In recent years, corporate leaders have been whipsawed as they sought to develop
an Environmental/Social/Governance (ESG) strategy. Pre-COVID, ESG was a
must-have differentiator; it influenced consumer sentiment, was central to
employee
retention,
and became a component of
valuation.
More recently, the pendulum has swung: ESG has become a part of the culture
wars; environmental progress has been erratic (perhaps as a function of early
efforts that were more performative than substantive); companies are dropping
DEI and ESG
programs for
fear of stakeholder
backlash;
and post-election, questions abound as to what future, if any, ESG has in
corporate
America.
Like Mark Twain’s apocryphal
demise,
tales of ESG’s death have been greatly exaggerated. Sure, there are headwinds.
The SEC’s effort to legislate ESG
disclosures
is on hold, but it will surely be back in some form. At the same time,
California has become the pace car — passing two laws in
2023
(coming online in 2025) that require large corporations to disclose greenhouse
gas emissions and climate risk (to operations and balance sheet). For
multinationals, US requirements will be table stakes compared to new European
Union
regulations.
And regardless of government action (under this administration or any other),
consumer and investor sentiment will eventually force ESG activity and
disclosure from public companies.
As the leader of Dutch Bros Coffee’s ESG
program, I weathered these crosswinds. As
a values-driven company, Dutch Bros committed fully to ESG and saw it as a
reflection of the desires of our young workforce and customers. In the run-up to
IPO, as we pitched Wall Street and its analysts, our ESG programs were central
to our brand promise and an important differentiator in a crowded food and
beverage sector. Post-IPO, we quickly found the pressure for quarterly earnings,
cost control, and a focus on profitability to be significant. These — coupled
with the pressures that comes from fast growth — meant Dutch had to re-calibrate
some priorities, timelines and resource allocations.
Here's what this all means for ESG and my advice on how CEOs can make sense of
the path forward:
First, tune out the external chatter.
After an upswell of positive sentiment and momentum, there’s rightly a debate
afoot as to the altitude & elevation for ESG in corporate culture. For now,
anti-ESG lawsuits, corporate retrenchment and anti-woke
rhetoric
have become the ESG version of “if it bleeds, it leads.” Don’t be distracted.
Expectations for positive corporate citizenship aren’t going away. Smart CEOs
will recognize that there will be cultural ebbs and flows in our notions of ESG;
rather than seeking to tack each time the winds change, a long view will help
companies make sustained progress.
Second, look inward to develop the appropriate lens for your ESG program.
A program grounded in company values and the expectations of employees and
customers will have staying power. A sustainability program designed to meet the
expectations of your employees while also reducing carbon will carry the day. A
Diversity/Equity/Inclusion
team
built to teach insights that yield strong culture, attract and retain talent,
and position the company to better serve a diverse customer base will add value
even as the culture wars play themselves out.
Third, it’s okay to seek a moderate middle ground.
Amidst economic uncertainty, constant pressure for earnings, and the myriad
non-financial deliverables we ask of our companies, it’s not reasonable to
expect every player to be a pacesetter in each domain of ESG. Companies that
calibrate their ESG programs using their values and employee/customer/investor
expectations will comfortably meet and even exceed expectations.
Finally, remind yourself it’s good business.
McKinsey looked at 2,269 public companies — analyzing total shareholder
return, financial performance and ESG rating — and found that companies that
braid strong ESG performance with solid company growth and profitability deliver
+2 percent better shareholder
value.
Equity Quotient
reported
that corporations with strong ESG programs have 5.79 percent higher stock
prices, 19 percent higher revenue, 3.5 percent increases in EBITDA, 50 bps
decrease in cost of capital, and 3x staff retention over their ESG-lagging
peers. High-performing companies including Caterpillar, Applied
Materials,
Tillamook
and
Microsoft
have known this for years and see the symbiosis between a solid values choice
and a profitability driver.
Since well before Maynard Keynes, we have asked our companies to give back
and do the right thing. Whether we’re still calling it ESG 10 years from now,
does anyone think our employees and customers won’t expect some iteration of the
same? Companies that ground their commitment in their values, right-size their
programs, and find authentic language to articulate their efforts will be the
ones that weather the headwinds, make smart use of their resources and maximize
shareholder value.
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Experienced C-suite leader in Strategy Development, ESG/Social Impact Programs and Education Innovation
As Dutch Bros’ Chief of Staff/Chief Impact Officer from 2019 to 2024, Keith Thomajan built and executed the company’s ESG strategy — guiding the program from start-up through IPO to public market leader.
Published Dec 23, 2024 2pm EST / 11am PST / 7pm GMT / 8pm CET