Hewlett Packard Enterprise Company (HPE) Earnings Call Transcript & Summary

Good day, everyone. This is Katy Huberty, USIT hardware analyst at Morgan Stanley. And I'm really pleased to be joined by Hewlett Packard Enterprise to discuss the company's plans to sustainably meet the technology demand of the future, something that was outlined in the company's recently published Living Progress report. As my colleague, Mark, will talk about in a minute, Morgan Stanley has seen a marked increase in investor interest around sustainable investing. And what resonates most is when companies deeply integrate sustainable principles within their broader business strategy. And in that vein, I find it notable that HPE's CEO and President, Antonio Neri, chose to join today's discussion as it speaks to the deep commitment to sustainability throughout the Hewlett Packard Enterprise organization. I will moderate the discussion today, but we really want to hear from those listening in as well. So please feel free to submit a question via the Ask a Question box at the bottom of the webcast screen, and I will relay your questions after the prepared remarks. Before we hear from Antonio and his team leading HPE's sustainable initiatives, I want to ask my colleague, Mark Savino from Morgan Stanley's ESG research team, to set the stage by talking through some important trends that he sees in the market. Mark, over to you.

Great. Thanks very much, Katy, and thanks to the HPE team and to everybody for joining us today. So as Katy mentioned, we have seen a very notable inflection in the interest in ESG and sustainability, really over the last, call it, 18 to 24 months, particularly in the United States. So I'm going to give a little bit of color in terms of the trends that we've seen. And then also some of the thematic elements that investors are asking us about, which I think will tie nicely into the HPE discussion. So to start off, we're often asked how big is the sustainable investing landscape. It's very difficult to define. There's not one definition of what sustainable investing is. But just to sort of triangulate -- to come -- to provide some context, as of 2018, there was about over $30 trillion, almost $31 trillion of AUM globally that has indicated that it is being managed in some way, shape or form around ESG. So the majority of that capital is going to be larger, long-only institutions that are integrating ESG into their existing strategies, into their existing products with the idea that thinking about sustainability and thinking about ESG can help them manage risk better, can help them uncover new opportunities and ultimately, aid in the performance of their portfolios. Within that broader bucket of capital, there's about, call it, $1.1 trillion of AUM that is in dedicated sustainability-focused funds or vehicles, and these are funds that have a very specific ESG mandate. So they're investing around different sustainability themes, they're looking for very specific types of businesses to be part of those portfolios. Now that $1.1 trillion is up about 40% over the last, call it, 15 months or so. So there is tremendous growth in the amount of capital that is flowing into these funds, and we think that's going to continue for quite some time. You can see the chart on the right side here, there was a -- obviously, a hiccup in asset flows into these funds in March with the market volatility, but great to see that things snapped back very quickly in April, and were basically back at the run rate of monthly inflows that we saw back in January and February when things really started to heat up in the U.S. Just a quick overview in terms of some of the themes and topics that investors are focused on. First and foremost, climate change has, and I think will continue to be a dominant theme within business sustainable investing landscape, and I think rightfully so. I think as a theme and as a topic, it is one of the more, I think, pronounced areas that can really drive structural change for some businesses, structural risk and also structural growth opportunities depending on the sector you're in. So it's a topic that touches on virtually every business, every sector. We like to think about climate as being a bit of a trifecta between having regulatory support behind it, corporates trying to find ways to improve the sustainability of their businesses around climate, and then also investors increasingly focused, just given that it is an area that has driven marked sort of divergence in asset prices across different businesses and across different sectors. Separate from climate, as we've seen the world sort of evolve over the last couple of months, there has been, I think, a very real push into the social elements of ESG coming back to the forefront in a very real way. So while climate change and the sort of long-term energy transition is still important, undoubtedly. Investor focus has, over the last couple of months, has been -- we're getting questions on how are companies responding to the crisis? How are they treating their employees? How are they supporting their customers, given the difficulty that everybody is facing throughout this? Then the conversation that sort of merged into -- given some of the social unrest that's developed across the country and across the world. Lots more focused on diversity, lots more focus on inclusion and equitable growth. So again, a very big sort of recognition of these social elements. And I think as we head into next year, as we head into another round of engagement from investors, I think this will continue to be a very real focus going forward. Other themes, the circular economy, sustainable consumption, all still very relevant and, I think, very much top of mind for investors. So before I close, I just want to make the comment that as we're thinking about these themes, as we're thinking about these ESG topics, whether it be decarbonization, whether it be the circular economy, technology is at the heart of all of this, right? So you can make the argument that without technological advancement, without technological efficiency, being able to address these societal issues and these societal challenges is nearly impossible. So I think that's a good segue into what is a very unique and important story with HPE. So with that, it's my pleasure to pass the virtual microphone over to Antonio Neri at HPE.

