December 11, 2024 • 37 mins
As political polarization has deepened, companies are finding themselves buffeted by opposing expectations for business behavior. On this week’s episode of ESG Currents, Alison Taylor, clinical associate professor at NYU Stern School of Business and author of Higher Ground, speaks with BI Senior ESG analysts Gail Glazerman and Rob Du Boff about prioritizing different stakeholders and ESG issues. She discusses the risks both of ignoring ESG and promising too much, finding a balance by focusing on materiality and the risks that arise when corporate actions fail to match corporate messaging. This episode was recorded on Nov. 18.
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Speaker 1 (00:09):
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
and social mega trends, mounting regulatory attention and pressure from
other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, your guide to navigating
(00:34):
the evolving ESG space, one topic at a time. Brought
to you by Bloomberg Intelligence, part of Bloomberg's Research department,
with five hundred analysts and strategists working across all major
world markets. Our coverage includes over two thousand equities and credits,
as well as outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. I'm Rob Duboff,
(00:56):
Senior ESG Analyst.
Speaker 2 (00:57):
And I'm Gail Glazerman, senior ESG integration Analysts, and we
are hosts for today's episode. Today, we'll dive into business's
role and responsibility in ESG. Around twenty sixteen, when North
Carolina passed its transgender bathroom bill, Corporate America spoke up
and ultimately the state back down on the legislation. Five
years ago, the Business Roundtable came out with their letter
(01:19):
advocating for all stakeholders in contrast to the primacy of shareholders. However,
more recently, companies appear to be backing away from their
support of similar issues. Notably, companies like ford Low's, John
Deere and Tractor Supply have publicly rolled back some of
their commitment to DEI programs. This can carry tangible risk
(01:40):
for investors. In twenty twenty three, ABM BEV faced backlash
and calls for boycott after a marketing campaign with a
trans influencer. Its market share fell and it is struggle
to recover. In the process, its handling of the situation
managed to alienate employees.
Speaker 3 (01:56):
Today we will.
Speaker 2 (01:57):
Talk with an expert on the dos and domes for
corporations looking to act responsibly without ticking off customers, employees,
and investors. Allison Hiller is a clinical professor at and
yu's Stern School of Business, an author of the book
Higher Ground, How Business Can Do the Right Thing in
a turbulent World, about how companies can or should navigate
(02:18):
these issues. Thank you for joining us today. Allison. Just
to start, can you explain in your view what it
takes to be an ethical business and how that's involved
over time.
Speaker 3 (02:29):
Yeah, good morning, and thanks so much for having me.
Speaker 4 (02:32):
I mean, that's a great place to start, because one
thing we can probably agree on is that we have
never been so confused about this question. Milton Freeman, of
course said focus on shoholder value and don't break the law.
These days, legal risk is no guide at all, not
least because regulatory pressures are becoming increasingly inconsistent globally. We
(02:54):
can think about the difference in climate disclosure between the
EU and the US as an example. So when I
ask my students about who is an ethical business, they're
just as likely to mention an issue like inequality or
climate change or nature as they are fraud, bribery, corruption,
that kind of thing. So we've become unmored I think
(03:15):
from the ethics and compliance idea of what it takes
to be an ethical business, and today I'm far more
likely to be talking about the role of business in
influencing society and the environment. I think we have become
also collectively much more aware over the past few decades
of the negative externalities of business. So the conversation has shifted,
(03:37):
but we are incredibly confused about what it takes. You've
spoken your introduction about Republican pressures on these topics and
the kind of pressure to dial back on these issues,
But I think there is just as much pressure on
the left to take on more and more of these issues. So,
in a very real sense, I think companies today are
(03:57):
stuck between cillier and teribdis.
Speaker 2 (04:00):
I think we'll dig into that more as we move through.
But maybe just to back up a little bit, should
companies even get involved with social environmental issues in your view?
And if so, how should they kind of decide or
evalue which issues to engage with.
Speaker 4 (04:16):
I don't know that there is much option to say
these days, these issues have nothing to do with me.
Even if you try to do that, you will face
pressure from employees, customers, and so on. When people make
these arguments we need to go back to Milton Friedman
and back to these rather anachronistic arguments. I say, well,
good luck attracting or retaining anyone under thirty. So I
(04:40):
don't think one can ignore these questions or ignore externalities.
But the way that the discourse has evolved is really interesting.
Speaker 3 (04:48):
There is a lot of rhetoric.
Speaker 4 (04:49):
It really reached its peak in twenty eighteen, twenty nineteen,
suggesting we think about all stakeholders, suggesting we think about
an enormous range of it issues. And if you look
at a typical multinational company's commitments, it often involves thirty
or forty issues and laundry lists of commitments and laundry
less of goals and that kind of thing.
Speaker 3 (05:12):
And so we.
Speaker 4 (05:13):
Certainly can't say environmental issues and social issues have nothing
to do with business. But I don't think it is
coherent or defensible to suggest that a company can take
on everything.
Speaker 3 (05:24):
And so what I think we need.
Speaker 4 (05:26):
Is to find a more focused path forward and to
maybe make a strategic commitment to address one to three
material issues that actually are directly relevant to how your
business makes money. So don't run a save the Woodchucks
campaign if you're an all and gas company, think about
what is material and think about the problems you can
(05:46):
actually address. I think that is one way forward to
be a little bit more coherent and defensible. That all said,
you also, I think need to think about human rights
risks related to your employees, your supply chain, in your
wider workforce.
Speaker 3 (06:01):
If it is an issue like.
Speaker 4 (06:03):
Race, gender, human rights, reproductive rights, then I think it
is hard for a company to say that has nothing
to do with me. If you employ or influence human beings,
you need to address those issues.
Speaker 1 (06:15):
It's kind of like a restaurant menu, right Like if
you have menu with pages and pages of options and
none of them are particularly good, but if you focus
on a few that the chef can do really well,
then that's something the company should be focusing on.
Speaker 4 (06:28):
Yeah, And I think I think that's true. And I
think there's a sort of interesting evolution where in the
late twenty tens, during the last Jump administration, there was
thought to be a lot of PR upside around taking
on these questions. In fact, one way to think about
sustainability commitments during that era is it was kind of
(06:49):
we were treating these issues of like the paramilitary wing
of the marketing department. We were companies were making a
lot of claims, you know, making a lot of noise
that I think led to the backlash. But now something
that I think was assumed to be a marketing or
PR problem is becoming rapidly more of a compliance problem.
(07:10):
The challenge there is that if we're treating this as
a compliance tick box problem, we're still not treating it
as a strategic issue. So I think this is neither
a marketing problem nor a compliance problem.
Speaker 3 (07:21):
It is a strategic problem.
Speaker 4 (07:23):
But many many companies, I think really struggling to set
that direction. I'm particularly struggling to say, here are the
issues we aren't going to address, because it's become so
so difficult to actually come out and say that, right, So, can.
Speaker 1 (07:38):
You give us an example of a company that's actually
done as well and kind of how that's helped their business?
Speaker 3 (07:43):
Yeah?
Speaker 4 (07:43):
I mean I often struggle with this question because I've
often asked to name companies who I think are getting
it right, and I don't think any company is really
getting it right. And I think one of the ways
I became aware of how impossible this whole landscape is
come was a little while ago Patagonia, as we all know,
(08:04):
handed over ownership of its business to a charity, and
then on my social media feed, it took about two
hours before people started saying, well, that's just tax avoidance
and they haven't given employees a stake because the business
model is still based on plastics. So even Patagonia can't
avoid these kind of critiques, so I think important to
get that get upfront that no company is getting everything right.
Speaker 3 (08:27):
In my book, though, I use the example of Chabbani.
Speaker 4 (08:30):
It is a private company, so has life certainly a
little easier in some ways, but has made a very
focused commitment to addressing issues in the US agricultural food system.
