Crain's Content Studio

SPONSORED CONTENT

BUSINESS & SUSTAINABILITY

Leaders are increasingly facing expectations to deliver financial value with societal and environmental impact for all their stakeholders. To make that happen, they’ll need to strengthen their sustainability DNA. Environmental, social and governance (ESG) policies are playing a growing role in the bottom line and reputation of businesses across just about every industry. Three sustainability and governance experts discussed with Crain’s Content Studio how a strong sustainability plan can be a company’s blueprint for future success.

What’s driving the increased pressure on business leaders to both deliver financial value and deliver social and environmental benefits for all stakeholders?

Carol Stickler: The only way to deliver a financially successful, resilient long-term business is to ensure your business is sustainable.

Business leaders can no longer ignore growing evidence of climate change, nor the underlying socio-economic problems highlighted by COVID-19.

Investors know that corporations with stronger ESG scores outperform those that don’t and are reflecting this in their investment choices and the cost of capital. The great resignation highlighted both employees’ desire for meaningful purposeful work and their willingness to walk away when employers don’t deliver. Finally, government, non-governmental organizations (NGOs), the media and consumers are increasingly punishing those who don’t demonstrate tangible progress through regulation, public shaming and purchasing behavior.

Karen Weigert: We live in a world shaped by mega-themes, such as climate change, racial injustice, economic inequality and disparate health outcomes. Against this backdrop, customers, employees, communities, government and investors are asking for new approaches to deliver a thriving future for everyone. Key stakeholders now have better access to information, data and communication tools and are organizing themselves to increase the pressure on business

backing of some of Exxon’s largest and most influential investors, succeeded in placing three directors on the board with the explicit goal of reducing Exxon’s carbon emissions. This event was widely seen as a watershed moment that thrust ESG into the public spotlight.

A combination of an increased focus on sustainability among the general public and an increased allocation of capital to ESG-aligned initiatives from investors large and small has created an environment where the pursuit of ESG improvement can be directly tied to tangible and measurable financial rewards.

What progress have corporations made on this front? Does sustainability progress vary by sector?

Farrell: Progress absolutely varies by sector, both in terms of the maturity of ESG reporting capabilities and how the pursuit of improved ESG measures is integrated with a broader strategic, transformational environment. Generally, the most mature organizations are found in sectors like technology that tend to be more socially conscious and in geographies such as Europe that have placed more emphasis on sustainability. Organizations furthest along in their ESG journey have defined their ESG areas of focus, appointed and empowered owners to measure, monitor and improve key ESG performance measures, and have regularly reported on their progress toward meeting defined targets in publicly available filings.

“THOSE WHO EMBRACE SUSTAINABILITY TODAY WILL BE BEST POSITIONED TO MAKE INVESTMENT DECISIONS AROUND THE BUSINESS ITSELF AND POTENTIAL NEW PRODUCTS AND SERVICES.” — CAROL STICKLER, OGILVY CONSULTING leaders to create both financial returns and social impact. Leaders can strengthen their business skills and their organizations to deliver.

Matt Farrell: At the heart of the increased focus of ESG is an inherent shift in market-driven demands from investors and the public as a whole. At an Exxon board meeting in early June of 2021, a small activist investor, with the

Stickler: Increasingly the public is looking to corporations rather than the government to lead the charge on sustainability. An increasing proportion of businesses see this as a necessary business strategy. Of course, this varies enormously by sector, with those sectors subject to the greatest regulation, business and reputational risks progressing more quickly than those subject to less external pressure.

MATT FARRELL

CAROL STICKLER

Director Riveron matt.farrell@riveron.com 630-267-2324

KAREN WEIGERT

Sustainability Practice Lead North America & Global Consulting Principal Ogilvy Consulting carol.stickler@ogilvy.com 917-288-7737

Where many corporations continue to struggle is in implementing this strategy. Operational transformation is always challenging, but it is also an engagement issue. Many businesses are

failing to create a strong sustainability story that clarifies why sustainability is important.

Weigert: Transparency is increasing

Director of the Baumhart Center for Social Enterprise and Responsibility Loyola University Chicago kweigert@luc.edu 312-915-6781

as companies representing the majority of global market capitalization are disclosing environmental performance through a CDP. And overall capital allocation is being influenced with

Elevate your performance.

Expand your possibilities.

Drive meaningful change with an ESG and sustainability strategy tailored to your business and focused on the issues that matter most.

