Over the years, there have generally been two ways in which business leaders have addressed their “business with a purpose” emphasis: initially, through corporate social responsibility (CSR), and more recently, through ESG (environmental, social and governance) actions.

As an initial approach, CSR began to gain momentum in the 1970s. The concept focused on how much positive impact a company had on society and often had an outward public focus. CSR tried to demonstrate that a business takes an interest in social issues, rather than just those that impact its profit margins. Often, this was done to attract customers and employees who share the same values. While the movement’s purpose was to demonstrate that companies were doing right by the world, but since every company’s approach was different, their efforts really couldn’t be compared.

ESG, which originated in 2006, is replacing CSR in importance and relevance because it offers the promise of tangible, measurable and comparable data that could quantify a company’s impact. From the outset, I have been a big fan of the ESG concept. While it was established to allow socially conscious investors to evaluate a company’s social behavior and make responsible investment decisions, ESG has continued to expand post-COVID. The environmental and governance elements are well-established with a range of standardized metrics available to measure impact. The “S” element tends to be less operational.

In time, I anticipate a range of changes, including more regulation, more standardization, and more investor and consumer scrutiny. This is a good thing. It will help the world to understand the significant, positive role that business can and should play in helping to address the important issues of our time. ESG has been described as the “next generation of the concept of business with a purpose.” But despite this positive trend, I feel there is still more that needs to be done.

Video transcript

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource looking into the future to examine big themes that will impact the C-suite and executive boardrooms worldwide. Today, we’re exploring the future of ESG and its strategic implications for people, process and the planet.

I’m happy to welcome Tom Tropp to the program. Tom is Global Chief Ethics Officer for Gallagher, a Rolling Meadows, Illinois–based global insurance brokerage, risk management and advisory firm helping clients address risk, protect assets and recover from losses. As global chief ethics officer, Tom says, his job is to make sure the firm is doing the things it should do. While compliance is a must-do, ethics is a should-do. Tom, thanks so much for joining me on the program today.

Tom Tropp: It’s good to be with you.

Joe Kornik: Tom, let’s start with your role as global chief ethics officer at Gallagher. What does that role entail?

Tom Tropp: Well, it’s a lot different than it is from a lot of companies. We established this position 15 years ago, and the concept is that we clarified the difference between compliance and ethics. We have a chief compliance officer who is a lawyer who reports to our general counsel, who reports to our CEO. I am the global chief ethics officer. I report directly to the CEO, and I’m dealing with issues that focus on values.

We say that compliance tells us what we must do; ethics tell us what we should do. It’s about beliefs and values and culture. When it is a legal matter, it goes to the compliance department. When it’s something to do with the values of the company, the culture of the company, it comes to me. As you can imagine, there’s a lot of crossover. I will get something that I feel, “We need to have the lawyers involved in this.” They will get something and say, “We need to have Tom handle this.” It’s been interesting. As I said, it was 15 years ago we established it. We think there have been just a small number of companies that have copied it. We know they copy it in a sense because they very often call me and say, “How do you do this? How’s this structured?” and so we think it’s a different way of approaching. It has proven to be better for us.

Joe Kornik: Is there anything you can share? I’m curious, because 15 years seems like a decent amount of time. I don’t think ethics was quite a front-burner of an issue, perhaps, back then than it is today, so anything you can share about the evolution of the role over those 15 years?

Tom Tropp: Oh, yeah, it was interesting: Pat Gallagher, if he was on the call, would tell the story: I had just joined the company as a merger partner, and I had just finished four years at the University of Chicago at the graduate school there, studying ethics. I said to Pat, “You need a chief ethics officer, and I don’t know exactly what that does, but you need to have one.” We talked for a while, and Pat said, “You know, that’s the stupidest idea I’ve ever heard. Let’s do it,” and we did it, and it’s evolved.

The initial concept was to go out into the field, visit with our branch offices. We were a much smaller company then. We had 7,000 employees in two countries. Today, we have 42,000 employees in 51 countries, so it’s a different company now, but initially, the idea was to go out and talk to our employees, ask them if they think we’re ethical, talk about ethics, what it means, and then listen to them. We called my visits listening sessions. We learned some interesting things.

Specifically, to answer your question, one of the very first things that surfaced was, we had just opened our processing center in India—a brand-new project for us. We had a couple hundred employees over there. We’ve got over 7,000 now. But we had just opened that, and I started visiting offices, and people were saying, “We think it’s unethical that you’re sending jobs to India.” I came back and talked to Pat about it, and we realized what the problem was: We weren’t sending jobs to India. We were creating facilities to make the jobs in the U.S. more efficient. We realized what had happened was that we hadn’t communicated it properly. We hadn’t focused on the fact that this was set up to improve your job. And that was a catalyst to convince us that we had some value in this and we needed to keep going. As the years have gone by, I’ll tell you, Joe, we have surfaced so many things—so many good things that I hear in the field—and so many problems. It’s very easy to address those issues when you’re reporting to the CEO/chairman of the board.

Joe Kornik: It makes it much more of a strategic role, obviously. What are some of those ethical standards and loftier goals that Gallagher has set that go above and beyond just basic compliance, and does the insurance industry present any unique challenges?

Tom Tropp: We have a document called “The Gallagher Way.” You can look it up on our website, and we invite people to read it and to use it. It’s got 25 tenets, things that we believe in. We wrote it in 1984, and it became a standard—the grounding for our company. All 25 of those things talk about what I would put into the ethics category—even a few of them that talk about sales. They talk about how to sell appropriately, ethically.

For example, number seven is, empathy for the other person is not a weakness. It’s OK to worry about each other. Some companies that we’ve read about, you’ve read about, that’s not accepted: “Go back to your desk and get to work.” Number seven is, we’re all cogs in a wheel. We’re all important. We have an award that we give to people that any employee can recommend an employee—the Cog Award—and we send them a certificate that says, you did something that made you a cog in the wheel. Those are our goals. Our goals are listed in that “Gallagher Way,” and I believe that of our over 40,000 employees, 90% of them can, if you ask them, start naming two or three of those 25.

Joe Kornik: When you think about where ethics fits into ESG, ESG has been something that has become top of mind for most business leaders over the last several years, and certainly, ESG falls into that. In general, how would you say companies are doing these days when it comes to where integrity and ethics fit into the overall ESG model?

Tom Tropp: I worry a little bit about it. Initially, when this first surfaced—the term, three, four years ago—I was asked by our board, “What is this ESG thing, and how are we supposed to focus on it?” and I said, “Our company’s over 90 years old. ESG is everything we’ve been doing for 90 years. It’s just that it never got a title.” It used to be called corporate social responsibility. Now, they have brought it together, and it’s great because it gives us a singular terminology to deal with.

Unfortunately, about every three weeks, the definition of ESG changes, and so it’s an evolving thing. I believe that it’s good. It’s a good thing we’re doing this. My fear at this point regarding ESG is that it’s going to move toward Milton Friedman instead of Ed Freeman. Milton Friedman, Nobel Prize–winning economist from the University of Chicago, his theory was called stockholder theory, and he said, “The only job of the president, of the CEO, of a publicly traded company is to grow value for the stockholders.” Ed Freeman, 15 years later, at the University of Virginia, said the same thing, but he used the word stakeholders, and he included all of the stakeholders of an organization.

My fear at what I’m seeing with ESG now is that it’s becoming driven by the investor community rather than favoring the other stakeholders. I’m afraid that it’s going to become something that is that is only focused on profit—encouraging people to buy our stock because we’re ESG-approved as opposed to encouraging people to respect us, because we’re worrying about all of those things.

Joe Kornik: Is there anything that you or other business leaders can do to ensure that they don’t fall into that trap—that they get it right?

Tom Tropp: Absolutely. We’re doing it. We’re all doing it. I am so impressed with some of the things I’m reading in the business journals about how people are focusing on this. Look at what’s going on with climate change. There is no way that climate change and global warming would be as big a subject today as it is unless we were focused, again, on identifying this connected concept of ESG. Now, in some countries—the U.K., in particular, and Australia following closely, and then Canada—it’s becoming a G as opposed to an E. It’s become, “You will do this type of thing,” and that’s fine.

That’s great, but when we survey our employees every year—we call it a culture survey—always, the first thing these folks bring up is, “What are we doing for the climate?” It’s a huge issue, and I believe companies are starting to see that among their employees and their other stakeholders—their clients, their vendors—it’s a huge issue. And my fear about the investor-community thing is real, but I’m also comforted by the fact that the other stakeholders are also focused on this and are pushing companies to respond.

Joe Kornik: You touched on a few of these, but I’m curious: What’s required? What else besides some of the things you’ve already talked about? What’s required for a company to excel in terms of its ethics and integrity? What advice would you give business leaders around what would be important for a company in order to excel in those areas?

