Video transcript: Purpose and Profitability

Transcript

Hannah Fry: Hello, I'm Hannah Fry. Welcome to PWC's Human-led, tech-powered series. In this episode I'm joined by a fantastic panel of experts to discuss the balancing act that's required as businesses look to deliver on commitments to both purpose and profitability. Is such a thing even possible? Where are the trade-offs? What skills and technologies are needed and where do they begin? Let's find out.

I know that in recent years we've seen a big move towards businesses acting on climate change and sustainability, how much of that difference do you think comes from the moral imperative to do so and how much of it comes from the business case?

Lynne Baber: I think it's both, but if I pick up on the business imperative first, clients I'm working with are certainly seeing it as a way to access new sources of funds, get lower cost of capital, so demonstrate that they're serious about the commitments they're making and then taking action. The moral imperative is there to I think-, I'd like to hope for all of us inherently, you know, we want to do the right thing, but at times there are barriers, there are challenges that get in the way and stop us from taking action.

Andrew Dunnett: Morality and morals is a very difficult word, but values is a word I think the business community is much more comfortable with. So, what are the values, what do you stand for, how do you want to make the world a better place, why do you exist, is much more common parlance today that it was even twenty years ago. And then of course there is a business case because if you don't act regulation is going to punish you significantly in a whole host of areas.

Musidora Jorgensen: We recently did a report which showed that only 64% of UK businesses have got an environmental sustainability strategy embedded into their overall business strategy and when we looked at then those who were going to hit their targets for 2050, actually less then half are on track to do that. So, when we talk about ambition and moving to action, there is a huge imperative I think for businesses to be able to really get going and lead the way on how to do things in a different way.

Hannah Fry: So, that's interesting, I mean, two thirds roughly of businesses want to have this thing, have these targets, but actually across the board only a third are actually managing to achieve it, give or take.

Musidora Jorgensen: Yes. There's a couple of reasons why I think that is. The first is, there is a data challenge. When organisations are asked to track and manage and report on what they're doing across all of their scopes, across all of the business in terms of the emissions and the impact that they're having, that's really difficult. The majority of emissions happen for a business within their scope three, so within the entire value chain of an organisation, up to 97% in lots of cases. There is also a big skills gap I think across organisations to be able to ensure that we do keep on track and have those skills to look at change management and, you know, circular thinking and systems thinking, digital skills.

Hannah Fry: And are you seeing that sense of urgency appearing at board meetings around the table?

Andrew Dunnett: Yes, I mean, there was a survey, 1% of investor meetings used to have an ESG element, now 20% of investor meetings have an ESG element. So, not only is it an important issue within the board room, but actually 60% of the value of our company is owned by ESG-compliant stocks. Most business leaders realise you can't have a healthy business community on an unhealthy planet, it is unsustainable, it is not going to work, therefore we have to make our contribution in what we do in a material way, not in an immaterial way. What can you do as a business that makes a significant contribution to some of the major challenges, small and large, that we face? 2.9 billion people are still unconnected despite the fact that 2.5 billion of those people have access to mobile internet. Women are twice as likely not to have access to mobile in some of the markets in which we're operating as men. And obviously we talk to our employees and engage with everybody and began a conversation around some of these issues, and not getting any push back, on the contrary, getting a huge engagement, a huge interest.

Hannah Fry: There is presumably a line though here where you can't ignore the balance sheet altogether of course and just only be guided by the right thing for the planet, it has to be some kind of a balance.

Andrew Dunnett: I think anyone who talks win-win has never worked in this space in a serious way in a large company, okay? There are trade-offs. The talk of win-win is just an oversimplification of these incredibly complex issues. There is a line somewhere between short and long and that line is different for different businesses and it's different for different businesses in the cycle of their life and I think the commitment is revealed through data. I think actually, back to your point, the quality of that data, so that the chief financial officer of the company can stand up and can report on the non-financial data with the credibility and the accuracy that PWC would like of their normal financial data, that is proof that the company is taking this issue seriously.

