More than just a “fad”: Translating obsession into action

In this episode, Sue Bonney, former head of ESG at KPMG, reveals the real meaning behind the corporate obsession with ESG. From transparent reporting to holistic integration, they explore the myths surrounding ESG and its impact on business growth, challenging conventional wisdom with data-driven insights. Tune in for a fresh perspective on sustainability and actionable strategies for organizations navigating the ESG landscape.

Discussion Topics: Translating obsession into action

• Is the ESG obsession just to stay ahead of regulators?
• ESG in the long-term scenario
• Are companies obsessed with ESG to avoid risks & penalties?
• How can you use ESG to unlock growth?
• How to convince clients that ESG means growth
• ESG is both a blessing and a curse
• How to address transparency
• Take control of ESG, don’t let it control you
• Closing

Transcript: Translating obsession into action

Ravi Chidambaram: Welcome to ESG Mythbusters, a podcast where we debunk, demystify, and deconstruct some key ESG preconceptions with unfiltered knowledge and data from key experts in the field. I’m Ravi Chidambaram, CEO and founder of RIMM Sustainability, an impact-driven SaaS company that advocates making sustainability accessible and actionable for all. In this episode, we’re really excited to welcome Sue Bonney, who has over four decades of experience in the corporate world and is a former head of ESG at KPMG. Sue, welcome.

Sue Bonney: Thank you, Ravi. It’s good to be here.

Ravi Chidambaram: Sue has a really deep understanding of the evolving ESG landscape and specialises in advising companies on a strategic approach to ESG.

She’s also been helping RIMM think about how we talk to clients about ESG. Here’s what we’re going to cover in this episode, today. One is the current quote-unquote obsession with ESG in the corporate environment. And we’re going to unpack some different aspects of that.

And second is an oversimplification of ESG or a dumbing down of it, if you will, where it’s only viewed through the risk lens, rather than a more strategic holistic lens. And then number three, we’re going to talk about the need. For transparency as being essential to business growth, as far as ESG is concerned and four is how does an organisation work towards more holistic integration of ESG, into their businesses.

A lot of interesting stuff to cover and obviously a lot of myths to unpack, as we do. So let’s just get started with question one. Sue, I think, it’s fair to say that, all over the world, certainly, particularly in places like the UK and Europe, there is a very high degree of focus.

Some may say obsession with ESG in the corporate environment, but, what does it really mean? Is this obsession genuine? Is it, managing the narrative to stay ahead of regulators?

Is the ESG obsession just to stay ahead of regulators?

Sue Bonney: Yeah, it is true in my world, which is the corporate world. Absolutely everywhere you turn, there are references to ESG like it’s this sort of separate thing. And I think that’s really unhelpful because ESG is about everything you do in your business and how you do it. And the scores, the ratings, are just a way of using data to evaluate how responsible is.

And they do that because the underlying thinking, which I think we’ve somewhat lost in all this, is that a company that behaves responsibly, is resilient, and so on, is a better longer-term investment bet. I spent a lot of time with boards and executives helping them just navigate how to build that thinking into their core strategy.

So the E is about the impact your business has on the planet, the waste you produce in your factories, your business travel, your carbon footprint, and damaging nature by building new factories on greenfield sites. But then it’s also the impact of those things on you.

So will floods stop you from accessing the components you need for your car production line? Or will drought kill off the cocoa pods which produce the cocoa which goes into the chocolate that you make? And it’s the same for the S and how you’re contributing to the communities you operate in.

Paying fair taxes, being a reasonable employer, and paying a living wage. And. Thinking about, if your products are contributing to a social problem like obesity or addiction What are you doing as an integral part of your strategy to actually mitigate those impacts? Again, for this longevity point and then finally the G, which I always think overlaps a bit, to be honest with the S, but how you conduct yourself as a business being ethical with the right processes in place, to support that and so on.

