Podcast transcript

Joe Kornik: Welcome to the VISION by Protiviti podcast. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, a global content resource looking into the future to examine the big themes that will impact the C-suite and executive board rooms worldwide. Today, we’re exploring the future of ESG and its strategic implications for people, process and the planet, and I’m happy to be joined today by Sharadiya Dasgupta, founding partner of Blue Dot Capital, where she leads the firm’s strategy, client partnerships and industry engagement, as well as advising CEOs, CIOs and family-office principals. Blue Dot is a sustainable-finance consultancy that partners with financial services firms to support the end-to-end development and execution of ESG and impact investing programs, capabilities and products. Sharadiya, thank you so much for joining me on the podcast today.

Sharadiya Dasgupta: Thank you so much for having me, Joe. Looking forward to the conversation.

Joe Kornik: So, you’re a founding partner, as I mentioned in my introduction there, of Blue Dot Capital. Can you tell me a little bit about Blue Dot and what it does, and how it’s helping to shape the future of ESG?

Sharadiya Dasgupta: We are indeed, as you’ve so elegantly described in your introduction, Blue Dot Capital. We are an ESG and impact-investing consulting firm, and we have a narrow and deep focus on serving the asset management community. We work with investment management firms investing across public and private markets, and support the development of their in-house ESG and impact-investing policies, strategies and program capabilities.

In terms of shaping the future of ESG, well, that’s a great aspiration to have. We are starting out, and it’s not just us as a firm that’s starting out. I think the whole ESG space has so much room to grow in rigor and sophistication, and so much evolution will happen, so it will be prematurely self-congratulatory for me to say if we are shaping the future of ESG. We aspire to. Time will tell. Also, if we do succeed in earning that validation, I want that recognition to come from our clients and partners, and not self-certified, so I won’t comment on that right away.

Having said that, we are fortunate to work on a range of interesting ESG projects with our clients, some of which have pretty novel components, so let me share a small subset with you and your listeners. We are currently working with the investment team of a private market-investment platform to explore and understand, what does a sustainable mobility strategy look like? Sustainable mobility is a big field that involves multiple industries, so we are trying to understand, what are the impact objectives that a private-market investment firm can try if they launch a sustainable-mobility fund? What should be the hierarchy of those objectives and themes? What are some of the unintended consequences that we should be guarding against when designing this investment strategy?

The second example is related to supply chain. As we all know, supply chain continues to be the topic du jour, so we are working with a very large global data company that’s working on developing the blueprint of what an ESG-informed supply chain financing might look like, and we are doing that in partnership with a consortium of leading lenders. So, we do have a front-row seat to see how the ESG conversation is evolving, and we are excited about that.

Joe Kornik: Yes, it sounds like it, and those are some really interesting examples that you just brought up, which is really interesting. And you are in the forefront of the investment that’s happening in ESG, and there’s been a real rush of money into that space—into ESG investment funds—certainly, since the pandemic. Sustainable business has come of age in the last few years. Do you think that movement toward ESG investing is real and lasting, and where do you see it today, and where do you see it going in the future?

Sharadiya Dasgupta: Climate change and the need to decarbonize and enhance our resource efficiency, that’s a business imperative. That will require businesses to adapt and innovate, and I do not see any intelligent tenable resistance to that any longer. At best, it’s a matter of time. It’s your choice as business leaders whether you start acknowledging it now and you’re taking strategic action, or you could buy yourself a little more time and delay by another few years, but there will be some tradeoffs for doing that, but it’s just a matter of time. I don’t think there is a question of whether you need to do it or not.

Parallelly, there are also some immense demographic and socioeconomic shifts happening that have implication for consumer preferences and buying habits, again, that impacts the bottom line and that impacts investment-allocation decisions. To answer your question, the practice of incorporating ESG into business decisions and into investment decisions, that will continue.

However, some of the ways of incorporating ESG and some of the mechanisms that we have practiced will have to evolve and will have to mature. For example, we often hear people—including, if I’m not mistaken, some of your guests on your earlier episodes, have talked about the problem of ESG data. You hear people often complain about the lack of quality ESG data. Regulators, and to a certain degree, market forces will take care of that. Regulators are already setting disclosure regulations for publicly listed companies, for asset management firms. All of that will end up fixing this problem to a large degree.

However, the problem that is not often talked about enough is the lack of education within investment management firms to analyze and draw meaningful insights from the data, because traditionally, the paradigms of investment management do not really have room for a more critical examination of some of these risks and opportunities that we are now talking about.

There has to be reorientation within investment management firms that force them to take a more expansive view of risks and opportunities. I hope that over the years to come, there is greater sophistication in how investment management firms analyze the ESG data that’s coming their way, and this cannot just be led by the ESG functions in the investment firm. This has to be truly cross-functional. There has to be buy-in from investment teams, and investment teams will also have to develop this capacity to analyze and critically examine this data. There has to be a cross-pollination between disciplines happening here. This cannot just be the responsibility of the ESG and climate teams of companies.

