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Myles Corson

Hello, and welcome to the Better Finance podcast, a series that explores the changing dynamics of the business world and what it means to the finance leaders of today and tomorrow. I’m Myles Corson from EY, and I'm your host. I’m delighted today to be joined by Fulya Kocak and Serena Wolfe to talk about the real estate sector, including the impact of the increasing focus on environment, social and governance — ESG — issues as well as the effects of the pandemic. Fulya is the senior vice president of ESG issues for Nareit, National Association of Real Estate Investment Trusts, and Serena is the chief financial officer of Annaly Capital Management. Welcome to both of you.

Serena Wolfe

Thanks, Myles, for having me today. Pleased to be here.

Fulya Kocak

Thank you, Myles. It’s great to be here today.

Corson

As we get started, perhaps I could ask both of you to share some background on your roles in your career journey to date for our listeners. Fulya, I’ll start with you.

Kocak

I joined Nareit five years ago to provide guidance and thought leadership for environmental, social and governance issues for the REIT industry. Nareit is the worldwide representative voice for REITs and publicly traded real estate companies, and for over two decades I’ve been actively involved in design, planning, delivery, and management of sustainability strategies across both the public and private sectors in real estate and construction.

Before joining Nareit, I was blessed by being on the corporate side and heading sustainability programs. I started my career in construction, boots on the ground, managing construction projects. My operational experience around buildings and building them from scratch helps me understand how real estate portfolios work and how we can make a real estate company and a real estate sector more sustainable and focus on both environmental and social issues while having a strong governance.

Corson

Thank you. Serena, over to you.

Wolfe

I’ve been the CFO of Annaly Capital Management since December of 2019, and as CFO, my primary responsibility is to manage the financial processes and, as you could expect, prepare and communicate public performance results to our stakeholders. I also hold oversight of our Treasury and IT functions, and all of this involves close collaboration with the investment side of the house and other functions such as ESG, strategy and risk and of course our board of directors.

Before joining Annaly, I’ve known Myles and Fulya for a long time because I was a partner at Ernst & Young and spent a lot of time with Nareit actually. I joined the firm in 1998 in Australia and was a partner with Ernst & Young since 2011 in the real estate group. My last role at the firm was as a leader of the Real Estate, Hospitality and Construction group where I managed the go-to market efforts and the client relationships across the sector for the central region.

For anyone who’s unfamiliar, Annaly is the largest mortgage REIT in the US, and we have a market cap of $12.5 billion and around $100 billion in total assets, which is the largest capital base among our peers in the mortgage REIT space. We were founded in 1996, and we went public a year later on the New York Stock Exchange.

Corson

Thanks, Serena. And for those of our listeners who may not be as familiar with the REIT construct, perhaps you could provide just a short description on what REITs are and their appeal to investors.

Wolfe

REITs are often public companies. There is a nontraded and a private REIT space, but the REITs that most folks are commonly familiar with are public companies, but a REIT is actually a tax election. You elect to be taxed as a REIT, and what that means is that you don’t pay corporate tax. But for that right, you have to comply with a number of REIT rules, and one that is commonly known is that we’re required to distribute 90% of our taxable income to shareholders.

REITs are a good dividend-earning stock and often quite popular in the retired shareholder base, folks that are looking for that income stream. And REITs can be broken down into two major categories: your equity REITs, which typically own and operate income-producing real estate; and mortgage REITs, which Annaly is one, which provide financing for purchasing or originating mortgages and invest in things like mortgage-backed securities, MBS. And most mortgage REITs are focused either on residential — generally we call them agency or nonagency REITs — or the commercial space. So, the commercial mortgage REITs would lend money to the equity REITs, for example, to build a building or something like that.

Annaly is a resident mortgage REIT primarily focused on agency securities with over 90% of our assets in agency MBS. However, our platform is differentiated based on our credit businesses that complement our core strategy, we are the only mortgage REIT with a corporate credit investment arm. So, that’s our middle market lending group. We also have capabilities to invest across the capital structure in each of these strategies, which means that we do own securities, loans, mortgage servicing rights, etc. We’re a bit of an agency/nonagency hybrid.

Corson

Well, that’s very helpful, Serena. Thanks for sharing that context. Fulya, the pandemic has had significant impact on REITs. In your view, what have been some of the key challenges, and how have REITs become more resilient because of their response?