But also being fair and transparent with your customers. Treating your suppliers with respect and then over it all you need a kind of effective board that’s able to steer the company In the right direction and challenge the executive if there’s a need to do that all those things they’re things at the heart of the business and while this is about responsibility It’s not about altruism either because as I said earlier on all these things will in their way Lead to a more resilient business and therefore a kind of longer lived business if you like.

Ravi Chidambaram: I think you’ve outlined the best-case scenario, if you will, for how companies should implement ESG and why. But let’s look at the reality. A lot of the companies you advise may be publicly listed. They face quarterly reporting pressure. They have to deal with the share price every morning when they wake up, and they’re probably more concerned with the short-term, financial goals, managing the share price, managing their investors and so on.

And the reality though, is ESG. Is a far longer term, more holistic sort of venture if done correctly. I’m trying to reconcile this obsession with ESG as you point out, particularly in places like Europe with the reality of this quarterly treadmill. So how are you? I’m just going to explain what at first glance looks a little bit contradictory, right?

ESG in the long-term scenario

Sue Bonney: Yeah, look I, that’s, it’s a fair point. And I think it’s true, not just with ESG, but just more generally in business, its short-term, long-term dynamic is a real, ongoing dilemma. And there are definitely risks to be managed in this, there is a risk and an immediacy about it.

Complying with new reporting standards and there are reporting standards coming out all the time. Meeting the demands of your lenders and your insurers and so on, who themselves are making financing decisions long or short term on the basis of your ESG ratings and they themselves have to report on the ESG footprint of their portfolio.

So by definition, they’re having to get data from their customers and that’s the corporate. So there is this immediacy about it. Also, customers are starting to demand this stuff. So B2B businesses are now incredibly used to having to provide reams of detail on their ESG credentials. just as a prerequisite to being considered for new business.

So that’s before they even get to talk about what their real business is and what their differentiators are. They’re having to provide this kind of reams of data. And then there are the operational aspects. If you make a fizzy drink and your formula means you fall into a sugar tax, that fundamentally impacts your profitability and your finances.

So These things are immediate, they’re risks and they have to be managed. But I think the real art of it. is to turn it on its head and look for opportunities. And what I mean by that is just at a really basic level, just having a better handle on your ESG data can highlight how you can reduce waste and save real immediate cash, whether that’s energy for heat and light, whether it’s unnecessary business travel, whatever it is.

And just being alive to those risks I just talked about and being on the front foot itself. can be a real business opportunity. So go back to those floods I was talking about or drought. If you’re going to need to diversify your supplier base to protect your supply chain, if you do that now ahead of your competitors, it puts you in a better position to secure what might be limited alternatives.

And doing it now increases the chance of you negotiating a decent price rather than later when there’s an absolute crisis and everyone’s scrabbling for the same thing. And then the final thing I’d like to say on that is, if you go on further, if your strategic thinking tells you that in all likelihood, you’re going to have to adapt your products to new market attitudes, different views on carbon footprint, different views on health, then again, if you’re on the front foot, then you can start to think now about the innovation that you need to reinvent yourself, and then you can access maybe green investment funding, maybe, grants, maybe partnerships to really support those business efforts.

Ravi Chidambaram: Yep. No, thanks for that. So let’s move on to the second point, which is. The oversimplification of ESG, is just around this notion of managing risk in a business, right? One definitely sees that because the biggest part of the ESG business from a service provider point of view is certainly things like, as you alluded to, reporting, box-ticking, if you will, about meeting stakeholder requirements around procurement or lending and so on.

But, a lot of this is probably, like you say, more of a risk lens, right? So when we say companies are obsessed. With ESG, are they really just obsessed with ticking these boxes and making sure to avoid fines and penalties? Making sure they still remain as suppliers of choice or, so on.

Are companies obsessed with ESG to avoid risks & penalties?

Sue Bonney: It’s a reality of modern business that actually can be, it can be possible to be overwhelmed by the risk. risk management aspects, they can be very real, they can be very loud, and they can be very terminal if you get it wrong.

