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Integrating ESGs and SDGs(Linking Financial Materiality and Impact)
Costanza ConsolandiUniversity of Siena
Towards Business2030 by Integrating Purpose and Materiality with Innovation and Performance.Rome, October 8th, 2019
Research Background
• 1. SDGs and Private Sector:• Need of the private sector in financing the SDGs• SDGs are business opportunities for private sector• Existing impact measures
• Outside the company ( for example UN SDSN, 2015)• Inside the company but not synthetic measure :
• 2. ESG Materiality:• SASB Materiality Map• Evidence on materiality (Khan et al.,2016)• Financial Relevance of Materiality (Consolandi & Eccles, 2019 forthcoming)
Research Design
SDGsESG Materiality
Financial Performance
Impact
The Inputs
SASB Materaility Map UN SDGs
Dimension General Issue Category Agricultural Products Alcoholic BeveragesFood Retailer &
DistributorsMeat, Poultry & Dairy
Non-Alcoholic Beverages
Processed Foods Restaurants Tobacco
Ghg Emissions 23.08% 38.46% 23.08% 23.08%Air QualityEnergy Management 23.08% 23.08% 38.46% 23.08% 23.08% 23.08% 23.08%Water & Wastewater Management 46.15% 38.46% 23.08% 46.15% 38.46% 23.08%Waste & Hazardous Materials Management 38.46% 23.08%Ecological Impacts 46.15%Human Rights & Community RelationsCustomer PrivacyData Security 53.85%Access & affordabilityProduct Quality & Safety 53.85% 46.15% 46.15% 38.46% 38.46%Customer Welfare 38.46% 38.46% 53.85% 53.85% 38.46% 61.54%Selling Practices & Product Labeling 46.15% 38.46% 38.46% 23.08% 30.77%Labor Practices 53.85% 38.46%Employee Health & Safety 38.46% 23.08%Employee Engagement,Diversity & InclusionProduct Design & Lifecycle Management 23.08% 53.85% 23.08% 23.08%Business Model ResilienceSupply Chain Management 61.54% 38.46% 46.15% 23.08% 30.77% 30.77% 23.08%Materials Sourcing & Efficiency 30.77% 38.46% 23.08% 38.46% 23.08%Phsical impacts Of Climate ChangeBusiness EthicsCompetitive BehaviorManagement Of the Legal & Regulatory EnvironmentCritical Incident Risk ManagementSystemic Risk Management
Avg FIR industry 39.56% 34.62% 43.59% 32.31% 34.62% 31.73% 29.67% 46.15%Materiality Intensity Ratio (MIR) 26.92% 23.08% 34.62% 38.46% 30.77% 30.77% 26.92% 7.69%
Leadership & Governance
Food & Beverage
Environment
Social Capital
Human Capital
Business Model & Innovation
Food&Beverage sector: Materiality Map and Material Issues’FinancialRelevance
Food & Bevarage sector: Material Issues’ Financial Relevanceand Market Performance
Source: Consolandi C., D’Arcangelis A.M., Eccles R.G.E., The relevance of financially weighted materiality: an asset allocation perspective (2019 forthcoming)
The mapping.
26 SASB’ issues
16 SDGs and 107 Targets
Target level mapping: eachSDG is ‘actionable’ by the private sector (at leastpartially)
General indices: main findings
• All SASB issues impact at least one SDG andTarget
• Not all SASB issues that impact the same SDGimpact the same number of targets of the SDG
• All SDGs and more than 80% of the targets areimpacted by at least one SASB issue but not all theSDGs are impacted by the same number of SASBissues
SASB issues are in general relevant to the SDGs; some SASB issues are much important to the SDGs in terms of scope than others (example: Supply Chain Management impacts 14 SDGs; Data security only 1 SDG)
Doing well on material issues will be more important for some SDGs than for others, which suggests that the private sector can make more contributions to some SDGs than others.
Not all SASB issues that impact the same SDG do it with the same intensity. Example: SDG 7 has 3 Targets: Supply Chain Management ipacts all of them; GHG emission two of them; Access and Affordability one.