Kocak

With any other industry, the impact was quite immediate, almost overnight, and it required a very quick adaptation. Since there are many different types of REIT sectors, the impact was different for each sector. For example, while data centers, cell towers and industrial REITs had additional demand as a result of increased dependency on technology and ecommerce, the other REITs had reduced occupancies like the office REITs, hospitality and retail. There’s also the residential REITs there. Since we stayed at home 24/7, they had additional occupancy durations.

As you can imagine, each REIT had to react differently, but out of this pandemic I like to look at the positive side and the silver lining. There were many opportunities for improvement. Operational excellence was one area that even got better; for example, cleaning practices as a result of having healthier surfaces and areas in case people wanted to go back to the offices or use the REIT spaces.

We had many REITs that tried new technologies for indoor air quality, and we also had a chance to look at energy consumptions vs. occupancy. A number of REITs, realized that, for example, if the occupancy reduced by 50%, energy consumption, water consumption, these did not reduce by 50%. So, this situation, as sad and hard as it was on us, it gave us a chance to identify gaps and issues that could find great solutions.

This was a time when ESG did not slow down, and I know that my ESG peers at REITs work very hard. Social topics became more important. Climate change did not stop as a part of the pandemic, so it still was on top of the agenda. As far as ESG was concerned in the past year or more, that has gotten more attention. We continued our focus on specific areas, including increased attention to social aspects and climate change.

We’ve seen increase in health and wellness rating applications. The number of REITs applying for Fitwel, well-being standards and their specific modules for the pandemic — that number increased significantly. So, looking at the bright side, this was a chance for us to see how adaptable we are as a REIT industry, and every single REIT sector came out of it very strong.

Corson

Serena, picking up on that concept of areas and opportunities for improvement, I think one of the things we’ve heard pretty consistently from a number of CFOs and finance leaders through the process is how they and their teams have become more agile as a result in having to respond very quickly to the changing dynamics. So, talk a little bit about how you personally and how Annaly handled the challenges, and how you’ve adapted to support business decision-making processes and act as an agent for change.

Wolfe

It’s really interesting what Fulya said, and it’s a glass-half-full way of looking at things, Fulya, which I appreciate because I too am a glass-half-full kind of person, which maybe is unusual for a CFO to some extent. I do think that the CFO is critical in managing change and looking through where you are today and how to take advantage of the situations for the future.

I would say in the mortgage REIT world, particularly, that it was probably a tale of two cities insofar as there were certain mortgage REITs that really were impacted dramatically in March and through 2020 by the volatility in the market, and really just were trying to stay afloat by getting rescue capital and other types of things. Those mortgage REITs, which I would like to say Annaly is one of them, that focused on risk management and liquidity management and things like that, were able to weather the storm better and ultimately focus on strategic initiatives and new business opportunities.

I believe our focus on risk and liquidity was paramount to us navigating that turmoil, and so it’s important as the CFO to see my role in line with our firm values. I have to obviously critically and openly think about risk management, financial and other disciplines and make sure my team’s looking at it in the same way. And we have to collectively own the future trajectory of our firm and look at stress analysis and understand how various situations could impact us.

Mortgage REITs are typically highly levered, particularly in comparison to our equity REIT brethren, and we as a company had taken a position to reduce leverage in comparison to our peers even starting before the pandemic. We were cautious about where we were in the economic cycle, and we thought it was the right time to start reducing leverage.

We’ve also placed a premium on liquidity, and as of the end of the first quarter we had $8.9 billion of unencumbered assets and 93% of our assets in highly liquid agency MBS. We’ve had very strict risk management policies with regards to liquidity, and that’s served us well definitely through 2020. We’re also conscious of different types of leverage. We look at our on-balance-sheet leverage but also our structural-asset leverage, and we’ve been very careful not to overlay our multiple forms of leverage — and that discipline proved itself very important based on the turmoil of last year.

Finally, leaning onto something that Fulya talked about, with the pandemic, our risk management — as I’ve talked a lot about — but our infrastructure, our IT infrastructure and our human capital became so important that we considered them together. The three aspects collided and compounded off each other in ways that we’ve never experienced before to this degree, and it magnified the importance of emergency planning and system resiliency, which Fulya had talked about with regards to the used space concept, but just resiliency with regards to your processes and systems.

