Sustainability in the Spotlight: The Balancing Act of ESG

Learned a lot lending an editorial hand here:

Diligent Institute/ Spencer Stuart, June 2024





This year, sustainability in the corporate world has been defined by flux. The debate in the U.S. around ESG (environmental, social and governance) remains fierce. The global issues that ESG aims to address — climate change, human rights and equity, among others — are enormous and only becoming more complex. This is because, in its broadest definition, ESG reflects a set of objectives common to all companies — from managing risk to playing a role in addressing societal issues to identifying opportunities for growth and value creation. The corporate will and effort to address these opportunities and challenges seems to be growing, not shrinking.

The third annual global Sustainability in the Spotlight survey, conducted by Spencer Stuart and the Diligent Institute, asked public and private company directors across industries and geographies about their companies’ sustainability strategies and oversight. We also asked respondents to provide their perspectives on and involvement in defining their organization’s ESG vision and strategy, as well as their role in overseeing results. Download the report here.

Why It’s Good for Business When Customers Share Your Values

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, February 15, 2024 

by Daniel Aronson 

Carolyn Geason-Beissel/MIT SMR | Getty Images

Values matter. Too often, however, they are relegated to the realm of fables instead of finance.

Take honesty, for example. We tell our children the story of the boy who cried wolf to teach them that when someone is dishonest, others are less likely to believe them the next time. But if we look just a tiny bit below the surface, the financial cost of the boy’s dishonesty immediately comes into focus: It results in the loss of his family’s entire flock of sheep.

If we calculated the loss caused by the boy crying wolf, we undoubtedly would find that it dramatically outweighed the combined gains generated by strategies like using AI-optimized grazing patterns, feeding the sheep a high-growth diet, or using consultant-recommended wool-marketing strategies. And yet, while all those things would clearly be considered business decisions, acting on values is not. But that’s wrong.

There is a very strong business case for acting on values. A $100 billion company I worked with discovered that there was a high return on investment from acting on its values and making sure customers knew about that. In fact, the return was many times greater than the ROI from its investments in upgraded technology or marketing campaigns. Yet the importance of technology and marketing are clearly understood as key areas of the business, while values-related impacts are left off of spreadsheets and are rarely — if ever — used to determine which actions have the highest ROI. Read the rest here.

Moving Beyond Net Zero to Nature Positive

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Boston Consulting Group, November 28, 2023

by Michel Frédeau, Torsten Kurth, Arun Malik, and Marine Swaab




On December 19, 2022, some 195 countries adopted the Kunming-Montréal Global Biodiversity Framework (GBF) aimed at halting and reversing the global decline of nature and biodiversity. The GBF established 23 targets, including those focused on the protection of freshwater and other ecosystems and the disclosure of biodiversity impacts by companies.

Nature is also at the heart of the COP28 agenda, with thematic programming that includes creating nature-positive cities, protecting and restoring marine and coastal ecosystems, and more.

The private sector will play a vital role in achieving the targets of the GBF. This means working to become nature positive—ensuring that the sum of an organization’s actions and impacts on nature will contribute to the reversal of the global decline in biodiversity by 2030, followed by full recovery by 2050. As our interviews with business and other leaders acting on the tenets of the nature positive movement indicate, the need to expand these efforts is pressing, and the financial first-mover advantage is likely considerable. We lay out an action plan for leaders to seize that advantage. Read the rest here.

Three Ways Companies Are Getting Ethics Wrong

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MIT Sloan Management Review, November 29, 2022

by David Weitzner



Making business decisions that are both ethically and strategically sound has always been incredibly tricky. Leaders are called upon to act in a manner that is consistent with their personal values, builds solidarity and trust among diverse stakeholders, enhances their company’s reputation, and prevents scandals, while also being mindful of the bottom line.

This leadership challenge is getting ever more complex. Investors are measuring companies against environmental, social, and corporate governance (ESG) indexes. Employees are demanding extensive diversity, equity, and inclusion (DEI) commitments. And customers want to buy brands that are tied to strong corporate social performance (CSP).

As counterintuitive as it might seem in the burgeoning ethical complexity of ESG, DEI, and CSP, a few companies have found that when it comes to ethics, simpler is better. They meet the demands listed above by rejecting the notion that ethics are necessarily complex. They refuse to abdicate their ethical responsibilities; they craft value propositions that do not lean on social value initiatives to obscure or distract from how the company creates financial value; and they are transparent about how they do business with all stakeholders. Read the rest here.