Sector indices: Sector Ranking for SDGs
1 22
2
3 4 5 6 7 8
35,96 34,4430,6 28,42
24,22 23,81 21,4 20,06 18,1 18,0514
05
10152025303540
All SDGs (ASTII) in ranking order with new SASB sectors
Food & Beverage Sector: SDG impact
Sustainable Development Goals Agricultural Products Alcoholic BeveragesFood Retailer &
DistributorsMeat, Poultry & Dairy
Non-Alcoholic Beverages
Processed Foods Restaurants Tobacco
SDG1 20.00 25.00 45.00 20.00 20.00 25.00 40.00 0.00SDG2 68.42 36.84 57.89 84.21 47.37 68.42 63.16 0.00SDG3 32.00 26.00 34.00 48.00 34.00 24.00 26.00 12.00SDG4 0.00 9.09 18.18 9.09 18.18 18.18 0.00 18.18SDG5 37.50 25.00 31.25 37.50 25.00 18.75 31.25 0.00SDG6 33.33 45.45 36.36 66.67 57.58 36.36 51.52 15.15SDG7 30.43 30.43 30.43 39.13 39.13 21.74 21.74 0.00SDG8 22.86 22.86 34.29 31.43 25.71 17.14 28.57 0.00SDG9 15.00 10.00 10.00 10.00 10.00 5.00 5.00 0.00
SDG10 10.53 10.53 26.32 10.53 10.53 10.53 26.32 0.00SDG11 4.35 13.04 13.04 17.39 13.04 4.35 13.04 0.00SDG12 27.78 27.78 19.44 41.67 27.78 19.44 25.00 0.00SDG13 40.00 50.00 30.00 60.00 60.00 20.00 20.00 0.00SDG14 21.05 31.58 26.32 42.11 31.58 26.32 42.11 0.00SDG15 45.95 40.54 37.84 81.08 43.24 32.43 35.14 8.11SDG16 20.83 29.17 25.00 25.00 29.17 8.33 20.83 4.17
Food & Beverage
Agricultural Products industry: material issues impacting SDG 2
46,15%
53,85%
61,54%
80% 80%
100%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
100,00%
Water & WastewaterManagement
Product Quality & Safety Supply Chain Management
FIR SDG2
Food&Beverage Sector: Financial Relevance and impact on SDG 2 of Supply Chain Management
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
AgriculturalProducts
AlcoholicBeverages
Food Retailer &Distributors
Meat, Poultry &Dairy
Non-AlcoholicBeverages
Processed Foods Restaurants
Materiality FIR SDG impact
Sector indices: Sector Ranking for SDGsWhat about Financial sector?
1 22
2
3 4 5 6 7 8
35,96 34,4430,6 28,42
24,22 23,81 21,4 20,06 18,1 18,0514
05
10152025303540
All SDGs (ASTII) in ranking order with new SASB sectors
Financial sector: assessing a portfolio SDG exposure
SDG 1SDG 2
SDG 3
SDG 4
SDG 5
SDG 6
SDG 7
SDG 8SDG 9
SDG 10
SDG 11
SDG 12
SDG 13
SDG 14
SDG 15
SDG 16
Portfolio SDG Exposure
Total portfolio
Hotels & Lodging
Leisure Facilities
Restaurants
Education
An application: the SDG-ESG Materiality Asset Allocation Matrix
1 22
2
3 4 5 6 7 8 8
(a) (b)
(c) (d)
MATERIAL ESG PERFORMANCE LOW HIGH
INDU
STRY
SDG
IMPA
CT
HIGH
LOW
(a) Companies with low material ESG performance in industries with low SDG impact: can be ignored.(b) Companies with high material ESG performance in industries with low SDG impact: incentives are not aligned; the impact derives mainly from non material ESG issues: an area for policy concern;(c) Companies with low material ESG performance in industries wit high SDG impact: engagement.(d) Companies with high ESG performance in industries with high SDG impact: potential opportunities for investment in order to drive SDG impacts while ensuring strong financial performance.
source: C.Consolandi, H.Phadke,J.Hawley, R.G.Eccles, «ESG Outcomes and SDG Externalities: Evaluating the Health Care Sector’s Contribution to the SDGs (A perspective on materiality and externalities), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3277421
Thank you!
Charles Wookey, CEO A Blueprint for Better Business
8th October 2019
The idea of purpose (and its origins)
FIVE PRINCIPLES OF A PURPOSE DRIVEN BUSINESS
EARLY LEARNINGS FROM OUR WORK
Helping business be inspired and guided by a purpose that benefits society
Cristiano BUSCOLuiss, University Roehampton London
Robert G. ECCLESUniversity of Oxford, formerly at Harvard
The Statement of PurposeA Necessary Action by Company Board Directors
Robert G. Eccles
Towards Business 2030 by Integrating Purpose and Materiality with Innovation and Performance
LUISS Business SchoolOctober 8, 2019
Preparing for the New Era
27
Five actions that companies can take to prepare for the new era of sustainable investing.