Well, thanks, Mark, and good afternoon, everyone. First of all, I want to thank Morgan Stanley and Katy for giving us the chance to speak to you today. As Katy said at the beginning, I have a few members of my organization that drives this very important effort around environmental, social governance and everything we're doing to improve the way people live and work. Fundamentally, that's what it's all about and create value for all our stakeholders. It just happened today is kind of an ESG day. I was just presented to President Macron. France has been on the forefront of this to create Tech for Good. And in that, addressing some of the biggest societal problems like diversity, education, the start-up ecosystem and ultimately, the environmental aspect of it. And I have been leading that effort for the President for the last couple of years, and we have made tremendous progress in committing some very important and bold metrics around decarbonization as a key aspect of this and other metrics that we will report on an ongoing basis. But we're here to give you a good insight about what Hewlett Packard Enterprise is doing. And so this is the agenda for today. I'm going to provide some opening comments then I will pass it on to Christopher Wellise, which is our Chief Sustainability Officer, which is here with me on the call. Then we're going to talk about team and culture because culture is everything. And obviously, this is embedded in our DNA. And Alessandra Yockelson will talk about that. She is our Chief Talent Officer. And then we'll talk about governance, corporate governance. And one of the things I'm really proud is that Hewlett Packard Enterprise has one of the most diverse governance and corporate boards in America, and how we approach this from a shareholder and stakeholder perspective. So that's the agenda for today. And if we go to the next slide, obviously, there is some forward-looking statements that I'm not going to read to you, but we have to have it. So I will encourage you to take a look at it, and this will be available with the content that will be posted after this call. So let's start with our purpose. This is a purpose that I'm super proud of it. We have a purpose, which is to advance the way people live and work. And the way we do that is by engineering experiences that unlock your full potential. And value is everyone in the stakeholder kind of constituents; it's our shareholders, it's our customers, our partners, and our employees, our team members. And what we see today, obviously, enormous change, enormous change in mounting global challenges. Obviously, we are living through pandemic today. That has created even more challenges, but also has created the opportunity to accelerate the digital transformation that we have been on a while, on that journey for a while, and create equality. But I believe, as a global company, HPE has the responsibility to make a difference, to make a significant difference in the communities where we live, where we work, where we do business and help shape a world for equal, for equality for all people. And at HPE, everything we do is guided by this purpose, to advance the way people live and work, and we actually make this livable. And the way we make this livable is not by having [ it ] on a slide, it's by the way we interact, the way we act every single day. And if you come through our sites around the globe, you will see this is visible everywhere. When you log in our systems in the morning and get your cup of coffee and then you log in the system to do your job, the first thing you see is our purpose and our values. Because this is all sustained by a set of core values that underpin our culture. And the core 4 beliefs that goes with the advances the way people live and work are simply this: one is, we believe in accelerating what is next; number two, we believe in bold moves; number three, we believe in the power, yes, we can, we put the we before the I; and last but not least, being a force for good. So this is something that we guide ourselves every single day and something that, obviously, we are proud because, ultimately, that's what makes us different as a company. So the recent events underscore how critical is also to speak up and stand up. Obviously, what we saw in the last 4, 5 weeks has been completely unacceptable. George Floyd should not be dead today. And ultimately, it is our social and civil responsibility to speak up and take a stand. And I am personally committed to advocating for change for equality for all. And we are taking some very tough actions inside the company. This is not about words, it's about action. And the first step in taking action is actually about listening. And so my executive team and I are hosting listening sessions with all our employees in what we call the employee resource group. We have multiple employee resource groups across the company, the black employee network, the Latinos, the LGTB, to understand what we have to do to improve equality for all. And in that, there is multiple parts, right? It's not just pay equity and diversity and inclusion. That is the way we interact with each other. So we are taking some very, very significant actions. And it's something that we will continue to demonstrate in our Living Progress report, which ultimately is the way we share all the actions we are taking with our shareholders and the communities as a whole. So obviously, we have gone through this ginormous pandemic. We are in the midst of it. There is tremendous amount of uncertainty and hardship across multiple elements of the society in the business. But this is a crisis unlike any other one we have lived. I've been in this industry now for more than 35 years and I have lived it all, wars, tsunamis, earthquakes, supply chain disruption, geopolitical challenges, but this is very, very different. And I believe, truly, that it's our responsibility to help the world navigate through this pandemic. And the slide you see here is some of the things we have done as a company. Obviously, the first step is to help the people in need. And in that, obviously, be able to provide donations, but in the context of not just monitoring, but all the things, voluntarism, equipment and other things. But the first step, obviously, for us was to ensure we protect our employees and their well-being. But one of the things we've done immediately out of the gate is to create a sense of community across the 60,000-plus employees we have across the company and make sure we provide them not just the tools to do their job, but also both the physical and mental health. This is one of the things I see now after almost, whatever 5 months into this pandemic, is anxiety, depression. All these are playing a huge role. Even though we saw significant productivity improvement, now is how we maintain that cultural fabric across the company. So we have done a lot for employees and a lot for the communities. We donated $50 million in secured connectivity. One of the areas I'm really worried about is creating a digital divide. Without connectivity in this environment, you can't really progress. And so we want to make sure we provide connectivity to the people in most need. In some cases, where hospitals do the testing and schools to provide remote learning. But also, there is tremendous amount of financial hardship, and this is where we made available through our HPE financial services, $2 billion in financing for those customers who needed the liquidity to stay in business. At the same time, we work with governments across the world to provide our knowledge, our system, and we made available our high-performance computer. We are the absolute market leader in this space. We talk about the amount of data we generate. And deriving the insights from that data much faster than ever before. High-performance computing is the backbone for that, for things like machine learning and artificial intelligence. So we made available our systems and our patents, our patents to the research institutions, so they can accelerate the cure for this pandemic through vaccine and therapy. Also, there is -- one thing I'm super proud is the work we have done with our employees and the voluntarism they have given themselves to support the communities. So that's what is work in progress. But when I became CEO, I had 3 priorities in mind, and that was in February 2018. Our culture, our customers and partners and our innovation. The one area I'm super proud is the culture. We have now the highest employee engagement score we ever had in this company, it's above 80%. We have the highest NPS score for our customers. But ultimately, what I really love is the fact that the customers and our employees understand what the future looks like and what our strategy is. And our strategy is to become the edge-to-cloud platform as a Service company. Every step in the digital transformation starts by providing secure connectivity and then ultimately, provide a cloud experience for all the apps and data wherever they live, and be able to consume it as a Service. But the culture is how we do things. And fundamentally, that's essential as a part of our purpose. And obviously, we have to become very customer-centric in everything we do. And this is an area where our innovation is geared for where the customers need to be when we think about 1, 2, 3, 5, 10 years from now. And we are living in a data era approach. At this point in time, the 2020 started with that in mind. But ultimately, we are entering what I call the new age of insights because ultimately, business outcomes come from the data. And fundamentally, that's the new currency. And those who go can extract the data -- the insights from the data faster will be the winners. So these are the 3 priorities. And from the innovation perspective, I think we have the best portfolio we ever had. In the last 3 weeks, we hosted our annual event in a digital format, which we call it the digital HPE Discover event. We introduced a series of very innovative offering, truly cloud-native where we can provide the cloud experience as a Service across all the apps and data, whatever they live, we introduced our new software-defined solutions. And we introduced a mirage of AI and artificial -- machine learning techniques for these customers to take advantage of this massive digital transformation. So super proud of what we have done. But obviously, we have to do more. And ESGs are the center how we approach our work every single day. And so what I would like to do now is turn it over to Chris Wellise, which is our Chief Sustainability Officer, who will talk more about our ESG framework and leadership and the important work we're doing every day. So thank you for your time today.