That’s one prediction as to how it will evolve, and my other prediction is that there has to be a disaggregated examination of ESG. ESG is convenient. It’s a convenient acronym and a convenient way to organize information. But E, S and G are such broad topics, and an expression like ESG can end up being reductive, so now there will be a trend away from using ESG as a catch-all, and sophisticated investment firms will have to develop capabilities and research functions that have the capacity to do a more critical and nuanced examination of the components of ESG and the subcomponents that are relevant to their investment theses and their investment philosophies. The gist is that the investment management profession will have to become more sophisticated in how they dissect and examine ESG information.

Joe Kornik: Interesting. I feel like both aspects of that answer did talk about talent and skills and capabilities, and I’m wondering: You mentioned that more rigorous analysis of the data is necessary. Do you think that’s just a tweak to reposition some existing professionals in these firms, or do you think that’s systemic? Are we not developing those skills and capabilities even at the B-school level or university level? Do you see a skills gap, I guess, is what I’m getting at around data and analysis as we move through the next several years.

Sharadiya Dasgupta: It’s a skills gap. You say that correctly. There is a skills gap, and the skills gap would have to be bridged. It cannot be just the conventional financial analysis–led conversation. It has to be a bigger table, and we need folks with an understanding of some of the operational aspects of ESG, folks with a sophisticated understanding of climate risks and their implications for economic growth and financial performance, so it is a skills gap.

But the good news is that there are enough initiatives already afoot that are tackling this problem of a skills gap. I know universities that have launched multicollaborative research efforts that have participation from the financial services industry, that have participation from academia and some of the other disciplines needed that we just talked about to broaden and deepen our understanding of the interplay of ESG and financial performance. Institutions like the CFA Society and CAIA, they will increasingly take a bigger role in making sure that investment management firms have the tool kit needed to continue to future-proof their investment decisions. A lot more is needed, but we are off to a good, promising start.

Joe Kornik: I mentioned in my introduction that Blue Dot also advises CEOs and CIOs, so I’d be curious: What’s the advice? When you advise business leaders on sustainable investing, for instance, what are some of the biggest challenges they’re facing? What are their needs, what are their questions and what is your advice to those business leaders on overcoming or navigating those challenges?

Sharadiya Dasgupta: One of the challenges that leadership teams are facing is how to balance the now with the 2030 or the 2050 goals, and it’s not easy. Just with the geopolitical developments and uncertainty, the energy-transition conversation now has connotations about energy security, etc., so a number of CIOs and business leaders have had to reevaluate their stance on fossil fuel investing and how they still continue to be an enabler in the decarbonization process that has to happen. Is it just a momentary hiccup? Does it have ramifications for medium-term plans?

It sounds sprawling and messy, and it is sprawling and messy, so we do not always have neat answers, and we are lucky to have clients who understand that there are no silver bullets, so the advice that we give our clients is to make sure that they are budgeting for and they are accounting for the long-term trends and that, as stewards of capital, they’re not taking their eyes off what are the long-term directional trends, but then, in that short to medium term, they are adjusting for some of the variability that we just talked about. That’s the biggest challenge that business leaders are facing.

Joe Kornik: You mentioned long-term quite a few times there in your answer, and you led me into my final question of the podcast, which is, if I were to ask you to look out a decade or more — this is VISION by Protiviti, so we like to bring smart people to the table and ask them to give us their vision of the future and where we’re headed in a decade or even more. We could even go all the way out to 2035, which is a nice, round number. What do you see in the investment space? How much progress do you think we’ll have made, or where do you think we’ll be, or what kind of world do you think we’ll be looking at in this space in, let’s say, 2035?

Sharadiya Dasgupta: Let me shift the timeline to 2030—2030 is a major milestone and we have a major climate milestone for collective humanity’s sake we should be able to reach, and I do want to be optimistic about it. We have to halve emissions by 2030, and I hope that we have achieved that, or we are not perilously away from achieving that goal by 2030. Some of the technology needed to take us there already exists. It’s a matter of scaling that technology. It’s a matter of making sure that the capital continues to flow toward those technologies.

And then, in some cases, we do not have the technology ready, but our human ingenuity can definitely come into play, and there is so much innovation that has just happened in the last decade or so. There is no reason to not expect that to continue. So, the trifecta of politics, policy and capital, hopefully, will get us to that critical halve-our-emissions milestone by 2030. That’s my overarching big hope, and investors and the financial system, more broadly, have to play a critical role in making that happen.

