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Today's guest has some fantastic hard research and data on environmental social governance impact for corporations in their bottom line. He used to run one of the most well respected research departments at Boston College for the Corporate Responsibility Field. He advises global organizations across many different industries on their environmental and social impact and not as well as their financial health. He's the CEO and founder of Impact Roy. Please welcome Stephen Rockland. You're listening to see sweet blueprint, the show for sea sweet leaders. Here we discussed nobodys approaches to organizational readiness and digital transformation. Let's start the show. Hey, Steve, thanks so much for joining me. George, I'm really happy to be here. So when we talk about impact in ESG, environmental social governance, you know I've been seeing more and more companies lean into it. You know, I'd say over the past several years I see a lot of strategy decks help with a lot. It's taking up larger portions of those strategies for corporations. But at the same time I feel like there's some skepticism as well and I thought maybe that would be an interesting place to start. You know, I feel like some people can be like, oh, it's some social impact sponsored by black water, you know, or sustainability sponsored by Haliburton, you know, and I well you know that's not always the truth. I wonder if you could shed a little light on the true impact that's out there with the SG investments. George, that's such a really interesting place to start. And let's start the skepticism from the business point of view, because I think a lot of that skepticism is is this just another mandate? Is this a version of tax or regulation by another name? And it's interesting because, you know, I can't say I'm unsympathetic to the way that some of those companies might think. And so in my career one of the things that I've been focusing on is trying to measure and see if there is a real financial business case for doing this. And so... |
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...a few years ago, some companies that I was working with, verizon in Campbell's soup, you know, which is kind of an odd pairing, you know, two great taste that taste great together, I guess, came and approached our team and said, look, can you put to bed whether or not focusing on environment, social and governance for ESG is good for the bottom line or bad for the bottom line, or we will never know. And so we did massive study, was sort of a form of a Meta type of analysis. It's actually called a system systemic analysis, and looked at this point over six hundred studies, very rigorous studies, most of the academic studies, and what we found is is a number really interesting conclusions. I'll share a couple with you to start and we can sort of dive in. Great one is is that yes, indeed, ESG does pay dividends for the financial bottom line and for top line, but only only if you do it well. And you think that this is like captain obvious. It's like wow, oh, you do something well and you get benefits out of it. Well, interesting thing about ESG is is that, you know, there's a lot of politics around this and there's a lot of hope that pretty much anything that you do in esg is going to drive good financial returns. That could not possibly be true. It's not true of any part of the business. You have to do every aspect, from marketing, from Rd from sales, from production manufacturing. If you don't do it well, you lose money. Right same with you, is g the the real finding, and I think the one of the credibility points of our research is saying that, yeah, you can lose money if you do ISG poorly. But here's the thing. You do a well, just like any other part of the business, it actually will drive financial success. And the financial success that we found can be expressed in sort of ranges. So if you look at key performance indicators for the business, we find that companies that do esg well outperform their peers in stock... |
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...market price performance and share price performance by anywhere from one to six percent. They can actually boost the revenue from sales by anywhere from one to twenty percent, they can reduce their employee turnover by anywhere from one to fifty percent, they can boost employee productivity by about thirteen percent and they can increase their market cap valuation by as much as around eleven percent. There's there's more indicators that I could share related to financial risk and other risk. That gives you a flavor of the kind of potential that HESG has to support the business. But I'll stop there and see what that leads it's great news. I kind of want to like scream it from the rooftops. Right because you know you're showing with hard data that you know doing doing good in the world actually does well for your bottom line, which is is wonderful. You know, one thing that it's funny that this reminds me of is some younger folks might not remember the days, but we used to have to do Roi Analysis for why you would invest in user experience and you know, we'd we'd have to analyze how many clicks something would take and if it would help turn over, like you just said, if it would help of retention and conversion. And now it's just kind of a given that user experience. You need to do it well, and it's funny, in those early days people would also say, well, we want to use your experience, just like apple, but