The US Business Roundtable is a talking shop for CEOs from some of the world’s leading companies. Its annual communiqués on business confidence rarely get covered much outside the business press.
However, the August 2019 statement made a noise far beyond the hushed corridors of corporate America. Turning its back on 25 years of orthodoxy, the CEOs pledged to move away from the concept of shareholder primacy and instead embrace a different ethos.
The headline change was the decision to equalise the interests of all stakeholders. So, alongside generating shareholder returns, the CEOs pledged they would give equal importance to investing in their employees, dealing fairly and ethically with suppliers and supporting the communities in which they work.
It may seem merely a rhetorical change, but many believe the statement from the very top represents a culmination of a trend a decade in the making.
“I think a lot of the shift comes from the broader awareness that started with the global financial crisis that changed people’s perception and people’s feeling about trusting business,” says Philippa Foster Back CBE, until recently director of the Institute of Business Ethics, a former treasurer and now a director of the Financial Markets Standards Board.
“Customers and staff want to understand business activities better,” Foster Back says, “and social interest in businesses has been changing over the years. And that’s where the interest in a company’s ESG performance comes from.”
Leaders have to believe that sustainability leads to better and more profitable companies
For some companies, embracing ESG goals has become integral to their brand.
From the leadership Unilever has shown on responsible sourcing and ethical supply chains to IKEA’s insistence on using recycled or renewable timber, these days examples come thick and fast, and progress is accelerating.
Increasingly, for many of the leaders in this space, ESG is a serious competitive issue. It’s not enough any more to just embrace ESG to improve the company’s standing in the eyes of the public without backing it up with real action.
There are signs that the shift towards a more integrated approach are already there: for instance, H&M CEO Helena Helmersson recently stepped up to the top job from the role of chief sustainability officer – a career path previously unheard of.
“Leaders have to believe that sustainability leads to better and more profitable companies,” says Dinah McLeod, an experienced ESG consultant who led the industry-leading Sustainability Practice at BT, before taking up a post at the B Team – a global collective of business and civil society leaders focused around creating new norms of corporate leadership.
McLeod works with businesses on a whole range of issues: the obvious ones such as their carbon footprint, but increasingly on less prominent ESG factors like diversity of the workforce and anti-corruption.
“I’ve worked across this area, the E, S and G,” she says. “And it calls for holistic leadership – there’s no point in being really hot on plastic packaging, but ignoring supply chain transparency or gender balance in the workplace.
“The thing that leaders need to realise is that this has become much more holistic and demands a business-wide approach.”
Growing interest in the more esoteric aspects of this has led to the rise of many new standards, codes and guidelines.
One such designation, B Corp, is extended to companies that balance profit and purpose. The certification is administered by an independent and multinational standards advisory council.
Only those who ‘meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose’ can achieve certification from B Corp, which counts almost 3,500 companies on its list of verified good citizens.
The emphasis is on transparency and rigour. Companies pay a fee to B Corp in order to be assessed and gain accreditation.
Make no mistake: how a company behaves in this space will impact on its ability to recruit and retain the best people.
“There’s been a big shift in what’s important to candidates in a potential employer, and it’s not so much about reward any more,” says Rachael Crocker, who leads the treasury practice at recruitment firm Brewer Morris.
She notes: “One of the first questions that candidates ask us is about the company’s stance and approach. Lots of companies pay lip service to it, and candidates challenge us. Most treasurers are detail-oriented, so they want to see exactly what the portfolio might look like and what’s really going on.”
Recruiting for oil and gas clients – once among the most attractive sectors for treasurers – is now far more of a challenge.
Crocker explains: “There is a social awareness around the impact that industry is having and it’s much less desirable. In fact, I’ve got candidates for whom ESG is the number one criteria.
“That is particularly true of those already working in industries that they feel have a negative impact, so they want to offset that and make a positive contribution.”
Where does the treasurer sit in all this? For some it may seem a long way from the treasury function to the ‘sustainability office’.
For Ines Faden da Silva, treasurer at Tideway London – set up five years ago to deliver London’s first ‘super sewer’ – delivering on the company’s ESG commitments is a key part of the job.
Tideway London is one of the largest issuers of green bonds in sterling, and holds the joint-highest Green Evaluation score awarded to date by S&P globally.
“This is central to my role,” says Faden da Silva. “I’ve discussed with my board the benefits of aligning our legacy commitments with the way we finance the project. Investors have an increased focus on integrating ESG factors into the investment processes, which is facilitated by funding a sustainable project like Tideway.”
So where does Faden da Silva see her biggest impact?