We’ve actually at Annaly stress-tested these things for years. As a good example, in 2014 we did a desktop flu-pandemic exercise. Now at the time people thought we were probably crazy doing that, but it paid off because we transitioned our 180 employees to remote work very painlessly from an infrastructure perspective, and now we’re really focused on implementing a responsible back-to-office plan that balances our employees’ health and best interests with the benefits of the business strategy that we viewed from enhancing our in-office collaboration.

I think as a CFO, it’s important that you have to set the tone with regards to risk management and liquidity, and I think our management team as a whole sets a great tone in this way as well. And it’s a big reason why we operated so well through 2020 and continue to do so through 2021.

Corson

The foundation was laid well in advance of the pandemic itself. So, thanks for sharing that, Serena. Fulya, in addition to the pandemic, obviously the last year has seen a lot of conversation around sociopolitical and macroeconomic issues, all of which have impacts on REITs. I know you published at Nareit a survey on 2021 outlook for both REITs and the commercial real estate sector that addressed some of those challenges. Are there some of the key findings that you can share from that survey?

Kocak

Sure. In late May, Nareit marked the passage of 15 months of financial market response to the global spread of COVID-19, social distancing measures and, more recently here in the US, the reopening/recovery. As with any event that has such a broad and dramatic impact compounded with the devastating losses of life and livelihoods occurring in this pandemic, the inevitable long-lasting changes to society, the economy, commercial real estate, and REITs will only be understood over time.

It’s important to take note of the REIT resilience through the crisis and their ongoing recovery. The year-to-date total return of FTSE Nareit All Equity REIT index at the end of May, that was 18.1%, and the index is 4.3% above its pre-pandemic high. Capital markets are open, and we are observing growth-oriented M&A transactions that reflect confidence in business models and sector outlooks.

Operationally, REIT earnings are recovering quickly with aggregate FFO now at 85% of its pre-pandemic level. In this midyear outlook, Nareit’s research team provides their perspectives on the past 15 months and look ahead at the next 12 to 18 months. Nareit believes that this will be a period of robust economic growth that will drive recovery across a broad range of real estate and REIT sectors. As my colleague, Calvin Schnure, notes, “a robust recovery is no longer a question of ‘if’ but rather ‘when.’”

REITs are now positioned to take advantage of a growing economy because they entered the crisis with holistically strong balance sheets and access to credit and liquidity. Nevertheless, uncertainties remain. Most critically, how will the future of office use evolve as firms return to office and experiment with hybrid and work-from-home arrangements.

Another topic of widespread discussion is the potential threat of inflationary pressures as the economy reopens. My colleague, Nicole Funari, explains that “recent inflationary signals reflect transitionary items, and significant inflation fears may be premature or unfounded.” Nevertheless, REITs may perform well if inflation should increase. She finds that historically REITs also outperformed in periods of moderate and high inflation while providing competitive returns in periods of low inflation.

A key lesson of the past 15 months is the continued digitization of the economy. As real estate has evolved to house the modern economy, REITs have been at the forefront of these changes. John Barwick reviews changes in the index composition over the past decade and discusses how Nareit is keeping pace by updating and expanding the index series it produces in partnership with FTSE, Russell and EPRA. I hope listeners can read the whole report and enjoy the findings.

Corson

There’s a lot there, so we’ll make sure to share a link as to how listeners can access the report. Serena, as we think about the past year, the other trend we’ve seen is obviously the acceleration in momentum to implement improved ESG practices,

And Annaly has really been taking a lead and is issuing its first corporate responsibility report last year. Perhaps you can share some background on why the report was created and what you have included in it.

Wolfe

The ESG momentum is high as you mentioned, and the acceleration is rapid, particularly over the past year and then obviously with the change in administration. I think it’s a focus of theirs as well. Anybody who has thought that it was a fad and it was going to be something that shouldn’t be focused on is now looking back at that and realizing that not only has it become a priority for many folks, the goalpost is changing and moving all the time.

We believe there’s three main forces behind these dynamics. There’s a growing demand from investors. We see it all the time, of greater transparency about how their money is invested. Second, there’s recognition amongst regulators that ESG topics have material financial impacts and that companies play a role in global changes. Commissioner [Allison Herren] Lee from the SEC just recently made a lot of commentary about materiality of ESG and other factors. Third, there’s a growing consensus that ESG factors affect risk and return.

