Two billionaires squabble and we find out who the most sustainable companies are!
Guiding principles to be 'most' sustainable.
Tesla...maybe not a sustainability hero.
Two billionaires have a disagreement and we end up with one of the most organic public opinion polling experiments ever to identify the most sustainable companies. What a week!
For context, Bill Gates approached Elon Musk about philanthropic contributions to address climate change. Elon Musk drew attention to a perceived hypocrisy in that Bill Gates is currently shorting Tesla stock, which Elon Musk referred to as one of the best climate companies there is.
Now, forget about climate philanthropy, Bill Gates, and Elon Musk. This little exchange spurred a divisive line of discussion on social media as to whether Tesla can truly be considered a ‘climate company’. This question evolved over numerous different threads into ‘Who are the best companies for climate?’ and ultimately into ‘Who are the most sustainable companies?’.
Reading replies across a few early threads showed this to be quite an organic discussion with results taking us a bit by surprise. Let’s look at a few observations in greater detail:
1) No clear winners: Many hundreds of different companies were put forth as contenders for ‘most sustainable’ but no single company, or identifiable small group of companies, could be said to have won. Almost all of the suggested companies were only suggested once, and a few two or three times, but none were suggested at any significant degree more than the others. It seems everyone has an idea of who the most sustainable company is…and no one can agree.
2) The experts might be wrong: Industry experts and commentators regularly put out popularly-appealing lists of top sustainability companies, such as Barron’s 100 Most Sustainable Companies, Corporate Knights 100 Most Sustainable Companies, or Newsweek’s Green Rankings. All of these lists are presented as being objective and empirically-supported, yet even so, all of these lists are made up of company names that were not put forward in the replies to the social media discussions trying to identify the most sustainable companies. Expert data and selection methodologies may aim to tell us who is sustainable and who is not, but that doesn't mean the public accepts these rankings.
3) History doesn’t count for much: The last three decades of corporate sustainability efforts often pivoted around case studies of early movers in this space. Companies like Nestle, Unilever, Interface, Danone, and The Body Shop have been highlighted in countless case studies pinpointing the business value of sustainability. Today, however, none of these names were put forward. Many of these companies are still doing good work in sustainability but, apparently, the goalposts have moved and past successes don’t seem to count for much.
4) Red lines exist: People may not agree on much, but they largely agree that child labor is bad, toxic waste is bad, remaining in Russia is bad, polluting waterways is bad, and animal cruelty is bad. It doesn’t matter how much good you do, if you cross one of these red lines you are eliminated from being considered a ‘most sustainable company’. People’s definitions of sustainability may be quite vague, but they do hold strongly to certain red lines. To be among the most sustainable, you don’t necessarily need to be the best, but you do need to be sure to not be ‘evil’.
5) The product is not the company: This came up a lot in the discussions. The halo effect of a sustainable product only stretches so far…and it isn’t far enough to earn the title of most sustainable company. Tesla, for example, was largely ridiculed for being promoted as a sustainable company. Yes, their main product produces no tailpipe emissions, but their approach to culture, supply chains, natural resource use, government relations, and employee relations--it was pointed out numerous times--effectively eliminates them from even coming close to such credit.
6) Single issues do not have broad appeal: Many of the suggested companies have built their sustainability credentials upon a singular issue--the company determined to never use single-use plastics, the company racing to net-zero, the company born of diversity. These are all celebrated and championed within the discussion, but not broadly. This approach to sustainability speaks to a niche audience. This is not a criticism but rather an observation that single-issue focus can help you develop as a positive impact company but will not likely move you into ‘most sustainable company’ territory.
7) Novelty captures the imagination: There is certainly a bias toward newer/start-up companies in the discussion as to who are the most sustainable companies. This is interesting as many of these companies, upon review, do not have the same degree of disclosures and reporting legacies as do the more established companies, yet while sustainability claims of established companies are often approached with skepticism similar claims from newer companies are often awarded the benefit of the doubt. The narrative of potential seems to carry more weight than does the evidence of data.
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Sustainability is now a strategic imperative for companies of all sectors, and knowing how to develop your company to be recognized as a ‘most sustainable company’ is critically important to longer-term success. Research analysts may claim to be able to look at supposedly objective data (...but it really isn’t all that objective!) and create a finite list of most sustainable companies, but inclusion on this list isn’t worth much if consumers and stakeholders themselves don’t recognize these companies as being sustainable. Looking over recent public discussions on the matter, it sure seems most consumers and stakeholders don’t put much stake in such ‘expert’ recommendations.
