While the CEOs and decision-makers that attended the annual World Economic Forum meeting seemed more worried about things other than climate change (the potential for another Donald Trump presidency and artificial intelligence), they were also more excited about the gathering multitrillion-dollar economic opportunity presented by the transition to a low-carbon sustainable economy. Business is better at playing offence than defence, so I think this may be a good thing.

Corporate Knights’ annual Global 100 ranking of the world’s most sustainable corporations turned 20 this year in Davos. And the corporations that make up the Global 100 are proving that companies that set the standard for sustainability excellence can also outperform the market over time. Now is the time to double down.

These companies show that the climate crisis is far from the back burner for many major players in the business world. Maybe it seems like it has been placed on the back burner simply because it’s becoming ingrained in the way we do business. There isn’t only a moral imperative for corporations to work toward a more sustainable planet; there’s a financial one, too. Here are eight ways the sustainable economy is taking over.

1. In 2024, the average Global 100 company earned 51% of its revenue from sustainable solutions in alignment with the Corporate Knights Sustainable Economy Taxonomy (which measures corporate contributions to the sustainability transition). That’s three times better than the average large publicly traded company with more than US$1 billion in overall revenue, which earned 16% of its revenue from sustainable sources.

2. When it comes to sustainable investments, it’s the same story. Global 100 companies allocated 55% of their total investments (capital expenditure, research and development, and acquisitions) to sustainable themes, versus 17% for the broader universe of companies analyzed.

3. Financially speaking, the Global 100 index has stood the test of time, outperforming its benchmark over the past two decades. It has posted a 295% total return since its inception in February 2005 to the end of 2023 (versus 278% for the MSCI ACWI).

4. The really good news is that the exponential growth of the sustainable economy is not contained to the Global 100 companies; it is now embedded as a dominant macroeconomic growth trend, with large publicly traded companies growing their sustainable revenues and investments at double the rate of general revenues and investments over the past three years. A look inside the Corporate Knights Sustainable Economy Intelligence Database shows that sustainable capital expenditures grew by 56% from 2019 to 2022, compared to 23% for general capital expenditures, while sustainable revenue grew by 84% versus 40% for general revenues over the same period.

5. None of this means we can rest on our laurels. The fossil fuel industry is flush with cash, existentially motivated and ferociously well organized to put up political barriers that delay the inevitable transition to a low-carbon sustainable economy. But fear not: the companies that want swifter climate action in alignment with the Paris Agreement – publicly traded companies signed up to the Science Based Targets initiative (SBTi) – have seven times more economic power (earning US$28 trillion in the most recent fiscal year, according to Corporate Knights calculations) than the US$4 trillion haul made by the fossil fuel industry (itself a huge rise from its recent average of US$1.5 trillion).

6. This economic power must be translated into political power to address barriers to climate action, chief among them unacceptably long permitting times for renewable-energy projects. This is beginning to happen with work led by the Corporate Knights Global 100 Council and others to galvanize the voice of business – not just the green energy companies – as a voice for speeding up climate action. This was demonstrated at COP28 (the first COP agreement to include a renewable-energy target), where business calls spanning all sectors for more clean energy were met with a pledge to triple installed renewable energy to 11,000 gigawatts by 2030.

7. While the fossil fuel industry is more powerful politically, both science and economic power are on the side of companies that want to speed up climate action.

8. While much climate action discussion is devoted to absolute net-zero goals decades away, which can raise hackles and unnecessary existential questions, the current imperative is to focus on speeding up action here and now.

Corporate Knights is here to help organize and provide secretariat support for companies that want to speak out together and ensure that their industry associations are part of the program, so we can make 2024 the year of climate action acceleration.

Our skis are pointed in the right direction, and we’re closing in on the summit (with an electric assist).

Toby Heaps is co-founder and publisher of Corporate Knights. 

The post Eight ways the sustainable economy is (still) taking over appeared first on Corporate Knights.

Both are mortal threats to humanity, but the coronavirus has the urgency of a bullet coming at our heads, whereas the climate crisis is a slower burn (albeit increasingly prone to blazing flare-ups).

