Feb 23, 2021, 2:14 PM ETConference Presentation, Panel

Beyond Financials: The Importance of ESG

The panel at the Milken Institute Global Conference addresses the mainstream integration of Environmental, Social, and Governance (ESG) criteria, challenging the view that ESG is tangential to core business.
The discussion features four key executives: Pierre Breber (Chevron CFO), Daniel Barkley (BMO Capital Markets CEO), Laurie Heinel (State Street Deputy Global CIO), and Lyle Hudson (Credit Suisse Sustainability Research and Investment Solutions CEO).
A central theme is the "and" world concept, where financial returns and ESG standards are mutually required rather than mutually exclusive.

Pierre Breber stated Chevron's number one financial priority remains the protection of its dividend, rejecting a strategy of divestment from fossil fuels in favor of "lower carbon, higher return" operations.
Chevron argues that divesting does not reduce global emissions, as assets would simply be operated by other companies, and notes that competitors like BP and Shell cut dividends when pivoting away from oil.
The company highlights specific "and" initiatives, including a renewable natural gas project in California capturing methane, a world-leading carbon capture project in Australia, and biofuel co-processing at the Los Angeles refinery.
Breber noted Chevron was the only oil major to not speak out against US rollbacks on methane emissions, though he emphasized the company's strong compliance with California's aggressive climate regulations.
Regarding the $9.5 billion judgment in Ecuador, Breber characterized the claim as fraud, stating Chevron has won in virtually every court and views paying the judgment as a governance failure.
Chevron is the first company in its sector to release a TCFD-compliant climate report and reports 96% of industry association fees totaling $100,000 annually.

Laurie Heinel emphasized State Street's operating premise of "value creation, not values," engaging with companies to ensure ESG risks do not threaten long-term shareholder returns.
State Street focuses on "stranded asset" risk, urging fossil fuel companies to align their business strategies with a lower-carbon future rather than advocating for immediate divestment.
The firm has long advocated for board diversity, citing the "Fearless Girl" campaign and pushing companies to adopt human capital strategies that align with corporate goals, such as turnover and engagement metrics.
Heinel expressed concern over US Department of Labor (DOL) proposals that could restrict ESG funds in retirement plans, arguing that ESG factors are often material to pecuniary investment outcomes.
State Street creates proprietary ESG factors by mapping third-party data to the SASB materiality framework to improve consistency in their active and smart beta strategies.

Daniel Barkley (BMO) identified the proliferation of green, transition, and sustainability-linked financing as the primary response to market demand for capital-efficient transitions.
BMO utilizes "incentive-based" structures rather than penalties to drive behavior change, such as loans where interest rates are linked to a client meeting specific ESG targets.
A specific social bond example provided involved funding programs to reduce teenage pregnancy, offering investors higher returns upon the program's success.
Credit Suisse established a dedicated Sustainability Research and Investment Solutions (SRI) unit integrating its Chief Sustainability Officer, Chief Investment Officer, and research organization to drive structural change.
Credit Suisse dedicated a specific board seat to sustainability to ensure high-level governance and accountability for ESG transitions across corporate and wealth management divisions.
Lyle Hudson argued that financial institutions have a responsibility to facilitate the transition to a net-zero economy, asserting that long-term fiduciary duty is best served by avoiding a "dead planet."

The panel noted a fragmentation in global regulation, with 600+ mandatory or optional ESG provisions across 84 countries, creating complexity for US companies operating under state-level mandates like California's.
China's recent pledge to reach carbon neutrality by 2060 was cited as a significant driver of future regulatory certainty and carbon pricing expectations.
Participants anticipate that while the "E" (Environmental) remains dominant, the "S" (Social) is gaining traction due to the pandemic's focus on worker safety, racial justice, and equity.
There is a consensus that ESG ratings currently lack uniformity and comparability, with different methodologies yielding vastly different scores for the same company.
The group predicts a future convergence of values and value, where strong ESG performance becomes a primary driver of stock price performance and cost of capital.
Forward-looking statements suggest that capital will flow to companies demonstrating "capital discipline" and tangible progress on carbon intensity, even within high-emitting sectors.
Daniel Barkley warned that regulatory approaches based on "punishment" often lead to misalignment of resources, whereas market-based incentives drive sustainable innovation.
The panelists collectively view the current pandemic environment as a catalyst that reinforced the necessity of sustainable recovery strategies rather than a pause in ESG progress.