ESG Talk: ESG Executive Notes | World Economic Forum and the 2022 AGM Season

Key Takeaways

Tune into the latest episode of ESG Talk with Dan Lambeth, Partner at Brunswick. Dan and host Mandi McReynolds share executive notes on the 2022 Annual General Meeting season and World Economic Forum. They dive into how ESG through capitalism drives societal value and provide practical takeaways for companies as they prepare for AGM season.

 

 

S1 Episode 4: ESG Talk | Transcript

 

Mandi McReynolds  

Hello and welcome to ESG Talk. We're so glad that you decided to join us today. Remember, you're a co-producer of the show, we take information from my LinkedIn or @ESGTalk on Twitter to help us shape each and every episode to bring you the best tips and opportunities as it relates to environment, social, and governance. Today, I'm thrilled to have with us Dan Lambeth, who is from Brunswick. Dan is a great practitioner. And there are three reasons why he is a triple threat. He comes with over 20 years of finance experience with JP Morgan, he has worked at the Royal Bank of Scotland and has held senior executive roles with London Stock Exchange. Now a triple threat in environment, social, and governance means you've been in finance, you know how to communicate, and you have a deep history with E, S, or G and he has all of those. The other thing that I appreciate about Dan is he's a lifelong learner. He is currently pursuing his Ph.D. at Oxford University around sustainability incentives. So he's going to unpack that a little bit for us. Dan, welcome to the show.

 

Dan Lambeth  

Thank you very much. I'm delighted to join you.

 

Mandi McReynolds  

So glad you're here. Okay, now in this show, we kick it off with having conversation starters. These are three quick questions that help us get to know you a little bit more before we dive deeper into this episode on executive notes, where you and I are going to share quick information on the AGM season, as well as Davos that just finished in May. So these ready for these quick starters? 

 

Dan Lambeth  

Go for it. 

 

Mandi McReynolds  

All right. So I want to know, let's just start with a really simple one. What made you smile today?

 

Dan Lambeth  

Oh, waking up this morning and opening the curtains and seeing the glorious English countryside.

 

Mandi McReynolds  

I love it. I spent the weekend in the glorious Iowa countryside. So I hear you it's there's nothing like the peacefulness of the outdoors. Now, this next one is about you being a lifelong learner. I really loved it as we prepared for the show. You've talked about your research and what you're looking at around not demonizing but incentivizing sustainability. So tell us more about your research.

 

Dan Lambeth  

Sure. Well, I was always the school kid who prefered to be praised than punished. And I think most of us prefer praise. We like to be encouraged to the table. So at Oxford, I'm looking at incentives for investing private capital to support the sustainable development goals. And in particular, looking at tax incentives, which can be quite controversial.

 

Mandi McReynolds  

Tell us more. What's the controversy there in your mind?

 

Dan Lambeth  

I think typically, we think about tax as being used to fund sustainable development. So to pay for public services. There's less focus on the potential benefits of incentivizing companies through the tax system to do things that to do good, right. So we'll give you a reduction on your income tax if you divert a certain percentage of your revenue into certain activities. So there's a bit of tension there in terms of making sure that states are gathering sufficient tax revenue. And at the same time incentivizing companies to do the right thing. 

 

Mandi McReynolds  

I appreciate that so much, great research and lifelong learners. I look forward to seeing your future publications from it, and really learning together like you said, how do we positively impact movement versus negatively impact movement? Now, here's something we've been asking our guests. Oftentimes when you enter into environment, social, and governance, the moments that change you aren't really loud ones on stage or with a microphone. They're often quieter, simple moments or conversations. Can you share with us what influenced you in your ESG journey that was a quiet moment?

 

Dan Lambeth  

Sure. So pre-COVID when we were all traveling, I had an amazing trip to New Zealand. And on New Year's Day, I found myself on Doubtful Sound, which is like a huge field, right? It's a huge expanse of water surrounded by mountains. And it was a very dark start to the day. And it began raining. But very oddly, the rain smelt of fire of ash. And I was thinking, well, this is very peculiar what's going on here? And of course, we were experiencing the ash from the forest fires that were happening in Australia, which is 2,500 miles away. And at that stage, I'd already been involved in a number of ESG projects. But I made the personal commitment that I wanted to devote the rest of my career in one way or another to ESG. So that was a very, very important moment for me, where I experienced the environmental consequences of the way we live here on Earth and made a personal commitment to want to make a difference.