With the coronavirus, time is compressed into minutes, hours, days and months. What we do today can determine if our families, neighbours and communities get deadly ill in the next 14 days. That temporally compressed line that connects our actions to their life-saving impacts has spurred governments around the globe to make the tough decision to lock down their economies and bring the engine of capitalism to a shuddering halt.

With the climate burn, the time scales are longer. If we throw water on the fire today, it could take decades or centuries before the flames are doused.

How to solve this riddle of time? For wisdom, I turned to my friend Nick Parker.

Nick is the prophet of “cleantech.” He coined the term in 2002 and helped catalyze an ecosystem that has since moved mountains of money ($150 billion of venture capital and private equity at last count) to develop cheap and sustainable solutions the world now appears ready to adopt.

Again today, Nick had an answer to the climate riddle. He said we can think about this in three phases.
The first 30 days was about saving our lives. The next 90 days is about keeping the economy on life support. The 900 days after that will be about building the society we want.

As we plan for the next 900 days, there will be no shortage of suggestions for how we can build back better, but it would be a disservice to the moment if we are not clear-eyed about what will drive the recovery. It will be people.

This virus has exposed the brittleness of our economic system, a system that has been downloading costs to the most vulnerable for too long. As we hunker down in our homes, we are sustained by essential workers, so many of whom are not even earning a living wage. In the starkness of our self-isolation we can now see that the people we need the most are often the ones we value the least.

As Mark Carney wrote recently in The Economist, “After decades of risk being downloaded onto individuals, the bill has arrived, and people do not know how to pay it.”

The social contract just came up for renewal, and those who have been getting short-changed are demanding a raise.
The people who have been rigging the game now recognize that the jig is up and are falling into line.

The Financial Times, flagship paper of the Davos class, signed off on the deal with an unsigned editorial this April: “Radical reforms – reversing the prevailing policy direction of the last four decades – will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities and look for ways to make labour markets less insecure. Redistribution will again be on the agenda, the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”

People must be at the front of the line come stimulus time.

Fortunately, thanks in part to the clean innovation wave that Sir Parker’s ripples helped to generate, this could work out just fine for our climate.

If the objective of the economic recovery is to get as many people back to work as fast as possible and lay the foundations for a strong economy capable of digging us out of a debt hole, there may be no more effective strategy than applying a climate lens.

Putting a climate lens on economic stimulus sounds like a constraint or dilution of the primary mission. But rather than a constraint or diluent, it’s more akin to X-ray vision that will help us cut through the fog of old ways to hone in on the most effective investments that will get more people back to work faster while bolstering our long-term economic potential.

That’s because the clean economy is generally more labour-intensive (think retrofits) and has higher – more than double in most cases – compound annual growth rates as compared to the general economy.

This flies in the face of a still popular perception that carbon reduction policies are simply expensive. That might have been true 10 years ago when the cost of clean technologies was high. But since then the relentless march of technological progress has slashed clean technology costs, and they continue to fall.

As it becomes ever-cheaper to make and store clean energy; build smarter, more efficient buildings and industry; and electrify transport (even with oil at negative prices, electricity is still by far the cheaper way to move a car), demand for these products goes up, and those economies that invest accordingly rise to the top.

For these next 900 days, let’s take off the blinders of the past and put on a pair of climate X-ray goggles. They can help guide us through the pandemic portal to another world, one we can be proud to bequeath to our grandchildren.

Toby Heaps is the editor-in-chief and co-founder of Corporate Knights. This Editor’s Note appears in the Spring 2020 Issue of Corporate Knights.

The post A new social contract and climate capitalism: Our best shot at building back better appeared first on Corporate Knights.

But now the next generation has a voice, and a name: pigtailed Swedish teen Greta Thunberg. By skipping school to protest climate change at the Swedish parliament, the iron-willed 16-year-old has inspired today’s young people to confront their elders’ failure to act.

Greta was a shy unknown when she walked out of school last August – following Sweden’s hottest summer on record – to begin her SkolStrejk (school strike). After three weeks of haunting the Riksdag in central Stockholm, she reduced her strike to one day a week, Fridays, and the world started taking notice. Within a few months she was lecturing in Poland at a UN climate conference, dressing down the world’s economic elite at the World Economic Forum in Davos, holding press conferences and reprimanding British Prime Minister Theresa May on Twitter.

