We don’t need more disclosure. We need better companies.
– Longer-term focused companies tend to perform better financially.
– Resilience is not captured by ESG data – but it’s what drives better performance and is reflected by capital allocated on a long-term strategy, the company’s culture including how it treats all stakeholders.
I just love this blog by Jean Rogers, that she penned for the “Long-Term Stock Exchange” a while back. Here is an excerpt:
But there is a world of difference between a company’s reporting its greenhouse gas emissions and innovating to remove carbon from the atmosphere. If we hope to harness the potential of business to address environmental and social issues, we don’t need more disclosure. We need better companies.
By better, I mean companies governed for the long term. Long term-focused governance has contributed to outperformance because it breeds resilience. Resilience is not captured by ESG data that comes across your Bloomberg terminal. Instead, we find it in such markers as:
- Whether a company allocates capital in support of a long-term strategy; whether it spends more on research than, for example, on buybacks or marketing; and whether it treats long-term investors as trusted partners;
- Whether a company’s culture — as demonstrated by diversity, equity and inclusion — creates a capacity to address and solve problems;
- Whether a company treats employees, customers, suppliers, and communities as first-class members of its decision-making process.
Resilience is the capacity to adapt. It enables companies to avoid things that can derail (or destroy) them. (Think Boeing. Or Purdue Pharma. Or Valeant.) Resilient companies focus on innovating continuously and engaging with stakeholders to pursue shared priorities, learn from problems, and capitalize on opportunities. Resilient companies don’t wait to report problems that have become material; they avoid them altogether.
Jean’s entire blog is fantastic. Enough said…