- On June 6, Insider convened a roundtable discussion with the advisory council for the Financing a Sustainable Future series.
- Sustainability leaders from Walmart, JUST Capital, Dow, Honeywell, Cognizant, Deloitte, Bank of America, AB InBev, and Carlyle participated.
- This article is part of the "Financing a Sustainable Future" series exploring how companies take steps to set and fund sustainable goals.
On June 6, Insider convened a roundtable composed of members of the Advisory Council of the Financing a Sustainable Future series. This article summarizes four key questions from the conversation.
The participating Advisory Council included (with links to their company's sustainability reports, and the JUST 100):
- Evan van Hook, Chief Sustainability Officer, Honeywell
- Ezgi Barcenas, Chief Sustainability Officer, AB InBev
- Eunice Heath, Corporate Director for Sustainability, Dow
- Jen Steinmann, Global Sustainability & Climate Practice Leader, Deloitte
- Kathleen McLaughlin, Executive Vice President and Chief Sustainability Officer, Walmart
- Martin Whittaker, CEO, JUST Capital
- Megan Starr, Global Head of Impact, Carlyle
- Sophia Mendelsohn, Chief Sustainability Officer and Global Head of ESG, Cognizant
- Also participating was Omer Farooq, Managing Director and Head of Asset Finance, Global Sustainable Finance Group, Bank of America.
The following is an edited transcript of the discussion.
Question: How do C-suite leaders model best practices when beginning to report on their company's sustainability goals?
Evan van Hook, chief sustainability officer, Honeywell: Be thinking about ESG-related data in the same way that you have historically thought about any other material data that you report, irrespective of whether you're reporting it in your financial documents or elsewhere.
The level of focus and centering that's taken place in the last couple of years on these data, and the criticality of it, means that sort of the entire C-suite I think is waking up to the fact that we know how to manage data appropriately, and these data have to be managed in that same way.
So we've always taken the approach that if these are data that are going to be discussed publicly about the company, we're going to be extremely careful with them. And then from that sort of flows all of the other things that you would think about when you do approach a data set — in terms of what are controls around it, what are important data to talk about, who would I reach out to assist on controls, when is third-party participation advisable, and things like that.
Megan Starr, global head of impact, Carlyle: Don't let exhaustive be the enemy of the good. The proliferation of frameworks can actually be paralyzing if you're trying to be utterly exhaustive of every data point in every framework.
Start with a core set of things that really matter to your business. And to Evan's point, that is really focused on materiality, what your business actually does, and what matters to you and your stakeholders.
We have found the most helpful metrics, are really focused on change over time versus static state binary. So instead of saying, "We have this, we don't have this, here's a policy, we disclose it," what is the actual performance data on the material topics? And how has your trajectory been over time? That data is really meaningful.
ESG data doesn't make sense without the context of financial and operational data. Greenhouse gas emissions don't mean anything if you don't know what industry the company is in, if you don't how large it is, if you don't know where the operations are. So those data points have to all be gathered and interpreted and digested comprehensively.
Historically the ESG team has had down the hallway around the corner somewhere separate and has done reporting totally separately. Those worlds are very much converging.
Eunice Heath, corporate director for sustainability, Dow: For our financial data, and any time we're in an earnings call, we benchmark versus certain peers. I know all of the companies here do the same, as they're evaluating their performance versus their peer group.
Now what we're seeing is stakeholders are asking about that comparison with regard to ESG data. We're comparing that to what we report out versus what our industry peer group said as well. They're evaluating apples to apples with regards to how and what we are reporting versus the competitive peer set.
So definitely understanding your data, understanding the materiality and the narrative of your strategy is absolutely critical.
Kathleen McLaughlin, executive vice president and chief sustainability officer, Walmart: It's good to engage your own investors, customers, employees, and other stakeholders, to determine what are the top issues of interest to them. And then add the screen of what seems to link to value creation for you and your business, and where can your engagement in an issue actually make a real difference to the outcome.
Then second... is to figure out what's your ESG investment thesis that you even want to report against. In other words, what's the goal that you want to set about your performance and make the case for why that is relevant for value creation for your business, and relevant for value for your stakeholders, and the strategy that's going to help you deliver on that.
Then third, define the critical few metrics that you want to report on. And considering how much of the reporting will be about qualitative progress on your strategies versus actual metrics, and are there authoritative bodies that have guidelines for how to report on those metrics.