Learn more at Riveron.com Finance l Accounting l Technology l Operations

BUSINESS & SUSTAINABILITY trillions of dollars being allocated to funds linked to ESG criteria. Companies in different sectors are taking direct action on elements linked to their core focus from financial inclusion and protecting parts of the ocean to transitioning to regenerative agriculture and committing to net zero emissions.

But even with all this action, global carbon emissions continue to rise, and the racial health and wealth gaps remain wide across the country. We need even deeper innovation and scaling of efforts to make strong progress.

For an organization that’s new to ESG, how can they prioritize which areas to focus on?

Weigert: The key thing is to start, even if it seems daunting. Every organization is on an ESG journey and will be until we have an inclusive and regenerative economy. An organization can start by listening to employees, partners and the communities in which it operates. Input should be prioritized and linked to the areas where an organization can have the most impact, from harm reduction to creating new solutions for their organization or their sector.

Farrell: Most ESG practitioners are aligned on the importance of conducting an initial “materiality assessment” of risks to drive the ESG strategy. This exercise allows organizations to solicit feedback from key internal and external stakeholders to identify risks that an organization is exposed to and make a commitment

to actively address and improve. A transparent materiality assessment is critical to identifying these risks and presenting them in a consistent format so the organization can agree on the key areas of focus and reduce potential blind spots.

Stickler: Ultimately every organization needs to understand and account for their impacts across their full value chain. At every point, they need to minimize harm and maximize positive impacts. Materiality assessments enable organizations to assess relative impact on the business versus importance to stakeholders and prioritize those areas with the greatest impacts. Choices about where to prioritize, tangible commitments to make and solutions that can deliver more positive impacts are strategic business decisions that need to be considered at the highest level of an organization.

What’s a common mistake organizations make when laying out a sustainability strategy?

Farrell: In today’s ESG environment, we see two common mistakes, both driven by the lack of official guidance or regulations available to organizations as they begin their ESG journey. The first mistake is not taking ESG seriously or viewing it as a trending topic with a short lifespan.

Companies that don’t embrace the market-driven nature of the ESG movement are potentially missing

out on increased market value and reacting to ESG reporting guidelines rather than proactively developing and implementing a strategy that benefits the organization. The second mistake involves those organizations that try to do too much and measure and report on ESG metrics that are not sustainable or valuable. Ultimately, it’s important that an organization works to thread the needle between indifference and apprehension so that the resulting program is thoughtful, impactful, and representative of the company’s values and areas of focus.

brand and establish the contribution of every brand in the portfolio to its sustainability strategy.

organizations embed ESG into company strategy to drive long-term value?

Weigert: A critical mistake is viewing sustainability or ESG as a separate topic, one that is addressed only by a small, specific part of the organization. ESG themes must be strategically integrated into the core business. Siloed or disjointed efforts can be hard to maintain over time, particularly as a company’s core business takes priority. They can also open the door to external pressure.

Stickler: When sustainability’s contribution to the corporate brand is not clarified, the business will fail to get the credit they deserve, despite their sustainability efforts. What is important is understanding which initiatives are most relevant for but also most credible with stakeholders.

Plus identifying opportunities for competitive advantage — where a brand has the right to lead versus just

From a talent perspective, how should organizations approach defining the roles and responsibilities needed to effectively execute sustainability initiatives?

Stickler: The right ESG strategy will be critical to a business’ longterm survival. Embedding ESG into company strategy requires businesses to consider where sustainability can drive value by reducing risks and costs, improving its reputation with key stakeholders and creating new growth opportunities. Sometimes initiatives can achieve all three. For instance, investing in new circular business ideas can lower the cost of capital, improve investor and employee perceptions and open up new high-growth markets.

“ULTIMATELY, IT’S IMPORTANT THAT AN ORGANIZATION WORKS TO THREAD THE NEEDLE BETWEEN INDIFFERENCE AND APPREHENSION SO THAT THE RESULTING [ESG] PROGRAM IS THOUGHTFUL, IMPACTFUL AND REPRESENTATIVE OF THE COMPANY’S VALUES AND AREAS OF FOCUS.” — MATT FARRELL, RIVERON comply. For portfolio businesses, it’s imperative to go beyond the corporate

OGILVY.COM

OGILVY EXISTS TO INSPIRE PEOPLE AND BRANDS TO MAKE AN IMPACT ON THE WORLD. We believe impact happens at the intersection of talent and capabilities.

