Eric Saarvala, Executive Director, Raymond James Canada Foundation & Head of Corporate Sustainability, joins the podcast to discuss corporate sustainability and ESG, including:

1. You hear the terms, CSR, sustainability and ESG but what exactly do they all mean?
2. What are some of the trends happening in this space? How has it evolved?
3. What does this mean for Raymond James?
4. How does the work of the Raymond James Canada Foundation contribute to our ESG story?
5. What is one thing you would like us to remember from this conversation today?

Please subscribe, rate and review. Reach out at advantagedinvestorpod@raymondjames.ca

Transcript

Chris Cooksey: Hello and welcome to the Advantage Investor, a Raymond James Limited podcast. A podcast that provides perspective for Canadian investors who want to remain knowledgeable, informed, and focused on long-term success. We are recording this episode on February 13th, 2023. I'm Chris Cooksey from the Raymond James Corporate Communications and Marketing Department and I'm looking forward to chatting with Eric Saarvala. Eric is executive director of the Raymond James Canada Foundation and Head of Corporate Sustainability. Today we'll be discussing how corporate sustainability and ESG, which we'll get into more about, have increased in importance for the firm over the recent term.

We have a lot to get to, so let's jump right in. Eric, I hope you had a good weekend. How you doing today?

Eric Saarvala: I'm doing well, Chris. Thanks for the opportunity to have a chat today.

Chris Cooksey: Excellent, excellent. Why don't we start off with just those are some pretty fancy titles, so a little bit about your background and yourself to start off here.

Eric Saarvala: Yeah, thanks. Well, it's coming up on I guess, almost one year for me at Raymond James. Previous to this I had my own consulting practice in sustainability and philanthropy. I've been doing work in that space for over 20 years now. In the private sector, public sector, nonprofit, so it's been quite the journey for those that talk about the on-linear career experience.

That is certainly something that I've had, but, picked up the sustainability bug, probably within the last, seven, eight years or so. Okay.

Chris Cooksey: All right. Well let's just get into that further then. So obviously in terms of the headlines and that sort of thing, CSR, sustainability, ESG often in the financial press and more widely in the general press now as well.

So maybe just give us a definition of what they all mean.

Eric Saarvala: Yeah, it's, pretty amazing, all the different acronyms and a lot of people joke around about the alphabet soup of acronyms as it relates to the terms that's being used sometimes interchangeably, within the space.

And there's certainly been a bit of an evolution, as it pertains to this, when I first started out. Probably the term most used was, was corporate social responsibility or, or CSR, or corporate responsibility, cr. And that's that general idea that companies are engaged in activities to do good and considering their impact on society.

And it's traditionally been focused, I'd say on the social impacts, how a company is engaging with community. So this might be including your community investment program. Are you doing grants? Are you engaging with charities, your employee volunteerism, or even employee giving opportunities at the company?

And then on the environmental side, it's taking a look at some of those risks and how the organization is operating in the communities that, that they do business in. And a lot of organizations, when they're talking about corporate social responsibility, they'd come out with an annual report and detailing what it is that they've done over the last year in community and environmental initiatives.

It is a step towards accountability. However, the challenge around corporate social responsibilities, it's entirely self-reporting, self-regulated. And when you take a look at it across sectors and try to do comparisons, it's a little bit hard. And there's many people that felt that CSR is just a program.

It's an add-on to the business. It's not embedded in how business is done and part of their fabric and culture. And there's some challenges around it too as it relates to measurement and how you report on it now.

Chris Cooksey: What about ESG?

Eric Saarvala: Well, before we go into ESG, I think talking about sustainability.

Because that's the term that I feel in my experience that corporate social responsibility is more moved into, and Oxford Learner's Dictionary is, talks about it as the use of natural products and energy in a way that does not harm the environment and the ability to continue. Be continued for a long period of time.

Now, when people hear the word sustainability, traditionally the thought has just been defaulting to environmental sustainability and it's not just that. It's definitely more, it's become a more robust word, expanded into areas of how an organization does business, part of their operations.

But you talk about sustainability, it's nebulous. What ultimately does that mean for an organization and how is it generalized as as doing better? And there's companies with robust programs. It's aligned to the business. they have sustainability reports, it's in depth versus what a corporate social responsibility report would be.

And what you're seeing a little bit more and more, I'm sure many people have heard about net zero climate ambitions by 2050 or 2030 for part of their business to to be net zero. A sustainability journey that many organizations are on. And you could typically have heard it interchanged with corporate social responsibility or another current term called triple bottom line.

