Kornik: When you think of ESG, do you view it more as corporate responsibility or as a fundamental business shift with seismic strategic implications?

Walker: Over the past decade, there have been those who have been cynical about ESG, with many seeing it simply as a well-intentioned acronym. We now know this cynicism was misplaced. Over the past few years, we’ve seen a sweeping change in the perception of the private sector’s role in society. In the U.S., in 2019, the Business Roundtable put a fine point on this: “A corporation’s purpose is to promote an economy that serves all stakeholders – not only shareholders but also customers, employees, suppliers and communities.” Yes, corporations have a responsibility to generate profits and drive shareholder returns, but we know that the most well-managed organizations around the world do much more than that. I think ESG is more than a “movement.” In fact, corporations have been focused on sustainability for a long time, not simply to protect reputations or respond to environmental or social activists, but to drive operational efficiency and long-term profitability.

Kornik: What do you see as the main drivers of ESG?

Walker: ESG is about building a company’s governance structure to drive the right behavior, meet evolving regulatory requirements and protect employees, customers and communities. It's about cultivating a diverse, engaged workforce that makes a company more adaptive and more inventive – more open-minded to societal complexities – enabling it to better serve an increasingly diverse customer base. And it’s about sharpening a company’s focus on addressing the climate transition and managing associated risk. Environmental, social and governance best practices are now and will remain guiding principles for organizations around the world well into the future.

Kornik: ESG and sustainability encompass many aspects of a business and how it functions. How does ING prioritize the most important aspects of ESG now, and what will they be in the future?

Walker: At ING, our strategy cuts across all three ESG pillars, but climate action remains at our core. Sustainability – and sustainable finance – is about tackling climate challenges, which is what ING’s stakeholders expect from us. We all have a responsibility to define new ways of doing business to balance economic growth with positive environmental and social impact. ING is already well-recognized as a sustainability frontrunner within the financial services industry, especially when it comes to climate action. So, sustainability remains embedded across our organization because we all have a part to play in tackling climate change.

Kornik: Speaking of clients, how do you think they are viewing a future more focused on ESG?

Walker: Boardroom attention is clearly increasing as stakeholders, shareholders, customers and employees demand more accountability and action on ESG promises. Our clients appreciate the role ING has played in helping them meet—or make strong progress against—their own ESG and sustainability agenda. And as a general principle, we believe helping clients improve is more effective than excluding clients altogether. We’ve financed—and will continue financing—billions of dollars in green energy projects through green loans and bonds, sustainability-linked products and other financing constructions. In some cases, we may respond to certain financing requests with “yes, but…,” outlining sustainability improvements the client must make first, then helping them to make them. In other cases, we may say “no” to some requests, like our decision not to provide dedicated financing for new oil and gas fields and coal extraction. Our exposure to coal power generation will be close to zero by 2025.

Kornik: If I asked you to look out a decade, where do you think ING will be in terms of its ESG goals?

Walker: I’d like to see ING remain the forefront leader in sustainable finance around the world. I’d like our partnerships to deepen and our coalitions to widen. We will continue financing a social and green recovery that limits global warming, creates jobs, speeds up sustainable growth and builds more resilient societies. Our commitment to sustainability started more than 20 years ago. We will continue to play a key role in financing the real economy, and, as the economy transitions to a low-carbon future, ING will remain a positive force in that collective effort.

Kornik: Any bold predictions for where you think we could be by, say, 2035?

Walker: It appears we are, indeed, at a crossroads. While the climate change bells have been tolling for quite some time now, this existential issue seems to be reaching a critical mass in our collective consciousness. This increased awareness is giving us an opportunity to make some fundamental and systemic changes that will build back a better world. The finance industry will be crucial to this effort. For true change to happen, it requires a concerted, collaborative and consensus-based effort across all sections of society. Ultimately, it’s up to companies to be the change they want to see—as the saying goes—by deliberately changing their business models, their use of resources, their offerings and customer incentives. Financial institutions like ING will be here to finance this change and help companies create long-term value, underpinned by sound environmental, social and governance commitments. A lot can happen in 13 years; our head is in the right place, but now we need less deliberation and more action.

Kornik: With ESG and sustainability imperatives being more important than ever right now, I know Protiviti, like many companies worldwide, is keenly focused on it. As the global leader for Protiviti’s ESG services, can you tell me how the firm is preparing for the future of ESG?

Wright: Just as with our clients, our stakeholders are very interested in advancing ESG and sustainability priorities. Our professionals, in particular, are focused on ESG internally—how Protiviti can maintain and improve our own ESG realities—but they also know that there is a lot we can do to help our clients achieve, track, report and improve performance against their ESG goals. Realizing the importance of the moment, Protiviti adopted a universal approach to ESG, one which recognizes this is relevant to each of our solutions, geographies and client industries. Responsive to that universal dynamic, we empaneled a global, cross-solution and cross-industry steering committee, focused on two initial missions: the development of a framework for articulating ESG imperatives and responsive services, and training our people to use that framework to serve clients.

Kornik: What other steps is Protiviti taking to prepare the firm for the future of ESG?

