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Does a sustainability leader add value at board level?

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When Caitlin Leibert joined US restaurant chain Chipotle in 2007, it took her just four years to reach the C-suite, when she was promoted from a marketing role to chief sustainability officer.

The CSO position is relatively new in boardrooms and has been driven by the rise of the environmental, social and governance (ESG) movement and the need to address sustainability and social problems.

Yet the role has been singled out by critics as a glorified marketing position aimed at burnishing a company’s ESG credentials, with some chief sustainability officers said to wield little influence over corporate policy.

Patricia Kanashiro, associate professor at the Sellinger School of Business and Management at Loyola University Maryland, conducted a study of chief sustainability officers in quoted US companies during 2006-2011. She says they often faced conflicting pressures from stakeholders, a weak regulatory environment and difficulties in building support among senior executives. 

“We found that the presence of a CSO is not associated with better environmental performance, suggesting that in some cases the CSO is hired solely as a window dressing or greenwashing,” she says.

Ms Leibert, who was 26 when she took on the CSO role, feels she is making a tangible difference to sustainability in what she calls her “dream job”. She is responsible for implementing Chipotle’s sustainability strategy across 2,500 restaurants worldwide, including programmes to reduce waste and better manage energy and water use.

She has also led the “Cultivating a Better World” initiative, a programme aimed at assisting farmers to develop financially and environmentally sustainable farms that Chipotle can weave into its supply chain.

“My life’s work, my actual job, is to fiercely and strategically create positive, sustainable change at scale,” says Ms Leibert, who completed a masters in sustainability leadership in 2015. “Supporting the next generation of farmers is equally as critical as it is impactful.”

Chief sustainability officer roles began appearing in the 2000s. DuPont, the US chemicals company, became one of the first big corporations to appoint a sustainability chief in 2004 — Linda Fisher, who joined from the US Environmental Protection Agency.

In 2011, some 12 per cent of Fortune 1000 companies reported having a C-suite executive dedicated to sustainability. Today, most Fortune 1000 businesses have a sustainability-focused executive, with Visa, GM and Boeing among those making inaugural chief sustainability officer appointments this year.

However, academic research has shown that companies with higher pollution emissions often also have chief sustainability officers, and that appointing them made little difference to companies that were already performing poorly on emissions.

The appointment of more CSOs is a response to ESG and social justice concerns © Amanda Andrade-Rhoades/Bloomberg

Andrea Romi, an accounting professor at Texas Tech University and a CSO researcher, says that a number of companies, including some in the extractive industries, were hiring chief sustainability officers with modest influence from non-specialist backgrounds such as public relations or marketing.

“If [a CSO’s] expertise tends to not be in something substantial like hardcore science and they don’t have experience in sustainability, I can’t imagine what your motivation would be for hiring other than tokenism,” she says. “But over the past few years, the number of qualified people with senior positions was rising. They are still not usually one of the top five executives . . . but I believe that will come.”

More than one-third of US institutional investors want to hear from a company’s head of ESG on sustainability topics including supply chain risk, employee health and safety and the impact of climate risk, according to a recent survey by consultancy Edelman.

As social challenges increasingly come under the spotlight and ESG funds soar, financially minded chief sustainability officers who can incorporate ESG approaches across different departments are likely to become more prominent.

Claudia Toussaint, chief sustainability officer of Xylem, was part of the team arranging the US water provider’s $1bn green bond offering this year. She says chief sustainability officers with financial expertise can be a valuable addition to executive teams.

Ms Toussaint, a lawyer with 13 years of general counsel experience, says her position at Xylem demands financial expertise that chief sustainability officers elsewhere may lack. She also believes that the CSO role will eventually become obsolete — what she calls “biodegradable” — as ESG performance indicators are built into other executive positions.

Lindsay Hooper, executive director of education at the University of Cambridge Institute for Sustainability Leadership, says the appointment of a chief sustainability officer should form just one part of a company’s sustainability agenda.

“There is a growing need for boards to lead and constructively challenge the executive team to take a strategic approach to sustainability,” she says. “This requires not just dependence on a CSO, but a board that is able to guide a strategic approach that proactively develops solutions to difficult issues such as navigating the economics of transition to a sustainable future.”



