Hank Boerner is chairman of the Governance & Accountability Institute, based in NYC. He’s been a corporate communicator, issue manager and crisis response coach for corporate leaders for three decades. He has honed his trend analysis of issues over the course of 300-plus critical issues affecting the private and public sector.
Christopher P. Skroupa: Your book’s title is Trends Converging! A 2016 Look Ahead of the Curve [in] ESG, Sustainability, CR, SRI. Why 2016, and what do you mean by that description?
Hank Boerner: The theme is a description and analysis using my shared perspectives on important trends in corporate sustainability and responsibility management that are converging in 2016 and into 2017, as well as investment professionals embracing ESG analytics and portfolio management approaches for their management tactics.
The “E” is about environmental responsibility and energy matters; “S” is all about the expanding range of social or societal issues and challenges that corporate boards, executives and managers are dealing with; and “G” is both traditional corporate governance and the governance of the “E” and the “S.” The boardroom has clear responsibility for overseeing risk management and protecting brand and reputation, and the effective management of ESG is the linchpin of any risk strategy today.
Skroupa: So, looking at your crystal ball: Just how many trends are converging, and how many did you include in your commentary?
Boerner: Well, we got close to 50 trends and I cut off the writing at that point, or this would be about 2018 trends. There are probably 70 or so critical trends and important developments that corporate and investment community leaders should be tuned into in the spheres that are variously labeled as “sustainability,” “corporate social responsibility,” “corporate citizenship,” “ESG” and “sustainable and responsible investment.”
Perhaps we should put things under a broad “corporate citizenship” umbrella. Think about the importance of freedom to operate, social license to operate, regulatory permission to operate—would you want to have a “bad citizen” as your key supplier? Would you want to be the example held up of “poor corporate citizenship” among your peers, such as in the financial services sector or as a critical equipment federal government supplier?
Skroupa: From among your long list, what are the top five or so trends that the corporate sector should tune into in 2016 and going into 2017? What should corporate leaders and even investment professionals be watching, and possibly responding to?
Boerner: Think about access to capital, cost of capital, and attracting patient, long-term investors— those things are on the mind of the C-suite all the time. Think about the evolvement of the “universal ownership” concept. For the past four decades, we have seen the rise of giant U.S. fiduciaries that have massive bases of beneficiaries, and short- and long-term obligations to them—public employee pension funds (an example being the New York State Common Fund, with $160 billion in AUM), CalPERS in California (with more than a million beneficiaries and many more AUM), foundations, endowments, trusts…the list goes on.
The universal investor concept is this: So many of these American fiduciaries now have so much invested in stocks and bonds and other assets of so many public companies, that they in essence “own the economy.” They have an affirmative obligation to engage with and actively discuss the policies and actions of the companies in their portfolio and to take action when corporate behaviors affect the assets that fiduciaries are shepherding for the beneficiaries. We see that in the rising number of ESG issues injected into the corporate proxy voting dialogue, which is another key trend.
Folks have told me that I’m naive and that this is too simple an approach, but apply this concept and look at another trend: the embrace of sustainability approaches by U.S. public and private companies. Our research shows that 81% of the S&P 500 companies are now disclosing and reporting on their sustainability strategies, programs, engagements, actions, ESG metrics, achievements, and more. Would they do that if the universal owner community and other institutions were not expecting them to do so? We see many more major companies carefully examining their global supply chain activities, which a growing number of large-caps are reporting on.
And then there is the broadening discussion of “materiality” in both the corporate and investment community. What is material and therefore needing to be disclosed? For many years the somewhat vague opinion of the U.S. Supreme Court has prevailed. But that’s like the SCOTUS view on pornography: you will know it when you see it. The emergence of ESG as a framework is changing the discussion on materiality. The most widely-used corporate reporting framework worldwide is the Global Reporting Initiative (GRI) “G4”—materiality is at the heart of this latest generation—and we have the Sustainable Accounting Standards Board organized by investors, carefully developing guidelines for sectors and industries within each sector. These tools for corporate managements are important when the internal discussions on “material information” is going on.
Skroupa: Back to your title, Trends Converging! What is the effect in 2016 of the trends that you describe as they converge and exert influence on the corporate sector?
Boerner: Another important trend to track is the steady move of developed economies toward a global low-carbon economy, which means more power generated by renewable fuels, more means of conserving energy, the embrace of the sustainable city rubic, and more fuel-efficient auto and truck transport. It does not mean the end of fossil fuel use.
The growth of less-developed economies is inexorable, and nations both developed and developing will need fossil fuels, oil, natural gas, and coal. But the proportions—the ratio of traditional vs. renewables—will steadily change. The U.S. government’s legislative and executive order-driven policies are changing supplier behaviors and making our public sector stronger and more resilient in terms of long-term sustainability, which is driving sustainability initiative in the private sector.
So, you see why I see “trends converging” this year and next. This is a very exciting time for sustainability professionals in all sectors of our economy.
Christopher P. Skroupa is the founder and CEO of Skytop Strategies, a global organizer of conferences.