Thank you very much, Antonio. I really appreciate that introduction. And I think the fact that our CEO is here really shows his and our company's commitment to this space. So we really appreciate your leadership here. And as Antonio mentioned, at HPE, we are heavily purpose-focused, advancing the way that we live and work. And this is closely connected to our business strategy, which is really based upon Antonio's bold vision that the enterprise of the future will be edge centric, cloud-enabled and very much data-driven, as Antonio mentioned, data really is the currency of today, and it will be even more so in the future. Our strategy is really focused on accelerating the customers' enterprise with edge-to-cloud solutions that can all be delivered as a Service. And really centered around enabling customers to unlock value from all of the data they collect wherever that data might be generated. But in the midst of this digital revolution, we're also experiencing tectonic shifts in society and global environments. And HPE really believes that it's a business imperative and our responsibility to harness this data explosion sustainably, doing more with less. Sustainability is often an overlooked but very critical component of any company's digital transformation. But that is changing, and we're hearing that from our customers in our ongoing daily engagements with them. Increasingly, public and private sector customers are coming to us to partner and co-create sustainable IT strategies that meet their business objectives, but also meet the needs of their customers and stakeholders. So echoing what Antonio as well as Mark Savino from Morgan Stanley mentioned at the outset, ESG issues are very much top of mind at our company. And sort of, obviously, the investor community more broadly. And it remained so very much during the current pandemic. I think Mark mentioned that really ESG interest sort of peaked about 18 months or so ago or just before the pandemic. Perhaps it peaked but began to accelerate in terms of interest about 18 months or so ago, probably kicked off with the first Larry Fink letter. But I think what we've seen over the course of the last few months is that ESG has really been COVID tested, and I think has emerged more strong than ever. So very much top of mind here at HPE. And we know that companies with strong ESG performance continue to outperform the market, have shown their resilience in the face of unforeseen shocks such as the pandemic as we've heard earlier. In the case of HPE, our strategy is really guided by materiality, which helps us to meet the expectations of stakeholders. And we integrate sustainability across all of our business, and we identify our own business imperatives, look and work to understand what stakeholder expectations are on a very in-depth level, and then we map and prioritize these issues against each other. And we're pleased to share our progress across our material issues with you today, and to review our ESG strategy, which places these material issues into the 3 key buckets that you're seeing here, these 3 pillars. The first being environmental impact. The second is our people and societal impact. And then finally, our priorities for operating as a responsible business. As Katy mentioned, we report on progress on these issues annually in our annual sustainability report, which at HPE, we refer to as our Living Progress report. And within the report, we provide a data summary where we've worked really hard to present all of our critical KPIs against our material issues in a very digestible format. We've taken feedback and encourage additional feedback from the investor community. But we've really looked to have sort of the investors and analysts in mind in terms of our presentation of this information. Now our reporting also aligns with the most common reporting standards and frameworks, which include SASB, an increasingly important framework of TCFD, the Task Force on financial Climate-Related Disclosures. While I'm not going to be able to cover the full breadth of all of the information, obviously, included in our most recent report, I would like to take you through our approach and key highlights on each of the pillars mentioned. And then I'm going to hand it over to my colleagues, Alessandra Yockelson and Rishi Varma, to expand on a couple of these themes. Now we believe the transition to a low-carbon and circular economy, a couple of the issues that Mark mentioned earlier that are sort of top of mind, really represent not only an environmental imperative but also a business imperative. And we think that HPE is very well positioned to capitalize on market opportunities associated with enabling our customers to minimize the energy and resource use associated with their growing IT estates. We also see technology as an enabler of sustainable economic recovery, which will accelerate a transformative efficiency across multiple industries, not just within our own. When we develop products, we consider the full product life cycle. And our customers consider HPE's sustainable and efficient IT solutions to be strategic differentiators, which is evidenced by sales specifically tied to these factors. Increasingly, we're being asked for multiple data points related to our products, the type of design that goes into our products, specifics around life cycle impacts of our products and we enable the organizations, our customers to really increase the efficiency of their own infrastructure, while also reducing costs and staying ahead of increasingly stringent market access requirements. We're going to continue to build our reputation as a leader in sustainable and efficient IT, particularly as we transition to an as a Service company. As Mark mentioned earlier, consumption models are something that are very much top of mind. So very relevant in our industry. And as we pivot to as a Service, this will not only address our customers' needs for flexibility and control, but also yield environmental benefits by helping to eliminate the inefficiencies in customers' IT portfolios and extending the life of their assets. Companies, typically customers provision for those peak moments in time, where planning for growth, which results in excess capacity and certainly excess cost. In environmental terms that excess capacity represents potential excess impact related to the production of those assets and the energy consumed by those assets. So as a Service models, not just in IT but across all industries, are really interesting and really gaining traction and increase producer