 

Mandi McReynolds  

Thank you for your vulnerability and for sharing that quiet moment. I know, as somebody who has been deep in the S discipline, there are several times where it's been working with a community partner agency, or my own lived experience growing up on $18,000 or less USD and parents being educators, then seeing the pipeline development of talent. And these moments are really deep and personal. But it pushes us to have a purpose in the work that we do and see that the corporation and capitalism can be a part of the solution. And you and I had a really interesting dialogue, as we were prepping for the show about, you know, at some moments when you work in ESG, people ask, well, are you woke? Are you on this other side? And you and I were going, well wait a minute. As we reflect on AGM and Davos, we believe in capitalism as a way of helping the future of our planet and the prosperity of people. So share a little bit about your perspective with those joining the conversation around how does capitalism influence the future of society?

 

Dan Lambeth  

Well, being no doubt that I'm a committed capitalist, and there's been no greater force in human history that's lifted literally millions of people out of poverty. And I'm always interested in ESG actually, principally because of my background, in terms of return and performance. Now, there's a lot of focus on impact, and rightly so. But I think that we can make a lot of progress in helping people understand the benefits of ESG, when we articulate it in terms of risk and resilience. And when we realize that companies that for example, take an environmental risk and social risks seriously enjoy benefits in terms of reduced cost of capital, more stable share price performance, and they're able to tell a much stronger risk management story. And so if we think about the first part of what sometimes is referred to as double materiality, which makes it sound very complicated, but it's not the financial impacts of taking the E, S, and the G seriously, there are some great benefits there for investors, and the companies that they that they invest in. If we then move towards the impact side of things, I think back to when I started my career, many, many years ago, we used to think of there being kind of two main spheres in the world. There was a private sphere and that was all about return. And then there was a government sphere, then that was about welfare, policy, and defense, and so on. And the two should never meet. I think as we've all grown up with realize that unfortunately, it's not quite as straightforward as that. And we know that many of our great corporations have a really important role to play in meeting certain social and environmental objectives. And I'm a great libertarian too. And the thing that I feel really passionately about is individuals, shareholders, and companies having the right to choose. And I'm as passionate about the right of an individual if they so wish to only invest in fossil fuel companies, and to only invest in laggard fossil fuel companies because they feel that's best for their return. But I feel equally strongly that for those of us who want to only invest in best-in-class fossil fuel companies, we should have that choice. And that's the wonder of the ESG revolution is that now thanks to the amazing companies that are out there that provide ESG data and research, we're beginning to be able to make more informed decisions. So if you wanted to make a decision about investing in a company with strong supply chain credentials, and you were worried about the labor standards in those supply chains, making that call 15 years ago was really difficult because companies weren't disclosing. It's great now that they're disclosing. I think it's important that we shouldn't be saying that investors must move in a certain way, or companies must do a certain thing. But it's the responsibility of companies to make return for shareholders, and for asset managers to make returns for the pension companies and so forth, who invest in them. But isn't it great that now we get more choices in terms of how we want to invest.

 

Mandi McReynolds  

Exactly. And I think I so agree with you that the individual consumer choice matters. And we have to be able to have the quality of data for those that are interested in the opportunity and the freedom of that decision. I also love where you went with the rating agencies and others who have really pushed the conversation the last several years. And one of the things that I appreciate about them, they're not perfect, but what I appreciate is that, yeah, they're not. And that's okay to acknowledge the truth of that. But the truth is, is that they really tried to hyper-focus on what's material as it relates to environment, social, and governance. And so when we think about the social purpose, which is what our viewers on LinkedIn said, talk about the economy and social purpose, we don't want to hear about politics. So thank you for sharing that in the poll on both of our LinkedIn and that's where we're gonna go. This social purpose of companies that these rating agencies have done is that, hey, what if you're a financial firm, what are you doing around financial access? If you're a health agency, what are you doing around health? If you're a technology company, what are you doing with the digital divide? If you're thinking about S and your workforce, how are you partnering with colleges and universities to drive the vitality of your workforce forward? And I think that helps companies begin to move into the issues that are most relevant to the material topics of their business. And I hope to see that continue on. You and I just briefly said, wouldn't it be great if instead of all these philanthropic dollars, companies began to think about the workforce issues like affordable housing, how can I invest in affordable housing near the places of business, then I need a workforce or health care for my employees, or other public transportation? How can we jointly work with government to move the needle forward? What do you think as you reflect on Davos, and the AGM season, the Annual General Meeting season. Where are we seeing this collide of social and government and corporations, as you said, that's not political, but it's about the economy?

