Sustainability Stars: Jean Rogers
SASB founder and Long Term Stock Exchange adviser explains why sustainable disclosure by companies is not the endgame. Resilience is needed.
By Marsha J. Vande Berg
(Marsha J. Vande Berg is CEO of MJVGlobal Insights, serving as an educational resource to corporate and investment executives about sustainability, governance and political economies. As CEO of Pacific Pension and Investment Institute, she worked closely with global pension executives, particularly in the Asia Pacific. A Stanford Distinguished Careers Fellow, she teaches, writes for international publications and is a frequent forum and webinar speaker. Reach her on LinkedIn or Twitter.)
SAN FRANCISCO (Callaway Climate Insights) — Jean Rogers is a Silicon Valley executive on a fast track to change 21st-century capitalism one innovative company at a time. The mind behind the founding of the Sustainability Accounting Standards Board, Dr. Rogers now works as an adviser at the one-of-a-kind Long Term Stock Exchange — where the intention is to tilt the playing field to help long-haul-minded startups get support and access to capital.
For Rogers, today’s corporate journey to profitability with legitimacy is through purpose-minded operations and governance with stakeholder interests top of mind and success measured along a triple bottom line — with environment, social and financial metrics. However, resilience is what’s core to this formula’s success.
By requiring that its listed companies adhere to five rules the exchange describes as principles-based, LTSE reinforces its own mission-driven emphasis on long-term strategy, compliance and disclosure related to environmental, social and governance (ESG) factors as well as stakeholder interests, and then corporate governance as the through-line that aligns a company’s interests along its entire value chain. LTSE’s board of directors, for example, is highly diverse with a majority of women directors.
“We are building LTSE to benefit long-term-focused companies in every industry that aspire to create value through continuous innovation while doing right by stakeholders and reinforcing the best of their cultures,” says Rogers, LTSE’s one-time resilience officer.
Last spring, LTSE won SEC approval, and then in September opened for business as one of a dozen exchanges in the national market system. To date, it is raising the bar on accessing capital via public markets by stipulating in the process compliance plus disclosure according to a set of principles-based listing requirements over and above the threshold financial disclosure rules.
The brainchild of Eric Ries, LTSE as an idea first was floated in Ries’ now famous book, The Lean StartUp. The entrepreneur subsequently won some $90 million in backing from a handful of prominent Silicon Valley venture capital investors, including Andreesen Horowitz, the Founders Fund, Collaborative Fund, Obvious Ventures, Uprising and Initialized. Today, LTSE also serves as a sort of incubator for similar-situated start-ups in need of an opportunity to get onto a successful track.
Ries’ plan was not to build an exchange optimized for trading shares, the author and entrepreneur said in a recent interview. Rather the intention was to create an ecosystem with the exchange at the center to promote and invest in resilient companies and entrepreneurs.
LTSE now operates as an active trading platform, although it is yet to win over its first listing. This may be about to change, however. Airbnb is planning a $35 billion IPO this month listing on the Nasdaq, and then doing a second listing on LTSE in 2021. This would represent a major boost to LTSE’s profile as well as reinforce the home rental start-up’s public commitments about corporate stakeholder interests. Airbnb has said it will serve all its stakeholders as an extension of its corporate governance, and to that end has pledged to form a novel stakeholder committee to advise its board of directors.
As an LTSE listing, Airbnb also would be promising to comply with the exchange’s ESG standards as well as meeting requisite financial and governance thresholds. It would not be raising extra capital through the listing, according to Bloomberg.
For Rogers, patience is not the virtue she aspires to when it comes to getting corporate America and investment on the right track toward resilient companies and sustainable practices. Simply consider the impact that Covid-19 has had, she says. It’s unrealistic to think that the planet has the five to seven years she estimates will be needed to get to the point of global acceptance of ESG disclosure standards. “We need to move now.”
