Name: Impact Initiative 2024: Recalibrating ESG - Mastering The Message Amidst The Backlash
Uploaded: 2024-10-09
Duration: 19 min 7 s
Description: Alphonso David, President, Chief Executive Officer, Global Black Economic Forum Richard Edelman, Chief Executive Officer, Edelman Tensie Whelan, Distinguished Professor of Practice, NYU Stern School of Business Moderator: Phil Wahba, Fortune

Alphonso David, President, Chief Executive Officer, Global Black Economic Forum Richard Edelman, Chief Executive Officer, Edelman Tensie Whelan, Distinguished Professor of Practice, NYU Stern School of Business Moderator: Phil Wahba, Fortune

Impact Initiative 2024: Recalibrating ESG - Mastering The Message Amidst The Backlash

Photography by Rebecca Greenfield/Fortune

Conferences

Alphonso David, President, Chief Executive Officer, Global Black Economic Forum, Richard Edelman, Chief Executive Officer, Edelman Tensie Whelan, Distinguished Professor of Practice, NYU Stern School of Business Moderator: Phil Wahba, Fortune

Alphonso David, Global Black Economic Forum, Richard Edelman, Edelman Tensie Whelan, NYU Stern School of Business, Phil Wahba, Fortune

Well, hi, Richard, thank you for joining us. Um, and, uh, Toy, I'm afraid it's, um, I'm, I love this topic because, um, you know, earlier this year we saw one company after another pushing back on their de I and ESG initiatives and abandoning them. I'm the journalist here so I can name names. You don't have to be as polite but, uh, tractor supply, Harley Davidson, Lowe's Toyota, North America Ford. And I guess I'm, let's just start with, um, why has there been push back, do you think, uh, among the long, uh, a larger part of, um, you know, a big part of corporate America? What, what's behind all this pushback? Is it, is it just political stuff or is, or are there other factors at play? So, um, why don't I start with, uh, with Richard? So I think that companies have been, um, nervous about the politics. I think they took a look at what happened to a certain beer company last summer. Um, and I think they've taken a cue from, um, the idea that they have to be strong with their core customers and what that ignores is the impact on employees and on the other half of the customers and the reality is that, um, companies are easily picked off. If there's going one by one, there's power in numbers. You'll remember this from the Disney case a couple of years ago in Florida where people were opposing, um, piece of dean legislation as a group, Disney decided they weren't gonna do politics and then they waded into it late. Um, and then they were picked off by the Sanders because they were the lone gazelle. So my request to companies is operate collectively agree generally on a set of principles and fight for those any perspectives here. Uh I would say, I, I agree with Richard. Um I think this is a combination of lack of commitment, fear and misinformation and what I mean by that is we all know that corporations are in the business of making profit. And if we look at the concepts of DN I and ESG and we tie them to the core principles that support ESG and DN I revenue generation talent pipeline, uh innovation. For me, it's difficult to see why companies are taking a step back. If they actually understand the data and understand the relationship between ESGDN I talent pipeline, innovation and revenue generation. If they don't understand those connections, then to Richard's point, they're going to kowtow to political pressure. But there's a lot of misinformation out there because the majority of companies are actually supporting ESG and DN I but we have a few companies that are taking steps backwards and relying on the misinformation that I think is going to hinder them moving forward. And I would just add to, to both of these comments that um I think quite a few companies have um misunderstood the materiality of these issues and think of it as a nice to have rather than a must have and something that obviously can be jettisoned at any moment. But the reality is that when these issues are material for a given company, if you're a property and casualty insurance company, and you're not paying attention to climate change, you're not going to be in business. If you are a company that is focused on providing services and you need to hire the best and the brightest and you're not paying attention to what the younger generations want and also to diversifying your um employees. So they actually represent the people that they're selling services to you again, to build on your point about business case, you're not going to be effective as a company. So really understanding the business case behind these, I think is critical. And then finally, I would say um there's a lot of noise, but when you look at the research and we've done a lot of research around consumer purchasing of sustainable products and messaging around with, with Edelman actually, and messaging around environmental sustainability issues. We're now having the field something on social sustainability issues. So we'll be glad to, to share that. But basically, what we see is that consumers state, blue state, um young, old rich, poor, educated, less educated, care about these issues and are purchasing products and services that um uh embed sustainability core to those products, 28% premium on average and CPG growing twice as fast as conventional products, for example, is some of the pushback justified. Um You know, just to play the devil's advocate, I feel like in 2020 companies were falling all over the uh over themselves to quickly adapt. Um uh to, to say, well, we have a, a Chief Diversity Officer, we have this, we have that um it felt like there was a bit of peer pressure going on. And so maybe um some of these programs implemented weren't so solid. So is there, is there uh a a case for why some of the pushback might be justified in your eyes? Well, let's start with you, Richard. So Phil, I think what you observe through data from the trust barometer is by 2 to 1 employees say I'm more likely to work for recommend uh advocate for on social media companies that stand up on business and racial justice as an example. So if you're simply looking through the lens of, of satisfying your