Wright: Having achieved our mission regarding our ESG framework and related training, we are now fully engaged in responding to, and serving, client needs across a spectrum of areas. Early on, those needs are largely focused on reporting: CFOs and chief audit executives are looking to understand how they can respond, accurately and timely, to evolving stakeholder and regulator demands for ESG disclosures. They want to know which frameworks to use, and how to make sure they are able to apply familiar processes, such as reporting, and pre-reporting auditing, to unfamiliar data—greenhouse gas emissions, rather than sales and expenses, for example. Our preparation for the future is rooted firmly in our present endeavors to help clients: We will learn from those experiences and iterate on our frameworks and services as theory evolves into practice. The same goes for where we are helping clients think through sustainable supply chains and improved employee experiences. So, our steering committee is still at work, but now focused on staying current with the latest developments in the space and enabling a feedback loop from client experiences to the next client need.

Kornik: As you lead the firm through this transformation, do you have any advice for other firms who are embarking on a similar process?

Wright: Based on our experience, I can share two bits of advice: One, I think it’s important to know what you can do, and then decide what you want to do, from a scope of services standpoint. Then understand where the partners in your professional services ecosystem can be complementary and fill in the gaps. And two, harness the power and interest of your people. Our professionals are very engaged in this, with literally hundreds having worked on the development of our framework and training.

Video transcript

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Director of Brand Publishing and Editor-in-Chief of VISION by Protiviti, our global content initiative 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 in Andrew Winston. Andrew is a globally recognized expert on megatrends and how to build companies that thrive by serving the world. He is one of the most widely read writers on sustainable business with regular columns in the Harvard Business Review and MIT Sloan Management Review. His latest book, “Net Positive: How courageous companies thrive by giving more than they take,” co-authored with the renowned CEO, Paul Polman, is one of the Financial Times’ best business books of the year. Andrew, thanks so much for joining me today.

Andrew Winston: Glad to be here. Thanks for having me.

Joe Kornik: Andrew, in the intro I mentioned your latest book, Net Positive. You said you wrote that book to help leaders raise their ambitions and build companies that profit by solving the world’s problems, not creating them. As you’ve said, “Is the world better off because your business is in it?” I think many companies would certainly like to think the answer to that question is yes, and I know your vision of the future revolves around the idea of net positive, which is the title of your book. Could you explain to me what net positive is?

Andrew Winston: Yeah. Sure. Happy to. So you got the gist of it. I think the core question is this idea of checking yourself and your business and saying, “Are we really helping the world? Is the world better off because we’re in it and we exist?” So my co-author, Paul Polman, and I, we define a net positive business as one that solves the world’s problems, not contributing to them, and does that by creating wellbeing for everyone that they impact; that’s employees and consumers and suppliers, communities, investors, all of their stakeholders, and kind of in everything they do, every product, every service, every operation. It’s a north star. There’s no company that can really claim that yet, and I think there’s companies moving on pieces of it and we’ll probably unpack that a little bit, but it’s where we need to head. The logic is kind of compelling. We have these really large shared challenges in the world — climate change and inequality being kind of the two mega challenges — and we can’t do it alone. Companies need to move in partnership and they need to be setting a higher ambition than just being a little less bad every year. We have to be moving for something that’s more regenerative, that’s circular, that’s creating value for society while profiting. That’s the path to creating value in business now.

Joe Kornik: Right. I feel like we’ve gone through a bit of an evolution of late, whether it’s the pandemic or just some of what’s going on in the world, and I think the nature of corporate responsibility certainly has changed or is changing. I mentioned it’s sort of evolving. So where do you think it is today and where do you think it’s going? Where could it be maybe a decade from now?

Andrew Winston: Yeah. So I mean even the phrase “corporate responsibility” is kind of dated, right? The corporate social responsibility idea really did come from more of a philanthropic idea or just kind of reacting to pressures from NGOs or complying with the law. It was really pretty basic. I’ve been in this space of business overlapping with society and with environment for about 20 years and I’ve never really seen anything like the last few. There’s been more change in what’s expected of business and what it means to be a business. More change in the last few years than the previous 20, and so it really did used to be about answering to some questions in the world, showing that you’re a decent citizen, maybe helping your employees kind of think about their impacts on the world. It was pretty basic stuff and now you’ve gotten to a place where the way we think about how businesses even create value has shifted. The issues that companies are expected to have a position on has expanded dramatically in the last few years. So CEOs feel this pressure to say something about climate and inequality, but also about LGBTQ+ rights and racial equity, about democracy itself, about misinformation. When the invasion of Ukraine happened, hundreds of companies had to take a position on their business in Russia. So it’s this much larger question now about what’s your role in society and who are you as a business? What is your purpose? Who do you serve? Is it just shareholders in the short run or is it a full range of stakeholders that then produce a shareholder value? That’s a fundamental change in how we think about business.

Joe Kornik: Yeah, that’s interesting. I know in in your book one of the things I thought was really interesting is when you and Paul touched on the fact that some companies think that they can’t afford sustainability and I thought that was interesting. How should they think about how they invest and spend money in those areas?