they didn't realize to fully go in and do that, how much of an investment that they needed to make on it. I hope this isn't hurt your feelings, but I kind of hope, like that work that you're doing, that Roy work is like you're out of business in a decade, so that people just they know that they have to do it's table sticks right. Yeah, I mean that's that's actually it doesn't hurt my feelings at all and in fact, in the is you feel they have no idea how much that exact conversation comes up and the analogy that we always use is total quality management. You know, it's like, you know, the the S and before. If you want to focus on quality, you had a quality team and what that guaranteed was that your products and your manufacturing processes were probably going to have a lot of do effects right. Quality was probably not going to be embedded into what... |
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...you would would produce, and it wasn't until quality became those kind of table sticks, as you talk about, that it became embedded in the way that every manager and executive thinks in into their key performance objectives, that actually quality start to mean something and you actually started to get better, longer lasting, safer products. We really need to head the same direction with the SG. What I would say is is that there are a lot of companies in certain industries that are that are probably trying to declare victory a little bit too soon on that. We got a long way to go and we can talk a little bit more about that. Yeah, one poken into that a little bit. So in preparation for this conversation. I've been weaving this into my my conversations with executives and one theme that I found is there's a lot of companies out there where they're doing it. They are doing a ton of real work on it. From me you see, and impact and but what they say is we don't really want to brag about it because we feel that if we brag about it we're going to open ourselves up to maybe some criticism of the things that we do that we know aren't great for the environment, you know, because they create products that they might have plastic in it when they're trying to offset that. And I like we just kind of want to especially private companies right there we're like we just want to do this work. We don't necessarily want to brag about it. And I'm curious in your impact analysis, how much of that bottom line impact is from like just doing it versus also then talking about it so that people know that you're doing it. Yeah, so this has been a perennial problem and it's almost at, you know, the level of sort of a grand philosophical question. We all know that. You know famous query of the tree falls in the forest and the one's there to see it doesn't make any noise. And in the answer the ESG realm or research finds definitively that the tree does not make a noise if no one's there to see it. So we have to communicate. Awareness is key. If there's no awareness, all the results are just talked about, the six percent share price boost, the revenue boost to twenty percent. I'm not going... |
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...to say that entirely goes away, but a lot of it goes away. What we need to do is we need to have our stakeholders understand. So what that leads to is a lot of really, really bad advertising and communications and PR around ESG and I can give you two types of examples of bad efforts to communicate which get to the problem you were talking about, George. So the first one is, if you can imagine if you were going to shop for a high performance tire for, you know, your fancy sports car, if one has it, talk of my language. Here you go and you go in and you see an advertisement for a high performance tire attire that says by our high performance tire made from over sixty percent post recycled materials. Right. What will your reaction be? Well, actually a tire maker studied that and what they found was is that the the consumers reaction was, oh my God, I can see what's going to happen if I use that tire. This post recycled content material sounds completely unsafe, low performance. I'm going to be doing a tight curve that x number of miles an hour and it is going to blow out and I'm going to die. So when you start saying by our product it's green, the consumer here's well, if you're focusing on being green, that must mean that it's bad. That must mean it doesn't taste very good. Right, it doesn't pay for Straw. Right, is going to tend a motion your mouth exactly exactly. So that's that's really bad communications. The other communication that is really, really bad is bragging and boasting and saying hey, we're the greenest, where the best, where the most responsible. So by from us this space, you have to walk a really fine line. You got to be humble. So the kind of communication that works is sort of doing the reverse of both of those things. It's saying, look, we have a tire that is higher performing and it is... |