I also hope that by 2030, the elements of equity are fundamentally entrenched in the climate-change conversation. The climate-change discourse has major implications for equity, and the ideas of equity within countries—even within, let’s say, the United States. Predominantly, or to a large extent, the most brutal impact of climate change will be felt by the historically disadvantaged communities. So, again, you cannot have effective climate policy if you are not taking into account those considerations, but it’s not only within countries. Globally, again, the climate-change conversation has major ramifications for the capital flow into developing countries and to frontier economies.

So, I hope that, as I said, the trifecta of policy, politics and capital gets to a point by 2030, whereby these considerations of equitable growth are just inextricably entrenched into the climate-change conversation. Those would be my hopes and goals for 2030. To tie it back to how we are shaping the future of ESG, I hope that Blue Dot, along with all our peers and the financial services industry and other professional services firms like Protiviti, that we all play a role in making that happen.

Joe Kornik: You sound optimistic. Do you think that we’ll get there? Do you think we’ll be in a good spot in 2030?

Sharadiya Dasgupta: I woke up and chose hope today. You’ve caught me on a good day, so, yes, I am choosing to be hopeful today. As ESG professionals, it’s not always easy to hang on to hope. Obviously, there have been a few curveballs, especially on the political and policy-making side of things, which has been disappointing, but as professionals in the space, if we don’t hold on to hope, it will difficult for us to focus on action. Sometimes, the change and the progress feels incremental, but hopefully, it will all add up and we will be doing whatever it needs for us to get to that 2030 milestone or, as I said, at least in the ballpark so that we are not in for a major climate calamity for us and the future generations.

Joe Kornik: Well, hopeful seems like a really good place to end this podcast. Thanks, Sharadiya. This was fun and informative.

Sharadiya Dasgupta: Thank you, Joe. Thank you again for having me.

Joe Kornik: Thank you for listening to the VISION by Protiviti podcast. Please rate and subscribe wherever you listen to podcasts, and be sure to check out Vision.Protiviti.com to view all of our insights and content around the Future of ESG theme that we’re currently working. On behalf of Sharadiya, I’m Joe Kornik. Thanks for listening. 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 board rooms worldwide. Today, we’re exploring the future of ESG, and I’m thrilled to be joined by Lyndsey Anderson, global head of research and insight at the Economist Intelligence Unit, to discuss its latest ESG rating service report, which measures the environmental, social and governance scores of 150 countries.

The Economist Intelligence Unit, the EIU, offers insight and analysis of the economic and political developments in a complex global environment, identifying opportunities, trends and risks on a global scale. Reviewed quarterly, the ratings identify the markets that are laden with reputational and compliance risks, as well as those that provide supportive environments for ethical operators. Lyndsey, thank you so much for joining me today.

Lyndsey Anderson: Thanks, Joe. It’s really nice to be talking with you.

Joe Kornik: The EIU gave each country a ranking in each category—the E, the S and the G—and that creates one overall ranking. The results are pretty eye-opening. Let’s start with the positive. Europe is far and away the big winner here, led by the Scandinavian countries in continental Europe. Eight European countries, and Australia and New Zealand, make up the top 10. Only 12 countries received an A rating, and 10 of them were in Europe. Why is that? What’s the driving force behind that success in Europe?

Lyndsey Anderson: It is quite stark in terms of that European outperformance, and it is particularly the environment, so it’s particularly the E strand that’s driving this and, in particular, its environmental policies are a major reason why so many European countries rank so highly. Governments in the European Union have invested significant funds into promoting the uptake of global energy sources. EU members also have strong common regulation when it comes to things like protection of water quality, waste disposal, forestry protection, etc.

It’s worth noting some outliers in that E pillar there, that environmental pillar. It’s not just richer, more developed countries that completely dominate that E pillar. The U.S., for example, trails emerging economies such as Chile and Costa Rica and others. If we look at the other two pillars, the social and the governance pillars, that trend is similar. European countries generally fare very well. One aspect of that is, the larger resources have allowed for the more effective regulation of some of these issues—things like corruption, labor conditions, civil rights abuses, etc. That contributes to Europe’s all-around strong showing in the rankings.

Joe Kornik: I’m going to ask you about the U.S. in a little bit, and I do want to dig a little deeper into that, but now I want to go to the flip side. China, Vietnam and Saudi Arabia were among some of the worst-performing countries. It seems we’re not going to be able to make too much progress for the planet without China coming along, so what were the biggest problems for these poor-performing countries? Was it the E, the S, the G, or a little bit of all three?

Lyndsey Anderson: Yes, it is a little bit of all three. China ranks 119th out of 150, Vietnam 122nd, Saudi Arabia 126th. These are low-ranking markets, and it is generally a weaker showing across all the three pillars, so they fall toward the bottom of the rankings for the E, the S and the G.

