Why Companies Need to Think More Strategically About Their Environmental Impact George Bandy, Jr., a global leader in sustainability, explains why companies need to take a more strategic approach when it comes to tackling environmental issues.
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Corporate leaders are constantly bombarded with new and expanded reporting requirements, investor expectations and endless expert platitudes about the importance of Environmental, Social and Governance (ESG) factors to business success.
George Bandy, Jr. is a global leader in sustainability, ESG and circularity. He is the chief sustainability officer at Fiber Industries LLC, the former head of circular economy at Amazon. George has a long history in the sustainability field, including extensive work with leading design manufacturers and as a board member of the International Interior Design Association (IIDA), making an impact in one of the industries under the most scrutiny for environmental impact.
I spoke with George to tap into his vast experience in orchestrating strategic change to better understand how additional responsibility that companies take on when tackling ESG issues needs to be accepted, operationalized and addressed.
Speaking as a practitioner, what's the best way to add a strategic lens to approaching ESG?
One of the things about the whole stakeholder capitalism conversation is how things have moved, how frameworks and ratings are changing the way people look at things. You're moving from knowns to unknowns. You know what steel extraction and concrete making are, but the unknown is the environmental impacts that result, and that becomes a problem for your company. This means systematically looking at it and asking, "When we do this, what are the outputs? How do we address that? How do we begin to think about that ahead of time and have a strategy for it?" Smart ESG-based organizations are doing that, and it's a power shift. Investors used to have the power, but now the stakeholders have it.
Manufacturers, organizations and corporations have functioned in a very linear way for a long time, without taking a systematic approach that looks at values or at what could happen to their business when resources run out. It's what I call hitting the wall. If you continue to extract the Earth's resources because of increases in population and affluences, there's going to be a decline. Companies have to adjust. ESG gives you the ability to look at these things and strategically align yourself.
Are you seeing good examples of that actually happening?
I don't think anyone's gotten it perfectly right. It has to be addressed based on your business. Let's say we make circles. What do we need to make them? Where do the materials come from? Can we access those materials for a long time? Are we looking for alternatives? What's the impact to the community where we're taking these materials from? What kind of relationship do we have with them? How about the people we bring in to work? Have we thought about designing this for end-of-life disposition on the front end? Have we thought about whether we can get raw materials back at the end of the circle's life, so we create a circular economy that brings materials back? Can we partner with someone to bring materials back to us?
Think about this: There's a company that sells you something that almost everyone has. They charge you for the service, and they partner with someone else for the infrastructure, and eventually you bring it back to get a new one. They decomposition the old one because they're connected to the manufacturing facility. I think 85% of raw materials go back. You're giving them the raw materials to make you a new item, and they're charging you for it, and you're paying willingly.
You're talking about an iPhone or cell phone.
The automotive industry is the same way. You lease a vehicle and use it for 8 to 10 years, then they lease it to somebody else. They extend their product's life, and they get the materials back, and 85% of the materials goes into a new vehicle. What better model of controlling your supply chain and having access to raw materials? You continue making money while not having to worry about your supply chain ever running out. Those are the kinds of mindsets we need to start having.
If you're selling services and people are a big component of what you do, how are you investing in them so they're healthy, well and in an environment conducive to success so that you create innovation and opportunities for them to flourish and be great?
How do you communicate your purpose-driven message as an organization, so it becomes contagious to multiple people? Greg Norris from MIT asks, "How do you get beyond looking just at our environmental footprint and start thinking about our restorative handprint?" Handprints over footprints … not just measuring how we fix what we've done.
Twenty years ago, we had to build a business case for ESG sustainability. Now it feels like a lot of people are on board. They see intrinsic value and companies are introducing policies with the assumption that they have to do it. Is there still a place where a business case is required, or is it just marginally helpful? Is it helpful for certain decision makers?
The companies that do really well are the ones that are able to figure out how to navigate within the changes that come downstream so that they still remain a primary supplier.
If a supplier is extremely valuable to you, you look to strategically align what you're already doing at a large scale to encompass some of these visions and create pathways for success. That's where the people who take a systematic approach to thinking about ESG do really well, really fast.
Value comes when you're able to position yourself as a true strategic partner and other people and third parties speak about what you're capable of doing better than you do. Anytime I've done a program looking to add value to a community and value to our company's ESG strategy, I always had a third party or an academic institution connected to it. Because they don't have a vested interest their voice gives you a little bit more credibility. A branding-smart organization gets it because they know that the audiences that are suspicious about buying their material are the ones they don't have a good relationship with, and this gives them access to that audience.
