Thursday, December 19, 2019

Novartis Goes Deep with Industry-leading ESG Materiality Assessment

Denise Weger
Many companies have conducted materiality assessments to understand the issues most important to their business and stakeholders. But, as I heard during a webinar last week sponsored by SustainAbility, the Swiss pharmaceutical giant Novartis has taken a much different, deeper approach. The webinar was the fifth in a series to explore how Novartis conducts and uses its materiality assessments. All are available on the SustainAbility site. 

In this week’s blog, I highlight Novartis’ materiality assessment process and share perspectives from Denise Weger, Senior Manager Strategic Initiatives Global Health & Corporate Responsibility, at the biopharma company. For Denise, a materiality assessment is a starting point that can inform the company’s decision making and transform how it does business. 

Novartis conducted its third full materiality assessment in 2017. Denise explained that the company started with basic desk research to understand trends and issues, then looked at peer reports, risk reports, guidelines such as those published by the OECD, and internal documents. In addition, they considered the UN Sustainable Development Goals (SDGs) – with SDG #3 Good Health and Wellbeing being the focus indicator -- to better understand issues of importance. 

During their most recent assessment, the company identified more than 100 topics relevant to Novartis and its stakeholders, which it went on to consolidate into the 30 “most-important” topics in eight issue clusters. The clusters were than ranked by internal and external stakeholders based on impact on and performance of Novartis. 

At the issue cluster level, stakeholders indicated the following four clusters as most material:

·       Access to Healthcare
·       Patient Health & Safety
·       Ethical Business Practices
·       Innovation

One of the aspects I find most comprehensive and innovative about Novartis’ process is how it displays the assessment results, not in the typical plot chart format but in a circular polar chart (see page 16 of their report). The chart’s inner circle reflects the eight issue clusters; the middle circle indicate topics with significant differences in perception between internal and external stakeholders (based on survey responses); and the outer circles represent the 30 individual topics. The relative importance of each topic is indicated by the height of the column. So, for example, for the Patient Health & Safety cluster, the three topics most important to stakeholders were pharmacovigilance, safety profile & quality of drugs; counterfeit medicines; and health  education & prevention. You can tell from the chart that these three topics were seen as important by both internal and external stakeholders with no significant difference in perception.  And, from the height of the topic columns, it’s clear that pharmacovigilance, safety profile & quality of drugs is seen as the most important of the three.

According to Denise, one of the most added-value aspects of their materiality assessment was the engagement with stakeholders. Their methodology also allows the company to break down results by stakeholder group to show what is important to each. Denise cautions that if a company is not truly  open to having this dialogue it will impact how they view and perceive the material issues they are facing.

Beyond its global assessment, the company has rolled out an assessment process to local country offices and provides guidance through a local country tool kit. Novartis says local assessments will help the company identify and understand regional differences and help country organizations define strategic areas of focus. To date, local teams in Turkey, Greece and Portugal have completed assessments, which, Denise said, will feed into the company’s global assessment as well. Next up, she said, will be assessments in Latin American countries.

The company has published a detailed report on their materiality assessment process and results on its website, and plans to publish in January a tool kit that other companies can use to conduct materiality assessments at the country level. Denis says the idea is to establish a practitioners’ exchange and also gather feedback for improvements.

I, for one, am looking forward to seeing it!

Happy holidays everyone. I hope you have enjoyed my blog in 2019 and I appreciate all the feedback I have received – keep it coming! I’ll be back with my next blog in the new year! 

Happy holidays!

Thursday, December 12, 2019

Robert Eccles Says the UN SDGs Are Influencing Business in Terms of Rhetoric, but not Much Else

Robert Eccles
Many companies have conducted materiality assessments to understand the issues most important to their business and stakeholders. But, as I heard during a webinar this week sponsored by SustainAbility, the Swiss pharmaceutical giant Novartis has taken a much different, deeper approach. The webinar was the fifth in a series to explore how Novartis conducts and uses its materiality assessments. All are available on the SustainAbility site. This week’s webinar looked specifically at the company’s materiality assessment and the UN Sustainable Development Goals (SDGs).

In this week’s blog, I share perspectives from well-known ESG expert Robert Eccles, currently a visiting professor at the Harvard Business School and Said Business School at Oxford University, who kicked off the webinar. In typical fashion, Eccles didn’t hold anything back.

“The SDGs are influencing business in terms of rhetoric, but not too much else, especially in terms of action,” he said. “All this talk about the SDGs and the private sector …. I’m dubious how much will happen. The tension is that the SDGs are about achieving positive externalities, and materiality assessments are about financial materiality.”

He shared results of an analysis he worked on with other academics looking at the SASB materiality framework and the SDGs. Mapping the 77 industries in the SASB standard to the SDGs, he found some financial material issues touch most of the SDGs. An example is supply chain. Others not so much, such as data privacy. His analysis also found some industries – such as health care and natural resources – have the ability to make greater contributions to the SDGs than others, such as financial services.

The biggest challenge however facing companies he said is the lack of metrics to measure true impact of corporate performance on the SDGs.  He cited three multi-stakeholder groups now working to develop impact metrics that would show how companies are positively contributing to the SDGs: The Impact Management Project, the Value Balancing Alliance, and the Impact-Weighted Accounts Project.

He believes these three efforts need to come together and reach consensus on standards and methodology for impact reporting, together with the private sector and investors. Only then will the clear impact be understood.

Stay tuned for my next blog with insights from Denise Weger, Senior Manager Strategic Initiatives Global Health & Corporate Responsibility, at Novartis.