and supplier responsibility. The chain of custody stays with the supplier, the producer in this particular case. And for HPE, this really plays upon one of our strong suits because it leverages our strong capability of handling assets at end of use. We have the ability to refurbish both our own products as well as the products from other brands through our 2 state of the art and largest of their kind in the world technology renewal centers. We're able to process the assets that come in the door. Nearly 90% of those assets are broken down on a component level. Reconfigured. The life is extended and were actually sold to new customers, which results in freeing up some of that excess capital tied up in legacy assets that many of our customers didn't know they have. It yields profit for HPE as well as returns that capital back to our customer base. So we're in a unique position in terms of how we engage with our customers on sustainable IT. A couple of years ago, my team set up a practice to directly brief customers on how our solutions can help drive their business and sustainability objectives. And we're carefully measuring the results of this practice. In 2019, we believe that these engagements drove just under $600 million in net new revenue, an increase of 88% over the previous year. And interest in these engagements is growing. We frankly can't keep up with the level of demand that we're seeing from our customers to co-create sustainable IT strategies for them. We also continue to invest heavily in R&D. Our road map includes a significant portfolio of low-carbon patents, which we really see as a market opportunity. And we frequently partner with our customers to innovate IT solutions from a sustainability perspective. A couple of examples. One is how we're working with the national renewable energy lab to apply artificial intelligence to optimize the efficiency of data centers. And we also recently launched the solution with the European company, ABB, that reduces the energy consumption of our Cray supercomputers by up to 1/3 by applying their liquid cool rectifier technology. And finally, in terms of what we're doing to co-innovate these solutions, we prioritize managing climate-related risks. We manage our own impact with a suite of ambition -- very ambitious targets, and we continue to conduct scenario analysis in line with the TCFD recommendations. Our analysis concludes that the opportunities of transition to a low-carbon economy far outweigh, in our case the risks, by creating new market opportunities for our products both -- and examples of both are included in our annual Living Progress report just released about a month ago. In terms of climate-related targets, there are a lot of firsts for HPE. We were the first IT company to set science-based emission reduction targets across our entire value chain, which we're very proud of. And our climate goals were all approved by the SBTI, and are aligned with the internationally recognized Paris Accord. I think many companies for a number of years were setting, what I would view as rather arbitrary targets, but I think with the help of the SBTI, organizations really now understand what is their fair share of emissions reductions which they need to implement in order to be aligned with the consensus of the scientific community. And as you can see here in the graph that we're providing, we're very much on track to achieve our goals set for the year 2025. We reduced our operational and electricity consumption through various efficiency products and renewable energy procurement. We have sort of a portfolio approach to reducing emissions within our operations. But our targets don't stop there. It's important, obviously, to manage the 4 walls very carefully. But more significantly, as is the case, probably with many organizations in our industry and others, upstream and downstream portions of emissions far exceed the operational component. Our upstream impacts are managed with a very aggressive target, which is the first of its kind, enabling our manufacturing suppliers to set their own ambitious targets through capability building. So we have set an ambitious target, which is 80% of our Tier 1 suppliers by spend will create their own science-based targets, and we're working with them to do that. And from a downstream perspective, we have a product use goal, which incentivizes our engineers as well as that of some of our suppliers to drive new efficiency innovations into our product road maps. So again, I'd encourage you to refer to the Living Progress report data summary if you're interested in more information related to our climate KPIs and others. I'd like now to turn our attention to the second pillar, which is how we build human capital. Antonio touched on a number of important components around social capital and how important it is to our culture and how our team members are using their own skills and expertise to improve the communities that they live and work in. My colleague, Alessandra, will speak shortly about the actions we've taken to protect the health of our employees throughout the pandemic and to enhance our culture in terms of inclusion and diversity. But first, I just wanted to share our ongoing commitment to focus on building the best employee experience, which began well before the pandemic, thanks to the focus of our CEO, Antonio Neri, who really made it one of his key priorities when he took over nearly 3 years ago. He made it clear to all of us that building a really strong culture was going to be one of his top priorities. And I have to say, he has absolutely made an impact within the company. And I could see it with my day-to-day interactions with my colleagues, even in a virtual way, we talk a lot about how important culture has been to get us through these tough times. So we've taken some very deliberate actions to enhance the appeal of HPE as a long-term career employer in a highly competitive space, and I think the evidence will speak for itself. So we've significantly increased investment in human capital, which includes training and competitive benefits. We have some of the most competitive family lead benefits in our industry or any industry for that matter. And it really shows in a record high employee engagement scores, as Antonio touched upon as well as declining turnover rates. Management goals and executive compensation, in the case of HPE, are actually tied to human capital factors related to talent retention and organizational diversity targets. However, it's not just pay and benefits that motivate our team