It would be wrong to suggest that people shouldn’t take those seriously, and have to survive. If you look at the successful businesses, they’re the ones that can look beyond the immediate horizon. They can manage that.

They do that by doing it efficiently, by having the right processes in place, and by having the right data to meet those immediate needs. And so the ones who I think are going to. Really survive initially and then thrive are those who can look beyond it, use the data, again, to make informed decisions, but then build that into a strategy which longer term will lead you’ll longer-term value as well as just this immediate survival. I think it’s balance, it’s balancing all those things.

Ravi Chidambaram: No, said. So let’s move then to the other side, which is what you’re advocating. ESG. As kind of very integral to the business to managing growth, unlocking opportunities, increasing profits, and so on, as you point out, probably only a minority of companies today, may see it that way. But maybe it’s an increasing minority, and how would that work for you? How can one use ESG rights to unlock growth and profits?

How can you use ESG to unlock growth?

Sue Bonney: It’s really important to take control of this and not let it control you. ’cause I do see companies being absolutely overwhelmed by the requests, and the demands and just doing stuff to meet those demands.

And I think you have to get out of that mentality. So I think you have to really build it into your core strategy and make it part of business as usual. One is you absolutely need to work out what aspects are most critical for your business.

So what matters to your different stakeholders? Which ones are material in terms of value or cost and where you can have the most impact? And that’s what people call a materiality assessment. That’s working on what’s material. And then it’s also worth looking at what competitors are doing because I do see a lot of companies thinking, we’ve never had a carbon zero target, but none of the other law firms have, so we’re fine.

But I think. You just don’t wanna ignore the fact that the demands from all comers and businesses are making businesses respond to this faster and faster. So I would say don’t be complacent, do some proper benchmarking, on what they say and the kind of wider evidence. And I would look outside for evidence as well as inside.

And then you have to have a plan. So you use the evidence to engage with the business, come up with a long list of all the things you could do, and use your materiality assessment to prioritise over the short, medium, and longer term like we’ve been talking about. And then if you have to, I think you have to recognize that if you try and do everything at once, you get kind of corporate indigestion and you overwhelm your teams and you get paralysis.

Equally, if you leave it all until later you do lose this plan. potential for real differentiating sort of opportunity. And then the big thing in all of this is getting the data. This is difficult data to get, it’s difficult to understand and it’s difficult to report accurately and to give a picture. So really getting hold of that data, managing it and then starting to use it for your benefit is a really big deal.

Ravi Chidambaram: No, thank you for that. But the jury still seems to be out on whether good ESG actually leads to outperformance and growth. I’ve seen different studies with contradictory results. The most recent one I saw is a McKinsey survey. That shows that the top performers in ESG revenue growth and profit growth were the highest outperformers in terms of total shareholder returns.

But equally, I’ve also seen other studies that show more inconclusive results. How could you convince clients that ESG really does mean growth opportunity and profits in the long run?

How to convince clients that ESG means growth

Sue Bonney: It’s a really good point, and I really, honestly, Ravi, when I’m talking to companies, I hesitate to say you are going to outperform by doing these things. Because as you say, I think you, as many studies can show as many different results.

I think the real thing is if you go back to my underlying philosophy, which is. It isn’t just about the ratings. The ratings are a way of scoring what you do there, a way of evidencing what you do with data and putting numbers to it. At the heart of this is what you’re actually doing as a business and how you’re doing it.

And I do believe that a company that doesn’t trash the community that it’s operating in, strip out all the value, or ruin the property, has a better chance of being there for the long term. I think a company that doesn’t treat its employees like cannon fodder and, does not value them, not recognizing the challenges that they have, all those sorts of things will have more churn and they will find it harder to have a sustained, more or less sustainable business.

And then you have to get the data and the ratings to make the story. And then I think that the studies will start to be a bit more categoric that the highest year score equals a sustainable business.

Ravi Chidambaram: So maybe if I could summarise what you said, I think what you’re ESG Is ESG that is explicitly a strategy unto itself, right? But rather ESG that’s quietly integrated into different business functions and processes. Within the company, all elements of your value chain that you do on a daily basis probably have some ESG overlay at the beginning.

