Responsible Leadership: The Business of Sustainability | London Business School

Responsible Leadership: The Business of Sustainability | London Business School

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Please, join. Me in welcoming, today. On this panel, means, Hagan, sabe. Onsen, country, sustainability, manager for UK and, Ireland. For IKEA Group thank, you thank you for being here. I'll. Start from the right then mr.. Michel boiler who is the director of sustainability, operations. Are caring welcome, Michael. Mr.. Daniel clear who is the group general manager, group head of strategy and global head of sustainable, finance, for ages BC and, mr.. Markov executive, director of the natural, capital coalition, welcome to all of you so the first question that I prepare, for my panelists, is essentially. You, know - tell us a bit about their themselves and their role in their companies, and organisations, but importantly, from their point of view - tell us what. Are these trends, that they're seeing. In the environment Prader environmental, in social space, how are these from, their point of view what are these demands and expectations from, more responsibility. Okay, so, perhaps yeah. We start with you and then I don't like this linear thinking. Thank. You so much for inviting me I'm really nice to be here nice to see a good turnout nice, to see you all and, well. First of all of course it's. Really important to highlight that this isn't IKEA, it's a 75, year old company and I. Think in an audience like this I probably don't really need to tell anyone who I care is but it's always fun to ask who in this room has something from Ikea at home. So. It's. Just a sort of a sort. Of a quick. Sense of how we touch people's. Lives in the day to day and I think that's where we play a really unique role and of. Course that's also what, my job well I feel that my job is really exciting because it's really about changing the, everyday for the many and and, my point really is to when we talk about challenges. And why we're responding, to sustainability it's, important to highlight that this isn't about responding, to trends, or external pressure at, the core it's very much around the fact that we are a purpose led company from the beginning we just celebrated 75, years this year and we, are our mission is to create a better everyday life, for the many people and of, course that's not just something we say or put on our reports. Is actually, something that we use day to day is a bit of a North Star around. Are, we actually doing this for the many is this product of the service this is what we're doing serving, the money and it's also very much embedded in our values and how we operate as a business at the core and, of course in what camp Ranta founder who died last year of course, he's, also said and that, resource. Sort, of the throwing, away resource, was one of the biggest sins ever he came from a very poor area of Sweden so, that, will said and of. Course we we also see of course that we, are a big global company, we use something like 1% of, the world's commercial, wood we, use up to 1% of the words come out world's commercial cotton, supply so, of course it goes without saying if, we want to be around for another 75, years or 150, years we have to manage that, just. That one you know those two sets of materials extremely. Responsibly, so, of course it's in our own interest to think holistically, and manage and Stewart everything. That our business relies on including, people and where they live and their livelihoods in, the long term so it's absolutely critical to our growth and of course our customers, are also saying we don't want to buy from companies that we can't you. Know make sure that they are actually acting, responsibly so. We get it from our customers. As well and of course there's the external landscape, around us that supports that even. Further and, also a really important point because I can talk a lot about this and I won't, is. That we really, see it as a as, an innovation driver for the future too we have to actually be future fit and, we're. Not here to argue whether climate change or not is happening. It is and we believe it and we believe it's it's man-made so of course it for us to be around and have a product, and a business that will survive in the future is absolutely critical. For how we do that ok thank you a. Lot of issues to discuss right, it's ranging from values to purpose to innovation, and and so on I'm particularly interested I'll come back to you on values because you know guys, if you're reading the news this day so a lot of companies say oh we have values that's all dance company and save the world it. Doesn't usually it's, not typically believable, that way. Of. Course not that's why I would. Be interested in understanding this whole idea of mobilizing, an entire organization towards towards.

Values, And we'll get to the innovation in a second and what speaking, about innovation, by the way I forgot to mention we have two wonderful, hashtags, here we're, very digital yes. We do follow him we are on Twitter in social media so please do tweet and, everything. We say is public, here so by all means feel free to talk about this event online I'm. Not sure we're gonna get it trending in the UK but let's try okay. Wonderful. Hell no Daniel, if you could answer. The same question please thank you and, real pleasure to be here I think it's a great topic and I'm pleased that actually, one of the leading educational, institution, is taking this up. We'll. Come back to education which i think is very important so. I think for us the the. Achieving. The Sustainable Development Goals, in particular climate change is one of the biggest societal. Problems. Challenges, of. The, next century and potentially. At the end of the. Century if we don't get it right and we know, that we. Need about a hundred trillion of investments, to achieve climate, change in particular but also the broader scg, agenda. Hence, we know that the, financial, services sector has a very important role to play in this because we need to mobilize this money so, we. Think about a hundred trillion between, now and 2030. That's. About six to eight trillion per annum and at, the moment we're investing, about half a trillion into into, climate change-related and, SDG related activities, so, half a trillion versus six to eight and we know we need to mobilize that, quickly because we're running out of time and yes the. The recent sbpc. Report, essentially. Told, us that and we, know we're off track from, the Paris agreement. So. For, us we read if we look at climate. Change in the broader sustainability agenda it's probably one of the biggest business. Opportunities, I think it's important, that we see this as an opportunity because. That's what mobilizes, people, investments. Is something good for a bank and we like that we. Also look at this as one of the biggest risks we know that if we don't get climate change right we, will have assets, on our balance sheet that will suffer some, of you will have seen that the Bank of England has published a consultation, paper last week which, essentially, calls for banks to embed climate, risk in the way to run credit risk we have started this this year and it's it's very eye-opening there, many assets on our balance sheet that may not perform well under under. A transition, to a low-carbon economy, but, we also look at this pick as a. Right. To come back into society, we all know that banks even, a decade after the, financial, crisis, are still not seen. As a part of society and I think for us it's very important, that we, play our purpose, in our role, and. Do something that that is important, for the, next generations, in the next decades to come mm-hmm, so we we, can talk a little bit more about this but we, we essentially created, my. Role a year ago as head of sustainable, finance, realizing. That this isn't a topic that you can achieve by. Giving it to someone India organizationís has to be led by the CEO, has. To be led top-down because it really applies everywhere it's every client segment it's every geography, it's, every product it's a green bond that, we facilitate, in China down. To a wind farm that we financed in Mexico, or a. Green. Retail, investment product in Saudi Arabia, and it's, really the full spectrum and that's why we created essentially, a global role made, a commitment, of a hundred billion financing, to. Move. This agenda forward, and yeah. We'll talk more about it as we go so, great because I am. Very interested in what you said kind of the kind, of the social licence, to operate and, re-entering, the conversation. Through. These. Commitments, perhaps, and one. Thing that because, ahead gets talked about values, before I'm interested in from, your perspective, right how can you an label. Or in some. Ways legitimize. What. Companies. Themselves are, going at doing as external. Sources or financing, or external, sources of capital in that case in other words what's the interface, between you, and the businesses right because some of.