In December, Greta was named one of Time magazine’s 25 most influential teens and in March was nominated for the Nobel Peace Prize. Her TED Talk has more than a million views, and on March 15, over 1.4 million students at over 2,000 schools in 125 countries on all continents walked out of class in solidarity with Greta’s fierce determination, making it “the biggest day of climate action ever,” according to 350.org. With 150,000 protestors, Montreal was reportedly the single largest climate protest that day.

Montreal, Canada.

— Greta Thunberg (@GretaThunberg) March 15, 2019

How has Greta Thunberg broken through the clouds of apathy that have hindered such prominent activists as Al Gore, Naomi Klein and Bill Nye the Science Guy? She is driven by desperate seriousness and inspired by the teenaged shooting survivors in Parkland, Florida, who organized the March for Our Lives. Above all, she is a fearless critic who makes every word count.

In her address at Davos, Greta warned that good intentions are no longer enough: “Solving the climate crisis is the greatest and most complex challenge that homo sapiens have ever faced.” But the solution, she said, is simple: “We have to stop the emission of greenhouse gases… Either we choose to go on as a civilization or we don’t.”

Adults, she noted, often say, “We owe it to the young people to give them hope.” But, Greta insisted, clear-eyed and level-voiced, “I don’t want your hope. I don’t want you to be hopeful. I want you to panic. I want you to feel the fear I feel every day. And then I want you to act… I want you to act as if the house is on fire, because it is.”

The daughter of an actor and an opera singer, Greta was diagnosed four years ago with Asperger’s, a mild type of autism. Common symptoms include difficulties in social interaction and nonverbal communication. But one person’s disorder is another person’s superpower; Greta believes her disorder has fuelled her focus.

“I overthink,” she says. “Some people can just let things go, but I can’t, especially if there’s something that worries me or makes me sad.”

Never mind the flood victims, the polar bears or the increasing number of people killed by wildfires. Greta personifies the innocent victims for whom climate change is not a political football.

“We have the right to live our dreams and hopes,” she insists. “Adults are jeopardizing our future… You say you love your children above all else, and yet you are stealing their future in front of their very eyes.”

The post Only 16, but Greta Thundberg is the voice of reason appeared first on Corporate Knights.

The first time I went to the annual Woodstock for capitalists in the Swiss village of Davos back in 2005 (to launch the inaugural Global 100 Most Sustainable Corporations in the World ranking), Dylan’s lyrics would have been the last theme song in the universe chiming in my head.

I remember then asking Steven Schwartzman, co-founder of the giant investment firm Blackstone, if he was doing any investments in renewables or green companies. He replied, “Nah, that stuff is too small for us.”

How the music has changed. In 2019, it’s not just Corporate Knights crooning about sustainability in the Swiss alps. Now, the world’s biggest investors are dancing to the same beat, even if they still look a little awkward on the dance floor (anyone who made the McKinsey soiree at the Belvedere Hotel will know what I am talking about).

On Tuesday, François Riahi, the CEO of Natixis, a French bank with assets under management of $1 trillion, told guests at a dinner in the Belvedere Hotel, hosted by Corporate Knights and Climate Bonds Initiative, that his bank has introduced a Green Weighting Factor.  Weighting factors go to the heart of how bankers allocate money and this one aims to promote finance deals with a positive impact on both the climate and the environment at large by adjusting the expected profitability threshold on various transactions according to their effects on climate change. Riahi said that he sees a point not far off where two companies with the same financial profiles will have different costs of financing based on their alignment with a 2° C or less world.

We also heard from an executive at BNP Paribas (one of the ten largest banks in the world) that the bank has set – and met – a target of 15% of its corporate loans being dedicated to furthering the UN Sustainable Development Goals (SDGs), in part because they link executive bonuses to achieving the target.

