Sustainability now—Real-world perspectives on business value

0:02Hello, and welcome to PwC's accounting podcast.

0:12The sustainability conversation continues to evolve. Increasingly, companies are looking at how sustainability connects to business priorities, from strategy and risk management to investment decisions and long-term value creation.

0:41Hi, I'm Heather Horn. The sustainability conversation continues to evolve. Increasingly, companies are looking at how sustainability connects to business priorities, from strategy and risk management to investment decisions and long-term value creation. In today's episode, we hear from Nicole Vidori, Head of Enterprise Sustainability at TV Bank, who's joining Diana Stoltzfus for a dynamic discussion about the sustainability landscape. They'll discuss how the landscape has shifted, where the connections to business value are becoming most tangible, and what companies can do to embed the thinking more broadly across the organization.

1:18With that, let's start the episode. Thank you so much for joining me today, Nicole. It's great to have you on the podcast. It's great to be here. Thank you. I'm really excited about our conversation talking about the evolution of sustainability reporting. I think there's been a shift over the past few years thinking about, you know, there used to be an emphasis kind of more on purpose and corporate values and societal responsibility. And I think we're seeing more of a shift now where there's a real focus on how sustainability connects to business priorities and value creation.

1:51Nicole Vadori: Definitely. So, Nicole, can you talk to us a little bit, like how have you seen that evolution or that conversation evolve across your career? Yeah, I think it's important to understand the trend to judge where the direction is heading and the direction that we should be taking. And I've been at this a while. I've been in sustainability my entire career. I started in environmental consulting and then I ended up at the bank. I've seen various pendulum swings, and we hear a lot today about the different swings. And one thing that has always remained constant for me, no matter where the pendulum may be, is the simple principle that a healthy economy exists within a healthy society, and a healthy society exists within a healthy environment.

2:39Nicole Vadori: So today, I find our teams are dealing with, you know, yet another pendulum swing. You know, we've come off a high of like two or maybe three, four years ago where ESG was the thing. And then shifting over to like no one's talking about ESG. It's almost taboo. Right. And I think now we're landing more in the middle. And what does that mean? It means getting practical in order to stay relevant. Right. And we need to stay relevant in order to keep sustainability on the agenda. And, you know, so I really see sustainability moving from that altruistic action more towards business accretive. So moving from values to value.

3:26And so how do you think about that balance in practice today? Yeah, we took last year to really get back to basics.

3:36Nicole Vadori: We were asking questions like, what is the role of a sustainability function? What value do we deliver? Why do we actually exist? And we didn't just ask ourselves and, you know, talk amongst ourselves. We actually went to our partners and we asked these questions, which can be a bit scary because sometimes, you know, you might not want to hear the answer. Right. But in the end, it was a really useful exercise. I think we got really clear on our role in the ways that we can actually add value, which keeps us relevant and keeps the sustainability agenda relevant. So we landed on two things and I'd like to share them.

4:12Nicole Vadori: The first is that we exist, the sustainability function exists to address external issues that are impacting the bank. Right. So this really speaks to the outward in impacts. And secondly, we also exist to ensure that the business is doing business in a responsible way in consideration for the different societal and environmental impacts. So that's more the inward out. And it's interesting to see that the conversation has been dominated by climate for so long, so much so that I think sustainability has become synonymous with climate, right? Which really isn't helpful. No, I think that's been really part of the challenge in the conversation is there's been such a focus on climate and there's all these other topics that are relevant.

5:00And sometimes I think that people or when you engage in the conversation, you start talking about these other topics that it can become more apparent the connection between the business and the impacts on society or how that impacts the long term viability of the business.

5:17Nicole Vadori: Completely agree. And like, also, when you start talking about these other issues, sometimes we're like, what are you talking about? Like, you're the sustainability person, you're the climate person. Like, what do you mean you're talking about defense spending or responsible AI? So it's been an interesting evolution. And I think the language has evolved out of necessity. And I actually see this coming full circle. Like, remember the days of corporate social responsibility or corporate responsibility? We are now talking about business responsibility. So in my mind, this is a really helpful evolution because it broadens out the conversation.

5:58Nicole Vadori: It allows us to include these new and emerging topics such as responsible AI, defense, finance, things that a sustainability team can help get an organization organized around. Right. Maybe pulling on one thing that you said, Nicole, too, you talked a lot about doing outreach and talking to different parts of the organization and thinking about, you know, this connection between being a responsible business, but also building trust with stakeholders and creating this long term value. And so how should companies think about that connection between all of those? Yeah, I think responsible business, like if you're a responsible business, you are provided with a social license to operate.