 

Dan Lambeth  

And we, Brunswick, and I should say that I'm speaking in my personal capacity today, not on behalf of the organization. But typically, the work that the organization does, is to help companies understand that very complex stakeholder map, that you were starting to set out, and I often like to think of it as a series of concentric circles, where, in the center, you have the company and its policies, and then you work out and think about impacts on employees, customers, the wider community, and broader policy. And that makes, I think, for a very complex picture for companies to have to navigate. And the data challenges with in that sphere, are also very complex. The great thing about the E is that we've made enormous strides in terms of the science and the data. We're all now broadly aligned on how to report for example, in relation to GHG emissions and intensity and so that the measures further. The S, I think, are a bit more complicated, a bit less clear. And I think that quite often, companies are looking for some reassurance in terms of, am I focusing on the right stakeholders? And how should I be? How should I be messaging to them? And I think we've begun to see through the AGM season and through Davos a lot more focus on these issues that this intersection, if you like, between the behavior of companies, and the policies of governments are becoming a lot more in focus, shall we say? And there's great of dialogue, I think between those people who I certainly will once sit in the, in the private box and stakeholders who were sat in the in the public box. And I think that's partly because if we get back to that distinction I was making earlier about financial considerations and impacts. We can't divorce the social from financial consideration, we know that there are some very good business leaders who have ended up in the headlines for the reasons that they have lost their jobs that share prices have been affected. And very suddenly, quite often you find these things come as an enormous shock. And then the rapidity of the speed of the controversy can quite often take organizations by surprise. So I think that consequently, companies are choosing to think much harder about these issues, they think they realize that they now have to have a narrative. They take their responsibilities to their employees and their broader stakeholders seriously. And they want to get the want to get the communications correct. And I think this is a reflection, if you like, in a shifting of values, and the way that we the way that we view the world, I think a lot of business leaders want to get this sort of thing, right. And also know that setting aside the financial considerations, and I have some great colleagues in our business and society team who focus very much on the impacts, want to explain what to help companies to explain that they care about the impacts of their economic activities, that they think long and hard about how to mitigate the negative impacts and give a lot of thought on how to boost the opportunities. So it's a complex picture. And a lot of thought needs to go into how to tell the narrative in a in a compelling and authentic way. Because it's different for different companies.

 

Mandi McReynolds  

Do you find that in as you work with companies? And as this debate is happening about getting it right? Are you comfortable with some being laggers? As they try to validate their work?

 

Dan Lambeth  

The laggers you said? Yeah. It's a great question. There's a very interesting debate at the moment within the investment management community about investment versus divestment. So if a company is performing badly or a particular indicator, should you avoid it? Because it's a lagger? Or should you invest in it because you can have an influence on its journey? And I'm very much in the latter camp. So I think even if a company has been performing badly, or it's been involved in controversies, I think that they're the sorts of companies that really need the help to go through the process of the transformation. And to be able to tell the story. Yeah, sometimes the most difficult client for me to work with is you know, they'll be a great student, because wherever you take it, but But you know, the student, you remember when we were at school, and you'd get sometimes you'd get good effort at the end of the piece. And you knew that you hadn't come top of the class, but you are on a journey. And I think that journey is so important.

 

Mandi McReynolds  

Well, that leads into the Annual General Meeting discussion. And I think about this, you had a great piece with you and your colleagues, it was it came out May 5, Harvard Law School forum on corporate governance, we'll put it in the show notes for those tuning in today. And it was very practical predictions and tips. So as you reflect on the engagement in the Annual General Meeting season, what in your work in predictions came true, and maybe what was a little surprising to you?

 

Dan Lambeth  

So I have to give credit where credit is due. So an enormous thanks to Stephanie Chalk, in the German office, who did most of the work on writing the paper, with great support from Pru Bennett, who leads our government's offering out of Australia. I'm pretty astonished by the accuracy of the paper. Actually, when you take a look at the paper, I think we did a really a really good job at identifying the issues that would arise. But what has taken everybody by surprise, I think, is just how dramatic this season has been. But I don't think that any of us expected the number of protests and demonstrations and singing at meetings. I think that's rather taken us all all aback. And I think that what's also been surprising is where for the first time we've seen for some companies, investor support for certain types of resolutions where we haven't seen support previously. And I don't want to mention any particular company names, but you only need to do a Google search to to begin seeing how some of the there's been a degree of surprise about how certain resolutions so starting to get support for the first time. So starting starting to see some real change?

 

Mandi McReynolds  

Well, I think it's a really interesting piece where you and I talked about how people can be more proactive than reactive. And really, when you look at the outcome of the season, like you said, singing to protests, one of the things that I share is you have to not only be for the pro-ESG investor, you also have to listen to the one that has paused and really unpack this holistic view of the investor relationship. Not just from the passive income status, but maybe from more of the active income status and think through that as a team and get ahead of it. As you think about companies, what's maybe two or three practical tips that you have for them on how they can get ahead of a conversation?