After dinner, I swung by a reception hosted by Steve Forbes of the eponymous Forbes magazine (otherwise known as the bullhorn for red-blooded capitalism), whose main (and most read) story published that day was a feature on Corporate Knights’ Global 100 Most Sustainable Corporations. Whereas past incarnations of the Forbes Davos shindig showcased magazine covers celebrating the wealthiest people on the planet, this year the blown-up cover on display beside the champagne flutes was for the Just 100, a ranking of America’s most just companies.

Wednesday morning on the way to breakfast, I picked up one of the many free copies of the Financial Times on offer. As I was leafing through the paper at breakfast, I couldn’t help notice two of the largest investors in the world (UBS $3.2 trillion, and Amundi with $1.5 trillion) had taken out prominent ads extolling that they were going all-in on sustainable investing.

As I pondered this, a friendly-looking woman with a Northeastern U.S. twang asked if she could join me for breakfast. It was Barbara Novick, vice-chair of Blackrock, the world’s largest investor with $6.4 trillion assets under management. The week prior, Blackrock had been the target of a brilliant Yes Men campaign, which distributed the 2019 annual letter ostensibly from Larry Fink complete with a faux-web site announcing that the world’s largest investor was going to dump companies failing to comply with the Paris accord: “To make good on the threat I issued last year, we will begin this work by divesting from coal companies in our actively managed funds. Within 5 years, more than 90% of our 1000+ investment products will be converted to screen out non-Paris compliant companies such as coal, oil, and gas, which we see as declining and endangered.”

The remarkable part, and sign of the times, was that the venerable Financial Times fell for it, publishing a story that the world’s largest investor was going to dump companies failing to comply with the Paris accord, before Blackrock clarified it was hoax. The fact that such a story could be deemed plausible by the world’s financial newspaper of record tells us how far perceptions on sustainable investment possibilities have come in just a short time.

Later that evening at a dinner focused on financing the sustainable development goals, an academic from Cambridge University, Ellen Quigley, challenged Scott Mather, chief investment officer of Pimco, one of the world largest bond fund managers (with $1.8 trillion assets under management), to account for what his firm is doing to defund “zombie companies” out of step with a sustainable low carbon future. I was expecting a canned answer but was instead surprised by Mather, who between bites from his poached pear desert, noted that they are keenly aware of companies at risk of “zombification” and are already taking measure to reflect this in their credit ratings and in the make-up of their investment portfolios.

The Davos 2019 takeaway for me is that while the establishment capitalists are late to the sustainability party, they have finally shown up. Thank goodness, because we are running out of time, and we need all the help we can get. As Sir David Attenborough pointed out in his plenary address:

 The future of the natural world is in our hands. We can wreck it with ease. We can wreck it without even noticing.

 

-Sir David Attenborough

There is no question in my mind that we can find a way to reconcile humanity with a livable planet. The question is whether this happens smoothly within our current capitalist system or with great upheaval. If capitalism is going to adapt and survive as economies change to become symbiotic with the planet and society, it will require a new mindset which appreciates that healthy markets require healthy societies, and that serving society is not incompatible with serving shareholders—within reasonable limits.

I believe this ethic is taking root. In order to make capitalism dance for society, the below dos gleaned this week in Davos offer some instructive wisdom:

#1 Do focus on the big numbers. Plastic straws matter symbolically, but if China’s Belt and Road Initiative (China’s multi-billion Marshall-esque Plan for economic development along the old Silk Road route) doesn’t have sustainable design principles embedded, its impact will be on par with adding two China’s worth of carbon emissions to the planet, as Simon Zadek, the UN man charged with figuring out how to finance the SDGs, pointed out.

#2 Put your money where your mouth is. Let’s make sure major capital flows all go through the lens of sustainable development, including the sleeping giant, corporate pension plans. That could unlock trillions of dollars for green investment, as the heads of the world’s largest corporate and investor sustainability initiatives have called for.

#3 Hold investors to account. While corporate sustainability rankings abound, it’s time to rank the world’s largest investors on what they’re doing to bring about a sustainable world (stay tuned on this one).

