell in Nigeria” and “Shell and the Brent Spar incident” to allude to the nasty issue of (real or perceived or ambiguous) corporate culpability in ecological and/or human tragedies. Trafigura’s experience (before, during, and after the crisis in Côte d’Ivoire) could be even more interesting to study from the point-of-view of senior management, in that they had less time and power to identify and prevent problems before they escalated. Wouldn’t it be interesting to role play what we would do in a similar situation, and read the accounts of how people “in real life” reasoned-through their options in Trafigura’s case?

(3) “how we learned about sustainability in commodities trading” – in this context, I think it will be most interesting to see how Trafigura implements sustainability reporting in the coming years. Apparently this is in the works. To their credit, they don’t (according to Mr. Lorinet) want to come forward with a report that is not verifiable or is perceived in any way to be lacking. “The report needs to demonstrate the strength of our systems and processes – we will not report for the sake of it,” Lorinet said. We discussed this, and the merits of the argument that “something is better than nothing-at-all.” Mr. Lorinet said that Trafigura has already adopted better procedures and approaches to stakeholder engagement but he was also clear that there is more to be done. 

On a final note: Pierre Lorinet established his credibility with me long before we got to discussing any of these topics – early in our interactions, he described how and why he urged his sister-in-law (a quarto-lingual Mongolian) to pursue sustainability studies at an Ivy League university that she will be attending this fall. I can’t speak to the veracity of any of the accounts (positive or negative) concerning any of the news stories related to Trafigura in recent years, but, based on our interactions, my impression is that at least some of the senior management of the company have sustainability issues on their mind. As with any story, the past is prelude and the most fascinating pages are the ones yet to be written.

How substantive and sustainable is the green building movement here?  RuGBC revenue doubled from its first to its second full year of operations (from 2010 to 2011).  While AIG originally suggested the formation of RuGBC (apparently as a way to enhance the long-term value of its real estate investments here) and the impetus for adopting green building is to some extent based on the corporate policies of foreign companies and investors, there is clearly some nascent, local demand for progress in building standards.  Notwithstanding widespread perceptions that interests in the oil and gas and mining industries will never tolerate progress in the arena of sustainability, those with whom I’ve spoken today state that there is both market demand and government support for adopting greener construction standards.  Though the terms green building and sustainability may not be used a lot (or perhaps at all, or with a smirk in some circles in which I’ve broached the topic), the term “energy efficiency technology” has currency and credibility.  If I had not reviewed and discussed the finances and annual activities report of RuGBC and seen the products of the building supply company (including solar panels, a windmill, skylights, and appliance control technologies) I might be more skeptical and cynical about the words I’m hearing.  After today, I’m looking forward to seeing how the green building movement develops here: will it amount to the modern equivalent of a Potemkin village or a substantive shift in standards?  

Those who went to the 2011 annual conference of the ALSB had the privilege and pleasure of attending the Environmental Law & Sustainability Section (ELSS) and Ethics Section joint luncheon.  Dr. Dean Moosavi presented slides and data on not only the BP oil spill and the ensuing clean-up, but the longer-term issue of subsidence of coastal Louisiana.  Dean took a few of us on a fascinating tour of the beaches of Grand Isle, where he helped with remediation.

Finally, our first-in-the-world A-level G3 sustainability report by a university and a synopsis of some of the assignments and material in our course, MGT600: Business Law and Corporate Responsibility, was the focus of my 35-minute presentation in the Master Teacher Symposium.  Thank you, ALSB, for the red alabaster apple!