employees, um this is a must do. Um Similarly, we see a very substantial percentage of consumers by 2 to 1 who prefer to buy brands that make a case for sustainability. Uh And they want the brands to be equally priced, they want it to be about them, meaning it's better for my life as opposed to just good for society. But you give them those products and you show that you're sourcing sustainably, they will buy your products. So I think the argument moments are very compelling. Um And that there's a lot of evidence to go to the CEO and say stand up to the politicians don't allow them to push you around. This is about business. This is not about purpose, although we found in recent cases this was activist investors as well. So uh to some degree, they probably reflect a bit of a constituency. Um I mean, is, is some of this just uh a correction we're seeing where maybe brands and companies want to go back to where they didn't really have to talk about social issues and politics. Um or uh has that uh horse left the barn and, and it's just a reality now for companies, I think that there are certain issues which you must talk to your employees about and there are other issues you should talk more broadly about. So the ones to your employees only should be gun rights or election rights or abortion rights or things that are inherently more political, but things that have to do with your company, um whether it's who you hire what you pay them, where you source things like this, that's every bit the company's business. And the key part of this is that business is 2 to 1 more trusted than government to get stuff done. And, and that's why there's such an emphasis on, on business as the lead in this. And of course, business doesn't want to be politicized and, and jumped on by, by politicians as activists, but you're not being activist, you're actually um helping to make change and change is what's going to enable society to succeed. Yeah, it's, we're in a weird moment because I remember in both 2016 and 2020 getting countless pr emails from companies saying we're gonna give our employees um um half the day off to go vote and we're gonna encourage them to go do canvassing, et cetera. I haven't gotten a single email about that this time and I'm just wondering if these companies are like, yeah, you all know how to go vote. We're gonna stay out of this one. But uh a quick, a quick phone for, for Richard. Um and y'all can jump into it, the reputational risk to companies that back off because I, I can't help but think if you're an employee or an investor or a customer and you've heard a brand saying certain things for a number of years now, then all of a sudden they say, yeah, we're done with all that. Um We're just gonna focus on our, our core business. Um, does that hurt the credibility long term, uh, with those constituencies? And what's the risk to the company? Well, I think you see in the Disney case, that's exactly what happened. I mean, you, you, you saw the company, we're not gonna do politics, then they go into the case, then they're whip sawed by the governor. Then they react by saying, oh, you know, we, we, we'll reconsider. I mean, companies need to have a certain set of values that they stand, stand for and stand with. And it's, it's an urgent matter of delivering on what you promise. Trust drives growth and action earns trust. You've gotta do things in order to get trust. Um, a question for specifically, well, more directed for Alfonso is the fearless fund. Maybe you can just tell people what happened there and what are the repercussions do you think? Sure. And, and I, I wanna follow up on what Richard said as well. Um I think that often we're asking the wrong questions. What I mean by that is why aren't we asking why the majority of people in the C suite happen to be white men? Why is that not the right question to be asking? Why aren't we asking why companies decided to adopt ESG and DN I without actually tying it to performance? Those should be the questions we should be asking as opposed to. Why is the company taking a step back from DN I? Right because the reason why DN I and ESG exist is because people of color and women have been shut off from opportunities that they're qualified for. And I think we have to sort of shift and change the narrative as we talk about these issues because it still is a problem that women are not leading most of the fortune 500 companies 10%. And in fact, we only have two black women think about that. Why is that not the right question in this moment. And that's what I think we should be talking about, which leads me to the Fearless Fund. Um Fearless Fund was started by two black women and they were looking to uh get investments for their company and they couldn't find any investors. Uh Many people know about venture capitalism. So there's $288 billion that's allocated each year in the venture capital space and up to $288 billion only 0.036% goes to black women less than 1% to all black people. So they decided to start their own company. They created a venture capital firm as well as a charitable organization and they started investing in black owned and women owned and minority owned companies and they also created a charitable organization to provide grants. They were sued last year right here in the 11th circuit uh in the district court at first. And the argument is that by providing grants to women of color, you violate federal law, which is absurd when you think about the disparity that exists. But that was the argument. Uh So we litigated the case and we won at the district court arguing one that charitable organizations have a first amendment right to issue grants consistent with their missions. Think about Uni the United Way or think of Ford Foundation, any of the foundations that exist. And we won the case was appealed to the 11th circuit and two of three judges concluded that the plaintiffs had a likelihood of success on the merits. So the case went back to the district court and we had an opportunity to either litigate the case or resolve it. And we recently resolved the case, I think to the benefit, not only of the fearless fund but to every other charitable organization out there or every organization that wants to invest