Is a US company then obviously includes a lot of
high profile and high stake issues like immigration, but I
think has managed to develop a very focused strategy around
(08:52):
its core business model, and maybe most significantly, manages to
operate in Idaho and upstate New York, in very red
parts of the country, and to have hired and employed
refugees without suffering any of the kind of backlash one
might imagine that strategy would invite.
Speaker 1 (09:08):
So can you give some examples of maybe companies that
didn't do it so right and what they could have
done better.
Speaker 4 (09:14):
So we talked already about bud Light managed to annoy
both the consumers it was trying to attract and its
original consumer base. You know, very good example of how
to get it wrong. I think another example I would
give is Unilever, because Unilever is a company that's very
(09:38):
often seen as a sustainability post a child. If you
look at its materiality map from a few years ago,
there are a ridiculous number of commitments on that map,
including a lot of issues that the company cannot directly
influence that a mayonnaise and soap company cannot directly influence.
For example, one of its priority issues women I don't
(10:01):
know if that is women that used up soap, women
in the supply chain, or what and so. Actually, Unilever
is a good example of a company that has tried
to dial back and focus. Now has set four priorities nature, livelihoods, climate.
Speaker 3 (10:15):
And plastic.
Speaker 4 (10:16):
I think that is much much more defensible, though interestingly
has had a lot of negative press around that effort
to focus and be more realistic and also to acknowledge
some of its failures on plastic. Another good thing I
think Unilever has done recently is to align its policy commitments.
But it's a good example I think of how the
public and maybe many ESG commentators have come to expect
(10:40):
this kind of very broad range of commitments to all
stakeholders and don't like it when a company tries to
be more focused.
Speaker 1 (10:46):
But to your point about you can't please everyone, even
just stepping back and centering is really ticked off there
Ben and Jerry's group, right.
Speaker 4 (10:54):
Well, absolutely, there is an ongoing piece of litigation around
Ben and Jerry's. Ben and Jerry's tried to have an
independent board, tried to have independent decision making, has a
very strong stance on Israel, and I think that's you know,
that's a good example of the troubled companies have got
into today, speaking to and working with so many companies
facing pressure over the Middle East conflict, which really no
(11:20):
company that I can think of can directly impact or
do anything about, and so very very interesting to see
how difficult that has become to navigate, even if you
are directly involved in a business relationship with Israel, you know,
genuinely difficult to figure out what the best thing is
to do here or how one might navigate this path
(11:41):
forward over an issue that people clearly feel extremely strongly about.
Speaker 2 (11:44):
Right, maybe staying on that, but stepping back to like
maybe a ten thousand foot view, how do you advise
management teams to evaluate and balance the interests of different
stakeholders and do you have any recommendations, you know, maybe
less specific to the Israel Palestine conflict about what companies
can do when different stakeholder agendas conflict.
Speaker 4 (12:07):
Yeah, I mean there's the rise of stakeholder capitalism in
ESG has come with a lot of generic rhetoric around
listening to stakeholders, balancing stakeholder interests. You mentioned the business
Roundtable and economy that works for all Americans. Of course,
this is not real life. In real life, stakeholder agendas conflict.
This is all about trade offs. This is all about
(12:28):
whose interests you're going to listen to. I would argue,
for many, many reasons that employees are your most important stakeholder.
I think, separate from the dynamics of the labor market,
employees have inside information. There has been the rise of
strategic leaking of damaging information. And then, in a very
(12:50):
very fundamental way, your employees are working with your other stakeholders.
So if your employees are unhappy, if you have not
got clear on what your commitments are and aren't, that
will of translate much more broadly into your other stakeholder relationships.
So I think you know, if I'm giving advice for
how to navigate the current situation, I would involve your
(13:12):
workforce in a discussion about your priorities. I would invite
them to consider these trade offs themselves rather than pushing
to take on more and more commitments. I think we
need to have a conversation where we say, we have
limited resources, we can't do everything. Let's figure out where
we can actually focus on what questions we can actually influence,
so that I think is a little bit more grounded
(13:36):
and more defensible than the kind of more generic rhetoric
we're seeing, which I think has driven part of the
cynicism and kind of got your mindset over green washing
that we see today.
Speaker 2 (13:48):
And maybe again following up on that, I think the
phrase used earlier was something to the extent of like
paramilitary marketing, which maybe got us to the point where
we are today, which arguably could align with greenwashing. But
it now seems like the benjulum has swanks so far
that we now have the new term green hushing, And
(14:08):
I'm just wondering just how you think we kind of
get back to the middle, assuming that's someplace that you
need to be and you know what it will take
for management teams to maybe find that balance.
Speaker 4 (14:24):
Yeah, I mean, I'm less concerned than many people about
green hushing because I think it's more important that companies
are doing.
Speaker 3 (14:32):
Things than saying things.
Speaker 4 (14:34):
I think the treatment of these issues is emptypr is
a big part of the problem. I don't know that anybody,
any member of the electorate or general public, ever changed
their mind on an issue because of something a company said.
So I would rather see more grounded and defensible strategies.
These need to be reported on out of the EU anyway.
(14:56):
So these issues and how you're treating them need to
become public knowledge. And so I think we get back
to the middle by being more honest and focused and
realistic about the problems a company can take on. And
I think we get back to the middle by looking
at the issues that relate directly to how you make money.
(15:18):
And so I would kind of really suggest that companies
focus there and set more strategic and realistic commitments.
Speaker 3 (15:27):
I think that's possible.
Speaker 4 (15:29):
One thing that I will be watching very closely is
the degree to which we see the rise of internal
conflict and employee activism, given that we are now about
to enter the second Trump presidency.
Speaker 1 (15:42):
And you just touched on the EU reporting, So that's
one of the things that that's interesting. You know, you
talk about the different stakeholders. But that also varies geographically,
especially for a global business you have, you know, Europeans
very much care about climate. In the US it might
be considerably different. So how as a multinational company would
you have them to navigate the different geographic preferences. What's
(16:04):
got on?
Speaker 4 (16:06):
I mean, I think the one thing to say is
that you need to meet these various reporting requirements. So
you know, the sec rule here in the US seems
set to go away, which is ironic given the pages
of commentary and debate and years and years of term
or we had over this issue. But you need to
(16:27):
you need to be prepared to meet these EU reporting requirements.
You need to be prepared to describe what you're doing,
but that is not the same thing as having a
clear strategy. One of the things I think that concerns
me most about the EU reporting regulation is I don't
think we have really fully addressed the presence of multinational
businesses and what we used to call back in the day,
(16:49):
high risk emerging markets. I think there is a very
credible scenario where these reporting pressures out of the EU,
and particularly the need for supply chain disclosure, makes companies
pull out of developing countries, which is really the last
thing we need if we want to properly address these issues.
Speaker 3 (17:08):
So I think we need you know.
Speaker 4 (17:11):
Clearly we can't avoid these reporting requirements, but I think
we need to have a far more realistic conversation about
the second order consequences of these reporting requirements and the
expense and the burden. Lots of conversation over here about
the IRA and the degree to which that will be
dialed back. People seem to believe that it will mostly survive,
(17:33):
not least because it is so good for red states.
But there's also this difference between the way that the
US has treated this as more of a carrot, more
of an investment opportunity, the EU far more of a stip,
far more of a kind of restrictive compliance regime, And
so navigating those tensions I think will be really key.
You may need to report on a broad range of issues,
(17:55):
but that doesn't mean you need to be strategic about
all those issues. So there's some thing about kind of
baseline disclosure that all companies need to respond to, but
they also I think need to be more focused in
terms of the problems they take on from a strategic perspective.
Speaker 1 (18:09):
So you wouldn't recommend maybe tailoring strategies for the different markets,
or yeah, having a different environmental policy based on where
you're doing business.