Including. HSBC if I'm not mistaken you take strong stance out there right they're saying we're not going to give any financing, to new coal plants, for instance and so on or coal-fired plants, and so on so I want to understand what is that kind, of the degree of how, you as, a finance, or sustainable finance legitimize, perhaps, and enable some of these initiatives at the at the company, level I mean I think in in in our view if. We, are a good bank we essentially, finance. The economy, at the future right our balance sheet should look like the economy in twenty years from now and not like the economy 10. Or 20 years ago which I think it's generally the view of finance right finance likes to look at risk in the rear mirror look at balances look at P&L and have. A look of sort of how. Solid. We think a company is but, to make this happen we need to look at how. Will the transportation, sector perform, in, a transition, to electric vehicles how. Will the, utility, sector perform, as we move into renewables, how, will, still. Look like in in a few years from now and I think we all understand, that there's a great topic around solar. And wind but the real interesting bit is now to go into the. Harder sectors I think, the statistic, that explains, everything is that the hundred largest companies in the world are responsible, for 70% of global greenhouse gas emissions, so. We need to move these large, sectors, the, steel sector globally is, responsible, for 8% of greenhouse gas emissions and it's a handful of names right so our our job, is to work with these companies provide. Financial, tools to nudge them along the way and the, good thing is that the large investors, in the world the big pension funds the big sovereign wealth funds and increasingly. Retail investors, actually are asking, for these products that's our, role is to bring, investor. Appetite and. And need for investment together right and you pointed, out an interesting issue was I again I offer tell our students here it's not it's not that as an executive, you start from neutral, and say oh what can I do on the ESG space, you. Are studying with the perception, that you're part of the problem right the, as you try to transition into part of the solution which can make, for a you know and quite an upward climb if you try to implement, these commitments. In your organization. So mark, same. Question about, you. But also tell us a bit more about the natural capital coalition. And how it functions visibly these broader environmental, challenges, and what's the role of the natural capital coalition, is so. For. Me I think it's, a sustainability, movement I've been spent. Last 20 odd years in business in global. 500 companies helping them with strategies, trying, to do that internal. Drivers. To get organizations. To understand how, this fits the. Thing. For me is I think it's going through a trend, now which is very obvious almost. From those younger years of, running, around like a kid think he got the right idea knowing what you got to do and, then realizing it was completely the wrong thing to do to, actually into some teenage years where there's a little bit of grumpiness going on there's, a little bit of maybe holding, back but there's also a lot of momentum and energy and.

Enthusiasm And, ideas around the whole sustainability movement and the, natural capital piece, of this there's. Been awful lot that's gone on over the last 2025 years different movements different, approaches, the. Reason why I left a good corporate job to go and work for an NGO with, no money no. Job. Prospects. Because. There's. Actually the idea of thinking about this as a capital, but it's about the idea of thinking about a dependency, actually we're, dependent, upon these. Relationships. We have with other people with, nature etc and when you think about it is that dependency, it, becomes core so. The. Capitol's idea is a metaphor, we're not talking about fungibility, we're, not talking about taking, something and then selling it to something else we're talking about the idea of a relationship. A resource and what. Is the return that comes from that we, take the returns from financials, but we don't take the returns from, social engagement. From nature how do we get that into the decision-making and the number one thing I think for this which is why the movement here which is growing, massively around natural capital is, the. Idea that we're making ill-informed. Decisions, at the moment it's coming across all the time because. We're not valuing. The things that are important, the system, is broken it's not making sense and then within so. Many organizations around, the world there's. People now that are challenged with that and so when we started looking at piloting, companies we thought we might get 12 that would do this we, had 500 come, to us without us even going to them because. There was people in those organizations that knew that, there was something that needed to change so. There is an awful lot of momentum 95%, of the world's countries now. Are doing something around natural capital 80 countries actually have statements about doing something a national level there's, businesses, working all around the world because it's a way that you can start linking. Up all of those sustainability, initiatives to make sense of them so. Great - and once you've returned to Italy. Framing, issue that you essentially said because I think that drives a lot of the attitudes and the mental ways with, which we look at natural capital you you said you know which trait change or impact the dependency, so we're going to go, a bit you. Know deeper into that and try to understand how perhaps that framing especially, when it comes with a coalition of partners perhaps. How it translates internally. Into companies, and mobilize. Them right going from that from, the impact of the to the dependency, mind frame so Michael. Same question to you before I start bombarding all, of you with questions so, this is your. Opening an, emergency. So. First. Of all what is caring anyone. Here in the room heard of caring. Okay. Maybe you've heard a few of our brand, one heard of Gucci. Okay. So that's basically we're, a company that has. Get. The number right thirteen brands right now some. Of them are well-known like Gucci some of them are are. A little less Alexander, McQueen is one. Of our brands based John London. But. You know when we look at sustainability, we look at. Well. Basically, you, think of us as a, fashion. Show as you know very glitzy but luxury, in its core is, you. Talk about clothing it's agriculture, it's farms, it's you know leather it's it's wool when, you think about jury, and watches which you also owns, some. Brands of that it's mining, so. In a route that our route is really. Resources. Coming from the planet now. We happen to be one, of those companies. 500. Companies. Of. The 50,000. Worldwide. That are doing some kind of natural capital we actually started doing natural capital measurement about. Eight. Years ago we, did that because we want to understand, in a sense our relationship, between. Us and nature that we depend on and be able to measure that because. We are in, this case which, will get you a question about engagement, but, our CEO. Had. Seen. That relationship, because we piled it within one of our brands which was in Puma which, is not long no, part of caring but that point was and, we had piloted, that idea and saw it was interesting, so we scaled it across our group why. Because, we depend on natural resources, and high-quality, natural, resources. To, create luxury, goods, so. When we tried to recreate, a silk collection, from the 1960s. We. Couldn't find that, quality of silk anymore, on the, planet because. Of many reasons because of demand on silk because, of there are some theories about pollution. Affecting, the DNA, of silkworms but, these. Are some of the issues, that we face so. For, us. Climate. Change. Or. Look at biodiversity. Because that is important. When you're looking at. Resources. In terms of supporting, the, ecosystems. We depend on we look at these topics, with something that says something like I, think.

