Call for a Sense of Purpose – How are Boards responding?
There’s no doubt about it. Boardroom conversations are changing. Demands for sustainable business practices and better corporate transparency have come from all angles, and lately from the world’s largest investors. The Task Force on Climate-related Financial Disclosure (TCFD), initiated by Mark Carney (Governor of the Bank of England, and Chairman of the G20’s Financial Stability Board) and lead by Michael Bloomberg (Chair of the TCFD), has received support from over 250 of the world’s largest investment groups, asset managers, major banks, stock exchanges and large corporations.
One of these major supporters is BlackRock’s Chairman and CEO, Larry Fink, who took a powerful stance towards business purpose and long-term value creation in his annual letter to CEOs titled “A Sense of Purpose.”
But how are boards acting? This was a large part of the recent discussions at the GLOBE Forum 2018. One panel, in particular, made up of leaders from BlackRock Canada, NRStor Inc., BGIS, and BASF and B.Accountability could not have been better equipped to tackle such questions.
Here are a few of the highlights from the dialogue between Marcia Moffat (Managing Director, BlackRock Canada), Annette Verschuren (CEO, NRStor Inc.), Marcelo Lu (President, BASF Canada), Gord Hicks (CEO, BGIS), and moderated by Helle Bank Jorgensen (CEO, B.Accountability):
Long-term thinking is quickly becoming the norm
In addition to running the innovative energy storage developer, NRStor Inc., Annette Verschuren sits on multiple corporate boards, including Air Canada, Saputo Inc., and Liberty Mutual Insurance Group. She has been on public boards for 25 years, and she has noticed an enormous change: “companies are starting to think longer term about their strategies and doing so out of necessity.” Referring to Air Canada’s board, she points to energy efficiency, emission reductions, and waste diversion as all parts of the long-term strategy to mitigate climate-related risks and capture market opportunities. “These are the things that board members from companies of the future are asking about… if they don’t take this into account, they will not have a long future.”
This shift in mindset does not only come from a risk management perspective; “it’s equally about capitalizing on the hidden opportunities that the future holds” said Marcelo Lu, President BASF Canada. He pointed out that, BASF as a global company, since the 1990s, has been committed to bringing their high disclosure standards into foreign markets, regardless of surpassing local requirements. Going above and beyond can be costly. However, fast forward to today where demands for corporate disclosure are high and BASF finds itself a few steps ahead of the game. This type of long-term thinking only becomes more important as business environments continue to evolve rapidly and outcomes are less and less predictable.
From an investment standpoint, Marcia Moffat, head of BlackRock Canada, drew attention to much of the long-term thinking that happens behind the scenes: “There are more long-term investors than you would think based on what’s in the media and what we see happening in the stock market.”. For example, $4 trillion of BlackRock’s $6.3 trillion managed assets are invested in indexed or exchange-traded funds. These are inherently longer-term investments because BlackRock does not have the freedom to buy into and pull out of individual companies; they are instead compelled to engage with companies on their long-term strategies hence Mr. Fink’s letter and why long-termism is a core piece of BlackRock’s business.
Sustainability gets results
Gord Hicks has been fortunate enough to receive plenty of board support for his sustainability initiative, and the results for BGIS have been overwhelmingly positive. By focusing on 3 levels of stakeholders – shareholders, customers, and employees – and rigorously measuring progress, Mr. Hicks seems to have found a secret recipe: “If you act in a sustainable manner, take care of your team members, and your team members are taking care of your customers, then the profits and economic returns tend to take care of themselves, and that’s been our experience”.
At the same time, Mr. Hicks emphasizes the need always to keep pushing the envelope. “There is disruption everywhere… so we have to continue to get better. The status quo is unacceptable”. For Ms. Verschuren, this speaks to the competitive edge that companies get from adopting sustainable practices. Sustainability forces companies to look at things differently, in their processes and operations, which often leads to innovation and adds to competitiveness.
Translating Sustainability to Board Language
Language is especially important on the investor’s side, noted Ms. Moffat. Environmental, Social, and Governance (ESG) information can make a significant impact in directing capital towards better risk-managed firms. However, ESG research is often perceived as confusing ‘alphabet soup.’ “We need to make [ESG] clearer for all,” said Ms. Moffat. For any investor, it really comes down to “taking a principle standpoint and using a framework. You won’t get far without a framework.”
In a similar vein, Ms. Verschuren acknowledged the importance of board education. “All the boards that I’m on have educational time… we need the education to help us understand what the options are”. Of course, it’s also not sufficient that only one board member possesses the expertise; the whole board needs to be a part of it.
There are many ways to get involved, and we all have a responsibility to do so
Even though the board and C-suite are making the final decisions, this does not absolve the rest of the company employees from taking action on sustainability. If anything, front-line employees bring an essential vantage point when working directly with customers and gathering data from the field. No matter the position in the company, there are many different ways non-executives / non-board members can have an impact. “Make sure you have your voice heard by your C-suite, send letters to your Board of Directors, let them know that you care about the future of your business,” said Mr. Hicks in closing remarks.
Author: David Hageraats