Speaker 4 (18:19):
I think you have to meet the most ambitious requirements.
I think you know you see companies doing that around privacy.
For example, if you meet the lowest common denominator, you
will have a lot of inconsistency that causes all sorts
of other complications. So I think it's better to be
at the leading edge, better to meet those EU requirements globally.
Speaker 3 (18:38):
I mean, very.
Speaker 4 (18:39):
Very interesting interview with Darren Woods recently saying that he
wants these disclosure regimes to continue. He wants regulation to continue,
and you know, in general, business is well served by consistency,
and so I think accepting these disclosure these disclosure regimes
are here to stay regardless of what the US is doing,
(19:02):
and managing to that I think is probably the most
sensible way forward.
Speaker 2 (19:06):
And sometimes it seems like there's a gap between how
companies talk in their sustainability reporting versus their more traditional
financial reports. And I'm wondering kind of how you think
we got here if you agree with the premise, and
are you seeing any signs that it might improve, and
what would you recommend to a company.
Speaker 4 (19:28):
This is the thing that I asked my students to
do in class. Look at the sustainability report, look at
the ten K. If you get the impression you're reading
about two completely different companies. This is not a corporation
that has got this right, and this is a corporation
that is treating this as pr I think one of
the things that companies have tended to do is treat
(19:51):
ESG or sustainability issues as a big bucket of stuff
you put in your materiality map, you set goals, and
so it's kind of this ca degree of ESG issues.
I think one thing you need to do if you're
going to really embed this and integrate these issues, is
to get clear which of your ESG issues are a
risk in which case you should be aligning with your
(20:13):
risk disclosures in the ten K, which are an innovation
transformation opportunity, and which are an impact requiring ethical guardrails.
This also is, by the way, how the EU would
like you to think about these issues.
Speaker 3 (20:24):
But I think one of.
Speaker 4 (20:26):
The problems is we've got this kind of undifferentiated sort
of set of ESG issues which present a range of
challenges to a corporation, and what you need to do
is to be able to translate those issues into a
language the business can understand.
Speaker 3 (20:40):
So you need the.
Speaker 4 (20:41):
Risks in the risk disclosure, you need the impacts in
the you know, in the ethical kind of code of
conduct governance structure, and you need the innovation opportunities in
you know, in business development or product development or operations
or whatever. If you can't figure out what kind of
challenge this issue is, then you're not likely to be
(21:02):
doing something about it. Yeah.
Speaker 1 (21:05):
I think one of the things I've noticed is, you know,
one of the kind of hottest areas of ESG, if
you will, is the ESG comptroller right or controller, where
you know, you have someone with an accounting background but
also looking at ESG issues and really trying to kind
of get the more standardized so it looks like everything
else that's on a ten K. But I guess part
(21:26):
of the issue then is if it's just boiling it
down to numbers, and obviously here at Bloomberg we understand
the benefit of that. Are you losing some of the
nuance though? I mean, there are certain things that just
you know that are just not linear, and maybe can't
be fully quantified in a ten.
Speaker 3 (21:39):
K is there.
Speaker 4 (21:41):
Yeah, there are many many issues that are very hard
to quantify, trust in tangible value, employee motivational sorts of
the core arguments of ESG are difficult to quantify. I
think the rise of the ESG controller and the rise
of assurance and so on also highlights a lot of
other the challenges for an organization in terms of how
(22:03):
it manages and governs these issues. It has been typical
historically to say that you know ethics and compliance deals
with regulated issues. ESG is about going beyond compliance and
taking voluntary actions you are not required to do. That
whole framework, that whole idea that sustainability ESG is someset
(22:23):
of voluntary things that are not required starts to break
down if ESG disclosure becomes a compliance issue, and it
starts to raise a lot of questions about where you
put this function and who it reports to. Is it
part of compliance? Does it report into the CFO, Are
you putting it in marketing? Are you putting it written risk?
Are you putting it in HR? And I think the
(22:45):
unfortunate reality is many sustainability leads are in tiny siloed
teams without a.
Speaker 3 (22:51):
Lot of budget and without a lot of authority.
Speaker 4 (22:53):
So as these issues become more regulated, that brings budget
and attention and focus, and the lawyers get involved, but
it may not help us do what we actually do
need to do, which is to treat these as strategic
business imperatives.
Speaker 3 (23:10):
And so I think kind of good.
Speaker 4 (23:12):
News and bad news as this stuff becomes more regulated,
But it also highlights I think a lot of conceptual
challenges about how we've historically treated these topics.
Speaker 2 (23:22):
And do you see risks and getting out in front
with rhetoric ahead of your actions. Are there any examples
that you can think of that and any advice for
companies to reen that in and make sure that they
are better aligned.
Speaker 4 (23:41):
I mean, I think there's been a tendency to set
goals without the company being exactly clear how it's going
to meet those goals.
Speaker 3 (23:52):
A few years ago.
Speaker 4 (23:53):
CDP looked at forty one hundred net zero goal disclosures
and found that less than a hundred of them were credible.
So we have had this tendency, I think, to set
goals in a vacuum, and I think a tendency to
sort of project perfection there it is thought to be
unthinkable to admit to failure, to admit that you can't
(24:15):
aren't exactly sure how you're going to get from a
to be thought to be incredibly dangerous to say anything
that isn't good news, because I think maybe of this
wider transparency discourse, we've kind of said to companies, just
disclose all this stuff, and investors will rate you and
score you and withdraw an allocate capital on this basis,
(24:35):
and then we're surprised that what we get is a
very kind of curated, spun account of what a company
is doing. So actually, I think being transparent in the
sense of saying here are the things we can influence,
here are the things we can't, we're not quite sure,
here is where we failed. I think actually that's less
dangerous than people think. I think, given this kind of
(24:57):
gotcha mindset and exhaustion and cynicism with Greenway, I actually
think being more honest and realistic, paradoxically, because so few
companies do that is a really good way to build trust.
I have some former colleagues at a company called at Lassian,
and they have written a guide to getting to net
zero that I think does precisely what is needed, and
does admit to the challenges and address very clearly, here's
(25:20):
what we cannot do, Here's where we failed, Here's where
we still need help. And I think that is a
better conversation in twenty twenty four than what we're still doing,
which is feeling we should project perfection and going back.
Speaker 2 (25:35):
To something we talked about earlier, do you have any
tips specifically for companies about when they should or should
not speak or take up action, maybe a little bit
more beyond just financially material.
Speaker 4 (25:47):
I mean, I think the basic kind of principle is
you know, before you go out there promising to make
the world better or taking stands on something, make sure
you've made your best effort to make your business better.
Don't have a climate goal if you're lobbying against climate
action via your government relations team. Don't make a lot
(26:09):
of noise about your stakeholders if you're not paying a
living wage. I have an article in half a Business
Review where I have nine questions a company should ask
before deciding whether to speak up. But you want to
have a plan around those topics before the issue arises,
and not after as we go into the next Trump presidency,
(26:30):
I would strongly advise corporations to get very very clear
about the issues it will and won't speak up on
under various scenarios, and to get the whole workforce involved
in setting a range of principles to make these calls.
I mean, we can certainly see lots of challenges around
(26:52):
the conflict in the Middle East, and many companies getting
into trouble over the conflict in the Middle East, partly
because there was so much pressure to speak up on
Russia and because Russia seems so much more of a
black and white issue. Though Yale professor Jeffrey Sonmnfeld had
a spreadsheet of who was in and who was out
of Russia, and everybody, i think, felt compelled to take
a position on Russia. But once you've taken a position there,
(27:14):
it's only a matter of time before people want to
know what you're doing in Israel, Saudi Arabia, China.
Speaker 3 (27:20):
The list goes.
