Sustainability - Going Beyond The Promise
Achieving carbon neutrality by 2030, decarbonizing the electric grid by 2035, or becoming a net-zero climate impact company by 2040. What used to sound like bold, ambitious promises are now commonplace in commercials, websites, and sustainability reports. But what happens when the bill comes due on these promises? Companies can no longer just make a promise. They must show results. To achieve these results companies need a meaningful strategy for their overall sustainability and ESG efforts, supported with clear and transparent reporting.
This recipe does not just apply to public companies. Private equity firms are faced with ever increasing demands from LP’s to go beyond just having an ESG policy, but also demonstrate how the policy is managed as a program to preserve and ultimately appreciate capital. The firm’s portfolio companies play a huge role in the execution and success of these programs since the leadership at the company level are responsible for delivery of expected results.
A recent Apple commercial highlights the importance of an ESG/Sustainability strategy and having the numbers to back it up when Mother Nature makes her annual visit to Palo Alto.
There Really is Value Here
Delivering on the sustainability promise requires an understanding of how to operationalize the promise in your company. Examples from the commercial were transportation decisions, water reduction, and material usage to name a few. All of these were tangible changes that moved the needle on the sustainability promise while reducing costs and improving working capital. Apple CEO, Tim Cook, states in the commercial, “We’ve innovated and re-tooled almost every part of our process…” which translates to “our sustainability strategy is integrated into our business strategy. This is also evidenced when a team member noted supplier commitments to clean, renewable energy. An effective ESG/sustainability strategy and program will include evaluation of a company’s entire ecosystem for appropriate opportunities to deliver on the promise and improve the business. Granted there are few companies with the footprint and value chain of Apple, but it demonstrates the reach when a prime mover on sustainability acts. Pressure from big customers like Apple can force every company in the supply chain to appropriately demonstrate their actions on sustainability or else risk losing business.
The value goes beyond just costs savings. Effective execution of sustainability strategies can create growth opportunities through more favorable brand perception, help attract and retain talent, and create a more resilient supply chain for the business. Mother Nature should have asked Tim if he was passing the cost savings onto her in the carbon neutral products. Also, in case you are wondering, 63B gallons of water (mentioned in the commercial) is approximately 100,000 Olympic swimming pools.
Know Your Audience
The commercial demonstrates the importance of clear and transparent reporting for sustainability efforts. The team was able to withstand rapid fire requests of performance across critical categories, which was imperative to surviving the visit. Other comments made though highlight the importance of context and really understanding who is across the table when delivering your sustainability communications.
“Who wants to disappoint me first?” This was Mother Nature’s 3rd company performance update of the day. She jokes about companies basically saying the same thing, including “everyone is planting trees.” While humorous, these comments point to the danger of greenwashing, which can create skepticism and low expectations for success. Companies need to make sure that not only are their statements backed by facts but are relevant not only to them, but their customers, employees, and investors.
Explaining carbon neutrality to Mother Nature is like explaining photosynthesis to her. Meetings with experts on sustainability like Mother Nature are few and far between. More often, the sustainability reports and progress will be consumed by an audience with limited knowledge in the space. This is the opportunity where explaining what “clean electricity” is or how a building has achieved “carbon neutrality” can demonstrate innovation and creativity, not only in delivering on the sustainability promise but improving the overall business as well.
How Do I Get There
If a sustainability promise has been put in place and publicized, hopefully the “why” and the “what” have been vetted. Why are we doing this and what is the actual target? Hopefully, the goal established by or for the company is reasonable. That public goal exposes the business to more scrutiny. This is where the “how” comes in play. It will require buy-in and support from several internal stakeholders like all the people in the Apple meeting, as well as external help from experts in setting up the program, getting the targets right for your industry, and providing guidance and assistance in pulling the right levers to achieve the sustainability goals. These programs can be complex, but the value is clear. After all, none of us wants to disappoint our mother