Dr John Tobin, Managing Director and Global Head of Sustainability for Credit Suisse, presented a conference on “Finance and Sustainability in a Resource-Constrained World” to our Masters in International Finance students in the class of Prof. Alkis Tsiklis last week.
Sustainability, responsibility and Milton Friedman
John Tobin started the presentation by giving us the well-known definition of sustainability from the “World Commission on Environment and Development: Our Common Future” report for the Rio Conference over 20 years ago. “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. A good start, I thought. There are so many definitions of the term it was nice to see the direction we were taking.
We moved onto the subject of corporate responsibility (as opposed to CSR which, according to our speaker relates more to philanthropic works) and heard about a recent Financial Times article defining corporate responsibility as companies being responsible to the groups and individuals they affect.
According to our speaker, honesty, integrity and respect are essential and being responsible gives companies a “license to operate” – they are good for the society in which they operate.
As you all probably know by now, the well-known economist, Milton Friedman had a different vision in this regards, it seems. Back in 1970 he thought that companies’ only responsibility was to make money for the stockholders. In my opinion, times have changed!! Milton, move on……
The former CEO and president of Walmart, H Lee Scott, had, according to Dr Tobin, a different way of looking at this–Sustainability, he thinks, is the single biggest business opportunity of the 21st century and a source of competitive advantage. The power of Walmart makes this a very interesting idea to follow. This is not about NGOs putting pressure on companies to do the right thing, but the understanding of the advantage of doing so.
Credit Suisse, sustainability, responsibility
We heard about Credit Suisse, the 2nd largest bank in Switzerland, with 46,000 employees globally. This is a bank that works in the areas of private banking and wealth management and investment banking. This organization has offices in the EMEA region, Asia Pacific, Switzerland and the Americas. But what concerns a huge organization like Credit Suisse, we wondered?
Sustainability and risk management are very important to this company and reputation is vital.
What happens when companies do not pay attention to the numerous stakeholders? John showed us the Greenpeace/KitKat campaign which involved Nestlé’s work with palm oil. A very successful and effective campaign, it seems. Naturally, no company wants that type of challenge but when challenges occur they must dealt with effectively and a way to anticipate risk as far as possible for the future must be found.
John Tobin stressed the importance of reputational risk and the way risk is managed by companies. “Perception becomes reality” he said, so companies must be proactive and react appropriately when their reputation is in difficulty. He talked about the pressure companies come under from all sorts of stakeholders and mentioned the letters received by Brady Dougan, the CEO of the company, from 3,000 children because of the involvement of the bank in the construction of a pipeline and the potential damage that it could cause to the whale population in the region.
Times are changing
The discussion has changed with regards to issues of environment, human rights and business, and sustainability. The Wall Street Journal, the Financial Times, different media are all talking about sustainability, and about reputational risk today. Most surprisingly perhaps, and this did surprise me, members of the US Federal Reserve Bank have stated that reputational risk is the single most important risk for banks today. Wow!!
Initiatives and stakeholder engagement
There are many initiatives out there today making efforts to improve behaviour. The Equator Principles, a 12 year old initiative signed up to by 80 financial institutions, attempts to help companies to manage their risk more effectively. The IFC Guiding Principles were mentioned, and the necessity for financial organizations to move in the direction of better environmental and social risk management. The idea, says John Tobin, is to compete not on how low banks can set the bar on sustainability risk management but “to compete on price and on the quality of service they provide”.
Stakeholder activism and the need for engagement is an everyday reality today – there are many NGOs out there. We heard about BankTrack, Amnesty International, Berne Declaration, the Rainforest Alliance who work in the area of oil sands, palm oil, human rights, and the list goes on and on. Companies must be aware of these stakeholders and find a way to work with them.
A report recently published with WWF, McKinsey and Credit Suisse seems to be one I would be interested in reading – Conservation Finance- moving beyond donor funding towards an investor approach.
Surely we can do good, work well and still make money! It’s worth a try…
Mary Mayenfisch-Tobin, BCL, LL.M, Solicitor