Friday, December 6, 2019

What do Danone, ESG Investing, Priyanka Chopra and Child Advocacy have in Common? One Busy Week!

This week has been a busy one after getting back from the Thanksgiving holidays. I had the good fortune to cover the launch of the Danone Institute North America’s inaugural One Planet. One Health. grant program Monday night at a special dinner event hosted by Danone North America and Top Chef Host Tom Colicchio. I had a chance to meet the winning recipients who represented transdisciplinary teams from across the United States and Canada charged with designing, implementing and evaluating actionable, community-based projects for sustainable food systems. I have to say I was equally impressed by the amazing meal served up by Colicchio’s team and by each recipient’s project. Read more in my post this week on TriplePundit.

That was followed early on Tuesday with Moving the Market: SASB’s 2019 Symposium. I am an FSA Credential II Candidate for SASB certification and was excited to join with others to discuss the standards and hear from companies, investors and other stakeholders who are using them. Below are a few nuggets from the various panels and keynotes.

Thank the heavens, is all I have to say. “We think that over time there will be fewer and fewer [ESG] surveys because there will be more disclosure [by companies] in financial statements. … and, the information that makes up [remaining] ratings is going to be more transparent so you can understand what factors are behind each specific rating. … analysts will be able to look at the granular details and dig into the details…. At the end of the day, the change [toward disclosure] will be driven by asset owners – those people who are Millennials and very interested in how their investments are being used. They are starting to put pressure on asset managers already, saying ‘I want my savings to be used in such a way that will be positive to climate change.’” – Doug Peterson, President & CEO, S&P Global

SASB continues to move forward on a project to develop a framework around human capital management (HCM), Jeff Hales, SASB Chair, reported. He said this was the No. #1 issue when SASB’s Investor Advisory Group was polled. SASB will track HCM issues that are reasonably likely to affect a company’s financial performance and work over the next 18 months to map them to industries before developing meaningful metrics.

Rakhi Kumar, Senior Managing Director and Head of ESG Investments and Asset Stewardship at State Street Global Advisors, gave a great TED-style talk on her vision for the future of sustainable capital markets. After getting frustrated with variation in how ranking agencies score companies, State Street created their own ranking, which they call the R-factor (as in Responsibility). It looks at corporate performance and governance as it relates to ESG issues by industry, based on SASB standards. Companies can ask State Street for their score – as well as scores of their peers. State Street will send companies a roadmap with suggestions for what more they can disclose to improve. R-Factor scores are shared with State Street’s investment teams and also power the Bloomberg SASB ESG Indices.

Hungarian Oil & Gas Company MOL Group recently whittled down their ESG report from 80 pages, which they suspected very few analysts were reading, to a mere 10 pages. “We tried something bold,” Mikkel Skougaard, Sustainable Development Senior Expert at MOL, said. In 10 pages, they were able to tell what happened in the past fiscal year in terms of risks and developments. They included one page with major indictors and the rest for context. Static information – policies, approaches, programs – lives on their website. The result: MOL’s scores went up by MSCI, DJSI, Bloomberg, showing that less really is more!

Caroline Flammer from Boston University’s Questrom School of Business shared research on the rise  in integrating CSR into executive compensation. This is something I am constantly on the search of to share with clients. Examples she included in her study were Valero Energy, which ties 33 percent of executive comp to health, safety & environment; Intel, which links compensation to reductions in GHG emissions and energy use; and Excel, which also links to reductions in carbon emissions. She found that linkage was most prevalent in the mining industry at 57 percent, followed by agriculture, forestry & fishing at 53 percent. Her theory was that linking executive compensation to ESG will  improve a firm’s overall performance. She found that, indeed, companies that did saw an increase in firm value of 4.1 percent.

For anyone responsible for ESG reporting who has ever been frustrated by their legal department, this one’s for you. Robert Jackson, a Commissioner with the U.S. Securities and Exchange Commission: “The idea that doing nothing [not disclosing] is safer than doing something, is such a mistake. If the last few years have taught us anything it is that not disclosing material risks gets you in trouble -- especially when it comes to climate-related issues. We need to back up and ask what is the role of lawyers?” And this is from a Harvard-educated former corporate lawyer!  Maureen Jensen, Chair and CEO of the Ontario Securities Commission, agreed. “By not disclosing you are disclosing that the issue is not important to you, and people will notice. You have to be prepared for this discussion.”

Look out next year for a report from IASCO on sustainable finance.

Canada has mandated that companies must report the number of women on their board and if a company doesn’t disclose they need to disclose why. The mandate has moved the needle, with the number of companies with at least one woman on their boards jumping from 49 percent to 70 percent.  

And perhaps my favorite: “Increasingly the interests of stakeholders are the interests of investors,” coming again from SEC Commissioner Rob Jackson.

All in all, a good day spent with former colleagues and meeting new ones. From there, it was a quick subway ride downtown to the UNICEF Snowflake Ball to bid goodbye to the formidable Caryl Stern, who is leaving at the end of the month to take the reigns at the Little Rock-based Walton Family Foundation. As in past years, the event was spectacular, with actress Priyanka Chopra receiving this year’s Danny Kaye Humanitarian Award for her philanthropic work with UNICEF in India.

One fifth-grade holiday band concert later, Friday found me, my husband and friends volunteering our time at Deirdre’s House, where I am privileged to serve on the board. Deirdre’s House is the center in the New Jersey county where I live for child victims of abuse and/or neglect and for children who have witnessed violence. It does yeoman’s work.

With that, I am ready for a weekend!