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...performing in part because we've innovated the use of recycled materials, which makes the tire safer, stronger and better. Right, and, by the way, it's also green, so you should buy it. That works wonders. It's like wow, this is really interesting, sounds innovative and green. I love it. Right. That's the reaction that you find. The other thing you have to do, and that's gets to your point about saying look, look, the company's worried. That's saying, Hey, unless we're perfect on every dimension, we don't want to talk about it. If you go out and you say, look, we prioritize something that we know our stakeholders, our customers, are employees, care about, our investors care about and we're trying to do the best we can and we're trying to work with people and we're trying to make progress. We know we're not perfect, but but we're trying to make progress. That's that's what we're trying to do. And when you say that message, people are more forgiving and more embracing and they're saying, you know what, I trust that company as opposed to the company that says, Hey, we're great, you know, we do start our waste, we're green, we're better. People get skeptical. They want to tear those companies down. So balancing that communications key. It's so funny how, you know, you can't seem to get away from authenticity and bravery being recipe for success really and in any topic that you cover. And when I think about that bravery as a company, there's probably got to be an executive at the table when you're doing strategy planning that does have to be that brave one to say hey, I saw some numbers on this, I think I can improve our bottom line and do some good in the world. You know, how about we do this? And you said you kind of have to go all in. I'm curious. What have you seen as far as how much better to the organizations that go all in perform versus ones that are kind of half in, versus ones that just say we're not going to bother? Well, we did some research. So we've come up through our research. We talked about doing SG well, we've come up with a framework that we call fit, commit, manage and connect. Fit is really about integration to strategy. Commit is really about the focus and putting resources to those those strategic focus areas. |
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Manage is managing this with the same discipline you use for any other part of the business. And then connect is actually reaching out and connecting what you're doing ansg to your investors, you customers, your employees, but also some nontraditional stakeholders, you communities, some of the NGO's, the activists, sort of engaging with them right and so when you do that, we've done some research that we've not published, that because we didn't want to publish it, because we're trying to take advantage of it. That looked at a five year period sixteen different industries, reviewed six hundred companies and identified how companies that we rate as doing well in that fit, commit, manage and connect framework do versus the rest. We eliminated in our metrics any examination of their financial performance, so we didn't look at that where they done good, bad or in different the companies who adopt our good practice framework that we call the project Oroi good practice framework outperformed the SMP by a hundred seventeen percent over that five year period and in all sixteen industries, every single industry, the good practice companies on the SG project Uri framework outperformed the standard in their industry segment. So that's that's the benefit you can do. There's also sort of a fun counterintuitive lesson that we learned, and that is that if you could imagine investing your retirement savings in one of three different types of companies and absolute leader in SG and absolute Neanderthal, laggard, skeptic, does not believe in SG, will never believe in it, or a company is in the middle, trying to go along to get along. Do a little bit here, a little bit there. You know, reports and things, whatever, some programs. You would retire and go off to whatever tropical island you want to go to. If you invest in the ESG leader, that's the best performer. Second best performer is the neanderthals, a laggard, and the third is the one that's... |
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...going along to get along. So the lesson there is that you really do have to go all in. You have to go big or go home. And if you're just in the middle, what happens is you getting punished by both sides. Your old school investors think why you doing this stuff? You're distracting from the company, we don't get it, and then your employees, your customers and communities are thinking you don't really care about this. You're not really a good corporate citizen. We can't trust you, and so you're losing on both sides. Yeah, it's kind of obvious when you're in your heart's not in it right really in anything in life. And it's curiously you use the example of putting your retirement funds in there, because I've seen glimmers and I'm curious it, since you're closer to it, how much of this is happening. But it kind of transparency and industing where you're seeing people's investment directions. You know they want to allocate it towards companies that are rating better in ESG initiatives or VC's are pe is are actually setting aside impact funds, and I'm curiously if what you're seeing in that landscape as far as where the money's going. There's some incredible statistics. I don't have a command over them, but if there's a chance to follow up, I'll follow up. I'm not remembering them right now, but in some amazing forecasts that by as soon as two thousand and twenty five that the amount of assets related assets under management and investment that go into funds that are screened somehow for ESG. We're going to start to get into real, real numbers. We're talking like, you know, starting to approach like one third of all assets under management, which is, you know, ginormous when you think about the the size of the investment industry right now. So this field is just absolutely on rocket fuel. And what's happening is is that, yeah, it's generational, that millennials and the Zellennials care about this and that they want to see this going in. And that doesn't mean that the exers and the boomers don't care about this either. There there, they've sort of set the trend. And so the other thing... |
