This article was written by Lindsey Rogerson of Thomson Reuters Regulatory Intelligence
The time has come for the boards of financial firms to close the gulf between rhetoric and reality on sustainability, Lise Kingo, chief executive of UN Global Compact, said ahead of the UN Global Compact Leaders’ Summit. Kingo added that it was imperative that CEOs adopted a sustainable mindset.
Boards need to make sustainability central to their organisation’s purpose and culture, Kingo said. This requirement is all the more urgent as countries and businesses rebuild after COVID-19. “I think the rhetoric gap is a really important topic to dive into,” Kingo said. “Across business there is an understanding that we are not really ‘walking the talk’ at the moment.” Kingo explained that her purpose in teaming up with the executive search firm Russell Reynolds Associates was to begin focusing on this leadership issue, noting that it draws on her long experience of working in this field and observing that whether a company can drive real sustainability in its business or not, usually comes down to a question of leadership.
Indeed, in its Leadership for a Decade of Action report, Russell Reynolds found that just 4% of candidate specifications for CEOs required experience of integrating sustainability. “I feel now we have come to the moment where we know what to do: on climate, on water, on many of the sustainability issues,” Kingo said. “But I think we need to start a serious dialogue about what it takes to be a top leader and drive these companies to create an impact.”
Recruiting CEOs with a sustainable mindset had to become the rule, and not the exception, Kingo explained, adding, for example, the impact that the right leadership can have on quickly transforming bank culture was illustrated by Elsa Palanza, global head of sustainability at Barclays, who said the arrival of Nigel Higgins as bank chairman in May 2019 had galvanized the bank’s actions on climate change.
The report also highlights the importance of designing the right remuneration metrics to ensure the board and executives deliver sustainability.
Creating the Compact
The United Nations created the UN Global Compact in 2000 to foster sustainability in the private sector. The initiative now has 10,000 companies across all industry sectors — including 871 from financial services — signed up to deliver on the Compact’s 10 principles. Citibank is the only U.S. bank that is a signatory of UN Compact, however. In Europe, UBS, Deutsche Bank, Credit Suisse, and HSBC have been signatories since 2000, and Standard Chartered joined in 2001. UK insurance group Aviva also joined in 2001.
Investment management corporation BlackRock — derided for its voting record on environmental, social and governance (ESG) issues as recently as last year — joined in April. That same month, BlackRock was hired by the European Commission to advise it on how best to integrate sustainability into banking regulation. The need for banks, asset managers, and pension funds to pull the triggers which will ramp up the delivery of sustainability across all other industry sectors is one that Kingo said had become increasingly understood during her five years heading the UN Compact. “BlackRock is evaluating all companies that it is putting into its sustainability products by the 10 principles and sustainable development goals (SDGs),” she explained. “We need to get all the good voluntary work that companies are doing anchored in a more solid framework so that it is not only the front-runners, but that this becomes that new normal for all companies.”
Role for regulators
Kingo said that regulators also have a role to play in encouraging laggards. “I believe that when voluntary initiatives have driven [some] companies to report on ESGs then the regulators have to come in to anchor it,” she said, adding that these “ambition loops” encourage businesses and governments to inspire each other. “There is a great opportunity for doing that now.”
The European Banking Authority (EBA) agreed and said on June 11 that all businesses had to be put on a level footing when it came to sustainability, saying that standardization was the way to achieve comparability in disclosures.
The Compact’s Leaders’ Summit also saw the launch of SDG Ambition Benchmarks. The initial seven benchmarks were designed to offer a measurable framework for businesses to hit targets for 2030. Consultancy firm Accenture and German software group SAP are partnering with UN Compact to monitor businesses’ adherence to the benchmarks. “The world is basically far behind in making progress on the [SDGs] and making them a reality by 2030… and big-time behind in two areas: climate and social inequalities,” Kingo said. “We are taking action in a very decisive way to move the needle at a global level.”
In regard to the COVID-19 pandemic, Kingo noted it was a shame that the opportunity to embed environmental requirements into pandemic bailout loans had been missed by the EU and others. The Canadian government did include such a requirement in its bailout, however.
“I sincerely hope that the opportunity to reset after COVID-19 will include really upgrading to the [SDGs], the Paris Agreement and the 10 principles as the road to recovery,” she said.