Tom Tropp: The first, very logical, answer to that is leadership from the top. This has to go up to senior management. There has to be a conviction on the part of senior management that these things are important. If senior management doesn’t buy into it, forget it—it’s not going to happen. Now, senior management can’t run it, but they have to support what’s going on. I don’t create anything that we do. There’s people in various departments in the company who create that, but they know that they have support from someone who reports to the chairman, and that’s critical that you have to have that.

Then, you have to have a culture in the organization that encourages that circular thinking. If you don’t have that, you’re never going to get good, positive input. The stuff we learn about all of these subjects from our employees is absolutely critical. I just had a conversation yesterday: We decided we wanted to sponsor a particular organization that deals with a certain type of serious illness, so I looked for someone who was focused on that. I found someone. I talked to that person yesterday, and he totally changed my thinking on it. He said, “No, that’s not the organization you want to support. It’s this other one that is doing more important things in that area.” I said, “Fine. Do the research. Prove it to me, and then let’s go.” I never would have thought of that myself—it came from the field. There’s an amazing amount of wisdom out there in every company. You’ve just got to tap into it.

Joe Kornik: Well Tom, you’ve been incredibly generous with your time, so I appreciate that. We call this program VISION by Protiviti because we want to bring smart people together and have them look out a decade or more and give us their vision of the future and where they think this is all headed. When you think about sustainability and, specifically, ethics, any predictions about what kind of world you think we’ll be in a decade from now, or 2035, let’s say?

Tom Tropp: I could tell you what I wish would come true. We’re talking about setting our net-zero goal, and a lot of companies are doing 2050. We decided to do 2052. We haven’t announced it yet — we haven’t officially made the decision — but we think we’re going to do 2052, because that’ll be Pat Gallagher’s 100th birthday, and I figured the two of us are going to show up at the party in wheelchairs.

I don’t worry about our company in a decade or longer. We’re very focused on promoting people from within in our organization, and you don’t get promoted if you don’t buy the culture, and so I’m pretty sure we’re going to have the same type of emphasis. I am optimistic, and I find myself wondering if I’m insane when I say that, because there’s so much pessimism in the world today, but I find myself optimistic about that. I do think in spite of some of its flaws, this ESG movement is going to make a difference. People are starting to focus on these issues, and I believe companies are responding, and they’re responding on both ends—both the stockholder end and then the end with all the other stakeholders—so I’m optimistic. I sure hope I’m right.

Joe Kornik: It’s an exciting time. Businesses can lead the way on this one—perhaps even more so than they have on things in the past. I do think that this is an area where business can run with this cause and do good things.

Tom Tropp: I hope so. I hope you’re right.

Joe Kornik: Tom, thanks again for your time today.

Tom Tropp: It’s my pleasure. Always a pleasure to be involved with your group.

Joe Kornik: Thank you for watching the VISION by Protiviti interview. For Tom, I’m Joe Kornik. We’ll see you next time.

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Video transcript

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource looking into the future to examine big themes that will impact the C-suite and executive boardrooms worldwide. Today, we’re exploring the future of ESG and its strategic implications for people, process and the planet.

I’m thrilled to welcome Alison Taylor to the program. Alison is an adjunct professor at the NYU Stern School of Business and executive director at Ethical Systems, which is helping companies build more ethical and effective cultures through a more holistic approach to the future of corporate integrity. Alison is also currently an adviser at BSR, Business for Social Responsibility, a global sustainability business network and consultancy, where she works with companies on strategy and business development. She is an expert on ethics, sustainable business, political and social risk, human rights, corporate governance, and stakeholder capitalism. Alison, thank you so much for joining me today.

Alison Taylor: Thank you so much for having me.

Joe Kornik: Alison, let’s start with ESG. I’ve been doing a lot of interviewing and have had a lot of conversations for this particular theme that we’re working on, the future of ESG, and I’m discovering that ESG actually means many different things to different people. I’ll start there. What does ESG mean to you? What’s your definition?

Alison Taylor: I will start just by saying it is like that. It’s a bit like the blind men and the elephant, and everybody sees it in a slightly different way. The way that I would describe and define ESG is, it is the financialization of sustainability, or corporate responsibility. That’s a very old movement—centuries old—but there was a lot going on in the late ’90s with people being very concerned about slave labor in factories and deforestation and that kind of thing, so there’s a long-running responsible-business movement. And ESG is what happens when financial services and investors get hold of that and they try to translate it into financial data and financial results.

Joe Kornik: Can you tell us a little bit about your role at Ethical Systems?

Alison Taylor: I’ve been with Ethical Systems since the end of 2019. It’s a research collaboration, or maybe a think tank. We’re based at the NYU Stern School of Business, and we’re trying to help companies build more ethical and effective organizations and, particularly, organizational cultures. And, more specifically, what we’re trying to do is get the best ideas from academia and bring them into business. There is a lot of amazing research being done on responsible business, on ESG, on ethics and compliance, and the business community, a lot of the time, just ignores it. I think of myself as a translator: I’m trying to get the best ideas out of the brains of professors and explain them to businesspeople in a way that is practical and useful and makes sense, and then, by doing that, try and advance innovation and get people to think in a bit more of a fresh, different way about what they’re doing.

Joe Kornik: Interesting. How do you think we’re doing in general? How would you say companies are doing these days when it comes to not only sustainability and ESG but also integrity and ethics, which I think is a big topic and will be going forward?

Alison Taylor: Every business out there has noticed that something big is going on. We can see this everywhere. There are a million examples—more than we could cover on this recording—but it used to be, back in the 20th century and in the Milton Friedman era, that as long as you didn’t break the law, anything you did to maximize profit and shareholder value was at least ethically neutral. You could say you were a good business as long as you weren’t doing anything illegal.

Now, if I give my students a discussion question on business ethics, they’re quite likely to go away and talk about climate change or human rights or something like that. So, our notion of what a good and ethical business is and needs to do has completely changed. Everybody’s noticed that, because it would be hard to miss, whether you’re looking at Disney in Florida or the Paris climate agreement or all the culture-war stuff, all the employee pressure, all the revelations about human rights abuses and supply chains, the Xinjiang forced-labor law that just passed.

There’s a huge amount going on, and what I think is going on is that business leaders are feeling completely overwhelmed. They have no idea what to do about these things. Very often, there isn’t someone whose job it is to deal with these things. These things sit somewhere in between compliance and sustainability and corporate affairs and government relations and risk, and so, at the moment, it’s a real struggle to figure out how to respond. You don’t want to say, “We don’t care about any of these concerns — we’re just going focus on shareholder value,” but on the other hand, you don’t want to suggest or claim that you’re solving problems you can’t solve.

Companies are caught in the middle, between a rock and a hard place, trying to figure out what to say or what to do and how to tie things to their strategy and then how to respond to all this pressure. Where it often ends up is a governance by Twitter, where you’ve got someone in the marketing department saying, “Someone’s yelling at you about this today,” and companies pivot and try and respond as quickly as possible.

One of the biggest problems is that there’s so much bad advice out there, and so a lot of the debate also falls into this idea of some people saying, “Well, this is all nonsense, and you can ignore it,” and other people saying, “No, it is your job to solve climate change and human rights and inequality and democracy, and there’s not really a sensible middle path forward,” so that’s where I would say we are at the moment.

Joe Kornik: That’s interesting. You mentioned Twitter, and that’s an interesting point, because Twitter has forced executives to make a stand—or to feel like they need to make a stand—on several of these social issues. They’re not all going to be as easy as Russia-Ukraine. There’s going to be a lot more gray areas as we go forward. Do you think that executives will need to take more stands, take more positions, take a side, and should they? Would your advice be that they should, or should they try to steer clear as much as possible?

Alison Taylor: I’m a bit of a skeptic about companies taking a stand, because a lot of it is PR, and I hate to sound like such a historian, but before about 2014, it used to be that a business would say, “I am neutral. I don’t get involved in controversial issues. I don’t take positions. Republicans buy sneakers too”—whatever it is—“I don’t get involved in politics. It’s got nothing to do with me.” But always, beneath the surface that’s never been true. Companies spend money. They usually spend money on either side of the aisle. They lobby. They try and get things done in their own interests.

Businesses have been forced to take a stand, but then, what that’s done in turn is make employees and other stakeholders and everyone else be, like, “Hang on a minute. You’re saying one thing, but what are you doing beneath the surface? Do you mean it? Are you greenwashing? Are you spending money that undermines your position?”

I don’t think there’s a problem with a company taking a stand if it’s been really thoughtful about it, but it’s very dangerous to take a stand and treat this like it’s just messaging, because now what you’ve got is armies of employees investigating and trying to figure out if you mean what you say. It’s OK to take a stand, but make sure you’ve got your ducks in a row internally. Make sure you can talk about what your business is actually doing about the issue. Don’t just talk about something that’s got nothing to do with your business to have an effect.