Speaker 4 (27:21):
On, and so we need to get out of that
situation where a company is expected to have a position
on a huge range of issues that can't possibly influence.
But the answer is not to be completely silent on everything.
The answer is to be clear about the issues you
can actually do something about.
Speaker 1 (27:38):
I guess if you know, you mentioned it's important to
have kind of a game plan for how to deal
with the upcoming presidency. But you know, there's also a
lot of unknowns out there. I mean, going into twenty sixteen,
I don't think anyone would have had a game plan
for how to manage a pandemic, right, So, you know,
is there something more strategic or more at the higher levels,
(27:58):
you know, not just for the issues that we know
about today, but also how we think about crisis management
going forward, and how we think about taking a stand
and maybe issues that we're not even thinking about today.
Speaker 3 (28:10):
I mean, it's a very good question.
Speaker 4 (28:12):
I think the question of taking a stand in general
raises a lot of issues about who the CEO is
speaking up for. If a CEO takes a stand, if
a CEO makes a statement, are they making a personal
comment on their own behalf Well, that's dangerous because many
(28:35):
people will assume they're speaking up for the company. If
they say they are speaking up for the company, are
they trying to represent their workforce?
Speaker 3 (28:44):
While we have.
Speaker 4 (28:46):
Certainly a very polarized workforce where if you take a
stand on a controversial issue, you will risk alienating some
substantial part of your employers employees, I'm sorry, if you
are speaking up for your shareholders, do you really have
the right to represent your shareholder interest? So are you
speaking up for the board? Are you speaking up for
the c suite? I think once we start to ask
(29:07):
a question of what on what basis a CEO is
speaking up, it raises a lot of questions.
Speaker 3 (29:14):
About a corporation.
Speaker 4 (29:15):
A corporation is not a government, and a CEO is
not running a democracy. So I think caution is very,
very very important. I think that is why I advise
speak about issues that are directly relevant.
Speaker 3 (29:28):
To your business model.
Speaker 4 (29:30):
And so what I do think you need to do
is to treat your ethics, your values, your ESG commitments
as something that you determine and think about collectively with
your workforce. So you may want to have an ethics
committee that considers emerging questions. There's a Dutch bank called
(29:50):
abm am Ro that does this. They have a committee
that considers do we invest in GMOs? Do we invest
in casinos? What do we do about AI? So bringing
that commonversation to the table, having some criteria, having a
deliberation involving your wider workforce in addressing these questions, I
think is a good idea.
Speaker 2 (30:09):
And one thing that you've talked about in your work,
which is somewhat counterintuitive, is advising against too much transparency,
and I'm wondering if you could talk a little bit
about that and what you do think companies should do instead.
Speaker 4 (30:24):
Well, I think the problem really is not that transparency
is bad. I'm not against transparency, but I think we've
come to see transparency as an end in itself, and
we almost we have this sort of fantasy. I think
that transparency will somehow magically lead to accountability. We also
almost hyphenate that transparency and accountability, and there is enormous,
(30:47):
overwhelming amounts of evidence that more and more transparency is
not leading to the kind of accountability that we hope for.
I mentioned the CDP earlier. If you look at the
CDP's bounding documents in two thousand, they said, we've got
all these investors back in climate disclosure. Everyone's going to
start disclosing and then we'll solve climate change. It's now
twenty four years later, we're still arguing about what companies
(31:09):
should have to disclose, and there is now an enormous
industry of consultants and accounting firms and so on that
benefits and makes a lot of money from these disclosures.
So we, by prioritizing disclosure, are telling a story where investors, consumers,
employees will be able to look at these disclosures and
(31:32):
somehow figure out who's doing a good or bad job.
I don't think that's what's happening. I think even if
you're a very informed and savvy investor, it is difficult
to unpack this enormous range of public companies disclosures and
figure out who's doing a good or bad job, if
even if that is even the task that we're trying
to do. I don't think we have consensus on whether
(31:55):
we're expecting companies to raise the floor on forty or
fifty issues or just kind of a rest the issues
that are most material. I don't think we've got consensus
on what good looks like. And that's before we even
get into the harried consumer.
Speaker 3 (32:08):
I'm one of them.
Speaker 4 (32:09):
I find myself in the supermarket wondering what kind of
coffee and what kind of vegetables I can buy. So
I think we're fantasizing if we think that the consumers
or any other kind of stakeholders are going to be
able to figure out who's doing a good or bad
job and withdraw or allocate their funds accordingly. So we're
telling a story about transparency that isn't really true, and
(32:31):
then we seem to think the solution is more and
more and more. So now we're saying companies should have
to report on their sustainability performance quarterly or in real time.
This is already an enormous burden. So I feel we're
doubling down on these arguments and they are not having
the results that we think they're having, and we are
encouraging companies to again kind of treat this whole area
(32:55):
as stealth pr And.
Speaker 1 (32:58):
You mentioned kind of the difference between disclosure and accountability,
So are there ways that to make managers more accountable?
You know, people talk a lot about linking conversation to
ESG issues. You know, certainly there are other steps companies
can take to kind of aligned performance with these issues.
(33:21):
So are there can you recommend a way to better
maybe link the accountability with someone's personal stake in the business.
Speaker 4 (33:29):
Well, one, I think one answer is to set goals
and think about these issues in a more strategic way,
like if it is a strategic issue, it should be
it should be influencing goals, incentives and that kind of thing.
But again, we've got this kind of challenge with breadth
and depth. But you know, overall we have a problem
(33:50):
with accountability. Or it's very very easy to say that
the way to address all these issues is with regulation.
Well that's nice. It's not a politically welcoming time for
many of these regulations. And then there's also this kind
of challenge with global profiles and global reach. So an
(34:11):
issue like climate change, it's difficult to regulate at the
national level, So we've got I think a wider challenge
with accountability in general. Easy to say regulations the answer,
I think regulation has its limits. So I don't think
there are many good answers here other than maybe collectively
(34:31):
becoming aware that we are not going to get anywhere.
If we were expecting companies to take on dozens of issues,
we should maybe try to look at a few fundamental
issues for each company and drive change there rather than
expecting companies to address everything.
Speaker 2 (34:49):
I guess just maybe final thoughts as we look out
to changing regime in the government, do you think that
have you seen science that enough companies maybe learn some
lessons from what they've been through over the last couple
of years, that it might see kind of a more
constructive response as we move forward when there is actually
(35:10):
more regulatory pushback potentially.
Speaker 3 (35:13):
I am a little worried that companies have not learned.
Speaker 4 (35:16):
I'm a little I mean, the atmosphere as we're speaking
right now is very much we think we'll keep our
heads down and hopefully all of this stuff will go away.
Speaker 3 (35:26):
I have a lot of conversations. Is ESG dead? Is
DEI dead? Is this all kind of over? You know?
Speaker 4 (35:32):
Are we back to where we used to be? I
think that is a dangerous approach, not least because there
is a lot of energy in the system. There are
a lot of people that passionately care about climate change,
about inequality, about nature. If those people feel that regulatory
change is not on the horizon, I think pressure will
(35:52):
kick back on the private sector. I think very strong
likelihood we see more activism, more employee activism or NGO
activism over the coming years, because we feel that regulation
is not going to be going anywhere, Whereas in fact,
maybe people were more relaxed during the Biden administration feeling
that government was going to do something about these issues.
(36:14):
So I think we're dreaming if we think ESG and
DEI pressures are going to go away. I think companies
ought to remind themselves of what the atmosphere was in
twenty eighteen and twenty nineteen and prepare for some turbulence,
particularly if there are very controversial actions over, for example,
a topic like immigration. People are going to be very
(36:36):
very upset about this, and that pressure I think is
almost certainly going to hit the private sector.