 

Dan Lambeth  

I like this idea of getting fit for AGM season. So if you're going to run a marathon, I've never run a marathon, but if you're gonna do it, you need to be fit for what's coming up. And I'm I'm a believer that you need to be fit for AGM season. And what I mean by that is, you need to have foresight, you need to have the inside track, and you need timeliness. So let's think about foresight. We've had a fascinating AGM season so far this year, do your research, look at the issues that have come up, that will give you insight into what is likely to come up next year. Okay, there's all sorts of interesting scenario analysis that you can do to think about the questions that you're likely to be asked next year. Insight track is really about engagement. So engage with your key stakeholders, because they will give you guess what, if you ask them what they're interested in, they'll tell you. And the situation is, can often be a win-win situation where you have a pressure group, or a group of investors who want to raise a certain issue, you may find nine times out of 10, that with enough runway, you can address the issues, there's plenty of examples of resolutions getting withdrawn. Because of effective engagement. That's a win-win for both sides. Timeliness, don't leave it until three weeks before your AGM to try to address these issues. Now, if you only have a few weeks left, so be work hard, you can probably manage them. But if you start now, when you start in the autumn ahead, have an AGM in the spring, to think about what's coming up and to engage, engage in an effective way. And crucially, listen to some of those voices that you might prefer to ignore. An engagement strategy that's based on phoning your friends, is not going to serve your interests have some of the difficult conversations in a in a structured and thoughtful way.

 

Mandi McReynolds  

I really appreciate that it's not just on your friends, listen to all your key stakeholders. And in getting fit. I can completely relate I'm not a runner, but I have run a marathon and it is a 20 week prep to make that happened. And I think that's a really good key takeaway for those who want to approach annual general meeting next year is this is an autumn exercise. This is a time to review your stakeholder exercise. So thank you for that for that insight for for us today. Let's switch gears  as we wrap out our time together and talk about Davos. What was one conversation at Davos that you found most memorable?

 

Dan Lambeth  

I'm not sure if I would reduce it to one conversation. But it was one theme that I found very revealing. And it was that in relation to fossil fuels. Because we have seen this extraordinary transformation within the course of just a year in terms of approaches to fossil fuels. For very understandable reasons given geopolitical instability in the world. There's much more now the government can focus on ensuring stable energy supplies and fossil fuels are part of that solution. And we're starting to see some ESG investors for the first time saying well hang on a minute. We need the return and the stocks are performing well. Maybe we choose the best in class of fossil fuels. And the reason that it's very important is I think it demonstrates the dynamic nature of ESG that it necessarily has to reflect social values and geopolitical reality. And it's why I sometimes balk a bit when people talk about ESG stocks and the ESG sector because I never really showed there is one, I think we've got a traditional universe of 11 or 12, investable sectors, and they have best in class ESG performance. So ESG is never going to go away, it will become increasingly mainstream. And it's going to change over time, it's gonna change because we need the returns, we need to pay people's pensions, we need the returns in the 401k. So this is gonna, this is something and the fact that it's changing is not for me, it's not a signal of defeat, or that something's gone wrong. It shows that it's a very live concept, which reacts with the with the real world.

 

Mandi McReynolds  

And I agree, I think it looks at it as thinking about group development. It's the same as product development or industry development, right? You form, you storm, you norm, you perform. And I think you're exactly right, that ESG is in the middle of forming and storming. And it has elements of performing and we're working through what does great integration look like, what does strong product development look like? And it's a bright future ahead. And as I reflected on Davos, what I think was so critical, if you looked at papers from last year, coming into Davos, they were focused on purpose, purpose, purpose. And this year, if you look at the papers, there was a strong theme of value. And to your point, geopolitical, and I think that we're looking as a society is how do we have to local and still perform largely as a global society together and ESG and the business value drivers are right in the middle of this. So thank you so much, Dan, for your time today for engaging in this conversation of executive notes on the AGM season and Davos, I feel like those listening in and myself today got the CliffsNotes, we were able to not have to listen through all of AGM or listen through all the Davos sessions to have a great takeaway. For those interested in more from Dan, we'll make sure to put the article there. You can engage with him on LinkedIn or visit the Brunswick website. We hope that you will join us for the next ESG talk where we'll unpack in that chat, our Workiva ESG survey and the results that are coming into the market hot off the press. We look forward to talking soon.