With all of that considered, we’ve over the years thoughtfully built our ESG efforts, and we have historically provided that information via our website. But last year, as you mentioned, Myles, on the 23rd anniversary of our IPO, we published our inaugural corporate responsibility report, and we were the first in the mortgage REIT sector to do so. This report provides important disclosures about our ESG considerations that are integral to our overall strategy in five key areas. So, that’s corporate governance, human capital management, responsible investments, risk, management and the environment. And I just want to cover a few highlights from that report.

Wolfe

We don’t only provide public disclosure about our achievements to date and what we’ve done, but we publicly put out disclosure of our future goals and our future commitments to ESG, which we think is important. We know investors want to see continual improvement, and they like to see the transparency of what we’re aiming for. It also includes disclosure around our robust human capital management practices, and diversity and inclusion initiatives, and data — data to support our results.

We get a lot of questions from investors about how we integrate ESG into our investment process, and that’s what we include in our responsible investment section of the report. And we also showcase examples of how we partner with other organizations to promote change outside of our office walls directly or aimed to positively impact the communities where we live, work and invest. A great example of this is our social impact joint venture with Capital Impact Partners, and through this joint venture we’ve financed over 20 community development projects in underserved communities across the country, and these include community health centers, affordable housing, things like that.

This past year during 2020, while we were working from home and all that type of thing, we developed and taught a course on fixed income and mortgage markets to the City University of New York students to increase the pipeline of diverse real estate professionals joining us this summer as interns, which we’re pretty excited about. Then finally, we’re actively working on our second report, which we plan to publish in the summer.

Corson

I again really applaud your leadership on this topic. I know sometimes it can be nerve-racking to be the first out of the gate, so thank you for taking the lead there, and I really appreciate you sharing some examples there of some of the social and inclusion metrics, which are so important and particularly right now.

Fulya, I know Nareit issues an ESG dashboard. Building on what Serena commented, are you seeing others taking a similar path with regard to what they’re reporting, and what other sort of ESG-related initiatives are they focused on and reporting?

Kocak

Let me first explain how the REIT ESG dashboard was put together. Approximately five years ago we hired a real estate data company to help us tell our own story. We asked them to scrape ESG disclosures by top 100 REITs based on market equity cap, and that really equals to around 92% to 94% of the market cap. And based on these 100 REITs, we identified various topics that are disclosed under E, S and G. And when we did this four years in a row, we were able to see the trends and growth in various areas of disclosure.

For example, when we did it in 2017, we looked at any kind of ESG disclosures by a company. That was 60 REITs out of 100. Fast forward 4 years and that number is 98 REITs out of 100. Another one is stand-alone ESG  annual report. When we started, it was 28 REITs out of 100, and this is a completely voluntary effort. That number is at 66 REITs out of 100 right now, and I expect next year we’ll see that number grow more.

Another very interesting finding, which I feel very proud of, we looked at the REITs disclosing based on their size, and the larger REITs, even when we first started, they were disclosing at 91%, and their numbers only increased 100% last year — but the smaller REITs in 2017, 41% were disclosing on ESG. That number jumped to 97%. So, you can see that the size of REITs doesn’t matter anymore. Almost every single REITs is disclosing around ESG.

We have seen incredible growth of disclosures around social topics and, as you can imagine, in the past when we asked investors and other stakeholders can you tell us which one is more important — E, S or G — S was almost every time at the end. It was either G, E or S, or it was E, G and S. But now the social aspects of ESG is getting a lot of attention, and that is reflected in how REITs are disclosing around social topics, from human capital management to community service to tenant engagement.

If anyone is interested in seeing more, you can find the dashboard and additional sustainability resources on REIT.com/ESG, and we have other resources in our annual ESG report on that link as well. I’m also happy to announce that we just wrapped up our third annual REIT industry ESG report, so please take a look.

Corson

Fantastic. Thank you. Serena, I wanted to come back and just pick up on a comment you made around changing investor expectations, and clearly ESG is driving significant change there. Perhaps you could just talk a little bit more about how you’re seeing investor behavior change generally and, more specifically, what you’re seeing in your sector.

Wolfe

I think it was interesting what Fulya said, Myles, that we’re starting to see all sizes of REITs do ESG disclosures now, whereas before perhaps in the earlier days it was just the big guys or the largest of the REITs doing these types of disclosures. And I’m not surprised by that because I think investors are definitely requiring or expecting it, and they are utilizing their platform through proxy votes to vote against those that they believe are not advancing the ball as much as they believe they should.