If I tell you about a great restaurant and you go and try it and like it, you're going to tell other people. But if I tell you about a great restaurant, and it's not so good, you're going to tell people that as well. We underestimate the impact. Today's word-of-mouth is a tweet, or IG, or the word of Metaverse. It moves and it touches people so fast, and that's both good and bad because its power is beginning to control the way to the customer.
Is decision-making really shifting to stakeholders, or is it that investors are paying more attention to them or getting more pushback from them?
I think that's the shift. An investor's customer is the stakeholder. They know that the more information they provide that leads stakeholders to believe in investing, the more they win. The smart phone provides information on everything in a moment. This whole evolution of having immediate access to information, good and bad, and allowing people to make decisions, represents a power shift. You can see when a company hits the wall, how their stock prices fall. Think about the whole situation with Colin Kaepernick and Black Lives Matter. The situation with the war between Ukraine. Different things happen and impact how people respond with their dollars. That is shareholder power shifting.
The reporting based ESG culture has so many metrics and potential data points. How do you change that?
I don't know if you should. An ESG professional's responsibility is to evaluate their company's mission, vision and values and to use the metrics that align best. What may be good for a manufacturer may not be good for a tech company. It's your job to evaluate and ask, "What works best for my company?"
My grandfather used to say, "Don't always buy what people are selling. Ask for what you really want." That's why companies are trying to create their own. It's because everything doesn't fit. A round peg doesn't fit in a square hole.
You should evaluate the rating systems for what works for you, and the rankings that you're looking for. Are you looking to be in a Fortune 100? Are you looking to be in climate leaders? There are standards, ratings, ranking, and then there's information like Bloomberg, Morning Star, Thomson Reuters. And then there are your investors. You put up a full scope and you evaluate, "How does this work for me? Who do I partner with? Where do I make it?"
What you're talking about is a complete shift.
It's necessary. Why would MSCI be randomly sending you your score? Because they think your score is low because they don't have all the data. They're the people who are going to help you get the data, so they're going to sell you a service.
I think people are going to figure out the best way to communicate their narrative around their purpose as an organization. You're going to be criticized anyway, so try to create a narrative that communicates what you're doing. You already know where your weaknesses are. It's not that companies don't know they don't have minorities on their board, or that they don't have women on their board. They know, and it's not going to happen. They're not going to say, "We're going to put four women on our board tomorrow." Instead, they create a strategy that says, "We're going to start intentionally looking for…" Customers respect that, because you've already identified where you're weak.
It takes power away from the reporting agencies and gives it back to the ESG officer or sustainability officer. It's a series of choices around how to tell the story. It creates a more conscious approach to strategy.
Do you see a point where we won't need an ESG officer or sustainability officer? Where it's so ingrained into company operations that it's just there?
You have to evaluate that in timeframes. We didn't get here in a short period of time. Climate issues took a long time to evolve and become what they are, and some of the systematic approaches to how we've looked at privatizing wealth and socializing risk didn't happen overnight either. The whole model around looking at stakeholder capitalism started back in the sixties. It's just reemerging because of what we see happening. People need to be educated to raise the bar of intelligence, globally and collectively first, before you can move to a place where it's normalized.
The challenge now is that companies are focused on specific risks — to their supply chain, to their financial acuity, to their stock price, to their employees or their need for employees. Risk to their union or their leadership team. Risk to their source of energy, their source of water, their natural gas source. There are systematic risks like Covid, war, geopolitical impact, environmental justice claims. Focusing on specific risks is how you set goals, move and improve. You try to create strategies that allow you to be risk averse. But today's consumers are looking at you differently because of what you're doing or what you're saying.
When I started in sustainability back in 1992, there were no degrees in sustainability. There wasn't one until 2008, 2010. The subject matter is only 12 years old. That's a very narrow period of time in terms of building a strategy around systems. We don't know what we don't know yet. There's so much information we still have to gather and get smart about. You need partnerships, relationships, NGOs, government. We haven't even started talking about policy movement, and how things are evolving and changing. There's still time to move in these different spaces in so many different ways.
I'm ultimately optimistic because of the ability to share, and to learn. Every experience I've had — good, bad, or indifferent —is a topic of discussion in places where it wasn't before. That's movement. That's what systems thinking is about.
It's one of the responsibilities of ESG leadership and the chief sustainability officer: to think about some of those impacts in a different way and try to strategically align them so that you're able to be successful over long periods of time rather than over short steps.