Rethinking Business: Sustainability and finance Exploring the opportunity and barriers to financing sustainability

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1 In partnership with Rethinking Business: Sustainability and finance Exploring the opportunity and barriers to financing sustainability 30 June 2015 London

2 OVERVIEW Rethinking Business Creating a Sustainable Future As populations continue to grow and urban transformation gathers pace, key global development challenges must be addressed if the needs of future generations are to be met. Limited availability of natural resources, the long-term impact of climate change and the inevitable strain on public infrastructures and services, will all have profound implications for society. Intelligent planning and greater collaboration between business leaders, policy makers and other key stakeholders will be critical to manage today s social, economic and environment concerns and to build a more sustainable future. Businesses are increasingly conscious of the need to integrate social responsibility into their core operating strategies, but how can this practically be achieved and what should be prioritised? How can corporations operate sustainably, drive profitability and enhance their corporate reputation while also creating value and improving resilience against risk? Financial Times Live and Coca-Cola Enterprises are delighted to present a series of high level roundtable events designed to encourage open debate on the latest sustainability challenges and to discuss the risks, opportunities and new partnerships which are emerging as a result. The focus for the first event in the series was sustainable finance, and future events will cover topics including resource scarcity and climate change.

3 Summary Report Rethinking Business: Sustainability and finance The Financial Times, Coca-Cola Enterprises and SustainAbility gathered a range of C-suite executives with expertise in finance and sustainability to explore what is needed to fully integrate sustainability into business strategy and investment decision-making. The event was the first in a series of Rethinking Business roundtables to be held by the Financial Times in partnership with Coca-Cola Enterprises and was chaired by Pilita Clark, Environment Correspondent at the Financial Times. Defining sustainability For many people, sustainability remains an ill-defined concept, meaning different things to different organisations. As Pilita Clark quipped, sustainability is a little bit like the British summer you know it does exist, you can truly believe in it, but sometimes you do have your doubts. The concept is new to the business lexicon having scoured Factiva, Ms Clark noted that there had been no mention of the term sustainable finance up until 1992, with four further mentions over the next nine years. This emphasises that the link between sustainability and finance is not widely understood throughout the business world. It is, however, becoming more entrenched as a progressive concept in senior leadership circles. Providing a clear definition of sustainable finance is crucial. Nik Jhangiani, the Chief Financial Officer of Coca-Cola Enterprises, stated that organisations need a clear, consistent definition of what sustainable finance is to sell the idea to internal and external shareholders. Those who are able to define and communicate the notion will be better placed to fully embrace the concept of sustainability and according to Mr Jhangiani, will become more resilient over time. The great acceleration Why must companies develop a sustainability mindset? Rob Cameron from the think-tank SustainAbility argued that the great acceleration remains at full pace and that humankind has entered into the era of the Anthropocene a period when human activities have had a significant global impact on the Earth s ecosystems. According to Mr Cameron, if we fail to take responsibility for this impact, then the results could be dire. Mr Cameron argued that humans must remember that the economy is a sub-set of the ecosystem, not the other way around. He asserted that

4 Summary Report societies have approximately five to ten years to act before it becomes too late to avert large-scale changes in the atmosphere and climate. Private sector involvement is crucial to the sustainability agenda; governments and civil society groups cannot make the difference by acting alone. However one of the biggest problems suggested by Mr Cameron is that the rules of the game are still stuck in the 19th Century. Legislative changes will be very important in enforcing the right behaviour from the private sector. The rise of the CFO Whilst some CEOs, such as Paul Polman of Unilever, have become vocal supporters of sustainability and have clearly articulated the linkage between sustainability and long-term financial successes, their voices are few and far between. Mr Cameron identified the important role that the Chief Financial Officer has to play in spreading a widespread understanding of the merits of sustainability on the financial bottom line. He asked the question, What does it take for the CFO to become, de facto, the CSO the Chief Sustainability Officer? All the responsibilities of the CFO to manage risk, maintain growth, deploy capital investments, strengthen investor relations and report transparently can be viewed through the lens of sustainability. However, few CFOs have sufficient sustainability knowledge or understanding and fewer still can translate the benefits of sustainability into a clear financial value. In order to create an environment which allows the CFO to flourish, Mr Cameron argued that investor interest in sustainability is crucial; yet this still remains patchy. Sustainability in action Sustainability strategies are frequently greeted with sighs of exasperation from business owners and managers worried about added cost and complexity. But according to Stuart Humphreys, Group Financial Controller of National Grid, the rules of the game have changed: In finance we used to ask, can we afford to pursue sustainable strategies? Now we ask, can we afford not to? Having seen many examples of sustainability being embedded in capital investment projects from the outset, he appreciates that low carbon invariably means low cost, and the same is true for waste, water usage, etc.