Maybe it’s a bit more of a box-taking compliance data-gathering exercise, but it could slowly transition into something that becomes sort of second nature. And it’s not really viewing ESG as a separate field. But rather just integrating it into sales, marketing, HR compliance operations and all the rest and maybe that is ultimately what is resilient, what will unlock opportunities.

So let me move on maybe controversially to the other side. You talk about the obsession with ESG and I agree with you about where you are. I certainly see that. But equally, I’ve been to other places like say the US or even where I’m based in Asia where people aren’t necessarily so obsessed at the corporate level, the C suite level with ESG, they rather view it as a nuisance or passing fad or fancy, and they don’t take it seriously.

The CEO of a major Indonesian mining company recently told me that profits are in rude health and, if the EU doesn’t want to buy his product because of CBAM or any other legislation. He’s happy to sell it to China or India who could care less about that kind of stuff. And he’s not too bothered about ESG and neither is the Indonesian government because they need it for their development. And then you have the other extreme in the U. S. where it’s almost illegal in some states, to practise. ESG especially in areas like lending so what would you say to those doubters who are not all obsessed with ESG?

ESG is both a blessing and a curse

Sue Bonney: I think there are a few things in there. One is, that the term ESG is both a blessing and a curse. I found it a blessing when I was starting to really get actively involved in this because I came at it with a responsible business lens.

ESG was a blessing because it started to put hard numbers to it because it started to support flows of capital. It became very hard. And that made people take it seriously. It moved from being dealt with in the weeds of organisations right up to the board table and became a strategic issue. So that’s a good thing. I do think the actual terminology now, I’ve seen many commentators say we need a reset.

We need a different terminology because of ESG. Itself as a term has become politicised in places like the us. It’s become seen as anti-business So I think the terminology is unhelpful in itself.

The second thing is, these are big topics and there is no doubt that that one country or one individual and then one company and then one country can’t itself start to deal with some of the challenges we have around, global warming and all these sorts of things that climate change and there will be political pieces at play. What I would say again is that the debate is at least live now because we’re at least addressing some of these topics because we have, the COP, COP27, COP28 all these sorts of discussions which may or may not be as effective as people would like them to be.

There are at least Live conversations about that. There are conversations about a just transition so that it’s not just the West imposing, constraints on developing countries and so on. So it’s a much more open and honest debate.

And actually in my heart, I think things like the carbon carbon taxes, carbon duties will ultimately have an impact on trade flows. Maybe not immediately, maybe there are alternatives for now, but ultimately I think these things will drive change. I’m hopeful that they will.

Ravi Chidambaram: No, thanks for taking up my query because I realised it is not an easy one, to answer the ESG naysayers, as it were, but I think it’s fair to say that there are different flavours out there in, in the C suite around the world. Look, we’re going to reach halftime. Let me just do a quick plug for our show and podcast. I hope you guys have enjoyed the whole series to date and really encourage you to continue to sign up.

Thanks for joining us again. Sue, let’s move on to the second half and, I think you stress, transparency, as being essential in the whole process. And, we’d love to hear from you what you mean by transparency, and how that applies to corporations.

How to address transparency

Sue Bonney: I think it’s pretty easy to think, we’re not bad people. We’re not doing anything wrong. And, if you’re doing the right things, that’s a good start, but it’s not enough. And as, as we’ve been saying, more and more of your shareholders expect and demand transparency on these things. They expect you to have data based evidence to support what you’re claiming. And like I said earlier, this isn’t like traditional financial data. You really have to go into the guts of the organisation.

You have to go to different processes, different functions, and find it, measure it, and understand it. And you need to find ways to extract it and report it. So a basic start is just to understand where you are on these things before you even start to think about setting targets and moving forward and so on.

Let me pick up on what you said about measurement. And the need to collect and express data and so on, because that really goes to the heart of, next gen ESG, you come from a big four firm where obviously the audit practice, is large and, the ESG movement is, moving, towards ISSP and integrated reporting, and combining financial and non financial disclosures.

