Resilience in the face of climate change and resource constraints was a trending topic at the 2014 Sustainable Brands conference in San Diego. In one of many discussions on the issue, PwC and author, speaker and environmental strategy consultant Andrew Winston led a panel on "building good growth" in a brand.
Part of the conversation centered around using breakthrough techniques like natural capital management and total impact measurement to build resilience and strengthen brand value. I sat down with panelists Clinton Moloney and Amy Longsworth of PwC after the discussion to find out more.
TriplePundit: Your chat focused on creating measurable sustainable value for brands. For folks who weren't able to attend, can you speak to how you define "measurable" and "sustainable" value?
Clinton Moloney: You have to look at what measures or what value you are talking about and to whom. We spend a lot of time with investors and shareholders, and they're looking for two things: They're looking for how to improve financial performance in the next quarter, as you might imagine. But we just completed a study where we found that one-third of investors with more than $100 billion under management say they need more on sustainability to be able to make high-quality, long-term investment decisions.
If you look at what companies are reporting today, they're doing many many things, and the question is: How do you narrow that reporting in on things that are more material? So, we spend time helping companies make that link between sustainability performance and business performance, and we're hearing pretty loud and clear from investors that there's a real need for that. Fund managers can't play casino capital like the short-term traders do on Wall Street. They're looking to place assets over the longer term, and they're the investors for whom sustainability really matters.
3p: Wow, one-third. That's pretty impressive.
CM: We think it's really telling. Sustainability has gone mainstream. This is not a niche thing; it doesn't matter to some companies. If you've got a third of your most important shareholders telling you that they're trying to get more information on how you're performing, we think companies should respond.
We have the great privilege of spending a lot of time with boards and executives, and what it comes down to in many cases is that you manage what you measure. We think it's part of our mission to help create and promote ways of measuring performance so that companies can do a much better job of making high-quality decisions when it comes to how they want to invest in making the world more sustainable.
Amy Longsworth: Because of the climate change events that have been happening, there's also more of an awareness of risk. It's more accepted and known that companies are vulnerable. And so it's important to ask: What are those indirect values or risks that are not being accounted for by traditional financial books?
You asked about what impact measurement and management really is. Rather than just looking at traditional returns, this approach will ask: What are the social impacts? What are the environmental impacts? What are the economic impacts — the broader economic impacts, not just the return to the company?
Impact measurement takes these things that are not traditionally measured in dollar terms and allows them to be measured in dollar terms. Most of these are risks and opportunities that everybody intuitively knows exist and the investors increasingly know they exist, but they haven't been incorporated into the traditional financial view of how companies are valued.
3p: With that in mind, can you speak to the difference between many of the sustainability targets we see from companies today — such as cutting water use by 10 percent or reducing GHGs by 15 percent, which are often arbitrary — and goal-setting that's based on your total impact and scientific targets?
AL: The goal-setting is a little bit of a different topic, but it definitely relates to this. I think Andrew [Winston] has the best analogy of a sinking boat: Instead of asking how much everybody can bail today, it makes more sense to ask, "How much do we have to bail to not allow the boat to sink?"
How does that relate to total impact measurement and management? For whatever goals you set, you're then going to have results coming out that look at the effect of your actions. It may give you a positive return and it may give you a negative return. It's essentially a gigantic balance sheet.
CM: We put out a study recently that we do fairly routinely [the firm's annual Low Carbon Economy Index], looking at how much progress business in general is making toward keeping us below 2 degrees Celsius from a climate change point of view. Our estimate is that we need a 6 percent year-by-year improvement in carbon efficiency across the economy, and we've been able to show which countries are doing that or which sectors are doing that. The reality is that no one is yet living up to the target we need to hit of this 6 percent year-on-year improvement.
For some of our clients, we're seeing them start to realize that if they really want to make their fair-share contribution toward mitigating climate change, they need to set science-based goals.
3p: Do you feel companies are ready for the dramatic shift necessary to reach that 6 percent goal?
AL: There's going to be an interesting pivot … between how far companies can go using traditional business models before they have to go into a completely different kind of economic approach. You really have to rethink your business model, which is very scary.
CM: As we're at a transition point in this discussion about climate change in this country, we've seen a range of inspiring leaders make change because they believe it's the right thing to do. Now that those folks have moved, we have to figure out how to convince the other 95 percent of CEOs that this is the smart thing to do for their business, that it's in their self interest, and that it's in their shareholders' interest. That's why we've invested in these techniques to help bring numbers to their argument, but we believe that when people look at the facts in the light of day, they're going to decide that they need to take a new and different approach because it's in their best interests to do so.
3p: PwC recently completed the 17th annual Global CEO Survey. How do CEOs feel about this?
CM: Forty-six percent of the [1,600 global CEOs] we interviewed put climate change and resource scarcity in the top five issues that they're concerned about. That's a significant move from what we've seen previously, which indicates business people are recognizing these issues as business issues.
From our research, we're telling our clients that by 2030 we're going to need 35 percent more water, 40 percent more food and 50 percent more energy. When you have those mega trends occurring on a global level — and with climate change being a global issue — it creates a range of opportunities for companies. You can't just look at high-level trends; you have to dig deeper and see what the secondary effects are.
We're excited to see a much more sophisticated business conversation happening now than we have in the past. Investors asked for more high-quality data — not the ones who are trading in milliseconds, the ones that plan on holding stocks for a long time. Those investors are really voting with their money. They're putting dollars into companies that are performing in a superior way on sustainability, and they're asking for better data to make those comparisons more real.
3p: How do companies get people excited and engaged about their sustainability goals?
AL: There's a really interesting question, bringing it back to this conference, of how you communicate — putting everything that we just talked about on a hang tag, or making it in some way known and meaningful to people. That just gets into business model changes that may be driven by some of the forces that we've been talking about, which is a whole other area for innovation and exploration for people and what it is that they can know, absorb and decide about. As human beings, we're notoriously bad at gathering information ahead of time and making rational changes, or else I don't think we'd be where we are today.
CM: There's a "knowing and doing" gap. People can know stuff, but there's a big gap between what they know and what they're doing. I think it's our job to help close that gap.
3p: In May, PwC released a study on value and sustainable supply chains with APICS. Can you tell me a bit about that and how it fits into this larger conversation around total impact management and brand value?
CM: I think it comes down to reputation. If you look at the valuation of companies nowadays, 80 percent of their value is in their brand and in the intangibles, relative to the book value of their assets. This means reputation is a critical thing, and that value can be destroyed quickly. I think companies have begun to embraced this idea of extended responsibility — outside their four walls — and they want to make sure they're doing business with others that have value, reputation and are credible.
AL: There are also other aspects to sustainability in a supply chain. One is the risk in an extended supply chain that's now shipping parts around the world, and we've seen terrible disruptions — such as floods affecting the automotive and aerospace industries and other examples.
Then there's also your customer asking you, and there's this proliferation of questionnaires: Do you have supply chain standards? What are they? Do you enforce them? So you have to be able to answer those questions truthfully but also hopefully with a "yes." Solid sustainability performance is not a reason to do business with a company necessarily, but it becomes a reason not to do business with a company if you can't answer yes.
Stay tuned for more coverage from #SB14sd here on Triple Pundit!
Logo courtesy of PwC
Based in Philadelphia, Mary Mazzoni is a senior editor at TriplePundit. She is also a freelance journalist who frequently writes about sustainability, corporate social responsibility and clean tech. Her work has appeared in the Philadelphia Daily News, the Huffington Post, Sustainable Brands, Earth911 and the Daily Meal. You can follow her on Twitter @mary_mazzoni.