Andrew Winston: Well I’ve been doing this, as I said, for 20 years and pretty much almost every conversation I have — media interviews or podcasts, talks I give — I get some version of that question of, “Well, isn’t it more expensive?” or, “How can we afford this?” And it really is an incredible myth and really, it’s something that this kind of burden is placed on things that are called sustainability to prove that they pay out immediately or they never cost a penny that we never ask of really any other investment in business. Everything is a capital investment. “Are you going to put money into marketing? Into R&D? Into your people?” and on and on. The things that fall under sustainability — making your business more resilient, reducing your carbon footprint, reducing human rights issues in the supply chain, this long list of issues, those are things you choose to do to make your business better. These are investments and I think we have to change our thinking from it being always some cost to thinking of it as an investment. Some things absolutely pay back kind of immediately and there’s lots that fall under the sustainability bucket that create value in kind of the traditional ways. You cut costs, you reduce risk to the business, you innovate and drive revenues, or you build this kind of hard to measure intangible value that is the majority of the value for most companies. All of these things are value creation areas that are core to any business and sustainability can do all of them. It can provide all of those. So it’s kind of the wrong question, “Can we afford this?” I mean increasingly the question should really be, “Can you afford not to?” The world is expecting this. The solutions we have in front of us are getting cheaper and cheaper. I think we’ve moved from, “Why do this?” to, “Why aren’t we doing this?” and the leaders are just moving ahead very quickly.

Joe Kornik: Right. I’m going to stay on the topic of investment if I could because I know there’s been sort of a rush of money into ESG investment funds. I think you said more than $1 trillion over the last two years. Do you think that movement toward ESG investing is real and lasting? Do you think it’s a lasting effect?

Andrew Winston: It’s a question that I think about a lot because really almost the last kind of key stakeholder to get to the table on this was investors and that’s one of the deep changes in the last couple of years, has been investors coming and asking companies way more questions. In the investor meetings they’re asking about their climate footprint, their material issues in their business that affect their business, and the SEC has just announced they’re going to be requiring public companies to discuss their climate risk and put out data on their footprint, on the carbon emission. So it’s becoming something not just investor, but regulated so that that gives it legs, right? If it becomes institutionalized, then it’s going to last. Look, there’s a little bit of a back off. There’s been money rushing in. It’s actually going a little bit reverse lately because because of the war and inflation, oil prices skyrocketed so now all of a sudden the fossil fuel companies are doing extremely well in the short run and so there’s money pouring almost back into traditional full index funds because the ESG funds tend not to have the fossil fuel companies. I think this is all just kind of short run machinations. In reality, this is a long-term permanent trend and part of the reason is that the forces driving this, they’re not theoretical models, like climate change is happening and costing businesses real money, and the kind of demographic pressure; younger generations of employees and consumers are demanding more of companies. From what I understand talking to some of the banks about the pressure they feel, they’re hearing from their private wealth customers, the holders of so much of the world’s wealth and it’s coming from the younger generations. They’re asking about impact investing. That’s part of the reason this has all happened, is that the younger generations are saying, “Great. Grandpa, we’ve got $100 million in the bank, but what does it do? What’s it for?” and I don’t think that’s going away. With generational shifts, these are kind of changes in norms. I don’t think that’s going back. So whether the oil price is up or down really doesn’t matter. The money that’s looking for some social impact is going to be there.

Joe Kornik: Right. This whole concept of sustainability and ESG, I mean you mentioned that a little while ago that you’ve seen more change in the last few years than perhaps over the last two decades. So I’ve heard you say that sustainable business sort of went mainstream, if you will, in 2021 and certainly I think that was probably aided by obviously extreme weather and climate change and the need for companies to be more transparent, global social unrest, all of those sort of factors coming together, but you see business being able to sort of lead the way forward here, I think. So that’s encouraging and not in like a compliance way or regulatory way, but in a real strategic way. Is that accurate?

Andrew Winston: Right. I think this isn’t some extreme statement now. I’ve talked about the investors coming to the table and that’s part of what kind of made it more mainstream, but the kind of world’s largest investor, Larry Fink, who is the CEO of BlackRock, has about $10 trillion under management. He’s been writing a letter to CEOs every January for years. The last six or seven years have been about sustainability or ESG, and increasingly about climate. He’s kind of put this into the same words that I’ve been sharing with you, the same ideas. He says being stakeholder driven, this isn’t “woke.” There’s kind of this push back now on ESG that it’s somehow a progressive agenda. He says, “This isn’t woke, this is capitalism. This is how you create value,” and in some way it’s really just a throwback, right? Companies were founded originally, especially the really old ones, for a purpose, right? There’s some reason. There’s some need you’re filling. A company exists to solve a need for a customer. It doesn’t actually exist to create shareholder value. That’s what a company does by doing something, producing something, providing a service, and we kind of lost our way on that, right? So I think business now is so integrated into society and so large, right? They’re such a huge part of the economy and the jobs and the capital flows, that they kind of have to lead on these things. They have to be thinking in terms of shareholders and the systems that they operate in, and I think there’s increasing recognition in business that that doesn’t mean they’re replacing some government role. It’s that they have to work with government. That this idea that government’s always a problem, business is always right or vice versa, depending who you’re talking to, are both kind of ludicrous. That we need the whole system at the table to solve our really big problems. And markets can’t solve everything. That’s kind of been this myth for 50 years, right? That free markets will solve everything. Free markets don’t solve these kind of big shared issues that include what economists call externalities like the free dumping of carbon into the air. Companies don’t pay for that so that’s not going to be a market solution until we fix the markets.

Joe Kornik: Right. I’ve also heard you say that you think our biggest challenges going forward will be inequality and climate change essentially. So sort of the E and the S of the ESG, if you will. I know you’ve challenged business leaders to think bigger. So what can and should they be thinking about doing to prepare for this future and a decade from now let’s say?