We have 132 offices in 83 countries—and a team of over 2,200 strong in the US. Our offering is comprised of five core businesses: • ADVERTISING • PUBLIC RELATIONS & INFLUENCE • EXPERIENCE • CONSULTING • AND HEALTH

We bring the right intersections of talent and capabilities to understand this evolving marketplace and its ever-changing consumer expectations.

MOST IMPORTANTLY, WE COME TOGETHER EVERY DAY TO DO THE RIGHT THING AND DELIVER THE BEST WORK OF OUR LIVES.

…each having distinct, best-in-class expertise and intersecting seamlessly together to flex according to a client’s growth needs.

Most effective agency network EFFIE AWARDS

Weigert: The foundation is leadership commitment. With this commitment, the structure can be tailored to fit the organization

Weigert: Compliance is essential, but it is the floor not the ceiling in terms of impact. The organizations that do this best align their financial and ESG goals so that financial success is rooted in strong and healthy partnership with employees, suppliers, partners and communities. Delivering on integrated

Most creative company in the world WARC

while delivering on a few themes: dedicated responsibility to tangible material impacts; incentive alignment for delivery and innovation; clear reporting; and communication expectations. All of this should be supported by clear governance to ensure accountability across the organization. Internal ownership also opens the door to external partnership, which then expands the pool of people who can help drive impact.

Farrell: Currently, there is broad diversity in practice in terms of ownership of sustainability initiatives.

Regardless of where that person sits, it is important to simply identify a leader—someone who is focused on this initiative, invested in its success and will collaborate crossfunctionally. One of the first challenges this person will face is to identify a team that will be responsible for collecting information on the ESG issues and metrics that are informing the company’s strategy. Given the increasing importance of sustainability information and reporting to stakeholders, including shareholders, investors, and financial institutions, it is critical to have the office of the CFO engaged, even if the finance function does not oversee ESG for the organization.

As regulators continue to provide updates to the ESG landscape, many companies are thinking about ESG through a compliance perspective. However, what long-term value can ESG provide? How can

goals is increasingly a proxy for a well-run organization. More and more people are choosing their employer based on an alignment with the core values and mission.

Farrell: Organizations that choose to integrate ESG considerations into their near-term strategies and long-term vision give themselves the opportunity to drive innovation and differentiate their brand for customers, employees and investors. Embedding an ESG lens into long-term planning may also help an organization uncover new opportunities to establish an even stronger market presence or perhaps penetrate new markets.

When a company merely focuses on compliance from an ESG perspective, it risks losing out to a competitor already envisioning and enacting a strategic approach to ESG. How can business leaders make sense of the emerging regulations of reporting standards and frameworks?

How does one best determine which to adopt?

Weigert: There is no clear standard set of disclosures or metrics for ESG today. A critical starting point is to go back to the fundamentals of the core business and where an organization can have the greatest impact. From there, the company can determine which audiences it is trying to reach through the framework. A great deal of analysis, advocacy and information exists on many ESG elements in most industries so organizations can move faster by learning from others.

SPONSORED CONTENT

Farrell: Although it can be confusing to try to sort through, it is important for each organization to spend time educating itself on the more widely adopted climate-related standards and frameworks, including Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI).

The next step is for a company to examine its organizational and ESG strategies and determine which framework aligns best with its desired positioning. For example, an organization more focused on the impact of ESG on its financial performance from an industryspecific perspective should consider SASB. The SEC recently issued proposed rules on climate disclosure, which are expected to be finalized later this year. When and how should companies start thinking through these rules and what the impact might be for them?

Farrell: The timeline to comply with these rules is quite short—large, accelerated filers are required to comply beginning in 2023 with most other companies following the year after. Even an 18-month runway is short given the level of detail required.

The first step for most organizations will be to identify gaps between the SEC’s proposed disclosures and current climate-related disclosures and establish a team to develop a strategy to manage the risk and disclosures.

From there, it will be a significant undertaking to ensure the information required to be reported is investorgrade.

Weigert: Companies should start thinking about the rules now because the market forces behind the SEC action are growing. The SEC

social impact. This worry shouldn’t stop organizations from sharing their ESG story. Instead, it is a reminder that stakeholders expect a great deal from companies because the challenges in the world today demand concrete action. Businesses can deliver with ongoing transparency, meaningful goals, inclusive teams and strong partnerships.