Environmental Risks Go Far Beyond Climate Change

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Boston Consulting Group, November 9, 2022

by James Tilbury, Adrien Portafaix, Rebecca Russell, and Fabien Hassan

Just as investors and other stakeholders now expect companies to reduce greenhouse gas emissions, soon companies will be expected to report and act on a much broader range of nature-related risks. These risks encompass a host of environmental and ecological impacts connected to $44 trillion in economic value generation, or nearly half of the total global GDP, according to the World Economic Forum. Nature-related emergencies—from natural disasters to the extinction of a growing number of plant and animal species—will be business emergencies, too. That is why companies must plan for the coming nature transition now.

What Are Nature-Related Risks?

Managing and mitigating nature-related risks will require a much wider lens than most companies have adopted to date. There are nine planetary boundaries that span our world—the land, sea, and atmosphere—and the life that it supports. Planetary boundaries are the boundaries that humans must stay within to maintain a stable environment and decrease the risk of irreversible environmental change.

The planetary boundary that many are familiar with is climate change, but it is important to note that climate change is one of nine, with the others being biosphere integrity, land-system change, novel entities (such as toxic substances), freshwater change, stratospheric ozone depletion, atmospheric aerosol loading, ocean acidification, and biochemical flows. 

It is only when all nine planet boundaries are taken together, that companies can begin to evaluate their exposure to nature-related risks. To do that effectively, business leaders will need to adopt a mindset of “double materiality”—that is, they will need to think through how business activities may impact each of the boundaries and, as crucially, how each of the boundaries may impact business performance.

Although some companies have greater exposure to environmental and ecological degradation and collapse than others, the leaders of all companies need to adopt a more comprehensive approach to nature-related risks. As with climate change, customers, employees, and governments will demand it. In addition, investors will require it, especially large investors with diverse portfolios that are particularly vulnerable to the systemic threats arising from natural disasters and ecosystem collapse. Read the rest here.

Pessimism dematerialized: Four reasons to be hopeful about the future

strategy+business, January 16, 2020

by Theodore Kinni



Photograph by Klaus Vedfelt

If you’re a glass-half-full person, you’re going to love Andrew McAfee’s latest book, More from Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources―and What Happens Next. Always optimistic, while still expressing minor notes of caution, McAfee, a research scientist at the MIT Sloan School of Management and cofounder and codirector of MIT’s Initiative on the Digital Economy (with frequent collaborator Erik Brynjolfsson), believes that life on this planet is getting better all the time. He also thinks that though humans face some big challenges, we have at our command all the resources needed to meet them.

The principle support upon which McAfee constructs this thesis, which he admits will be hard for more skeptical readers to swallow, is an ongoing process of dematerialization that he finds occurring in mature economies. Building on research by environmental scientist Jesse Ausubel and writer Chris Goodall, McAfee charts resource consumption in the United States. For instance, he uses U.S. Geological Survey data to show that as of 2015, the consumption of the five “most important” manufacturing metals in the U.S. — aluminum, copper, steel, nickel, and gold — are all off their peaks since 2000. Steel consumption is down 15 percent; aluminum is down 32 percent; copper is down 40 percent. The same is true for energy consumption, as well as a variety of farming and construction inputs. Since the first Earth Day in 1970, U.S. consumption of resources has been falling, yet the nation’s economy has continued growing. Simply put, McAfee is arguing that it takes a lot less stuff to produce a dollar of GDP today than it did 50 years ago.

McAfee declares that the data shows “a great reversal of our Industrial Age habits is taking place. The American economy is now experiencing broad and often deep absolute dematerialization.” And the rest of world? Well, the data is incomplete. McAfee finds some evidence that Europe’s industrialized nations are “past peak” resource consumption, but developing countries, such as China and India, that are still in the process of industrializing, “probably are not yet dematerializing.”

Four forces drive the engine of dematerialization, according to McAfee. Read the rest here.

Seven Technologies Remaking the World

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, March 9, 2108

by Albert H. Segars

Once upon a time, business leaders could leave technology to the technologists. But today, we are at the starting line of a universal technological revolution — one that is fundamentally altering four key realms of our world: commerce, health care, learning, and the environment. Given the pervasive and diverse nature of this revolution, business leaders must understand the technologies that are driving it, the capabilities they offer, and their potential impacts.

This report provides executives with a lexicon to the revolution. It identifies seven core technologies — pervasive computing, wireless mesh networks, biotechnology, 3D printing, machine learning, nanotechnology, and robotics — and describes their implications for commerce, health care, learning, and the environment. Use it as a guide and a basis for strategic discussion as you and your team seek to understand today’s business frontiers and the opportunities that lie ahead.