Speaker 1 (36:42):
Well, thanks so much for joining us, Allison. You can
find more information on financially material ESG issues by going
to our team's dashboard ESG go on the Bloomberg terminal.
If you have an ESG quandary or burning question you
would like to ask BIS expert analysts, send us an
email at ESG Currents at Bloomberg dot com.
Speaker 3 (37:00):
Thank you, thanks so much,
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
and social mega trends, mounting regulatory attention and pressure from
other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, your guide to navigating
(00:34):
the evolving ESG space, one topic at a time. Brought
to you by Bloomberg Intelligence, part of Bloomberg's Research department,
with five hundred analysts and strategists working across all major
world markets. Our coverage includes over two thousand equities and credits,
as well as outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. I'm Rob Duboff,
(00:56):
Senior ESG Analyst.
Speaker 2 (00:57):
And I'm Gail Glazerman, senior ESG integration Analysts, and we
are hosts for today's episode. Today, we'll dive into business's
role and responsibility in ESG. Around twenty sixteen, when North
Carolina passed its transgender bathroom bill, Corporate America spoke up
and ultimately the state back down on the legislation. Five
years ago, the Business Roundtable came out with their letter
(01:19):
advocating for all stakeholders in contrast to the primacy of shareholders. However,
more recently, companies appear to be backing away from their
support of similar issues. Notably, companies like ford Low's, John
Deere and Tractor Supply have publicly rolled back some of
their commitment to DEI programs. This can carry tangible risk
(01:40):
for investors. In twenty twenty three, ABM BEV faced backlash
and calls for boycott after a marketing campaign with a
trans influencer. Its market share fell and it is struggle
to recover. In the process, its handling of the situation
managed to alienate employees.
Speaker 3 (01:56):
Today we will.
Speaker 2 (01:57):
Talk with an expert on the dos and domes for
corporations looking to act responsibly without ticking off customers, employees,
and investors. Allison Hiller is a clinical professor at and
yu's Stern School of Business, an author of the book
Higher Ground, How Business Can Do the Right Thing in
a turbulent World, about how companies can or should navigate
(02:18):
these issues. Thank you for joining us today. Allison. Just
to start, can you explain in your view what it
takes to be an ethical business and how that's involved
over time.
Speaker 3 (02:29):
Yeah, good morning, and thanks so much for having me.
Speaker 4 (02:32):
I mean, that's a great place to start, because one
thing we can probably agree on is that we have
never been so confused about this question. Milton Freeman, of
course said focus on shoholder value and don't break the law.
These days, legal risk is no guide at all, not
least because regulatory pressures are becoming increasingly inconsistent globally. We
(02:54):
can think about the difference in climate disclosure between the
EU and the US as an example. So when I
ask my students about who is an ethical business, they're
just as likely to mention an issue like inequality or
climate change or nature as they are fraud, bribery, corruption,
that kind of thing. So we've become unmored I think
(03:15):
from the ethics and compliance idea of what it takes
to be an ethical business, and today I'm far more
likely to be talking about the role of business in
influencing society and the environment. I think we have become
also collectively much more aware over the past few decades
of the negative externalities of business. So the conversation has shifted,
(03:37):
but we are incredibly confused about what it takes. You've
spoken your introduction about Republican pressures on these topics and
the kind of pressure to dial back on these issues,
But I think there is just as much pressure on
the left to take on more and more of these issues. So,
in a very real sense, I think companies today are
(03:57):
stuck between cillier and teribdis.
Speaker 2 (04:00):
I think we'll dig into that more as we move through.
But maybe just to back up a little bit, should
companies even get involved with social environmental issues in your view?
And if so, how should they kind of decide or
evalue which issues to engage with.
Speaker 4 (04:16):
I don't know that there is much option to say
these days, these issues have nothing to do with me.
Even if you try to do that, you will face
pressure from employees, customers, and so on. When people make
these arguments we need to go back to Milton Friedman
and back to these rather anachronistic arguments. I say, well,
good luck attracting or retaining anyone under thirty. So I
(04:40):
don't think one can ignore these questions or ignore externalities.
But the way that the discourse has evolved is really interesting.
Speaker 3 (04:48):
There is a lot of rhetoric.
Speaker 4 (04:49):
It really reached its peak in twenty eighteen, twenty nineteen,
suggesting we think about all stakeholders, suggesting we think about
an enormous range of it issues. And if you look
at a typical multinational company's commitments, it often involves thirty
or forty issues and laundry lists of commitments and laundry
less of goals and that kind of thing.
Speaker 3 (05:12):
And so we.
Speaker 4 (05:13):
Certainly can't say environmental issues and social issues have nothing
to do with business. But I don't think it is
coherent or defensible to suggest that a company can take
on everything.
Speaker 3 (05:24):
And so what I think we need.
Speaker 4 (05:26):
Is to find a more focused path forward and to
maybe make a strategic commitment to address one to three
material issues that actually are directly relevant to how your
business makes money. So don't run a save the Woodchucks
campaign if you're an all and gas company, think about
what is material and think about the problems you can
(05:46):
actually address. I think that is one way forward to
be a little bit more coherent and defensible. That all said,
you also, I think need to think about human rights
risks related to your employees, your supply chain, in your
wider workforce.
Speaker 3 (06:01):
If it is an issue like.
Speaker 4 (06:03):
Race, gender, human rights, reproductive rights, then I think it
is hard for a company to say that has nothing
to do with me. If you employ or influence human beings,
you need to address those issues.
Speaker 1 (06:15):
It's kind of like a restaurant menu, right Like if
you have menu with pages and pages of options and
none of them are particularly good, but if you focus
on a few that the chef can do really well,
then that's something the company should be focusing on.
Speaker 4 (06:28):
Yeah, And I think I think that's true. And I
think there's a sort of interesting evolution where in the
late twenty tens, during the last Jump administration, there was
thought to be a lot of PR upside around taking
on these questions. In fact, one way to think about
sustainability commitments during that era is it was kind of
(06:49):
we were treating these issues of like the paramilitary wing
of the marketing department. We were companies were making a
lot of claims, you know, making a lot of noise
that I think led to the backlash. But now something
that I think was assumed to be a marketing or
PR problem is becoming rapidly more of a compliance problem.
(07:10):
The challenge there is that if we're treating this as
a compliance tick box problem, we're still not treating it
as a strategic issue. So I think this is neither
a marketing problem nor a compliance problem.
Speaker 3 (07:21):
It is a strategic problem.
Speaker 4 (07:23):
But many many companies, I think really struggling to set
that direction. I'm particularly struggling to say, here are the
issues we aren't going to address, because it's become so
so difficult to actually come out and say that, right, So, can.
Speaker 1 (07:38):
You give us an example of a company that's actually
done as well and kind of how that's helped their business?
Speaker 3 (07:43):
Yeah?
Speaker 4 (07:43):
I mean I often struggle with this question because I've
often asked to name companies who I think are getting
it right, and I don't think any company is really
getting it right. And I think one of the ways
I became aware of how impossible this whole landscape is
come was a little while ago Patagonia, as we all know,
(08:04):
handed over ownership of its business to a charity, and
then on my social media feed, it took about two
hours before people started saying, well, that's just tax avoidance
and they haven't given employees a stake because the business
model is still based on plastics. So even Patagonia can't
avoid these kind of critiques, so I think important to
get that get upfront that no company is getting everything right.
Speaker 3 (08:27):
In my book, though, I use the example of Chabbani.
Speaker 4 (08:30):
It is a private company, so has life certainly a
little easier in some ways, but has made a very
focused commitment to addressing issues in the US agricultural food system.
Is a US company then obviously includes a lot of
high profile and high stake issues like immigration, but I
think has managed to develop a very focused strategy around
(08:52):
its core business model, and maybe most significantly, manages to
operate in Idaho and upstate New York, in very red
parts of the country, and to have hired and employed
refugees without suffering any of the kind of backlash one
might imagine that strategy would invite.