In The last since, 1976. I'll probably miss quoted I just read it in a BBC, but. The the level, of, species. Loss has been unprecedented 60. Percent since 1970. 60 % thank you me, out and. We're, winning we're winning but beating nature. That's. Gonna be core to our business is actually gonna be core to our lives, yeah so these topics, whether it's industrial, agriculture, and the impact in terms of the inefficiencies that, creates whether, it's. Climate. Change from you, know inefficient. Agricultural. Systems, and it. Can even be from, even new technologies, that sometimes, aren't, as good as the old old ways of doing things these are all things we try to capture. And measure as part. Of our I'll say how, we manage our business right so we measure our footprint, in using. Natural capital, to. Gain I guess an understanding. And to, try to do things in a way that we believe will. Affect, the rest of our industry, and, you know people I'm sitting next I'm thinking oh my god gonna do some really big scale everyone else has IKEA you. Know it's like big scale investment, projects, but you know if you think about fashion, fashion, copy's luxury, so we put something on the runway. Pretty soon Zara hmm. They. Follow the trend so. Sustainability, in. The, the fashion industry is a bit of imperative because. Some. By, some estimates ten to twelve percent of our personal footprints, are from, the clothes that were wearing so, it's not just a trivial little thing that's off in the corner of our lives it's actually, really. Important, in terms of how. We use. How we use in our relationship, with the resources, that we're using as people. As well so great. So I'm going, to note four words from, your comments, necessity, risk. Dependence. And values. Right, and to me those sounds, you know in a lot, of the times you feel that you're preaching to the choir because. They well are those things obvious, like if it's a necessity or, a risk of its building into the values or we know that we explicitly depend, on it then, well I guess the natural question to ask is why, is aren't, more companies, doing it or why do they pay lip service or, why do they greenwash, in order to appear that they're doing it because these are forget, about the growth opportunity, for a second if you think about necessity dependent, risk or its built-in then. You would do it anyway so I guess my question to all of you is as you. Implement, this kind of approaches, whether form a necessity or a risk or a values or a dependence. Point of view what, were the challenges that you faced and feel free to refer to particular, initiatives, that you try to implement and you found as well because I think that can also tell us a bit about why. Is it that others, don't do it or try to do it or try to fake their way through doing it I. Would. Like to, well. I feel since I mentioned values, that I need to fill up on that well I think, just. To I'm. Not going to it's. Not so much about how we implemented, them initially because obviously they've been part of the business for a very long time and I can use a recent, example of where it's showing up, as. Challenge, to move the organization even in an organization, like IKEA there has you know on the surface of things taking all the boxes and doing all the right things because. At the moment we this, year we launched our new, people in our new version of our people and planned a positive strategy which is our sustainability framework and a. Couple of examples. Of our very ambitious, goals, is to become a hundred percent circular. Business it makes me both, very excited and quite nervous to, even think about, what that's going to mean for us and of.

Course Lathering up to that means that by 2025, we're going to only use recycled. And renewable materials, in our all our products, and it, will mean that we will be taking back potentially. All the products, that we produce so. If, you just think about that for a second that means a complete, redesign of our supply chain and meets a complete redesign of our operations, and our logistics, and, meets a complete redesign of how, we measure value if. You think about it we're still very. Much structured as a linear retailer, because that you know we still have piell's, profit, and loss we still have profit. And look at that of course we have other measures too but, just to shift this mindset, around that the end if you like that the end of the first line of life, of a product it's just the beginning of second third fourth life and that. There is value attached. And. Multiple, income streams that those, junctures, that, takes a complete. Mobilisation, of the entire business so, when, I when I mentioned that as an, example, that's because as that. Saterland we are working on right now every. Day and of, course it means that we need to have. A very robust, seamless. Tractable. Level strategy in place that we have to have that LinkedIn we, have to then mobilize, from, the top down and the ground up and really look at how do we invest, in innovation. Pockets of innovation so we can test different capabilities across, that system. If you like so a question of the follow up to make, it a bit more micro, in terms of how do we implement so are you talking about for example is this part of your recruitment is this part of your incentives, is this, part of you know your internal, sort of recognition, in part of how, you give. Awards to employees, or how do you do, your internal, communications. In other words who, drives that strategy right who drives that strategy especially when it comes to mobilizing, the employees in particular, towards, that direction because, it's, easy to another, thing about you a lot of again a lot of companies, claim to do this but when you ask them you know but yeah show me how right, you cannot tell me you're out there to save the world and then you incentivize, everyone on quarterly sales all. Right that's not how we're going to say you know so what can you tell us a bit and especially I'm interested in those measures that you found the resist, turns to night, orb or you felt that for your industry you're sort, of sticking your head out with, the risk in terms of doing that well, this is take it right back to basics then I think we, actually have. An evaluation framework. For all recruitment. That's based on values so, and, this is quite unusual I think for most companies is, that sometimes. There is a preference. For value match over, say academic. Background. Because. Actually what we see in the long term is that when there is the belief in the core mission and a value alignment. That. Person, will go the extra mile they will be committed to the company and the core purpose, of what we try to achieve and, there is a reason so I've only been with IQ for three and a half years and that's in our key is that's like infancy, and, when I started, you know constantly. Met people who'd been with a company 14 years 15 years 20 years 25 years so. There is something about how they're kept alive so, yes it starts with recruitment and of course. How. Its. How. Its incentivized. Embed. It ya know cuz it comes across. Right. From, linking. To a certain extent to. Bonus. So. You know there's nothing that moves action, as much as linking it to bonus, so. It's. Actually you. Know working. On your waste goals not, just for the cost-saving, aspect but from the environmental, perspective through. To. Working. With factories, in China on on social impact if that's linked to your incentives. Financially, but also for broader incentives, of course you move their sections so it's, it's linked right from strategy, through to girls, right down to recruitment that gives you a sort of a like, does that resonate with any of you, guys or mark, any and you're working because you mentioned that weren't. On this on this kind of change, of mind frames for companies, and you have worked with many of them and trying to change them and you tell us any examples I'm you know again I'm particularly, interested in either near failures, or almost failures, or impossible, to change because.

