What is “Corporate Sustainability”? Simply stated, it’s the same as “Corporate Excellence” but over the very long term. Over the very long term, does the company consider the value of all the capital it deploys in pursuit of its stated mission? Does the company consider the returns on the investments made in terms of the financial capital, human capital, and natural capital engaged in its business? Does the company balance the demands of shareholders, employees and customers in a synergistic cycle while recognizing and articulating the trade-offs that inevitably exist? Does the company seek to drive shareholder value by working towards a more regenerative and inclusive economic model which fosters prosperity and ultimately profitability? And does the company have offer a level of transparency that allows investors to see into its priorities and values? Is this vision consistently articulated and operationalized from the very bottom to the very top of the organization? And at the very top, in the Boardroom, are there true “Stewards of Corporate Legacy” sitting at the table?
In considering the role of the Board of Directors in “corporate sustainability” initiatives, along with the critical tasks of framing and navigating the landscape of risk and opportunity, investors will look for a group that is tending and governing an enduring, relevant, resilient, profitable entity…. An entity that encourages transparency, consistency, accountability, and foresight; all supported by sensible incentive and succession structures. Investors will want to somehow get comfort that there is constructive debate around the pivotal strategic and even operational issues affecting the company. And, investors would hope for a Board with heightened perspective on the macroeconomic environment in which the company operates. Is there a proactive search to recognize shifting dynamics in the markets which give the company its very license to operate?
To that end, a highly functioning Board would embrace its role in helping to foster a culture of innovation and trust; a culture that promotes creativity and productivity in an evolving world. This would also imply a greater likelihood of aligning the company with investors who are confident in the oversight of their capital. Further, to effectively address the capital markets and translate the “language of sustainability” to the language of business and finance, there must be an understanding of the current macro environment… an unprecedented environment of confluence in a post-financial crisis world.
In terms of this unprecedented environment, there are a number of factors driving the demand for an understanding of the principles of “sustainable finance and investing.” Not only is there a level of regulatory scrutiny and complexity which the world has never seen, but there has been a deterioration of the trust in the capitalist system and its leaders. Arguably, there is an inverse relationship between trust in the system and the level of transparency demanded of the private sector. While it may be quite difficult to get transparency into the functioning of the Board room, it is reasonable to assess whether or not Directors and Executives are attuned to the shifting dynamics in the capital markets.
From the standpoint of an investor who is primarily interested in the long-term economic and profit outcomes of the company, it is reasonable to assess the understanding by Directors of the confluence of factors including the following: the establishment of standards for disclosure in financial reports of material environmental, social and governance (ESG) metrics; the engagement and interaction of asset owners, asset managers, investment banks, NGOs, accountants, exchanges, regulators, and consultants around “sustainability”; the fact that enhanced analytics in the form of big data is turning noise into predictive insight; the extent to which social media is driving an acceleration of extreme transparency and immediacy; the demands of a new generation of investors with the $50T intergenerational wealth transfer at hand over the coming decades. In other words, the business imperative for “corporate sustainability” is at hand. The time has come for the emergence of the new “Stewards of Corporate Legacy”….Those who understand that “corporate sustainability” is simply “corporate excellence” over the long term.Erika Karp is the Founder & Chief Executive Officer of Cornerstone Capital Group.