Harvard Business Review interviewed the CEOs and other business leaders who signed up to the Future Economy Project, our initiative spotlighting businesses’ sustainability agendas. We then virtually convened the project’s advisers for a roundtable discussion about what they viewed as the major issues raised in the interviews, and their own counsel for executives wishing to create long-term value through a sustainable business agenda. The discussion with Michael Toffel and Rebecca Henderson of Harvard Business School, Tensie Whelan of NYU’s Stern School of Business, and Andrew Winston of Winston Eco-Strategies has been condensed and edited for clarity.
HBR: Of the interviews, what jumped out at you?
Toffel: I thought Paul Polman was spot-on when he was breaking down the challenge of corporate sustainability into tactical and systemic issues. Tactics include, for example, labeling claims and how to be clear about what standards we might want to develop, and also about disclosure, when he mentions materiality. We need tools to assess progress for external stakeholders, consumers, and managers. But then more pressingly, I think, he talks about the need for system change. He highlights the short-term focus of financial markets and of political systems, and also the need to change consumer preferences and habits, as three big areas that need to change at the system level. It’s hard to figure out exactly how we’re going to go about changing these, but I think the first step is identifying the problem.
Winston: I agree with Mike that the focus on system change was notable. In essence all the CEOs questioned the current model of shareholder-driven capitalism, as well as highlighted the need to collaborate across systems and value chains. They all lamented the challenge of short-term investor pressure, although they didn’t seem to have a ready solution.
Henderson: I was struck by the fact that several of the CEOs noted that despite the fact that many companies are becoming gradually more sustainable, in general it isn’t happening at anything like the necessary speed or scale. It was sobering to see such an informed group remind us how much further we have to go.
Whelan: I noticed that many leaders see climate change solely in terms of minimizing risk. But I think the interesting part comes when they start to see it as an opportunity for innovations that are financially beneficial as well as socially beneficial. For example, [Andrew] Liveris talked about the focus Dow [Chemical] has on great chemistry and designing new sustainable product lines and being willing to cannibalize existing products. There’s $12 trillion in business opportunities for solving sustainability challenges.
Toffel: The interesting thing about the risk lens is if everyone started paying attention to risks, I suspect it would lead to both more product innovation and investing in more-resilient operations and supply chains. For example, installing a rapidly deployable flood barrier around your campus can help keep your buildings operational during megastorms. And so a risk lens will lead to more adaptation measures, where private investments can yield private returns. But I worry about this crowding out the need to also invest in mitigation to reduce the magnitude of climate change. It’s not clear how much value you add to your organization by, for example, mitigating 10% of your carbon footprint. It could be that it attracts employees who care about this issue, or that it makes management more likely to stay in that organization. And maybe it’ll attract consumers who care about sustainability. But it’s hard to make that case at the scale of mitigation measures that are required. And so we have a classic tragedy of the commons here: Why should a company bother to massively invest in mitigation if everyone is going to share from those gains? This is why mitigation requires government policy mandates, and I think CEOs should try to use their power of persuasion to try to get government to require mitigation — and adaptation.
Whelan: Most of the CEOs did talk about policy in the interviews, but their statements were pretty vague. And one of the things I see consistently is that CEOs make big, visionary statements around sustainability, but their lobbyists just focus on small-bore issues such as the part of the tax code or regulation that might benefit their short-term interests. There’s very rarely coordination between the leader’s vision and their lobbyists’ agenda. That needs to change.
HBR: Does a CEO have to go through some sort of personal transformation or have some direct experience with nature in order to become a sustainability leader?
Toffel: I don’t know if it’s a necessary condition, but you do see these stories with a lot of CEOs that have come out as leaders in this area. It seems like there’s some spark that changes the way they see things, convinces them of the fallacy that maximizing in the short run will necessarily maximize in the long run. A lot of leaders I speak to talk about a transformation they experienced, such as when they became parents or grandparents, or when they became ill. Those life events seemed to change their time horizon.
Whelan: Yes, when I was running Rainforest Alliance, we took people from corporations down to the field to see sustainable forestry and sustainable farming in action. I think most executives have no idea of the impact — for good or ill — of their companies. They’re so far removed from it. And so, when you show them in person their potential to help people who are part of the corporate ecosystem, such as the communities producing the raw materials for the products they sell, I think that can be life changing.
Winston: Absolutely. I’ve done some research on CEOs, talking to many of these same leaders, and some others. When we asked them about why they care about sustainability, they did mention the business case we’ve all been hammering home for years — and they do believe it. But in reality, it was more personal. They had some awakening through the kind of trips Tensie has taken leaders on, or just in conversations with family. Think of all those Millennials who have a different view on the role of business in society. They’re not just employees or customers for these CEOs — they’re often their kids.