Not only is the chronological runway challenging, disclosure can fall short as a “proxy for performance.” It’s necessary but the larger vision has to involve creating whole cohorts of companies which practice the priorities of sustainability and long-term management and governance. It’s about “profit through purpose,” says Rogers — and renewing capitalism one company at a time.
From our interview with Rogers:
Question: What first convinced you to take the direction you have involving sustainability?
Answer: My own journey began decades ago with a single step — one in which I was wearing a moon suit cleaning up Superfund sites — the literal manifestation of companies viewing impact on the environment as an externality. Trained as an environmental engineer, I sampled groundwater and traced plumes from semiconductor manufacturing, observing production solvents ominously degrade as they migrated farther afield from the facility and encroached upon drinking water wells.
There are still a number of active Superfund sites under Silicon Valley and the groundwater will take over 700 years to be cleaned up. Many of the perpetrators are now out of business. I knew there had to be a better way to operate a business.
As I learned to invest my own savings, I was stunned to find that I couldn’t simply type in a ticker and understand if a company was resource efficient, or named as a responsible party in a Superfund site, or managing their greenhouse gas emissions well. And I knew first hand that these things were reliable predictors of a company’s future financial demise or success.
That experience led me to create SASB, such that any investor could have material environmental and social information at their fingertips. That was in 2010, and the whole idea was that what got measured would get managed.
But sustainability has become synonymous with disclosure, which is not what our society and planet really needs. Disclosure is not the end game. Resilience is. Resilient companies are authentically committed to making a positive difference in the world over the long-term, and focus on beneficial environmental and social outcomes as core to their business strategy, not their CSR strategy. They build an engine of resilience to produce that change, not an engine of reporting to satisfy ratings.
Q: What do you see as the primary challenge facing advocates such as yourself today?
A: ESG investors, who now represent about a third of the total market, are actually part of the problem. Their vocal and voluminous calls for transparency on every issue under the sun have created a condition where what gets measured doesn’t get managed, it simply gets disclosed. Companies have become good at reporting, rather than focusing on improving performance on what matters.
Materiality based frameworks like SASB are good at illuminating specific risks, but sustainability issues are emerging with an unprecedented frequency and intensity. Sure, we could try to produce disclosure standards more quickly, but that misses the point. We have to focus on the capacity of companies to deal with whatever comes their way or better yet, ensure that in aggregate companies are not part of the problem, but part of the solution. Investors have not yet shifted their mindset away from transparency as the cure for all evils. They conflate understanding risk with managing risk, and those are two different things. Disclosure helps us understand risk. Only building better companies helps manage it.
Q: How do you explain resilience as a value proposition to skeptics?
A: Corporate resilience comes from a commitment to a long-term strategy, with innovation on environmental and social issues at the core. This necessitates a new social contract whereby stakeholders’ priorities are intertwined with the company’s priorities. Operating in this way is a necessary condition for long-term financial performance as we enter the age of stakeholder capitalism. Stakeholders’ concerns are at the root of ideation for future products, services and markets (thereby driving long-term growth), and, conversely, if those needs remain unmet or ignored, they have the potential to create financially material conditions for companies (thereby contributing to negative events and volatility). This is what it means to compete in the age of stakeholder capitalism.
Resilience is an essential competitive advantage that affects financial volatility, not an optional activity like philanthropy.
Q: What has to change in our society to lead to action globally?
We have to employ systems-level thinking. As an engineer, that comes naturally to me. The risks facing portfolios, markets, and society at large are systemic risks. It’s not about one company’s diversity problem or another company’s GHG emissions, as if picking another, better performing stock is the answer. It’s the aggregate, unbridled, corporate contribution to inequality and climate change: two systemic risks that cannot be diversified.
So we need to think about different levers of change — how companies are mitigating systemic risks, i.e. not just managing short term risks to their own company, and policy levers as well, that can address the sectoral and market contributions to global instability.
If every investor just focused on two issues — climate risk and inequality, which are the two prominent systemic risks facing portfolios and strategies — and did what they could to re-allocate accordingly, we could perhaps move the needle on issues that can map a new path forward.