Andrew Winston: Well, I think it keeps feeling like the decade ahead is coming closer. Things that we didn’t think would happen come faster and part of what I talk about a lot and in the writing I do and the speeches I do is about exponential change, and that’s part of what’s happened over the last 10 ten years but over the last century, exponential growth in in population, exponential growth in emissions, exponential change in inequality. Just this huge rush of money over the last 40 to 50 years almost entirely — pretty much all the wealth and income gains — to the top 1% and it’s destabilizing, right? This is just kind of just dangerous for society. So I think part of what it means to get ready is to just recognize the scale of what’s happening and start to get your head around how fast things are moving. They seem to be getting faster, right? We’re living in this what the military calls a VUCA world — Volatile, Uncertain, Complex, Ambiguous — and just start to get your head around that. I think that’s how you prepare for a future and you build a more resilient business. I think getting ready for 2030 or even 2025 means really starting to understand where you sit in the world against these really big issues. How do you affect climate and inequality? How do they affect you? What can you do about them? And understand what your stakeholders expect of you, your employees in particular, now and in the future, get a handle on your impacts, understand your footprint. These are kind of the initial steps and some companies are pretty deep and far into this already. On the website for our book, netpositive.world, we have a readiness assessment that you can download that lays out these kinds of ideas, like, “Here’s the questions you should be asking to start to prepare to accelerate and be ready for a kind of different world.” I think what we learned in the pandemic and in the last few years with supply chain problems is that we didn’t actually build our economic system for resilience. We built it for efficiency. And sometimes those things are at odds. So we built things so maybe we make one thing in one place, which is definitely the cheapest way to do it, but then if something happens in that one location, there’s a storm or it gets shut down because of COVID, everything’s screwed up. And that’s kind of what’s happened, right? So we need to think more in broad resilience, in partnerships, just making a much more resilient kind of business ecosystem so that you’re ready for changes that we can’t fully predict. I think you need to have built trust with your stakeholders and built relationships that you can rely on when things change fast.

Joe Kornik: Right. So Andrew, last question from me. Thank you so much for your time today. What we like to do here at VISION is look a decade out and get some smart people to give us their opinions about where we’re headed and how we need to be prepared when we get there. So when you look a decade out or more even, let’s say 2035, where do you see sustainability in terms of your overall optimism? Will we be in a better place? I certainly hope we will be, but I’d love to hear your opinion on that.

Andrew Winston: Look, I think there’s some things that are really tough right now and that are getting harder and it’s hard to say what’s going to happen. We’re seeing, most troubling, a decline in democracy around the world and a rise in autocracy. Less connection between people, more divisiveness. I mean this stuff is really hard to predict where that goes and that affects business and I think business increasingly is getting involved in these issues in democracy and in voting and people’s rights. So I think business will be more deeply embedded in these issues. There’s things that will definitely be different. The technology — again, things are changing exponentially. If we’re talking like 2035, most cars sold in the world will be electric vehicles. The grid will be moving very quickly to all renewables. I have faith all that’s going to happen and the Gen Zs and young Millennials that have different views of business will now be more in charge at that point, right? They’re going to be taking more senior positions and I think that just changes again the norms of how business operates. So I had an interesting moment speaking recently in an event for big hospitality company and after I spoke, the general counsel got up and said, “You know, I think we got to get to a point where we don’t even call it sustainability or ESG. It’s just how we do business.” Now, this is amazing cause this is the kind of language I and people like me that have been writing about this and working on it for years, that’s what we’ve been saying and to hear a general counsel at just a big public company say that tells me that we’re getting somewhere because that’s the right idea, that this is just how you do business, that you don’t accept a business that creates a lot of excess carbon or where there’s child labor and human rights issues. You just don’t accept that as how we do business. I’d like to think by that point 10-15 years from now the norms will be even clearer and the ones who are not on the right path are going to be becoming irrelevant very quickly and on the upside, the ones who are doing it right I think will just be taking more and more of the share of their market. I think it’s going to be good for those who build a sustainable, thriving business now.

Joe Kornik: Great. Thank you so much, Andrew, for your time today. What an enlightening conversation. Thank you for watching the VISION by Protiviti Interview. 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 content initiative where we look into the future and examine the strategic implications of big topics that will impact business in 2030 and beyond.

Today, we’re exploring ESG and all its implications for employees, employers and customers. We’ve got an outstanding guest today as we welcome Carla Harris back to the program. Carla is Vice Chair of Wealth Management and senior client adviser at Morgan Stanley. She was chair of the Morgan Stanley Foundation from 2005 to 2014, and sits on the boards of several community organizations. In 2013, Carla was appointed by President Barack Obama to chair the National Women’s Business Council. She’s a renowned public speaker who offers guidance to corporate audiences based on her book, Expect to Win. I’m happy today to pass off the interviewing duties to my colleague Bob Hirth. Bob is a senior managing director at Protiviti and co–vice chair of the Sustainability Accounting Standards Board. Bob?

Bob Hirth: Carla, thanks for joining us today.

Carla Harris: Thanks for having me, Bob.

Bob Hirth: I’d like to discuss this new acronym we have, ESG — environmental, social and governance. The way we’re going to take this topic today, we’re going to go broad, and then we’re going to narrow it down in terms of your views, so I’d like to start with this notion of “fad, fiction or for real.” What do you think about this ESG movement?