Perhaps We there's, something to learn from those right but also more broadly about the initiatives, that you've been engaged with so. I think that the there. Is an awful lot of companies. That are trying to do something and. Everyone has their own little program one of the biggest things that people come back to us is is that, I get it how do I convince the other people in my company beginning. And that's a challenge as it always comes, back at some point yeah I think, that the so, you've got the champions there what's. Really happened with a lot of the companies that have tried three or four times to do some work, around. The Capitol's idea this this metaphor, that we're using is that, they've then realized that we're talking about shared, assets we're talking about shared costs and shared benefits and, companies, are set up in a very predominantly. Ownership. Model where they have control of all the information they. Go down their supply chains and they collect all that information it, goes into their proprietary system, they're not used to working across a shared basis. Really so. Although you were talking earlier on the business model is great it's a very closed, system, and actually. Everything, one thing nature teaches us is everything's connected you, can't take one species out and still have the same ecosystem everything. Changes so most. Of the companies that are starting, to get this olam is a great one big, company from Singapore, is, really, looking to change the way is thinking about its, social value in its natural value etc they've. Done eight pilots with us now and they've come back and said what we really need to do is understand. What the other people are doing in the watershed there's no good us, making these changes, it's about government policy it's about financial, incentives, it's about making sure the money's flowing to it it's about the NGOs supporting, it it's about the academic, support and understanding, what we've got to do it's all of those plates the system's change piece is, key there, are plenty of companies and we find this a lot that I'd, say about 80% of the companies that pick up the work that we're doing never. Finish it this. Is a success. Because. What happens is is they pick it up they start going through it and then they realize they, don't actually understand, their business model they. Go around the business they don't know what they do and actually. This challenges, do they understand it or they ask the people in the business and they get 5000, different answers they, don't know who their supplies are they thought they had a list of them they have their risk register, they, don't really understand, why it's like that they don't value it properly, yeah most, of the companies that we work with go through the process identify. Problem and make improvements, to their business which all very valuable but, they don't get through to the point about changing the decisions yet because we're still at that stage about really understanding what they're doing right so, you. Sparked one more question I'll give the floor to Daniel in one second if I could pose this bigger question, as well because, I hear you saying that well. There's at least two sources of change one, of them is people adopting, their behaviors, or companies, adopting, their behaviors, and so on after they figure out what they're doing which is a big one actually, but.

The Second one is replacement, right, even. That can happen even either at the level of the industry so new companies are just gonna come in and get this right, and they're not gonna have the weights of the past delaying. Them in understanding, they impart of the environment and so on and and, then the other one of course is is the, adaptation part. So in that sense and again a bigger, question for all of you do you feel that this might be a generational. Issue in. Terms of who is the pocket of resistance in, organizations. Do you see any difference between the millennia because they a lot of its talked about them but. I want to know up from your experience, they're. The people that you're hiring now or, the people they have worked with in. Terms of their other companies, is that change. Of attitude you should you should tell us what you were saying earlier on in the green room about, the students I ask the questions you. You've. Been asking every, year to your students about this yeah yeah yeah and there's always been someone saying no it's about businesses, are there to make money and you're saying this year that the resistance, is going down right that's take. A slightly controversial, view. Please do so I I i. Buy. That and i think we hear it from our younger, generations, that are coming in but. When i look at real, behavioural change we just don't see that so when I look at the financial services, sector young. People are not suddenly putting their money into use, G aligned funds or low-carbon funds young. People are not suddenly when I have a bit of money not, buying the Royce, or the Range Rover outside, that or avoiding, flying yeah, so while while I think there is a big narrative that. The next generation, will save it in real action we. Don't, see the evidence yet I'm I'm not certain we can wait for that right so I wanted, to make. Two comments on your own you earlier question I think, first. Of all there's a lot we can do to embed, sustainability, in. The way we operate so we have it in our scorecards. We, have it embedded in our training, programs we have it embedded our strategies. Our strategy, has we want to be a leader in this space so it's really a very holistic. Approach and you need to actually. Make. People aware of it because there's so much noise in organization, so you really need to get, the, communications. Built the rewards part everything. But. When it really comes down to making this happen I think it is still an area where you need incredible. Leadership, because. The, the real choices, are when. We. As an organization, earlier in this year had to make a big choice whether we are ending. The financing, for certain sectors and it, was incredibly, controversial, and, it. Wasn't, clear which way we're going to go but essentially it was that. The most senior leadership of the group standing, up and saying we believe. In this long, term view and we will therefore take a certain decision and I think it, it is is all good to to embed, us in the system the, real difficult, choices need, personal. Leadership and it doesn't have to be just the most senior person in the organization that can sometimes be much, more junior people but, you need to step out of your normal cage. So. It's it's the. Level it's a very personal risk even it's a career risk right because, we have read recently stories.