#4 Put more women in charge. Dominique Reiniche (the chair of Chr. Hansen, the most sustainable corporation in the world), Angela Merkel (climate warrior and closest thing we have to a leader of the free world), New Zealand’s rock star PM Jacinda Ahern (who is going beyond GDP with a well-being budget to guide her government’s priorities), and the trailblazing heads of the world’s largest corporate (Lise Kingo) and investor sustainability initiatives (Fiona Reynolds) are all women. Notice a pattern.

#5 Scale bottom-up solutions. While the big institutions of yesterday are coming around, their inertia makes it more likely that transformational solutions will emerge from bottom-up sources that harness the better angels of human nature.

#6 Champion new visionaries for a sustainable economy. It’s time to replace yesterday’s capitalist icons with new heroes that point the way to a sustainable planet, like Mariana Mazzucato in her new screed, The Value of Everything, that lays out a powerful framework for purposeful capitalism and Oxford’s Colin Mayer, author of Prosperity: Better Business Makes the Greater Good.

#7 Do stay in touch with the nature. Its essence will sustain and inspire this journey, as Jane Goodall and 17-year old wildlife photographer, Skye Meaker (my bus-mate from the Zurich airport), emphasized. If the proprietor of local cross-country ski rental shop is any indication (“we are not big fans of the WEF because they’re too busy with their meetings to go skiing”), the Davos men and women still have some work to do here.

#8 Do swim against the current—it could be the best way to get ahead of the pack which is still extrapolating from the past to predict a future that is going to be radically different. As Bill Gates wisely reminded: We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.

#9 Exercise persistence. Nothing worthwhile is easy.

#10 Get out of your comfort zone. That’s the best sign that you may be doing a jig that has legs.

Bottom line: CEOs who want to be on the right side of history will want to lead change rather than stand in its way. Although it would be hard to imagine him ever making an appearance at Davos (like Sting did this year at the Salesforce party), Dylan may have captured the zeitgeist best: Your old road is rapidly agin.’ Please get out of the new one if you can’t lend your hand, for the times they are a-changin.’

The post 10 lessons from Davos on changing capitalism’s tune appeared first on Corporate Knights.

When the World Economic Forum (WEF) released its “Global Risks 2014” report last January in advance of its annual meeting in Davos, Switzerland, it named the “worsening wealth gap” as the year’s biggest risk.

To outside observers, WEF is in many ways the embodiment of that global risk. It is the annual gathering of the world’s super rich, peppered with artists, academics and scientists to boost discussion and enlightenment. About 1,700 private flights are scheduled to swoop down on this Swiss resort town over the next few days, with each return flight costing an estimated $28,000.

Free food will be plentiful, the parties will be lavish, and for those without a hangover, mindfulness guru Jon Kabat-Zinn will lead each morning off with group meditation.

WEF’s “Global Risks 2015” report, released last week, cites international conflict and the world’s growing water crisis as this year’s biggest risks. Income disparity didn’t even make the short list.

Does this mean the wealth gap is narrowing? Quite the contrary. A report released this week by Oxfam International says the problem is getting worse.

Oxfam warns that by 2016 the planet’s wealthiest 1 per cent will control just as much – if not more – of the world’s assets as the 99 per cent combined. Indeed, since 2009 the 1 per cent has expanded its slice of the wealth pie to 48 per cent from 44 per cent. Oxfam contends it will reach, and possibly surpass, 50 per cent sometime next year.

To be fair, if the WEF picked the same No. 1 global risk every year the headline-framing press release would quickly get stale. The reality is that there are, in any given year, many global risks competing for international attention and most of them get discussed in Davos. In fact, the WEF did address the wealth gap ahead of its meeting this week with the release of a 14-point plan of action that tackles everything from minimum wage to corruption.

Elitist as it is, WEF is effective at getting the planet’s wealthiest, brainiest and most politically powerful under one roof for a few days. Bill Gates, John Kerry and happy guy Pharrell Williams won’t solve the world’s problems in one week, but the occasion shines a light on these problems and allows for a sharing of information and commitment that can inspire action, hard as it may be to measure.