5 Rethinking Business: Sustainability and finance Recently, in assessing the tenders for rebuilding an electricity substation, National Grid took into account suppliers ability to deliver a 20% reduction in embodied and operational carbon. Mr Humphreys recalled that this focus on carbon reduction inspired great innovation on the part of the companies competing for the project, delivering both significant cost savings and environmental benefits. Business leaders need to bang the drum. Setting the right tone from the top is a really important part of the drive towards a sustainable future, Mr Humphreys stated. And for organisations such as National Grid that are regulated, having a positive, proactive dialogue with regulators is also important. Defining value One of the main obstacles to implementing sustainable finance, is, as Emma Howard Boyd, Chair of ShareAction, summarised, the disconnected thinking that takes place at the heart of the investment industry. Listed companies in particular suffer from the pressure of short-term performance review. Timing is a huge factor in changing investor attitudes towards sustainability. What sort of time frame should investors be using when examining companies? And how can we encourage investors to think about their investments over the long-term? And what about the role for the more active responsible investors who want to see companies move away from a dependency on fossil fuels should they follow the lead of the Norwegian Government Pension Fund which recently committed to divest from coal, or should they retain their investments and lobby for a more sustainable approach? Ms Howard Boyd said that rather than fitting sustainability into a discussion on economics, business leaders need to start fitting economics into a discussion about sustainability. She suggested that there is currently not enough long-term analysis of the economic implications of a 2 degree warming in our climate or of the changes taking place in the nitrogen cycle. Business leaders need to understand exactly how these factors will affect economies over the long-term. Part of the problem is the different languages used by the finance and sustainability communities and the communication challenges which often arise as a result. There is a widespread understanding within the financial community of how to value financial capital, yet the same does not apply to natural or human capital.

6 Summary Report Additionally, the value of sustainability initiatives in financial terms must be more clearly defined before real change can happen. Ultimately, any success in sustainability will require changes in ways of thinking and acting. Rather than trying to proceed with the same business models, companies must rethink their approach entirely. As one participant argued, We re trying to solve the problems we face, kidding ourselves that we can solve them while continuing to do what we ve always done. Rather than asking how do we get the economy to grow? it is important for society as a whole to consider exactly what purpose the economy should serve. After all, as one participant said, the economy is just a social construct and we can make it do whatever we want it to do. Conclusion There is now a strong and consistent push on sustainability issues from the socially responsible investment movement aligned to the demand for increased disclosure from organisations like CDP. However, there remains a significant gap between their focus on social and environmental value and the day-to-day focus of the mainstream investment community on growth and short term financial value. The question of how to bridge this divide remains yet the CFO community can undoubtedly play a critical role.

7 BIOGRAPHIES Rethinking Business: Sustainability and finance CHAIR Pilita Clark Environment Correspondent Financial Times Pilita Clark was appointed Environment Correspondent in May Ms Clark covers all environmental issues, from climate change to wildlife, but has a particular focus on the impact of emerging trends and policies in this area on businesses and investors. Prior to this role, she was the Aerospace Correspondent and Deputy News Editor on the main news desk at the Financial Times. Before that she was Deputy Editor of the FT Magazine. Before joining the FT in 2003, as a Commissioning Editor on the FT Magazine, Ms Clark was a senior writer for the Sydney Morning Herald, where she was a political reporter in Washington DC and Canberra. She was also Managing Editor of The Eye news magazine, Sydney and a Nieman Fellow at Harvard University.

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9 Rethinking Business: Sustainability and finance Coca-Cola Enterprises, Inc. (CCE) is the leading Western European marketer, producer, and distributor of non-alcoholic ready-to-drink beverages and one of the world s largest independent Coca-Cola bottlers. CCE is the sole licensed bottler for products of The Coca-Cola Company in Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden. We operate with a local focus and have 17 manufacturing sites across Europe, where we manufacture nearly 90 percent of our products in the markets in which they are consumed. Sustainability is core to our business, and we have been recognised by leading organizations in North America and Europe for our progress in water use reduction, carbon footprint reduction, and recycling initiatives.

10 ORGANISERS SustainAbility is a think tank and strategic advisory firm that for over 25 years has catalyzed and supported business leadership on sustainability. Through our agenda setting research and advocacy, we chart new territory and help business leaders and their stakeholders understand what s next. Through our advisory services, we help clients anticipate trends, understand and respond to key risks and opportunities, and foster authentic, effective engagement and collaboration with stakeholders.

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