Vietnam gets its weakest score for the governance pillar. China and Saudi Arabia get their lowest scores for the social pillar. There is a fair bit of nuance within that. Both China and Saudi Arabia score badly for things like freedom of association, freedom of expression. Saudi Arabia performs worse on things like female labor participation and gender equality, whereas China performs worse for some of the labor rights indicators. None rank highly in terms of environmental performance, and that’s due to a limited transition away from fossil fuels, weak protection of domestic ecosystems, etc. It is a very mixed picture for these markets, and there is no one thing pinning them toward the bottom of the ratings, or an obvious area where they could improve and jump up.

Joe Kornik: The report illuminates for me—and maybe this is obvious—that climate and environment, and, specifically, decarbonization is where we still have a lot of heavy lifting to do. Do you also see those findings, and how do we get there? I know the report highlights some dire global situations, like drought in Africa. These are big problems, so I’m curious about how we tackle them. Is there a role for business leaders in solving some of these biggest ESG challenges that we have in front of us?

Lyndsey Anderson: Yes. That’s spot-on in terms of climate and the environment. The environment remains the worst-performing of the three pillars in our ESG ratings. We’ve got only four countries—Denmark, Estonia, Latvia and Lithuania—that received an A rating for that pillar, compared to 16 markets that received an A in the social pillar, 30 markets that received an A in the governance pillar.

And, returning to Europe, the European Union is a good example of how rapidly business investment can respond to ambitious decarbonization, ambitious broader environmental policies. EU countries have been some of the quickest adopters of renewable energy. They have significantly expanded the areas of legally protected ecosystems, made progress with reforestation efforts, and this has all contributed to these highest scores. In terms of how we tackle the issues, other large economies that currently perform far worse on environmental issues, on that E pillar, can learn a lot from the EU. The likes of the U.S., India, China can probably achieve quite rapid change if stringent environmental regulations were even gradually put in place because of the business investment that could then follow.

Notably, of course, the implementation of these regulations can then have global ripple effects, global knock-on impact. For example, sticking with the EU, the minimum standards that have been applied on all sorts of environmental issues, ranging from ethical sourcing of minerals to food quality, they’re forcing suppliers in non-EU countries to align their own products with these higher EU practices. High standards in these larger, better-performing economies can have positive ripple effects on the rest of the world.

In terms of the role of businesses and business leaders, businesses have an enormous role to play in terms of addressing these challenges. A discussion on regulation and policy can sometimes dominate when we’re trying to think in general terms about what progress is being made and what kind of issues are still outstanding. But business leaders and, of course, consumers, the customers of businesses, have a huge role to play in terms of bringing about change. An advantage that many businesses have is that they are often able to be more flexible and more nimble. They can change strategy more quickly in response to emerging challenges than governments often can be, and a lot of very big corporations are also operating in a global marketplace. They’re maybe less constrained by needing to respond to ESG challenges in a way that has to serve a specific national interest.

A crucial first step in terms of the role of businesses, naturally, where a lot of progress has been made, is to ensure that businesses understand the challenges, understand the diverse range of risks that these challenges pose to their businesses. That’s ranging from reputational and compliance risks posed by operating in certain markets to actual physical and infrastructural risks associated with the environmental pillar in particular, with climate change—things like the potential for political instability rise as a result of ESG factors, which can obviously have a very destabilizing effect on businesses at a local level.

Of course, there is an enormous amount of research and data that demonstrates the value creation that a proper strategy for addressing these sorts of ESG challenges can have for businesses. That’s across that whole spectrum, from reducing these sorts of operating risks to missing against potential reputational damage to reducing costs by investing in efficient technologies. Businesses have the potential to be complete partners in addressing these challenges rather than being led by regulation.

It’s not to suggest that contributing to solving some of these ESG-related issues is not without its challenges for businesses, because as you say, Joe, these are big problems, and solving them might necessitate things like more collaboration between businesses that are historically used to being in competition with each other, for example. So, there is this corporate cultural-change challenge that we’ll need to follow on in some areas from this—more ready acknowledgment that individually tackling these things just makes sense in terms of risk mitigation, reputational management, the ability to attract investment, etc.

Joe Kornik: When these business leaders look out a decade or a more, it’s pretty clear that climate and environment are the front-burner issues for a lot of them. Where do you see social and governance globally a decade from now? Where do you think that they will rank? Do you think that the environment will still be the big thing that will be on our plates, or where do you see social and governance in a decade

Lyndsey Anderson: With that time frame, the environment is likely to remain the most relevant aspect of ESG analysis, and that’s due to the increasingly visible impact of climate change and environmental degradation on the world and, obviously, the urgency in terms of the need for action. I mentioned earlier, we’ve got four markets that score an A in that pillar, so that also shows you the amount that still needs to be done. We’ve got a situation where many countries have set this net-zero goals for 2050, and to achieve those, they’ll have to accelerate their energy transition markedly over the coming decade, and that will just increase the prominence of environment on the agenda.

