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Slide 1
Thursday 20 April 2023
Engaging The Board
Making CR a boardroom priority
Rachel Pickering
Slide 3
Overview
• CR within Board Functions
• Linking CR to the board’s objectives
• Using the right language
• Combining top-down and bottom-up approaches
Slide 4
What do boards want?
The leadership of a company seeks to stand out in at least 1 of the following areas:
• Financial results
• Risk management
• Leadership
• Values
Slide 5
The Challenge
The Business Case in Context• Embedding CR into a company requires buy in from The Board
• It also requires the correct management at the operational level
• Operations are where the improvements in CR actually happen
• The challenge is in aligning Operational with Corporate CR requirements and making them relevant
CR Buy In at Board Level
CR Improvement at Operational Level
Man
ag
emen
t
CR
Per
form
anc
e
Slide 6
CR within Board Functions
• Board Functions with explicit CR impact:
– Policies and Strategy– Monitoring of Management Performance– Framework for Accountability, Control and Risk Management
• CR needs Board Level buy in, but The Board needs convincing of the value of CR
Slide 7
The link between CR and board objectives
Risk Managemt. Direct Financial
Benefits
Shareh. Value
Revenue
CheaperCapital
CostsReduction
FinancialDrivers
Customer Attraction
Licence toOperate
Brand Value
& Reput.
EmployeeAttraction
Employee Productiv.
Innovation
Areas that CR can directly influence
Areas that CR can indirectly influence
Slide 8
e.g. Risk Management
Source: Bob Willard,The Sustainability Advantage.NSP Canada 2002
Slide 9
Production Output
Res
ourc
e In
puts
e.g. Variable Cost Reduction
Slide 10
Where does corporate responsibility fit in?• The good news: Corporate responsibility can have an impact where it matters
• The bad news: The language of corporate responsibility does not convey this
• What is needed is to translate corporate responsibility into ‘board speak’
Reducing CO2 emissions Reducing costs
Licence to Operate Regulatory & Market Approval
Stakeholder Engagement
Risk Management
Workplace Conditions Productivity
Reducing resource use Reducing costs
Slide 11
Why is financial valuation difficult?• Valuation of sustainability remains the holy grail, but there is a consensus among sustainability and finance professionals that it is not
possible to precisely value sustainability projects
• There is no established way of measuring sustainability performance, with the exception of environmental performance– How does one measure human rights performance?– How does one measure stakeholder engagement?– How does one measure macro-economic contribution?
• The direct contribution of sustainability to business performance is often hard to assess– Many variables at play– Impact on intangibles is harder to measure
• Asset managers and insurers have gone furthest in trying to convert qualitative indicators into comparable indicators
Slide 11
Slide 12
Making it real: Can the value of CR be calculated?
Purpose Advantage Disadvantage
Determine project/ business contribution to NPV or other monetary
calculation
Provides exact figure that can be directly
incorporated in any project assessment
Difficulties in valuing SD performance and financial contribution of intangibles
Assess impact of a project on financial
sustainability of project/business
Scores the contribution of a project/ business
allowing decisions based on rational arguments
Can not be directly incorporated into a
financial calculation.Does not necessarily
allow for comparisons.
Compare projects/businesses to help determine most financially attractive
Allows clear comparisons between various options to give clear decision-
making options
Only gives a measure of relative contribution to financial sustainability
Cash value
Rating
Benchmark
Slide 13
Cash value: Impact on EBIT
Potential Impact Of Carbon Constraints For Discounted EBIT (2003–2015)
Based On Value Exposure And Management Quality Assessments
Source: Changing Drivers, WRI & SAM
Slide 13
Slide 14
Relative Rating: ABN AMRO approach• Absolute performance is too hard to assess
– When is performance ‘good’ or ‘bad’?
• Relative performance can help make informed decisions– Comparing the performance of companies in the same sector does help decision-making
Relative CSR Scoring: ABN AMRO Equities
Rating of CSR business risk
Source: Pharmaceuticals & SRI, ABN AMRO
Slide 14
Slide 15
Benchmark: The GS Energy Environmental & Social Index
Source: Global Energy, Goldman SachsSlide 15
Slide 16
Recommendations• Ensure that CR is closely integrated with business strategy
– More buy-in of CR– Better leverage of CR benefits
• Convey CR messages in language the company leadership is aligned with
• Where possible provide a valuation of CR projects, even if it is an subjective rating
Slide 17
Slide 18
What Drives the Board?
Shareholder Value
Cost of Capital Capital and Variable Cost
Revenue
Short term profits
Long term growth
R.O.I.
Market Risk
Operational Risk
Capital Cost Risk
Balance Sheet Risk
Natural Resources
Human Resources
Energy
Infastructure
Increased
Competition
Market Growth
Innovation
Market Share
Slide 19
The Business Case in context
Input
Prodn Line 1
Prodn Line 2
Prodn Line 3
Site B
Site A
Operational Targets
Prodn Line 1
Prodn Line 2
Prodn Line 3
CR Management
?
£ $ € ¥
Energy & Materials
Natural Capital
Human Capital
Financial Capital
Community Investment
Corporate targets
Corporate targets
Operational Targets
Operational Targets
Operational Targets
Operational Targets
Operational Targets
?