We are, as you’ve doubtless noticed, very polarized in this country at the moment. Republicans and Democrats have always disagreed, but now, there’s been a big rise in what we call effective polarization, which means we don’t just disagree with the other side. We think the other side is evil and stupid. You can see surveys where people are quite happy for their children to marry someone from a different religion, but marry someone from a different political party? No way. We’re in this really dangerous situation, and I certainly don’t think it’s business’s role to save democracy, but business needs to be very careful about the backlash and the turmoil that you have seen going on with some very high-profile companies recently.

Joe Kornik: Let’s stick with business leaders, then, if we could. You had mentioned them earlier. You think they’re really struggling. They’ve just been inundated with all of this information. ESG has become a real front-burner issue for all of them. When it comes to ESG and, specifically, ethics, what would be your advice for business leaders? What steps could they be taking to make sure they get this right?

Alison Taylor: I have a one-word answer that, but I’ll expand my one-word answer: focus. There’s a f confusing aspect of ESG, which is that because a lot of it is driven by investors, what investors want is a bunch of ESG ratings. What they want is for the company to disclose information on 30, 40, 50, 100 issues, and then the investors can look at that data. They can put the company in a portfolio of companies, and they can use it to make more money.

I’m not saying there’s a problem with transparency, but I don’t think “What can I do to get a better ESG score?” is a good way to run your strategy, because you will end up completely overwhelmed. Realistically, a business cannot be ambitious and cannot be doing a good job on 30 or 40 issues. The advice I give when I consult to companies on this topic is, pick, ideally, one issue — but definitely no more than three — that is genuinely relevant to your business, where you can genuinely get something done and it is genuinely relevant to your stakeholders, and focus on that issue.

Do something ambitious, do something strategic, partner with NGOs, make sure that’s your message. On everything else, just be aligned with your peers, but don’t try and solve world poverty. Just work on the things that your business can do, and try and do that properly, because the alternative is that this is just treated as PR, and you end up with a team that spends all year writing the report and gathering the data and doesn’t do anything about the problem. I’d much rather see companies focus on one really important thing.

I read an article in the Wall Street Journal a couple of weeks ago: The former chairman of Aetna said, at the end of this article, “Running a business is now table stakes,” and I thought that was a pretty terrifying comment, because running a business has probably never been so difficult. I would like the people running businesses to focus on running the business and not on saving the world, where we have other institutions—at least in theory—whose job it is to do that.

Joe Kornik: That’s interesting. You mentioned focus and staying focused on one or two. Do you have any suggestions or any thoughts about which may be the most important? I’m sure it varies by business or by geo, but are there some that have risen to the top in terms of their import for business leaders to focus on?

Alison Taylor: I think everybody is concerned about climate change, obviously—or all young people, at least, are concerned about climate change—and the other thing we’ve seen since the pandemic is, there’s now a very big focus on good jobs, a living wage, healthcare, things like that. We’re starting to see the rise of unions again. Those two topics are really important, but otherwise, you’re right—it varies a lot by industry. If you’re an oil and gas company, you’ve got an obligation to do something about climate change. If you’re a pharmaceutical company, you need to be looking at drug access and pricing. If you’re a social media platform, you need to be looking at the social impact of tech.

Companies would rather not focus on those problems, because they’re core to their business model and they’re difficult problems, but if you want trust and credibility and to be ethical, you’ve got to do something about the things that are core to your business model. The good news is that that also will result in programs that are relevant to your business, not just you speaking up on some random thing that’s got nothing to do with you.

To go back to that speaking-up point, I’m making this sound easier than it is, because those issues around race and gender and things like that obviously are relevant to all companies, and they need to think about what they’re going to say or do if there’s a lot of employee pressure, but you can be thoughtful about that. But I keep going back to this point, and everything that happens out there in the ESG world just reinforces this for me: You will be most likely to be successful if you are very focused about what you’re trying to do and honest and clear about that but you don’t overpromise. You don’t make promises you can’t keep. I think that’s very dangerous today.

Joe Kornik: It seems to me that often, ethics gets overlooked when we talk about ESG or corporate responsibility. As you mentioned earlier, it’s going to be hugely important over the next decade. One, is that a fair statement, and accurate? Two, where do you think it could have the most impact for companies when they think about ethics and integrity and their position on those things going forward?

Alison Taylor: I’ll try and be brief, but one of the interesting things about this is that—and this started in around the 1980s—we’ve seen an ethics and compliance function grow up on one side, and then we’ve seen this sustainability, or now ESG, grow up on the other side. And in fact, those two departments haven’t had much to do with each other until now. So, we’ve had this view that ethics is about the law—we’ve discussed that already—and ESG is about the voluntary things you do to make the world better. But of course, the voluntary things you do to make the world better are also based on ethical viewpoints. People are upset about climate change and inequality because they’re perceived to be ethical issues, so it is completely wrong to say ESG has nothing to do with ethics. But it comes from this idea that there are two different lines of thinking, and that ethics is only about the law.

What we’re now seeing—and I wrote a paper for the World Economic Forum about this with some colleagues—is rise of what we called the chief integrity officer, but what we’re starting to see is a more expanded integrity role, in the U.S., at least, that takes the form of the compliance team very often taking over ESG, and that can be bad if ESG is just seen as another disclosure and set of regulations. But for the right business leader to start to take a role that’s more strategic—that thinks about “What are our commitments going to be? What laws are we going to make? What position are we going to take globally? Can we operate in this market? Should we pull out of China? Should we pull out of Russia?”—you need a senior executive thinking about those challenges, and they cut across ethics and compliance and ESG. What I hope is going to happen is a more strategic approach to ethics over the long term.

Joe Kornik: Interesting. Thank you, Alison. You’ve been very generous with your time. We call this program VISION by Protiviti because we want people to give us their vision of the future. We want to bring smart people to the table and have them tell us about where we’re headed. When you look out a decade or more, what do you envision for this space?

Alison Taylor: It’s probably a question of what I think might happen and what I hope will happen, but certainly, what I hope will happen is that companies will have a big mindset shift and understand that a company is not just a self-interested entity, and you’ve got to protect the value at all costs. It’s a system. A company in real life is a social system, and it interacts with the environment, with other social systems, with political systems, and it relies on those systems and it relies on those stakeholders for success.

You can’t make money over the long term unless you cooperate with your customers, with your suppliers, with your employees, and so I hope we will move toward a model of business that’s more cooperative, more collaborative, that understands that you have a fundamental responsibility not to make the planet worse, and then, a very different sort of leadership that’s more democratic, that’s more about network building, more about listening, more about emotional intelligence.

I might be on to something here, because there’s been a recent study showing that job descriptions for C-suite executives have changed over the last 17 years. It used to be that what we wanted was just operational or financial experience and, really, the ability to bark orders from the top. Now, what job descriptions are looking for is exactly what I described: more empathy, more emotional intelligence, more network building. I hope that in 10 years, we’ll have this new generation of leaders that thinks differently about how you run a business and how you succeed in society, and we’ll have employees that want to support that, and we’ll have a little bit less turmoil and a little bit more focus and a lot more responsibility.

Joe Kornik: Bring it on. That sounds like the kind of world that we’d all be happier with.

Alison Taylor: I think so.

Joe Kornik: Alison, thank you so much again for your time today. We really appreciate it. And thank you for watching the VISION by Protiviti interview. I’m Joe Kornik. We’ll see you next time.

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As the continent’s economies come out from the global pandemic and grapple with climate change, ESG will play a key role across industry sectors. Africa is endowed with an abundance of mineral wealth and there are many environmental, social and safety risks in the mining sector; community relations and environmental impact will be key issues as Africa navigates its natural resources.

Investors and consumers are beginning to place greater trust in organisations that show a long-term interest and commitment to these issues. For African companies, how they handle ESG initiatives will be crucial to their competitiveness, value and very survival. And many are stepping up to lead the way forward.

Mo Ibrahim’s prize for governance

One entrepreneur’s initiative has been addressing the social and governance aspects of ESG, if not the environment directly, for more than a decade. Mo Ibrahim is a Sudanese-British billionaire businessman and environmentalist who founded Celtel, an African telecommunication company. After selling Celtel in 2005 for $3.4 billion, he set up the Mo Ibrahim Foundation to encourage better governance in Africa. This led to the creation of the Ibrahim Index of African Governance, which evaluates nations' performance in the provision of the political, social and economic goods, as well as the Ibrahim Prize for Achievement in African Leadership, which is awarded to former African leaders who have met the criteria of good governance, democratic elections, and respect for term limits, amongst other criteria.

The Ibrahim Prize is a hefty $5 million (U.S.) for the African leader who best improves the lives of his or her people. Winners have included President Mahamadou Issoufou of Niger, who was recognized for leading his people on a path of progress in the face of severe political and economic issues, and Ellen Johnson Sirleaf of Liberia, Africa's first elected female president. Sirleaf was celebrated for her work leading Liberia out of devastation following the civil war and leading the reconciliation process. Nelson Mandela was an honorary recipient in 2007.