Speaker 1 (09:08):
So can you give some examples of maybe companies that
didn't do it so right and what they could have
done better.
Speaker 4 (09:14):
So we talked already about bud Light managed to annoy
both the consumers it was trying to attract and its
original consumer base. You know, very good example of how
to get it wrong. I think another example I would
give is Unilever, because Unilever is a company that's very
(09:38):
often seen as a sustainability post a child. If you
look at its materiality map from a few years ago,
there are a ridiculous number of commitments on that map,
including a lot of issues that the company cannot directly
influence that a mayonnaise and soap company cannot directly influence.
For example, one of its priority issues women I don't
(10:01):
know if that is women that used up soap, women
in the supply chain, or what and so. Actually, Unilever
is a good example of a company that has tried
to dial back and focus. Now has set four priorities nature, livelihoods, climate.
Speaker 3 (10:15):
And plastic.
Speaker 4 (10:16):
I think that is much much more defensible, though interestingly
has had a lot of negative press around that effort
to focus and be more realistic and also to acknowledge
some of its failures on plastic. Another good thing I
think Unilever has done recently is to align its policy commitments.
But it's a good example I think of how the
public and maybe many ESG commentators have come to expect
(10:40):
this kind of very broad range of commitments to all
stakeholders and don't like it when a company tries to
be more focused.
Speaker 1 (10:46):
But to your point about you can't please everyone, even
just stepping back and centering is really ticked off there
Ben and Jerry's group, right.
Speaker 4 (10:54):
Well, absolutely, there is an ongoing piece of litigation around
Ben and Jerry's. Ben and Jerry's tried to have an
independent board, tried to have independent decision making, has a
very strong stance on Israel, and I think that's you know,
that's a good example of the troubled companies have got
into today, speaking to and working with so many companies
facing pressure over the Middle East conflict, which really no
(11:20):
company that I can think of can directly impact or
do anything about, and so very very interesting to see
how difficult that has become to navigate, even if you
are directly involved in a business relationship with Israel, you know,
genuinely difficult to figure out what the best thing is
to do here or how one might navigate this path
(11:41):
forward over an issue that people clearly feel extremely strongly about.
Speaker 2 (11:44):
Right, maybe staying on that, but stepping back to like
maybe a ten thousand foot view, how do you advise
management teams to evaluate and balance the interests of different
stakeholders and do you have any recommendations, you know, maybe
less specific to the Israel Palestine conflict about what companies
can do when different stakeholder agendas conflict.
Speaker 4 (12:07):
Yeah, I mean there's the rise of stakeholder capitalism in
ESG has come with a lot of generic rhetoric around
listening to stakeholders, balancing stakeholder interests. You mentioned the business
Roundtable and economy that works for all Americans. Of course,
this is not real life. In real life, stakeholder agendas conflict.
This is all about trade offs. This is all about
(12:28):
whose interests you're going to listen to. I would argue,
for many, many reasons that employees are your most important stakeholder.
I think, separate from the dynamics of the labor market,
employees have inside information. There has been the rise of
strategic leaking of damaging information. And then, in a very
(12:50):
very fundamental way, your employees are working with your other stakeholders.
So if your employees are unhappy, if you have not
got clear on what your commitments are and aren't, that
will of translate much more broadly into your other stakeholder relationships.
So I think you know, if I'm giving advice for
how to navigate the current situation, I would involve your
(13:12):
workforce in a discussion about your priorities. I would invite
them to consider these trade offs themselves rather than pushing
to take on more and more commitments. I think we
need to have a conversation where we say, we have
limited resources, we can't do everything. Let's figure out where
we can actually focus on what questions we can actually influence,
so that I think is a little bit more grounded
(13:36):
and more defensible than the kind of more generic rhetoric
we're seeing, which I think has driven part of the
cynicism and kind of got your mindset over green washing
that we see today.
Speaker 2 (13:48):
And maybe again following up on that, I think the
phrase used earlier was something to the extent of like
paramilitary marketing, which maybe got us to the point where
we are today, which arguably could align with greenwashing. But
it now seems like the benjulum has swanks so far
that we now have the new term green hushing, And
(14:08):
I'm just wondering just how you think we kind of
get back to the middle, assuming that's someplace that you
need to be and you know what it will take
for management teams to maybe find that balance.
Speaker 4 (14:24):
Yeah, I mean, I'm less concerned than many people about
green hushing because I think it's more important that companies
are doing.
Speaker 3 (14:32):
Things than saying things.
Speaker 4 (14:34):
I think the treatment of these issues is emptypr is
a big part of the problem. I don't know that anybody,
any member of the electorate or general public, ever changed
their mind on an issue because of something a company said.
So I would rather see more grounded and defensible strategies.
These need to be reported on out of the EU anyway.
(14:56):
So these issues and how you're treating them need to
become public knowledge. And so I think we get back
to the middle by being more honest and focused and
realistic about the problems a company can take on. And
I think we get back to the middle by looking
at the issues that relate directly to how you make money.
(15:18):
And so I would kind of really suggest that companies
focus there and set more strategic and realistic commitments.
Speaker 3 (15:27):
I think that's possible.
Speaker 4 (15:29):
One thing that I will be watching very closely is
the degree to which we see the rise of internal
conflict and employee activism, given that we are now about
to enter the second Trump presidency.
Speaker 1 (15:42):
And you just touched on the EU reporting, So that's
one of the things that that's interesting. You know, you
talk about the different stakeholders. But that also varies geographically,
especially for a global business you have, you know, Europeans
very much care about climate. In the US it might
be considerably different. So how as a multinational company would
you have them to navigate the different geographic preferences. What's
(16:04):
got on?
Speaker 4 (16:06):
I mean, I think the one thing to say is
that you need to meet these various reporting requirements. So
you know, the sec rule here in the US seems
set to go away, which is ironic given the pages
of commentary and debate and years and years of term
or we had over this issue. But you need to
(16:27):
you need to be prepared to meet these EU reporting requirements.
You need to be prepared to describe what you're doing,
but that is not the same thing as having a
clear strategy. One of the things I think that concerns
me most about the EU reporting regulation is I don't
think we have really fully addressed the presence of multinational
businesses and what we used to call back in the day,
(16:49):
high risk emerging markets. I think there is a very
credible scenario where these reporting pressures out of the EU,
and particularly the need for supply chain disclosure, makes companies
pull out of developing countries, which is really the last
thing we need if we want to properly address these issues.
Speaker 3 (17:08):
So I think we need you know.
Speaker 4 (17:11):
Clearly we can't avoid these reporting requirements, but I think
we need to have a far more realistic conversation about
the second order consequences of these reporting requirements and the
expense and the burden. Lots of conversation over here about
the IRA and the degree to which that will be
dialed back. People seem to believe that it will mostly survive,
(17:33):
not least because it is so good for red states.
But there's also this difference between the way that the
US has treated this as more of a carrot, more
of an investment opportunity, the EU far more of a stip,
far more of a kind of restrictive compliance regime, And
so navigating those tensions I think will be really key.
You may need to report on a broad range of issues,
(17:55):
but that doesn't mean you need to be strategic about
all those issues. So there's some thing about kind of
baseline disclosure that all companies need to respond to, but
they also I think need to be more focused in
terms of the problems they take on from a strategic perspective.
Speaker 1 (18:09):
So you wouldn't recommend maybe tailoring strategies for the different markets,
or yeah, having a different environmental policy based on where
you're doing business.
Speaker 4 (18:19):
I think you have to meet the most ambitious requirements.
I think you know you see companies doing that around privacy.
For example, if you meet the lowest common denominator, you
will have a lot of inconsistency that causes all sorts
of other complications. So I think it's better to be
at the leading edge, better to meet those EU requirements globally.
