Maureen Kline is Vice President, Public Affairs and Sustainability for Pirelli Tire North America, responsible for the U.S., Canada and Mexico. She chairs the board of the Tire and Rubber Association of Canada and sits on the advisory board of the Corporate Responsibility Association, where she co-chairs a Thought Leadership Council on Brand and Reputation Management. Previously she managed Pirelli’s global public affairs, and before that, international communications from the company’s headquarters in Milan, Italy. Prior to her public affairs and communications career, Maureen worked as a journalist. She was a Milan correspondent for the Wall Street Journal Europe and Businessweek, among others, and holds a Bachelor’s degree from Yale University and a Master’s degree from the London School of Economics.
Christopher P. Skroupa: You represent a European company in the U.S. There is an EU directive requiring sustainability reporting; tell us how you see the future of corporate reporting on environmental, social and governance (ESG) factors developing in Europe and the U.S.
Maureen Kline: Corporate reporting, like anything else developed over 50 years ago, needs to be updated. Today, much of a company’s value is determined not by its bricks-and-mortar physical assets, but by intangible assets: the company’s patents, its know-how and culture, its reputation. Behind that reputation there are so many factors: a company’s commitment to the communities it operates in, the loyalty of millennial consumers based on its ethics, a governance structure that people believe keeps risks under control. We need reporting tools to express and measure those intangibles, and investors need to be able to know that one company’s reporting is comparable to another’s, so the reporting needs to be standardized.
GRI (the Global Reporting Initiative) has provided a great framework for reporting on intangible environmental, social and governance assets, and is itself not only a framework but a process that helps raise the bar; it helps companies improve their sustainability programs from year to year. The EU directive will keep the momentum up, but I think all multinational companies now feel the need to report on ESG as well as traditional assets and liabilities.
Skroupa: Does shareholder pressure for short-term profits get in the way of corporations focusing on other stakeholders, such as the community, the environment, customers and employees? How can ESG reporting contribute to bringing greater focus to more stakeholders and a longer term approach?
Kline: People mostly recognize the downside of that short-term focus when there is a problem. A short-term vision inevitably means reacting to events rather than preparing for them—managing crisis rather than mitigating risk in advance. We are now in a business environment where it pays to do good proactively, not just to do less harm, or to avoid risk. There are certain sustainability systems in place now.
For instance, in the case of a tire company like Pirelli, our automotive and retail customers expect us to contribute to their sustainability programs by implementing environmental, social and governance improvements, and we, in turn, operate in the same way with our supply chain. These improvements are all initiatives with a longer-term horizon. ESG reporting is useful because it requires a process of evaluating what is material to all the company’s stakeholders over a longer term than the next quarter. And looking beyond a quarter to quarter approach is really important, for a company’s adaptability to changing markets, and ultimately, its survival. Shareholders are the first to benefit from a longer term approach.
Skroupa: Pirelli has been temporarily de-listed due to an acquisition. When the company was listed on the Milan stock exchange, how did ESG reporting affect your company’s shareholder base?
Kline: When I joined Pirelli in 2006, the company was listed on the Milan stock exchange but had a relatively small international profile. It became clear that the best thing for the company would have been a solid base of long-term international institutional investors who trusted and believed in the company. We had a strong investor relations department that worked strategically towards this goal. Part of that process was bringing our sustainability message to European ESG investors, and ultimately, international institutional investors who believed in the long-term benefits of a strong sustainability program. At the time of delisting last year, 25% of Pirelli’s shares were held by signatories to the UN’s Principles for Responsible Investing (PRI). As it turned out, our strategy was very valuable to our stock price overall, and to achieving low volatility.
Skroupa: Are there too many differing standards and reporting frameworks? What tools do investors have to evaluate companies on ESG factors?
Kline: Everyone says this, but I will disagree here. Multinational companies can use the GRI framework to produce their sustainability reports, and most already do. The overworked professional putting together the sustainability report is required by the GRI framework to involve the Board of Directors in the process; this automatically brings sustainability considerations to the forefront for the whole company. The company can do CDP reporting for environmental indicators, and this streamlines environmental processes. The new sustainability accounting standards board in the U.S., is refining indicators for companies listed in every industry of the U.S.; once these are in place and working properly, they should be an easy upgrade to 10K corporate reporting.
Sustainability is a journey, and corporate reporting is a tool to keep it moving forward. A word on investors: They do complain of a lack of quantifiable, comparable data on ESG factors so that they can easily evaluate companies. But even today, in early stages of ESG reporting, analysts from Bloomberg, Thomson Reuters, MSCI and many others, do a great job pulling data from corporate reports and making it comparable. So we are well on our way to having good reporting and analysis.
Skroupa: What are the main drivers moving sustainability forward today?
Kline: I would say responsibility in supply chain is among the main drivers. Companies today get in a lot of trouble if slave labor is being used anywhere in their supply chain, or dumping toxic chemicals, or mining conflict minerals from somewhere not certified as warlord-free. So you need to know who and what is in your supply chain—transparency is of the utmost importance.
Another driver is millennials, who, by all accounts, care more than previous generations about where they shop, what products they buy, who they work for, and what they invest their money in. Another is investors, particularly activist shareholders with demands for disclosure and action. And finally, the law. You can’t hope for a “license to operate” granted by stakeholders if you are not well-positioned in terms of environmental responsibility, business ethics, and respect for human and labor rights.
Customers—such as the automakers in our case—who care about sustainability and think of us as partners are a driver for us. There is a product labeling requirement in Europe to help retail consumers compare tires on certain safety and fuel efficiency ratings. A similar program is coming to the U.S.; this is a driver. The general public has certain expectations of our company, and certainly our stakeholders do. We engage with our stakeholders in a major, international, structured listening and feedback exercise. This impacts our strategy and our focus.
Corporate reporting is a driver too. As I mentioned, it’s a process; companies set goals, then they report on their success or failure in achieving them. Then they act to improve. Then they report on their success or failure in improving. They get scrutinized for their reporting transparency, so they improve on that too. Then their competitors get motivated to set even better goals. And so on. The incentives for responsible management and strategy are there, and they’re strong. Being a responsible corporate citizen is an ethical matter, and can bring a competitive advantage.
Christopher P. Skroupa is the founder and CEO of Skytop Strategies, a global organizer of conferences.