By recognising these achievements, the prize goes a long way to setting an ESG agenda, as well as recognising those leaders who practice its tenets, within Africa.

Protiviti has been thinking about sustainability and ESG solutions to help future-proof organizations for quite some time. And I suspect most businesses were thinking about sustainable business before 2021. ESG, in some way, shape or form, has been around for a long time. More commonly known as “corporate social responsibility” before, ESG has evolved from a “should do” to a “must do” as companies recognize that doing right by people and the environment and practicing good governance are essential to surviving in the marketplace.

And that’s what, I think, Winston was talking about: The recognition that ESG is table stakes, strategic and central to almost every endeavor undertaken by a business. It will only be more so in the future. But for business leaders today, how to build, implement, execute, monitor, measure and report on ESG is no small task. Perhaps that is why not everyone is on the ESG train. Laggards in the form of skeptics, lip servers and, unfortunately, greenwashers remain in the marketplace.

Turns out, it's not so easy being green. 

Business leaders are struggling to figure out how to maximize performance and have a positive impact on people, processes, and the planet. What happens now that the E-S-Genie is out of the bottle?

With that question as a starting point, VISION by Protiviti embarks on an ambitious project to explore the Future of ESG. Featuring interviews and insights by experts from around the globe, VISION by Protiviti puts ESG and sustainability under the microscope to examine the impact they will have on global business—and the world in which it operates—in 2030 and beyond.

Clearly, the environmental piece is top of mind for most, and climate change remains the burning platform that drives much of the agenda, with “decarbonization,” “net zero” and “net negative” being boardroom and C-suite buzzwords these days. But social, and its ability to win hearts and minds, and governance, which holds critical reporting, are gaining steam. Governance is particularly important among ESG investors, who are flooding the marketplace with fresh capital. They seek green investing opportunities and want the unvarnished version of the truth. And regulators want them to get it.

Podcast transcript

Joe Kornik: Welcome to the VISION by Protiviti podcast. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource looking into the future to examine big themes that will impact the C-Suite and executive boardrooms worldwide.

Today, we’re exploring the future of ESG and its strategic implications for people, process, and the planet, and I’m happy to welcome Shy Muralidharan to the program. Shy is the worldwide energy solutions lead with Amazon Web Services, focused on building solutions related to measurement and management of decarbonization initiatives for AWS customers and partners. For nearly two decades, Shy has been a global leader in the areas of energy and sustainability, and we’re so fortunate to have him with us on the program today.

Shy, thanks for joining us.

Shy Muralidharan: Thanks for having me, Joe. Good to be here.

Joe Kornik: I’m fortunate to be joined by two of my esteemed Protiviti colleagues today who will be handling the interviewing and leading a discussion on energy and decarbonization in 2030 and beyond. Let me introduce Aaron Ragusa and Jordan Svoboda, both senior managers at Protiviti. Jordan, I appreciate you helping me ask some of the questions today.

Jordan Svoboda: Yes. Thank you, Joe. Happy to be here as well.

Joe Kornik: Aaron, thank you as well. I’m going to turn it over to you, Aaron, to begin.

Aaron Ragusa: Thanks, Joe. Happy to be here. Shy, thanks for taking the time out to join with me and Jordan. I know we’ve met a couple of times briefly but when the topic came across for who can we talk to about ESG and what’s the future, Jordan and I instantly pulled your name up and said, “This is who we have to talk to,” just because the way that we think about it is, when we have the option to talk over the future, when we think about ESG is that there’s just this demand for data and information by not just companies out there but investors, consumers alike who really want to see transparency in the market. That’s going to be our topic for today. Looking forward to catching up with you. Thanks.

Jordan, you want to hit him with the first one?

Jordan Svoboda: Yes. Thank you, Aaron. I appreciate that.

Shy, really just diving into ESG overall, one of the big questions I wanted to ask you to kick this off was as businesses start to weigh ESG and sustainability over the next decade, what advice would you give senior leaders or what steps would you provide them to take right now to ensure success in the future?

Shy Muralidharan: Thanks. Thanks for the question, Jordan. First of all, I would start by saying that any action that you take is probably moving the ball forward and I would highly recommend that if you’re an executive or senior leader in an organization that can make an impact globally or locally within your own community, the first step is to make sure that you are taking some action in terms of decarbonization, sustainability, or anything related to ESG. We strongly feel that inaction is not going to help, and also the fact that this is a problem that has to be solved by a lot of cooperation and collaboration among several entities innovatively as sectors, and so it’s important that executives should start with, if they haven’t done already, measure, try to understand what is their carbon footprint, what is their carbon intensity of their operations. For them, they have to first figure out what is their current state in terms of what is the impact that they can make in reducing the overall carbon budget. That likely is the first step that everyone has to embark on.

Now, we do see that there are several organizations across the maturity spectrum that are doing that. Some of them started much earlier than others who are just starting now, but overall, I would say that if you want to make sure that you want to contribute to alleviating this problem, it’s important that you take some of those initial steps, right? This could mean that you might have to experiment or innovate and you might not always get it right the first time around, but it is that time that you’d spent iterating  on what you need to do in the space. That will determine how successful you are. Given that this is a multidecadal problem to solve, we’re not going to see results tomorrow or day after. You have to invest in this for the longer term for you to really get to goals which are today set at 2030, 2040, or beyond.

Aaron Ragusa: I think how you close it up, Shy, it’s exactly how I think companies have really taken the road of having a longer deadline I think helps them out. I think it’ll just be “okay, yes, you’ve set these dates of 2030, 2040, 2050 but what are you doing to get there?” That’s where obviously the transparency and data processing that has to go through all of the processes that’s in a company are important. I think it’s great to have a goal and to put it out in the public, but let’s put up, I think, is what the companies need to do.

Jordan Svoboda: I think you’re picking up from that, right? From the idea from this new SEC rulemaking on ESG, I think one of the big points of contingence that we’re going to see, especially for energy companies and upstream companies in particular, is going to be around Scope 3 emissions and the data collection around that. How do you see data collection changing over the next decade that will allow for entities to report on Scope 3 emissions?

Shy Muralidharan: I think it’s first important to understand based on which sector you are to determine what percent of your emissions are Scope 3. We are seeing several sectors that are quite heavy on Scope 3, like oil and gas, chemicals, CPG, mining. All these sectors, a lot of the leaders in these sectors are reporting on 1 and 2 but yes, Scope 3 is where most of their emissions lie and unfortunately, today, they are not able to do a better job of reporting on their Scope 3.

Now, a big challenge with reporting out on Scope 3 is that they need the cooperation and collaboration of partners across the supply chain because Scope 3 is a lot about indirect emissions along your supply chain, so it is important that whether you are as a supplier contributing to components to make a product or contributing to some kind of service, it’s important that you work collaboratively with the organizations who make the most impact along your value chain and work together.

Now, we are seeing the reluctance of some of the vendors or organizations involved in this effort that, “hey, providing access to details related to my emissions might expose my business operations, the secret sauce that I have.” There is a way to collect data that is exclusive to tracking or measuring along these three scopes without necessarily providing details that make you uncomfortable.

Now, that is the challenge. We see a lot of companies start with just manually trying to collect information from their vendors, the right to determine their Scope 3, which means some of them are just sending out manual forms which they can fill out and you collect information voluntarily. Even that’s a good start. You don’t necessarily go all the way in terms of making sure that your supply chain data is of the best quality, which happens when you’re able to directly connect to systems of data within your supply chain without throwing too much tech jargon, if you want to use APIs that connect to a supplier’s operational system and you’re able to pull in real-time data that gives you very close, direct measurement of your Scope 3.

But I don’t think we are there yet and I want to present a realistic picture that the next few years, there’s going to be a lot of dynamism in how Scope 3 is going to be solved. The good news is that we are much better off now than we were a few months or a few years ago. There are a lot of companies who have convinced their supply chain that they need to share the data. We are seeing a lot more folks along the supply chain willing to commit to the data because they now understand it’s a global problem. We all have a single carbon budget that we have to bring down, so I think there’s a much better acknowledgment that we’ll only solve this through collaboration. We’re seeing that evolution in terms of the quality of data collected, the methods of data collection, and all of that.

Aaron Ragusa: Shy, you bring up a good point about commitment to the data, and I love your analogy of the secret sauce because we’ve had clients kind of bring that up to us, too, which is how much do I need to disclose of what are my operations? Do you think that this level of commitment just starts to get solved as more and more people adopt this level of transparency, or do you think that it takes kind of a banding of the chief information officers at organizations to say, “Hey, yes. We are going to be part of the solution, and my role is to make sure that we don’t give away that secret sauce. We give away valuable data points.”