Seven Technological Sparks

“You’re only given one little spark of madness,” said the late actor and comedian Robin Williams. “You mustn’t lose it.” Williams used his spark to ignite his comedic rocket and blast past the established boundaries of his craft. Technology provides a similar spark: It enables us to push beyond the established boundaries of our world.

The mechanized spinning of textiles, large-scale manufacturing of chemicals, steam power, and efficiencies in iron-making sparked the first Industrial Revolution (1760-1840). Railroads, the telegraph and telephone, and electricity and other utilities sparked the second Industrial Revolution (1870-1940). Radio, aviation, and nuclear fission sparked the Scientific/Technical Revolution (1940-1970). The internet and digital media and devices sparked the Information Revolution (1985-present). In each instance, the inflection point that marked the new revolution was the appearance of new technologies that fundamentally reshaped key aspects of the world, such as commerce, health care, learning, and the environment.

Today, we see technological sparks everywhere. They are emerging from the digital, chemical, material, and biological sciences, and they are precipitating a revolution that is altering nearly every dimension of our lives.

But what are the dominant technologies driving this revolution? And how will they shape and reshape the world of commerce — and the world at large? These are critical questions for executives, and the answers will determine how value will be defined in the future, how businesses will be structured and managed, and where new opportunities for profitable growth may lie.

To help executives answer these questions, I conducted two surveys of veteran technology entrepreneurs working in companies in a variety of sectors, analyzed the results, and then developed and assessed the validity of the findings in a series of individual interviews and field visits. The study revealed seven classes of technology that are driving today’s universal revolution: pervasive computing, wireless mesh networks, biotechnology, 3D printing, machine learning, nanotechnology, and robotics.

Each of these technology classes exhibits three distinctive and rapidly evolving capabilities that are significantly different, more advanced, and larger in scope than the technologies of past revolutions. Read the rest here.

Judith Rodin’s Required Reading

by Theodore Kinni

strategy+business, April 27, 2016

 In August 2005, a few months after Judith Rodin was named the first female president of the Rockefeller Foundation, Hurricane Katrina slammed into the U.S. Gulf Coast. In the days, months, and years that followed, the critical importance of resilience — the ability to prepare for systemic disruptions, survive them, and transform them into opportunities for growth — became evident.

Since then, Rodin, an academic by training and a nonprofit leader by profession, has adopted the concept of resilience as a core focus of the Rockefeller Foundation. She is deploying the philanthropic organization’s US$4.2 billion in assets to promote and develop the resilience of cities, organizations, and communities. A prolific writer with 15 books to her credit, Rodin also wrote a book on the topic to help spread the word, The Resilience Dividend: Being Strong in a World Where Things Go Wrong (PublicAffairs, 2014).

Prior to joining the Rockefeller Foundation, Rodin was president of the University of Pennsylvania. The first woman to head an Ivy League school, she led the university for a decade — a period in which research funding doubled and the endowment tripled. Before that, Rodin served as provost and a named professor at Yale, where she conducted pioneering research in behavioral medicine and health psychology.

Since disruption is an issue that applies to business as much as society at large, I asked Rodin to share the books that have most influenced her thinking on the subject, ones that she thinks business leaders should read to understand and nurture the resilience of their organizations. She responded with the following three titles.

The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage, by Yossi Sheffi (MIT Press, 2005). “Professor Sheffi highlights the fact that the businesses that do best after an unforeseeable disaster are the ones that make the right decisions before a crisis ever strikes. He explores how companies can build, and bolster, their resilience by making their supply chains more flexible, baking critical redundancies into their organizational design and collaborating more closely with partners who can help reinforce their safety, come what may. The book includes instructive stories from organizations as diverse as Southwest Airlines, Zara, Johnson & Johnson, and the U.S. Navy.”

Five Days at Memorial: Life and Death in a Storm-Ravaged Hospital, by Sheri Fink (Crown, 2013). “I’m a huge fan of Fink’s stark and comprehensive story of how things came apart at one hospital in New Orleans after Hurricane Katrina. The Rockefeller Foundation was invited into New Orleans after the storm to help the city rebuild in a unified way, and while I saw the aftermath firsthand, this prize-winning journalistic account of the real-time decision making needed under such dire circumstances within a single institution is both harrowing and humbling. The book is incredibly well-researched, revealing the tangle of issues — race, class, geography, and an inescapable history — that contributed to the horror in New Orleans. Fink artfully illustrates just how ill-prepared New Orleans’s Memorial Medical Center — and, by extension, the city’s entire civic machinery — was for a crisis of this magnitude. The most important lesson for leaders in a world where crisis is the new normal: Despite the crisis plans Memorial had in place, management’s lack of situational awareness crippled its response.”

