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Engaging The Board

Engaging The Board. Making CR a boardroom priority Rachel Pickering. Overview. CR within Board Functions Linking CR to the board’s objectives Using the right language Combining top-down and bottom-up approaches. What do boards want?.

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Engaging The Board

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  1. Engaging The Board Making CR a boardroom priority Rachel Pickering

  2. Overview • CR within Board Functions • Linking CR to the board’s objectives • Using the right language • Combining top-down and bottom-up approaches

  3. 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

  4. CR Buy In at Board Level Management CR Performance CR Improvement at Operational Level 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 The Challenge

  5. 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

  6. Areas that CR can indirectly influence Areas that CR can directly influence The link between CR and board objectives

  7. e.g. Risk Management Source: Bob Willard,The Sustainability Advantage.NSP Canada 2002

  8. e.g. Variable Cost Reduction Resource Inputs Production Output

  9. 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 Regulatory & Market Approval Licence to Operate Stakeholder Engagement Risk Management Workplace Conditions Productivity Reducing resource use Reducing costs

  10. 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

  11. Making it real: Can the value of CR be calculated? Disadvantage Purpose Advantage 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 Cash value Rating 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. Benchmark 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

  12. 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

  13. 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 Rating of CSR business risk Relative CSR Scoring: ABN AMRO Equities Source: Pharmaceuticals & SRI, ABN AMRO Slide 14

  14. Benchmark: The GS Energy Environmental & Social Index Source: Global Energy, Goldman Sachs Slide 15

  15. 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

  16. What Drives the Board?

  17. Input CR Management ? Corporate targets Prodn Line 1 Operational Targets Energy & Materials Operational Targets Site A Prodn Line 2 Operational Targets Natural Capital Prodn Line 3 ? Corporate targets Human Capital £ $ € ¥ Operational Targets Prodn Line 1 Financial Capital Operational Targets Site B Prodn Line 2 Operational Targets Prodn Line 3 Community Investment The Business Case in context

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