ESG Matters: Going Public – Building Your Board for Success
Joining a pre-public board is a great way to expand your board experience and contribute to the growth and long-term success of a company. As the capital markets landscape has evolved significantly over the last few years, it has become increasingly important to integrate ESG into organizational goals and business strategy. Sharon Castelino, MBA, LLM, ICD.D and Alyssa Barry, CPIR spoke on a panel at the 2nd Annual Women Get On Board Summit in Toronto and discussed how to position your board and business for success by prioritizing and incorporating ESG into your strategy and storytelling early-on.
Sharon and Alyssa sat down with irlabs after their panel to expand on their approach and observations.
Is ESG storytelling a part of the investor pitch and is it bringing in capital in today’s environment?
Sharon: The short answer is, “it depends.” Most of the time, yes, ESG to varying degrees, is a factor in an organization’s narrative and investor decision-making. From what we’re observing, it also depends on where the company is in its lifecycle. While traditional financial metrics have dominated investment decisions, there is a growing recognition that ESG factors play a vital role in determining the long-term sustainability and profitability of business. When it comes to raising capital, incorporating ESG considerations into your strategy can have profound implications for attracting investors and securing funding.
On the high-end, where ESG is embedded in strategy and culture, it’s part of the thinking and governance. The narrative is more deliberate and thoughtful, and concrete actions and results are reported. On the other end of the spectrum, it can be as minimal as a few elements on the “G” side - "we have distinguished chair and CEO; we have a DEI policy; we have x% women on the board etc.…”. Sadly, the “comply or explain” regime allows for this ongoing straddling. It allows companies to continue to make excuses (explain) without delivering on DEI (comply).
“S” continues to be the greatest challenge for many organizations. Sometimes the S is even mistaken for “sustainable.” It’s social – and the social factor encompasses a wide range of issues involving the stakeholder ecosystem – including labour practices, employee relations, diversity and inclusion, community engagement, product safety, human rights, supply chain and customer satisfaction. Addressing these issues can be challenging for many organizations due to subjectivity and complexity; from understanding cultural contexts, to assessing the qualitative aspects of social issues making measurement and reporting difficult— especially considering the numerous frameworks. ISSB and CSSB are working toward standardization like IFRS.
“E” continues to be highly reliant on data collection and reporting, some of which is still being figured out, depending on the industry. The “E” is likely the most prevalent for investors who recognize that environmental issues, such as climate change, pollution, and resource scarcity, can pose substantial financial risks for companies.
My other observation is that there are investors who are particularly interested in ESG and are making choices that account for the same. Whenever I am assessing a company, I read their ESG report and intentionally ask, is this material or is this greenwashing and where is this organization on their ESG journey?
Alyssa: Investors today are increasingly conscious of broader impacts companies have on the social and environmental issues we face as a society. They are actively seeking businesses that demonstrate a commitment to sustainability, ethical practices, and good governance. Integrating ESG factors into your business model and showcasing a strong ESG track record can help you align with these investor expectations. By doing so, you not only attract responsible investors but also enhance your credibility and mitigate the risks associated with reputational damage or regulatory scrutiny.
With the companies I work with, we’re seeing ESG considerations providing a significant competitive edge when raising capital. By integrating ESG into your business strategy, you can differentiate yourself from competitors, attract like-minded investors and tap into the growing market demand for sustainable investments. Likewise, there are many “circular economy” funds out there today.
In addition to attracting investor capital, a strong ESG profile can enhance your brand reputation, attract customers, and improve employee morale and retention. The synergy of these factors can strengthen your position in the market, making your business more appealing to potential investors.
In 2021, Women Get On Board and irlabs conducted a research study that looked at 61 new public listings on the TSX from January 1, 2021 to August 15, 2021, resulting in 25% of board seats being occupied by women. How do we change this?
Sharon: Great question! If you can personally invest in companies at various early stages - seed, startup, Series A, pre-IPO - then great. Get your cheque book and get on cap table as that will often lead to board opportunities.
If you’re in a situation where a company is willing to compensate you to join as an advisor, consultant, or perhaps serve on a special committee, then consider asking for a combination of cash and equity OR only equity so that you earn your way on the cap table. I’ve done this a few times and did it again recently, effectively trading fees for shares. Because often, who ends up being on the board, is who invested in the company, and that’s where women specifically can and often miss out.
If your situation is you are currently precluded from serving on public boards because of your employment contract, which was my case for nearly 25 years as a bank executive, you can be involved and gain invaluable experience by serving in the non-profit sector, on subsidiary boards within your organization, and as an advisory member on external boards – which have no liability. Non-profits are complex and high-stakes organizations often with involved stakeholders and significant constraints. I think the non-profit sector is sometimes regarded as a training ground or has a negative connotation because of the tradition of zero compensation to directors, and that the board roles are as volunteers. Frankly, that standard must change. Regardless, you’re still a director with fiduciary responsibility and liability, and many non-profits are larger and more complex ecosystems than a good percentage of public companies or pre-IPO.
Alyssa: Like Sharon, I have traded my time for a position on several cap tables. This may position me for a board seat if it makes sense for the company and for me, but this has been about getting involved early on a cap table and has opened the door for personal growth and contributing to the growth of a company. Over the past 18 months I have been involved in ten go-publics in Canada. Being a part of that journey as an advisor and investor can be a powerful avenue for personal and societal empowerment. Not to mention, VC investments have the potential for high returns, as successful start-ups can generate attractive returns.
Tell us about your experience working with a company that prioritizes ESG.
Sharon: As President of Key Attainable Homeownership, the largest public-private partnership solving housing attainability, ESG is our DNA. The two co-founders separately experienced and recognized the gaps in the housing market: One co-founder is a millennial, financially successful, where he and his wife kept being locked out of ownership because of bidding wars and price inflation. The other co-founder was a residential real estate developer, whose last project was ~95% sold out to investor owners. For their own reasons, they recognized how profound the gap is and that there’s no sustainable middle ground between renting and owning. How is that you can rent, lease to own or outright buy a car, but you are either a renter or an owner when it comes to housing? Key, with the support from the public and private sector, will create a “third leg of the stool.” A new, sustainable, and scalable middle point between renting and owning - shared equity, co-ownership. Renters can build equity and build wealth like other property owners. We don’t have an ESG checklist – we actively practice, challenge and aspire to apply diversity, equity and inclusion in both process and output, tone and temperament. For us, doing the right things and in the right way, is also profitable. My personal belief is that where there’s diversity of thought-process and ultimate decision-making, there’s competitive advantage and value. Therefore, Key’s origins - and more importantly - day to day processes and governance - are very much ESG-driven, to the multi-generational issue that is the housing crisis.
Alyssa: I am fortunate to represent over 40 companies, each at a different stage in their ESG journey. I am constantly learning new frameworks and understanding the ESG priorities specific to certain sectors. Some of the highlights for me include taking The Planting Hope Company public in 2021 – an all women board and C-suite trading on the TSXV. It one of the few all women leadership teams in the public markets globally. As a firm, I am in a fortunate position to be selective about the work I take on, aligning myself with companies who prioritize ESG. I would say, prioritizing ESG is no longer an option but a necessity.
It is a challenging environment today to raise capital. ESG is not a niche concept, rather a crucial framework for risk management, strategic growth, and value creation. Investors recognize that ESG factors have a direct impact on long term financial performance and value. Starting early can assist in attracting capital and lead to a lower cost of capital.