Shy Muralidharan: Yes, that’s exactly right. I think it’s important for actors along, let’s say, a single supply chain to commit and trust each other and make sure that all actors along that supply chain do not break the trust. You have to ensure that you give the confidence to your suppliers that, “Hey, I’m collecting this data just for reporting purposes and I’m not going to misuse this.” Yes, so that’s where I would say a lot of the reluctance today lies, is that there aren’t enough examples either way, good or bad, of folks treating the emissions data that is shared Scope 3 in ways other than what it’s intended to. Now, we are hoping that this starts building trust as more and more companies report out on Scope 3 and more suppliers get comfortable with sharing their data with folks downstream in their value chain.

You will see the moment — I think we’re all waiting for the tipping point when you have enough suppliers or folks along the supply chain who are sharing data downstream. If they get the confidence that, okay, this data is not going to be misused and there’s overall good in all of us sharing this data, I think we’ll see a lot more momentum, but like a lot of other things, this is early days and we have to get over this initial hump.

Jordan Svoboda: Yes. That’s a great point, Shy. Even from that perspective, too, if a supplier is unwilling to share that data, I think a lot of the conversations I’ve had with my clients have started going around vendor selection. Part of the attributes that they take to that process is, can we get some of this ESG data that we need because our investors, regulatory bodies require that information from us, so we require that from our vendors, which then starts trickling down the line to that vendor selection process, which I think is an interesting development that will probably continue to take place over the next few years.

Obviously, a big portion for us with energy utilities, the E in ESG is obviously the main focus, the main driver, but what about the other two areas for you, Shy, here around social and governance? The SG of ESG, how do you see energy in utility companies utilizing that data in these areas by 2030?

Shy Muralidharan: Most customers start with the E of ESG because that’s the most quantifiable. You can back down emissions related to carbon and more to do with all the resources that are in play for any kind of sustainability transformation. Whether that’s energy, water, waste, all of those resources, it’s much easier to quantify them. You have systems in place that allow you to see how much you’re procuring energy or water, how you’re consuming it. I’m not saying that it has been adopted across all organizations, but there at least exists a technology for you to quantify how these resources are procured, utilized, recycled, and all of those through the lifecycle of those resources.

Now, with S and G, you do not have that same clarity in terms of how to quantify some of those, right, because the topics themselves in S and G include things like human rights and diversity and quality of governance. It’s extremely difficult to quantifiably measure and/or benchmark those metrics and by that very nature of those metrics, folks tend to deprioritize them. That’s what is going on. I would say I think that naturally so, people, a lot of leaders in the energy and utility space are prioritizing the E of ESG, but we are seeing more and more. We have a lot of customers who ask us, “Hey, I need to track some metrics related to human rights and diversity,” and it’s coming up a lot in conversations. Again, I think if I said earlier, it’s early days for overall sustainability reporting, it’s way more early days in terms of the S and G part of it.

But folks are starting with trying to aggregate third-party scores and ratings and trying to use sector averages. A lot of economic modeling is going on. Estimations are going on. The challenge will be that with the E part of it, you are able to nicely transition from economic modeling and estimation to more direct measurement to the point of source of, let’s say, carbon emissions or any other kind of emissions that make a difference to the overall carbon budget.

With S and G, I am not sure there’s a clear path for them to move to a quantifiable outcome. There is an expectation from a lot of the regulatory bodies that there is more quantifiable modeling done around those metrics and some of the organizations, honestly, when we talk to them, they are saying, “We’re just waiting for additional clarity around how to report out S and G.” They are doing it in part now. There are metrics like executive compensation or how do ESG goals tie into executives’ objectives, and how is your board structured in terms of having enough of these ESG metrics represented by board members? There are some metrics coming in but I think it’s a space that likely will evolve a lot in the coming decade.

Jordan Svoboda: I tend to agree with you from everything I’ve seen as well where if there’s a spectrum of this reporting, E is definitely first in line, followed by probably S and G pretty close together for a few years earlier in the development from there as well.

Aaron Ragusa: It’s a nice transition that we set up here. As we’re talking about S and G, we’re talking about how folks interact with any companies and that change in dynamic, what Jordan and I wanted to pick your brain about is more the energy space and how the energy landscape seems to be changing. I feel like in your world, data and transparency, the data point that every consumer has had at their fingertips since, I don’t know, forever is the price at the pump. How much am I paying for fuel? How much am I paying on my electric bill, on my gas bill? I was just wondering how do you see data being used to drive both suppliers, so E&U companies, and consumer decisions through 2030?

Shy Muralidharan: The challenge there is not so much data. We’ve always had data in that space for several years now. The challenge is to put all of them together and orchestrate the data from multiple sources. To give you an example, if I’m an energy retail supplier or if I’m a consumer of an energy retailer and I have a mix of traditional fossil fuel energy supply with some element of renewable energy supply, now I have a multitude of suppliers who are providing energy with varying levels of carbon emissions or carbon impact. It is important that I’m able to reconcile data from all these suppliers, whether that’s a traditional fossil fuel or brown energy suppliers with some of these green energy suppliers, not all of them have data at the same spatial and temporal granularity. You see now a lot of renewable energy projects that provide data by the hour or by the minute because they are solar and wind farms that have the tech enabled to provide more granular data, compared to a lot of traditional fossil fuel plants which do not have that level of granularity. We are definitely seeing a lot of, I would say, the incumbent players there trying to up their tech and making sure that they are able to supply more real-time data, but it doesn’t exist as an industry. You have to go in and retrofit a lot of tech there to make sure that you’re getting that same level of granularity that we are seeing with some of the newer energy companies.

Now, that itself becomes a challenge, as a consumer, in that I now have to reconcile data. I have to put it together. I have to come up with a normalized score of what is the impact of my energy procurement strategy or if I can come up with a single CO2 equal a number to the quality of the energy that I procure, it is not easy. It’s a lot of manual number-crunching and you sometimes don’t — even large organizations that we talk to really struggle with this problem.

Now, that becomes an issue for the decision-makers if you don’t have the quality of data at the right resolution and the right granularity. That shows up in the quality of decisions that you take in terms of either a broader sourcing strategy or now, honestly, a topic that’s very timely is that people have to balance how they respond to climate change with energy security, which has come up all the way down to the fuel price at the pump. It’s like how do I balance these two goals and do I have the data to do it? Unfortunately, a lot of them don’t. They are trying their best but they tend to then lean towards one or the other. Some of them have gone on record to say that they will continue to keep their commitments to climate change and everything that they’ve been doing around emissions reductions, and others who have leaned heavily on the other side and said, “No, we’re going to park all of that for a few months or years while we get our energy security in place.” There’s a select few who are able to balance both and trying to go up the tightrope between those two objectives. That’s how we are seeing data being used.

With consumers, I probably split that up as B2B and B2C consumers, folks like you and me. There’s a lot of data that doesn’t — I would say we have the data again that will help us take those decisions, but I am not sure we have all the right products. It depends on the market you are in, how regulated or deregulated it is. How much information, even if you are in a deregulated market, can you use to take those decisions? We probably have to wait a few months or a few years at least before we have the quantity of data that allows us to make real-time decisions.

Interestingly, there are several utilities who have even come to us with that same problem and they want to give more decision-making at the hands of their consumers and have asked us, “Hey, can AWS come in and help with the tech to do that?” At least, that’s a good sign. We haven’t had those conversations earlier, so we are seeing more and more of that coming up in a lot of discussions, which means that that makes me optimistic that I think in the future, there’s going to be more data and decision-making power in the hands of the consumer.

That also ties in nicely with the overall decentralization of the energy industry. You’re using more distributed energy resources, microgrids, and other initiatives that are moving all the decision-making and the data away from a decentralized grid actor to more decentralized actors.

Aaron Ragusa: The way that we’ve talked about it in the past is — and I think you are just getting into it — I think in the past, there was a very large separation in what a consumer did and how a business operated. I’m not sure if it’s just the synchronicity with ESG starting up, but it seems like employees have more power than ever just to speak and make change. With energy being such a hot topic right now, that just seems to be what we hear about, largely, the E being dominant as Jordan said. I guess it’s like the S influencing the E.

Another point to build on is as you hear more consumers demanding more transparency through data, where do you see that future going? What is kind of what you’re excited about? What is the next piece of technology coming down the pike that — you don’t have to disclose the secret sauce at AWS, but what are you excited about that piques your interest?

Shy Muralidharan: I think what I’m most excited about is to have more real-time data influence the decisions. That is whether it is consumers or various actors along the energy value chain, all the way from generation through distribution of energy, in one way or the other, whether that’s a barrel of oil, whether that’s a unit of 1 kilowatt of energy. However, you get to the endpoint of that energy. The amount of data that folks are trying to layer on to these value chains is just exploring the potential of what you can do with the data. Yes, we have to be wary of making sure that you don’t end up with too much data. When we help customers, it’s like solving for data using data lakes and they say, “Oh, you don’t want it to end up with a data swamp.”

