More questions than answers
There were certainly more questions than answers at the Feb. 5th TSSS event, and the three panelists offered different insights. When moderator Dr. Feltmate asked whether it might be valuable to develop a way of measuring progress of a company in the sustainability realm over time, with a quantifiable index that presents an annual summary score calculation, McPherson answered that this would be important to the corporation for understanding trending, but might not be of interest to the capital markets. (To read Part I of the event summary please click here)
TSSS Event Feb. 5, 2015 – CSR and the Capital Markets with expert panel; Blair Feltmate (moderator) Julie Desjardins, Ian McPherson and Martin Grosskopf.
There is often a disconnect between what people want in terms of sustainable development and how they actually invest their money.
Grosskopf identified that there is an assumption that sustainable development principles are being adopted, “…but I don’t necessarily see that in the markets. I’m not sure if you’ll ever get agreement over whether, for example, reducing carbon emissions is important. Do we expect the capital markets to change, or are we doing risk management?” And Desjardins reminded everyone that, “There is often a disconnect between what people want in terms of sustainable development and how they actually invest their money. Many people don’t even really know where their money is. Companies aren’t yet even clear on costing some of these things, so how can we expect the investment industry to be clear?”
Ask the right questions
During the audience discussion with panelists, there were many contributions and questions from the floor. Nelson Switzer (Director & Leader, Sustainable Business Solutions, PwC) clarified the three different questions that lay at the heart of the discussion: How do corporations make decisions? How do investors make decisions? How does data flow back and forth between them to inform their decision making? The answers to these questions define our strategy and approach.
Is ROI alone enough?
there are two potential outcomes – one is the investment and the other is the earth’s survival – are we losing the second by pursuing the first without regard for anything else?
Bob Mann (Chief Operating Officer, Sustainalytics), questioned whether it is meaningful for us to think about this as a “return on investment only” proposition? “In this room, we’re looking at two outcomes – one is the investment recognition, the other is the earth’s survival – are we losing the second by pursuing the first without regard for anything else?” Grosskopf responded to his question by offering hope that, “When you read the fine print of some of the initiatives companies are signing on to, they have objectives that go far beyond simply managing risk – you’ll see that pension funds are saying we’re here for the long term. Where there’s rhetoric, there’s action. There are some great institutional investors, e.g. CalSTRS, CalPERS.”
Capital markets and Price Signals
Krystin Annis (President, Canadians for Clean Prosperity), asked, “Should capital markets be required to conduct sustainability analysis or should it all be about price signals?” Desjardins pointed out that at the heart of this question is whether we think it is the role of the investment industry to be the steward of our environment? She also pointed out that the Canada Business Corporations Act requires Boards of Directors to act in the “best interests of the corporation” and that there is a changing view today of how to best define those interests. Dr. Feltmate added, “ESG is simply good and smart business. Licence to operate today requires that you get ahead of the curve on this file. If you want to build a dam, or run a pipeline, you better get your act together, you better understand how your project affects communities, you better know how to relate to aboriginal peoples… We’ve seen recent examples of the business implications for companies who don’t get this.”
Money has influence
McPherson pointed out that capital markets and government price signals need not exist in isolation, stating there has been much energy spent on capital markets as an agent of change. He explained that in September at the PRI global responsible investment conference (representing trillions of dollars in assets) they were asked to lobby government and speak to finance ministers in advance of the 2015 UN Climate Change Conference in Paris “because our money has influence.”
Government must step up
At the end of the day, the threat of climate change is real and government has to set price signals so that corporations are penalized for unsustainable business practices. Some argue that the climate change will drive game-changing disruptive innovation but the threat is imminent and the markets simply cannot move fast enough on their own without price signals (Read Brad Zarnett’s thoughts on “Tesla-Time” innovation)
We’re in Canada, so let’s talk hockey
McPherson offered a decidedly Canadian perspective via a hockey analogy: The government is the NHL, it’s the league that sets the rules; the capital markets are the referees, they have a role to play in keeping the game going according to the rules set by the league.
Sage words from a wise elder
We have a problem of communication with the financial community. We talk sustainable development and they talk shareholder value.
The animated discussion at this event concluded with closing words from Frank Frantisak, Member of the Order of Canada and sustainable development pioneer: “In the last 25-30 years very little has happened. I remember being part of these types of conversations and meetings in the 1980s and early 90s. We have a problem of communication with the financial community. We talk sustainable development and they talk shareholder value. We have very little time when it comes to climate change. The collapse of western civilization predicts that before 2090 western civilization will collapse – I suggest before 2050. And I believe the financial community has a big role to play in addressing and solving these major issues and challenges we are facing.”