WEF is also an occasion that others can piggyback, drawing attention to their own research and causes. The Oxfam report is one of dozens expected to be released during the week. The United Nations Environment Programme, for example, will release a report called “Pathways to Scale,” part of an inquiry into designing a more sustainable financial system. The report will outline how banks, bond markets, and institutional investors can, with the right tools and policy, help redirect the flow of capital to achieve long-term sustainable development.

For 10 years now Corporate Knights has launched the annual Global 100 Most Sustainable Companies in the World ranking from Davos, where we also host an executive roundtable dinner. The dinner is an opportunity for leading business, finance and economic minds – from George Soros to Sir Nicholas Stern – to discuss ways of making capitalism more sustainable. This year’s topic is how to create a favourable investment climate to price carbon.

On Friday morning, Corporate Knights and the Schulich School of Business at York University will host the final round of the second-annual CK-Schulich Business for a Better World MBA case competition, which this year is aimed at making pharmaceutical giant Novartis a sustainable leader among its peers.

Teams from the University of Victoria, Simon Fraser University and Schulich have travelled to Davos to present their business plans in front of a live judging panel. The winning team will take home a $6,000 prize.

Throughout the week, Corporate Knights will file reports from WEF on issues that fall within our sustainable business mandate. We will pay particular interest to discussions around climate action, including a Thursday morning session titled “Closing the Climate Deal,” which is expected to build consensus and momentum toward reaching a global emission-reduction plan in Paris this December.

Many of the WEF sessions will be webcast live, including those with a focus on environmental and social issues. We’ve listed some of those sessions below in case you’d like to tune in. You can search for these on the WEF website, put them in your online calendar and schedule email reminders:

Wednesday 21 January

09.00 – 10.00 (3 a.m. EST)

The New Energy Context

How are technological, economic and geopolitical changes shaping the future energy landscape?

10.00 – 10.30 (4 a.m. EST)

What’s Next? A Climate for Action

Through a powerful visual narrative, Nobel Laureate Al Gore reveals what’s next for climate in 2015.

14.30 – 15.45 (8:30 a.m. EST)

The Geo-Economics of Energy

How are energy producers and consumers adapting to increasing uncertainty?

Dimensions to be addressed: Demand and supply uncertainty; Market volatility; Geo-economic shifts

Thursday 22 January

16.30 – 17.30 (10:30 EST)

Closing the Climate Deal

How can a comprehensive global climate deal be achieved in 2015?

Friday 23 January

09.00 – 10.00 (3 a.m. EST)

The BBC World Debate: A Richer World, but for Whom?

Are existing growth models failing to deliver jobs and address income inequality?

10.30 – 11.30 (4:30 a.m. EST)

Tackling Climate, Development and Growth

What resources and commitments are needed now to tackle climate change, development and growth?

12.30 – 14.00 (6:30 a.m. EST)

Employment: Mind the Gap?

Remuneration for top jobs continues to increase while mechanization and offshoring have eroded middle-wage jobs. Inequality in capital and income are on the rise and the trend shows no signs of abating. With 42 million people striving to join the workforce every year, is this trend reversible?

– What are the long-term concerns for youth in this tough market?

– What solutions could alleviate this trend in the short term?

– How can the labour market be re-organized? – Is globalization driving inequality?

18.00 – 18.15 (noon EST)

Sustainable Development: Demystifying the Facts

A thought-provoking presentation by Professor Hans Rosling that reveals the surprising trends shaping today’s world.

18.15 – 18.45 (12:15 p.m. EST)

Sustainable Development: A Vision for the Future

A discussion with Bill and Melinda Gates on catalysing action on the new Sustainable Development Goals

18.30 – 20.00 (12:30 EST)

Should Business Lead the Social Agenda?

Complex global problems are often left for international organizations and government to solve. As a result, we have failed to meet challenges such as the Millennial Development Goals. Businesses play an increasingly important role in the global system, and face growing pressure from millennial consumers and employees to align core operations with social impact. Can businesses help to find a solution to global challenges, and should these challenges really be tackled by businesses?

– Is business doing enough?

– Can business solve social problems and make a profit? What models exist?

– Do other stakeholder groups need to rethink their traditional roles?