Aaron Ragusa: Got you. I like that.

Shy Muralidharan: People talk about data obesity now, which is too much data, you really don’t know what to do with it, and so you end up not doing anything with it because you’re just like the typical “deer in the headlights” situation and you’re just staring with too much data and you really don’t know which way to move.

That is an important part of making sure that we solve for the right amount of data and use it for decision support to make the decisions related to making sure that you’re able to reduce emissions across your value chain. Even helping others downstream. The important topic with Scope 3 is that a lot of times folks do not realize how much of an impact their product can have once it leaves their gate. We talk about this entire cradle-to-grave emissions tracking of products and services, which means from the first point of origin of the first component of the product all the way to end-of-life of the product. Sometimes, organizations are just focused on getting their product out of their gate, so there’s a cradle-to-gate piece but once it leaves their gates all the way to end-of-life, to the grave of that product, there’s a lot of emissions, which is why it’s important to get involved heavily in making sure that you’re tracking your Scope 3 effectively.

People talk about redundancy and double counting and all of that. I actually — to those folks who always say that, “Oh, in Scope 3, there’s a lot of double counting and I don’t think it’s an effective method to do it.” If you’re really going to the nature of Scope 3, I’d say double counting is a feature, not a bug. It is intended. There is no requirement for you to make sure that you’re not double counted. The idea is that you get folks across the supply chain and the demand chain as much as possible, track all your emissions. One man’s Scope 1 is another man’s Scope 3, and vice versa sometimes, right?

It’s okay to — I don’t think double counting is the biggest issue to tackle there. It’s important that everybody tracks their emissions effectively, and you start with some kind of measurement, like folks who do not measure, you’re not even accounting for the emissions, and then you don’t even have a stake in the ground in terms of talking about can you reduce emissions or not. It’s first importance, start with measurement and the old adage, you cannot manage what you cannot measure. Start with measurement so that then you can get into effectively managing your emissions.

Aaron Ragusa: I love that, cradle-to-gate, gate-to-grave. That just makes it so clear to me. I feel that as a consumer, too, especially now, sometimes I look at what we bring into the house or what we buy and then I wonder where this is all going, like how many times — what did it take to get to me and then what does it take to get once I’m done with it.

Jordan Svoboda: I think even jumping in with the idea of — Shy, you had mentioned consumer-driven demand and having very detailed, almost individualistic demand drivers from the consumer level. If me as a consumer can make decisions in real time from a utilities companies saying, “I want to switch from natural gas-provided electricity to wind power or solar power or hydropower,” real-time throughout the day to make either the best decisions financially or the best decisions maybe from a moral decision, if that makes sense, that’s a very interesting concept. I agree with you about the idea of data obesity, where maybe I don’t have time to make those decisions throughout the day, so I just default to whatever is easiest or whatever is cheapest, or maybe I just set my default to, I want what’s the most green choice that I can make from there. There’s an interesting balance I think that’s going to have to be figured out over the course of the next few years.

Shy Muralidharan: That’s right, yes. Data obesity is real. You see that being discussed a lot with our customers. With a lot of large organizations who have mature systems for data acquisition, they have all the data as required. I think it’s important to extract and curate the right data that you need for decision support.

Sometimes you don’t have to be comprehensive about it. Sometimes there is a drawback. You’d rather get some initial decision-making going with the data that you have and it could just be a few data variables that you can use to make a decision, and then get into refining it and fine tuning it to greater levels of accuracy.

Aaron Ragusa: Shy, one of the biggest, I think, newest, I guess, industry to come about is the crypto currency industry and when I think about it, it’s very intriguing because it is kind of — obviously, there was always an energy cost to produce a dollar in the United States or produce a metric of currency, but cryptocurrency has easily been branded as this new potential future currency that is very high in energy demand. I just wanted to see if that has come across your desk at all as something that we could see growing over the next 10 years. If so, what are your thoughts on that?

Shy Muralidharan: The one thing that excites me is the underlying technology of blockchain. Blockchain has the technology…

Aaron Ragusa: Yes, and you said “chain” a couple of times in the past questions, and it’s like yes, exactly right.

Shy Muralidharan: Overall distributed ledgering of information, things like smart contracts that allow you to do settlement in real-time or near real-time, a lot of the underlying technology that has manifested as cryptocurrency. I think cryptocurrency is one of the manifestations of the underlying blockchain technology. The technology itself is great. I think to the world, it’s given a technology that can apply for a lot of the decentralization that’s coming into the energy value chain overall. I see a future where your EV will talk to an electric fuel station, a charging station at your grocery lot, and you could have to the car and the station settle like you could be pumping EV in there for like 20 minutes, 23 minutes. They do a real-time settlement and the car and the station has talked to each other and there’s probably monetary transaction involved, and all of them done without any human involvement.

A future like that is quite exciting, which is why I totally support the technology but in terms of cryptocurrency itself, the idea of tokenizing, I think it is like the internet in the 90s. I think there’s going to be a lot of models that people try out. There are going to be winners and losers, and we see some interesting players there. I don’t want to take any names but some of them who we think have more sustainable business models compared to the others. But yes, overall, as I said, I love the underlying tech. I think there’s a lot of promise there, especially in the decentralized energy world of the future.

We are now seeing blockchain-driven microgrids or blockchain-driven peer-to-peer trading of energy. If you have community rooftop solar within a community and if you want to have trading between two houses within the same community around their rooftop solar generation and if one is overproducing and the other is underproducing and if they want to share that. Or collectively as the entities within a community, if they want to trade with another community, I think the possibilities are endless with the underlying tech. I think it’s important to get it right, and we’re still waiting for those blockchain-enabled technology that can go mainstream, I think. I’m sure it will happen in the next few years.

Aaron Ragusa: I’ve got one last question for you to bring us home. When you think of an intersection of ESG, sustainability and energy, any predictions about where we’re going?

Shy Muralidharan: I actually would like to use a quote from the BlackRock CEO who said that a lot of the tech for climate tech has not been invented yet. I think my prediction is that we are going to see tech that we probably don’t see in the world right now to be used to solve for some of these problems around that and overall emissions reduction and such. My prediction is that it’s a great time to be alive and I’m looking forward to tech that’s not invented yet.

We talk to a lot of startups. We talk to a lot of early-stage companies while working on really cool tech. I also strongly think that as much as we hear a lot about it, tech is still underrepresented in the quest for sustainability and emissions reduction, and I see tech playing a lot bigger role in the coming years. That’s my prediction. Now, that’s the only way we’ll get to the scale that we have to and the goals that we have to by 2040 or 2050. It’s important to have the tech sector along with the energy sector go hand in hand to get to those goals.

Aaron Ragusa: Well, Shy, that’s all I’ve got for you today. Don’t be surprised if you see my name in your inbox again to just chat. This has been great and I really appreciate the time.

Jordan Svoboda: Yes, Shy. I’ll echo what Aaron said here as well, maybe even with the inbox message, too, but definitely appreciate your insights on this and your time sharing all of your information with us today.

Shy Muralidharan: I thoroughly enjoyed the discussion. Thanks for having me and I always enjoy talking about the future. That’s something that I’m really passionate about.

Aaron Ragusa: Thanks, Shy.

Jordan Svoboda: Perfect. Then Joe, I think we can pass it back over to you.

Joe Kornik: Thanks, Jordan. I appreciate that, and thanks, Aaron, and thanks, Shy, for that great discussion around energy and AWS and the future. A really interesting discussion.

Thank you for listening to the Vision by Protiviti Podcast. Please rate and subscribe where you listen to podcasts, and be sure to visit us at vision.protiviti.com and subscribe to sharpen your Vision.

On behalf of Aaron, Jordan, and Shy, I’m Joe Kornik. Thanks for listening. We’ll see you next time.

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Kornik: ESG has become a front-burner issue for most companies worldwide, and clearly, I think, it will be even more important in the future. How did we get here?

Dolmat: ESG—Environmental, Social and Governance—is just the latest in a string of different names for this idea of doing the right thing for people, communities and the planet. Whether it's been called “corporate social responsibility” or “sustainability” or “corporate citizenship,” the concepts have been around for decades. ESG is about doing the responsible thing across the entire business: it’s all the different ways a company can impact society and the different ways society can impact a company. And, as you indicated, it’s more popular than ever. One of the bigger changes we’ve seen in this area has been the increase in the demand for transparency. Everybody is asking questions, and we have all these new ratings and rankings so companies can compare where they score in relation to each other. But I wouldn't necessarily say that it has resulted in material change. Just because companies are being more transparent doesn't necessarily mean they’re making meaningful changes. Especially right now, I think it’s really important for business leaders to stay focused on the biggest things they want to accomplish.

Kornik: What should business leaders, ultimately, be focused on?

