Tom Raftery on the ecological and societal impact of companies
Long ago, managers and companies were judged by one measure only: how much profit they had made. A few financial crises later, we know that greed is far from always good and that there is more to the world than economic growth at any cost. Companies also have a social role, which consumers, investors and other stakeholders point out to them.
Since the 1960s, people have started to focus on corporate social responsibility. Various frameworks came into being, initially mainly from a marketing perspective, to determine how ethical a company is. CSR did raise awareness, but in the end, it also turned out not to have such a significant impact.
The traditional CSR reports are going away
As Global VP, Futurist, and Innovation Evangelist for SAP and host of the Climate 21 podcast, Tom Raftery focuses daily on how companies deal with sustainability and the climate.
‘People are switching from CSR to ESG: Environmental, Social and Governance. It’s a broader framework that aims to make the efforts measurable. Organizations will report their initiatives and set goals against them. The reporting mechanisms are new but they are becoming more and more rigorous.’
So while CSR was primarily the responsibility of the CMO, with ESG, it is different. The entire organization is involved, including the CFO, who can expect to be audited. ‘Organisations such as Microsoft take this very seriously. They set an internal carbon price so, if someone in the company wants to launch a new initiative, they have to calculate not only the financial impact but also the carbon impact. Each team has a certain budget to pay for that impact. The company is now even going carbon negative and has set up a billion-dollar fund to develop technology that can take emitted carbon back out of the air.'
Measure what matters
ESG, the name says it all, is about more than the environment. The social aspect also comes into play: the diversity of your workforce, for example, and safe work environments. There is so much involved that you might not know where to start as a company. Do you necessarily have to want to save the whole world?
Raftery: ‘What you focus on depends from organization to organization. What are your priorities? And those of your shareholders, stakeholders and customers? The Sustainable Development Goals of the UN are a good guideline. At SAP, we focus on three goals: zero emissions, zero waste and zero inequality.’
When you choose specific parameters, it is essential to be able to substantiate your impact. 'By digitizing things, you can measure them. Digitalization also ensures that you reduce the physical impact of what you do, although it is important to choose efficient data centers and use green energy.'
Yet some things are unmeasurable or measured with unsuitable parameters. 'In the UK, there is a requirement for large companies to publish their gender pay gap based on the mean (average) hourly pay. That's not necessarily a useful measure because often there are more men than women at senior levels, which highlights a whole other gender-related problem.'
For now, the regulators themselves are still searching. 'We still have problems with financial reporting, which has been around for decades. ESG has only been taken seriously for the last three to four years. So it will take some time before we arrive at uniform standards, but the rules and obligations will become stricter and stricter,' says Raftery.
Start communicating today
With the rise of ESG, "greenwashing" popped up. Some companies present themselves as greener than they are. 'I am obviously firmly against this. When you communicate as a company, you have to make your plans as concrete and realistic as possible. But it would be best if you started that communication as early as possible because you also want to involve other stakeholders. You always have to anticipate negative side effects, but you will move forward in the right direction in the long run. As Martin Luther King said: The arc of the moral universe is long, but it bends toward justice.'