Where You know some chief, executives, put this purpose. As a, as. A priority. And then other partners, sent letters. To the FT saying there's something wrong here it is a nice service, but it's also I. Think, for people that have the, luxury, of a little bit of time as a new CEO in an organization, it is a way to put put your stamp on something otherwise. You're just another, guy who delivers quarterly results right and I think more and more people start to realize that you, you. Can actually shape something that's a little bit bigger than you are right it's like Paul Polman I'm not sure if it's an actual statement, or a legend but when they asked him you, know why did you do sustainable, living plan on day one or day two he said well they couldn't fire me then because. I just took over which kind of right. Michael, how do you convince, a an, organization. And people that come to work in high fashion and high-end brands that actually. You know you should be concerned. Agriculture. Or mining, or, commodities. Right because, I can tell you for sure you know for that's. You, correct me if I'm wrong but that's not their priors when, they apply to to, work, for your group right well. So first of all most people work for our group work in sales, and. And you know I'll be honest that's a high turnover area, so, it's difficult to, really instill, but, to, retain people you're, seeing more in our, brands, like for Instagram Gucci which I mentioned earlier is now, really focusing, I'm talking about sustainability, so that's one way sort of to because, then people can affiliate. Themselves with, the brand, they. Have a sense of shared values, with, the company they work for now. Also we mentioned Millennials, but you I, think there are some things that are probably stereotypical. But, one of the things that that I've seen also is a high rate of turnover so. What's. That driven by it can be driven by shared, values it could be driven by. Boredom. That could be driven by just other things I don't know what so. On, that, level there's, there's an engagement aspect the, other thing we do is work a lot with a, young designer so, with. EPL, which is natural. Capital, mark, probably makes it sound simple. He. Would make it sound simple if you explain it but it's actually pretty complicated but. We try to simplify it down into a little app that we could use with design, students, they talk about here's. The concept if you design this shoe with this materials, from, this part of the world here's. What it comes out to as a footprint, if you make some different choices you can reduce it a lot so. Trying, to get them to think different. That's on a design side with. Our own leadership. It's. It's in their target number, one it's a bit competitive, because our brands compete with each other and. When, one of our hottest for our two hottest brands now are starting to compete on sustainability. So. That's. A win because, CEOs. Have egos and they, like to win so. If you can tap into that. There. You have it you when you talked about business providing, solutions, that's, why business that's one of the ways business provide solutions, people, want to win yeah yeah and if that's what they think the game is they think the game is around sustainability. It's around climate. Change it's around any. Other things we've talked about, that's, how how, to tap into them I think it's alright I think we've got to be a little bit careful we're talking very much in a Western. Approach. Here and we, do a lot of work around the world so there in Singapore, for example, legislation. Regulation. Is irrelevant. Really a lot of it what, happens is you go down to the treetops, that are down by the port where, the next generation is having their drinks they've been evening and you sit there and you talk to people and that's where the change is coming from Singapore, and that's very different from some of the other.

Models That we're talking about here so I think we've just got to be aware Uganda, there's an all full of work going on there once again because there's, government business. Finance. And NGOs. Or they're all aligned around a single purpose so, Uganda is coming an entry point into East Africa, which, was nothing I would have predicted or it expected so, I think that we're just got to be careful that we don't start looking at just from the, perspective that we have here, sitting. I'm. I'm very glad you brought that issue because I did want to touch on this broader idea of the institutional, context. Right and clearly that defers the financial, the labor market, the cultural, system those, differ, differ, dramatically, sometimes, across companies and actually across across. Countries, so I'm, very interested in understanding your experiences. Right what kinds, of institutions, have you seen that have enabled, or, you think are. Accelerating. If you like the adoption, of this more environmentally. And socially, responsible. Strategies. But also importantly, what kind of institutional, gaps, perhaps, right. Might hinder, the. This. Kind of adoption now I'll give you one example you were talking about earlier Daniel, about this idea that you, know the weather you see or you do not see the millennia actually speaking with their wallets, right but here's the contrast I see in your case Michael. You were saying about you know what if it's a designer and you make the different choices they, have immediately. The information, available essentially. Their potential impact they concede right away even. In the UK when I try to see the impact of my pension plan in ESG, and I see it's impossible all right I'm a professional they'll be as focusing, on ESG it. Was impossible, for me to find out right. How, could I have these expectations of. You know someone, in. Millenia that perhaps you, know they don't even have a pension plan yet let alone find, the information they should. Find. Information, so, if we talk about that level of institutions, disclosure, and accountability. What have you felt like the particular, institutions, that you feel could accelerate, these. Commitments or enable, them or legitimize. Them even depending on the talk context. And which of them have, you seen being more backward, looking. Perhaps or hindering this transition, I can start with the with the financial services sector yeah because that's my, home, turf and then I go beyond so. I think in the finance world we we, have an annual survey and we asked 1,700. Issuers, and investors, why. Why where. Do you stand on sustainable, finance and you, generally especially, at the moment you you get 80% of them especially in Europe saying we want to increase our allocation, we want to do more it.