It feels like social issues have come into prominence a little bit more gradually, but we would expect them to continue to advance. So, particularly with things like gender equality and minority rights, they will continue to advance up the agenda and grow in importance. This just feels like a less well-served area in terms of the availability of data to track and measure progress. Maybe less uniformity in terms of agreeing what constitutes good, but the growing calls for this information do support the view that it is going to continue to advance as an issue, albeit, possibly over the next decade, secondarily to the environment. Governance is more complicated. Of course, it remains important, but the increasing size and importance of autocratic economies to the global economy—most obviously China—does complicate the advancement of democratic governance ideals and progress and pushing this up the agenda.

Joe Kornik: One way to think about the future is to take a look at some of the scores and rankings in emerging economies. Uruguay, Chile, Costa Rica did very well, but some of the emerging manufacturing hubs, like Morocco, India and China, did not. When you look at those two sides of the coin, what does that tell you about the future of ESG in 2030 and beyond?

Lyndsey Anderson: As we discussed already, ESG issues are evidently an increasingly important consideration for businesses. Operating in countries with weak performance in aspects of ESG, whether that’s environmental protection or labor rights, can carry significant reputational damage or compliance risks. These considerations do have the potential to slow investment into these weaker-performing markets to the benefit of those economies that could pose lower reputation or compliance risks. Now, of course, manufacturing hubs do tend to have a large energy consumption. Unless this hub that is drawing investment away has a clean-energy matrix, more investment in manufacturing and better-performing markets risks just pushing up emissions and in turn worsening that country’s environmental rating.

The energy mix of those markets that could draw some of that manufacturing investment away is an important thing to consider if we think about that decade-long investment trend. On the flip side of course, the emergence of manufacturing investment going elsewhere does have the potential to drive positive reform in some of the emerging manufacturing hubs that you mentioned. Places like Morocco, Vietnam, Ethiopia help facilitate and drive regulatory change over time, and that brings me back to this earlier point I made about the role of business leaders in choosing where to invest. Businesses can contribute to change, and that is from both the impact-investing standpoint and in terms of encouraging and driving reform.

Joe Kornik: You mentioned earlier political unrest when we talk about the S, the social. There are plenty of alarming findings in this report, but one of the biggest, or one of the most alarming, at least as far as I’m concerned, is the decline of democracy that the report points out that we’re seeing worldwide. What do you make of that? What does that mean for the future of the planet and people on the planet?

Lyndsey Anderson: The scores for governance in our ESG rating, they do echo a trend in the EIU’s annual democracy-index report, an annual report that we produce looking at the state of democracy globally. There’s been a trend for several years how that the world has been experiencing this democratic recession since around 2015. The pandemic, COVID-19, has accelerated that in many ways. That’s raised the power that the governments have over people’s lives, which, in some cases, has led to the erosion of individual freedoms. There have been more country-specific setbacks for democracy, as well as coups on the African continent in 2021, particularly in West Africa.

Probably the biggest trend we see, or the biggest determinant of how democratic values could evolve over the next decade, is something that our analysts have termed the China challenge. China’s economic performance over the past 40 years has created this formidable competitor to the U.S. China’s increasingly vocal claims about the superiority of its governance model have put Western leaders on the defensive, and, ultimately, a reduction in any commitment by countries to democracy and to personal freedoms would result in a sustained weaker performance in the social and governance aspects of ESG over the medium term.

Joe Kornik: I said I would circle back to the U.S. This is my final question for you—you’ve been very generous of your time. I’m based in the U.S., and a lot of our readers for the VISION program are as well, so I have to ask you how the U.S. is doing: Where did the U.S. rank overall, and what do you see as some of its major challenges for the future?

Lyndsey Anderson: The U.S. as a striking underperformer in our ESG rating is the reality. It ranks 33rd out of 150 markets covered. That means it trails most European Union members. It trails many other developed economies such as Australia, New Zealand, Canada, Japan, and it trailed some emerging economies as well—the likes of Uruguay and Chile. The ratings don’t neatly align with income levels—in particular, our data shows that there isn’t a particularly strong linkage between how affluent a country is and its environmental performance as compared to other pillars. Now, there is this stronger correlation between income and the scores for social and the governance pillars. I think that’s what makes the U.S.’s underperformance more striking.

