Interview with Jacob Allen: Solving the ESG puzzle
What to consider
Most business leaders in the developed world recognize the big risks posed by an uncertain future climate, and the precarious state of planetary resources. To face these risks, businesses first need to know what they are, in relation to their respective operating contexts. Incorporating risk analysis in business strategy is still a niche undertaking, especially amongst small to medium sized businesses. Absent this assessment, it’s difficult for companies to know how to strengthen their long-term resilience. Many different civic, private sector, and regulatory pushes aim to drive adoption of this approach, often under the umbrella of ESG, short for Environmental, Social, and Governance. But just as ESG approaches find their footing, major critiques from both sides of the political aisle have stalled progress. This has left many business leaders confused on what to do next, and how to approach impact.
We spoke to Jacob Allen, Sr. Partner at Cicero Group, about how companies should approach environmental, social and governance initiatives at their company, and how doing good for the broader community and doing good for your business may be one and the same thing.
The last decade has seen the entry of ESG in many spheres of the corporate world, from banking regulations to investment portfolios, to board governance. This is guided by a myriad of compliance frameworks, tools, and approaches that can be confusing to the lay man. Let’s start with a simple question: what does ESG mean to you?
I am going to think about ESG very broadly and not in its technical definition. For me, ESG is simply being aware of a broader range of stakeholders that your business affects, and having a longer time horizon while making decisions as a business. Why are these important? Because they lead you to two important business principles: how do we maximize business value, especially in the long term? And two, how can business be a positive contributor to the world? How do we think about our employees, of what’s in their best interest, and how that aligns with our business. And how do we look at community betterment as a good for your business interest. Likewise, we can think about maximizing shareholder value for the next quarter. But equally important is to think about what risks I have in 10 years and how that affects long term value. What if I produce this way or treat consumers this way? You will think of risk and opportunities differently if your time horizon expands. Good investors are looking for long-term value and put their money in markets for 10-20 years, so you are essentially doing your fiduciary duty by thinking long.
ESG from either or both of these angles is worth doing.
When we come to the more official use of ESG, there are critiques on both sides of the aisle here in the US. Some say it goes too far and overburdens businesses with regulations without achieving impact, while others say this misses the forest for the trees and ESG regimes should be further strengthened given the state of the planet today. How can corporate leaders find the right balance in this space?
I admit, it’s a tricky balance to land given the broader context we are in. On the one end, we have the narrative of regulatory burden. While there is a role for regulation, if the driving force is purely regulatory and compliance based, you won’t have sustained improvement in business behavior. It won’t be aligned with solutions that drive value for businesses. It is important that environmental, social and governance practices are done not just to check a box. Because that dilutes their meaning and lets bad actors get away and doesn’t do much for the good actors. Major investors and regulators should be cautious about over regulating and could face backlash. As we are seeing already, and it’s understandable to some extent. Doing something poorly can sometimes be worse than doing nothing at all, because you can lose potential future allies who get turned off by the whole thing.
It’s not about accomplishing everything or nothing either. Every little bit helps. Yes there is a big need in the world, and businesses should lean into that. But not everything will come from businesses. There are other levers that we need to look at as well, private, public, social. The more the business leaders see results, the less they will be worried about regulation. Get the ‘why’ right (why is it valuable to them), and build case studies. Over time that will create a fly away effect. Instead of brow beating and shaming.
Big investors need to be cautious on what they impose. It’s good to have an ESG lens when deploying capital, but look closely at what that’s getting you back. Are you really picking out the best, most responsible businesses? Or are you picking those that are best at filing paperwork? They aren’t necessarily the same thing. And I think a lot of business leaders are seeing this and are frustrated, which is creating antipathy towards the topic. So we have to make amends on all sides. And be willing to compromise in some places, and show great courage and leadership in others.
And what about ESG becoming too politicized?
This has become a question of values. There are a lot of conservative business leaders who are weary of ESG because the leading proponents of ESG in politics have largely been liberal. So their division is seeping into the ESG debate. And undermining the progress and the significant middle ground on that.
Business leaders choose what’s important. It’s not always profit, regardless of whether you are left or right. As I said earlier, creating value for your stakeholders can be a lever of long term profitability. So it’s in the best interest of the business leader, no matter what’s happening in politics. We need to learn to unlink this conversation from the broader conversation in Washington to some extent, if we are to move fast and quick. Because in Washington the debate will continue, perhaps endlessly, and we can’t just watch and wait as the business community.