Saturday 24 January

11.00 – 11.30 (5 a.m. EST)

An Insight, An Idea with Mario Molina

A conversation with Nobel Laureate Mario Molina on communicating the science behind climate change

15.30 – 16.30 (9:30 a.m. EST)

The Diversity Dividend

How can organizations embrace diversity to drive innovation and sharpen their competitive edge? Dimensions to be addressed: Paths for women in power; Ensuring LGBT inclusion; Diversity beyond borders

The post Private jets converge on Davos appeared first on Corporate Knights.

They were there as part of the inaugural CK-Schulich Business for a Better World Case Competition. Having made it through two previous rounds, which whittled down a pack of 28 participating MBA teams, it came down to the final three – the Palumbo Donahue School of Business at Duquesne University in Pennsylvania, the Monterey Institute of International Studies at California’s Middlebury College and the Stockholm School of Economics in Sweden.

“To have got this far is a great compliment to you and the work you’ve done,” said Suncor chief executive Steve Williams before he and his fellow judges announced the winner. “Just for reassurance, I will take pieces from each of your presentations and they will be part of our plan of execution, and that is the greatest respect I can pay you.”

In addition to Williams, the judging panel included Dominic Barton, global managing director of McKinsey & Company; Robert Greenhill, managing director of the World Economic Forum; former State Street Global Advisors chief investment officer Sean Flannery, now vice-chairman of Corporate Knights; and Nicky Major, global corporate sustainability leader for Ernst & Young. Rounding out the panel was professor Dirk Matten, the Hewlett-Packard Chair in Corporate Social Responsibility at the Schulich School of Business at York University in Toronto.

Teams were required to assess Suncor’s global business operations, which are heavily weighted towards the oil sands, using the same 12 key performance indicators that Corporate Knights uses to determine its annual Global 100 Most Sustainable Corporations in the World ranking. They then had to identify which of the 12 were priority indicators and come up with a business plan that would turn Suncor into a top sustainability performer.

Given the location and high profile of the judging panel, all three teams entered the competition room a little nervous. When the clock started on each of their 10-minute presentations, all were impressively composed. But it was the professional touch from Team Stockholm – composed of Karin Bratt, Anja Huber, Johannes Julius Meder and Christopher Royle – that won over the judges.

Team Stockholm argued that Suncor should invest more into attracting diverse talent to its executive ranks. Reducing the gap between CEO and average worker compensation was highlighted as another way to up its score in the short term. The ratio, currently at 113:1, should be brought to within 30:1 and 50:1 to stay in line with top sector players, the team said.

Also, boosting investment in innovation was cited as crucial to improving Suncor’s resource productivity score – particularly related to energy use and emissions – over the longer term. “The competition was very well organized, and we very much appreciate the valuable feedback we received in the final stage,” said the team’s Christopher Royle.

Team Duquesne received $4,000 for second place, while third place Team Monterey was rewarded with $2,000. The prize money came from Suncor, which was the competition’s case sponsor. It was a close call for all three. For example, some judges were particularly impressed with the sophisticated sensitivity analysis (using the “Ginzu” model of firm valuation) carried out by Team Monterey.

The team looked at three scenarios – from business as usual to the International Energy Agency’s New Policies Scenario – to map out at what point it would be in Suncor’s financial interests from a future cash-flow perspective to divest from the oil sands altogether in favour of more profitable alternative energy.

Their answer: sometime between 2026 and 2038.

The post MBA students give Suncor Energy a (hypothetical) makeover appeared first on Corporate Knights.

How can the trend be reversed?

This overarching question is what guided a dinnertime discussion at an annual roundtable co-hosted by Corporate Knights during the World Economic Forum in Davos, Switzerland. The roundtable was held in partnership with the United Nations backed Principles for Responsible Investment (PRI) and the UN Global Compact.

The 40 guests who attended, including representatives from major corporations, pension funds, sovereign funds and government organizations, were asked to imagine a world where big investors prioritize long term thinking; a marketplace where investment managers are hired and compensated based on their ability to align with long-term objectives.

In such a world, investors would be more inclined to invest in and engage with companies focused on long-term value creation and sustainable operations. Capital would shift to more illiquid asset classes, such as infrastructure and real estate, and company management would no longer be held hostage to quarterly financial- only reporting.