6:43Nicole Vadori: Also a business license to operate, but I won't go there now. Now, trust is, in my opinion, the social license to operate. And how do you demonstrate trust? How you, as a bank, demonstrate that you are trustworthy? It's in the little decisions. Do you listen to diverse stakeholder opinions and weigh those perspectives when making decisions? Right. And not everyone will agree with your decision, but at least you can prove out, like, we considered all these factors. Right. Here's how we have arrived at this conclusion in a rational way. Are we thinking longer term instead of focused on short term results?

7:25Right.

7:26Nicole Vadori: Do we take responsibility when things go wrong? Are our intentions good? Are we really trying to do the right thing? Are we being transparent? The big one is, if you look at the communities in which we operate, are our communities better off with us in them? versus us out of them. And another key to credibility and this trust is, are we investing in the right infrastructure? Do we have the right governance? Do we have the right expertise in place? Do we have the right policies in order to carry out business responsibly? So these are things that start really at the leadership level and then they're demonstrated by individual employee actions and on a whole, that becomes the culture of the organization.

8:18Nicole Vadori: And when you think about these different questions and themes, they're really the G in ESG, the governance. And companies we know with strong ESG performance, they tend to outperform. So I think there's a strong business case for responsible business, building trust, and delivering value through performance. Right. And this is really about embedding those sustainability considerations in the decisions that are being made by the business. So, Nicole, you were just talking about the social license, but you also mentioned the business license. Can I follow up and maybe you can expand on that a little bit as well?

8:57Nicole Vadori: Sure. Like an example of this is the ESG rating. So TD follows our ESG ratings with MSCI or Sustainalytics. And really what that rating is, is a reflection of the responsible business practices of the bank. But having a good rating helps us clear hurdles in different markets that we want to operate in, especially Europe. So those ratings, those performance indicators are really helpful. And I see them more as a business license to operate. Right. That's a great point. So you're talking about investment, risk decisions, organization, how you're going to operate, how you're going to interact with your customers.

9:36And so this is less about sustainability being a standalone initiative or a separate part of the organization, right, and really embedding it more so in the broader business decisions. And being able to demonstrate that, I think the important point, too, is you're talking about, you know, how you're viewed by customers and in local communities and things like that. and such an importance for financial institutions as well, right? People put a lot of, your word, trust in them with their, you know, long-term, you know, financial success as well. And so how do you think in practice this alignment, you've talked a little bit about this, around the sustainability priorities with the organization's broader business strategy and objectives?

10:17Nicole Vadori: Yeah, it's particularly relevant for TD because we have a relatively new CEO who set a completely new direction and strategy for the bank, which is really amazing. But what it is about is finding that intersection between what's good for business and also what enables societal and environmental progress. And it's hard, but it's not impossible. It's really not impossible. We should be looking at things like do sustainability objectives actually sit alongside business objectives, or are they separate? Are sustainability priorities considered when business are setting their priorities for the year?

11:00Nicole Vadori: They should be, right? Sustainability won't really survive in a silo. I also want to mention Rocky Mountain Institute. They actually released a paper earlier this year, and it's called recalibrating the role of banks in the energy transition. And although the paper is specific to energy transition, it's actually applicable to any sustainability topic. What I really appreciate about the paper is that it talks about the role banks should play in sustainability. We should really play to our strengths. We have expertise in structuring deals, deploying capital, advising clients, and we should really focus our efforts there with the caveat that deals need to be bankable in order for us to participate.

11:43Nicole Vadori: But even when deals are not bankable, is there a role that we can play to help create the conditions to move those projects over the line. Right, like change the economics of it so it can become bankable. Yeah, can we bring together different stakeholders to help support that conversation? That's really interesting. So maybe shifting gears a little bit, Nicole, is maybe starting to talk about sustainable finance and that that can be an example how sustainability priorities can become embedded in financial and capital decisions. And so I know that's an important focus for your organization. So how do you see the connection between sustainability objectives and the broader business and financial priorities?

12:27Nicole Vadori: I'll actually share a great tool that we use to help answer this question. PwC actually helped TD conduct their first ever double materiality assessment. And, you know, as a bank, we've done materiality assessments in the past, but this is next level. Right. We've done impact materiality. DMA actually focuses on financial materiality in addition to impact materiality. So for those who've been through that, you know what I'm talking about. It is quite comprehensive, I would say. But what we got out of that is a really clear understanding of our impacts, our risks, and our opportunities. So we all know climate change is a material risk for the bank, a material risk and opportunity.

13:16Nicole Vadori: But what within climate change? Like there's climate change is such a broad topic, right? Like how do we start to get at the parts that are actually meaningful? Like actually defining what are those actual impacts, risks and opportunities. Yeah. So if we're sitting with our insurance partners or we're sitting with our, you know, our asset managers, we talk a little bit more at the granular level and make climate change more specific and relevant to them. Helps them focus so they understand what they should be looking at in terms of risks and opportunities. But it also gives us the confidence at the center that we're helping the bank appropriately manage the material risks and opportunities.

