Sustainability rising up the ranks of boardrooms in Latin America

25 October 2016

Sustainability management is becoming increasingly important in the boardrooms of Latin American organisations. Yet while the trend is positive, much terrain still needs to be gained, finds a new report.

Sustainability management is becoming an ever more pressing issue for companies, as the world wakes up to the threat of human induced climate change, environmental degradation and pollution as well as social and economic tensions. As investors and potential employees become more critical of companies’ sustainability records, companies across the globe are implementing sustainability strategies. A recent reports highlight that 57% of board members at surveyed investment firms say that they are actively excluding and divesting from companies with poor sustainability track records.

In a new report by A.T. Kearney, MIT Sloan and the Global Reporting Initiative, the researchers investigate current sustainability management trends among 555 businesses across Latin America. The survey involved 275 directors on company boards across the region.

Understanding of sustainability

Sustainability management

The survey of the Latin American directors finds that there is considerable understanding of sustainability, 62% say that they have a deep understanding of the concepts and are aware of the latest improvements in sustainability management. 37%, however, say that they know of the concept, but are not familiar with the details about the subject.

Of the 62% that have an understanding of the concept, 18% have yet to form an opinion about the subject – suggesting that they are yet to incorporate it into their value scale.

Sustainability management contributes to value creation

The majority of respondents, when asked about how sustainability management contributes to the creation of company value, state that it increases the value of intangible assets such as reputation and brand value (62%) and that it provides early identification of both risks and alternative ways to achieve goals (59%). Around 25% of respondents say that sustainability management results in increased share price and value generated for shareholders, while 15% say it supports the attraction and retention of talent.

Eulalia Sanin Gomez, A.T. Kearney partner and co-author of the report remarks, “Those directors with a formed opinion on sustainability management perceive tangible benefits for those companies that embrace sustainability beyond reputation and brand value. These directors also participate more actively in risk and materiality analysis and value those management teams with a longer-term vision.”

Currently responsible for handling sustainability

The respondents were also asked to consider who currently leads the handling of sustainability management, as well as who should be taking the helm. The results point to a considerable discrepancy, 68% of respondents say that the administration (executive) currently leads, while 44% believe that they should. As it stands, 25% of respondents say efforts are led by the Board of Directors, while 56% of respondents believe the Board of Directors should be leading the issue.

Reporting on sustainability

Better reporting

Reporting on sustainability efforts provides stakeholders with clear information regarding the efforts of an organisation, in the face of increasing demand. Investors are becoming increasingly critical of companies’ sustainability records, especially in light of changing regulatory environments focused on driving change towards long-term sustainability.

The report highlights that many of the companies surveyed across Latin America (44%) are yet to invest in formal reporting. For companies that do produce reports, the Board of Directors is an active participant in 38% of reports, while in 52% of cases it takes a passive role.

Improving sustainability management

Improving sustainability management

To improve the situation around sustainability management 75% of respondents say that companies should consider sustainability as a key element of wider corporate strategy, forming a key objective of the company. 38% say that there needs to be better training on sustainability for company directors, while 30% say that sustainability reports should be presented to the Board of Directors with greater depth and reliability.

David Kiron, MIT Sloan Management Review Executive Director and Academic Director of the study notes, “This data indicates that many directors have more to learn about sustainability. Less than half of directors say they have a deep understanding of sustainability and a majority say that sustainability management creates intangible business value. Sustainability is not just about the intangible. It’s one of the most important, material issues of our time.”


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Private equity firms ramp up sustainability focus

19 April 2019

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.