On March 8-9, 2018, a bespoke group of approximately 200 leading entrepreneurs, investors and advisors focused on deploying and commercializing cutting edge technologies gathered in Monte Carlo from across the globe for the 11th annual CleanEquity® Monaco Conference. Complementing other plenary sessions and emerging company presentations, the conference initiated a new feature — Covington CleanEquity Conversations — intended to capture and memorialise the unique thought leadership opportunity presented by the gathering in Monaco. On the first day, conference participants separated into three breakout groups for Chatham House Rule discussions curated by partners from the international law firm Covington & Burling LLP of three critical issues confronting cleantech deployment and commercialisation:

  • AI and IoT – Benefits, Risks, and the Role of Regulation
  • Sustainability – What goals should businesses prioritise and what are the right metrics?
  • Will market driven innovation alone save us from climate change?

On the second day, the Covington team reported during the conference’s final plenary session key takeaways from the three breakout group discussions. Covington and CleanEquity organizer and specialist investment bank, Innovator Capital, are pleased to share brief summaries of the thought leadership developed by the proceedings of conference participants on each of the three topics.

Sustainability -What goals should businesses prioritise and what are the right metrics?

Many global corporations have embraced corporate sustainability and carbon reduction goals. Large equity funds also are examining corporate sustainability practices and using a variety of proprietary or third-party environmental, social and governance or “ESG” ratings to assess corporate progress. But this proliferation of goals and array of often indecipherable ratings systems challenges societal measurement of “sustainability progress.” In a session led by Covington’s Clean Energy Industry Group Chair Andrew Jack, conference participants grappled with the following questions:

  • Do investors need better, more comparable, information about corporate sustainability efforts?
  • What sustainability goals should businesses prioritize?
  • How should sustainability be measured, incentivised and rewarded?

Improving Sustainability Disclosure is Essential

There was strong consensus for the view, from the perspective of both investors and companies, that mere compliance with current government disclosure mandates is insufficient to satisfy investor demands for corporate sustainability disclosures. For example, in the United States, corporations are not legally required to publish sustainability reports. Yet, prompted by investor and other stakeholder needs, at least 82% of the Standard & Poor’s 500 companies publish such reports.

There was equally strong consensus that it is a daunting task for corporate managers to sort through and select among the growing thicket of guidelines and voluntary reporting frameworks. Proliferating disclosure standards promulgated by the Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD) and other organizations provide wide latitude for sustainability disclosures. One participant noted that these standards are so diverse and loose that sustainability reports can say just about anything. Another participant commented that this diverse guidance landscape means that ESG rankings and metrics are not sufficiently comparable and thus are not terribly meaningful. Efforts to winnow the goals and metrics surrounding sustainability reporting to a more discrete core set of comparable measures would be beneficial.

Core Sustainability Goals and Priorities

To aid in this winnowing, participants in this breakout session responded to a brief survey rank ordering five separate sustainability goals by assigning 1 to the highest priority and 5 to the lowest. The survey also prompted participants to offer suggestions for other sustainability goals that businesses should pursue. The group prioritised the five enumerated goals as follows:

Rank Average Score Sustainability Goal
1. 2 Reduction of greenhouse gas emissions
2. 2.38 Reduction of fresh water consumption
3. 2.77 Energy efficiency
4. 3.15 Reduction of solid waste disposal
5. 3.38 Avoided deforestation / reforestation

These results reflect quick responses of a relatively small group of cleantech investors and entrepreneurs and therefore may not be representative of the rank ordering of sustainability goals that would be revealed in a survey of a broader segment of the business community. Moreover, within this small group the conversation revealed a fair amount of debate among priorities. One participant suggested that all five goals were equally important to society. This sentiment was echoed by others who observed that the overall objective of corporate sustainability efforts should be to promote human health and well-being, which necessarily requires the simultaneous pursuit of multiple goals. Some in the group suggested that corporations should be guided by the seventeen Sustainable Development Goals adopted by the United Nations that collectively focus on ending poverty, protecting the planet and ensuring prosperity for all. Other specific goals provided by participants included:

  • reducing inequality within societies through inclusive and equitable quality education
  • affording and strengthening gender equality
  • training and upskilling of workers
  • ubiquitous deploying of IoT devices; and
  • enhancing transparency and accountability regarding corporate actions

Measuring Progress
The group encountered some challenge developing metrics that could assess progress toward the sustainability goals. There was consensus that corporations need to establish reliable, transparent baselines against which to measure change and that metrics surrounding generalized goals such as the U.N. SDGs need to measure quantifiable impacts. For the goal of reducing greenhouse gas emissions, the group discussed the feasibility of using GHG emissions per unit of revenue as a metric. Participants generally regarded this as a reasonable tool, provided that it is used to compare performance of companies within specific sectors. For example, the airline industry has a different level of carbon intensity than the consumer electronics industry. Hence the group thought it could be useful to compare the GHG-intensity performance of one airline versus another airline, or one consumer electronics company versus another. But many in the group thought it would be unfair to measure the GHG-intensity of an airline against a consumer electronics company. Some participants, however, argued that it might be reasonable to compare GHG emissions per unit of revenue across different sectors. They observed that industries that are profitable by outsourcing to society the costs of their negative externalities tend over time to face societal pressure to retrench and compensate society for the negative externalities. In this sense, cross-sector comparability of GHG emissions per unit of revenue could be meaningful to accelerate the reduction, and minimize societal costs, of GHG emissions.

Incentives and Rewards

One participant staked the position that sustainability goals provide their own incentives and rewards, in that they are like Maslow’s hierarchy of needs. Corporations taking a long-term view are motivated to achieve all of the sustainability goals, but some take precedence over others. In this vein basic needs for sustainable clean air, water, and food must be met before the higher needs of social equality can be achieved. Another participant noted — as should be self-evident from the gathering of investors and entrepreneurs at the conference — that climate change presents a tremendous business opportunity that more enterprises should embrace. In this respect, businesses that demonstrate the greatest improvement on disrupting and addressing the problem of free riders on negative externalities should receive the greatest rewards. The discussion concluded by returning to the theme that many sustainability goals are linked together and should be considered holistically, keeping in mind the overall purpose to promote human health and social welfare.

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Photo of W. Andrew Jack W. Andrew Jack

Andrew Jack has a diverse corporate and securities practice with clients principally in the energy, industrial manufacturing, technology and sports and entertainment industries. He regularly represents corporations, board committees, and other forms of enterprises in mergers and acquisitions, strategic alliances, financing activities, securities…

Andrew Jack has a diverse corporate and securities practice with clients principally in the energy, industrial manufacturing, technology and sports and entertainment industries. He regularly represents corporations, board committees, and other forms of enterprises in mergers and acquisitions, strategic alliances, financing activities, securities law compliance, corporate governance counseling, and executive compensation arrangements. Mr. Jack also co-chairs the firm’s Energy Industry Group.