14:01Right. That you're at that more granular level and focused on those individual parts of your business, which depending on what it is, we'll have a different view of what that impact risk or opportunity is. Right. Right. So where are you seeing the greatest opportunities or challenges for companies in this area today?

14:18Nicole Vadori: So from a business perspective, I think the opportunity is, you know, it's wide open. It's important to be a player in the emerging sustainable economy. It's important to a large base of our clients. It's important to markets that we actually want to grow in. And it's also important to participate so that we build capabilities for the future. We don't want to be left behind. From a sustainability perspective, one of the greatest tools that we can use is sustainable finance. It is the tool in our sustainability toolbox. And so back to this question about if this is important, what role can a central sustainability team play?

15:02Nicole Vadori: And, you know, I've come down to two answers to this question. Number one, specific to sustainable finance and the opportunity, we set an enterprise goal of$500 billion by 2030 to direct it towards sustainable and decarbonization finance. A key to getting that over the line was getting approval from all the business leaders across all the business segments. So that instills a little bit of accountability in ensuring that we actually make that 2030 target. it. The second opportunity is to make it easy for our bankers, right? They're doing deals all day long. They don't live and breathe climate and sustainability like we do.

15:44Nicole Vadori: So the reality of sustainable finance is that to complete these transactions, there is a little bit of additional lift, whether it's setting criteria, developing methodologies, you know, tracking different deals, reporting on them, getting assurance, second party opinions, etc. And if we can take that burden off our bankers to allow them to do what they do best, which is getting deals done, that's a win in my books. Yeah, that makes sense. And so I think one of the things that you're talking about, you've touched on this a couple times, you know, this through kind of the processes that you've built, you talked about governance, is thinking about, you know, making sure that the processes are developed to support sustainability and this integration of sustainability into these different processes, whether that's the governance or, you know, within the crediting decisions that are being made, but making sure that sustainability is built into the processes.

16:38And I think that, you know, there's different areas where you can see this, you know, coming through that, okay, if it's built into the framework, built into the decision making, that it can help inform the assessment of different risks. And so one area where we've seen, you know, I guess, thinking about a risk that's an emerging risk that may sit outside of kind of the traditional functions is artificial intelligence. And so artificial intelligence is an opportunity for many businesses and, you know, will be transformative to their businesses. But it also has a real impact on customers and employees and society overall.

17:16I think, you know, we've seen in the news recently, there's been a lot of discussion about what will the impact of artificial intelligence. And so this could be an area where some of this sustainability built into these processes and the thinking around sustainability could really benefit. And so how do you think about how organizations can use the capabilities within sustainability to help in assessing new and emerging risks?

17:39Nicole Vadori: I think you just answered the question. But no, I think this is where a sustainability function can add a ton of value, right? We've spent years being hyper-focused on reporting frameworks and disclosure. And with that has come a bit of disclosure fatigue, but it's actually now our time to shine because we have done a really great job at building the foundations over the years in terms of, well, I'll just say it like sustainability practitioners, Like we've really got a PhD in applying management frameworks to different non-traditional risks and opportunities, which create governance structures, risk policies, management strategies, you know, governance, escalation channels.

18:26Nicole Vadori: All these things are important assets that we've developed over time. They're hard to build. And then they're hard also to dissolve, which is a good thing. But they're hard to build. But what's there in place? It can be used for anything. Right. So it's no wonder that, you know, sustainability functions are increasingly being asked to weigh in on issues like responsible AI. I think it just makes sense. Plus, we offer a unique perspective. I think we have, you know, we're kind of wired to consider a broader set of stakeholders and perspectives from a broader set of stakeholders. So, Nicole, maybe in wrapping up our question, when you look ahead, what do you think will distinguish organizations that are able to do these things, like able to turn the sustainability considerations into meaningful long-term business value?

19:20Nicole Vadori: Yeah, I think the ones that will be the most successful that will be sustainable, they'll stop treating sustainability as a separate agenda, right? And they'll truly integrate it into business. So I'm not saying anything new. We've heard this 100 times, but actually doing it is something different. So, and I think going through the DMA process, understanding, you know, in a very specific and granular way where those intersection points are within your business and getting really clear on what you should be looking at within each line of business, within each sustainability topic and understanding your impacts, your risks and opportunities.

20:00Nicole Vadori: I think that's the starting point, understanding that. And then once you know that, you can start embedding those considerations into your existing business processes and decision making. And that's really when sustainability becomes part of the strategic conversation. Well, I think that's great. Well, thank you so much for joining me today, Nicole. It's been great to have this conversation. Thanks for having me.