Carla Harris: It is for real. It is definitely not a fad, because it’s been around — and certainly, Morgan Stanley has been prosecuting this space for around 11 years. It’s definitely not fiction, because we all have been in this environment where we’ve had tornadoes in places where we’ve never seen them before. We’ve had severe weather over the last decade in general, away from the tornadoes, so it is definitely real.

Bob Hirth: We’re going to get to Morgan Stanley, and we’ll get to wealth and management, but what do you think ESG is doing to companies themselves as organizations?

Carla Harris: Companies are transforming the way they do business, the way they use space, the way they use resources. They are very focused on their carbon footprint. The fact that shareholders are asking companies about it and companies are proactively reporting on their carbon footprint, what they’re doing around the world, how they are managing and integrating sustainability throughout their organization from supply chain to distribution to customer engagement, it is transforming the ways companies do business and the way that they speak externally to their consumers as well as their shareholders. No question about it, Bob.

Bob Hirth: Great. I’d like to move over to where you work every day, which is Morgan Stanley. We’ll get to wealth management and your role there in that part of the business, but what are you seeing happening at Morgan Stanley, the organization, as a result of ESG?

Carla Harris: Well, we’ve had several initiatives, frankly, where we have focused our population on decreasing their use of plastics. We have also created a bit of a lab for early-stage companies, that are creating companies around solutions with respect to the environment and sustainability, and we are funding some of those companies. We’ve created portfolios for our customers and clients who are focused in this area so that they can align their investment objectives with their personal interests and their personal objectives and goals, so there are a number of things that we are doing.

We’re walking the talk in terms of what we put in the cafeteria and how we orient people to behave while they’re within Morgan Stanley, as well as our challenges and initiatives that we have for while they’re in the building and while they’re outside of the building, and making sure that we are available to our clients who have the same concerns and objectives.

Bob Hirth: That’s a great point. People sometimes keep thinking about the downside and the risks of ESG, the climate, and you brought up a really good point in terms of the opportunities, and you’re right — all the new products that will come out of this.

I understand that you have a chief sustainability officer, I believe, at Morgan Stanley. Has that officer come to see you yet?

Carla Harris: I’ve worked very closely with that officer, Audrey Choi, for a very long time, since she’s been at Morgan Stanley, so I could not be more proud of what Audrey and her team have done and, frankly, what the firm has done. We have led in this space. Frankly, Bob, when people were just starting to have a conversation — “Can you do well and do good at the same time?” — we were making the case back then. And the rest of the industry has now come to us, that you don’t have to compromise your returns in order to do well in the world, and to do the right thing by society and your community, and to align your investment objectives to do well with your personal objectives to do good.

Bob Hirth: Great. I know you serve as vice chair for the wealth management business at Morgan Stanley. Let’s go to that business itself. You’re serving clients. You’re looking at investments. How is this ESG topic now getting considered or driven into the wealth management part of the bank?

Carla Harris: The easiest thing that I can point you to is the fact, as I mentioned earlier, that we have products that are specifically tied to our customer objectives. If you want to make sure that you have a portfolio that has no tobacco, no alcohol, no firearms, we’ve been able to do that for a long time. But today, if you want to have a portfolio that focuses on water and sustainability of water or decreasing the amount of plastic use or you name it — all the different subverticals within the larger vertical of sustainability — we can customize portfolios for individual clients as well as for institutions around those things. As I said, we were one of the first firms able to do that, and we’re leading in that space today.

Bob Hirth: Right. Another one of the terms that’s come out of this ESG movement is stakeholders. One of the stakeholders we see, back to your wealth management business, is the customer themselves. What kind of feedback or demand or interest are you getting from the individual customer that you serve in your wealth management business?

Carla Harris: The demand has been increasing over the last 10 years, for sure, and in the last five years, you’ve seen it exponentially grow. Part of that, frankly, Bob, is that millennials and Z-ers are quickly becoming the dominant population in the workforce. So, even the ultrawealthy who happen to be boomers or X-ers, guess what? They have kids now who are 35 and 40 years old who really care about these things and are articulate about it, vocal about it, in a way that boomers may not have been, and they are certainly putting their money where their mouth is.

You’re going to continue to see that desire or that demand for these kinds of products grow. The other thing that you see going on, frankly, is that in the institutional-investor community, those portfolio managers are shifting as well, so the next generation of portfolio managers is now getting into those seats at some of the larger asset management firms, and they care very much about this space as well.

Bob Hirth: As you think about the executives that serve your customers in wealth management and now we have this new topic of ESG, do you have a view that there are new skills needed or not new skills needed or some technical information they need? What’s your view of what the individual wealth management executive needs with respect to ESG?

Carla Harris: Well, I think the industry around ESG is continuing to evolve, and so I think that the objective, or the imperative, for leaders in the space is to continue to consume the knowledge and to have the posture of leading in the space, pushing the edge of the envelope and bringing your customers and clients along with you.

Bob Hirth: Great. Any interview today would be incomplete if we didn’t talk about technology. What’s happening with the use of technology and ESG at Morgan Stanley?