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...that's going into this is that we're finding that there's more of an investment pothesis that actually covid interestingly affected. There's this sort of repeated story among some of the big investment houses where there was this moment where you had these ESG teams in these investment houses who were starting to, you know, scratch and claw and make a little bit of headway, and then the pandemic hit and the executives in these sort of famous investment houses all came and said, why did we not anticipate this? And we're getting, you know, crushed in the early months of lockdown and the SG team members kind of raise their hand and said, you know what, if you would paid attention to our metrics, we would have been with more stable, safer companies that were more strategically attuned and able to respond to this and pivot. And pretty much there was this uniform unanimity among the CEOS of these different houses that said, okay, you're on, you're front and center, we want esg involved in all of our investment thesis now. And so that over the last eighteen months has been a sea change in terms of the prominence of SG, both in the investment world but also driving corporate behaviors. You can imagine that, you know, C suites are waking up DSG really quickly now. Yeah, you think that that an organization that's really strong on ESG would have more diversity in their supply chain, right, and they'd be more resilient for things like this. That makes a lot of sense. Funny Timing. Just yesterday an article came across my feed that the prediction is that the next thousand Unicorn companies, so that you know what the exits of a billion plus are going to be, they're all going to be green count companies, you know, whether it be, you know, decarbon or supply chain sustainability or are you name it, it's all in that world. So they're it does seem like there's dump trucks of investments that are just pulling up and dumping off cash into this whole space. Yeah, I mean that's fascinating and I'm not surprised. And I think about one of my major clients, which is Twenty Billion Dollar Company, and they've got... |
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...a really interesting in organic growth strategy coming up and they've decided that our next multi billion dollar business is going to be in companies that are sort of in the sustainability arena and solving problems, environmental and social problems, and so they're sort of putting, you know, their chips into the table on this, on these types of UNICORNS. And you think about it, and the analysis actually is pretty clear, that where we're in such a moment right now, where the major challenges of the world, you know, of climate change being the obvious one, the amount of costs that this is going to create and the amount of opportunity that can come both in terms of supporting some of the mitigation efforts and trying to decarbonize our economy and the atmosphere is huge. You know, we can look at Tesla as one of the poster children of that right. But we also have huge opportunities in terms of how we're going to have to start adjusting our life to a world that is more affected by climate change and how we stay safe in that life across all different types of products and concerns. So really I would I would say that those Unicorns, those those thousand Unicorns as you were talking about, that's a pretty safe bet, I think, to say that they're going to have some kind of sustainability feature and what they do. It's exciting. But for the larger of more bablished organizations, even if you've got several executives that really want to push into this, it could be tough. It could be tough to make any changes are shift and I'm I'm curious what you're hearing or seeing on the street, both with your research and your interviews. You know what are what are these executives saying? Yeah, so we just did, in partnership with the United Nations Foundation, fascinating piece of research. So we did interviews, confidential, anonymous interviews, with twenty one leading famous brands from fashion, food and technology,... |
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...and we wanted to focus on their efforts to build responsible and sustainable supply chain management because that is one of the keys. A huge proportion, for example, of greenhouse gas emissions comes from a company's supply chain. Huge amount of their concerns in terms of their community impacts, about whether or not their their extended operations or making communities worse off, creating poverty, creating human rights violations, bad working conditions, are coming from their supply chain. And so there's huge pressure on companies and I'm not going to I'm going to name them, but I'm not saying that they are part of our interview. But you look at a Walmart, for example, gigantic pressure on Walmart to make sure that they're accountable for the behavior, the responsible environment and social behavior their suppliers. Right. So we spend some time talking to executives and said you are doing so much to try and keep your suppliers