Putting Principle into Practice: How to Make Sustainability Profitable

Panelist Backgrounds and Context

• The panel features senior executives from diverse sectors:
  • Ryan Brennan (OPIC): Manages sustainability for a US government agency with a $30 billion portfolio across 130 countries and 100+ annual transactions.
  • Kurt Custard (Newton): CIO with 40 years of sustainability focus, emphasizing that sustainability must make business sense beyond altruism.
  • Hiro Mizuno (GPIF): CIO of the world's largest pension fund, describing a 100-year investment horizon and reliance on ESG integration.
  • John Murphy (Coca-Cola): President of the Asia Pacific Group, managing a 132-year-old company with complex global supply chains.
  • Hugh O'Reilly (OP Trust): Canadian pension fund CEO, citing a "30 years to decarbonize" timeline and a firm stance against divestment.
  • Mark Watson (John Swire & Sons): Head of Sustainable Development for a 200-year-old conglomerate with 130,000 employees in 20 countries.

Definitions and Conceptual Frameworks

• Mark Watson defines sustainability using the 1987 Brundtland Commission standard: meeting current needs without jeopardizing future generations.
• Watson and others note that "sustainability" is frequently overused and lacks a single, unified definition across industries.
• Hiro Mizuno describes sustainability and inclusiveness as keywords rather than fixed definitions, noting that all strategies are now expected to address sustainability.
• Kurt Custard defines sustainability as incorporating material externalities (societal, environmental, customer impact) into fundamental financial analysis.
• Hugh O'Reilly argues that the lack of definition leads to "rhetoric" and a lack of action, necessitating a practical agenda focused on risk pricing.
• John Murphy asserts that sustainability extends beyond environmental issues to include diversity, inclusion, human rights, and community development.

Measurement, Reporting, and Data Challenges

• Hiro Mizuno reports that GPIF's first ESG activity report faced challenges due to internal disagreements on metrics and a lack of comprehensive data sets.
• Mizuno notes that carbon footprint reporting currently relies heavily on estimates rather than precise data.
• Kurt Custard predicts that ESG reporting (including carbon footprint and diversity) will become a regulatory requirement for mutual fund prospectuses within 5–10 years.
• Hugh O'Reilly highlights a lack of common reporting standards and a fear of liability among companies, urging governments to create "regulatory safe spaces" for disclosure.
• Hiro Mizuno advocates for abandoning quarterly reporting in favor of long-term evaluation, stating that investors should not demand quarterly outperformance from ESG strategies.
• Mark Watson confirms that Swire & Sons identifies six core environmental challenges (decarbonization, waste, water, biodiversity, climate resilience, and emissions) and reviews division-specific action plans annually.
• John Murphy reveals Coca-Cola's 2020 goals included being water neutral (achieved five years early) and plans to achieve 100% recyclable packaging by 2025.

Divestment vs. Engagement Strategies

• Hugh O'Reilly states OP Trust does not believe in divestment as a primary strategy, with only three exceptions: landmines, cluster bombs, and tobacco.
• O'Reilly argues divestment removes investors from the conversation and fails to drive change, especially since fossil fuels will remain in the energy matrix for at least 40 years.
• Hiro Mizuno confirms GPIF does not divest, citing both regulatory constraints and the belief that selling shares merely transfers ownership to less conscientious investors.
• Kurt Custard supports engagement, citing a Cambridge study showing companies with successful engagement generated 7% higher returns than non-engaged peers.
• The panel reaches a consensus that engagement allows for long-term capital commitment and business model transformation rather than immediate market exit.

Corporate Implementation and Governance

• John Murphy identifies that empowering local management and linking sustainability to KPIs are critical for global execution.
• Mark Watson describes Swire's "Thrive" strategy, which gives operating divisions space to focus on material issues like a circular economy for ship dismantling.
• Watson reveals Swire created two central sustainable development funds ($100M HKD and £20M GBP) to finance projects with strong sustainability stories but lower weighted average cost of capital (WACC).
• Kurt Custard notes that gender-diverse investment teams and boards correlate with better company performance, using this data to convince skeptical internal analysts.
• John Murphy discloses that sustainability objectives are now a direct part of executive KPIs and influence the incentive-based compensation components for leaders.

Profitability and Market Data

• A study cited by Kurt Custard covering 619 companies over a decade found that engaged companies generated 2.3% higher returns, with successful engagements yielding 7% higher returns.
• Hiro Mizuno notes that while ESG contributed positively to returns in the UK, Japanese mainstream teams initially rejected ESG investments due to a lack of proven local data.
• Mizuno argues that if investors treat sustainability as a risk factor and price it accordingly, it will inherently become profitable for companies.
• John Murphy cites the "5 by 20" female empowerment program, which has impacted nearly 1 million women, including 60,000 female store owners in the Philippines, creating a positive cycle of business growth and economic empowerment.
• Murphy also details a 2010 Haiti earthquake response that developed a mango supply chain, allowing the company to source produce from farmers whose livelihoods were improved, thereby earning a "social license to operate."

Future Outlook and Stakeholder Dynamics

• Kurt Custard observes a generational shift: 75% of Newton's client base now actively requests ESG data, up from 10% a decade ago.
• Mark Watson states that he was once "escorted out of boardrooms" 23 years ago when discussing sustainability, whereas today he reports directly to the top.
• Hugh O'Reilly emphasizes that while government seeks consensus (which slows action), the investment community can move faster by acting in the long-term interests of members.
• Hiro Mizuno urges Japanese corporations to engage in cross-sectional discussions about ESG to move beyond CSR teams and integrate sustainability into business strategy.
• Mark Watson highlights a move from "greenwash" to "proof points," requiring rigorous training and executive education (e.g., at INSEAD, Stanford) to embed sustainability into organizational DNA.
• John Murphy stresses the necessity of public-private-NGO collaboration to solve complex issues like water scarcity and climate resilience that individual companies cannot solve alone.