By: Steve Rochlin, Co-CEO, IO Sustainability, Twitter: @SteveRochlin
The trends arising from the new Trump Administration make corporate responsibility and sustainability (CR&S) more central to business success than ever. At first this may seem counter-intuitive. Yet, recent history suggests that Republican controlled Administrations and Congresses create conditions that drive companies to enhance their commitments to CR&S. Ronald Reagan issued an executive order creating a task force calling for business to do more in alleviating social problems. George W. Bush encouraged greater corporate engagement. At the same time, activism calling for business to take on greater responsibility and leadership for environmental, social, and governance (ESG) performance intensifies from NGOs, investors, and media.
The private sector will have a central and often unique relationship with the Administration. One expects the Administration to pare back environmental, safety, and other regulations; corporate taxes; reporting requirements such as those for conflict minerals and extractive industry tax and royalty payments; and engagement in international agreements from Basel III to the Paris Climate Agreement. At the same time, the Administration will advance a mix of carrots and sticks to keep domestic jobs and invest in infrastructure. The Administration will seek to redo social support systems such as the Affordable Care Act, and push education, housing, health, and welfare programs to the states. Foreign policy will mix assertive and isolationist stances. The Administration will pinpoint trade and international aid efforts to areas that are viewed to enhance security, job creation, or both.
This agenda will move forward in the first multi-media Presidency to operate and communicate at the pace of internet time. In this context CR&S will be an essential Swiss Army Knife supporting business development and sales, enterprise risk management, brand and reputation, and HR. Companies should take the following steps.
1) Rethink your approach about gaining ROI from CR&S
Executives will experience admonishments that shift from one extreme – dismantle the company’s costly and distracting ESG commitments – to the other – redouble commitments and take bold ESG leadership. Designing a clear and measurable strategy to prioritize and invest in core CR&S areas is a business essential.
Fortunately, evidence from the recently published “Project ROI” report shows CR&S if done well can bump share price up by 6%, increase sales up to 20%, reduce employee turnover by half, and deliver a host of financial risk, productivity, and reputational benefits. Project ROI gives guidance on how to achieve these results and measure outcomes.
This has never been more important as we shift away from debates about privatizing public services, to innovating business solutions for the 17 Sustainable Development Goals. The “SDGs” represent a $12 trillion opportunity that could create 380 million new jobs. Companies and business initiatives such as the Global e-Sustainability Initiative, IBM, NovoNordisk, and Unilever among many others are taking advantage. As they do, trends suggest that the mainstream investor community will intensify their positions that ESG performance represents an increasingly important predictor of financial performance.
2) Deepen voluntary ESG commitments and reporting
Reagan presciently saw the growing influence of the court of public opinion. A new landscape of organized activists and media has extra-judicial power. Over the last three decades, companies have participated in a massive global experiment to create self-policing stewardship mechanisms across a wide range of ESG issues from chemical-use, emissions, forests, fish, human rights, and many others. The more regulatory constraints are lifted, the higher expectations will rise for companies – especially the the biggest brands and leaders in every industry — to manage their impacts on the environment and communities. They’ll be expected more than ever before to hold their suppliers accountable for meeting so-called, “civic regulation.” It will be more important than ever to find the sweet spot between wider societal needs, and high priority ESG issues that require both management and reporting.
Some industry segments will take advantage, adhering to minimum legal requirements to undercut the costs of ESG compliance leaders. As corporate ESG reporting, commitments, and partnerships continue to establish the new normal for business success, the more these free riders will lose out.
3) Hew strongly to your company’s core values in taking public positions
The current Administration is inventing new ways to engage with the public using new and traditional media. Industries and brands are in the spotlight in ways never seen before. Project ROI finds that the public evaluates the authenticity of corporate responses and positions, and looks to the perceived reaction of employees as a barometer. Culture and values are core to determining where and when companies should pick sides or stay out of the fray. Every company should form a rapid response team with Corporate Communications, Government and Public Affairs, Legal, HR, and the CR&S team leaders attached at the hip.
4) Build your own constituency
The politicization of consumer purchasing behavior is maturing in Europe, and reaching adolescence in the US. Stakeholder outreach is no longer a side activity tied to sustainability requirements. Risk management will increasingly require companies to have access to their own constituent networks willing to serve as character witnesses, advocates, brand ambassadors, intermediaries, and intelligence agents as marketplaces, policy, and politics increasingly intermesh. Companies like Nestlé and Target and collaborative multi-stakeholder initiatives, are finding ways to define how ESG stakeholders can support competitive success. Companies will be wise to move from current forms of stakeholder engagement to corporate constituency development as the Tweets and messages fly.
5) Engage on agreed areas of collective need
Domestically this means jobs and infrastructure. Underneath these tent poles are a host of potential solutions and social innovations such as work force development (see Accenture and PwC), addressing economic opportunity (see Bank of America, JP Morgan Chase, and Walmart), education (see IBM,), health (see Robert Wood Johnson Foundation, Campbell Soup Company, Pfizer), and resilience.
Global companies cannot neglect emerging gaps involved in serving international issues. Now is the time to invest in creative and strategic approaches to international development.
Instruments from corporate and workplace community investment, volunteering, R&D, and cause marketing will become more strategic than ever before. The need to demonstrate progress in solving issues will outpace the need to obtain traditional photo-ops and sponsorship branding.
The bottom line is this: don’t myopically focus on the favorable tax and regulatory agenda. Companies should prepare now to be called from all quarters to partner and lead on ESG issues at an unprecedented level of intensity.