After we issued our first report last year, we did a lot of outreach to our investors to get feedback on that report. We do a fair amount of outreach just generally to our investors to explain our priorities and get a better understanding of what they’re looking for. What is important to them? What is material? What are they interested in?

And we gather a lot of feedback from them, and I agree with what Fulya said as well. Over time, it’s been clear to us that, while investors have always been focused on the G, the governance aspect, I think that’s just given today. It’s expected. It’s baseline. They continue to focus a lot more now on the E and definitely the S in their ESG. I don’t believe that’s a phenomenon specific or exclusive to REITs, but it’s broadly applicable to the financial services industry and the broader market. Investors are definitely focusing a lot more on the E and the S today than they did in the past.

In our most recent rounds of shareholder engagement, we’ve heard a specific desire from investors for advanced or expanded human capital management and SASB disclosures. Given the challenges faced through the pandemic, there’s also been a focus from investors on how have we responded to COVID, both from how we’ve ensured the safety and the wellness of our employees but also how did our business continuity planning hold up? How did it help us to continue to operate throughout this time seamlessly? So, you can see that the focus is definitely changing. I don’t think that focus is a fad either. I think that’s something that’s here to stay, and it’s a change in the ESG framework to some extent.

Corson

Clearly that stakeholder engagement is a key part of the role of the CFO. I’m interested more broadly in terms of the role of the CFO and the finance function around ESG, what you think it is now and potentially what it could be, and also perhaps you can comment on your experience as CFO and how you’ve been able to influence your organization’s ESG approach.

Wolfe

From a traditional CFO leadership perspective, and I think the role the CFO has played in the past, is that it’s been a reactive kind of role whereby they’re pulling numbers together for others for disclosures and things like that.

The CFO’s role today is more proactive. I think it’s evolving to be more instrumental in helping the company and the executive team define what ESG means for our industry and our company. It’s important to help the company figure out what is material to them, and where should we focus? There’s so much out there. There are so many different frameworks. There’s so much information on ESG. I definitely think you shouldn’t try to swim upstream or try to boil the ocean as they say. I really try to guide my team to think outside the box because not everything is a perfect fit in these frameworks. But think about it in a realistic way. Think about what applies to us and try and marry it to our shareholders’ interests with the industry standards.

A couple of examples of that is we incorporated SASB and GRI disclosures in our inaugural corporate responsibility report. At first pass, when you look at SASB and GRI, particularly SASB, you could think, “oh my gosh, all of this applies.” But I would say take a step back and think about what is relevant. What is truly important and material to us and what isn’t? At the end of the day, your objective is to provide high-quality information that’s of interest to your shareholders, and so that’s what should be guiding, and I use that as a framework to guide my team.

Additionally, there’s a lot of ESG ratings and rating organizations out there as well. I think it’s important to play a role as the CFO in evaluating these various indices and ratings because they can be constructive frameworks for measurement. How do we stack up against those indices and ratings? These ratings organizations tend to measure companies against industry-specific standards, and it’s my job as well as others to engage with these agencies to help them better understand our business, our business model, our ESG risks, what’s an opportunity for us, and in some instances we actually have to engage to them to try and correct things that we think they have gotten wrong or if they’ve classified us incorrectly.

As I mentioned before, there’s two types of REITs, equity REITs and mortgage REITs, and we often get categorized as an equity REIT, equity REITs have very different objectives and goals and things like that when it comes to ESG, particularly the environmental aspect that Fulya went through earlier. That just doesn’t really apply in the mortgage REIT world.

Thinking about beyond our financial reporting, our indices and our ratings, as an executive in the firm, what should we expect from our business partners and vendors? Our investors expect ESG responsibility from us, but what should we be expecting from those that interact and engage with us? Thinking about ESG in that way contributes to systemic change.

If our investors are expecting change from us, and if we are expecting change from our vendors and our business partners, I think that’s where we can see real advancement here. Looking to influence ESG management in other organizations is indicative of a new era, I believe, in ESG responsibility — one where change begets change. And that’s where we like to focus as well from a strategy perspective.

Corson

The point you’re making — about none of this can be achieved by individual organizations in isolation and it’s really about how do you influence the whole ecosystem — is so important.