Speaker 3 (18:38):
I mean, very.
Speaker 4 (18:39):
Very interesting interview with Darren Woods recently saying that he
wants these disclosure regimes to continue. He wants regulation to continue,
and you know, in general, business is well served by consistency,
and so I think accepting these disclosure these disclosure regimes
are here to stay regardless of what the US is doing,
(19:02):
and managing to that I think is probably the most
sensible way forward.
Speaker 2 (19:06):
And sometimes it seems like there's a gap between how
companies talk in their sustainability reporting versus their more traditional
financial reports. And I'm wondering kind of how you think
we got here if you agree with the premise, and
are you seeing any signs that it might improve, and
what would you recommend to a company.
Speaker 4 (19:28):
This is the thing that I asked my students to
do in class. Look at the sustainability report, look at
the ten K. If you get the impression you're reading
about two completely different companies. This is not a corporation
that has got this right, and this is a corporation
that is treating this as pr I think one of
the things that companies have tended to do is treat
(19:51):
ESG or sustainability issues as a big bucket of stuff
you put in your materiality map, you set goals, and
so it's kind of this ca degree of ESG issues.
I think one thing you need to do if you're
going to really embed this and integrate these issues, is
to get clear which of your ESG issues are a
risk in which case you should be aligning with your
(20:13):
risk disclosures in the ten K, which are an innovation
transformation opportunity, and which are an impact requiring ethical guardrails.
This also is, by the way, how the EU would
like you to think about these issues.
Speaker 3 (20:24):
But I think one of.
Speaker 4 (20:26):
The problems is we've got this kind of undifferentiated sort
of set of ESG issues which present a range of
challenges to a corporation, and what you need to do
is to be able to translate those issues into a
language the business can understand.
Speaker 3 (20:40):
So you need the.
Speaker 4 (20:41):
Risks in the risk disclosure, you need the impacts in
the you know, in the ethical kind of code of
conduct governance structure, and you need the innovation opportunities in
you know, in business development or product development or operations
or whatever. If you can't figure out what kind of
challenge this issue is, then you're not likely to be
(21:02):
doing something about it. Yeah.
Speaker 1 (21:05):
I think one of the things I've noticed is, you know,
one of the kind of hottest areas of ESG, if
you will, is the ESG comptroller right or controller, where
you know, you have someone with an accounting background but
also looking at ESG issues and really trying to kind
of get the more standardized so it looks like everything
else that's on a ten K. But I guess part
(21:26):
of the issue then is if it's just boiling it
down to numbers, and obviously here at Bloomberg we understand
the benefit of that. Are you losing some of the
nuance though? I mean, there are certain things that just
you know that are just not linear, and maybe can't
be fully quantified in a ten.
Speaker 3 (21:39):
K is there.
Speaker 4 (21:41):
Yeah, there are many many issues that are very hard
to quantify, trust in tangible value, employee motivational sorts of
the core arguments of ESG are difficult to quantify. I
think the rise of the ESG controller and the rise
of assurance and so on also highlights a lot of
other the challenges for an organization in terms of how
(22:03):
it manages and governs these issues. It has been typical
historically to say that you know ethics and compliance deals
with regulated issues. ESG is about going beyond compliance and
taking voluntary actions you are not required to do. That
whole framework, that whole idea that sustainability ESG is someset
(22:23):
of voluntary things that are not required starts to break
down if ESG disclosure becomes a compliance issue, and it
starts to raise a lot of questions about where you
put this function and who it reports to. Is it
part of compliance? Does it report into the CFO, Are
you putting it in marketing? Are you putting it written risk?
Are you putting it in HR? And I think the
(22:45):
unfortunate reality is many sustainability leads are in tiny siloed
teams without a.
Speaker 3 (22:51):
Lot of budget and without a lot of authority.
Speaker 4 (22:53):
So as these issues become more regulated, that brings budget
and attention and focus, and the lawyers get involved, but
it may not help us do what we actually do
need to do, which is to treat these as strategic
business imperatives.
Speaker 3 (23:10):
And so I think kind of good.
Speaker 4 (23:12):
News and bad news as this stuff becomes more regulated,
But it also highlights I think a lot of conceptual
challenges about how we've historically treated these topics.
Speaker 2 (23:22):
And do you see risks and getting out in front
with rhetoric ahead of your actions. Are there any examples
that you can think of that and any advice for
companies to reen that in and make sure that they
are better aligned.
Speaker 4 (23:41):
I mean, I think there's been a tendency to set
goals without the company being exactly clear how it's going
to meet those goals.
Speaker 3 (23:52):
A few years ago.
Speaker 4 (23:53):
CDP looked at forty one hundred net zero goal disclosures
and found that less than a hundred of them were credible.
So we have had this tendency, I think, to set
goals in a vacuum, and I think a tendency to
sort of project perfection there it is thought to be
unthinkable to admit to failure, to admit that you can't
(24:15):
aren't exactly sure how you're going to get from a
to be thought to be incredibly dangerous to say anything
that isn't good news, because I think maybe of this
wider transparency discourse, we've kind of said to companies, just
disclose all this stuff, and investors will rate you and
score you and withdraw an allocate capital on this basis,
(24:35):
and then we're surprised that what we get is a
very kind of curated, spun account of what a company
is doing. So actually, I think being transparent in the
sense of saying here are the things we can influence,
here are the things we can't, we're not quite sure,
here is where we failed. I think actually that's less
dangerous than people think. I think, given this kind of
(24:57):
gotcha mindset and exhaustion and cynicism with Greenway, I actually
think being more honest and realistic, paradoxically, because so few
companies do that is a really good way to build trust.
I have some former colleagues at a company called at Lassian,
and they have written a guide to getting to net
zero that I think does precisely what is needed, and
does admit to the challenges and address very clearly, here's
(25:20):
what we cannot do, Here's where we failed, Here's where
we still need help. And I think that is a
better conversation in twenty twenty four than what we're still doing,
which is feeling we should project perfection and going back.
Speaker 2 (25:35):
To something we talked about earlier, do you have any
tips specifically for companies about when they should or should
not speak or take up action, maybe a little bit
more beyond just financially material.
Speaker 4 (25:47):
I mean, I think the basic kind of principle is
you know, before you go out there promising to make
the world better or taking stands on something, make sure
you've made your best effort to make your business better.
Don't have a climate goal if you're lobbying against climate
action via your government relations team. Don't make a lot
(26:09):
of noise about your stakeholders if you're not paying a
living wage. I have an article in half a Business
Review where I have nine questions a company should ask
before deciding whether to speak up. But you want to
have a plan around those topics before the issue arises,
and not after as we go into the next Trump presidency,
(26:30):
I would strongly advise corporations to get very very clear
about the issues it will and won't speak up on
under various scenarios, and to get the whole workforce involved
in setting a range of principles to make these calls.
I mean, we can certainly see lots of challenges around
(26:52):
the conflict in the Middle East, and many companies getting
into trouble over the conflict in the Middle East, partly
because there was so much pressure to speak up on
Russia and because Russia seems so much more of a
black and white issue. Though Yale professor Jeffrey Sonmnfeld had
a spreadsheet of who was in and who was out
of Russia, and everybody, i think, felt compelled to take
a position on Russia. But once you've taken a position there,
(27:14):
it's only a matter of time before people want to
know what you're doing in Israel, Saudi Arabia, China.
Speaker 3 (27:20):
The list goes.
Speaker 4 (27:21):
On, and so we need to get out of that
situation where a company is expected to have a position
on a huge range of issues that can't possibly influence.
But the answer is not to be completely silent on everything.
The answer is to be clear about the issues you
can actually do something about.