members and attract the best in our industry. It's also an opportunity to really be part of, I think, the purpose-driven work that Antonio has established. And I've included a few examples on this slide here but really wanted to focus on one of the ones that we're extremely proud of and highlights how our employees are responding to the current pandemic. Antonio noted that our Aruba team sprang into action to offer connectivity when it came to the health care and education sectors. There were 200 Aruba employees across 20 different countries that signed up to be part of what we call our Airheads Volunteer Corps, which assists in the build out of network infrastructure for medical facilities on the front lines. And one of the examples that we're most proud of was the rapid deployment and conversion of a ferry into a hospital that have the capability of handling up to 400 patients in Italy at the height of their pandemic. And there are multiple examples of how we've done this within the U.K. and other places as well. And then lastly, I'd like to cover our approach to responsible business practices, ranging from data security to supply chain responsibility, also very critical material issues for us. Strong governance and responsible business practices are clearly essential when it comes to avoiding potential regulatory risks, reputational damage, disruptions due to issues around human rights, cybersecurity, ethics violations and providing access to markets. And teams within the office of legal and administrative affairs, which is the organization that my team in sustainability sits in, are responsible for assessing, addressing and manages these risks related to these issues. We're also very well positioned to uncover revenue opportunities related to the increased demand fueling data that's kept secured by our Software end services. Data security and privacy, as I mentioned, are among our most material issues, as you can also see in the materiality report, in the LPR, the Living Progress report. Now according to latest MSCI assessment, HPE continues to lead industry peers in our data privacy measures. We've deployed very high-end measures, such as encryption and product enhancements, to strengthen our data security framework. And these include our HPE silicon root of trust technology, which prevents servers from actually booting up and running if the firmware has been compromised or altered in any way before getting into the hands of the end user. Now this innovation has actually led to HPE receiving a Cyber Catalyst award from Marsh, which is a global leader in risk management. And it's really interesting, innovative technology that we're very proud of. Now our diligence in these issues also extends to supply chain responsibility in our human rights programs. We formally recognize and integrate the UN's guiding principles into our social responsibility programs, and it's resulted in our global recognition as a leader. In terms of the way we've set standards and social responsibility, HPE was a co-founder of the Responsible Business Alliance and developed the industry's first foreign migrant worker standard, which have been adopted by a number of other organizations outside of our own. We also placed first in our industry in the leading modern -- in leading modern slavery and corporate human rights benchmarks. And we're one of the very few companies in our industry to complete a company-wide human rights impact assessment. And then publicly state the results of that assessment as well as the progress on any remediation actions associated with any infractions that we've identified. For example, to address issues we've identified related to artificial intelligence, there's obviously some growing concerns around AI biases and some other factors that are challenges to the technology and how we use this technology in a responsible way. What we've done here at HPE is we've established an AI ethics board. And have broad representation from across our business, including both leaders and operational team members and technologists, which work on approaches and solutions to identify, assess, prevent and mitigate human rights risks related to the deployment of artificial intelligence technologies. Now throughout the pandemic, we've also continued our focus on these issues to assure the resilience of our supply chain and enhance cybersecurity measures. And long before COVID-19 appeared, we took steps to diversify our supply chain. And we're working closely with more than 200 suppliers to optimize how we build and distribute our products. Now we stayed in close contact with our ODMs during this process, tracking the response to disruption and continue to improve upon those systems that we have in place. And our suppliers have not wavered during this time in terms of our commitment to social and environmental standards throughout this -- throughout some of these difficult challenges. And as Antonio mentioned, we've been consistently recognized as a leader in ESG for our industry at large. And given, obviously, many of you on the call, I'm sure if you're familiar with the vast number of ratings and rankings and differing information requests that come in, there are several hundred different organizations which rate and rank organizations. We closely track those organizations that we believe are most watched by investors and systematically assess feedback, but we'd love to hear feedback from you, our investor community, on those areas that you think in those third parties that you look to closely are the most important and closely watched. And here are really 4 of those that have risen to the top and where we rank relative to other leading companies. We've been named as an industry leader on the Dow Jones Sustainability Index, often considered sort of the gold standard when it comes to ESG-related performance. We've also placed on the CDP climate A List for 7 consecutive years, and we hold a leadership position with a AA rating score from MSCI ESG. So we're very proud to share just a few of the other numerous awards we've received from prominent organizations that influence the decision-making of our customers and other stakeholders, and we remain committed to our long history of leadership and how we're going to apply our purpose throughout everything we do when it comes to advancing the way we live and work. And so with that, I'd love to hand it over to my colleague, Alessandra, to cover more in-depth how our team and culture are really driven and how she's enhancing this through her chief talent office. Thank you.