accountable on these dimensions and you're really investing a lot. Do you think it's working? And the answer was a little nuance. They said, look, we're proud of the effort we're making, but if we want to be honest. No, it's not having an impact. Programs work, but the entire approach doesn't. Workers are not safer because what we're doing. Communities are not better off because what we're doing. The environment's not better off because of what we're doing. Theater, I mean it's a little bit more than theater, but it's like it's doing just enough. It's doing real stuff, plus is doing that real stuff to make sure that you can sort of put what you need to put in reports. So that's where the theater comes in right and so that was I opening here. And so then we asked, okay, so what do we do? How do we get to the the next steps of the impact is real and the first thing out of their mouths, and this is something that we heard from not unanimous but the vast majority, said one of the things that we need... |
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...is we need pressure on us. We need those activists. In the s we were always seeing activist campaigns of major environmental groups like Greenpeace, like Oxfam, coming after companies and naming and shaming them, doing all kinds of creative protests. They were saying we need that back because that's sort of been lost over the last decade and for a number of reasons we can talk about, but saying we need that pressure. In fact, it would be great if they don't just pressure our brand but actually attack our CEO directly by name. Wow, which is like this is like, you know, you know a real person bites dog story. You know, it's just completely mindbending. And so they were saying we want we want that pressure back and we get that pressure, that will give us the space with our investors and with our executives to ratch it up and go to the next level of commitment, investment. That's not all they need. They need that stronger business case that I was mentioning from our project Roy Research, particularly focused on on share price, revenue and cost control, and they also need much better partnerships that have better technical support and assistants. All that makes a lot of sense, but you know, it's that mix of really, really big hard sticks along with enticing carrots that we need to make that next phase improvement, if that makes sense, and just need they want that accountability. But I guess when your job is to maximize shareholder value, you kind of get to get all the shareholders on board and that there's enough noise out there that's being focused at your company that it kind of becomes something that you you can't not do right. At that point, it just think that's CEO directly. I wonder if those people were just maybe a little annoyed with their CEO. It's really funny, but you know, I think I think it might be a little bit about that. But the other thing is is that I think the job of the CEO has started to shift gravitationally in turn terms of being the steward of the share price. |
| 00:24:02 - 00:26:02 |
And if that's their job, then you know, you really have to break through in terms of saying how can we get you focused on doing some things that maybe maybe seem counterintuitive, seem in opposition to the share price and seem like it's going to create more costs, which Wall Street doesn't like. And to do that they have to take risks. It's what you were talking about, that sort of brave moment and nothing kind of you know, lights of fire to make you brave if you're being attacked, if you have to either fight or flight, and so how are you going to how you're going to respond in that kind of situation? So I think I think that's a lot of the reasoning mind throw them in the deep end and see if they swim makes a lot of sense and in no building on the role of the CEO, what existing or new roles are you seeing at the executive table that are really, you know, bearing the responsibility of the ESG initiatives? Is it? I mean I've seen the chief sustainability officers, but are you seeing the since supplied, you know, the supply chain leads kind of stepping into this, or what do you see in yeah, so we're starting to see at the sea suite much more of this sort of chief sustainability officer roll and you now are going to see chievs g officer roll, which will be the same thing as a chief sustainability officer, just a new title, maybe some expanded role accountability, but basically the same thing. Starting to see some he's that. You know. I'd point to McDonald's, for example, which has created a senior executive for social impact is. So they kind of divide a little bit the environmental and the the social impact side as well, and starting to see a little bit more of that. The other thing that I'm starting to see is that the ESG function is really tough. It's very popular right now a lot of people want to go into it, both new graduates as well as even mid career executives who feel like it's a more purpose driven roll. But the EESG role should be very, very strategic role, and what... |
| 00:26:02 - 00:28:00 |
