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In Search of "Bricklayers": Building and Reinforcing the Foundations of Private-Sector Sustainability

Wednesday, September 4, 2019
Alan B. Horowitz

Alan B. Horowitz

Principal and Managing Director, Trusted Companies LLC

I have a confession: I can’t stand the “what’s your occupation” question—credit card applications, cocktail parties, whatever. I find it limiting and often irrelevant. Truth be told, I haven’t known how to answer the question for years. “Environmental, Health, and Safety Executive?” “Sustainability Leader?” “ESG Champion?” The reality is that my default answer has become “recovering environmental lawyer” but I worry that’s insensitive . . . !

My troubled relationship with the question reminds me of the parable about the building of the Sistine Chapel where a man came upon the construction site where three people were working. He asked the first, “What are you doing?” and the man replied, “I am laying bricks.” He asked the second, “What are you doing?” and the man replied, “I am building a wall.” As he approached the third, he heard him humming a tune as he worked, and asked, “What are you doing?” The man stood, looked up at the sky, and smiled, “I am building a cathedral!” 

Those of us immersed in the world of corporate sustainability, risk management, and “Environment, Social & Governance” (ESG) can relate. “Cathedrals” may be a stretch, but designing, building, and protecting business foundations is our trade. Sure, we all have “occupations”—lawyers, engineers, scientists, procurement professionals, and MBAs, among others. But more than anything, we are architects and bricklayers—trusted advisors who are helping to design and build truly “sustainable” companies: companies who, in the words of former Nestlé COO Jose Lopez, are “committed to being around for the long term and deservedly so!

As the ESG movement grows, corporate sustainability reports proliferate, and debate about the private sector’s role in addressing some of our most intractable challenges evolves, it seems timely to review our blueprints for building the foundations of those truly “deserving” companies. Here’s mine:

1. An appreciation for the full breadth and depth of “Sustainability.” The 17 U.N. Sustainable Development Goals (SDGs) capture the full essence of the threats and opportunities we face as a global community. Addressing the climate crisis is our most pressing collective challenge, yet like the SDGs themselves, a company’s “sustainability” profile extends to workplace safety, human rights, business ethics throughout the supply chain, and other elements. Companies of all shapes and sizes must embrace this breadth, understand their footprint, and, by objectively and collaboratively mapping the SDGs to their business purpose, do their “fair share” toward addressing our collective challenges.

2. A respect for “Black Swans.” The entire organization must embrace the value of mature risk management and business resilience programs. Companies worthy of investment and trust must reliably identify and manage the threats and opportunities that can, in a lightning strike (or conversely a stroke of genius), reshape the trajectory of a business and dictate how "sustainable" it truly is. In contrast, companies that forget that "black swans" exist are destined to face the emission scandals, oil spills, banking scandals, plane crashes, and wildfires from which they are unable to fully recover. Relying solely on good luck or hollow commitments to “doing well by doing good” is not a reliable business strategy, although many have tried, at the expense of customers, investors, and the planet alike.

3. A commitment to “private governance.” In the early 2000s, AstraZeneca recognized that if the company didn’t establish wastewater discharge limits for the minute quantities of waste pharmaceuticals associated with their manufacturing activities, no one would. It was the right thing to do and, before long, the entire industry confronted the “pharmaceuticals in the environment” challenge collectively. In the IT sector, similar initiatives are happening in the areas of AI, data security, and data center energy efficiency. Governments are often unwilling, unable, or otherwise poorly positioned to steer corporate behavior that, if managed irresponsibly, place people, the planet, or our social institutions at risk. Stakeholders must be able to trust companies to step up and lead the way through product stewardship, self-regulation, and transparent, coordinated action.

4. Inspired and inspiring leaders who get the "WHY." A 2015 McKinsey study concluded that 30% of a company’s value is at stake in its relationship with society. Certain elements of that relationship are universal: the depth of our respect for the rule of law, the way we treat people, and the extent to which we help to protect the planet. These principles must be embedded in the business’ DNA and manifest in the words and actions of the CEO, the design of the corporate strategy, and the strength of the organization’s programs. As Simon Sinek would say, “it starts with why,” but the “what” and how” are also essential. Business leaders—from the board room to the C suite to the shop floor—must understand, manage, and communicate what’s at stake in that company-society relationship every day.

