In October 2019, we engaged with the Chairman/CEO and Lead Director of Cummins Inc. to better understand how the company is incorporating sustainability into long-term strategy. The company’s existing reporting includes a broad range of metrics and a narrative that tell a comprehensive story around how the company is managing ESG risks operationally. However, we were interested in how the board was approaching risks that would impact its long-term strategy, such as climate change.
The company explained that it takes great pride in its ability to evolve over the past 100 years and recognizes that it will need to continue to evolve to meet customer needs in the future. Towards this end, the board had challenged management to produce several different scenarios for how the market and business could change over the next 30-50 years. Management also identified milestones they could watch for to determine which scenarios seemed most likely and identify the pace of change. Given the long investment timeline for its businesses, the company believes that using scenario planning is the best approach to managing the business sustainably. Ultimately, we believe that is it important for boards to consider both operational ESG issues, such as those addressed by SASB, as well as strategic ESG issues, such as how exogenous events could affect a company’s business.