Question: Should companies be aiming to set a specific goal timeframe — for example, to reach benchmarks by 2040, by 2030?
Jen Steinmann, global sustainability & climate practice leader, Deloitte: The notion of establishing goals I think is really important because then you can measure against where you are related to those goals — under the principle of what gets measured gets done. It's important to have those longer-term objectives.
One of the challenges with those objectives, however, is from a corporation's perspective, they may be two or three leadership teams out from where you can measure that progress. And so I think it's really important for companies to establish interim goals as well.
It's really important for those also to be not just objectives. In order to go from that set of established goals to action, embedding it in the strategy of the organization and understanding what the pull requirements are so that you can actually accomplish it [is critical].
And then importantly, one of the things we're starting to see as well is when you establish one set of objectives relative to another — are there unintended consequences? So you might be sending an objective on the climate side that might have an issue on the social impact side. So how do you make sure these things are interoperable as you're viewing them.
Ezgi Barcenas, chief sustainability officer, AB InBev: When you start thinking of setting short-term targets, or longer-term goals, or visions, or ambitions, whatever you want to call it — those goals keep us accountable.
So now you're not only reporting on the yearly progress, but you're also saying, here's where I want to go. Increasingly this is what we're seeing our stakeholders are looking for — be it an investors analyst, consumers, our local authorities that we work with, or NGO partners.
That long-term vision really drives innovation. Because you could set a target in the next three, five, eight years, that you know more or less how to get there, there's a clear roadmap you're following it. But if you set a stretch target into 2040, 2050, now you are actually fundamentally changing your mindset around how you pursue innovation.
I call it purposeful innovation because now you're being very purposeful about the lighthouse technologies or projects that you're pursuing, the pilots that you're going to scale around the world, because you have that long-term vision about the world that you want to create.
But if you set a stretch target into 2040, 2050, now you are actually fundamentally changing your mindset around how you pursue innovation.
McLaughlin, Walmart: What we found to be really helpful about setting time-bound goals, is it does help you set the pace and the level of ambition for the efforts that you're going to undertake. In some cases, we set out an end date for the final goal. So for example, we have set 2040 to be at zero emissions for Scope 1 and 2.
In other cases, we've set an interim goal for Scope 3, for example, we've set a 2030 goal for improvement in Scope 3 emissions focused on very specific projects we're engaging in with suppliers. You also have to be open to resetting those goals at times, as you learn more and you discover you can go faster, or you might need to go slower.
Starr, Carlyle: We think the long-term goals are really helpful to just draw a line in the sand, and establish that we are aligned with where the world needs to be. But at the same time that can ring hollow if you don't also have near-term goals with real teeth. And so I think a combination of those two gives credibility with that long-range planning. And I think one of the biggest benefits is not just the external communication, but really mobilizing and merging forces internally in pursuit of that objective.
The empirical research on public companies, ESG data, and disclosures, finds that companies that have more binary disclosures — it's like, yes/no, we have a policy, yes/no we disclose it. More binary disclosures are correlated with financial underperformance.
Heath, Dow: We've placed ESG squarely in our performance award system for the entire company, as well as in long-term incentives. We've got a mixture of dates and milestones, but bottom line, we expect to be net zero by 2050. And there are some critical milestones and projects that need to be invested in collaboration and innovation, in order for us to pilot and then accelerate the scale.
The milestones really provided that stake in the ground with regards to when we expected to achieve certain elements of our strategy. But it also served internally for the organization, really lighting of the fire in terms of everyone's role, in terms of delivering on carbon neutrality, on delivering on the circularity side of our strategy as well.
[Goals] serve as an opportunity for us to reinforce through education and building that out throughout the entire organization when we put it into the actual performance award and long-term incentives.
Question: Partnerships with financial, consulting firms, nonprofits, and startups are important drivers of sustainability outcomes and accountability. How do you choose what organizations to partner with?
Omer Farooq, managing director and head of asset finance, global sustainable finance group, Bank of America: There [are] a couple of things to think about. One is, we are trying to solve a very difficult problem. So what I've always found is that the commitment to net zero and the commitment to having a passion for it is very important. The purpose has to be there because these problems don't have solutions in a playbook.