The U.S. bucks the trend where richer countries generally perform more strongly in those social and governance parts of the ratings. The U.S. is ranked 19th out of 150 markets for the social pillar. It’s ranked 21st out of 150 for the governance pillar. It’s bucking the trend in terms of things like the relatively weak protection of labor rights in the U.S. compared to in other developed economies, for example. The environmental pillar is without a doubt the area where the U.S. needs to make more progress in order to climb up the ESG ranking. In the environmental pillar, it ranks 59th out of 150 markets, and it’s dragged down by still-limited uptake of renewable energy, still-significant exports of coal and oil. It still has a long way to go on that E pillar in particular.

Joe Kornik: Thanks, Lyndsey.

Lyndsey Anderson: Thanks very much, Joe. It’s been nice to talk to you.

Joe Kornik: I know those ratings are updated quarterly, so I’ll be checking back in for sure. If you’d like to learn more about the EIU’s ESG Rating Service Report or read more about the rankings, check out the link to the executive summary that we provide in the introduction and show notes. Thanks for watching this VISION by Protiviti interview with the EIU. I’m Joe Kornik, and we’ll see you next time.

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The irony of responding to mounting evidence of climate change by actions which boost carbon emissions illustrates a core conundrum for India. On the one hand, India is among the countries most vulnerable to changes in the climate—including a risk to the monsoon pattern on which hundreds of millions of farmers rely, receding glaciers in the Himalayas which feed the great rivers of the north and east, and more intense storms and flooding.

Yet the politics of a noisy democracy make the hard decisions required for India’s sorely needed energy transition more difficult. The rising middle class aspire to the carbon-heavy lifestyles they see on streaming content—cars, travel and summer air conditioning. And politicians shy away from taking on the vested interests of King Coal, at least not while 77% of India’s power is generated in government-owned thermal plants and more than a million jobs in key states depend on the coal industry and its supply chain.

By 2030, India will be the most populous country on the planet and have the second largest economy behind only China. It’s critically important for us all that India gets this right.

At COP26 in Glasgow in November 2021, India’s climate dilemma was again on display. The Prime Minister, Narendra Modi, was an early advocate of climate action from his years as Chief Minister of Gujarat, and published a book entitled Convenient Action calling for radical policy change. He pleasantly surprised many by coming to Glasgow offering a more ambitious national contribution by 2030 and a net zero target date of 2070. In a fast-growing economy with a very low per-capita carbon footprint, these were genuinely stretching commitments. Yet it was India which, on the last scheduled day of the conference, held up the final Climate Pact by refusing to agree to the intent to “phase out” unabated coal usage, and instead settling for “phasing down” coal.

At the same time, it is clearly true that it is in everyone’s interest, including that of India, that growth should become less carbon-intensive and more sustainable. The government of India has taken responsibility to change its power generation and transport sectors, but—as in other countries—needs to be careful about the politics of tackling coal and imposing new taxes.

The logical and ethical solution to India’s climate dilemma is a “grand bargain” with the global community, especially richer and more polluting nations. The government of India can turbo-charge India’s climate transition by pricing carbon across the economy in return for international partners offering climate finance at significant scale.

To achieve just India’s 2015 commitments at COP21 in Paris would require investment of $3 trillion, so estimates of the price tag for carbon neutrality are in excess of $20 trillion. Most of this debt and equity can come on commercial terms from private markets, given the underlying positive economics. The good news for international investors is that India’s climate transition offers a huge, long-term investment opportunity as India’s economy—currently the fastest growing in the world and rapidly moving from the fourth largest economy to the second by the end of the decade—commits to an epic and fundamental energy transformation.

Podcast transcript

Joe Kornik: Welcome to the VISION by Protiviti podcast. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, a global content initiative looking into the future to examine big themes impacting 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, specifically, how business leaders can create and foster a culture of sustainability at their organizations.

Today, I’m joined by two of my Protiviti colleagues to discuss what that means, how we get there and what the future holds. Joining me for the discussion today is Fran Maxwell, Global Lead of the People Advisory and Organizational Change segment, and Kim Lanier, Director with the People Advisory and Organizational Change segment. Fran and Kim, thank you so much for joining me on the podcast today.

Fran Maxwell: We’re excited to be with you, Joe.

Kim Lanier: Hey, Joe. It’s great to be here.

Joe Kornik: So, when we talk about this culture of sustainability, what does that entail, and why is that so important?

Fran Maxwell: As you probably are aware, there’s a lot in the market around environmental, social and governance—ESG—and what we think is that we’re at the infancy stage for organizations, developing what that looks like for them and embedding it into their overall culture. When we’re talking about culture, we’re talking about a set of behaviors that an organization tries to adhere to or tries to drive to. We believe a culture of sustainability is getting those things that drive your business from an environmental, social and governance perspective embedded into the fiber and the tissue of your organization. It’s just a part of how you do business, not necessarily something you need to think about.