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Wall Street stocks follow European and Asian bourses lower

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Equities updates

Wall Street stocks followed European and Asian bourses lower on Friday after markets were buffeted this week by jitters over slowing global growth and Beijing’s regulatory crackdown on tech businesses.

The S&P 500 closed down 0.5 per cent, although the blue-chip index still notched its sixth consecutive month of gains, boosted by strong corporate earnings and record-low interest rates.

The tech-focused Nasdaq Composite slid 0.7 per cent, after the quarterly results of online bellwether Amazon missed analysts’ forecasts. The tech conglomerate’s stock finished the day 7.6 per cent lower, its biggest one-day drop since May 2020.

According to Scott Ruesterholz, portfolio manager at Insight Investment, companies which saw significant growth during the pandemic may see shifts in revenue as consumers move away from online to in-person services.

“[Consumers are] going to start spending more on services, and so those businesses and industries which have benefited in the last year, companies like Amazon, will be talking about decelerating sales growth for several quarters,” Ruesterholz said.

The sell-off on Wall Street comes after the continent-wide Stoxx Europe 600 index ended the session 0.5 per cent lower, having hit a high a day earlier, lifted by a bumper crop of upbeat earnings results.

For the second quarter, companies on the Stoxx 600 have reported earnings per share growth of 159 per cent year on year, according to Citigroup. Those on the S&P 500 have increased profits by 97 per cent.

But “this is likely the top”, said Arun Sai, senior multi-asset strategist at Pictet, referring to the pace of earnings increases after economic activity rebounded from the pandemic-triggered contractions last year. Financial markets, he said, “have formed a narrative of peak economic growth and peak momentum”.

Column chart of S&P 500 index, monthly % change showing Wall Street stocks rise for six consecutive months

Data released on Thursday showed the US economy grew at a weaker than expected annualised rate of 6.5 per cent in the three months to June, as labour shortages and supply chain disruptions caused by coronavirus persisted.

Meanwhile, China’s regulatory assault on large tech businesses has sparked fears of a broader crackdown on privately owned companies.

“It underlines the leadership’s ambivalence towards markets,” said Julian Evans-Pritchard of Capital Economics. “We think this will take a toll on economic growth over the medium term.”

Hong Kong’s Hang Seng index closed 1.4 per cent down on Friday, while mainland China’s CSI 300 dropped 0.8 per cent, after precipitous slides earlier in the week moderated.

Japan’s Topix closed 1.4 per cent lower, after the daily tally of Covid cases in Tokyo surpassed 3,000 for three consecutive days. South Korea’s Kospi 200 dropped 1.2 per cent.

The more cautious investor mood on Friday spurred a modest rally in safe haven assets such as US government debt, which took the yield on the 10-year Treasury, which moves inversely to its price, down 0.04 percentage points to 1.23 per cent.

The Federal Reserve, which has bought about $120bn of bonds each month throughout the pandemic to pin down borrowing costs for households and businesses, said this week that the economy was making “progress” but it remained too early to tighten monetary policy.

“Tapering [of the bond purchases] could be delayed, which in many ways is not bad news for the market,” said Anthony Collard, head of investments for the UK and Ireland at JPMorgan Private Bank.

The dollar, also considered a haven in times of stress, climbed 0.3 per cent against a basket of leading currencies.

Brent crude, the global oil benchmark, rose 0.4 per cent to $76.33 a barrel.

Unhedged — Markets, finance and strong opinion

Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday



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US regulators launch crackdown on Chinese listings

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US financial regulation updates

China-based companies will have to disclose more about their structure and contacts with the Chinese government before listing in the US, the Securities and Exchange Commission said on Friday.

Gary Gensler, the chair of the US corporate and markets regulator, has asked staff to ensure greater transparency from Chinese companies following the controversy surrounding the public offering by the Chinese ride-hailing group Didi Chuxing.

“I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective,” Gensler said in a statement.

He added: “I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies.”

The SEC’s new rules were triggered by Beijing’s announcement earlier this month that it would tighten restrictions on overseas listings, including stricter rules on what happens to the data held by those companies.

The Chinese internet regulator specifically accused Didi, which had raised $4bn with a New York flotation just days earlier, of violating personal data laws, and ordered for its app to be removed from the Chinese app store.