Drops Off a little bit in Asia and it drops off quite significantly, still in the US but, in Europe more than 80% of investors say we would like to do more in the space but, then you ask them what why aren't you doing more and there are three reasons that people say one is we. Are unclear about taxonomy, they're, just too many definitions out there ESG sustainable. Finance, responsible. Investing, it. There's still a concern, that actually, I don't really know what I'm buying and just buying a label or this may be a green wash the, second one is lack of disclosure the. Markets say I just, don't know enough what companies really doing they all published, these wonderful reports were lost miling children but, I don't have enough data in glossy pueda yeah where a company. Is actually doing the right thing and, just, the third thing that they say is there, actually isn't enough investment pipeline so. 80% of investors, say I would, like to do more but there isn't enough project, available and. I think that brings me to a slightly broader picture the. Places where we've seen real significant. Development, are places where still government's, actually have taken very significant, action I'm, German, in a given that was driven by the German government and essentially, made renewables. Internationally. Competitive I was in Bombay or Mumbai last, week for two days India. Is I think the best showcase of how renewables, are changing, the energy mix in India because, the government has taken a very significant, standard, in, in. Other areas, where the. Action, from central governments isn't strong enough yet the private sector isn't able yet to make. That jump, and as. Much, as we would like the private sector to do it alone and I. Think we come to that unless, we have a better collaboration, between public, and private sector, we were not moving fast enough on. That, I think so. We're now working, with science-based, targets, to, meet the stds but also to come in under the one and a half degree. Rise. In temperature and, of course what we see is that that's that's not the mandatory it's not something that all companies has to work towards, and actually the the government, goals around us are not I'm vicious enough to hit those targets so there's only so much we can do as a company even as its Kaleb Akio of course and everybody, has to work together when we look at say, we you know we, have signed up to the EB 100 commitments, which is 100 percent all electric deliveries, through. Our. Home. Deliveries and of. Course in Shanghai, the government said zero, emissions somehow. Business, finds the money to go 100 percent in overnight, London. 2040. What's that all about, and.

Suddenly Is 2025, and that's even being way, more ambitious than than, the the, policies around us so so, what you, know having just had the UK's, first Green Great Britain, growth Britain week whatever yeah, whatever because what happened what, happened to that so again, it has to. Be has, to be policies, and it has to be cross sector and cross over not alone but they. Set the framework unfortunately. That's still the. World where. So. The coalition. Was formed by a group of people coming together in a bar in Rio +20, and deciding, rather than competing that, they could actually collaborate, and it really was a bit of alcohol they've, got the lubrication, lubrication, going but, the always. This yeah so, maybe we should. But. The it. With, that there are government so there's seven worlds as we call it and there if any of you know Game of Thrones there's, a perfect reason why we call it that but. The first. One is the NGOs have been telling us why we do it then, there's the academia, and science that's been doing, a lot of the work about how we do it business is the engine for change finance, the oil that keeps running standard. Setters that we need to take this into regulation and things like that we've, got the associations, that make sense of this and get it to scale and then the government's I spend. Most of my time going around to individual, conferences run by each of them every. Single one of them blames someone else in the system the. Whole point and I do agree with you the pipeline is problem but that I hear that a lot from the financial system from, the businesses I hear we've got lots of projects but we can't get the money that, actually they're there from, the government's there's often a push to them to say just, regulate and then there's, an awful lot of lobbyists, out there saying don't regulate so, there's a lot of mixed messages the. Solution. Here is actually, that every single one of these plays. A part in it but we're not spending enough time taking. A step back and seeing, how they connect the biggest part of this is no single part of the system it's, the gaps between the system and actually, how they flow how they connect if, we could get that bit right I think we would overcome a lot of these problems, at Google something, that you're kind of referring. If I've you. Know reading this would, you describe as a gap there must be some lack. Of trusts across, these institutional, players right because for, example I was moderating once a workshop. Crossing, in a particular industry and, it was remarkable, because you they, all had, the intention, of doing something, good about sustainability, they realized they had to put their efforts together because, you. Know the scale required. Will only make sense if they could come together right. But it was such fundamental distrust to, say that you know because there's a free-riding problem, is there four, out of the five commits, suddenly you benefit, right, without, having to incur the cost so, you have you run. Into this and that can happen between industry. Players that can happen between companies. And NGOs, that can happen between companies, and the government and in NGOs, and the government and so on so, what do you have you experiences, lack of trust and any any particular good or bad ways of how you deal with it could I I'm just and one of the things that we did when we set up the advisory, panel for what we're doing we. Most, organizations, who do that on an organizational, level so, when an organization when someone leaves someone, else from the organization, comes in we purposely, did it on a personal level yeah, because actually it's about creating a community that trusts each other and so we do spend a lot of time. Going out bowling, or going out to a field or doing something together and, it's that group of people that, make it not the organization when you fall into the organizational, bit you start making decisions about what you think other people think, you should do rather. Than doing it on a personal level right in the end everyone, in all these businesses, are people they've, all got drivers we often hear the thing oh I did it because my young, daughter is coming up and that's a thing, we've here in sustainability, a lot I think, it is about those personal, relationships and most, of the time people. Do want to trust each other people do want to find solutions to this we, just put up these barriers, around what we believe, organizations.

And Structures should do and it's that's the bit the institutionalization. That. Ends up causing blocks from my perspective right and sometimes this translates, into laws and regulations because we see a you, know a group of companies in the same industry in the room and in the immediate reaction of you know from the legal aspects oh they tried to collude on costs, or prices, right because we have this on this workshop I was telling you about we try to understand how to build a detoxifying. Facility, and every time the lawyer says oh you cannot discuss this you cannot discuss this like. Nobility. Here without talking, about the underlying cause so that even an institutional, barrier right not. That we're supporting collusion, but clearly the difference between scaling, up sustainability, solution which is colluding you, know and sensible, lawyers should be able to see that but I think you do, I think. You just said so, I agree. I think the the, private, sector and individuals can do a lot but I think we, all have to accept that there's always a, bias, to preserve the status quo because. We know the status quo and people are very uncomfortable. To, completely disrupt it, again. I'm German, the, German car industry, didn't. Care about the, electric vehicle, when sort of the Netherlands said we're gonna go electric and Sweden's havoc on electric, the, German car industry woke up when, China, announced. That they're now going electric, and suddenly the. Entire German kind of sleep panicked and said okay we now have to invest billions and. I think, we need these these ambitious, disruption, it doesn't have to be just government, but we need ambitious. Forward-looking, disruptions, and I I think I completely echo your your-your-your observation. I was I was, in San Francisco, at the the climate action summit there was a. Around transportation. And. It was a. Port, operator shipping, operator an. Airline all Western and then somebody. From China running a large electric, vehicle company, and everybody, was sort of saying oh it's, all really difficult, and we can't achieve it maybe twenty to twenty thirty twenty thirty five and, then the a very small lady from China stood up by. The end of this year Shenzhen will be completely electric, on taxis next, year on minivans and by the end of 2020, twenty will, not have a single, internal. Combustion engine in the city anymore we, need these step changes, now so I think to to create the energy. Other. Comments, on this issue because I have one more question before I turn to the to the audience I wanna, make a point and I think it's interesting as a as, a private company of course we have internal. We're. In a unique position that we own most of our supply chain which is probably unique. For most companies and we, have, and. Financial. Resources internally, to invest long term so we're our own internal, investment fund if you like and that's. Unique and actually puts us in a position to take the real long term and to have you know life cycle costing to our future plans and to really have patient, capital as a way to, invest in our own long-term point. Of view and I think they're right there must be a point to be said, around, the, kind of short term. Shareholder. Return on investment, approach versus, the ability, an opportunity to think long term and, for the bigger and the longer and for, the many and then I don't know what the answer to that is I just think it's an, important point to make because it really works for us as a company but we're in a unique position to be able to do that because yeah, the.