There’s so much to learn from what’s already been achieved by corporate leaders in this space. These stories need to be disseminated to incentivize others to join in. I believe we can reduce the so called “barriers-to-entry” of creating impact through business by doing so.
You were saying in the first part of our interview that doing good doesn’t have to be driven by compliance to A or B ‘ESG’ framework. That it can be a smart strategy for doing business. Can you share some examples of this?
There are many but let me pick one where all pieces fit together nicely. Let’s take Prudential. The current leadership wanted to integrate purpose into their business model, and found that this went back to the founding vision of the company in the early 1900s. The founder wanted to contribute to society, and therefore impact was in their DNA.
What he said to his employees was this: we have many strong philanthropic initiatives ongoing in our areas of operation like NY or NJ, and around the world where we have offices. We are going to continue these philanthropic initiatives for a long time. Thus lending long-term support for this work. Then he said we are going to make them more strategic and intentional. Not just writing checks. But integrating ESG into our business model.
So Prudential’s leadership took one business unit that is focused on real estate investment (PGIM). They identified an NGO with which they had a pre-existing relationship, one that focused on on-the-job training for the construction sector. The team found there was an opportunity to bring the three things together: (1) support the NGO to scale up its impact, (2) integrate this work into Prudential’s business where they need the services the NGO is delivering, and (3) benefit the stakeholders they care most about through the blending of the two. Aside from providing financial assistance, they built a resourcing partnership for this initiative. The NGO provided job training and upskilling to construction workers. People from the Prudential business unit volunteered by working side by side with young adults on construction sites. The construction site operators created public goods in the form of creating job skills and experience, and refurbishing parks, etc. Prudential also spread word about this in their own networks, and brought together business partners, contractors, real estate managers, and developers, and invited them to participate in this program. For example, they invited business partners to employ the workers coming out of this program, thus completing the circle. As a spillover effect, Prudential involved their business partners in ESG activities and ended up strengthening their business partnerships, and continued this cycle of giving back.
What I want to highlight is Prudential’s deep commitment to the activity where it went from a regular CSR initiative to a strategic program for the company. To manage this program from the corporate side, leadership identified up-and-coming mangers in the company and gave them extra time and resources as a training and development opportunity. So working on the skilling program was baked into their HR and professional development plan. As a result of all of this, a number of remarkable things happened. One, there was significant increase in employee engagement and satisfaction because employees up and down cared a lot that their company was doing good things. And they wanted opportunities to upskill and contribute to their community without having to carve out time in their personal life do it. Second thing was significant appreciation from business partners, regulators, and investors. These stakeholders saw that Prudential wasn’t just talking the talk but walking the walk. It was real. It was examples and initiatives. People had real meaningful experiences on the ground and could see they were sincere and substantive.
At the end of it the business unit CEO did an impact ROI analysis, and there was a measurable ROI on business. The CEO said the numbers seemed too good to be true, but acknowledged they were real. Leadership was super excited. This led to the development of an impact fund in addition to their traditional real estate fund with an intended corpus of $100 million or more. And it also was used to develop significant additional client relationships with other parts of the Prudential business because other clients heard about this, and wanted to work with a company that was looked at as a steward for the community.
I am very proud of Cicero’s advisory role in making this happen, and hope others can walk this walk too and see how benefits accrue to companies and their communities.
Many leaders of companies, especially those in B2B or B2G business lines may not know where to start, how to start. Is this a linear journey towards sustained social impact, or are there different models/typologies of an impact-driven business?
Let’s break this into two parts: First, start wherever you are and ask yourselves the following questions: who are our stakeholders? This includes regulators, consumers, community where you operate. Then ask yourself: what are their needs? What do they want and care about? Finally, ask what you care about as a business and what is in your control. There is going to be some overlap in the answers. You don’t have to meet all the needs but there is going to be some overlap. Align these things and see where you have the greatest strength and can demonstrate excellence.
Once you’ve done a few experiments, sit and review the learnings and garner feedback from your organization on how they felt participating. As you accumulate experience with these “additional” activities of corporate employee volunteering, charity and donations, public relations, think about what you can integrate into regular business activities. Ask your business leaders how social impact activities can help them achieve your business goals: find new markets, hire better talent, improve retention, etc. And start to use these joint-value building activities as one of the many levers of achieving business goals. As I said, there is a lot of fortunate overlap between corporate goals, employee goals, and the community needs. This is where you begin.