And triple bottom line is just a bit of an older term that talks about measures around three areas, people, planet, and profit. Now we talk about ESG, right? And again, a lot of an interchange that happens between those two terms. This was positioned to me recently and, and it really resonated with me.

So sustainability is how an organization looks internally at how they're operating and what they're gonna do to become more sustainable. ESG is how stakeholders, primarily investors will look at how the company is doing and that that stakeholder group, could be clients, it could be customers, potential customers, media regulators, potential employees, or your current employees.

Looking at how a company is operating through an ESG lens is something that's gained a lot of traction over the last five years or so. And when we talk about ESG, again, another acronym of the alphabet soup. the E is environmental, the S is social, and the G is governance.

E as expected around environmental. It's advancing issues around climate, biodiversity, which many people have heard a little bit more in the news, especially around COP 15 that happened recently. carbon and other greenhouse gas emissions air. Water pollution. The S focuses on stakeholder engagement, such as giving back to communities that the business operates in, customer satisfaction, health and safety, human rights, employee diversity, equity inclusion.

And then finally, the G the governance issues. Board of directors, composition, leadership composition audit compliance. The G really is the driver of ESG. If you don't have a strong governance program, my feeling is that you're going to fall down in the E and the S a little bit. All right.

Chris Cooksey: All right. Makes sense. Now, you mentioned how these terms have evolved and changed over the time. So I imagine just in the space in general, there's been a lot of evolution. So what are maybe some of the trends happening right now?

Eric Saarvala: This was really primarily driven out of investors wanting an insight into the organization that was beyond the financial statements.

And as we talked about some of those categories, you know, that doesn't appear in the financial statements. So taking a look at how a company is operating, some of these key points, around has just been unbelievable to see how this has taken off and I look back when I reflect around the growth in this area, I look back to Milton Friedman's 1970 essay on the social responsibility of business is to increase profits and the role of business and how businesses operated over 50 years at that point.

That's now changing and there's been a shift in what the purpose of an organization is, and there's a lot of discussion over the last few years around purpose. And it's not just shareholders being considered it's stakeholders. And where this concept gained a lot of visibility was an announcement by the business round table and the business round table.

It's an association of Chief Executive Officers of America's leading companies working to promote a thriving US economy and expanded opportunities for all Americans through sound public policy. And their announcement in 2019 was the release of a new statement on the purpose of a corporation, and it was signed by the 181 CEOs who committed to leading their companies for the benefit of all stakeholders.

So that's customers, employees, suppliers, communities, and shareholders. And this idea was just reinforced with Larry Fink, the CEO of BlackRock. We know the world's largest asset manager and his idea around purpose and letter to CEOs. And a couple years ago, the letter stated, the more your company can show its purpose in delivering value to its customers, its employees, and its communities, the better you will be able to compete and deliver long-term durable profits for shareholders.

So that's definitely one. Another area, ESG was really born out of the investment community and taking a look at an organization and that investment opportunity. But I've seen many private companies that are moving in that direction of ESG and taking a look at their entire operation because they recognize, while they may not have the traditional investors like public markets, there's many stakeholders that are really looking at their organization, in the same way.

Just a couple more trends that are happening, governments and regulators. So, a lot of work is being done to try and bring this all together and get some measurements in place. And last year, the government of Canada, as part of the budget, talked about some mandatory disclosures that federally regulated financial institutions are going to have to start doing in 2024.

So there's some stuff coming down the pipe that's pulling this all together and having those disclosures that the companies are going to have to do. ESG is really driving a lot of these levers on how that can be.

Chris Cooksey: And as you mentioned too, a lot of this is either investor or customer driven.

They want companies to be like this. You know, recently Chick-fil-A, the chicken place, they said they were going to have a brand new chicken sandwich made out of cauliflower. And everyone was saying, oh, you guys are just all, you know, that silly word woke and all that stuff. And Chick-fil-A was like, well, the customers asked for it, so that's why we're doing it.

So I find it interesting that customers are starting to demand certain things from companies to do business.

Eric Saarvala: Yeah, it's certainly been the case for a few years now. everybody votes with their wallets. A lot of reports out there on people and the type of businesses that they want to do business with, who they want to purchase from, who they want to work for, how the company is showing up, in community.

How they're dealing with social justice and social issues. Is the CEO taking a stand on some of these things? Mm-hmm. and having a voice. And when you think about the war on talent and talent attraction and talent management. A company that is focused on some of these initiatives is really the ones that are going to be leading.

Chris Cooksey: Now what does this mean for Raymond James? Let's get a little personal for our own company here. What's it mean for us?

