This blog post is shared as part of a series of insights from INSEAD Directors Network (IDN), based on a webinar entitled ‘Sustainability and ESG impacts on Boards’ given on 18thof February 2019. The IDN Webinar series focuses on on current international topics in board work and facilitates for IDN members to share learn and knowledge, as well as to get to know each other.
The webinars are facilitated by an IDN board member, and evidently exclude any explicit marketing of products or services.
Sustainability and ESG in the Board Room: Long-term value creation and the board’s fiduciary objective
This webinar entitled “Sustainability and ESG impacts on Boards” was facilitated by Liselotte Engstam (IDP-C, IDN board Member), and featured two speakers:
Sophie Beric (Idinvest Partners, Paris, France)
Dr. Pamela Ravasio (IDP-C, FICRS).
The webinar aimed at addressing the following key aspects:
- Why is sustainability / ESG board room relevant?
- How does ESG link to Sustainable Development Goals that everyone seems to talk about?
- Personal engagement and Dashboards: How investors interact and ‘educate’ the companies they are invested in.
- Sustainability & ESG: The risk vs the opportunity perspective.
- Getting started as a board in sustainability: Where and how to get off the ground asap
Sophie Beric first introduced the participants to the investor’s point of view. In her presentation she elaborated on the inherent paradox between the longer-term perspective that investors such as pension funds – accounting for very significant proportions of invested capital – by definition should have, and their demand for regular financial performance resulting in quarterly publication pressure on the executive management.
Non-listed companies however are exempt from market pressure and therefore private equity investors and administrators are more aligned when in comes to longer-term stakes.
Sophie explained the differences between the 3 broad investor categories that exist:
- ‘Mainstream investors’: Actively manage their portfolio, buy low and sell high, and aim to have high exit price fast.
- ‘Engaged investors’: Accompany transformation of traditional companies into impactful ones.
- ‘Impact investors’: Channel funds towards impactful products/services
She then linked these to the developments seen both in the large cap sector, e.g. in the focus of Blackrock Larry Fink’s CEO letters since 2016, as well as the demand of institutional investors that require long-term risk scenarios or trajectorial progress on SDG indicators.
Lastly, she outlined how her own company, Idinvest Partners, accompanies its portfolio companies in their transformation journeys, in particular through Sustainability & Impact KPI dashboards which play back to each investee how their performance looks like along ESG categories, and the SDG trajectory, and which is used to engage with a senior executive and boards to discuss the company’s strategy and its impact (positive or negative) on long-term value creation.
Subsequently, Dr. Pamela Ravasio went on to discuss company strategic rationales for a board engagement in sustainability/ESG as well as ‘get go’ approaches.
In doing so she outlined the link of sustainability/ESG to a board’s fiduciary duty of long-term value creation (and not just value preservation), and why expanding the horizon to consider arising opportunities – not just risks – that are to be expected in the fundamental changes in our economic systems, have been by and large ignored to this moment.
Pamela further outlined a set of questions for the board to ask in order to start the discussion internally in the board but also with their executives (see picture 1, underneath):
She also outlined what role existing board committees could play immediately and without needing to wait for experts to be acquired (on the board, or at executive level) (picture 2).
The webinar was wrapped up with the insight that the term ‘sustainability’ indeed has nothing to do with ‘saving the planet’ and ‘the green agenda’ as many senior executives and mainstream investors believe. Terms that suggest that merely ‘unnecessary’ cost are created.
Much rather, the term refers to the economic reality that in order to be ‘financially sustainable’ – very much like an accountant would understand the term – the long-term value creation strategy must be firmly built-into a company.
This will be one of the – possibly THE – decisive factor, if indeed a business desires to exists at all in only a few very short decades from now.
- A set of pointers for guidance and deep dive for board members was shared and can be found for IDN members under the closed member section of the IDN website.
- Of these, we would like to list the following 2 explicitly:
- INSEAD Research Report: “Leadership in Corporate Sustainability”
- State Street Global Advisors: Climate Change Risk Oversight Framework
The subject is of evident high interest and relevant to many companies, boards and society. It is for this reason that the following INSEAD 2-day conference has been scheduled:
- Title: Towards Sustainability: A New Curriculum for Boards
- Time and Date: April 8 and 9
- See the Programme
- Location: INSEAD Fontainebleau Campus, France
- For more information and registration, please visit the event website