Ravi Chidambaram: In an easier to read format, for stakeholders. So here’s the ultimate, right? There are people in two camps, as we discussed, there’s the yay-sayers who may be using ESG for growth, opportunity, and so on, and the naysayers who don’t care about ESG, but both probably are guilty of one issue.

And it’s what you touched on. They actually don’t measure the value of externalities created through ESG, which you spelled out earlier on E, S, and G factors into their balance sheets and income statements. So for those pursuing growth, they think resources are free and for those who don’t care about ESG.

Thank you. Thank you. They don’t realise the negative impacts, on their balance sheet and P&L that they’re having, right? Because they’re not doing anything about it. So both are equally guilty in a way. And are you suggesting that real ESG in a transparency way is to look at positive and negative externalities?

Audit or assure them in some way and then integrate that into their conventional P&L and balance sheets and cash flows so that stakeholders could get a really holistic view of true value, true impact, true profits and so on.

Sue Bonney: Yes, I am saying that. It’s a qualification, just because I think in between your two extremes of the yes says and the no says, I think that there are some who would do it, but find it really hard. And in various countries, Whilst there’s, acceptance of the potential benefits of the ISSB standards coming through, they are pushing back the deadlines requiring companies to have to report these externalities, on climate impact, for example, and scope 3 emissions, the jargon, but the emissions in your supply chain outside your actual core company.

And I think that’s reasonable because I think data is helpful. It’s a benefit to be crisp and put financial and other, to evaluate things. But also you can give spurious accuracy, and I think forcing companies very rapidly to report on the emissions outside their supply chain risks people making estimates which are unsustainable. So I think giving people time to properly work out how to do that, but then requiring them to do, to report it, gives you that better perspective on externalities, if that makes sense.

Ravi Chidambaram: And that’s a good point because the reality is externalities are difficult. First of all, to measure internally at organisations. Second of all, it’s very hard for accountants or regulators to place a value on each externality, even carbon tax, which is the most commonly used term. So the externality? There’s a wide range of taxes in different jurisdictions, right?

Sue Bonney: So thanks for those perspectives on transparency and some of the difficulty, but also need to start developing that. Let’s close out. Today’s discussion by talking about. How do you advise companies on holistically integrating ESG right into their business? Obviously, you’ve been doing that for a while.

Ravi Chidambaram: What are some of the tips you would give to our listeners and, what are some of the cases or experiences you’ve had?

Take control of ESG, don’t let it control you

Sue Bonney: So I think I said earlier on, it’s really important to take control of this, not let it control you. But you do need to look at this holistically. You do need to look at the e, the S, and the G because you are only actually as strong as your weakest link. So you can be doing amazing things in the environment, but if you are let down by your social or governance aspects that can unwind everything.

There’s an example of a brewing company in the UK that made beer such that it was actually carbon-negative. So you were saving the planet by drinking one of their beers, which was amazing. But then it emerged that the culture at the company was horrendous. There was an open letter from employees. It was all very destructive and their value, their share value plummeted overnight.

So you can be fantastic in the E, but you can be unwound by the others. So you must look at it holistically. You must as we said earlier on, take account of the things that are important, because and material, because you can’t do everything, it will become overwhelming and it will, you will get lost in the noise.

So be really crisp and clear on what’s critical for your business and material, for your business and focus on that. And it has to be authentic.

you can make something look as beautiful on the outside as you like, but it’s what’s inside that matters. So it has to be real, you have to have the stories to tell people what you’re doing, but they must be stories, not fables. They must be evidence based and so on.

And then it does have to just become business as usual. You referenced earlier on, it has to be not an ESG department or a sustainability department sitting somewhere in the weeds of the organisation. This has to be owned, embraced and business as usual for every single function across the business, whether it’s marketing, whether it’s HR, whether it’s sales, whether it’s production, all of those things contribute to this overall holistic approach.  