in Black and Brown entrepreneurs. And the settlement essentially says that the program that they sued under was ending anyway. So they wouldn't continue that program. But the settlement doesn't apply to any of their grants, any of their programs, any of their mentorship programs. It doesn't apply to anything that they do. And we were strategically and I think uh mindful that if we litigated this case all the way up to the US Supreme Court, it may be a different result given the current composition of the court. So ultimately, I think this is a great result for them and a great result for anyone who is interested in equity investments moving forward. Um And sorry, go ahead, Richard. Can I just pile on a little one thing we found in a, in a very recent study we did in uh September about uh employees in relationship to corporations is a huge mass class divide within the corporation. In other words, the people who work in the factories have a fundamentally different view of trust and institutions than the top quartile. And it's twice as large a gap in trust and institutions as in the general population. So it's 32 points versus 18 points. And it's all to do with a lack of economic optimism, a lack of belief in the system, a lack of sense of hope for the future. That's our job. We've got to show people a way forward that capitalism is working for them and not just for shareholders and key to this is sustainability, making sure that they're reskill and upskilled and that and that they don't have to be worried about A i killing their jobs. They've seen this play before on globalization and they don't want it to repeat itself. So go ahead. I was gonna, yeah, so I just want to add to a couple of points here, you know, you asked earlier, why has this gone off the rails? How can companies bring this back? Right. How can they stand up on this. So I think one big mistake um that companies have made is to focus on ESG as a strategy ESG was always just meant to be a system of metrics to measure performance against sustainability. It does not include profitability, sustainability does to your point about performance. So it's just an acronym and it doesn't actually mean anything and yet it became a performative um approach by a lot of companies to say yes, I'm reporting on ESG, here's a bunch of metrics. What you should also know is that the ESG reporting metrics are all process and output based metrics. In other words, do you have AD E I policy? Oh, good for you. You have AD E I policy. What does that actually result in? What is the outcome of that DE I policy? No idea. That's not what the reporting standard tracks. What we're hearing right now from a lot of companies is that they're saying we need to invest in all this reporting and disclosure, which they are required to do, but they're also saying, and that means we're no longer going to execute in what world can you execute? I mean, can you not execute and report on something only on a world where the reporting metrics are not real and where you're not actually driving change, right? So the reason why this is all really important and material to companies, they need to be focusing in on those issues. And let's just talk about the business case from an environmental perspective since we've heard about it from the de I perspective, operational efficiency. Holy grail of many companies, right? And manufacturing, et cetera. Think about how companies think about pollution and waste. They think of it as a compliance issue. Actually, you're buying more than you need to pay, to dispose of what's left over. That is an operational inefficiency we saw for one automotive company $235 million net annually as a result of their waste management strategies, which they did not know because they were not tracking it and because finances track avoided costs, which is a huge part of um benefits coming from sustainability. So my, my key takeaway here is that companies need to get a lot better at embedding sustainability de I social and environmental spending into their core business strategy tied to those issues that are really material and, and build out that business case so they can persuade activist investors. Um regulators, crazy people that this is all you know, makes sense, right? Because it does. And because as we've heard from both Richard Alfonso and Phil, this is where this generation is going. My daughter would not never go work for a company where there wasn't a strong de e focus and I think that that's gonna, that is really true for a lot of this younger generation. So anyway, so in, in uh our remaining time uh question uh will we see more corporations drop out or was this a little fad? Um, and, and basically deep down the way forward as, um, maybe just they'll, they will maintain and refine their ESG and D I, um, approaches because that's just where reality is going. I mean, should we expect more in the exodus or are we done? I mean, here, so my two cents on this is, these issues are not going away. So, you know, Florida can pretend there's no such thing as climate change. But in fact, there is right. Um you know, uh uh people can pretend that they don't need a diverse employee base, but in fact, they do. So this is where I think that companies will need to take on these topics and build them into their business strategy. OK, I agree. I think this is not going away and I think we will see more companies potentially take a step back. But let's remember that more than 83% of the companies based on a recent study are still supporting DN and ESG. And let's make sure that the narrative of the minority is not driving the narrative for the majority, right? And the last word for you, Richard, what do you think more to come? I think the smart company will set goals that can be achieved and be very tangible in the benefits to the corporation and to society because by not doing what they say, they're gonna do, they're all hat, no cattle. And that's exactly the worst place that companies can be in because they're so easy to pick off. Um For politicians, do your job, make it work and make it a positive for um your business. So, on that note, please join me in, thanking our three panelists and Richard for joining us from New York. Thank you.