Carla Harris: Frankly, because of the COVID-19 crisis in particular, Bob, what I see across the industry and not just with us, is that I would argue before the COVID-19 crisis, we were all using technology. Now, I would argue that we are leveraging it, and we’re leveraging it in ways — like the way we’re talking, for example, now. Especially, if you take the wealth management business, for example, it used to be the case that you might sit down with your clients once a year, twice a year, once a quarter — depending on what the client’s needs were — physically, and that was the only way to do it. Now, you have tremendous leverage to be able to meet with a client. I met with my own adviser this morning using this technology, and she’s across the country in California.

It is changing the way we engage with our clients. It’s changing the way that we can distribute information. It’s changing the way we can educate our clients about what’s going on in the broader community. What I saw also over the COVID-19 crisis is, at a place like Morgan Stanley, we have access to a lot of information with respect to what’s going on broadly.

And in an environment full of uncertainty, there was so much information that we were generating about what was transpiring, how fast the virus was spreading around the country and around the world, what the handicap was around vaccines and what that might look like. Our biotech analyst on the institutional side of the business led, with respect to his voice, throughout this crisis especially when we were in the days of true-true uncertainty. That was information that was obviously publicly distributed, but that we could also synthesize and share with our clients in a high value-add way, and those are some of the things that you will see coming out of this that we will be able to leverage going forward.

Bob Hirth: Yes. You mentioned millennials and Gen Zs, and let’s think about the fairly recent or new college graduate. Is ESG a new opportunity for them?

Carla Harris: Yes, it’s a new opportunity. I say it’s part of their DNA, Bob. They have grown up in an environment where this is a conversation that is around them, and if you talk to any person that’s 19 or 28 and you start engaging them in the conversation about the environment, they’re going to be far more articulate and have an opinion in a way that I would argue a boomer might not. If you start talking to them about diversity — because I feel strongly that the S is quickly becoming the D; the social is definitely about diversity — it’s something that they care about. It’s in their DNA. Just look at who was in the streets this time last year. The social unrest and what we saw was actually led by a lot of millennials and Z-ers. They were looking at boomers saying, “Really? You guys are still having this conversation about this? What’s the problem?” So, I think very much so, they care about this space, and it’s not a new opportunity. It’s table stakes — that’s probably the best way to put it, Bob.

Bob Hirth: I know a large organization like Morgan Stanley hires graduates coming from the universities. Do you have a view? Are the universities doing much? Enough? What else do they need to do to maybe even change their curriculum around ESG?

Carla Harris: It’s funny you should say that because I happen to be on the board of overseers at Harvard as you know, and I see universities also being very vocal and articulate about what they’re doing around ESG and how they are embracing it, and I do think as people are thinking about joining certain institutions as a freshman or later-stage undergraduate, that’s something that they’re looking at, and I will tell you that as someone who went to college in the ’80s, it was not part of my report card in terms of criteria for the schools that I was going to go to.

Bob Hirth: Carla, you know that the ESG topic, in many people’s view, has a very long-term nature. Organizations are setting goals that aren’t just out there for one quarter or one year. They’ve set goals that may go all the way out to a decade or, for example, to 2030. What’s your long-term view or vision of ESG in 2030, for example?

Carla Harris: ESG is here to stay as a topic, and it’s something that shareholders will care about. You will continue to see it evolve. I can’t tell you exactly where it will be with 2030, but I’ll give you this perspective: Ten years ago the whole debate was, “Can you really do well by doing good?” and people were talking about eliminating things like tobacco and alcohol and firearms. That was the conversation. Now, the conversation has evolved to water, climate, plastics, diversity, and so it’s going to continue to evolve. If we look out nine years from now to 2030, almost a decade to 2030, you will continue to see that evolve.

The reason why companies are putting long-term goals out there is that it does take some time to implement these kinds of changes and, more importantly, to evaluate the strategies that you deploy. It won’t just turn up in a year, especially if you’re trying to decrease your carbon footprint significantly or go to zero carbon, for example, from wherever you are now. The good news is that we will have clear report cards with which to evaluate who has done what and who the winner is a decade from now.

Bob Hirth: I want to be sure that we covered everything about ESG that you wanted to cover, so is there any closing comment or little tidbit you’d like to give the audience today?

Carla Harris: I would refer back to the point that I just made, Bob: The S is quickly becoming the D. While companies are going to be tasked with talking about ESG, especially to their shareholders — because every shareholder is asking about it, whether it’s an institutional shareholder or a family office or a high-net-worth individual — companies are going to really need to focus on the S becoming the D. Be proactive about thinking about diversity within your organization: What does it look like? How are you leveraging it? How are you creating an environment where everybody has equal access to opportunity? That’s how you’ll get outside productivity, which obviously will drive both your top and your bottom line and your customer engagement. It’s something that I would leave your audience to think about as they move forward.

Bob Hirth: That’s great advice, Carla. Thanks again so much for joining us today.

Carla Harris: Thank you for having me, Bob.

Joe Kornik: Thanks, Bob. Thanks, Carla, for that insightful discussion. Carla, thank you so much for being on the program today. We’ll see you again next time.

Back to top

The first step to design, adopt and implement a sound ESG strategy is to realize that its three components are closely intertwined. Making progress along one of the dimensions is not possible without paying attention to the other two. Attention to social issues is needed to improve the environment because climate change and environmental pollution is leaving some people and groups behind. To align interests, perspectives, and actions among companies and the various social groups, governance is key. Achieving environmental, social, and governance sustainability will certainly require collaboration and concerted action.