Kim Lanier: To tag onto what Fran shared regarding a culture of sustainability, it entails developing a clear sense of direction by developing a statement of purpose in regard to ESG. That’s a great place to start. Purpose statements can be effective drivers of sustainability programs. They tend to home in on what is most important. There’s a tendency for organizations without that to address too many sustainability topics that may or may not be relevant to their core business. Most organizations still think in terms of what, how and why. Good leaders will put the why first, hence the purpose statement. Building a culture of sustainability means embedding sustainability into a core business strategy.

Joe Kornik: In general, how do you think most companies are doing in terms of building that culture of sustainability that you’re talking about, and do you think business leaders and boards recognize the importance of that?

Fran Maxwell: Joe, I’ll address your first question first. It’s challenging to come up with a generality, because organizations are all over the place. There are some organizations that are further along the maturity spectrum than others, that may have ESG metrics already built into leadership goals or individual goals. Those organizations are further along the spectrum as far as developing a culture of sustainability.

And then there are other organizations that are still trying to get their arms around what ESG means to them, like Kim mentioned. Maybe they’re doing too many things, or maybe they’re not doing the right things and they need to take a step back and figure out what direction they need to go. When we’re chatting with organizations, we often talk about starting at a materiality assessment so you can put a strong plan together in figuring out what’s important for your organization as it pertains to sustainability.

Joe Kornik: I feel like companies are at a pivot point right now in terms of the moment we’re in. Fran, you mentioned the different levels of maturity, what we just went through, and what we’re facing in the future, do you feel that too? What’s different about right now, and does that present any unique opportunities?

Fran Maxwell: One thing that’s different about right now is people are paying attention to this. Boards are, investors are. There’s a ton in media about it. We even see that as we’re interviewing candidates for positions—they’re asking about what our sustainability efforts are. What are we doing from the ESG perspective? What are our DEI programs? What do they look like? People—consumers and employees, or candidates—are paying attention. That’s what’s different, and that obviously drives board behavior and CEO behavior. If I were to highlight the difference, that’s the key component.

Kim Lanier: Increasingly, society is expecting companies to exist for more than just profit. They want them to contribute to that greater societal good, and that means taking care of people, communities and the planet. Society is driving this. Government is responding. And employees, especially millennials and Generation Z, want it. They want that sense of higher purpose connected to their work life. It’s rare that all these things converge at once. The key for the organization is not to get too political about it. It shouldn’t be a flavor-of-the-month approach. There’s a unique opportunity right now if we do this right and balance building a good business—profit, purpose and societal good all together—and take more of a long-term perspective.

Joe Kornik: And you both touched on this, but could you expand on it in terms of what needs to be in place for this culture of sustainability to exist and take root in an organization and flourish?

Fran Maxwell: Kim addressed a portion of it. It’s communicating the why: Why are we taking this on? I also think having a direction—understanding what’s important to you. The most important factor, though, is ensuring that the C-suite is modeling the behaviors that they expect from their people as it pertains to developing a culture of sustainability. We know that behaviors change and are modeled after leadership. Those leaders need to model these behaviors and recognize other folks that also share those behaviors and make it a priority for their leadership team to take these big initiatives on and be held accountable for them.

Joe Kornik: Let’s look out a bit into the future. What would you say are some of the key attributes to creating this culture of sustainability? Can you talk about what aspects of this can be addressed near-term and what ones may take longer for businesses to implement?

Kim Lanier: If I have to identify a few things, it would be the top four, as we talked about earlier: The mission, where there has to be a clear direction of purpose to establish a drive toward sustainability and ensure that the stakeholders and employees know how to align to the organization’s overall strategy and objectives. The second component would be consistency. There need to be systems and structures and processes established to support that so that it gets embedded into the organization, and the extent to which an organization can define the values and systems would form the basis of a strong culture of sustainability.

The third component would be the involvement or activation, and this is where once the system exists, it’s about involving and activating the workforce. This is asking a question: “Are our people aligned? Are they engaged?” It’s about getting them committed and owning and responsible for ESG and sustainability inside the organization. The fourth component would be being more adaptable. It’s about paying attention to trends and feedback from stakeholders, and it’s pausing and asking ourselves, “Are we listening to our key stakeholders? Are we listening to the marketplace?”

To address your question about what’s near-term and what’s longer-term, the near-term is creating a culture, setting that right foundation with mission and purpose. The other elements, like consistency and involvement, might take a little bit more of a longer-term view and involve resources from leadership to mature and make happen.

Fran Maxwell: Joe, I might add to what Kim said, and I believe it was in the foundation of what she said, but I’d like to call it out the measurement component: where you can measure the success of your ESG programs. You can see this most aptly, typically, in DEI programs, the diverse candidate pulls you’re bringing, or diverse hires, or those sorts of metrics. It’s important to have those KPIs or metrics in place—again, you're holding yourself accountable for meeting these standards.