Thank you, Chris. Thank you so much also to Katy and Mark for having us today. As Antonio mentioned, I think at the beginning today, his priorities are culture, customer and innovation. I don't think these are the elements that he's prioritizing just because they are very dear to him. I also believe that it's because we are keenly aware that these are main, if not the only levers that organizations can pull for competitive advantage. So in the next slides, what I tend to do is to go over some of the approaches we use to actually leverage our team and our culture for the business success. I'm the Chief Talent Officer for HPE, but I also lead HR for some of our global business units for the technology function and also for our Pointnext service organization. So I hope that I can bring a little bit more hands on examples of how the people's strategy actually interact very well with our ESG strategy. I will start by highlighting our culture, our HR strategy and service of our culture. As you know, we are on this transformation journey to become an edge-to-cloud platform as a Service company. And that transformation is what informs our people agenda. In lieu of time, I will basically highlight 4 of the main pillars today. And I will start with succession planning because given the substantial impact that a proper succession plan has on shareholder value creation. We take succession and development of our C-suite executives very seriously. Our Board is very engaged on this process, as you can imagine. And we do it in a very structured way, describing the SKU metrics that our business requires to evolve. And then we look at our executive bench and make sure that we evaluate them on a periodic basis and support their succession and their development. Having a very, very top executive team is one of the key to success to any firm, and our Board is very committed to enabling that more and more at HPE. The next one, yes, the next one, the next pillar is related to culture and engagement. Chris and Antonio already highlighted how proud we are of the high level of engagement that we have been nurtured among our team members at HPE. I am personally convinced that it is because of the business upside that our edge-to-cloud transformation offers and the belief that our associates have in our future. And that is really one of the levers also for our success. The other pillar is one that I believe is very timely highlighted here is the inclusion and diversity pillar. I will say, very honestly, since Antonio took power, we have evolved our culture and leadership statements, not only on a theoretical way but also in a very granular behavioral-based manner. Basically articulating the company beliefs that Antonio mentioned at the beginning, but also describing the behavior expectations we have of each one of our team members. One of them is that we all are expected to embrace inclusiveness unconditionally. And as I believe there is more interest on this topic specifically, I will come back to it a little later. But now I will move to a very important last, but not least, point in our people agenda. That is the rigorous approach that we have on executive compensation. As you can imagine, we are aware of our fiduciary accountabilities related to executive compensation and how it aligns to performance. But on top of that, here, again, our practices are constantly revisited to make sure that we align the rewards and the business strategy. And we just offered 2 concrete examples. We -- since we started this transformation to everything as a Service, we introduced, as part of our bonus plan, the annual recurring revenue from consumption services KPI. So is the percentage of our total revenue that comes from subscriptions with the as a Service platforms that we commercialize, and this is one of the elements of our incentives. It's not only related to the financials. Our most senior executives are also incentivized to improve talent retention and diversity, which in my mind, is really a clear signal that for us, talent retention, diversity, inclusion are business imperatives, not only nice to haves. I will, as I said, provide a deep dive on the inclusion and diversity impacts areas. For us, they are for, and they are very, I think, straightforward. Everything starts with the talent. If we don't have the right talent at the right time to perform, actually, the business doesn't deliver results. We know that, right? But for us, we believe that every single human being has all the potential to succeed, to be happy, to be fulfilled, and our job on the talent pillar is to eliminate any kind of policy, process, behavioral biases that we have, when we recruit, when we retain, when we develop, when we promote diverse and non-diverse employees. But we believe that if we don't consciously measure the way we hire, the way we promote, we don't really make progress in being an equitable employer. I will say that our numbers show that we are ahead of market related to the extent in which we hire, the extent in which we promote, but there is always more work to do and as we all know. And the last part on talent is also related to equitable paid practices. We want our employees to be recognized by the performance and the talent, the potential that they bring. And not be impacted by any bias related to gender, ethnicity, sexual orientation, religion or any other source of diversity. On workplace specifically, a high-technology company like ours thrives on innovation. And in high velocity, on certain environments as we operate these days, we need really to leverage the potential of every single employee in our workforce. And I know we all say it, and we know most probably believe in it. But at HPE, you're going to see a few numbers later on, this is really a fact. We are supporting a work environment, digitally, virtually and also in offices, that help people feel unconditionally included in the workplace. Given the size of our company and the role that we believe corporations have to play in society at large, our I&D strategy also has 2 other components that are external components. As you can see here, it's the marketplace and the reputation. And with that, Antonio gave a lot of examples earlier on, in lieu of time, I'm not going to repeat them related to how we are a force for good in communities. But we also are very active in historic black colleges and universities, just to cite one more example, where we hire from them. And we also provide scholarships to give students access to high quality education. In view of the recent unfortunate developments we've witnessed related to racism in the U.S., we decided to institutionalize an I&D Council. And you see here that we are placing -- positioning discounts of have the highest level possible in our organization. This idea came from several listening sessions actually that we had with African-American employees and other diverse employees as well. The main goal of the council is to be -- to help us to be accountable, to continue to be accountable to execute against our I&D vision. We want to have external perspectives, and I'm very glad to see that we count on the thought leadership of Leonora Harris. And we also have Pamela Carter, that's one of our Board members. And Antonio himself joins these councils personally. But we also have the representatives from our employees across the globe and also from different ethnicities, gender identities, sex orientation backgrounds, as diverse as it can get. We also know that it's not only important to talk about diversity and be an inclusive work environment, but also show it in our numbers. So you might be asking yourselves, right, how are we performing against our diversity metrics. In overall representation on gender and ethnicity, our workforce diversity does outpace the tech sector. Moreover, we have steadily improved our numbers year-over-year. So this is not a very short-term reaction