When it comes to environmental sustainability, it’s not just green investments, technological breakthroughs or government regulation that will save the day. We need companies—and consumers—to change. Thus, governance is essential: We need to find institutional arrangements whereby the various actors collaborate—including scientists, opinion leaders, business executives, government officials, and consumers—to reinvent both production and consumption.

The second crucial phase involves understanding the business case for ESG. The social dimension is perhaps the right place to start. Equity promotes social harmony, and the lack of it exacerbates social tensions. Inequality and injustice have deleterious effects both inside and outside the firm. They can undermine employee morale, discourage collaboration, and contaminate the work atmosphere. While effort and good performance need to be rewarded, attention to the social dimension is needed to convey that the field is actually level. In fact, equity inside the firm can lead to higher productivity, creativity, and performance. Equity in the wider society is also good for business to the extent that a fractured society is detrimental to cooperation and the formation of goodwill. Thus, the business case for equity is clear in the long run, although there’s always the temptation of thinking about running with a greater share of the pie in the short term.

Environmental sustainability also makes good business sense for at least three cardinal reasons. One, consumers and investors are increasingly focused on the impact of the economy on the planet. Investments in sustainable products, services, facilities, and production processes will definitely pay off if investors and customers are willing to walk away from a specific firm that doesn’t make enough of an effort in this area. Two, there are powerful network effects at play because companies that do not go down the path of a sustainable future will find themselves ostracized from both suppliers and customers who expect everyone to do their best to save the planet and secure natural resources for future generations. And the third reason is that developing technologies, designs, and approaches to improve sustainability will help companies create the competitive capabilities needed to stay on top for a long time to come. The expectation is that the market, guided by its own designs and by government regulation, will afford a premium to companies that are prepared to meet the challenges of sustainability.

As the third pillar, good governance will always pay off in terms of rebuilding trust, ensuring social stability, and aligning stakeholder behavior with sustainability. We live in a world in which governance deficits are rampant, a situation that has led to multiple frictions, tensions, and conflicts at all levels, from the local community to geopolitics. In many instances, the problem lies in the sheer absence of governance mechanisms. The business case for governance is all about filling voids, pursuing missed opportunities, and ensuring that the whole is more than the sum of the parts. Business thrives on the stability that governance mechanisms provide. Good governance brings the best out of each stakeholder while simultaneously making their preferences and strategies mutually compatible for the common good.

Kornik: Even though I wish we didn’t have to talk about it, I think we still have to start with the pandemic, which had a big impact on the way we work. What do you think will be its legacy when it comes to the future of work?

Lucas-Bull: I think it'll be different for different people and industries. Just to give you some perspective, I chair Absa Group, which offers business and investment banking, but I also chair Shoprite Holdings, which is the largest supermarket retailer in Africa. If you're looking at the world of work for each, those two businesses are very different and had very different roles during the pandemic. And each reacted in unique ways, but I would say the key takeaway from organization leaders is the need to be flexible. Let’s consider the knowledge worker and this idea that everyone can just work from home. Well, they can’t. Each employee has their own set of circumstances that must be considered. So, we’re starting to see more local office setups. There’s a real movement underway, in Africa at least, for companies to have two or three smaller offices closer to where people live rather than having one large head office. One, it provides a productive place to work if your home is not conducive. Two, smaller spaces with fewer people are considered safer following a global pandemic. And three, commuting becomes much easier in that set up. So, the pandemic has meant that employers must be much more thoughtful, much more flexible, about their business operations and the ways their employees can be most successful.

Kornik: Technology has been so crucial to working through the pandemic and will be more important in the future. How will technology continue to influence the future of work?

Lucas-Bull: The more technological points of entry you have in your organization, the greater the risk for a cyber attack. So, cyber defenses have had to try and keep pace, and in a lot of cases we've seen they haven't. And it’s most likely going to get worse in the future, and we're already seeing a shortage of trained individuals in that space. They're already at a premium, and they will continue to be because the more open systems we use for work, the more vulnerable we are. So, I see a very specific focus on cyber defenses going forward, and a decade from now it will be a much bigger part of every firm. As far as collaboration technology tools and workers, like I said about offices, I think the C-suite and boards are going to have to be a lot more thoughtful about the entire workforce. It's going to require more technical tools to be able to reach people working remotely and create those team and collaboration environments that would be happening more naturally in an office.

Kornik: Would you say that's one of the bigger challenges for the C-suite over the next decade?

Lucas-Bull: It certainly is, but it’s part of a bigger challenge of essentially having to rethink their complete business. How much physical infrastructure do they need? Are they going to move away from a centralized head office into smaller ones? Will they decentralize IT? How about decentralizing call centers? Business leaders must re-look at all of that and ask, what do they really need? And not only for efficiency and productivity, but safety also has to be a concern. The more workers you have in one place, and the more centralized your operations, the more risk you have. On one hand, hybrid work or work from home reduces some of those health risks, but it also creates more cyber risks. And any move away from centralization to smaller hubs fundamentally changes the dynamics of your organization and how it works. Just from an HR perspective, there’s so much to consider: How much flexibility do you allow workers? Do you have everybody in an office once a week? Once a month? And for what purposes? Organizations are going to have to allow for flexibility across the organization, and then figure out the most effective way to measure whether the decisions made were the right ones. It’s a daunting task for leaders.