Dolmat: The big picture. I would advise business leaders to stay focused on the forest instead of the trees, which seems like an apt metaphor here. It’s easy to get caught up in all the noise surrounding ESG, but true, meaningful impact will only occur if leaders remain focused on the larger, societal challenges we’re all facing—the pandemic, the climate crisis, the list goes on and on. If they remain focused on those bigger issues, they can then think about where their businesses can have the most impact, and where they could align their business strategy to help solve some of the big issues. So that would be my advice to senior leadership: Stay focused on the end goal and don’t get too caught up in the ratings, rankings and reporting, although they’re important, of course. But our world needs business leaders focused on setting big, bold, ambitious goals and then figuring out the best ways to achieve them.

Kornik: Speaking of big goals, what aspects of ESG do you think will emerge as the most important in the future?

Dolmat: ESG is really dynamic and the focus at any given time will vary depending on what's happening in the world—like when a global pandemic suddenly breaks out that will surely change the sustainability priorities of any company. That being said, we are all in a rapidly changing world, particularly from a climate perspective. No country, company or individual is going to be untouched by this climate crisis. And it’s going to play out differently in various industries, but we cannot underestimate the migratory pressures that are going to happen because of climate change. In the most heavily impacted areas, where will those people live? What jobs are they going to have? This starts with climate, but really it becomes a global human rights issue. All of this is so interconnected, so I think it is hard to say what aspect of ESG will be the most important in the future. I do know there are many people trying to figure out how we create a viable future on a livable planet, where people have access to basic, fundamental needs like food, shelter, water and breathable air. And, honestly, I don't think that corporate ESG initiatives will get us all the way there. We’re going to need an integrated approach to how we operate not just as businesses, but how we operate as societies. And I think business can take a leadership role; there are many private companies with very innovative solutions, but governments need to support that innovation and incentivize it when necessary.

Video transcript

Joe Kornik:  Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Director of Brand Publishing and Editor-in-Chief of VISION by Protiviti, a global content initiative looking into the future to examine big themes that will impact the C-suite in executive boardrooms worldwide. Today we’re exploring the future of ESG and its strategic implications for people, process and the planet. I’m thrilled to welcome in Alex Robart, the GM of Sustainability and Industry Solutions at Microsoft, where he leads the firms’ commercial sustainability solution strategy across industries. Alex will be asked about all that and more by Protiviti’s David Petrucci, Managing Director and leader of the supply chain and operations practice. I’m happy to turn it over to David to begin.

David Petrucci: Thanks, Joe. Alex, welcome and thank you for joining us today on such an important topic.

Alex Robart: Thank you. I’m glad to be here.

David Petrucci: We know Microsoft has been leading the way when it comes to sustainability, not just internally but also through your ecosystem. Satya has made some very bold pledges along the way. A hundred percent renewable energy but 2025, protect more land than it uses by 2025. Carbon negative by 2030. Zero waste by 2030. Water positive by 2030. These are all extremely strong stretch pledges for companies today. Then more important than anything is the carbon negative since foundation by 2050. That’s probably one of the most bold pledges of any company around the world. These are some serious pledges from a corporate sense and standpoint. Alex, could you talk about some of the challenges that Microsoft is looking at internally. You’re doubling your data centers every 14 to 18 months but still achieving Satya’s targets. How are you doing this?

Alex Robart: I’ll just start by saying it does feel really good to work with a company who has been so bold and perhaps has set some of the most ambitious and holistic set of goals out there, so it’s exciting. It makes you feel happy to come to work every day and really be part of the solution. I think from a cultural perspective and what allows us to—you made those goals let alone execute on those goals—it really just comes down to leadership to start.

Full credit to Satya and to Brad Smith and to Lucas Joppa, our Chief Environmental Officer, who have been real thought leaders in constructing the goals and finding the fortitude and commitment that we, Microsoft, as one of the leading companies globally, with strong balance sheet, great performance, growth, all the things that you like to see, we have the ability to do more quickly than most companies with our 2030 carbon negative goal. We do believe that we should do that. Those are some of the big philosophical thinking behind those goals.

In terms of, what does it look like internally to actually make the progress to execute against those things, because the good and the bad of that to your targets are somewhere at 2050 with the timeline perspective which is pretty far off. You and I probably won’t be working with companies still in 2050. The way it’s not really your problem to set a 2050 target. Our 2025 internal target around running our operations exclusive on global energy and our series of 2030 targets that you laid out there, they’re very near-term targets where current leadership team and current company, people and place has to own it, execute and deliver these things. We’re really on the hook. We set that first goal of ours, our carbon goal, in 2009. It’s been a pretty lengthy journey here since 2009, over a dozen years of work. We’ve continued to deliver and then reflect, upgrade, and set new goals for ourselves. Sometimes it feels like we can’t stop setting more ambitious targets for ourselves.

We really started from an operational-only focus. We looked at how to make our offices and our data centers more efficient, more sustainable, with work that spans the company, now to really evolve to the broad holistic focus: all of our products, all of our services, all of our customers, partners, policy and of course our employees. It’s been an evolution to get to, I think, that really holistic end-to-end point that not only looks within our four walls of the enterprise as Microsoft but really considers broadly us as a global participant who can and should have more impact beyond just our own emissions footprint. I think that was probably a really big, in a way, revelation for the fact that we can have a broader impact on our ecosystem as well as on the world globally.

I think the recent compulsory climate disclosure, the SEC’s recently proposed rules, the UK, Europe, Japan and elsewhere, all of these are really crucial to put in all various countries on track to get to net zero, to a net zero future. We’ve really decided to lean in as heavily as we can from a policy perspective, use that footprint, use that maturity when it comes to engaging with policy makers in governments to provide them increased information to investors and to other companies how to facilitate the emergence of a framework for measuring carbon negative impacts in order to share meaningful insights to help our companies and our customers develop emissions reduction strategies.

Following off of that policy framework, we really did move our focus beyond getting our house in order with our footprints and then helping create new industries leaning from a policy and an investment perspective, to now shifting gears to ramping up a new effort which is how to empower our customers to deliver on sustainability and accelerate their own journeys and so to that end, we’re proud to announce last week that we did go general mobility the full commercial launch of our new Microsoft Cloud for Sustainability product, which delivered a lot of the key capabilities from a platform and an application perspective to help our customers accelerate their sustainability journeys and make sure that they’re in compliance with those rules coming country to country.

David Petrucci: Actually, you have so many good nuggets there. Let me dig into a couple of things. You talked about leadership around sustainability and a bit of a culture at Microsoft and you were talking about some of the top-down influence there but could you talk maybe a little bit about the bottoms-up position from of a Microsoft culture standpoint and really what drives that aggressive position and execution? What makes culture so special at Microsoft?

Alex Robart: I think again, not to belabor leadership, but I think Satya has really pushed the concept of empathy and this growth mindset of the company. Since we’ve started setting those sustainability goals back in 2009 and iterated on them and upgraded them, I think it’s really become pretty well-ingrained at this point in the company that all teams have some level of ownership over this and we encourage them to take our strat projects to help drive sustainability into whatever the mandate of their team might be, whether that be products for our customers or whether its internal operations.

I think at this point, it’s really a pretty thriving internal community of folks who lean in beyond whatever their day-to-day roles might be and it’s become an important part of lots of folks’ jobs. We do have a carbon fee that we implemented 2012, I believe was the first year we implemented the carbon fee. We steadily learned from that, iterated on it and improved how it works so that each of the business groups across Microsoft have some accountability for their share of our footprints and have some level of ownership and ultimately driving into executive remuneration to ensure that they’re incentivized to make sure that we deliver on those goals. I think all these different things work together. Again, I think leadership with people and the empathy and growth mindset, embracing some of these concepts is at the core. I’m just pleased to see that we’ve gotten the entire organization engaged on such an important topic.

David Petrucci: Microsoft makes it sound so easy but we know it’s not. There are a lot of comments coming out of COP26 this year that we’re all not doing enough. That these great targets and pledges that we’re making, still aren’t being realized, and I think everyone is seeing and learning that this is tough, this is not easy to make this change. It takes time, it takes a lot of energy, it takes a lot of investment. Talk to us a little bit about what you think needs to change, drive the realization of this change?

Alex Robart: Just to emphasize your point earlier. These things are not easy. Often when I visit with customers, I have to explain to them “Yes, we’ve got these wonderful holistic goals but our road has not been straight up into the right. There’s been plenty of bumps along the way, plenty of lessons learned and best practices that we’ve had to arrive at through some bumps along the road, and I think most recently our recent sustainability report we published in early March, the headline figures in that sustainability report, those outcomes, your great Scope 1 and Scope 2 outcomes, 17% reduction in Scope 1 and Scope 2 footprints above plan, but on Scope 3 we had a miss. Actually, a 23% increase in our Scope 3 footprints, a lot of which is unexpected when we set those goals a couple of years ago. And so we really view this as sort of a learning year for—we’ve got a pretty good handle on our Scope 1 and Scope 2 and we’re executing pretty well on the datacenter, renewable energy goals, which is really at the core of a lot of those energy carbon goals. But there are things that are outside of our four walls. Products in the hands of our customers for instance. Our gaming demand is up. Gaming usage is up, which meant that a lot of these gaming systems, particularly older systems, are running on less decarbonized grids all around the world, which makes it really tough for us to control energy consumption and the carbon footprint associated.