Then, what is their progress in actually affecting change and actually being able to execute on it. We see a lot of folks with really good ideas. We see fewer folks that have actually converted those ideas into tangible progress that can be measured. And they're also willing to hold themselves accountable to that progress.
We work with a number of organizations across nonprofits, academic systems, companies, alliances. And I think you are seeing that in the market, there is real commitment when you think about the amount of time business leaders are spending across our peer banks and across companies and very senior folks on these efforts.
You're certainly seeing that commitment. And then more at the ground level we see it in terms of execution as well. We see that top-down voice travel through the DNA of the company.
Barcenas, AB InBev: You have to go through the pitch process and engage with the potential partners to understand their expertise on the topic.
But beyond the expertise, what we always look for is their ability to stretch their thinking — and therefore our thinking as well. If you're just looking for a science partner, you're going to go and get the science. But if you're looking for a partner that's going to come in and allow you to design your next big vision, next big project, the next big innovation to take on, they have to be able to stretch your thinking. For them to be able to do that, they need to understand the nuts and bolts of your business as well.
So in our experience, what we found out is that our internal teams actually have a lot more expertise and a lot more vision around the value chain — how we can stretch that, and how we can create new partnerships and new models of engagement across the value chain.
That is not to say that the external consultant cannot come in and help us on some of this stuff. But at the end of the day, what's really effective is whether or not the nuts and bolts of the business, or that category, and what that category represents - why you do what you do really matters.
Increasingly this is what investors are also asking, "But why do you do this?" They want to understand beyond just, "Oh, you want to reduce our carbon emissions," because at some point you need to paint a picture — this is about the future of packaging, this is about the future of logistics, this is about the future of agriculture and food security. You have to be able to articulate it in such terms.
Heath, Dow: Within our goals that we have today on sustainability, we have one related to valuing nature. Working with Nature Conservancy has been transformative for our manufacturing and engineering side of our organization, even our business leaders as well, as they think about the services that nature provides to our business, to operations, and to each and every one of us as consumers.
And as a result of that, we now have a nature screen that every one of our capital projects will go through in order for us to determine, as we decide on an investment, what is the positive impact with regard to nature. We're getting ready to build onto that social-impact screen as well.
Another example with regards to partnerships is, we're a technology company, but not all technology resides in Dow. As we look to decarbonize, or as we look to bring in post-consumer recycled waste in order to develop next-generation polymers. And so those are going to be specific science-based, technology-based partnerships that will help us to accelerate.
Those are partnerships and collaborations, but they're very different in terms of the outcome. But it's baked in strategy.
Question: What obstacles have you encountered on your company's road to sustainable governance, and how did you overcome them?
Starr, Carlyle: We started getting a ton of requests from our investors starting back about three or four years ago on carbon emissions data for our underlying portfolio companies. We went out and asked them for carbon data, and only around 30% of our companies had any idea what their carbon footprint was.
It was a really interesting moment for us of saying like, oh, it's not simply enough just to ask for the data, we actually are going to have to invest significantly in capacity building, teach our companies how to even get that data.
We sometimes jokingly refer to it as the carbon therapy conversation. It could take dozens of hours with an individual company of sitting down and being like, "Do you have a fleet of trucks? If so, what type of fuel do they use? Can you track down the one person who pays the gas bill, who can give it to us and find out what type of fuel?"
Helping them actually even conceptualize the scope of their emissions, where to find those bills, how to track down those people inside their companies. And basically set up the ability to get that data, to crunch that data, and then to use that data.
Our first block was thinking that asking was enough. Our second was, once we crunched it for our companies, the first year we just gave it back to them, and we got like a polite thank you. And we realized that wasn't enough to generate activity.
So then we started building debriefs for our portfolio companies, actually making them sit down and have a conversation with us. Like, what does this mean? How do you stack up next to peers? What's the low-hanging fruit? And then after those conversations, we see significantly more action.
Understanding the climate maturity of companies, we hit a lot of stumbling blocks in terms of learning. We had to meet them exactly where they were, and a lot of sweat equity has to go into getting them up the curve. It's not just a switch you flip.
McLaughlin, Walmart: The example would be Project Gigaton. So because in retail it's impossible to measure a Scope 3 footprint. Just given the nature of a retail business, we're talking literally millions of items, everything from apparel, electronics, to produce, and so on.
