Recap: 2022 Davos CEO Roundtable

Earlier this week in Davos, FCLTGlobal hosted a CEO roundtable with our members and other business and investment leaders to discuss the implications of the rise of non-traditional corporate metrics and disclosures. Investors are increasingly calling for high-quality, transparent, reliable, and comparable reporting by companies on climate and other stakeholder and sustainability matters. Developments in this area over the past several years, in particular the formation of the International Sustainability Standards Board and the SEC’s proposal around climate change disclosures, have led companies to reconsider what needs measuring, how to measure it, and how these metrics will change the way capital is allocated and businesses are operated.

Investors have asked for new types of information, and companies and the accounting community have responded. Now that we have material metrics, how will companies and investors use them to better invest for the long term? Several key themes emerged over the course of the discussion:

Resilience is critical to long-term performance but has generally been underappreciated by both companies and investors.

Resilient firms are better positioned to recover from the effects of market shocks, giving them a long-term performance advantage. Following the Great Recession, operationally resilient firms significantly outperformed peers – likewise, resilient companies are emerging from the COVID-19 crisis stronger. Participants noted:

Resilience is difficult to measure and compare across firms.
The value of resilience is demonstrated only in times of stress or when shocks occur, but incremental investment over time is often needed to build resilience.
Only long-term shareholders and other stakeholders benefit from resilience; short-term shareholders do not benefit from or value resilience.

“We have undervalued the role of resilience.”

Reliable non-traditional data is incredibly hard to capture and base decisions on.

While standards are becoming clearer, participants were urged to provide comments to the SEC and ISSB to ensure that we don’t jump from a dearth of data to a deluge that complicates decision-making further. Participants noted:

Multiple standards and frameworks cause undue complexity, especially for firms operating globally.
Systems and processes are not yet in place to limit the noise surrounding sustainability metrics, and both companies and investors are still finding their way on capturing, reporting, and fact-checking the data.
Investors make their decisions based on the forward outlook and have extensive information available from sources external to the company such as from the media, ratings agencies or independent data sources. Disclosure regimes are focused on historical data from the company itself. Disclosures serve as an important after-the-fact check on decision-making, but investors will continue to seek forward-looking sustainability information beyond these disclosures.

“We’re on a collision course with disaster if we don’t reduce the complexity of proposed reporting regimes across regions.”

Building skills around sustainability is imperative.

Firms are finding themselves scrambling to build the skills to compile and manage new sustainability metrics and are facing intense competition for talent. Participants noted:

Board members’ ability to provide oversight of sustainability issues is critical, as boards begin to be held accountable for disclosures.
Demand for sustainable technical talent is a bottleneck; firms are concerned that they will not be able to recruit the talent needed to adequately manage non-traditional metrics and goals.
Having core talent go through the sustainability functions on their way to management and the C-suite is critical for integrating sustainability and strategy.

“We could try to hire 100 people to do this, but we would all be competing for the same 100 people.”

Business leaders have no choice but to build climate, DEI, and social issues into their strategy and operations.

Social issues, in particular, are challenging, especially across borders. Participants noted:

Most climate disclosures today focus on carbon footprint. The next step is incorporating both the opportunities climate change poses and adaptation plans for their own companies.
There is a strong experience of “greener” companies commanding a higher premium upon sale in the private markets.
Effective business leaders get their house in order by starting with issues that they can directly control, such as the financial health of employees or employee ownership of the company.
Leading companies are incorporating key non-traditional metrics into incentives and vesting schedules for executives

“There’s a big division between climate, which is quite clear, and social, which is all over the place.”

Resilience, sustainability, responsibility, and the metrics to measure them were at the forefront of our latest CEO Roundtable. While there are challenges to building long-term value in the face of critical problems such as geopolitics and climate change, there is a sense of both urgency and progress. Moving forward, the goal is for companies to make good investments in their stakeholders, and for investors to support and hold management accountable for those investments, using non-traditional metrics to guide the process.

Earlier this year, FCLTGlobal completed member working groups focused on implementing key areas of research including integrated climate transition strategies, top-down strategies for decarbonizing portfolios, and guidance on implementing multi-stakeholder-focused strategies. Contact us at [email protected] to learn more.