“We know it’s the right thing to do, but that’s not what’s happening as capital flows through the value chain,” said roundtable co-chair Mark Wiseman, president and chief executive of the Canada Pension Plan Investment Board (CPPIB). Somewhere along that value chain – from savers to major asset owners to asset managers to corporations – the long view has been neglected.

Major asset owners such as pension funds, insurance firms, mutual funds and sovereign wealth funds invest on behalf of longterm savers, taxpayers and investors. Their fiduciary responsibilities stretch over generations in many cases, and their combined influence has grown over the decades. Today, for example, they own 73 per cent of the Top 1,000 companies in the U.S. versus 47 per cent in 1973.

“How is it that those asset owners have abdicated their role in demanding that the capital they represent be put to the best longterm value creation?” asked Wiseman.

Fellow co-chair Dominic Barton, global managing director of McKinsey & Company, shared some results from a McKinsey-CPPIB survey of 1,000 executives and board members to illustrate how pervasive “short-termism” has become:

• 63 per cent of respondents said the pressure to demonstrate short-term financial performance had increased over the last five years;

• 79 per cent felt most pressure to demonstrate strong financial performance over two years or less;

• only 7 per cent said they were pressured to deliver strong financial performance over a horizon of five years or more;

• 73 per cent felt they should be using a time horizon of more than three years;

• 86 per cent agreed that having a long-term time horizon would help them make better decisions.

Wiseman said big investors have to start acting more like the owners they are. It starts by clearly defining their long-term objectives and setting up governance structures that align with those objectives. It also requires that they be more active owners – for example, exercising more of their proxy voter rights and demanding that the corporations they hold regularly report on long-term metrics.

Quarterly reports alone don’t tell the whole story, said Corporate Knights vice-chairman Sean Flannery, former chief investment officer for State Street Global Advisors, Americas. “When we look at quarterly numbers, do we really believe they measure all that we need?”

More integrated reporting of financial and non-financial environmental, social and governance information is a necessary step.

At present, roughly 10 per cent of global businesses are taking the idea of integrated reporting seriously. “Clearly there’s still a long way to go,” said Georg Kell, executive director of the UN Global Compact. The field is divided by those who don’t see it worth the effort and those who are driven by the need to be leaders. “If you want to become a leader or stay a leader, you cannot afford to ignore non-financial issues,” said Kell.

UN Global Compact has partnered with the UN PRI to study investor attitudes and how they are changing over time relative to those of chief executive officers. The study, to be published this spring, will be based on interviews of 100 institutional investors from around the world.

Doug Peterson, president and CEO of credit-ratings leader McGraw Hill Financial (which includes Standard & Poor’s), said the emphasis on long-term thinking comes at an important time. Developed countries have crumbling infrastructure, while developing countries are in massive infrastructure expansion mode.

There’s a $200 billion gap each year in infrastructure capital needs, Peterson said, and the gap has grown since the financial crisis. “Governments don’t have the same level of capacity to do financing, and banks are shrinking their balance sheets, so there really is a need for non-traditional infrastructure financing to get involved.

“Filling this gap requires long-term thinking, because it has long-term benefits to society and creates a virtuous cycle,” Peterson explained. Shifting capital this way will also reduce liquidity in portfolios, driving volatility out of the market.

Offering the CEO perspective, Suncor Energy’s Steve Williams and Teck Resources’ Don Lindsay described their jobs as a constant balancing act. Lindsay, for example, talked about the “brutal” pushback he often faces with decisions like investing in land conservation and wastewater treatment for mining operations.

“If (big shareholders) acted like owners they’d fully understand that we must do this,” said Lindsay. “It’s not an option. It’s about who we are, who we are as a community – a broader global community.”

Williams described the different signals he gets from shareholders, which can be far from a homogeneous bunch. “One of the things a CEO has to do is keep all of the balls in the air, because he has to be able to survive in order to pursue the long term.” If you don’t survive you can’t start to influence significant change, yet the average CEO in North America only sits in the job for a few years, he said.

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