Thanks to the work of investors, advocates, policymakers and companies, management of environmental and social capital have come to be recognized as legitimate determinants of corporate performance.
Yet the challenge remains: How to move beyond disclosures about sustainability to moving the needle on performance? How do we “move upstream” from disclosure to making sustainability part of companies’ governing practices long term?
It is one thing to theorize about transparency and the link to efficient markets. It is another for companies to be governed with a broader and longer view that takes account of their employees, customers, suppliers, communities, investors, the environment and society. “If to do were as easy as to know what were good to do, chapels had been churches, and poor men’s cottages princes’ palaces,” Portia explains to her lady Nerissa in “The Merchant of Venice.”
Shakespeare, himselfin the company that built the Globe Theatre, had it right. The ESG-industrial complex (referring to environmental, social and governance) encompasses myriad data, frameworks, standards, ratings, reports, benchmarks, and funds. With all the money rushing to do right by the world, , one would think stakeholder capitalism would be a fact of life by now. But society is still struggling to produce positive change.
The challenge of not merely disclosing, but of doing, has led me to join LTSE, which is building modern infrastructure in the capital markets and transforming the conditions that enable companies to be built for the long term.
I look forward to helping companies go beyond producing data and chasing ratings in varied assessments of ESG practices to building businesses that are governed with stakeholders at their core — companies that are determined to drive better outcomes, not just better disclosure.
My decision to join LTSE follows more than 25 years of work to move markets in the direction of producing sustainable outcomes. In 2008, I founded the Sustainability Account Standards Board, which establishes industry-specific disclosure standards across ESG topics that facilitate communication between companies and investors.
The SASBthat have gained sufficient importance to investors to become material. But imagine that if instead of relying solely on disclosure companies engaged in a dialogue with their stakeholders that addresses such issues. Imagine from that engagement the issues never rise to the level of materiality because they’ve become addressed by what we simply call capitalism.
Support for companies and their long-term investors
The Long-Term Stock Exchange is catalyzing change from the inside out. With, the Exchange has changed the rules and reporting frameworks to support companies and investors who focus long term. It is designed to create a pathway that links the concerns of a company’s stakeholders to the creation of value over time. It lets companies decide in concert with their stakeholders what matters.
For example, each company that lists its shares on the Long-Term Stock Exchange will be required to adopt and publish a policy that explains how the company operates its business to consider all stakeholders critical to its long-term success.
Of course, the substance of that policy will differ for every company and industry. You would not expect a bank to have the same policies regarding how it impacts the environment as an airline. An automobile company might address its labor relations, while a pharmaceutical manufacturer might address the effects of climate change on research and development. Still, for all their differences, the goal is the same: to build better companies for the sake of founders, employees, investors, stakeholders, and society.
LTSE holds the potential to move beyond the machine of sustainability data to actually change behavior, by tilting the playing field to support resilient companies and their long-term investors. My title at LTSE, chief resilience officer, reflects our view that resilience is sustainability plus governance; that resilience supports innovation over the long term because it helps companies capitalize on opportunities and avoid things that can derail them from upholding their mission.
From an exchange that is focused on governance principles to software that strengthens the partnership between companies and the investors who buy and hold their stock, innovation is at the heart of LTSE as it helps companies embed a broader and longer-term view of success into their day-to-day operations. LTSE offers companies more than a rating or a guide to what metrics they should disclose. We are helping them operationalize governance for long-term performance.
Disclosure makes companies transparent but governance makes them resilient, especially when it embodies the views of their stakeholders. Neither the challenge of creating lasting value nor existential challenges such as climate risk or inequality will be solved in a quarterly earnings cycle. It takes a generation.