How boards approach sustainability goals while still focusing on profits
As shareholders become increasingly invested in goals around carbon neutrality and emissions, especially following the SEC’s latest ruling, sustainability officers at major companies are under increased scrutiny.
“You can’t just say, ‘Oh, that’s 2050, we’ll worry about it then,’” Alan Murray, CEO of Fortune Media, remarked during a conference call on the matter. “You have to worry about it now.”
Sustainability officers at major companies say they’ve sought outside expertise to help them meet their metrics.
“We’re also seeing companies that have been reporting on climate-related matters getting third-party assurance, and the nature of that assurance is sort of interesting as well,” Diligent COO Lisa Edwards said. “Fifty percent of the companies disclosing are getting third-party assurance. Of those, 90% are using what I would call sort of niche consulting, domain specific entities to look at their climate-related data. And 10% are using their standard auditors.”
Edwards said companies are looking to hire individuals with expertise in ESG—environmental, social, and governance criteria—so evaluations can be done in-house by a skilled auditor.
Some leaders have struggled with whether to make meeting these milestones a big-picture initiative handled by a dedicated committee or one that trickles down to every level of management.
“On the two big boards that I sit on—[General Motors] and Procter & Gamble—ESG goals are fully integrated into the business plans of those companies,” said Joe Jimenez, former CEO of Novartis. “For example, at General Motors, the company has made the commitment to only sell electric vehicles by 2035, and that is a massive commitment with massive climate implications. So the board is already monitoring and managing the pivot from internal combustion engines toward EVs over a very short period of time.”
Edwards said boards can hire for some of the expertise required for ESG goals, but that someone who is an expert on diversity and inclusion won’t necessarily have the expertise on climate. Instead, everyone needs to elevate their knowledge on the topic.
“What boards need to do is build a fluency in these matters, build the language, understand the frameworks, understand that alphabet soup of all the acronyms and the requirements,” she said. “And then hold management accountable to measuring and gathering and reporting on those for the company and for the company versus its peers.”
Changing the mindset
For a long time, companies worried meeting environmental goals would compete with the core goals of turning a profit. But Charles Phillips, former CEO of Infor and a board member of ViacomCBS and American Express, said that conversation is over.
“I guess that train has kind of left the station…We’re not having that debate anymore,” he said. “Instead, it’s how are we going to deal with this going forward, because more is coming.”
Jennifer Anderson, senior VP of strategy and business development and chief sustainability officer for Carrier Global, sees it as an opportunity.
“One of the key things we’ve seen is opportunities where we’re building capabilities for our customers,” Anderson said.
At Carrier, the role of overseeing metrics is built into every level of management, and the result is that customers get products that meet those end goals.
“We recently announced acquiring Toshiba Carrier, which does a variable refrigerant flow air-conditioning system, which is high efficiency,” Anderson said. “One of the driving forces of that was it will further enable our gigaton goal and move our product portfolio more towards a sustainable product portfolio. It’s an efficient product particularly for Europe and Asia, so it is embedded in how we approach each part of our business.”
Maria Elena Cappello, member of the board of advisers for Quantum Metric, said companies either focus on having a sustainability committee to oversee the entire business, or they work to integrate sustainability topics into the strategic plan at every level. Unless you integrate sustainability, she argues, you lose sight of the purpose managers now have to also manage the company’s impact on society.
As those mindsets change, leaders said their focus has been on reducing Scope 3 emissions, which are those created by a company’s suppliers and customers.
Virginie Helias, chief sustainability officer of P&G, said the company is focusing on creating products that require less hot water, for example.
“For P&G, consumer use is over 80% of our emissions, and it’s basically the heated water you use when you shave, or when you wash your hands, your clothes, your dishes,” she said.
Advice for tackling 30-year goals
Those on the call had some advice for other companies and committees feeling overwhelmed by meeting 30-year goals they likely won’t be around to see through to completion.
“It’s a crawl, walk, run thing,” Edwards said. “Once you understand the materiality of some of these issues, put it back into a familiar framework. So how does it integrate into the strategy of the company, how does it integrate into the enterprise risk matrices? When you do that, then it becomes a natural point of discussion at the board meetings, because it’s integrated into everything that you do already.”
Anderson said it’s been key for Carrier to break its goals up into tangible milestones and to make these goals the responsibility of lower-level managers as well.
“We’ve given that accountability down to the lowest levels in the organization, so they own it, and then they have to drive the actions against that,” she said. “And it has made it very real for the organization.”
Jimenez echoed Anderson, saying that the key is to break the steps down and start.
“Don’t let the enormity of this paralyze either you or the board in endless debate about what’s right and what’s not right in terms of setting objectives and metrics. Just get started,” he said, adding that the way companies set, measure, and report objectives will inevitably change over time.
“I see many boards that debate, debate, debate, and a lot of time is wasted,” he said. “My advice is just to get on with it.”