A Paradise Built in Hell: The Extraordinary Communities That Arise in Disaster, by Rebecca Solnit (Viking, 2009). “This book provides a vivid and inspiring portrait of several communities brought together by the crucible of disaster: San Francisco after the earthquake and fires of 1906; the 1917 maritime disaster in Halifax, Nova Scotia; Mexico City after its 1985 earthquake; and the more recent crises of 9/11 and Katrina. Solnit’s wonderful, paradigm-shifting observation is that, somehow, crisis brought out the best in these communities, individually and collectively. She describes the emotion brought on by tragedy as ‘graver than happiness but deeply positive,’ lending confirmation to the oft-referenced idea that a crisis is a terrible thing to waste. This wide-ranging investigation of human nature and how we manage to rise to the most unthinkable occasions offers incredible insight into the ways in which people and communities — and, one imagines, corporations, too — can build back stronger than ever.”

A foxy approach to global sustainability

My latest book post on s+b:

The Business Approach to Climate Change

We’ve been cautioned—and often berated—about the unsustainable nature of the global economy for several decades now. These days, the warnings of the dire consequences we face seem to be arriving with greater frequency and in ever more urgent rhetoric, but substantive progress is more aspiration than reality.

Witness the environmental efforts of the United Nations. The UN Intergovernmental Panel on Climate Change recently reported that not only have we not been able to reduce greenhouse gases, but emissions have actually risen to record levels, growing at a faster rate between 2000 and 2010 than in any of the three previous decades. Meanwhile, it can’t get Xi Jinping of China and Narendra Modi of India—the leaders of the first and third most prolific producers of these emissions—to attend the UN’s Climate Summit 2014 on September 23, which has been expressly convened to pave the way for a “meaningful, robust, universal, legal climate agreement by 2015.” And an internal review of the UN’s environmental efforts suggested that even as funding for these efforts mushrooms, they are somewhat less than effectively coordinated and organized.

It’s not my intention to pick on the UN—at least its leadership is trying to do something about climate change. Instead, my aim is to illustrate why John Elkington, who 20 years ago popularized the “triple bottom line,” and Jochen Zeitz, who implemented the first environmental profit and loss account (at Puma, with an assist from PwC), have concluded that “business has no option but to take the lead” in the quest for a sustainable global economy. (strategy+business is published by PwC Strategy& Inc., a member of the PwC network of firms.) In their new book, The Breakthrough Challenge: 10 Ways to Connect Today’s Profits with Tomorrow’s Bottom Line (Jossey-Bass, 2014), Elkington and Zeitz argue that “the perfect storm involving globalization, the increasing power of multinational corporations, and the impact of the prolonged economic downturn” makes effective governmental action unlikely.

 

On its surface, the idea that we need to depend on business for the creation of a sustainable world seems like putting the fox in charge of the henhouse. After all, much of the blame for our troubled outlook rests on the shoulders of the business community, which has vociferously opposed countless solutions to the problem.

But maybe the idea isn’t so farfetched: If we suffer widespread ecological disaster, if people have no jobs, and if financial systems collapse, what happens to corporate profits? It may be that companies will take the lead in creating a sustainable world not because they’re the last ones standing, but because the drive for profit will leave them with no other choice.

Elkington and Zeitz think business can and should take on this challenge. But they don’t underplay its daunting magnitude—a reality that quickly becomes clear when reading their book. The “10 ways” referred to in the subtitle are more like prerequisites.

Business leaders, the authors tell us, must adopt a new and far more ambitious and expansive mindset about sustainability. New structures, like the benefit corporation, are needed. “True” accounting principles must be adopted. True returns must be calculated. Human, social, and planetary well-being must be pursued. The playing field must be leveled: “Subsidies or incentives for practices that are destructive to people and the planet” must be eliminated, they write. Full transparency is required. The way we are educating tomorrow’s business leaders must be changed. Business needs to turn to nature as a model for innovation, following in the footsteps of people like Janine Benyus. Short-termism has to be eradicated. Only when these conditions have been met, can the real work begin.

 This is a tall order and, as quotes from some of the notable figures featured in the book—like former Shell CEO Mark Moody-Stuart and Unilever CEO Paul Polman—attest, it entails overcoming much resistance. On the bright side, the prescriptive solution in The Breakthrough Challenge has already been launched: It is the agenda of the B Team, an organization that evolved from a roundtable convened by Richard Branson’s nonprofit foundation, Virgin Unite. Who knows? In the end, maybe the foxes will save the hens.