5. Trusted and collaborative “Second Lines of Defense.” People come and go, restructuring is a constant, and organizational designs swing with the pendulum. What doesn’t change, however, is the value of trusted, experienced, and collaborative teams of advisors, partners, and subject matter experts who help set the tone, build the programs, develop the targets and metrics, provide the assurance, and otherwise help the company deliver. Whether organized as stand-alone organizations or integrated Sustainability and ESG teams, these "second line of defense teams" must be well-positioned to identify the emerging threats and opportunities, hold up the mirror on performance, help leaders “embrace the gray," and ensure that the commitments are built, embedded, and delivered. They are the chemists, the engineers, the accountants and . . . the “architects!”

But even amateur architects understand that the best designs rely upon the strength of the earth beneath them, and, in the case of the playing field upon which companies currently operate and compete, some serious groundskeeping is in order. This is because despite the best intentions of companies pursuing “sustainability” and the growth of the ESG movement, at a macro level, our current capital markets appear incapable of promoting and supporting the commitments, investments, and deliverables that we need to protect our collective future. While a recent former corporate lawyer’s declaration that business executives are “legally obligated to act like sociopaths” certainly overstates the problem, day-to-day company decisions on what priorities to set, what goals to pursue, and what it means to be truly sustainable and "deserving" are often undermined by the market’s obsession with quarterly reports, its failure to incorporate negative externalities, and its short-sighted and outdated fixation “shareholder value maximization.” As one writer has cleverly put it, we are living in an era of “Greenwish.” So, while the market's garden may remain aesthetically pleasing, the hidden weeds are invasive and potentially destructive.

The Cambridge Institute for Sustainability Leadership (CISL) has produced what I’d consider the most logical plan for systemic change. Titled Rewiring the Economy: Ten Tasks, Ten Years, CISL identifies a set of 10 interconnected tasks for the business, government, and financial sectors to pursue in an effort to “enable fundamental change in how the global economy is harnessed for social and environmental good.” Some other compatible ideas are also emerging, including the concept of the “Social Board”; amendments to SEC disclosure rules that would compel companies to disclose ESG-related risks as an expansion of the current “materiality” disclosure framework; and requirements for companies to “adopt a binding set of ethical rules” that would address “the key ethical dimensions of corporate life,” including their relationships with employees, customers, the environment, and future generations.

And of course, the Business Roundtable has just issued a new Statement on the Purpose of Corporations signed by 181 CEOs who “commit to lead their companies for the benefit of all stakeholders.” Reactions have ranged from “halleluiah” to “it’s nothing new—they’re just preempting Elizabeth Warren.” I’ll hedge for now and see it as a positive and timely development that can at a minimum provide companies with some additional cover to embed sustainability into their DNA and raise the corporate performance bar across the SDG. After all, a rising tide lifts all boats; we just need that tide to be real and not a mirage.

One newly formed entity, The Shareholder Commons (TSC), is particularly well-positioned to help companies and their investors “walk the talk.” TSC is the brainchild of Rick Alexander, a former Head of Legal Policy for B Lab and Managing Partner of the Morris Nichols law firm in Wilmington, Delaware. The big idea behind TSC is the establishment of corporate sustainability “guardrails” or “tickets to the game” that would be established in collaboration with the private sector and enforced by institutional investors through engagement and, as necessary, shareholder proposals and proxy voting. Examples could include science-based environmental improvement targets; accounting for carbon emissions; executive pay linked to ESG performance; limits on tax avoidance schemes; and other SDG-aligned minimum performance expectation. This platform would raise the sustainability bar across the board, for the benefit of the planet, society, and the “Universal Owners” who collectively have the most to gain and lose from the way in which environmental and social systems and other externalities are managed over time. I am proud to be serving as an advisor to TSC as the initiative progresses.

In closing, I’ll move from the cathedral story to an analogous one involving a visit to NASA by President John F. Kennedy. While touring the facility, JFK asks a janitor what he did for the agency. “I’m helping to put a man on the moon,” he answered! As we commemorate the 50th anniversary of the moon landing, we’re faced with what may be an even more daunting challenge: preserving our planet and social and economic systems in ways that will make our progeny proud. It will take engineers, lawyers, chemists, entrepreneurs, computer scientists, and folks of countless other “occupations” to meet this challenge. It will also need a private sector—incentivized and emboldened by our capital markets—that is committed to converting the vision, creativity, and determination of these experts into successful “moonshots.” This is what will build the foundations of sustainability, make our children proud, and, yes, continue to render our formal occupations moot.

So, the next time I’m asked the “what’s your occupation” question, I’m going to resist the “recovering lawyer” response and answer something like: “aspiring mason!” How about you?