Shareholder Engagement In The Post COVID-19 Era: Driving ESG into the Mainstream
A Conversation Between Christopher P. Skroupa, Skytop Editor-in-Chief and the Executive Team at CMi2i / November 9th, 2021
Part Two of a Three Part Series
Nic Bennett is a senior strategic capital markets communications advisor at CMi2i. Over the past thirty years he has worked with Boards and Companies in five continents on reputation and critical business situations that have included profit growth and profit warnings; mergers and disposals; capital raisings and restructurings; issues and crises; EPS and ESG; shareholders and stakeholders, coaching and training. He was previously a partner at Brunswick Group and a Managing Director at FTI Consulting. Nic holds a Master’s in Economics from the University of Cambridge.
Christopher Skroupa: How patient is the market? Many companies were borrowing during the crisis so they could avoid huge layoffs and not have brain drain as a company. I’m curious to see what Q3 and Q4 earnings look like and if the alligators come out of the swamp to nibble on these overleveraged companies.
Nic Bennett: The weak become weaker and the strong become stronger in terms of sector leaders and laggards. I was recently talking to my friend in the travel industry about the top three in that sector. Prior, a total oligopoly for the three, but the third is now under pressure and one is looking to come out of the crisis smoothly. They were about to invest during the crisis and maybe able to come out stronger, so in that way it’s quite different from the financial crisis.
Christopher: What has driven ESG forward during the COVID-19 pandemic?
Nic: During COVID-19 the need for ESG has exploded, sustainable earnings, a focus on employees, breaking down supply chains. The phrase human capital development has come into play. Has it become relevant for all assets classes? I think it already has.
Christopher: Do you agree that the S of ESG has become a focus for materiality related conversations at the corporate management table?
Nic: We find that people often don’t focus enough on materiality. They’re trying to do everything. They’re given UN development goals and companies often rush to say, “yes”, we’re doing all of them, rather than how you can actually make an impact.
Christopher: In a way, the pandemic forced companies to understand ESG’s role in downside risk, moving it away from greenwashing.
Nic: Definitely the latter, you can make it a big PR deal, and get positive press for it. But again, people look for an actual impact rather than, “yes”, we do this.
Christopher: Materiality is partially created through the development of longitudinal data, allowing big capital the confidence to invest in ESG. Do you agree?
Nic: I think that’s right. It started with consumers, but now has moved into institutional investors, and these guys don’t invest to make losses.
Christopher: In other words, institutional investors have used ESG data to protect against the historically ephemeral nature of ESG. Do you support this notion?
Nic: I do, and there’s a ton of data on ESG. You can’t solve all problems immediately, but you can show that progress is there through the data and investors see that.
Christopher: Over the last 20 years, institutional investors have become intolerant with companies and fund managers who promote ROI irresponsibly, leaving out the side effects of hyper-aggressive performance for governments and communities to clean up.
Nic: Investors are pushing companies in the right direction. ESG is now mainstream. Investors now look deep into supply chains to avoid risk. And other questions about the supply chain are being looked at extremely carefully now by investors.
Christopher: If you could summarize with a real life example of ESG as a preventative in avoiding losses, what would that example be?
Nic: When I was living in South Africa, there was a company that was mining platinum, and they had promised their workers minimum wage, housing, and other benefits and never did any of that. Suddenly, there was a strike, and it shut down the plant for a whole year. That’s one obvious risk of social capital, and if that company had actually done what they promised in the first place that wouldn’t have happened. I also think this is one avenue that investors have a really powerful voice for change and seeing to what needs to get done is done.
Christopher: It’ll be interesting to see how things unfold in the next 2-3 proxy seasons. We’ll certainly be keeping an eye on developments and look forward to speaking again.