...happens is it gets sucked into having to do a lot of compliance related activities, having to do the environment, social and governance report over and over again every year, and there's a lot of standards and things you have to do for that. And then all kinds of investors and others are putting out these eesg rating surveys, so having to respond to those, and so basically you become this glorified report writer and Survey Responder and you know, fine, I'll acknowledge there's some value in doing that, but it's not, I think, where the need is and where the name main game needs to be. So companies really struggling to figure out how do we get to more of the strategic and operational elements, how do we develop programs, how do we do more of the integration of SG into our business? And if the SG team is overwhelmed and can't get to it, we're starting to see some interesting functions, some cross functional teams coming together different business leaders and operational leaders who are coming together to take that aspect of it on, and whether or not that's formalized will depend on the company, but you're starting to see these almosteering committees come come to the fore in these companies to handle it. So that's an interesting trend. That compliance pitfall scares me because you could so quickly just becomes, you know, a check box filler, you know, and you're just defining more and more process to define. I mean this is what you know. I've seen happen in the health insurance world as an example. You know, the people they are really want to help improve patient outcomes, but there's been so many mandates from that a state and a federal level that they end up just swamped with process upon process that's just meant to check boxes. I hope we can avoid that somehow in the SG. Yeah, you know, it's such a powerful point. Transparency has been a major strategy of the movement that's been trying to drive esg and reporting, and I think that one of the things that starts to get lost is that we start to see that transparency and reporting, which is important. I don't want to suggest it isn't. But... |
| 00:28:00 - 00:30:00 |
...we start to see it as as an end and not the means to an end. And when we start to see it as an end, that's where we get these twenty one companies that I was talking about that are saying, look, look how much we can list that we are doing. Look how we are complying with different standards that we're supposed to report on and talk about. You know, we we have human rights policy, we have human rights built into our supplier code of conduct, check to boxes. You know, suddenly my grade on the rating went from a C plus to a solid be by doing that. You know, great, I'm glad they have these policies. They should, but the but the point is not to have a policy and to report it. The point is actually to do something meaningful about improving working conditions across your global supply chain. And and so if we're not doing that, what that means is is that, you know, I mentioned George really quickly that I think we're going to a real phase transition right now and we can see it happen. There's a lot of backlash starting to come from those thought leaders in ESG, those who are advocates for USG now writing pieces saying ESG is lost its way, and I think that what they're really saying is is that we're moving into an era of impact and the the phase for companies right now is that it's not about getting an impressive report out that ticks all these boxes, as you were talking about. It's about showing very, very clearly that the world is better off because of what you're doing variety of dimensions. And if we can't show that, then we're not going to have we're going to have nothing but skepticism and cynicism. We're not going to look authentic. We're going to start seeing more more campaigning, a action, we're going to see more efforts. It's strict regulation, and also the world's going to going to be worse off. So it's really the area of impact is coming well. That's why your work is so important, because you're showing the cold hard facts that if if you do this with your heart in the right place and you do it all the way, that you're going to of real... |
| 00:30:00 - 00:31:52 |
...bottom line impact. And if you're doing it for that reason rather than just compliance or rather than just pressure, it's kind of kind of hard to argue with the bottom line dollars at the end of the day and so so that's got me optimistic on it. So, Steve, that I really enjoyed this. One thing I like to end on is what's the best advice you've ever received in life for work? Oh Wow, that is that is is so, so good. I come back to something that comes from one of my favorite professors, who focused, I think it's related to ESG BIS, related to a lot of things, and that is that think. Think probabilistically. Don't think about possibilities, think about what is probable, and that is a really, really key tool to make decisions. There's so much analysis, paralysis, there's there's so much skidtishness in terms of what's going on in these types of fields. There's there's such limitations on bravery and when anyone wants to make a decision, there's always very, very good arguments that will come from all sides, and I think stepping back and saying look, we have to identify what's what's probable to happen based on different scenarios and and and what do we want to have happen? Focus on that and we'll be able to cut through the morass and make clear decisions and take action. So that's something that really take with me. I love it. It gets people off their butts and doing things. I think it's fantastic. Steve, thanks so much for being here. I really enjoyed it. I love being here. George, really appreciate it. Thanks for having me. You're listening to see sweet blueprint, the show for sea sweet leaders. Here we discuss no bys approaches to organizational readiness and digital transformation. Let's start the show. |