Kocak

Serena, I’d like to add a little more to what you said about ESG reporting framework standards. There are so many of them that our folks call them the alphabet soup. One thing in the past five years I’ve been with Nareit that I learned is that one size does not fit all. For some REITs or for some companies, just putting disclosures and statements and a list of policies they have on their website is enough, but for some others they’d be reporting to five different ESG standards and frameworks, and that would still be right for them. So, it all depends on the companies, their investors, their stakeholders, and what it is that they’re trying to achieve by reporting.

Then I am asked by our members, okay, which framework should we follow? What should we disclose on? I always tell them to just sort of sit back and ask the right questions before even attempting to disclose. Why do you want to disclose? Are you getting questions from your investors? What is your operations about? What is important for your organization? Does it align with your overall strategy? Because ESG is not an add-on. If a company sees ESG as an add-on, or on the side or nice to have, it won’t go far. I think it’ll become a stagnant program in disclosure. If ESG is integrated and it’s approached that way, it’ll be easier for companies to decide which frameworks to follow, what to disclose, the metrics that they should disclose on, and how to communicate that. Again, one size does not fit all, and I think the companies should each take their own situation into account and understand what it is that they are trying to address. And what is their story? What is it that they want the whole world to know about?

Wolfe

I also would say that once you decide what you want to disclose or what framework works for you, even components of that framework might not apply directly, and that’s okay. What you just need to do is be transparent in your disclosure, and say we have not disclosed X, Y and Z because of this. I think it’s not blindly filling it out, to your point. It’s thinking about it from a strategy perspective and making sure that it complements, or it tells the story of what your goals and objectives and achievements are.

Kocak

Absolutely. When I first started, four to five years ago is not such a long time ago, but ESG felt more like check-the-box kind of an effort, and most of the investor questions that I heard from our members were more like, what are you doing around ESG? Now it’s so different that the questions are very deep. They are quite mature, and it’s not a check-the-box kind of conversation. It’s better engagement, and investors are trying to understand what it is that REIT is committed to, and what it is that they are trying to achieve and how they progress towards that goal.

Disclosures should reflect that. It’s more of what are your goals. What are you doing around it? Why are you doing that? And if you’re not doing something, why you’re not doing it. As simple as it sounds, it’s really a full story that you have to tell now, not just a couple sentences of saying these are the things you’re working on. It’s just way beyond that at this point.

Corson

I think you’re both raising really important points and, again, fundamentally this is about companies reporting what is material to their businesses. What is it that enables them to deliver sustained performance? Starting with what really matters to your business. How do you communicate that? How do you show progress against it and not let some of the emerging regulatory and sort of reporting frameworks get in the way of actually taking action and starting to tell those stories?

And Fulya, I did also want to go back to something that Serena shared. She talked about some of the things she was doing with her team to help them work out how to support the objectives around ESG reporting. And the whole area of upskilling and talent development I know is something that’s very close to your heart, and you’ve written a book on sustainability leadership that talks about the need for diverse backgrounds and skill sets for today’s sustainability leaders to be successful. What makes a good sustainability leader and what CFOs can do to develop themselves and their teams to be successful in this area?

Kocak

Sustainability leadership is near and dear to my heart, and I see growing new sustainability leaders as a key part of my job description. I think we all have to inspire new leaders and change agents. And if the listeners are thinking that sustainability leadership is tied to a sustainability title, that is not the case. Every single person, regardless of what their title, their seniority, their day-to-day jobs are, they can be sustainability leaders. I think we’re at a point that we all have to be sustainability leaders and how we grow into that leadership status is key.

Sustainability professionals are quite on demand, and one question I get is, what should the educational background be? What should the skill set be? And I always tell them the starting point is soft skills. The soft skills are so important because as a change agent the person has to be resilient. That person has to be very strong emotionally because it’s like a rollercoaster trying to make change and implement the sustainability strategy. It’s important to have a strong network, to have your peers to ask questions and collaborate on various initiatives, and your interdepartmental relationships is key. You cannot be in a bubble and do everything as a single person. So, I always start with the soft skills.

You probably hear the communication skills for every single job, but for a sustainability leader, communication skills is even more important than ever because you not only decide what a sustainability strategy should be like and implement it. You have to communicate with the senior leaders so that you can convince them about these strategies. Then you have to communicate with your peers and the other departments so that they’re on board and they’re a part of your team. And then you have to communicate what you are working on and what the results are with the general public at large. So, communication skills, that’s another key area.