Beijing’s crackdown spooked US investors, sending the company’s shares tumbling almost 50 per cent in recent weeks. They have rallied slightly in the past week, however, jumping 15 per cent in the past two days based on reports that the company is considering going private again just weeks after listing.

The controversy has prompted questions over whether Didi had told investors enough either about the regulatory risks it faced in China, and specifically about its frequent contacts with Chinese regulators in the run-up to the New York offering.

Several US law firms have now filed class action lawsuits against the company on behalf of shareholders, while two members of the Senate banking committee have called for the SEC to investigate the company.

The SEC has not said whether it is undertaking an investigation or intends to do so. However, its new rules unveiled on Friday would require companies to be clearer about the way in which their offerings are structured. Many China-based companies, including Didi, avoid Chinese restrictions on foreign listings by selling their shares via an offshore shell company.

Gensler said on Friday such companies should clearly distinguish what the shell company does from what the China-based operating company does, as well as the exact financial relationship between the two.

“I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” he said.

He added that companies should say whether they had received or were denied permission from Chinese authorities to list in the US, including whether any initial approval had then be rescinded.

And they will also have to spell out that they could be delisted if they do not allow the US Public Companies Accounting Oversight Board to inspect their accountants three years after listing.



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Wall Street stocks climb as traders look past weak growth data

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Equities updates

Stocks on Wall Street rose on Thursday despite weaker than expected US growth data that cemented expectations that the Federal Reserve would maintain its pandemic-era stimulus that has supported financial markets for a year and a half.

The moves followed data showing US gross domestic product grew at an annualised rate of 6.5 per cent in the second quarter, missing the 8.5 per cent rise expected by economists polled by Reuters.

The S&P 500, the blue-chip US share index, closed 0.4 per cent higher after hitting a high on Monday. The tech-heavy Nasdaq Composite index climbed 0.1 per cent, rebounding slightly after notching its worst day in two and a half months earlier in the week.

The dollar index, which measures the US currency against those of peers, fell 0.4 per cent to its weakest level since late June after the GDP numbers.

“Sentiment about the economy has become less optimistic, but that is good for equities, strangely enough,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam. “It makes central banks less likely to withdraw support.”

Jay Powell, the Fed chair, said on Wednesday that despite “progress” towards the bank’s goals of full employment and 2 per cent average inflation, there was more “ground to cover” ahead of any tapering of its vast bond-buying programme.

“Last night’s [announcement] was pretty unambiguously hawkish,” said Blake Gwinn, rates strategist at RBC, adding that Powell’s upbeat tone on labour market figures signalled that the Fed could begin tapering its $120bn a month of debt purchases as early as the end of this year.

The yield on the 10-year US Treasury bond, which moves inversely to its price, traded flat at 1.26 per cent.

Line chart of Stoxx Europe 600 index showing European stocks close at another record high

Looking beyond the headline GDP number, some analysts said the health of the US economy was stronger than it first appeared.

Growth numbers below the surface showed that consumer spending had surged, “while the negatives in the report were from inventory drawdown, presumably from supply shortages”, said Matt Peron, director of research and portfolio manager at Janus Henderson Investors.

“This implies that the economy, and hence earnings which have also been very strong so far for Q2, will continue for some time,” he added. “The economy is back above pre-pandemic levels, and earnings are sure to follow, which should continue to support equity prices.”

Those upbeat earnings helped propel European stocks to another high on Thursday, with results from Switzerland-based chipmaker STMicroelectronics and the French manufacturer Société Bic helping lift bourses.

The region-wide Stoxx Europe 600 benchmark closed up 0.5 per cent to a new record, while London’s FTSE 100 gained 0.9 per cent and Frankfurt’s Xetra Dax ended the session 0.5 per cent higher.

In Asia, market sentiment was also boosted by a move from Chinese officials to soothe nerves over regulatory clampdowns on the nation’s tech and education sectors.

Beijing officials held a call with global investors, Wall Street banks and Chinese financial groups on Wednesday night in an attempt to calm nerves, as fears spread of a more far-reaching clampdown. Hong Kong’s Hang Seng rose 3.3 per cent on Thursday, although it was still down more than 8 per cent so far this month. The CSI 300 index of mainland Chinese stocks rose 1.9 per cent.

Brent crude, the global oil benchmark, gained 1.4 per cent to $76.09 a barrel.



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