or commitment based on the more recent development. Has really been a long-standing commitment at HPE. I know the percentages might lead us to think that the progress is very slow. But I just want to say, given the size of our company, every percentage point means a net addition of around 600 individuals. So there's a lot of acquiring, promoting, developing, retaining diverse talents in our organization for these numbers to shift the way you see here. But in any event, we know we have more work to do, particularly when it comes to increasing the ranks for the blacks and African-American employees in our organization. So we have set targets for our senior executives to improve at least 1 percentage point year-over-year. And through the Living Progress report, we are also increasing transparency on how we are doing against representation. This is the first time that we actually publish our racial diversity metrics through the Leading Progress report. I'm very happy about that. I want to call out one program that I strongly recommend to other companies to what to do as well. That is related to advancing gender equity in the Board room. As Antonio mentioned, our Board is very diverse. But we want our most senior female executives to also sit in other boards. So you see here at the bottom of the page, we launched last September, a program called Ready Now, in which 15, 1-5, of our most senior executives are being supported by Antonio, by [ RAC ], but also by our Board members in landing on their very first board seat. And we are very, very happy with the initial results so far. Last but not least, it's not a number game again. It is important to have the presentation diversity but it's also important to make sure that the diverse employees feel they can belong in the organization. And these are, as you see, engagement, employee engagement survey results from our diverse employees. And we are substantially positive, higher actually than the numbers that we see with the non-diverse employees. So I believe that there is always more to do and nurturing a culture of unconditional inclusion is a never-ending journey. Nevertheless, our team members are saying that HPE is a benchmark company in this regard. I will move to also some new and more recent activities that we started. We already had the inclusion training as a mandatory process for every single people within our organization, close to 7,000 individuals, and we are extending it 200% of the workforce. We are also, as Antonio referred to, systematizing listening sessions with our employees so that we developed this muscle of being very comfortable having what we are calling courageous conversations in the workplace. We also have many, many of our non-diverse employees reaching out, asking how they can be truly allies, true allies to the inclusion cause, and so we stood that advocacy program. And last but not least, we are accelerating our commitment to presentation and pay equity. So more to come on that. I will close my session here before I hand over to my colleague and friend, Rishi on specific actions related to COVID. I know we are going through this together, and we are in an intersection in which our business transformation, the COVID-19 pandemic, the societal call for action against racism, all these nuances are offering us an opportunity to connect with our employees more than ever. So we had already very competitive benefits, as I mentioned on the paid parental leave, part time, flexible work arrangements. But we are also doubling down on health and well-being for our employees through very real programs that help them have the mindset and the wellness, physically and mental, to perform their job well. I will now hand it over to Rishi. Take it over, Rishi. Thank you.

Sure. Thanks very much, Alessandra, and thanks, everyone, for joining. I know we're close to the top of the hour, so I'll be as crisp as I can so that we can get to some Q&A. I thought I would just start with briefly thinking about governance, the G in ESG, and it is not just a series of checkpoints with senior management and the Board to review status updates or the trending hot topics, but rather, it's intended to set the tone and the expectations to drive execution on all strategic initiatives. And I think as you've heard from my colleagues, Chris and Alessandra, the Board is peppered throughout that fabric of our ESG programming and initiatives, and certainly are not only in sync with Antonio's vision but fully support them. This is a busy slide, but what I'd like to share with you here are a few elements of our overall Board governance structure. First and foremost, we have a world-class Board. You need the right people at the top in order to assure that the company can deliver on its mission and the overview of its critical risks and opportunities. This Board conducts comprehensive global searches to find directors with the right diversity of skills and experiences and backgrounds necessary for exceptional leadership. And I think what you'll find is, in particular, there's a continuous process of not only evaluating the Board composition, but our overall governance framework. Do we have the right mix of skills and experiences around the table, not just for what we're doing today as a company, but the company's 3 to 5-year strategy? And you'll see in coming slides that, that has created a nice healthy level of refresh at the Board to ensure that we do ultimately get the right level of resources around the table. And as you heard Alessandra point to, our Board's involvement extends beyond the boardroom. And I think that's a critical differentiating factor and why we think of governance, not as just a checkpoint, but really the fabric around how this Board sets the tone. We have directors engaging in employee meetings, in customer events and with other stakeholders around the world. And I think most notably and most recently, Pam Carter, co-chairing our global Inclusion and Diversity Council speaks volumes to the Board's commitment on social justice matters and unconditional inclusion. And lastly, as I mentioned, we have continuous improvement at the Board level to ensure that we maintain best practices in our governance framework, but we also take our cues from our stakeholders. We have a best-in-class shareholder engagement program where our Board members target at least 60% of our shareholder base annually, and this is specifically not when our proxy is on file. So there's nothing for them to solicit votes. They're, in fact, in listening mode, and they want to hear from our shareholders, and they want to hear what are the key issues around their tables? What are they hearing about? What are they talking about? And how can we actually explain to them the things that we're doing to address such matters. And finally, culture and ethics. It goes without saying, and as you'll see in future slides, that awareness of culture and the cultural transformation that Antonio set 3 years ago, is something that not only does the Board endorse, the Board embraces. And it's important that the Board embraced it to understand the culture shift needed across HPE to be relevant in the next 3 to 5 years. So here's a picture snapshot of all of our Board members. I think what we intended to do here was not only to show you the breadth of diversity of the demographics but also the breadth of diversity of skill sets. And I won't talk about all of them, but I'll just highlight a couple of them. Our independent chair of the Board, Pat Russo, has led the company through a period of immense transformation and she was named the #1 on Fortune's International list of most powerful women in business and has received numerous other accolades and acknowledgments, particularly in the governance community. And then I'd mostly -- I'd point to George Kurtz, who is the President and CEO and Co-Founder of CrowdStrike, and one of our more recent