Although there are no explicit and detailed instructions for a company to be recognized as being sustainable, we can offer a few guiding principles based on the above seven observations to make this trajectory easier:
1) Cover the basics: We may not all agree on what sustainability means, but all of our understandings share many common elements. A sustainable company should be managing their impact across a broad spectrum of basic concerns, including: Diversity & Inclusion; Biodiversity & Habitat; Climate & Emissions; Resources & Waste; Water; and Community. A company with basic performance across all areas will likely be considered more sustainable than a company that excels in one area while ignoring the others.
2) Build a focus: With your basics covered, now is the time to explicitly identify what matters most to you and explain why. This is where a company can develop a strategic focus that shapes their more advanced sustainability projects and policies. By strategic focus, we mean one that aligns with the operational context of your company. There is an inherent expectation that pharmaceutical companies could have significant impact on access to health, agriculture companies on access to food, tech companies on access to education, and so on. Consumers and stakeholders have a generalized sense of what a company is good at and take notice when this strength is applied to the sustainability trajectory.
3) Leader/Laggard: Whatever it is you do, please note that you do not need to be the leader--sometimes good enough is actually good enough. Sustainability is so vague that it is quite difficult for people to identify a company as ’best’ in any pillar of sustainability…but what they can do quite easily is recognize those companies that are meaningfully engaged and those that are not. You do not need to be a leader, but you certainly do not want to be a laggard. Cover your basics, develop a focus, and don’t let a quest for perfection delay you from meaningful engagement now.
**4) Narrative matters:**As much as the rise of ESG is casting the spotlight on performance data, the importance of a meaningful narrative is not dimmed. Your sustainability mission matters, at least if it is presented correctly (as we discussed earlier). A good sustainability narrative should communicate: What sustainability means to the company; What you are doing about it; Why you are focusing as you are; and, How consumers and stakeholders can engage in the process. And details matter--it’s not about a better world, it’s about what you are doing to bring about a better world. Data is important not in and of itself, but rather because it allows consumers and stakeholders to monitor your performance in living-out your narrative…so make your narrative count.
A Quick Overview of Recent News
Consumer Demand is Still Growing
IBM surveyed 16,000 global consumers in February 2022, and the findings are encouraging:
51% report that environmental sustainability is more important to them now than it was one year ago.
49% say they have paid a premium for products branded as sustainable or socially responsible over the last year.
Consumers would generally appreciate action on three key barriers to being more sustainable: Better product quality; More affordable prices (effectively reducing the green premium!); Better understanding of how purchases translate into impact.
A recent review of the Home Depot forest sustainability policy demonstrates that the policy:
Is outdated and largely unchanged from the initial 1999 policy;
Reliant on vague and ill-defined language;
Much less developed than its competitors’ policies (noting that Lowe’s is currently updating its policy and disclosing through CDP Forests);
Leaves Home Depot vulnerable to risks of climate change, relations with indigenous peoples, biodiversity, and human rights.
In March, 2022, As You Sow--the corporate accountability non-profit known for organizing and mobilizing ESG-oriented shareholder proposals--released their Road to Zero Emissions report looking at the progress of 55 of the world’s largest companies toward Paris-aligned net-zero goals aimed at keeping climate change to 1.5C below pre-industrial levels. This is one of the more recent reports that actually compare Microsoft and Tesla--so let’s put the Gates-Musk spat to the test.
The report adopts a three-pronged scoring system where companies are rated on climate related disclosures, GHG reduction targets, and actual GHG reductions. Microsoft comes out on top, one of only two companies to receive an A grade (along with PepsiCo Inc) while Tesla finishes off tied dead last with Berkshire Hathaway Inc (which is notoriously indifferent to climate change, believing any efforts should be the remit of government).
Tesla is in an odd spot. Because they effectively popularized mainstream EVs, we can’t discount the impact they have had on the climate transition, but on the other hand, if Tesla were to be founded now once EVs are already normalized they would largely be criticized for their laggardly climate performance and lack of disclosures. If founded today, and all else being equal, it would be difficult to argue for Tesla being a ‘most sustainable’ company.
In the end, there is no 'most' sustainable company, but there are plenty of companies that people believe to be most sustainable. Being one of these companies is well within reach if you approach sustainability as a shared trajectory. We are focused on this space and will have more to say in our next edition, in the meantime, please connect with us on Twitter and LinkedIn, or from our website to continue this discussion.