Private Aspect right because I think you are opening a very very big issue now of course which is the yes. How. Much. So. The whole idea of this investment community is long-term horizons. The idea bits, vestment, horizons versus long term very short term so, maybe. I'll ask, if Daniel, Michael have any comments, on this idea of what is the role of these external, investors. And the pressures, that they face because you, oftentimes, from an investor point of view and what, this what's, the role of the of the investors in kind, of enabling. Companies to to to transition. If you like should they be trying to transition and then I'll open it up to the to the audience for questions. I. Can, say one comment I mean I can speak into in terms of capital markets because we speak to an event we have so, we're a public, company but we have one investor that owns 42%. We. Happens to be our chairman CEO too so we have a little bit of a. We. Still have to talk to the, the other, 58%. And. It's. Interesting because I would have said up to this year, that, they, don't really that kind of where we're, a very fast-growing. Stock, we had very good performance last year for. If you told me again going to fashion I'd be like tech it, was like tech so. There, of course you know all the investors were very much enamored with that but, this year you know if we had question actually the fund manager, having, to do with leather, leather, production, a fund manager we. Happened to be a fund that has about 5%, of our institutional. That has about 5% of our our, holdings and, I thought that was interesting that was the first time a fund manager was. Actually asking questions, about real. Specific, things about treatment. Of animals and, in slaughterhouses. And only because this is part of our business and you, know to me it was an awakening that you know this is now becoming, some. Of these topics are now going into mainstream, because usually you have your little s RI analyst, who, asked the questions but, the fund managers doesn't really care what the s RI analysts think if you're if your stocks, performing, well you, know it's good to buy if. It's not you. Know it's a whole if it's not then you know then, it isn't but, it was interesting to me that now portfolio, manager was actually, starting to ask those questions and. Was, was real had. A book, this thick when. Agents from a ratings. Agency. Called sustain oolitic s-- and. Was looking through it and asking us questions on, it so, to me the level of sophistication, took. A huge like a quantum leap forward and, the, interest and I'll say the real part of the investment. Community. Has. Shifted, a bit now of that mean our performance. Now will be judged. By that probably, not if you if you think where most of the money sits in the world it's it's in very. Often. Pension funds sovereign, wealth funds and insurance companies, and. If you really think about the investment mandate, in normally invest for generations, that will go into retirement in, 20, 30 40 years and I think there is now an increasing awareness with these investors that. They should, actually support, a world that is actually. A world people can still retire into so. I, think that the large, institutional. Investors. Actually. Across the world emerging, markets. And. Developed. Markets I think have moved significantly, and.

That Let I think to the entire ESG, movement, to, become a lot more mainstream. So, I think three. To five years ago when. We had investor, meetings to your point there was a normal. Investor, meeting or a normal meeting with a rating agency and then half an hour later you had the meeting with the esri investors, this. Is now becoming one or all of the rating agencies have realized that they are late on this and they are buying now the cinematix, of the world to, integrate, it into offering and. I think that integration, of es G's or environmental, social government governance. Element, into. The investment process I think will make a big difference mm-hmm great, so thank you for for your comments right one I want to add one, thing on this idea because I've heard both of you talking about ESG becoming, mainstream and. I because I do think that framing, matters. Right I always, found it quite remarkable if, we talk in the investment, space when we talk about you, know waking. Up to the fact that business, has an environmental and social context, and we defined the main streams as those, that have ignored it and then, we say oh is the AG, that's becoming main why okay the reverse is the history that realized, the context, and then these guys are waking up to come to what's reality. Is mainstream as, opposed, to the market waiting but a personal, note okay now, I. Would like to open it to the audience. A couple, of things, I want to take many questions, but not too many statements. So. Keep. Your questions short to, the point and, when you're given the microphone, please tell us who. You are briefly. Your name is the, name your. Company the question, and to whom is the question addressed if it's the entire panel that's also fine if it's a particular, panelist, that's also fine as well okay let's, start with lady, on the on the right right over there. Hi. My, name is Juliette valve Inga I'm a flat, to be consultant, and also doing some work with project X my, question is for you to all of you fascinating, conversation, I won't rattle on about how much I love you all but brilliant, tale for thoughts and visions I've. Been perhaps. Live in la-la land about, I've been dreaming about the idea of in twentieth, time I want, a company first to register to be a company it has to be a beak or do. You think that is not. Realistic do you think it's possible would, I care be a vehicle I don't know how I'd just be Silvia be cool ever, or caring, foot see, great. Thank you I'll take a couple before we answer so we can get a couple. Of, more. Yes thank, you I'm, donut a kolache from dayton around so it seems from your interventions, that the investor, community is one of the most powerful stakeholders. To trigger, change my question is to. What extent you, believe they, actually have, an. Understanding. Of the material issues that apply to your business models. Instead, of just taking you know the stick, reports, from the ESG. Rating, agencies, and just asking. Questions randomly, about issues, that are not material for you thank. You thank, you. Hi. Good evening my name is Viterbo Jane ski I'm I'll. Be as graduate, and I work for fidelity but I'm here on my own behalf not fidelity's so I'm my, questions mainly to Daniel, and 15%, of Michael um so. You. Know like, through LVS quant graduate thank you. So. I think, actually Hager gave, me a great segue to this question, because private. Companies, the large private companies. Can persevere, and execute, their vision, longer. Term however you guys are under pressure of quarterly, or annual. Earnings, and we've enjoyed a couple of years of fairly good market so there's, confidence. There's ample capital, around but you, know the first sign of recession. Which some. Say is you, know on the horizon, and all, those initiatives. That are about benevolence. You know charity, sharing. Environment they're the first ones to go so. What kind of reassurance. Can you give me particularly Daniel, from financial services is, that the, second, jobs, are at stake or bonuses, are at stake is that yes you won't be like oh forget, it you know we're. In the business of making money right. So. Be, core materiality. Business. Cycle essentially, right, slot. Is yours I take. The last one I. Think. So. First of all I think an excellent question because if we're all honest with one another more.

