Sustainability & the IRO
Why this subject? Why now? Erika Karp, Cornerstone Capital Group founder & CEO and a former Wall Street research chief, counts off asset owners, asset managers, investment banks, social media, NGOs, regulators, accountants, exchanges. ‘Everything is moving toward more transparency, collaboration and understanding of what sustainability means to the capital markets,’ she says.
Greg Elders, senior ESG analyst with Bloomberg Intelligence, sympathizes with IROs who think investors don’t care, but insists there’s growing awareness of how water issues, energy efficiency, employee turnover, safety and other issues are affecting profitability.
Elders is part of a team formed by Bloomberg to provide unbiased analysis and context around all of its data. ‘No good, no bad, no buy, no sell, but data-driven research, and that’s something we’ve brought to ESG as well,’ he sums up.
Defining ‘corporate sustainability’ and examples from around the world
When asked how to separate real sustainability from green-washing, Karp says consistency between mission, incentives, accountability and outcomes is the hallmark. ‘Consistency is the biggest factor separating the signal from the noise when it comes to corporate excellence,’ she says.
Karp provides Cornerstone’s definition of corporate excellence, which is its preferred term for corporate sustainability: ‘the relentless pursuit of material progress towards a more regenerative and inclusive economy.’ Elders, who formerly worked in Europe, acknowledges that less ESG data is reported by US companies compared to Europe, where pension funds, especially in the Netherlands and Scandinavia, have pushed for it.
The data challenge
Investors say they need measurability and predictability around ESG factors. Are they getting it? Elders points out that the usage of ESG data has risen 50 percent per year since Bloomberg launched its ESG product in 2009, with around 20,000 regular users today. Karp points to the importance of the Sustainability Accounting Standards Board, where she’s a founding board member, as well as the GRI and IIRC.
Engagement and the ‘shareholder alignment frontier’
Karp outlines a framework devised by Cornerstone to look at the issues around ESG and overlay a constructive dialogue. While it takes a broad spectrum of stakeholders into account, the Shareholder Alignment Frontier is constructed around shareholder engagement, so IR is integral. ‘There’s no dichotomy between optimizing shareholder returns and dealing with societal need,’ she adds.
As a gay woman, investment executive and entrepreneur, Karp explains how diversity and sustainability are linked, because diversity of thought, experience, perspective and style allow for the observation of what’s going on in the world and bring energy, creativity and innovation to business and finance: ‘Diversity is painful but profitable.’
Here come the the Millennials
The World Economic Forum says $51 trillion is being handed to Millennials in the biggest ever inter-generational transfer of wealth. Are they going to change equity investment? ‘They won’t trade off the idea of giving up competitive economic returns and also having a societal impact. They want both – and they have a right to ask for both,’ says Karp, with Elders making a link between the growing popularity of organic products and the values-based investment approach of Millennials.
The momentum keeps building
Elders and Karp both agree that new guidelines for ERISA pension funds allowing economically targeted investments break down a mental barrier. ‘The reality is, speaking as a fiduciary, to not systematically analyze ESG performance in the investment process would be a breach of fiduciary responsibility, not the other way,’ Karp adds.