Stickler: Often organizations aren’t clear about their long-term ambitions or commitments versus short-term, tangible progress today. Being clear and specific on an organization’s sustainability journey can allay cynicism around overclaims.To protect against greenwashing, organizations should collaborate with other parties within their ecosystems, for instance NGOs, government and local communities. This can help ensure strategies are realistic and ambitions aligned with expectation of the corporate’s potential impact.

Farrell: To mitigate the potential for greenwashing or a perception of greenwashing, it is important for those charged with leading a company’s ESG initiative as well as invested stakeholders to develop a robust understanding of the company’s regulatory reporting obligations.

Taking stock of the inventory of information that feeds ESG reporting and understanding the complexity beneath it is integral to ensuring accurate ESG information.

How will sustainability impact business in the future? What opportunities do you see for business leaders to seize to gain a competitive advantage on this front?

ABOUT THE PANELISTS MATT FARRELL is a director at Riveron, a national business advisory firm specializing in accounting, finance, technology and operations. Farrell’s background includes experience in accounting and financial leadership roles in environmental, social, and governance risk assessments; risk management and assessments; business process redesign; financial and operational internal control assessments; and forensic investigations. Farrell has worked with both public and private companies across a variety of industries, including manufacturing, consumer products, financial services, and healthcare.

CAROL STICKLER is a global brand and marketing strategy leader with over 30 years experience across a wide range of client sectors and brand and marketing disciplines. Stickler relishes pioneering new areas of brand marketing from partnership marketing to corporate sustainability strategy. Since 2021, she has led the Ogilvy North America Sustainability Practice, helping corporations define and activate their sustainability strategy. In her role, Stickler works with brands to accelerate their positive social and environmental impact and drive business and brand growth.

KAREN WEIGERT, director of the Baumhart Center for Social Enterprise and Responsibility at Loyola University Chicago, is committed to driving social change through cross-sectoral collaboration and skill building.

Along with her role at the Baumhart Center, Weigert is also a nonresident senior fellow of global cities at the Chicago Council on Global Affairs. Her career includes multiple leadership roles such as the first-ever chief sustainability officer for the City of Chicago, a strategy consultant at McKinsey and an executive leader at the nonprofit Slipstream.

strong ESG metrics represent a lower risk and have stronger long-term returns.

Stickler: In the future, sustainability will become integral to every business. Pioneers will be the first

to minimize regulatory, reputational and operational disruption risks.

But most importantly those who embrace sustainability today will be best positioned to make investment decisions around the business itself and potential new products and

services. Sustainability can and must be an enormous driver of business transformation and innovation. For the benefit of individual businesses and business leaders but also for the sake of the planet and future generations.

Weigert: Sustainability is the future of business. It is simple, all-encompassing and utterly transformational. Ultimately, it is a story about people and the long-

“EVERY ORGANIZATION IS ON AN ESG JOURNEY AND WILL BE UNTIL WE HAVE AN INCLUSIVE AND REGENERATIVE ECONOMY.”

— KAREN WEIGERT, BAUMHART CENTER FOR SOCIAL ENTERPRISE AND RESPONSIBILITY, LOYOLA UNIVERSITY CHICAGO proposal would establish a new era in mandatory financial disclosure related to climate risks but it builds on the current market. The proposed rules would help ensure standardization for disclosures that are often being made voluntarily now around physical and transition-related risks, direct and indirect emissions, as well as impacts from supply chains. Companies should be prepared to comply if they are covered or if they are a supplier to an organization that is covered by the proposed rule.

How do companies avoid greenwashing accusations?

Weigert: Greenwashing, equitywashing and ESGwashing all imply that an organization’s words don’t match the reality of its impact or commitment to sustainability and

term advantages of extraordinary teams at all levels of an organization.

The biggest opportunities will be seized by organizations that hire the best individuals and then build the strongest teams rooted in mission, skills and collaboration.

Organizations with the people who can respond to complicated needs will shape the future.

Farrell: Market-making opportunities are going to inevitably arise for environmentally and socially-responsible organizations as investors and lenders continue to focus on ESG elements. Investors are increasingly considering ESG metrics as they evaluate the risk profile and the price of loans and debt instruments. There is a growing belief among lenders, backed by research, that organizations with

BAUMHART SCHOLARS MBA Join a highly selective program that will help you accelerate your career and your social impact.

LEARN MORE LUC.edu/BaumhartScholarsMBA