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

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

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

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

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

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

Video transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Back to top

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.

Back to top

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.