Hannah Fry: Do you buy that or are there win-wins to be had? Is there course for optimism?

Musidora Jorgensen: There is absolutely cause for optimism and I'm not overtly simplifying, there is no one silver bullet to fix all of this, the system change that we as a globe need to go through. However, I think when I try to find optimism, you know, in the midst of all the data which is showing us that unless we rapidly accelerate on the action, it doesn't look so bright in the future for us. It is around the fact that actually we haven't found all the solutions yet, there are brilliant ideas sitting in people's heads that haven't yet been realised and the role of innovation to extract those and where technology can then help drive and realise those is where I find hope actually because there're lots of those technologies. We look at the carbon capture and storage for example, that is still quite nascent industry and need that support to be able to ensure that it's there for everybody to take advantage of. You know, we've been innovating as a human race forever around problems and I'm absolutely convinced that we can do the same here with the climate change.

Hannah Fry: I can't help but feel if there are these opportunities to do things in a more efficient way, if people like it, if there's a good business case for it, why hasn't it happened already?

Lynne Baber: There're two points. First is, coming back to that piece around the balance around cost versus benefit and the short-term, medium-to-longer term view. The second for me though is the data, you know, it's getting better, but actually the environment within which to report, the regulation, what you actually have to report, that's not there yet. So, whilst we can be working towards the technological solutions for the data and where it exists in your organisation, there is still not that consistency of, well, what are the metrics, what's the methodology behind those? We can end up with all of the data in the world, but actually what is it that we're going to be regulated against? So, I think that regulatory drive is what's also pushing organisations, but I really don't want action being taken just for compliance.

Musidora Jorgensen: This is wholesale behaviour change that we're asking everybody to do wherever they sit, be that within a business, at home, you know, we are asking people to be working in a different way, to be thinking in a different way, to be looking at every decision that they make.

Hannah Fry: And I wonder actually, do you think that the economic crisis that we find ourselves in has changed the motivation to act in this way?

Lynne Baber: Without a doubt, it's having an impact. I think it's different depending on the kind of segments you work in, organisations you're in, or the size of your business. The different stakeholders of a business want to understand what those values are. I think we certainly see with some of our clients, whether it's in retail and consumer-, right, actually consumers making choices now much more looking at the values of the organisation, how they are treating workers in their supply chain or in their environmental performance. So, actually, without taking action now you're going to lose out on, you know, your market presence that you've currently got in terms of that captive audience. But it is a fine balance because there is also a cost pressure in terms of investments needed to be made to decarbonise or to do the other things in your programme.

Hannah Fry: Do you think that it makes it harder to invest in these kind of things when it is harder to make profit?

Musidora Jorgensen: Of course there are huge competing priorities for organisations at the moment. As we go through the current economic crisis, there are some organisations who are worried about just keeping the lights on, let alone where they're going to go with the sustainability agenda. Trying to ensure that sustainability is still kept at the heart of the business is imperative because hopefully we'll steer through the economic crisis and we will still have the climate challenge that we need to look at, and I think that's where the role of sustainability really needs to be at the board level, it needs to be represented as part of decision making, plugged into the finance from a profit and loss perspective on a more long-term basis around where investments need to be made for the benefit of the business in the future.

Hannah Fry: Absolutely. I wonder about practical steps that different organisations can take here. It's all very well having these big ambitions as the big banner of, like, 'This is what we're aiming for,' but practically, what does that look like when you're actually trying to implement this?

Musidora Jorgensen: One of the first ones is to start and not to worry too much about having a perfect plan to get going. The problem that we see here is that there are so many different elements to be considering, but not waiting to have this perfect plan I think is key, just start.