Speaker 1 (27:38):
I guess if you know, you mentioned it's important to
have kind of a game plan for how to deal
with the upcoming presidency. But you know, there's also a
lot of unknowns out there. I mean, going into twenty sixteen,
I don't think anyone would have had a game plan
for how to manage a pandemic, right, So, you know,
is there something more strategic or more at the higher levels,
(27:58):
you know, not just for the issues that we know
about today, but also how we think about crisis management
going forward, and how we think about taking a stand
and maybe issues that we're not even thinking about today.
Speaker 3 (28:10):
I mean, it's a very good question.
Speaker 4 (28:12):
I think the question of taking a stand in general
raises a lot of issues about who the CEO is
speaking up for. If a CEO takes a stand, if
a CEO makes a statement, are they making a personal
comment on their own behalf Well, that's dangerous because many
(28:35):
people will assume they're speaking up for the company. If
they say they are speaking up for the company, are
they trying to represent their workforce?
Speaker 3 (28:44):
While we have.
Speaker 4 (28:46):
Certainly a very polarized workforce where if you take a
stand on a controversial issue, you will risk alienating some
substantial part of your employers employees, I'm sorry, if you
are speaking up for your shareholders, do you really have
the right to represent your shareholder interest? So are you
speaking up for the board? Are you speaking up for
the c suite? I think once we start to ask
(29:07):
a question of what on what basis a CEO is
speaking up, it raises a lot of questions.
Speaker 3 (29:14):
About a corporation.
Speaker 4 (29:15):
A corporation is not a government, and a CEO is
not running a democracy. So I think caution is very,
very very important. I think that is why I advise
speak about issues that are directly relevant.
Speaker 3 (29:28):
To your business model.
Speaker 4 (29:30):
And so what I do think you need to do
is to treat your ethics, your values, your ESG commitments
as something that you determine and think about collectively with
your workforce. So you may want to have an ethics
committee that considers emerging questions. There's a Dutch bank called
(29:50):
abm am Ro that does this. They have a committee
that considers do we invest in GMOs? Do we invest
in casinos? What do we do about AI? So bringing
that commonversation to the table, having some criteria, having a
deliberation involving your wider workforce in addressing these questions, I
think is a good idea.
Speaker 2 (30:09):
And one thing that you've talked about in your work,
which is somewhat counterintuitive, is advising against too much transparency,
and I'm wondering if you could talk a little bit
about that and what you do think companies should do instead.
Speaker 4 (30:24):
Well, I think the problem really is not that transparency
is bad. I'm not against transparency, but I think we've
come to see transparency as an end in itself, and
we almost we have this sort of fantasy. I think
that transparency will somehow magically lead to accountability. We also
almost hyphenate that transparency and accountability, and there is enormous,
(30:47):
overwhelming amounts of evidence that more and more transparency is
not leading to the kind of accountability that we hope for.
I mentioned the CDP earlier. If you look at the
CDP's bounding documents in two thousand, they said, we've got
all these investors back in climate disclosure. Everyone's going to
start disclosing and then we'll solve climate change. It's now
twenty four years later, we're still arguing about what companies
(31:09):
should have to disclose, and there is now an enormous
industry of consultants and accounting firms and so on that
benefits and makes a lot of money from these disclosures.
So we, by prioritizing disclosure, are telling a story where investors, consumers,
employees will be able to look at these disclosures and
(31:32):
somehow figure out who's doing a good or bad job.
I don't think that's what's happening. I think even if
you're a very informed and savvy investor, it is difficult
to unpack this enormous range of public companies disclosures and
figure out who's doing a good or bad job, if
even if that is even the task that we're trying
to do. I don't think we have consensus on whether
(31:55):
we're expecting companies to raise the floor on forty or
fifty issues or just kind of a rest the issues
that are most material. I don't think we've got consensus
on what good looks like. And that's before we even
get into the harried consumer.
Speaker 3 (32:08):
I'm one of them.
Speaker 4 (32:09):
I find myself in the supermarket wondering what kind of
coffee and what kind of vegetables I can buy. So
I think we're fantasizing if we think that the consumers
or any other kind of stakeholders are going to be
able to figure out who's doing a good or bad
job and withdraw or allocate their funds accordingly. So we're
telling a story about transparency that isn't really true, and
(32:31):
then we seem to think the solution is more and
more and more. So now we're saying companies should have
to report on their sustainability performance quarterly or in real time.
This is already an enormous burden. So I feel we're
doubling down on these arguments and they are not having
the results that we think they're having, and we are
encouraging companies to again kind of treat this whole area
(32:55):
as stealth pr And.
Speaker 1 (32:58):
You mentioned kind of the difference between disclosure and accountability,
So are there ways that to make managers more accountable?
You know, people talk a lot about linking conversation to
ESG issues. You know, certainly there are other steps companies
can take to kind of aligned performance with these issues.
(33:21):
So are there can you recommend a way to better
maybe link the accountability with someone's personal stake in the business.
Speaker 4 (33:29):
Well, one, I think one answer is to set goals
and think about these issues in a more strategic way,
like if it is a strategic issue, it should be
it should be influencing goals, incentives and that kind of thing.
But again, we've got this kind of challenge with breadth
and depth. But you know, overall we have a problem
(33:50):
with accountability. Or it's very very easy to say that
the way to address all these issues is with regulation.
Well that's nice. It's not a politically welcoming time for
many of these regulations. And then there's also this kind
of challenge with global profiles and global reach. So an
(34:11):
issue like climate change, it's difficult to regulate at the
national level, So we've got I think a wider challenge
with accountability in general. Easy to say regulations the answer,
I think regulation has its limits. So I don't think
there are many good answers here other than maybe collectively
(34:31):
becoming aware that we are not going to get anywhere.
If we were expecting companies to take on dozens of issues,
we should maybe try to look at a few fundamental
issues for each company and drive change there rather than
expecting companies to address everything.
Speaker 2 (34:49):
I guess just maybe final thoughts as we look out
to changing regime in the government, do you think that
have you seen science that enough companies maybe learn some
lessons from what they've been through over the last couple
of years, that it might see kind of a more
constructive response as we move forward when there is actually
(35:10):
more regulatory pushback potentially.
Speaker 3 (35:13):
I am a little worried that companies have not learned.
Speaker 4 (35:16):
I'm a little I mean, the atmosphere as we're speaking
right now is very much we think we'll keep our
heads down and hopefully all of this stuff will go away.
Speaker 3 (35:26):
I have a lot of conversations. Is ESG dead? Is
DEI dead? Is this all kind of over? You know?
Speaker 4 (35:32):
Are we back to where we used to be? I
think that is a dangerous approach, not least because there
is a lot of energy in the system. There are
a lot of people that passionately care about climate change,
about inequality, about nature. If those people feel that regulatory
change is not on the horizon, I think pressure will
(35:52):
kick back on the private sector. I think very strong
likelihood we see more activism, more employee activism or NGO
activism over the coming years, because we feel that regulation
is not going to be going anywhere, Whereas in fact,
maybe people were more relaxed during the Biden administration feeling
that government was going to do something about these issues.
(36:14):
So I think we're dreaming if we think ESG and
DEI pressures are going to go away. I think companies
ought to remind themselves of what the atmosphere was in
twenty eighteen and twenty nineteen and prepare for some turbulence,
particularly if there are very controversial actions over, for example,
a topic like immigration. People are going to be very
(36:36):
very upset about this, and that pressure I think is
almost certainly going to hit the private sector.
Speaker 1 (36:42):
Well, thanks so much for joining us, Allison. You can
find more information on financially material ESG issues by going
to our team's dashboard ESG go on the Bloomberg terminal.
If you have an ESG quandary or burning question you
would like to ask BIS expert analysts, send us an
email at ESG Currents at Bloomberg dot com.
Speaker 3 (37:00):
Thank you, thanks so much,
Host
Eric Kane
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