When the world’s largest asset manager lays out the business case for a long-term sustainable strategy, others would be wise to listen.
BlackRock, the world’s biggest investor with more than $4.3 trillion in assets under management, has very strong ideas when it comes to managing risk as part of a company’s sustainability blueprint.
When we are looking at companies, one of the things we are concerned with is: are they taking a short-term risk that may bump earnings up in the near term, but at the expense of the long-term viability of the company?
said Chad Spitler, managing director and global COO of BlackRock’s Corporate Governance & Responsible Investment Team, during a recent webinar I hosted on Corporate Sustainability and Long-Term Thinking in the Board Room.
When it comes to our views on sustainability and engaging with companies, we are looking for this kind of strategic thinking at the board level.
That logic underscores the recurring theme of integrating sustainability into core business models. From an investor’s stand point, Spitler wants to see sustainability presented within the context of a business’ key value proposition.
What we don’t want to see are sustainability reports that are separate or unrelated to business growth or risk,” he said. “What we really want to see is how sustainability principles are related to risk and opportunity for each business and how is the company managing that.
When major financiers assert that the “link between the business case and sustainability is exactly what we’re looking for,” as Spitler said, it becomes increasingly hard to argue against the business case for sustainability.
Sustainability as strategy
But it’s not just investors.
Corporate heavyweights such as Unilever also provide examples of companies that boast impressive financial returns on their sustainability initiatives.
Michael Treschow, Global Chairman of Unilever, explained in the recent webinar that the company has found success with its high-profile Sustainable Living Plan by ingraining sustainability into the overriding strategic plans and vision for the company.
We truly believe this is the right way to go — not to use sustainability as an activity or as a project, but actually as a business model. Today, we are four years down the road from the start of the plan. We start to realise it affects everything we do, both long term and short term.
Rita Rodriguez, chair of the Corporate Social Responsibility Committee for the American clothing company PVH Corp. — owner of name brands such as Calvin Klein and Tommy Hilfiger — also balances internal strategy with market-driven appeals to the consumer, which she said can create a competitive advantage.
What can be done to serve the consumer — which is changing constantly — as well as taking into account what we use to produce, which is essentially the workers and resources that we use?” Rodriguez said on the webcast. “Thinking about each one of those elements is a way to create a competitive advantage, if we can do it better than our peers in the industry. It becomes a way to leverage what we think is the right thing to do in many cases.
Going to the board
So what is the takeaway? Sustainability should not be a standalone activity, but embedded into the strategy and into the communication from the board and management team to investors, consumers, employees and other stakeholders.
When it comes to how that ideal translates to reality, the United Nations Global Compact Board Program that I have written about in previous GreenBiz articles can bring alignment and common understanding within a company. A structured process can inform the development of a sustainable strategy and how to best communicate that strategy to drive value in the short and long term.
Spitler of BlackRock contends that boards also should seek out ways to communicate with shareholders on the most material environmental, social and governance factors that affect their businesses.
Investors are changing expectations with regards to board-level engagement,” he said. “Quite frankly, if we have a concern with a company — and that concern merits a level of us reaching out and engaging with that company — then we are most likely going to want to engage with the board director directly who is most accountable for that.
For compensation considerations, for example, Spitler would likely want to take the issue up with a compensation committee member. If a succession planning concern arises about a C-suite executive, investors might to want to speak with a nominating committee member.
The dynamic of increasing board accountability makes education and careful consideration of relevant issues crucial.