Companies in Romania should make sure they are doing work in the right way: transparent, fair, virtuous, and in the best interests of the firm
Interview with Darren Willman, Corporate Governance Research Manager, Sustainalytics
1.Community Index Magazine: Sustainalytics is a global leader in ESG and Corporate Governance research and ratings. How do investors use the information you provide them and how have they changed their interests over the last years?
Darren Willman: It is hard for me to give a strong answer to this question because I do not engage with clients, but I can give some basic, common examples. From what I have gathered, investors use the ESG and Corporate Governance research ratings we provide them in three main ways. A popular one is to screen out companies, for example tobacco or firearms, from a pool of potential candidates to invest in.
Alternatively, our clients might analyze the qualitative and quantitative information provided in our reports to better inform their perspectives and thoughts about a company as part of their decision-making process to invest. I know of one client in Asia-Pacific where this is the last step in their process, for example. Finally, our clients might take some or all of our data and incorporate it into their own financial modelling and intellectual property.
Investor interests have changed over time, for sure. Nowadays, a lot of attention (media and research) is on climate change and board diversity. This is best demonstrated by BlackRock CEO Larry Fink’s annual letter to CEOs for 2019. It states that BlackRock is focusing its conversations with CEOs in 2019 on corporate governance (including board diversity), corporate strategy and capital allocation, compensation that promotes long-termism, environmental risks and opportunities (including climate change), and human capital management. In other words, the world’s largest asset manager, with about US$ 6 trillion in assets under management and holdings in most companies around the world, is choosing to talk about ESG and corporate governance issues in meetings with CEOs, not so much the financials.
2. Community Index Magazine: What are the main projects Sustainalytics has in our country and what are your future plans?
Darren Willman: For a while now, Sustainalytics has supported individual initiatives to promote corporate social responsibility in Romania. This is how we started partnering with the Best Practices in Romanian CSR Conference, something which we have proudly supported for three consecutive years! In the last couple of years, I am proud to have led further engagements, such as taking on an “advisory board member” type role for Romania CSR Index. We have also built relationships with other key players in the sustainability space in Romania, such as the Sustainability Embassy Project.
In the last couple of years, I have also initiated and led Sustainalytics’ engagement in the corporate governance space in Romania. We have been active contributors to the Capital Markets and Corporate Governance Committees of the American Chamber of Commerce. In this forum, we provide corporate governance expertise and advice on position papers that encourage better capital markets and better corporate governance.
A major achievement was publishing a research paper on the state of corporate governance of publicly listed companies in Romania. In addition to AmCham, we have relationships with the CFA Society and the Association of Romanian Investor Relations. With the latter, we recently joined a working group to encourage the improvement of investor relations and disclosure for companies listed on the Bucharest Stock Exchange.
3. Community Index Magazine: How do you see the evolution of ESG factors in Romania in the next five years?
Darren Willman: In my personal view, corporate governance is the priority. It has remained the most material sustainability issue for the last couple years. Companies in Romania should make sure they are doing work in the right way: transparent, fair, virtuous, and in the best interests of the firm.
Practically speaking, this means policies and procedures in relation to topics like conflict of interest, bribery and corruption, related party transactions, corporate disclosure and investor relations, whistleblower programmes, risk oversight, and independent financial auditing. I am optimistic that this will be considered “business as usual” for companies within five years. At which point, environmental topics like climate change and plastic, and human capital areas like modern slavery, supplier standards, and employee rights, will be prioritized.
4. Community Index Magazine: Why is it imperative for companies to increase their level of transparency and improve their governance?
Darren Willman: It is all about attracting investment to help businesses scale and grow. If an investor has no information about why a certain CEO was paid so much, even though the performance of the company increased, it would consider something suspicious and risky in considering to invest in. Similarly, an investor would consider it a problem to invest in a company that does not have policies or procedures for conflict of interest or bribery and corruption.
With more investment, Romanian companies can grow quicker and stronger. Generally speaking, this can provide significant indirect societal benefits such as creating more jobs, and improving the quality of products and services.
The interview was first published in the bilingual yearbook Community Index Magazine No. 1, issued in June 2019.