“From my view, money speaks loudest and you won’t really change things without changing what we do with our money,” she says. “With that money, we have the power to make things happen.
“We raise our financing based on the project’s green credentials and the KPIs that our sustainability team work on, but we also assess and monitor where and how we invest our cash balances and discuss this regularly with our money market fund providers. And we commit to our ESG approach by reporting regularly to investors.”
That public commitment, Faden da Silva believes, reinforces Tideway’s ESG work.
“By committing to KPIs and reporting on these,” she says, “we as treasurers can help shield these important commitments, because once you’re publicly committed, you shouldn’t go back on that or you’ll lose credibility.
“It’s not a short-term thing and requires a different approach from the treasury team, working closely with sustainability colleagues.”
Foster Back adds: “I think treasurers need to be encouraged to think outside their own box. Treasury is mostly cash management, fundraising and capital markets activity. But treasurers need to look at the wider context, because that is when you begin to see, through dealing with third parties and third-party risk, where ESG comes into it.
“So ask yourself what risk management you are doing and how you are assessing whether or not you want to deal with those partners. How are you looking at anti-bribery and corruption, anti-money laundering risk – all of those sort of aspects – as they come together?
“And ask: what are we doing in the environmental space? The treasurer is often the ambassador to the investors and the financiers, so they have to be able to talk knowledgeably about what the company is doing in this area – and I don’t think enough people do that. Treasurers need to have that wider knowledge base.”
1. HOGAN LOVELLS: Delivering on pro bono promises
Recently named the leading UK law firm for its pro bono work, Hogan Lovells (HL) offers perhaps a model for a major firm using its capacity for good.
In addition to its long-standing work in the human rights arena, the firm won the Pro Bono Initiative of the Year in 2019 for its work on forced adoptions in Ireland. The award built on the firm’s reputation for innovative pro bono work, which has been brought under the banner of its Empowering Girls and Women Initiative.
HL has also helped the victims of recent terror attacks in the UK – many of whom had little idea of how to manage the awful aftermath of their trauma.
2. MARS: The unlikely leader
You might think selling sweets to children would immediately disqualify US confectionery giant Mars from this list, but in fact, while Mars does draw fire in league tables for plastics use, the company has led the way on other aspects of the ESG agenda in the past 10 years.
CEO Stephen Badger is one of the more admired CEOs on this issue, and has overseen Mars’s response to the obesity crisis, ending its marketing to children under 12, and championing a $1bn pledge to slash Mars’s carbon footprint by 67% in a generation.
The company is also taking a lead on fostering the next generation of sustainable food producers. Mars recently launched its Seeds for Change accelerator, named after the Mars Food organic seed and food brand, and will select six US and four Australian participants in the following areas: start-up food brands, innovative experiential offerings, new business models and emerging technology.
3. TIDEWAY LONDON: Tackling mental health
Tideway London has led the way on ensuring big infrastructure projects deliver the maximum possible social impact.
From recruiting talented workers from less well-represented communities – ex-offenders (with a mandated target of one in every 100 workers), former service personnel, those from the black, Asian, and minority ethnic community and young people from across some of London’s more deprived boroughs – to championing mental health awareness.
“We now have more mental health first-aiders than we do physical health first-aiders, because the construction industry has such a poor record in that area. In fact, suicide rates among construction workers are circa three times higher than average,” explains Tideway’s treasurer, Ines Faden da Silva, pointing out that workers are often away from home and carry out shift work amid a culture where speaking out about vulnerability and struggle hasn’t traditionally been encouraged.
To tackle that, the company has both developed its own in-house mental health training programme and partnered with the industry charity Mates in Mind. Faden da Silva explains that the training’s effectiveness has been demonstrated recently: two Tideway workers intervened when they witnessed a vulnerable woman having a mental health crisis on a London bridge.
Tideway also offers flexible working, runs workshops on healthy nutrition and works with community groups to make sure the huge project does as much for the social and economic health of the capital as it does for the River Thames.
4. UPEFFECT: Using the crowd to do good
Founded by Seeza Shah, crowdfunding platform UpEffect says it is the world’s only service dedicated to ensuring social entrepreneurs succeed. The emphasis is on helping socially driven businesses to access finance they might not otherwise find on mainstream platforms.
Unlike other platforms, those seeking to use the service must undergo a sustainability audit that looks at employment practices, supply chain, carbon footprint and so on. The platform has so far helped socially conscious start-ups raise almost £500,000 and is on track to break the £1m barrier next year.
Christian Doherty is a finance journalist who writes on accountancy, regulation, capital markets and management issues
This article was taken from the October/November 2020 issue of The Treasurer magazine.