We’ve lessons learned between that and particularly on the part that you raised about this big data center build out. We haven’t figured out ways yet tomorrow and today to really zero out the carbon footprint associated with those construction activities and some of the capital equipment that goes into those data centers. We’re working on them for sure but don’t have the perfect mutual solution in front of us today. A lot of lessons learned. I do always try to convey to our customers that this is hard, we’re learning and we’re here to bring those learnings to you and help you accelerate and bring those best practices to bear.

David Petrucci: I think you brought up some good points around Scope 3 where it becomes much more challenging when you’re looking at that full value chain and you’re trying to move from maybe more of a standard space accounting model to “How do I get the real data? How do I get the real view of what’s going on?”—a cross sample value chain model. We know the sustainability cloud has been GA. Are there other things that Microsoft’s looking at that will help the collaboration, visibility and the continuity of information exchange across that broad spectrum?

Alex Robart: Yes, that’s a good question. When we set down and first started thinking about the product strategy for what became the Cloud for Sustainability, we really started with the framing that this is a value chain problem. We really have to think more broadly about the problem, how you solve not just for each individual company, the Scope 1 and Scope 2, how do you solve for value chains? What’s required to facilitate that flow of data through the value chain so that each value chain has the most effective understanding of their value chain footprint, not just immediately upstream and downstream but all the way through that chain for an individual participant in that chain.

That thought process really anchored our strategic thinking here along with the product that’s Cloud for Sustainability with the application called Microsoft Sustainability Manager designed to help companies with their sustainability data, accounting reporting and that workflow. We also are viewing this platform in the Cloud for Sustainability in the application as a tool to help facilitate that flow of data. Sure, we’ve got high-quality, high-integrity data that we can eventually help companies move back and forth recognizing that we really need a holistic solution if we’re going to solve Scope 3 effectively. It’s really not many companies globally who I think are in a strong position to be able to do this with the trust and credibility of so many large and important companies. We are trusted to help facilitate that data across, not just their upstream supply chain participants but also their downstream customers. That’s where we’re going, it is not just “Let’s deliver a nice application to support the accounting reporting workflow” but how can we help the integrity of data all the way through the value chain.

On top of our commercial efforts, we also help to support and stand up a non-profit—through an effort we call the “carbon call.” We stood this non-profit. We launched it back in February with participation from I think 15 to 20 big corporates and all the big four accountancies with a three-fold mission. Number one is “Let’s encourage our companies to provide higher quality reporting and more reporting on our carbon.” Two is “Let’s work with everyone, particularly the accountancies, to standardize the accounting methodologies” and three, “Let’s work together with all the various vendors in the big integrator implementation players in the space to ensure that the many, many applications popping up there between large companies and startups are all interoperable over time so that data can move back and forth in and out of systems,” because it does no good to anyone if all this data is locked away in a bunch of proprietary systems, proprietary data models and proprietary non-harmonized methodologies.

David Petrucci: So, Alex, I think we have made great progress in sustainability from a leadership standpoint around the world; it’s more than just checking the box, right? We’re seeing the real reasons why companies and leadership teams continue to move toward a sustainability framework. The things that we run into in today’s world where we have inflation, we have economic downturns, we have all of these reasons for leaders to maybe put this on the back burner. What would be your call to action for senior leaders, the futures of business seeing some the times that we’re seeing right now?

Alex Robart: That’s a good question. At Microsoft, you know that our actions alone won’t be enough to protect ecosystems, deliver the climate impact that we all need, achieve all the things across all dimensions of our planet that the scientific consensus is clear on. We’re really testing a new partnership, new solutions, new policy. The real potential is to scale rapidly and scale globally.

We as a company are focused on finding new ways that we can use to harness the power of technology with these partnerships and the right investments and the right companies to drive impact at scale and at a pace to help the world really effectively deliver and transform one and all the climate goals that you don’t think of but also from a circular economy kind more broadly. We’re looking to play a role to catalyze a collective action transitioning to a more climate-friendly set of global products, services and operations, also transition to a global circular economy that brings ecosystems together, align partners and really to put together transformational partnerships that can deliver research, guidance, implementation roadmaps that enable all these goals. We’re looking to leverage the Microsoft Sustainability Manager application to help all our customers out there support automated and comprehensive views of [Audio Gap] impact across their operations and their value chains. That’s an important tool for us that we’re going to be really betting heavily on and using that to work with our customers, not just on that application proper but as certainly the building block for how we engage them across their enterprise, across the different parts of their operations and beyond their four walls to help them bring technology and capabilities from all across Microsoft, to accelerate their efforts across all those different slivers of their operations.

David Petrucci: I know you’ve had so many great use cases with your customer set: steel companies, energy companies where you’re driving consumption out of their business from an energy or CO2 standpoint. I think there’s been so much work to be done on a reduced standpoint. What are you seeing from a replace standpoint as far as your customers go? Is that starting yet? Is that something in the future? Where do you see the next steps?

Alex Robart: I think we’re early there still but there’s some success stories out there. We helped Rio Tinto a couple of years ago to solve all the really tricky underlying data challenges for them to launch a green aluminum product which is green by virtue of the fact that the power that goes into the smelting operation and production facility is all renewable, zero-carbon energy. That’s one example of replace. We’re starting to see a lot more examples cropping up. Not that many have started to achieve full commercial scale but particularly on the back of CBAM in Europe, the Carbon Border Adjustment Mechanism, with Asian manufacturers for instance, we’re hearing a lot more recognition and awareness that, wow this CBAM thing is likely coming in 2026.

One, I’m going to have to attest to the carbon footprint of my products so that they can avoid maximum tariffs. Then next step is what I need to do to reduce those tariffs by reducing the footprint of my product, changing out, redesigning those products, using more renewables to power the operations that produce those products, going to my supply chain. We really are starting to see I think a lot of action on that replace topic with I think things like CBAM playing probably an outsized role in triggering companies to become more aware. So that’s what I’m really quite bullish on, personally, and I think it’s such a tricky data problem. This problem, and really sustainability more broadly, is really in a way the ultimate data problem and in a way there’s no better company than Microsoft to help them solve some of those data issues.

David Petrucci: So Alex, in closing, are there any final thoughts or predictions about where we’ll be, where Microsoft will be, where the world will be as far as sustainability in the next decade? What surprises do you see?

Alex Robart: Yes, I think it’s a fast-moving space with so much innovation so I’m just so excited about the amount of capital funding this space and the amount of awareness from companies but one interesting area, the volume and variety of spatial data, really has continued to grow exponentially. Whether it’s coming from satellites with—we won’t go into details here—but a massive inventory of nanosatellites and satellites of all form and function, acquiring more data about the planet as well as IoT continue to penetrate, requiring more data from ground censors. The volume of data that that’s generating and the amount of compute required to manage and process all that data is really an interesting topic, certainly an interesting topic from the perspective of a cloud company like Microsoft.

I also get interested from a planetary and climate impact perspective. We really need more actuals. Actual real-time or near real-time data if we as a planet are probably going to understand where we are from a carbon emission’s perspective and then where each company is and their ownership and responsibility around that. At the same time from a commercial perspective, if companies are able to get to actuals rather than using emissions factors, to be able to calculate their footprint, we’re not going to be able to get credit for all the good work that a lot of companies are doing and then be able to push that credit through in the form of lower footprint products that in many cases they may be able to actually capture market share, capture margin on the back of the lower footprint that those products represent.

I think it’s imperative for all of us to get to actuals, more real-time data to support that, to attest to that and certify and track those products through value chains so that companies are going to be able to ultimately get to end consumers with products that are low footprint that will be a premium for them in many cases, but to me it’s one of the most exciting things out here is just emergence of sustainability-differentiated products as a massive growth driver for companies. It all takes data, lots of compute, and it really takes moving that data to the infrastructure, I think that is the cloud if we’re really going to fully capitalize on the promise of all that data, particularly the massive volumes of satellite data starting to flow.

David Petrucci: Yes, and I’ve been, only companies, large hyperscale like Microsoft have the ability to bring us all together. Alex, thank you so much for your time today. Your insights on this topic and it’s just great seeing you again. Thanks for everything that you’ve done and Joe, back to you.

Joe Kornik: Thanks David and thank you Alex for that look at sustainability in Microsoft and thank you for watching the VISION by Protiviti interview. On behalf of David and Alex, I’m Joe Kornik. We’ll see you next time.

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