By Samantha Penabad, CRB Student Advisory Board & MBA ’18 Candidate, and David Cogswell, CRB Student Advisory Board & MBA ’18 Candidate
On October 27 and 28, business leaders and academics convened at UC Berkeley for the Berkeley Sustainable Business & Investment Forum (BSBIF). Originally launched in 2015, the BSBIF provides a forum for conversations and panels on sustainable business practices, risk mitigation, reporting, and capital allocation. This year’s event brought together leaders from companies like PepsiCo, Visa, and Patagonia as well as institutional investors such as CamberView Partners and CALPERS to share learnings on sustainable, long-term value creation. Among the many key takeaways from the two days, here are three highlights that particularly resonated with the attendees:
Sustainability investments enhance value for shareholders – if we can collect the right data, on material indicators
Focusing on material sustainability issues can achieve positive results for investors, according to Professor George Serafeim of Harvard Business School. In his recent research, “Corporate Sustainability: First Evidence on Materiality,” Serafeim evaluated the performance of firms by distinguishing between investments focused on material and immaterial sustainability issues. He found that firms rated highly on material sustainability dimensions perform better than firms with poor ratings, indicating that material sustainability investments can indeed create value. For investors, this can be an important consideration when weighing investment decisions.
Unfortunately, collecting the right data to inform these investment decisions can be challenging. In fact, about 80% of data currently collected is immaterial, so investors end up sifting through a lot of noise. Thus, the challenge is not the need for more data; rather, the sector needs structured, standardized data with consensus around what is material for a given industry. The first step in this process involves agreeing on a handful of material sustainability metrics, by industry, and disclosing firms’ performance on those metrics.
Data is essential for speaking to investors – if we know how to look at it, and at what level to present it
The value of good ESG data cannot be overlooked – it can allow investors to assess a company’s performance relatively quickly “in their language”, and provides irrefutable evidence of a company’s ability to execute on their sustainability strategy. Today, there exists tremendous appetite from investors to condense all factors into a simple score. And yet, ESG investing leaders cautioned against our reliance upon that disposition, warning that averaging too much data across dimensions can dilute important findings of where along environmental, social and governance factors companies are excelling and where they are under-performing.
Instead, attendees advocated for first beginning with the context of an industry, to know which data points carry most weight. Organizations such as SASB have developed robust measurement frameworks that allow business leaders and investors to break out ESG performance into relevant metrics. And finally, the increasing prominence of integrated reporting, especially from European counterparts, provides a venue by which companies can discuss their ESG performance, not by the publishing of a single number, but rather by capturing their ESG data alongside their financial and other operational data, and translating the story
Sustainability deserves a special focus – but it also deserves to be integrated into all operations.
There is variability amongst companies regarding whether and how they represent sustainability across their organizations – from board of directors, to top leadership, and down through their operational structure. Research shows that of the Fortune 100/500, about a third have a specific CSR committee, and another third integrate it within another committee such as Nomination & Governance, Audit or Risk, within organizations, attendees reporting having distinct Sustainability or CSR units, as well as developing matrix responsibilities that integrated sustainability strategy into each functional area or business unit*.
Even more striking than the diversity of approach, was the common realization that sustainability strategy and organizational structure was both an experiment to be tested in different forms, as well as a journey to be had – recognizing that as organizations mature, their need for separate versus integrated sustainability efforts shift.
“In order to focus on [sustainability], sometimes you need to separate it out, but ultimately the goal is to integrate it… and so that’s where the tension is. [Integrating sustainability]…is the ultimate goal, but it’s also risky, because you risk dilution of impact,” summed up one business leader.
Participants across the various panels expressed optimism about the progress made in institutionalizing sustainable investment practices. Moving forward, we can expect investments to be more tightly integrated with the United Nations Sustainability Development Goals, the Principles for Responsible Investment, and guidance from the Sustainability Accounting Standards Board. While continued progress will require a long-term perspective in overcoming key challenges, the energy in the room at BSBIF showed that these investors, academics, and business leaders are certainly up to the task.
About the Berkeley Sustainable Business and Investment Forum
Inaugurated in 2015, the Berkeley Sustainable Business & Investment Forum focuses on the evolving concepts of risk management, capital allocation, and sustainable business practices with a focus on long-term value creation. It is a collaboration among the Berkeley-Haas Center for Responsible Business, the Center for Law, Business and the Economy at Berkeley Law School, and our corporate partners. The 2016 corporate partners include:BNY Mellon, PepsiCo, Intel, Visa, and PwC.