Lynne Baber: A number of the clients I'm working with, actually they're starting to link their, kind of, executive pay remuneration packages back to their performance in relation to ESG targets. Now, that certainly drives focus, when you do that. It can also be a little bit of a dangerous place for some organisations at the moment, coming back to the, kind of, data challenge that exists. One of my clients who had linked their executive pay had an audit done of some of the data that sat underneath those metrics. Out of, kind of, 40 metrics, the opinion had to be qualified for almost half of those which meant in essence, 'We're not giving you an opinion for those and actually it's bad.' One metric in relation to inclusion and diversity unfortunately uncovered that actually they didn't even have a process, let alone a system, to support the metrics that they were reporting.

Hannah Fry: But then I guess that is, sort of, an unavoidable problem with metrics in a way, which is that once you have them there is going to be some way to game them.

Andrew Dunnett: Not if they're managed by the right people. So, if they're managed by the financial community you don't game your finance numbers unless you're very unwise. I mean, you know, you go to jail for that. If you have people and processes and frameworks that for years have delivered those financial numbers and you have an internal audit function that reviews those numbers along with the external auditors, if you build in your non-financials including your diversity score card into that, then you got a much better chance of having credible numbers.

Hannah Fry: So, I guess, in, sort of, a short summary, it's that people need to take these numbers much more seriously, need to treat them in the same way that they do financial numbers, but then also need to make them matter by linking them to things like executive pay.

Musidora Jorgensen: Absolutely, and there are other things that can be done as well. So, for example, at Microsoft we have something called an internal carbon fee, so that is keeping each of our business units accountable for the decisions that they're making and the impact that those decisions are having from an overall sustainability perspective. So, we can absolutely link, you know, where that comes back to in terms of the fee that they then need to pay for the carbon output that they've got. And we can use that fee to go and reinvest within the business for efficiencies that we want to drive or go and look at where we can invest around innovation for some of these nascent technologies that really the world needs to be seeing.

Hannah Fry: The way that you're all describing this, I feel slightly more optimistic that these issues are being taken seriously and that the industry as a whole is trying to find the right metrics in order to really have these things at the forefront of their planning going forward.

Andrew Dunnett: You know, business is now part of the solution, rather than part of the problem, and that's a massive change. I think the investor community is looking very carefully and investing in a way that they believe represents purpose. A lot of work to be done in that. But, I think what's exciting is at the highest level of business community these issues are being discussed and debated and looked at and we have a generation of younger people coming through into the employer base who want these issues resolved and I'm really optimistic because of that.

Lynne Baber: I am also really optimistic. I think, you know, building on those points, we've got amazing skills, whether it's engineers, data scientists who we need, right, to help us to work out how to solve these problems. And then the advances that we've seen in technology, you know, just in the last few years are just going to help accelerate that for us which is what we need to solve the problems.

Hannah Fry: Given the backdrop of all of this, do you find that companies are shouting from the rooftops with every change that they're making?

Lynne Baber: Well, this is quite an interesting one. I have quite a few conversations now actually with organisations, they're really nervous actually almost to say anything. So, we talk a lot about green washing, quite rightly so. I don't know if you've heard of the term now, green hushing, quite a few companies, actually they think, 'We're doing well here', but they're holding back a bit from actually feeling like they can, kind of, say something in public because they're so nervous about being accused of green washing.

Hannah Fry: Which, sort of, seems a bit of a shame because I think that the more that people talk about this stuff, the more likely it is that more will be done.

Lynne Baber: I think there is something in that, isn't there? And the competitive spirit I think in terms of being able to-, whether to look across your peers as an organisation or to others, well, both to learn from each other as well, right? But also that competition is something that I think could be used as a force for good.

Andrew Dunnett: And I think in this space doing good isn't good enough. You've got to prove that you're doing good, for companies, do it first and talk about it later and have the data to substantiate everything you are publicly claiming. Absolutely key.

Hannah Fry: It sounds like we've got work to do, quite a lot of work to do. Well, thank you so much for joining me, that was a fascinating discussion. You can catch up with the other episodes of Human-led, tech-powered that are all available online. Thank you very much.