Henderson: I’ve seen the same effect in my own work. Whilst those leaders who have made a difference can always walk you through the business case, it’s nearly always intimate exposure to an issue — whether it’s flying over miles and miles of burning forest in Indonesia or learning firsthand about what it’s like to live on the minimum wage — that led them to embrace it in the first place. We tend to think of the existence of a business case as as an immutable feature of reality — but in practice someone usually has to put themselves on the line to discover it. It’s the passion born of real experience that enables them to do so.
HBR: The idea of partnering with NGOs came up in many of the interviews. How can these relationships be most fruitful?
Whelan: We’ve seen a sea change in the last 10 years around company and NGO engagement — it’s far more cooperative. I think the elements of a successful partnership are: first, that both parties have aligned goals, expectations, and parameters; second, they design a way to have a common language that respects their different perspectives; and third, the company invests the time and resources required to make the relationship productive, including a dedicated and empowered corporate point person for the NGO. The result will be innovation. For example, when I was at the Rainforest Alliance we worked with a company that had grown bananas for 200 years — using outmoded practices — to redesign the whole process; it became far more efficient, saving them money and reducing erosion, water pollution, and waste.
HBR: Andrew Liveris at Dow Chemical seemed to be suggesting that when it comes to regulation, you should align yourself with the toughest regulation out there. Should leaders apply that rule to sustainability labeling by aligning with the strictest requirements that they can find from a credible source?
Toffel: There are a lot of challenges to getting labeling right. Which sustainability and social dimensions will you measure, and how do you weigh their importance? There’s also a data problem, because these issues tend to reach into supply chains, and often beyond your direct tier one suppliers.
Whelan: Labeling can be a challenge because it seems every certification body has a different issue they want to emphasize. And some are more effective than others. There is a group called ISEAL Alliance that is an accreditation system for all the third-party nonprofit certification systems; they lay out best practices around stakeholder engagement, complaint resolution, conflict of interest management, auditor corruption, and so on. It’s a start.
Winston: On some level, the idea of aligning (or exceeding) regulations is a moot point. When your customers or communities or employees have higher standards, that’s what actually matters. But of course, companies should be lobbying for higher standards for all — especially on climate and carbon.
HBR: Investors loomed large in all these interviews. McKinsey’s Dominic Barton went so far as to say that he sometimes advises CEOs to go find the right investors if they’re getting pushback from ownership. Can you talk a little bit about the relationship between the shareholders and management when it comes to sustainability issues?
Winston: Paul Polman and McKinsey’s Dominic Barton both talked about shifting their investor base to include more investors who care about long-term value creation — and Unilever has clearly done that already, with 70% holding the stock for seven years. But it wasn’t clear that these CEOs — or anyone for that matter — have a good solution to the short-term pressure problem at public companies.
Whelan: One in every five investment dollars in this country is in ESG investments. Now, ESG is not always rigorously defined, but it shows more and more investors are interested in sustainability. I think that creates an opportunity for companies to find investors who are looking for sustainable investments. That said, we still have activist investors going after sustainability programs for short-term cost savings. I saw it happen in the coffee sector. Activists went in and bought coffee companies that had done a lot on sustainability and immediately stripped everything out because they were looking for short-term returns. So, I think the investor world has two completely conflicting or diverging strategies right now, which I think is very confusing for CEOs.
HBR: Paul Polman shared the idea that because the goal of business is to meet unmet needs, the UN sustainable development goals should guide product development and strategy because they lay out the biggest unmet needs for humanity. Is that a useful tool for other leaders?
Winston: Yes, it’s a useful tool for helping companies think broadly about their role in society and where they can plug into the shared challenges, and where they can innovate to create business value by solving a problem. That is, after all, a core reason companies exist — to solve some problem or fill a need for a customer. The [UN] goals just provide some guidance on the biggest needs to build a thriving society — and without a thriving society, there is not thriving business. This is something the leading CEOs like Polman understand.
Whelan: The first corporations in America were railroads, and they were set up to fill a societal need for connecting goods and people within the vast expanse of the country. And if you think about the major societal challenges confronting us today, the UN sustainable development goals can be a road map that will help businesses identify opportunities to help society and make money while doing so.
Henderson: The sustainable development goals are also important because they remind us that meeting them requires systemic change — and that systemic change requires the ability to build real cross-sector partnerships. “Government” is rapidly becoming a dirty word in many parts of the world, and the goals remind us that we need to turn that around, since it’s going to be impossible to meet them without the help of effective, responsive governments. I suspect one of the central questions of our time is whether the private sector can help to make this happen.
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