Now the other part is executive presence. You just have to have that. The passion is great, and I think you should have the passion. Most people that are doing this have great passion. The executive presence is very important because you have to stand very strong and have that presence so that you can influence others. Sustainability leadership is about influencing others, and again I’m going to repeat myself many, many times that this is not a single person’s job. This is a person that’s creating a huge team so that things get done quickly and at a large scale.

I’ve met dozens of sustainability leaders. There have been so many diverse backgrounds from political science background to architecture, construction management. Even I’ve known somebody with a background in history. So, I think the more the merrier, because when we have the diverse skills and backgrounds of different sustainability professionals, we can learn a lot from each other.

So, these are what each company should be looking for, for any talent that they hire, and I think if somebody is thinking outside the box, that would be another good person to think about because sustainability is about changing things for the better, not so that we change things., We just need the out-of-the-box thinkers that are also very capable of taking action and moving forward.

On the communication side, I’ve seen very successful sustainability leaders that are great storytellers. If you’re thinking about becoming a sustainability leader, or if you’re one and you’re looking for ways to improve yourself, think about your storytelling skills. I think that is one area that, again on the influencing your future team members and existing team members side, just being a good storyteller. That’s another great skill set.

Corson

Fulya, I really appreciate those perspectives, and there’s a lot of consistency with what you’re saying with the findings of EY 2020 DNA of the CFO survey, that there’s areas of importance of social skills, the ability to build great relationships with other C-suite functional leaders, and the ability to communicate and do the storytelling is very consistent. It’s great to hear that from you as well. Serena, anything you wanted to add to that?

Wolfe

I think that one of the things to think about, too, which I think adds on to what Fulya is saying is that it’s important to recognize that, when she was saying somebody with strong conviction and executive presence and things like that, that it’s a journey. It is something that has changed a lot over the years and continues to evolve. You should look at ESG as a way to raise your standards and challenge yourself. And if you think about it as a journey, it will change the way you think about the process as a whole and also enhance how you think about things rather than thinking about it as, okay, I’ve got to do this this year. Think about it’s a series of goals over a longer period of time, and that’ll take some of the pressure off as well, I think.

Corson

We’ve covered a lot of ground today, and I really appreciate the insights you’ve both shared. Just one final question. Is there any single piece of advice or recommendation you’d give to our listeners, particularly as it relates to ESG and corporate reporting? Fulya, we’ll start with you.

Kocak

Corporate reporting continues to evolve, and it’s becoming something beyond voluntary disclosures. My biggest, I guess, tip is that every single word you put in a corporate social responsibility report, or a CSR, has to be verified. It has to be thought through. And a CSR is not done by a single individual that heads ESG or sustainability department. It is a combined effort.

Just think of that report as an integration of all different functions within your organization and make sure to include everyone in the process from your general counsel to HR to investor relations to finance. It’s a joint effort and, again, every single word you put in there, you are liable, and it should be backed up. It’s not a marketing material. It’s not a brochure. It is reviewed very seriously by a lot of stakeholders. So, please take it very seriously, and what you put on that report is critically important.

Wolfe

To supplement what Fulya said about that, it’s essential to cut through the noise. I mentioned this a couple times already through the podcast, but you need to figure out what’s most relevant and meaningful for your company and its stakeholders. What is truly material? That will allow you to focus the messaging and the reporting accordingly. But if I could sneak in one extra, I would also say, because of the evolving nature of this space, there’s an incredible amount of entrepreneurship available here. You should empower your people that work for you and embrace all new ideas, because there’s not one way to do this, Myles, and I think it’s an opportunity for everybody to make a long-lasting, meaningful impact as we look to the future here.

Corson

Well, I really appreciate those perspectives, and thank you both so much for joining me today. It’s been a wonderful conversation and I’m sure a lot of insights that will have been very helpful for our listeners.

And to our listeners, as always, thank you for listening. If you’ve enjoyed this episode, please remember to subscribe to the series or leave a rating or review, and if you’d like to find out more about any of the topics discussed, we’ll post related links to EY.com/BetterFinance, and I know you can find both Serena and Fulya on social media.

So thanks again for listening, and I look forward to speaking with you on the next episode of the Better Finance podcast, a series that explores the changing dynamics of the business world and what it means for the finance leaders of today and tomorrow.

(End of Tape)

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