What Kim said that I’ll underscore is, it’s probably important to revisit every so often at the board level. I don’t mean every year, but every two or three years. The culture of sustainability, and sustainability as a whole, is a journey. It’s not necessarily a destination, and that goes to Kim’s adaptability comment: We can’t just set our course and think that’s exactly going to be it. We have to be prepared and open to making some changes and some curves, and taking some left-hand turns when we don’t expect to.

Kim Lanier: I love the comment about measurement, Fran, and I want to stir up a caution flag, especially for companies that are just getting started: One of the common things for companies that are just getting started is to measure everything, to go crazy with the KPIs, and if you’re just starting out, it’s good to identify those few metrics that are key to your ESG mission and strategy, and then expand from there rather than getting so overwhelmed with so many different KPIs. It’s hard to pay attention to so many indicators. The more mature organizations will evolve to that point, but when you’re just getting started, it’s a good idea to keep it simple.

Joe Kornik: Great advice. I was going to ask you about some of the steps that business leaders should be taking. What advice would you give them to make sure that they’re on track for success in 2030 and beyond? The point of VISION by Protiviti is to look far into the future—a decade or more. There are a lot of near-term things they should be doing, but let’s focus more on those longer-term challenges. What advice would you give business leaders to make sure they get this right?

Kim Lanier: That’s a great question. My guidance would be to get the governance and accountability in place for the long term—to realize that it’s more of a marathon and less of a sprint. If you start with that foundation that we talked about earlier in having a good mission, coming back to that and making sure that those systems and processes are reinforcing that, and putting the energy and the resources into communicating to all your stakeholder groups and engaging them, those leading practices will set you up for success for the long term.

Fran Maxwell: I’d agree with Kim. I might be more philosophical in what organizations should do to make sure they’re successful in 2030 and beyond. It’s fair to say that trying times are going to continue to happen. Divisive things are going to happen in our world. We look at the war in Ukraine as one of those examples right now. Not that that’s divisive, but there’s a crisis there. It’s really important for organizations to lean into their purpose and lean into their company values when these big global events happen, and not necessarily be all things to all people, but be really clear as to who they are to their customers, who they are to their employees and who they are to their stakeholders. Organizations that do that will be very successful in 2030 and beyond.

Joe Kornik: Let’s stick on that 2030 theme, because the whole point of VISION by Protiviti, again, is that we like to bring in smart people and ask them questions about the future. I’m not going to let either of you get out of here without at least making a prediction or two. If I asked you to look out a decade or even more—let’s say 2035—where would you say we’d be? Are you optimistic that we’ll get this more right than wrong? When you forecast out, or when you think about 2035, what do you see?

Fran Maxwell: Joe, you’ll see the successful organizations get more right than wrong, because the organizations that are on the flip side and struggle, you’ll see consumers and employees vote with their feet. They’ll go elsewhere. They may be willing to pay a little extra money for a competitor that is more focused on sustainability or more focused on the environment. And we’ve already seen that trend happen, especially as Kim mentioned earlier, at the Gen Z and millennial levels. We’re at this unique time where the consumers and the employees are now requiring that organizations are held accountable to certain standards. That’s my opinion: In 2035, the folks who get this right will have more consumers and more talent wanting to come toward them.

Kim Lanier: Joe, both Fran and I are optimists by nature. I’m cautiously optimistic that we’re going to be in a good place. Companies will take some time to figure this out. By 2035, we’ll see, as Fran mentioned, successful companies getting more right. And the other trend we’ll start to see is organic coalitions emerge. These coalitions will be groups of like-minded companies with more of a long-term perspective that shares that common culture of sustainability.

The founder of the World Business Council for Sustainable Development coined a concept he called “practical partnerships for sustainability,” and we saw that with things like the total-quality movement way back in the day, where companies come together with practical partnerships from different sectors to combine skills and provide access to practices that one partner might not have. While he might have been ahead of his time when he predicted this would happen with ESG, the more it becomes mainstream and the more it becomes a regulatory requirement, the momentum is here—this will likely become more and more of a reality as more companies implement, have experience with and involve a lot of sustainability practices.

It makes sense that companies will come together. It’s mutually advantageous to share these leading practices, and what works, and how to overcome barriers. That’s the hope for the next 12 years.

Joe Kornik: I hope so as well. Well, thanks, Kim, and thanks, Fran. This was fun.

Fran Maxwell: We appreciate the opportunity.

Kim Lanier: Yes. Thank you. Great conversation.

Joe Kornik: And thank you for listening to the VISION by Protiviti podcast. Please rate and subscribe wherever you listen to podcasts, and be sure to visit us at Vision.Protiviti.com to keep up with our latest theme, the Future of ESG, and subscribe to sharpen your vision. For Fran and Kim, I’m Joe Kornik. We’ll see you next time.

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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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