Kornik: What are the emerging technologies that will have the biggest impact on work in 2030 and beyond?

Mooney: I think the increase in remote work and virtual settings is going to bring with it a flurry of automation tools that are going to enable people to complete tasks differently. Why would you take your own call notes when there are apps like Otter.ai that use natural language processing to transcribe telephone calls? A slightly different example is TurboTax, and how it promotes its use of a full-spectrum avatar. It’s more about advertising digital access to an accounting expert than it is about doing your taxes using their software. It’s important to remember that we’re not automating or eradicating a human expert or knowledge worker in any of this; it’s automation to eliminate or simplify a task, not to eliminate a person. As we’ve observed computing advances from the 1960s until now, each phase of technological evolution we went through created more jobs than before. The new things that happen will become less about the technology itself and more about what the technology allows us to do, and I’d say automation and artificial intelligence (AI) are the ones that will have the biggest impact over the next 10 years.

Kornik: That’s interesting. Your opinion matches our C-level research with Oxford saying AI and emerging technologies will add jobs. What are your thoughts on AI and the future of work?

Mooney: AI will create bigger companies and bigger opportunities and those companies will almost certainly be adding job opportunities. Companies will get more comfortable with AI being involved with business tasks like business development, sales efficiency, lead processing and customer engagement so adoption of AI will increase. And if AI leads to more success, the first thing most organizations will do is add more jobs, so it can be more of a good thing. I think productivity and efficiency are two key areas where AI is going to be hugely impactful. As a result, I think we’ll see a lot of companies add new jobs to support AI.

Kornik: Will we need a massive training push to get the workforce ready for AI and, for that matter, all emerging technologies? Do you see a skills and capabilities gap for workers over the next decade?

Mooney: Yes, I do think we’ll have to think about a new system of skills, training, and learning. It’s been said that successful people will need to be able to learn, unlearn and relearn throughout their entire careers, and companies should design training so employees can do that successfully. Think about a 20-year employee in banking, and how much change they’ve gone through since 2000. Considering the transformations banking has undergone in the last 20 years, imagine all the new skills those employees would’ve had to learn. That reskilling will be more common in every industry and every company, and every five to 10 years we'll see huge transformational shifts.

Kornik: We’ve heard more and more about the metaverse and mixed reality capabilities lately. How do you see that fitting into work in 2030 and beyond?

Mooney: It's inevitable. I think connecting people from anywhere and having them collaborate is going to be something that's important in the future. The metaverse will be as much a part of our working life as our office or our computers. Some startups that I used to work with are already having fully virtual metaverse meetings. For them, it’s probably still a little gimmicky and fun, but by 2030 it will be standard operating procedure. You’ll bring a worldwide team together into a virtual room, and it will be a very useful tool. The metaverse and mixed reality will bring new opportunities for retailers that sell physical products. I’m thinking of Home Depot and how it’s already experimenting with 3D worlds in the metaverse for people to explore new products before they buy.

Kornik: And I would imagine there’s equal opportunities for knowledge workers when it comes to augmented reality, right?

Mooney: Absolutely. I think we’ll start to see investments in technologies that can allow people to collaborate in whatever space they’re in on a screen. We’ve been sort of collaborating for the last two years on Teams or Zoom, but I don’t think we're collaborating as effectively as we used to. I think there’s been a gap in doing some of the creative work, design thinking, sticky notes on the wall, sitting around a white board and brainstorming. I think we’ll see the emergence of technologies that will allow us to connect virtually so we can collaborate creatively again. That’s been missing the last few years.

For knowledge workers in particular, work is no longer inextricably linked to a physical location, and many are keen to retain some of the flexibility and autonomy that came with the full-scale move to remote work.

Companies must be mindful of the impact these changes have had on essential workers and those for whom physical presence remains critical. As society reassesses the future of work, will the pendulum swing back to the way companies and individuals operated before? Or will it continue to push forward in a more flexible and technology-enabled direction?

Working through a crisis

From the outset of the discussion, there was clear agreement that the COVID-19 crisis elevated employees to the top of the agenda as companies moved quickly to bring business operations online and provide for those who had to be physically present to work.

The widespread closure of schools and strict rules around travel and quarantines forced employers to acknowledge the demands their employees have outside of their work life, particularly when it comes to caregiving. One attendee cited the introduction of “emergency care lines to provide coverage for unexpected schedule disruptions” and emphasized the importance of companies proactively reaching out to offer this support, rather than employees needing to ask for it.

As another attendee noted, it will be important for employers going forward to understand “the ecosystem behind workers—or the people who support your workers.” When that support is missing, it is very difficult for employees to perform at their best.

An additional lesson learned from the pandemic that will benefit companies in the future is that “having teams that are much more distributed or decentralized created interesting challenges and opportunities for companies.”

For one thing, it “put a lot of pressure on listening channels.” In the absence of face-to-face interaction or water cooler conversations, companies had to think creatively about how to keep a finger on the pulse of the business and their employees in a wide range of areas such as operations or talent retention. Several participants shared their experiences with companies that surveyed their employee base quite extensively and found it to be an effective tool for gauging the temperature of the workforce. Another added that companies would do well to integrate more data into the human capital function, similar to marketing and sales, so that workforce “decisions can be more data-driven than anecdote-driven.”