additions to the Board. He brings invaluable tech acumen and insight across cloud, AI, big data and cybersecurity. And in addition, the Board has benefited from his deep entrepreneurial experience in identifying and commercializing emerging technologies. I did mention a little bit about Board refreshment. And here, you'll see that since 2015, when the company was first formed after the separation with HPI, 40% of our Board has been refreshed. And we've had 5 directors join the Board. Each has provided some exceptional skills, such as our most recent additions, Jean Hobby, whose financial controls and audit expertise go without saying. George Kurtz, who I mentioned earlier. And then our most recent addition, Chuck Noski, earlier this year, with deep finance and accounting experience as well as his global leadership experience. And I think what's important to note is that beyond a diversity of skills, we find it critical to have a diversity of perspectives in the boardroom to make sure that we take into account their views of a broad range of our stakeholders. And so you'll see here that, for example, over the past 5 years, we've been a leader in Board diversity, as Alessandra had mentioned earlier, and Chris had mentioned, over half of our Board are women and/or ethnically diverse. And while we understand there's more work to be done, particularly as the Black Lives Matter movement continues, I think our Board always strives to maintain its diversity and promote a culture of acceptance throughout the company. So not surprisingly, from a Board oversight perspective, the most important function is to oversee the company's management strategies, risks and opportunities and while management maintains ownership of the strategy, I think it's critical to know how the Board engages with management in terms of strategic oversight. And as an interesting reference point, we talk about the culture, both in the company and at the Board in terms of active engagement since March. So between March and July, this Board has met over 14 times to discuss key COVID-19 updates, social justice matters, certain strategies related to the next evolution of the company and also near-term liquidity and capital markets issues. But it's a proof point in the fact that this is not just a passive Board, but the governance of the Board is something that they take very seriously. And this slide really suggests that we do maintain a governance program that aligns with industry-leading practices. It's very shareholder centric, and we discuss directly with our shareholders every year the types of protections and appropriate shareholder right features such as proxy access and special meeting thresholds. And those are things that the Board reviews annually to make sure that we still feel like we have industry-leading practices that are the right framework for how this Board can both address shareholder concerns but also hear directly from their shareholders. And as Alessandra mentioned, compensation is, first and foremost, in how the Board wants to incentivize key executives, and we have a pay-for-performance philosophy that forms the foundation of that decision regarding compensation. So you saw, as Alessandra set up this slide, we specifically talked about the top half. But what I wanted to do is sort of highlight how the Board comes into play in the bottom half. And succession planning is probably first and foremost, especially during times of crisis and uncertainty, it's essential to have an effective succession plan in place. And our Board not only maintains, but continuously reevaluates our CEO and management succession plans in line with our strategic transformation and to ensure continued success even in the face of the pandemic. We're going to combine culture and engagement and inclusion and diversity. Just to highlight that at the core of our culture is that unwavering belief in what Antonio had mentioned at the top, about not only being a force for good, but accelerating what's next, believing in bold moves and the power of yes, we can. And that's fully adopted and embraced by the Board. And then inclusion and diversity, the idea of unconditional inclusion, nothing more prominent than the global Inclusion and Diversity Council co-chaired by one of our Board members. And it's an expectation that we will be updating the Board regularly on these types of matters, not just as a nice-to-know how-things-are-going from a wellness perspective, but really as an ESG initiative and a human capital management and the ability to attract and retain top talent. And then obviously, with compensation, it makes -- it's critical that the Board understands, particularly in years like this, how we can continue to attract and retain top talent and be relevant, not only within the industries in which we compete, but for the talent in which we compete. All right. So last 2 -- last slide, really just wanted to highlight the ethics and compliance practices of the company and how the Board oversees that. From the Board level down, we set and maintain an appropriate risk culture that helps everyone understand the right thing to do. We actively monitor and ensure legal and regulatory compliance and certainly provide those updates at the Board level. And lastly and most importantly, our Board sets the critical tone in terms of how we compete and how we win to ensure that we win the right way. And it's through that active engagement and guidance that the Board sets the tone and sort of weaves governance into this ESG platform. And with that, I believe we have a few more minutes. We can open it up to questions. You're on mute, Katy.

Thank you so much for all the HPE speakers, really helping improve transparency into the company's ESG strategy. Given the importance of this topic, I do want to make sure that we take some of the questions on the webcast. Before we do that, let me just mention that you can find Morgan Stanley research disclosures on our website at www.morganstanley.com/researchdisclosures. So the first question here, I think, is best geared towards you, Christopher, and really nicely ties in where we started the conversation, which is the integration of business strategy and ESG. And the question is about the strategy that Antonio rolled out about a year ago to transform HPE to an as a Service business by 2022, and how that ties into your ESG strategy as well as how it benefits your customers.

Yes. Sure. Thank you, Katy. I mean I think it really starts at the top with Antonio's vision, and he often says, and I love this saying, that the cloud is not a destination, but an experience, right? And so really, what we're seeing is, while there have been huge migrations to the public cloud, customers are increasingly looking for hybrid type solutions, which are a combination between edge, core and cloud-type solutions. And Antonio's vision is really all about providing those outcomes across any platform that are has the right size, that you pay as you go and allows developers to quickly ramp up DevOps environments when they need it, whether it's virtual, virtual machines or containers or what have you, and providing a single pane of glass to really manage that system. Now what does this all mean for sustainability? Well, typically, customers will provision for either their growth or that peak moment in time, picture it like a Black Friday retailer, for instance. They have a massive peak in time, and they have to have equipment, IT assets that will handle that peak moment in time. So what GreenLake does is it actually meters and monitors the customers' needs and ramps up or ramps down accordingly what they need from an infrastructure perspective, while providing them a single pane of glass for management, for security purposes and regulatory purposes, and they only pay for what they use. Ultimately, that ends up and resulting in huge reductions in over provisioning and cost for our customers.