91% of net income in the past decade hasn't been reinvested into supply chains: ESG Advisor

Yana Kakar, Dalberg Advisors Global Managing Partner Emeritus, joins Yahoo Finance Live to discuss Climate Week and concerns surrounding global supply chains.

Video transcript

- But as the UN General Assembly wraps up, as well as Climate Week, let's talk about some of the takeaways there, and then also talk about some broader takeaways for ESG for some of the themes we've been talking about today. Yana Kakar is with us now, Dalberg Advisors Global Managing Partner Emeritus. Yana, it's good to see you. So as I was looking over some of the announcements from Climate Week, there's a lot that comes out, right? A lot of it has to do with individual companies or nations making sort of announcements about how they're changing their businesses. But how should we be taking the sort of 10,000-foot view of the proceedings and what came out of it?

YANA KAKAR: Well, Julie, a lot of people ask me, look, you've been doing ESG integration for 20-odd years, you're in these spaces, how was this year's meeting different from the rest? And I will say, a real significant difference was the palpable sense of urgency. You know, these meetings were happening on the heels of the IPCC releasing the code red climate report in August.

There's a lot in the title, so I can just say code red tells you all you need to know. This year, therefore, we saw corporations, investors, policymakers not just acknowledging that the climate crisis is real and having an impact on business operations and markets writ large, but we saw an actual lean into action. And you know, alliances being formed for collective action across sectors.

So that was all very positive. I will say, though, the thing I didn't see this year that I would have liked to see a bit more of was more tangible, specific, individual company action plans for the steps that these companies are going to take in order to meet some of their climate commitments. And I thought it was interesting not to see that specificity, given these meetings are taking place against a backdrop of disruptions across multiple supply chains.

- And that is a perfect segue, Yana, because we've been talking a lot about those disruptions today. This is something Brian Sozzi has really been digging into. We heard from companies like Nike last week talking about how these supply chains are being affected. We've got shipping containers that are basically unavailable to various companies. We've got shutdowns in countries tied to COVID still at factories. As someone who really focuses on ESG broadly, sustainability specifically, how should companies be thinking about their supply chains? Are there ways to mitigate times like this?

YANA KAKAR: I'm so glad you asked that question, because while we might agree that a global pandemic will cause some supply chain disruptions, we might agree that's inevitable, as you look across the company landscape, you see they are not identical. And they're not identical because companies have taken very different approaches to either investing in the sustainability and resilience of their supply chain or not. You know, I was looking at some data the other day, if you look back about the last decade or so across the S&P 500, you see that 91% of net income was not reinvested back into the companies themselves. It was given out in the form of stock buybacks or dividends. 91% of net income.

That's a lot of capital not going into workforce training, not going into creating more sustainable, flexible supply chains. And those are the investments-- you know, I can understand when you look at it through the lens of just a quarterly earning, of course they incur upfront costs. But where they really bear fruit is not just in times of crisis like we're facing right now, but also in normal times, where therefore the company might experience many fewer disruptions than some of the ones we're seeing these days.

BRIAN CHEUNG: Hey, Yana, Brian Cheung here. And this is kind of an interesting time for companies because there's this renaissance in capex spending because of the nature of COVID maybe having changed the business world, at least over the short to medium term. But how important is it from an ESG standpoint, specifically on the G part, governance, the way that they treat their employees with regards to labor, right? Because there's many ways that companies can go into this by funneling money into investments to automate, or they could try to invest more in labor. And we know that a lot of the big shortages right now are the lack of drivers for trucks or longshoremen on the docks. So how important is that in the whole picture for ESG for these companies in this really formative stage?

YANA KAKAR: I'm glad you framed it that way because it really-- there really is no productive use in having a conversation about the effects of climate somehow separate from the effects of labor shortages and effects of a global health pandemic. These are all intrinsically intertwined. And it's a collective of ESG factors. You know, from my perspective, as I look at a company that you all have spoken about and we've seen in multiple headlines recently, Nike, you know, Nike is a great example of a company that concentrated its labor in one relatively low-cost location-- this being, of course, Vietnam-- and for some period of time, some 50% of footwear and 30-odd percent of apparel is manufactured in that one location.

Now, when Vietnam needs to close for public health reasons and Nike finds itself shutting production in the factories for some 10-odd weeks, that has a huge impact. But it's an impact that's borne of a decision previously made to manufacture in a concentrated, low-cost fashion. And when you compare that to some other companies-- you take a look, for example, The Body Shop, who over the last few years has really invested in diversifying its labor across multiple geographies and working with the partners along its supply chain to improve their ability to meet the company's needs, it's one of these things where you realize that the simplification of manufacturing is simple until it's not, until something complex happens in the world and the company may be less able to respond to it.

- So Yana, let me ask you this, then, because you have been working on these issues for a long time, and talking directly to companies about these issues. We know that the trajectory is improving, but where are we at? In other words, how many companies that you talk to actually are really interested in making these investments and making these changes? The numbers you cited seem to suggest still not that many.

YANA KAKAR: I would say there's an enormous interest. I think the acknowledgment of the import and the commitment to taking action is there in ways I couldn't have even fathomed five years ago. What I think continues to lack is the clarity of so what do I do next. What is the answer, what steps do I take.

And I will also say sometimes there's a reticence, particularly given the global pandemic, where I might be advising someone and they say, look, Yana, I'm struggling just to do business as usual, and now you're saying take steps to green your supply chain. A lot of the conversations that I have are about shifting that mindset. This is not about ESG integration as somehow being separate or a nice to have once you get the train back on the tracks. In fact, the solutions to having a more stable and resilient supply chain, it's via doing ESG integration more purposefully and intentionally right now.

- Well, look forward to checking back in with you to see if there is a little bit more steam being gained here in terms of them moving past this period and making those investments. Yana Kakar is Dalberg Advisors Global Managing Partner Emeritus. Thanks so much, Yana.