How the 'S' in ESG Is Changing

Dottie Schindlinger

How the 'S' in ESG Is Changing

How ESG – Environment, Social, Governance – Is Changing

Listen to Episode 31 on Apple Podcasts

Guest: Roy Dunbar, Board Member for Humana, Johnson Controls, and SiteOne Landscape Supply

Hosts: Dottie Schindlinger, Executive Director of the Diligent Institute, and Meghan Day, Senior Director of Board Member Experience for Diligent Corporation

In this episode:

  1. Increasingly, ESG decisions have capital implications. To stay on track and compete, Dunbar advises, focus on clarity, planning, and consistency.
  2. How can boards balance current social responses with long-term ESG initiatives? Commit to action and make it sustainable, Dunbar says.
  3. Millennials will shape the future. They’re already taking leadership roles and making ESG a priority.

ESG Is Changing:

At the beginning of 2020, the environmental, sustainability/social, governance (ESG) discussion centered around Business Roundtable’s revised “Purpose of a Corporation,” Larry Fink’s climate letter, and the Davos climate change agenda.

What a difference a few months makes.

In March, the COVID-19 pandemic shut down the world, its economy, and life as usual. Two months later, the murder of George Floyd ignited outrage worldwide about systemic racism and injustice.

Meanwhile millennials, the oldest of which just turned 40, are starting to assume positions of power and influence in management, boards, and investor and activist groups.

What does it all mean for boards—and how can corporations effectively realize the promise of ESG in this changing landscape?

Roy Dunbar brings a multi-faceted perspective from executive leadership roles at Network Solutions, MasterCard, and Eli Lilly; membership on the boards of Humana, Johnson Controls, and SiteOne; and creation of private companies focused on renewable energy and property development. He joins co-hosts Dottie Schindlinger and Meghan Day to talk about ESG in today’s world.

Increasingly, ESG decisions have capital implications

As industry verticals and institutions from the World Economic Forum and Sustainability Accounting Standards Board set and formalize standards, the “e” and the “s” of a company’s actions increasingly have capital implications. As one example, Dunbar cites two companies in the oil industry with markedly different approaches to the environment — and significantly different stock performance.

Amid all of these frameworks, what is the best way to frame and define ESG beyond the scope of a single industry or single company? Schindlinger wonders.

“Even though the three boards that I sit on have their own have their own different levels of focus,” Dunbar says, “the whole thing is: Are we doing the right things based on our business and the core responsibilities?”

A level of clarity, a full plan, and consistent action “makes a difference over time, and shareholders act upon that,” he says.

“One of the boards I sit on received a lower interest rate, eight basis points, because of the strength of their ‘e’ and ‘s’ credentials. So, there are actual capital implications to ‘e’ and ‘s.’ ”

– Roy Dunbar, Board Member for Humana, Johnson Controls, and SiteOne Landscape Supply

How can boards balance current social responses with long-term ESG initiatives?

Align your plan with your ESG vision, Dunbar advises. Then, most importantly, translate it into action.

“There has been a lot of hand-wringing and a great deal of words,” Dunbar says.

He suggests that companies and boards examine the following:

  • Do you have colleagues around the board table who represent the world as it is today?
  • Are C-suite executives able to represent the views of customers and associates?
  • Is the company engaged around equitable pay and processes?
  • Is there diversity in suppliers and professional services?
  • Do vendors share your philosophies and principles?

Most importantly, actions implemented now must be sustained over time, through a clearly defined purpose that’s aligned with strategy.

How does this align with bottom-line realities? Activities and investment levels may vary over time, Dunbar says, “but it doesn’t mean no direct investment, and it certainly doesn’t mean other activities that require less capital cannot still be ongoing.”

“It is not ‘words and a plan. It’s a multi-year philosophy with a drum beat and with metrics. That ultimately will tell the board and the company: Are we making progress?”

– Roy Dunbar, Board Member for Humana, Johnson Controls, and SiteOne Landscape Supply

Millennials will shape the future.

As millennials begin to assume power, watch for them to represent the biggest change on boards in the next 10 years. Dunbar notes that this generation grew up in a time of digital transformation, environmental awareness, and social consciousness.

“Millennials have grown up in more diverse settings, and they’re very comfortable with speaking out and having their voices heard,” Dunbar says.

Moreover, since they will be part of the biggest transfer of wealth in history, Dunbar says “they will want to be responsible on the board and as individuals.”

“I think a big difference in the boardroom will be the presence of millennials. They will come in with a much wider and deeper worldview, they will challenge the existing order, and they will not do it as revolutionaries.”

– Roy Dunbar, Board Member for Humana, Johnson Controls, and SiteOne Landscape Supply

Also in this episode…

Dunbar and Schindlinger discuss how Malcolm Gladwell’s new book “Talking to Strangers” resonates today, and Dunbar shares one of his latest passions: investigating how economic cycles have shaped the world over the past two centuries.

Resources in this episode