Than Ten years ago there was already, a big sustainability. Movement and. It died with the financial crisis so I think an absolute, right movement is just something that we do because we can afford it at the moment I. Would. Argue that we're probably a point beyond, because we start to see it in commercial, realities, ten, years ago renewables. Were a subsidy, business ten years ago the electric vehicle, was a dream ten. Years ago it, was unthinkable that, the bus that drives by my house is actually a Chinese, electric, bus. It. Was unthinkable that. Most, property developers, are actually now opting for green buildings, because they know that actually in the longer term it, has a better rental. Value and and and actually property, value so, I think the economics, are actually overtaking. The the pure belief and if, I look at where, where, sustainability is said ten, years ago in HSBC, it was, a function. Very far away from the core of the bank to the donations, we. Now have sustainability, embedded, in every business and in every geography, and as, part of our our strategy. So I think just. Organizationally. And I think it's true for many organizations that we work with it, moved from, the. Get, out of jail card that. Is sort of really nice to have which, it is still is in many emerging markets, to. Now actually something quite, fundamental. And part of what what we do so I'm I'm, more, optimistic but, I share the concern if. I could use academic privilege, for both of you for a moment by the way because that's a question that we have studied what. Did companies, do in times of crises especially. To the Great Recession and to, be frank with you despite. Sections, that they cut back if you take the US what. You find is that they, did fire, people and held back on tangible, resources, like, you know investments, in buildings and that kind of thing but on social. Responsibility. And innovation. They. Maintained, they have on average they, didn't decrease some industries that were hugely. Hit. By liquidity, of course they had to but, on average in the u.s. they actually maintain and guess what they wanted me maintained or increased ended. Up doing better after the crisis right. Again. For those sleepless nights I have plenty of academic, papers to share so. Going. By in plenty, of econometrics in them - all. Right sorry so the two questions that are still pending the materiality and the big course and then I will want to take another round of questions so anyone would like to speak to those yes me on the be cops one I think I'm looking at Unilever's, results, last year was really interesting I was, in five companies that they've invested in that ABI corpse and that made over 70% of their profit in this last year that, as a trend seeing and you were talking about how, can companies change, I think.

There's A changing model in you. Were saying about new companies coming through attacking. The old there's, a changing model in how some of the bigger companies now. Engaging with. Takeovers. And investments, and things like that and they're investing, a lot more in that B Corp I'm. Very hopeful as well I have a similar, dream to you I think. We've got a long way to go there and, on the issue of materiality that, was. Arts the idea that how can you be sure that, you know your investors, understand, the material, issues that you see in your industry as opposed to box-ticking exercise, right or speaking, actually ones with mining executives, and they say well, you know what I get this kind of sometimes, I get these investors, and they just have this random, list of things that they go through I mean we're a mining, company and they insisted, on me telling them what's our work-from-home policy. Right. It's. Like well I mean, you know sometimes it's important it's not material, for you know I mean did you have anything to ask me about you know mining. So. Which what's your what's. Your sense. About this idea of doing, the investors understand, but it's important, for your business or what ways have you found to to, come to to convey that information I'll take a crack at that that's, kind of why we did the environment of and loss could be published that that. Is materiality. At. Its utmost core well look we're taking a view, of our entire supply chain and we're, saying what's material, in terms of cost. To nature I. Mean. That that's that's it is essence. All right so that's kind of strips away that conversation, now, do. People understand, all the nuances of issues underneath that no. Sometimes. You get questions on it like I had that show that example from. Actually. A company, that gentleman, mentioned that. Was was, actually a very in-depth question on a particular topic but. That's pretty rare. Most, the time people have a general understanding and. Hopefully. You can use something like natural. Capital, accounting or some sort of metrics, to, help give, the story behind, why. That numbers, change and what, the performance, is behind that number I mean that's sort of the whole thing is with, even. Financial results there's a story behind it so you need to be able to tell the story and. That informs, people in terms of that, helps them understand, the material 'ti, because I think, in a lot of cases they don't understand, very. Very good condition some. Of you many of you will notice there's, a concept called T CFD the task force for climate related financial disclosure, driven by Mark Carney Michael Bloomberg which now 500. Of the largest companies in the world have signed up to and the. Principle, behind that is that, companies, will actually have to disclose, what. Climate, change will. Do to their normal bottom, line because. I think that the trick is not, to have your. Your annual account. Here, and your, your profit loss statement and, then, in a very different document, some, nice that's about about sustainability, but.

Actually Work out if the transition happens in a certain way what's the physical risk to transition, risk to. Your to. Your P&L and then, all, these questions, should actually go, away because you really are discussing, your. Profit in

2018-12-18 16:30

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