Sustainability Oversight - NACD BoardVision
In this edition of NACD BoardVision, Kellie Huennekens and Brendan LeBlanc, both of EY, join Christopher Y. Clark, publisher of NACD Directorship magazine to discuss key topics from the NACD/EY Sustainability Handbook released earlier this year. Visit www.NACDonline.org/sustainability to find more information on this NACD publication.
>> Christopher Clark: Hi, I'm Christopher Clark, Publisher of NACD Directorship Magazine, and this is BoardVision. Today's topic is the oversight of sustainability and many related issues. Luckily, I'm joined today by Brendan LeBlanc and Kellie Huennekens of EY. Welcome!
>> Kellie Huennekens: Thanks.
>> Brendan LeBlanc: Thank you.
>> Kellie Huennekens: It's great to be here.
>> Christopher Clark: I'd be remiss in my duties if I didn't thank you and EY for being our key partner in that sustainability handbook this year, so thank you again,.
>> Brendan LeBlanc: Our pleasure.
>> Kellie Huennekens: It was so great to have the opportunity.
>> Christopher Clark: I'm going to answer the question before I ask you the question. My answer is...shareholders. Now the question is, to the both of you, is there has been increased activity and interest by directors in the governance and oversight of sustainability. You've got my guess, what's the reality?
>> Brendan LeBlanc: I would suggest that governance and oversight of sustainability is simply governance and oversight of the corporate strategy. That companies execute their business, execute their business model in the context of planetary limits and societal expectations. So sustainability is a, is a, is a word that goes by a lot of other synonyms. Citizenship, stewardship, responsible growth, resiliency, profitability, in perpetuity, all of these concepts get at the essence of sustainability. And the idea of how a company's strategy is executed has always been a board issue.
>> Kellie Huennekens: Of course I was going to say, you are right, it's all about shareholders. At least from my perspective. The EY Center for Board Matters has ongoing engagement with a full range of institutional investors. We also track proxy voting of the 3,000 largest companies in the U.S. And what we're seeing and hearing from them is that sustainability topics, environmental and social issues is a key concern, and that, this concept is gaining traction among a broader range of investors. Basically, what investors are searching for is a better understanding of how non-traditional, non-financial developments are impacting the companies in their portfolio, and accordingly, they want to know more about board oversight of these issues.
>> Christopher Clark: The perception is that this was a, was a soft issue, and I want to hear more about EY's view and work with boards on not forcing it, but enhancing it so it's no longer viewed as a soft issue.
>> Kellie Huennekens: I would like to say that there are a number of companies that appear to be redefining how boards should be looking at sustainability topics, and these companies are just the leaders in the space, and they're constantly communicating with one another, but also with investors, to explore how to approach sustainability topics, as you'd discussed before, it's a very difficult area, partly because it's new and partly because the topics covered are very broad and very challenging.
>> Brendan LeBlanc: Boards are, are meant to safeguard the assets of the companies on which they serve. And one of the trickiest assets, but more important, important assets are your social license to operate in an engaged workforce that, that people come to work beyond for just a paycheck, because they're doing something that they believe in. And, and how companies actually understand this, incredibly report and capture this information, measure value report, that, that that is, it's a business issue. So, the today, that, that whole process is maturing, and as boards get more engaged on what, what do we think our social license to operate issues are, what, what are the things that really matter to our business? What do, what do we depend on for natural resources and what are society's expectations of us? And how are we meeting that responsibility?
>> Christopher Clark: I did read even the appendices of our handbook, and one that stood out to me, and there were many tips, but the one tip I, I kind of, was ringing true to me was, get quick wins. You know, I was hoping that either one of you or both of you could flash that out for me.
>> Brendan LeBlanc: Quick ones for the, for management of the company, historically good at cost savings, that, you know, you do well by, by managing energy, reduce costs. That's fine. You do well by managing safe workplace and you, and you reduce cost and you increase moral. That, that's fine. The company manages risks very well if they are engaging stakeholders, those who, who well-being might be impacted by getting them in the tent with them early and understanding what their expectations are of the business. Those are all good, quick ones in producing a report from, from the company that explains the progress that they're making on, on these commitments, all good. Quick ones for the board, I wold strongly suggest taking a look at the appendix, and we've put a model charter in there, and understanding the board, who's responsible for what, what's the governance around the, your non-financial commitments that you've either explicitly made or are expected of you from your stakeholders?
>> Kellie Huennekens: As an indication of investor's interest on sustainability topics, more specifically environmental and social issues, we've been seeing in recent years that shareholder-sponsored proposals to management on environmental and social topics now makes us become one of the, the largest shareholder proposal category, and it's now about half of all the shareholder proposal topics submitted, and while some boards may ask, you know, is this really a big deal, the shareholder who filed the proposal? Does it hold a lot of stock, what we're seeing is that the broader base of investors is supporting a number of these key topics, such as greenhouse gas emissions reduction, whether to produce a sustainability report on an annual basis and, you know, how it is framed out, things like that, a human rights assessment, supply chain management issues, these are increasingly becoming more prominent in terms of the broad range of the topics that boards cover, and we're seeing average support for these proposals increase as well.
>> Christopher Clark: This is a great place to end, because you always want the director audience wanting more, and I think we have teased them to a certain degree. On behalf of NACD and EY, thank you for viewing today. I'm Chris Clark and this is BoardVision.
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