The regenerative finance framework for CFOs addresses every aspect of the finance organization: Governance (strategy), Risk (financing), Science-Based Goal Setting (planning), Decision Systems (investing), Treasury (financing), Operations (investing), and Investor relations (reporting).
In this issue we address the most important pillar: GOVERNANCE. People talk about good governance, but why do we think it is THE imperative and what does good governance actually mean? Simply put, if ESG is not addressed at the core of business, which is at the board level, then ESG will fall prey to annual budgeting cycles, ad hoc marketing campaigns (greenwashing), and tactical approaches to investment decisions. Further, if not addressed by the board and the CEO directly, ESG will never be at the core of a business’ culture and, therefore, not central to the learning systems of a corporation.
As stated clearly on S&P’s Global site, “The ‘G’ in ESG refers to the governance factors of decision-making, from sovereigns’ policymaking to the distribution of rights and responsibilities among different participants in corporations, including the board of directors, managers, employees, shareholders, and stakeholders. The purpose of the corporation, the role and makeup of boards of directors, and the oversight of top executives have emerged as core issues in companies’ corporate governance structures.” Creating a balanced stakeholder approach demands addressing that balance at the board level and should be central to the goals, strategies, and incentives of the CEO. Here are some elements of good governance:
Add a board-approved Justice, Equity, Diversity, and Inclusion (JEDI) declaration.
Add a formal ESG Committee, matching the importance of the compensation and audit committees.
Add specific ESG-related KPIs/OKRs to the annual planning process.
Add an ESG factor into your Capital Asset Pricing Model to adjust the discount rate to cost of capital, improving the Net Present Value of investments.
Ensure integrated reporting placing ESG-related factors at the same level of importance as financial performance.
There are other elements that should be taken into consideration as well when addressing ESG factors. Paul Herman, CEO of the HIP Investor, speaks of governance eloquently when he says, “Good governance promotes corporate actions on a range of positive-impact environmental, social and governance issues that promote economic growth, long-term job creation, increasing long-term shareholder value, while also benefiting people, planet, and trust.”
“CFOs play a leading role in establishing clear indications and setting best practices for making corporate finance and investments a real driver of social growth. As members of the CFO Taskforce, we are all committed to working at the service of a new stakeholder capitalism, creating sustainable value for people and the planet. The UN Global Compact CFO Principles for Integrated SDG Investments and Finance represent a solid first step to guide companies in the adoption of credible finance strategies that fully integrate sustainability towards the achievement of SDGs.”
Recent Insights
Biden administration may rescindrules on ESG in retirement funds. President Joe Biden has signed an executive order on climate-related financial risk that includes a directive to the Secretary of Labor to consider suspending, revising, or rescinding the “Financial Factors in Selecting Plan Investments” final rule regarding ESG investments that was published during the last days of the Trump administration. Reporting & Investing
TheTop 5 insightsfromPIMCO’s ESG Investment Summit. PIMCO’s annual ESG Summit — hosted virtually this year — aimed to help participants keep pace with the rapidly evolving landscape of environmental, social, and governance issues within the world of investing, with a particular focus on the transition to net-zero emissions. Investing, Reporting, & Financing
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It’s now widely recognized that corporations have a moral, social, and economic imperative to invest in ESG. Kevin Feldisof Perkins Coie LLP lays out a framework for companies — whatever their industry or size — to take the lead in defining ESG commitments before others take aim at their absence. Reporting
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One need not sacrifice returns when investing in ESG innovation. U.S. investors are flocking to sustainable funds as performance over the past three years shows they haven’t had to sacrifice returns.“ Active retail products have yet to demonstrate a significant and consistent performance advantage over passive products across most categories we analyze,” Deutsche Bank analysts said. “Passive funds will likely continue to gain share vs. actively-managed products within sustainable investing in the near-to intermediate term.” Reporting
Featured ESG Investor
Welcome Dan Fitzgerald, Managing Partner at ReGen Ventures.
Dan has spent his professional life creating and implementing innovative capital solutions that improve people’s lives and the health of the environment. Dan has a background in hedge funds, family offices, and venture capital and has been an investor for 15-plus years. In 2020 Dan founded ReGen Ventures, a global venture capital firm that invests in regenerative technology companies created by wildly ambitious teams that want to radically transform our world for the better. Regenerative technology is inspired by nature, complementary to people, and actively addresses the most compelling challenges of our lifetimes: the health of people and our planet.
Featured ESG Investment
SustainChain:SustainChain is the world’s largest sustainability action platform that helps humanity collectively achieve the 17 UN Sustainable Development Goals (SDGs) through an AI and machine learning platform that maps global efforts, leaders, and actions. For years, people have struggled to evaluate the impact of sustainability efforts — or to gain the right information and coordination to work together across public and private sectors. SustainChain is a public service platform that gathers and incubates sustainable action efforts across a global network of stakeholders to accelerate our progress toward sustainability. SustainChain was created by the US Coalition on Sustainability as an acceleration and accountability engine for the SDGs.
Integrate21, the conference for regenerative financial executives — Transforming Corporate Finance to Regenerative Finance Through ESG Innovation: Nov. 8-10 at Fordham University in New York
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