1. Articulate your Purpose
2. Improve Engagement with Shareholders
3. Increase Involvement by Middle Management
4. Invest in Internal Systems for ESG Performance
5. Improve Measurement and Reporting
Preparing for the New Era
28
Five actions that companies can take to prepare for the new era of sustainable investing.
1. Articulate your Purpose
• “The purpose of a company is not just to produce profits, it is to produce solutions to problems of people and planet and in the process to produce profits” Colin Mayer
• Clarity about corporate purpose is fundamental for board effectiveness
• Boards should publish a “Statement of Purpose”
“To prosper over time, every company must not only deliver financialperformance, but also show how it makes a positive contribution to society.”
Larry Fink, BlackRock
Statement of Purpose: The Concept
29
• The board is the highest level body representing the corporation• The board’s duty is to the company, not its shareholders• Confirmed by legal memos on fiduciary duty in 34 countries• Recently updated in the United States by Wachtell, Lipton, Rose & Katz• The board decides on the company’s purpose—the role of its corporation
in society• Can decide to focus only on short-term shareholders• Can decide to balance the interests of a range of stakeholders• It simply needs to be transparent
Statement of Purpose: The Content
30
• A simple one to two page document• It is not a Mission or Vision Statement although can be
informed by these• Can be published as a stand-alone document or in another
report• Explicitly identifies significant stakeholders and time frames• Informs strategy and capital allocation• Progress published in an integrated report• Reviewed annually but won’t change that often
Statement of Purpose: The Campaign
31
• The goal: the board of every listed company publishes a “Statement of Purpose” by 2025• Private companies• State-Owned Companies• B Corps
• Subject of a front page article in the Financial Times on August 22, 2019
• Key institutions driving the campaign• Said Business School, Oxford University• Hermes Equity Ownership Services• University of California Berkeley Law School
• Find some Early Adopters (a range of industries and countries)
• Have a formal launch in London Q1 or Q2 of 2020
32
Italy has the opportunity to be one of the leading countries in taking the idea of “The Statement” into practice
Who is ready to sign up?
Statement of Purpose: The Campaign in ITALY
Chairman: Giovanni FIORI,Luiss, GIIM
Laura Maria FERRI,Altis, Università Cattolica del Sacro CuoreGoffredo FREDDI,Executive Director Policy & Communication,MSD ItaliaGiulia GENUARDI,Head of Sustainability Planning and Performance Management, EnelMaria PIERDICCHI,Chairman & Member of Steering Committee of Nedcommunity
• Roma, 8 ottobre 2019
ALIGNING CORPORATE PURPOSEWITH SUSTAINABLE STRATEGY
Goffredo FreddiExecutive Director Policy & Communication, MSD ItaliaDirettore Generale Fondazione MSD
HEADQUARTERKenilworth, NJ, U.S.A.
Presenti in oltre 140 Paesi
MSD nel mondoMerck & Co. in USA e Canada
DIPENDENTI
9,8 MILIARDI $ = 20%DEL FATTURATOINVESTITO IN R&D
12.000 RICERCATORIE 6 PREMI NOBEL
PIU’ DI 180 MOLECOLE SCOPERTE
342MPersone aiutate ogni anno grazie
alle nostre iniziative di CSR2 miliardi di $
In Italia• 800 dipendenti• Vree Health• 1 stabilimento di produzione (Lazio)• Facciamo cultura con la Fondazione MSD• Partnership strategiche con aziende italiane
In Italia• 900 dipendenti• Vree Health• 1 stabilimento di produzione (Lazio)• Facciamo cultura con la Fondazione MSD• Partnership strategiche con aziende
italiane• Nel 2018:
• 33,2 Mln € in attività di sperimentazione clininca
• 91 studi clinici• 480 centri coinvolti La nostra missione è fare la differenza
nella Vita delle Persone a livello globaleattraverso i nostri farmaci e vaccini innovativi
e i prodotti per la salute animale
38
«Businesses Exist to Deliver Value to Society»
K. Frazier, MSD President and CEO
39
The world is changed by your example, not by your opinion
Paulo Coelho
40 40
41A Mission is the what you’re trying to accomplish, a P i th h
Why do you do what you do?