Take apples. So one apple could be grown in an orchard that uses fertilizer and the people that check the orchard drive on an ATV that uses gas, and another apple might be grown in an orchard that doesn't use fertilizer and people walk around to check the trees. So there's no way of knowing that.
So in terms of actually measuring the actual footprint, it's impossible today. But we wanted to get traction on it. So how do you solve that problem?
So we said, well, do we really need to know the total footprint? No. What we need to know is that people are working on decarbonizing their methods of production and let's focus on that, so there could be discreet projects that suppliers can undertake with us and with others that would change the emissions profile of a product, and that could be measured.
So that's what we did. We just shifted our focus to things that are actually achievable and measurable. And that was back in 2017 that we launched Project Gigaton, which is our Scope 3 project. And so the whole focus is on very tangible projects in energy, in packaging, in agriculture, that suppliers can measure.
So the lesson I would take away from that is, if you've got a tough problem, whether it's in climate or in equity, or whatever the topic is, try to bound it, and focus the action, or focus the measurement on the action that you want to inspire, the thing that you're actually trying to change.
Van Hook, Honeywell: In terms of telling your own story, there are a lot of protocols, there's a lot of voices in this world. But at some point, you also have to use your own resources and think about what's really important.
I think you can become paralyzed by all the demands for different types of measuring and quantifying, and reassessing how you quantified — none of which, in principle, actually reduces emissions.
In 2015, President [Barack] Obama asked a number of companies to come down to Washington and set targets preparatory to him going to Paris [for the signing of the Paris Climate Agreement in 2015], to finish up the negotiations there.
He sat and talked to us for about 45 minutes about challenges with sustainability. One of the things that he asked was, how are small and medium-sized enterprises going to deal with all these measurement demands? We started talking about how critically important it is to focus on what are you trying to achieve, and what types of measurements are needed to help drive that kind of change.
I was saying, "You can spend years trying to figure out exactly how much energy a light bulb uses." And he just said, "Well, or you could just walk over and turn it off."
And I think that's such an important insight for this entire enterprise. The ecosystem is so enormously complex that I think people should feel very comfortable saying, "Okay, I'm going to define the most efficient way to generate operative data that generates results," and not worry about whether or not everyone is in accord with that. Because as long as you do it with integrity, you're going to probably get to the right place.
Sophia Mendelsohn, chief sustainability officer and global head of ESG, Cognizant: I think what Evan's story hits on is that in the United States we have shareholder primacy, for good reason.
That focus versus other regions of the world has driven us towards the pointy edge of the ESG spear being transparency, and therefore being reporting, and therefore being about measurement. And we've seen a very good recent focus on all of that work, both voluntarily and regulatory.
What we're entering now is into a stage of action.
And I think the next frontier is saying, okay, go ahead and estimate your emissions. We're actually not going to track this down to the last vehicle. Let's collectively agree that the most important free-market solutions are the ones that can prove the most reduction.
That's, I will say again, for my peers and colleagues on the call, that's not where we are now, but I think it's an interesting look ahead around the corner.
Martin Whittaker, CEO, JUST Capital: When we had the idea for JUST Capital, we presented to the executive committee of The Business Council, and Jeff Bezos was chairing.
I remember him saying when we talked about the idea, "what you're trying to achieve with that, is somewhere between really, really, really, really hard and impossible." And by the way, we had a lot of people saying, "The world doesn't need another ranking, and who cares what the American people say, because they don't really know anything."
We took the view that we were trying to create value — value for different stakeholders, including the planet. And if we could focus on value creation, then we had a right to exist. And the pathway to value creation was really to try and understand what problem you're trying to solve.
And so we spent a lot of time talking to companies, just trying to understand their point of view and their perspective, and organize just around that. Now, that's still a work in progress.
But when I think about really navigating obstacles, especially now in the middle of a major orchestrated backlash on ESG, and anything other than business-as-usual capitalism — a lot of that is sort of political positioning. I get that.
There is a great story there about value creation for the next generation of American workers, and doing business in an inclusive way, and why that's better for shareholders. I feel as though the obstacles we're encountering now are also best met by quite a thoughtful sort of articulation of what problem are we trying to solve, who for, and what does that value creation look like.
That's an enduring message, which I think withstands the ebb and flow, or the cut and thrust of party politics. That's maybe naive, but when I think of foundational ideas for getting organizational buy-in, and even national buy-in, that feels like it's something you could really rally around.