Ravi Chidambaram: No, thank you. That’s very well said and very comprehensive. But as you do your. Advisory work with clients, right? Can you sum up for us a range of outcomes or reactions? From your clients. Is it resistance? Is it bewilderment? Are they embracing it?

Sue Bonney: I think it’s important to recognize there is no one size fits all. There is no right and wrong answer to this. You look at Unilever. They want to blaze a trail on this. Or they have wanted to blaze a trail on this stuff. They have wanted to be leaders.

They have wanted to move the market. And there are others who want to do just enough. They want to be compliant. But they don’t want to push the agenda. And I think you have to be mindful of that. That’s fine. There are different types of companies.

People will attack this in different ways. Again, it’s being authentic, being true to yourself as an organisation, knowing where you want to stand, and pitching it like that. Definitely getting this outside in perspective, because you can sit there and think you’ve got this sussed. And then understand what others are saying about you.

Understanding how your customers are reviewing you. Understanding what your competitors are doing. Really getting this outside in. Then you get this true materiality. I know you have a concept of true materiality in the RIMM Suite. And I love it because that gives you this over riding panoramic view to enable you to devise a strategy.

So you know where you want to stand, you understand where you are in the market, and that gives you where you need to go. And then you need to work out all the things you could do. And the best clients I’ve seen do this materiality assessment, true materiality.

Then the next, so the now, the next, the things that actually have got a bit of a longer lead time, where you do need more data to make an informed strategy, so you’re not just doing stuff on an immediate basis. But those things that are going to really move the dial. And then there’s some time. The things that you could do, and if you do them it would be nice.

But you know what, if you never get around to doing them, that’s okay as well. And I think it’s this kind of systematic database, authentic, informed decision making that helps you navigate through. And it doesn’t then matter where you are, where your leader is in terms of their kind of propensities.

You’re doing it that’s proportionate and in a way that’s true to the culture and values of your organisation. And that’s critical, because if you are, if you’re cutting across those two things, I think you’re doomed to fail.

Closing

Ravi Chidambaram: Said. No, thanks, Sue. So let me sum up the discussion, for our listeners. I think probably the biggest myth we address today, if I could put it that way, is this huge gap between the obsession, right? If you will, positive or negative obsession, amongst corporate leaders around ESG.

But then this huge gap between the reality of how it is at their organisations, where many even large organisations are struggling, to get the most basic grasp of their ESG priorities. How it could be both an opportunity as well as a risk, how it has to be done in an authentic, holistic way.

And, what it all means for them, right? And where the world is going. So that is probably the biggest takeaway that I have, from this discussion, that yes, obsession, but normally when you’re obsessed with something, you act on it and, yeah. There’s a lot of backup.

But in this case, there’s a lot of obsession, but then a lot of obfuscation or confusion about what to do next. So that’s a very funny sort of state of affairs, isn’t it?

Sue Bonney: Funny is an interesting word. Overwhelming,

Ravi Chidambaram: know how else to put it, but

Sue Bonney: all these other words.

Ravi Chidambaram: Yeah, that’s right ad I think that’s where people like you come in and you’re trying to bridge that gap between obsession, implementation and reality. And so it’s, it should be right. So Sue, thanks a lot for coming on the show today, and sharing your insights and experiences.

We really appreciate it. I’m sure our listeners will also find it very interesting. I want to thank everyone again for listening.

Please do join us again in a few weeks time as we bust our next myth with our next guest. But in the meantime, Sue, thank you once again.

Sue Bonney: Thanks for having enjoyed it.

Our Guest: Sue Bonney

Sue Bonney is the former Vice Chair and Head of ESG at KPMG UK. She worked at KPMG for 37 years, during which time she was pioneering in her quest to put responsible business at the heart of a fairer and more sustainable world. She was also governor of a high school from 2013 to 2018, including three years as Chair, and has been a non-executive director of The Forward Institute, a non-profit Institute focused on responsible leadership through organization and systems change, for nearly eight years.