42
Che contributo stiamo dando agli Obiettivi per lo Sviluppo Sostenibile?
L’impatto di MSD sulle principali priorità di sanità pubblica
43
MSD sta inventando nuovi modi per sconfiggere il tumore, con
oltre 1000 clinical trial
Con la sua ricerca nel campo della immunoncologia, MSD sta
trasformando i paradigmi di cura nella lotta ai tumori
Da più di 100 anni, MSD scopre e sviluppa vaccini per proteggere bambini,
adolescenti e adulti da numerose e gravi patologie
MSD vanta una lunga storia di innovazione terapeutica nella
prevenzione e nel trattamento delleinfezioni di origine batterica (AMR),
virale (HIV, CMV) e fungina.
MSD è una delle poche aziende cheancora investe nella R&S di nuovi
antibiotici e promuove la antimicrobial stewardship per
contrastare l’AMR
MSD non solo investefortemente in R&S per la
scoperta di nuove terapie per ildiabete, ma ha un impegno e
programmi distintivi per aumentare l’aderenza allaterapia e ridurre sprechi e
inefficienze
Porre fine alle epidemie di AIDS, tubercolosi, malaria e malattie tropicali; combattere l'epatite, le malattie di origine idrica e le altre malattie trasmissibili
44
Tasso di mortalità per HIV/AIDS (fonte PhRMA)
45
Le straordinarie opportunità che derivano dalla R&S non sono alla portata di tutti
Entro il 2030, ridurre il tasso di mortalità materna globale a meno di 70 per 100mila nati vivi
46
46
MSD e CUAMM insieme per la tutela della salute materno-infantile
47
48
Sostenere la R&S di vaccini e farmaci per le malattie trasmissibili e non trasmissibili che colpiscono soprattutto i PVS
49
5050
Io mi chiamo Mectizan
Mectizan Donation Program
La più longeva partnership pubblico
privato
Farmaci donati per 5 miliardi di dollari
Cecità fluviale eradicata in 5 Paesi in via di
Sviluppo
51
Che contributo stiamo dando agli Obiettivi per lo Sviluppo Sostenibile?
Corporate Governance e Women Empowerment
52
Flavia Binetti Exec. Director
BU Primary Care &
Women Health
Marco Ercolani Exec. Director BU Vaccines
Gianluca GalaExec. Director E2E Strategic
Unit
Maurizio Tropea Exec. Director
Market Access & Commercial Strategy & Operations
Serena Zucchetta
Exec. Director BU Specialty
Jaoquin Mateos Chacon
Exec. Director Medical Affairs
Marcello Marazzini
Exec. Director Finance
Michelangelo CeresaniHR Executive Director
Ida MarottaExec. Director
Legal & Compliance
Alessandra Pagliara Exec. Director BU Oncology
Ilaria CatalanoExec. Director
Business Operations &
PRO Sigma
Goffredo FreddiExec. Director
Policy &Communication
Nicoletta LuppiSVP &
Managing Director Italy
ad interim
49% 51% 52%
51% 49% 48%
0%
20%
40%
60%
80%
100%
2017 2018 2019
37% 41% 43%
63% 59% 57%
0%10%20%30%40%50%60%70%80%90%
100%
2017 2018 2019
Legenda: = Female = Male
Hiring: 2017- 2019
60% 69%
40% 31%
0%
50%
100%
2017 2018 2019
69%
31%
Female Ratio in MSD Italy: 2017- 2019 Female Ratio - People Managers focus: 2017- 2019 Hiring: 2017- 2019
201
...per capire le esigenze dei nostri customer: canali & contenuti
L’Intelligenza Artificiale di per analizzare
i big data di MSD:
... per supportare meglio la loro esperienza digitale
54
Ci mettiamo la faccia...
55
Che contributo stiamo dando agli Obiettivi per lo Sviluppo Sostenibile?
56
Environmental Sustainability
57
A mission is the what you’re trying to accomplish, a purpose is the why…
Chairman: Giovanni FIORI,Luiss, GIIM
Laura Maria FERRI,Altis, Università Cattolica del Sacro CuoreGoffredo FREDDI,Executive Director Policy & Communication,MSD ItaliaGiulia GENUARDI,Head of Sustainability Planning and Performance Management, EnelMaria PIERDICCHI,Chairman & Member of Steering Committee of Nedcommunity