Pressure is Building on the C-Suite – to Start or Advance the Enterprise’s Sustainability Journey

July 2021

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Pressure points:  The corporate executive suite in recent months has experienced pressure from both inside and outside the organization in terms of rising expectations related to corporate sustainability, responsibility, citizenship, ESG, and so on.

For example, asset owners and external asset managers are asking many more questions now about the sustainability journey of the companies they are invested in, including the company’s ESG strategies, actions, performance, metrics, outcomes, external recognitions, and more.

The customer base for a growing number of companies is now an important consideration related to the supplier/provider’s positioning in its sustainability journey.

The working principle here:  the large customer especially considers the supply chain “partners” to be part of their own ESG footprint.  Third-party organizations pose questions to supply chain partners on behalf of their client base (Ecovadis being an excellent example of this practice).

Consider, too, that the Federal government is the largest buyer of goods and services in the U.S. and the Biden Administration has instituted sweeping sustainability policies on sourcing of many kinds.

Regulators of different sorts are moving towards strongly urging companies to disclose more about their sustainability journeys and considering mandates to help ensure more comparable, accurate, complete, decision-worthy data and narrative disclosures to help providers of capital (investors, lenders, insurers) in their own portfolio management.  We see that now in the U.S. and in the European Union.

There is peer pressure – corporate issuers moving ahead to leadership positions in sustainability put pressure on industry peers to perform better, disclose more, and attain at least middle-of-the-pack positions. And laggards (those not yet on their journeys) are under even greater pressure today.

One place where the leader board really counts is in the now-numerous ESG ratings and rankings provided to institutional investors by the likes of MSCI, Sustainalytics, Institutional Shareholder Services, and other ESG rankers and raters.

And then there is the internal pressure point – employees want to work for a company demonstrating leadership in sustainability and responsibility.  They want to be an integral part of the journey and be a part of the team making great things happen. All this counts in recruitment, retention, and motivating the workforce.

This week we pulled together some of the contours of these pressures on boards and executive and management teams.  As you read this, thousands of people are gathering virtually for the UN Global Compact Leaders’ Summit to discuss the growing pressure on governments, companies, investors, and other stakeholders to take action on climate change and sustainability issues.  The UNGC released the 2021 Survey of Companies & CEOs ahead of the gathering.

Top line results:  Business interests need to transition to more sustainable business models.  Over the past three years corporate leaders have been experiencing the pressures to do this; and 75 percent of survey respondents expect the next three years to be times of increased pressure on boardrooms and executive suites.

Where is pressure coming from?  Certainly, from the investor side.  For example, 450+ investors managing US$45 trillion in assets released a joint statement calling on world governments to create a race-to-the-top on climate policies…

This is the “2021 Global Investor Statement to Governments on the Climate Crisis” that asks for climate-related financial reporting to be mandatory, recognizing the climate crisis.

Seven investment management partners created “The Investor Agenda” to be shared at the recent G7 meeting to encourage advocacy for “ambitious climate policy action” leading up to the Glasgow, Scotland meeting of “The Conference of the Parties” (COP 26) in November.

The Investor Agenda is in the Top Stories below for your reading, along with comments from heads of NYS Common Fund, State Street/SSgA, Alliance Bernstein, Legal and General Investment Management, Fidelity International, and others.

In the U.S., 160 investors with U$2.7 trillion in AUM joined by 155 corporate leaders and 58 not-for-profit organizations are advocating for the Securities & Exchange Commission to protect investors from risks including systemic and financial risks related to climate change by mandating climate disclosure.

By doing this, corporate issuers can clarify the risks they should measure and disclose so that investors can make sound investment decisions.  SEC rules are needed, say the advocates, to provide comparable and consistent information.

Who are these advocates?  A group of state financial officers —  Illinois State Treasurer Michael Frerichs, California State Controller Betty Yee, New York State Comptroller Tom DiNapoli – as well as Steven Rothstein, Managing Director for the Ceres Accelerator for Sustainable Capital Markets and others.  Their suggestions for moving to an SEC mandate is another Top Story selection for you.

G&A is closely monitoring the various pressure points being placed on organizations to start or advance your sustainability journey, and you can detect other pressure points in the story selections in the topic silos.

TOP STORIES

Public Debate & Actions – Determining Future Directions of Today’s Important Fuels / Energy Sources

June 5 2021

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Eons ago as then-existent forms of life on Earth died off, decomposing remains became fossils…or relevant to current “heated” conversations about the future of energy, the stuff of today’s “fossil fuels.” Coal, crude oil, natural gas. 

As National Geographic explains for us, these fuels found in the Earth’s crust contain important amounts of carbon and hydrogen, which can be burned to create the energy we need in our modern times.  Consider:

Coal – we have long been extracting the deposits found in sedimentary rock – is the important foundational fuel source for the industrial era of at least the past two centuries.

Oil, more recently (since the mid-1800s) has been pumped out of ample reservoirs deep beneath the Earth’s crust. Or today, from closer deposits found in sedimentary rock, such as in shale layers (see: fracking – hydraulic fracturing).

Natural gas? Often described as a “transition” fuel (between fossilized sources and renewable energy sources) is extracted from the deposits near the deeper oil deposits. Natural gas is mostly comprised of methane, providing significant energy when burned – and also identified as one of the more potent Greenhouse Gases (GhG).

NatGeo tells us that the National Academy of Sciences charts 81 percent of total energy used in the U.S. as coming from these three fuel sources – responsible for three-fourths of global emissions over the recent decades.

So, what to do about the future directions of fossil fuels as primary energy sources, as leaders and institutions of the U.S. and other nations look beyond fossil fuels to create the energy needed to power business, homes, transportation, and more?

The debate about all of this (the “beyond fossil fuels discussion”) plays out in the era of the 2015 Paris Agreement to hold the Earth’s temperatures to below 2-degrees Celsius rise in this century compared to the level of pre-industrial days.

Reducing the use of fossil fuels is one of the ways to accomplish this, say climate change activists; more reliance of renewable fuel sources is being widely embraced as an important transition.

About transition: the industrial era got a big boost in the 1860s when the first oil wells were drilled in Pennsylvania and resulting processed kerosene began quickly knocking off the U.S. whaling oil business…coal extraction was already an important source of energy for industry.

The public debate about the fate of fossil fuel use in many nations, and the future direction of the many companies involved in the extraction, processing, and distribution of these fuels, is ongoing and involves many constituencies with a stake in the outcome of public policy and actions to address the issue…especially in the context of the commitment of almost 200 nations to comply with the terms of the Paris Agreement.

In this week’s G&A Institute’s newsletter (Sustainability Highlights), we shared important developments in the discussion about climate change and energy sources, as investors take action in proxy votes at Exxon and Chevron, and leaders call for “Energy Compacts” (by country, business interest, city) to achieve the goal of clean affordable energy by year 2030 (see SDG 7) and “net zero emissions” by 2050.

Of course, today’s energy source enterprises have to play a significant role in the process; energy transition that will be discussed by the UN’s High-level Dialogue on Energy.

Details on all of this are in the selections for Top Stories and in other of the content silos…and more is on the G&A Institute’s SHQ web information sharing platform: www.sustainabilityhq.com.

TOP STORIES

Note:
The National Geographic content on fossil fuels is in the organization’s Resource Library – this is excellent material for discussing fossil fuels with students (What is a fossil fuel and what is being done to make fossil fuels more environmentally-friendly?).