Eric Saarvala: Huge, huge opportunity to take some steps forward in this space. We are talking about our sustainability strategy, and we are now focused on three pillars that's going to drive our sustainability strategy.

So first is green workspaces, and this is about creating green workspaces for our advisors and our associates. And, as a tenant. RJL aims to occupy spaces that align with our objectives to improve sustainability performance and fosters that sense of a thriving community. So what can we do in our workspaces to become more sustainable, that we can then start measuring what a decrease in the emissions could potentially look like.

Second is green transportation. So this is the idea around how do we reduce our greenhouse gas emissions from our employees commuting and our business travel. So as we aim to minimize business travel, and obviously we saw how that can be done in the pandemic and the increase in Zoom calls and that there is an opportunity there.

We're already doing that flexible work from home policy and what that support looks like in terms of the uptake of low carbon travel options. So thinking about how you get to work, can you ride a bike, transit, E-scooters now are quite big as well. And what are the opportunities to potentially bring some benefits connected to some of these activities.

And one of the things that I know the industry is still struggling with a little bit is when a company's thinking about what their carbon footprint is and doing a lot of work around that as we've now moved to this model of hybrid work where some days at home, some days in the office, at the end of the day, that that employee is still creating a carbon footprint working from home.

So what does that look like in terms of that analysis? Is it a proxy based on the province that they're in? The type of energy used? So it's still something that's being worked on. And then finally our third pillar is green procurement. So this is the idea around incorporating environmental considerations in all procurement procedures and decisions, and whether this is minimizing paper use or replacing standard paper with more sustainable options is one opportunity, but thinking about expanding that out to a sustainable procurement process and having supplier diversity, how do we create impact through our supply chain? So a lot of different ways to engage community through supply chain as well. So that's what our focus is on these three pillars, moving forward.

Chris Cooksey: Okay. Now, as I mentioned off the top, one of your titles is Executive Director Raymond James Canada Foundation. How does that contribute to our own environmental social governance story here at Raymond James?

Eric Saarvala: Well, Raymond James Canada Foundation. We are a foundation that was established in 2012 to facilitate and nurture the philanthropic work of Raymond James Limited.

And this idea grew out of the fact that our employees want engagement in community. They want to have positive impact year after year, and creating the opportunities for volunteerism, for giving, for responding to disaster, for getting grants for the charities that they're involved with. That connects directly to the S and we've had such an amazing story arc for the foundation and how people have engaged in community.

We have RJ Cares, which is in the month of May where our advisors and associates are out in community and contributing back. We have our National Inclusion Council, which their Raymond James Canada Foundation works very closely with, and this is really part of the S of ESG, so Raymond James is really strong on the community engagement, that culture of activation and giving back.

Chris Cooksey: Excellent. Now, last question, what would you like to leave the listeners with? What do you think you'd like everyone to remember from this conversation?

Eric Saarvala: Well, first and foremost this is a journey we are on, a sustainability journey here, and a huge opportunity to really create significant change.

And as we think about the organization and our environmental sustainability, what we're doing with our emissions, we think about it in terms of, I'll just speak quickly about the three different scopes, so your scope one emission is direct emissions from owned or controlled sources, scope two is indirect, from the generation of purchased energy. so your electricity, your heat, your steam, and this is where a lot of our sustainability initiatives are primarily focused. But scope three is where the big change can happen. This is where you can create significant impact.

This is all indirect emissions that are not included in scope two, and as part of your value chain. Because we are a service oriented organization and in financial institutions the biggest category here is investments and talking about where we're going as an organization, thinking about how responsible investment is going to be a part of our strategy going forward.

So sustainable investing and sustainable finance on our equity capital market side. So there's some amazing things that are happening at the organization. So I'm looking forward to how do we bring it all together into a bigger strategy and a more cohesive strategy so we can point to and say, you know, and here's what it all means as part of our sustainability strategy.

Chris Cooksey: Awesome. Eric, a lot of great information there. hope you'll join us again to give us an update on how we're doing on these very important strategies that we're embarking on. And, thanks again very much for, for your time.

Eric Saarvala: Thank you for the opportunity and I look forward to being back.

Chris Cooksey: Reach out to us at theadvantagedinvestorpod@raymondjames.ca. Subscribe to the Advantaged Investor on Apple, Spotify, or wherever you get your podcasts. Please contact your advisor with any questions you have. On behalf of Raymond James and the Advantaged Investor, thank you for taking the time to listen today.

Until next time, stay well.

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