Allstate’s decision to participate in the Embankment project stemmed from its desire to deeply understand the long-term value framework and have the opportunity to learn from and interact with other project team members. Allstate also believed that participating would help it blend a long-term goal of inclusive capitalism with the practical realities of running a public company. Allstate’s position as an asset owner (through its investment portfolio), asset manager (Allstate Investments) and asset creator, and Fortune 100 company allows the organization to provide a unique perspective to assist in informing the new framework and to help it succeed.
- What metrics are organizations currently reporting?
- Which of those metrics are asset managers and owners incorporating into investing decisions?
- What additional metrics would be used if they were available?
The sobering and disappointing answer was often that the nonfinancial data currently available is not widely used in investing decisions. That information is generally considered lacking in some way or not sufficiently available to enable comparisons between companies. Participants expressed concerns that because the disclosures are largely voluntary, the information is likely to be one-sided (i.e., only favorable information would be shared). They noted that data is difficult to extract from lengthy documents that often have too much narrative. Accordingly, there was a bit of a classic “chicken-andegg” situation in which even the best of metrics may not be widely incorporated in investing decisions until the metrics are adopted, published by a large percentage of companies and easy to find. Once the information is more widely available, investors will require evidence that the data provides a signal for enhanced long-run returns. That requires research, but of course the data needs to be available first. It will require significant effort to reach a level of critical mass, and project participants must lead by example.
Now, as a result of Allstate’s involvement in EPIC, the company’s Sustainability Report has expanded to capture how the organization’s incorporate environmental, social and governance (ESG) perspectives into all its work; the report communicates the Allstate vision for the future of the company and its role in society. The Sustainability Report now features an Investor Hub, which shows how Allstate incorporates ESG perspectives into its business strategy and provides quick downloads of Allstate’s ESG metrics. This reflects the organization’s learning about the accessibility of this data.
In 1980, the then-current US accounting standard setting organization issued a paper describing the qualitative characteristics of accounting information (Statement of Financial Accounting Concepts No. 2). The four primary characteristics that it identified were relevance, reliability, consistency and comparability. On several occasions during Allstate’s work on this project, professionals found themselves revisiting this guidance. As the company continues to provide a broader set of metrics to its stakeholders, it believes that the preparers of the information would be well-served by keeping these characteristics in mind.
While the project team has identified several new metrics, Allstate suspects that the more impactful action that market participants can take is to expand the dialogue with their stakeholders through disclosure of a broader set of information targeting a broader audience. The market will help separate the wheat from the chaff by focusing, over time, on a set of nonfinancial data that helps them make better-informed decisions.
Asset creators will have to invest in resources to provide the additional information. Asset managers and owners should invest the time to review and provide feedback on the information provided to further enhance its usefulness. Over time, the market will demand the new information that is deemed most insightful, leading additional companies to provide the disclosure and thus creating a virtuous cycle.
Allstate prides itself on being a purpose-driven company whose individual employees unite to serve as a force for good — for customers and the world at large. Part of the purpose that fuels everything the organization does is creating prosperity beyond profits. One way Allstate achieves that is by sharing the company’s story across its many stakeholders. Allstate published its first annual report at its IPO in 1993 and its first Sustainability Report 10 years later. For many years, the reports maintained separate identities, but Allstate has begun aligning the two in recent years to help tell a holistic story. As part of this alignment, the company has reframed its annual report into its Prosperity Report, which reflects on past performance and on how Allstate measures up to its aspirations. Taken together, the Prosperity Report and Sustainability Report offer a 360-degree picture of how Allstate creates value for all stakeholders.