The Hunt for the How
Season 1 Episode 2: Integrating ESG into business strategy with Rob Bernard
From climate change, DEI and social justice, to economic inequality, worker safety and related issues, leaders are looking for guidance in addressing key questions as they lead their businesses into a future propelled by change and opportunity. In conversation with notable business leaders, Michael Dix, CEO of Intentional Futures hunts for the how.
Michael
Our guest today is the former chief environmental strategist at Microsoft, and currently the managing director and co-founder of Commonwealth Equity, which is an investment firm focused on companies participating in the circular economy. He’s a leading voice in ESG and sustainability, and also happens to be a longtime friend. Rob Bernard, welcome to the show.
Rob
Thank you, Michael. Happy to be here. Thank you for asking me to join you.
Michael
Really good to have you. Let’s start with your background. And specifically, the 10 year or so chapter at Microsoft, focusing on sustainability. We’d love to hear what got you into that in the first place? What it was like when you got started and how your work there and Microsoft’s relationship to sustainability evolved over time?
Rob
Great, it’s interesting. It’s easy today to lose perspective on how the world thought about sustainability, let alone ESG, circa 2010. You know, if we go back 10–11 years ago, there weren’t chief sustainability officers at most companies, even at the Fortune 500. I was very fortunate, I’d been at Microsoft for a little over a decade at that point and had some great experiences. I got the opportunity to pursue working with the Clinton Foundation on trying to create a calculator for how do you calculate carbon?
Nobody had figured this thing out yet. I started to get into, well, what do you need to do to calculate carbon? That sort of led me down a whole path where our company really needs to be much more active in sustainability than we have been. I feel very lucky to have been in a company like Microsoft, where, in general, we were ahead of the trend. And so through a series of discussions, a company decided to create an equivalent of a chief Sustainability Officer, or we call it a Chief Environmental Strategist. And because I had spent time thinking about this for quite a while and had done some work there, I was fortunate enough to get the role, and then define what it meant to be, you know, Chief Environmental Strategist of a Fortune 500 company.
Michael
And what did that look like in year one?
Rob
I think there were sort of three phases, year one was sort of, where are we going? What are we doing? How do we in effect play defense, because part of the catalyst was that Greenpeace was actually lobbying against Microsoft. And as we were moving into the cloud, there was a big concern. There had been a study cut that said something like 3% of energy use was going to be going towards data centers within the next few years. And that was going to double every few years. If you did the math and extrapolated, there was some crazy large percentage of global energy that was going to be consumed by data centers and the big data center operators at the time, which Microsoft clearly was going to be one that didn’t have a strategy. So part of it was, hey, standard trouble. Make sure that we’re being thoughtful. Don’t hit any tripwires in the marketplace. I call that pre-phase one. And then phase one was, well, if we’re going to do this, let’s actually think about what we want to do.
Phase two was how do you move to leadership? Right, in phase two, we ended up doing some carbon neutrality, maybe we’ll talk about that. But we were ahead of the curve in terms of being the first company that at least I’m aware of on a global basis to the carbon tax, and then phase three was, how do you create competitive advantage? How do you create new programs? How do you create investment portfolios? That led me to investing in sustainability, even outside the context of Microsoft.
Michael
Sure. Thanks for that. And let’s go there. Let’s set the groundwork for what you’re doing right now with Commonwealth.
Rob
So my partners and I basically came together pre-COVID, about two years ago, almost now and we said, look, we think that there’s a massive opportunity for investment around the future. How do you create highly profitable companies that are also circular? And we can talk about how to define circularity. But in general, if you want to take waste streams and turn them into other products, either back into what they were originally or you want to upcycle them into other products, how do you do that in a profitable way, because my experience had been, and still is, frankly, that most of the companies who claim to do circularity fall in one of two areas.
One, they’re not really circular, they have some small component of their business, which is circular. And so they’re doing a little bit of greenwashing, unfortunately, and they haven’t actually figured out how to be real circular company. The second is, if they are circular, very often, they’re sort of betting on cost curve of x, they want to come down the learning curve, and eventually they’re going to get profitable. That’s not really a great investment thesis to hope that they get to profitability at some point. And so how can we enter this market? I was fortunate enough to partner with two people who have a fairly extensive experience in this area.
Michael
Let’s talk about some of the companies you’re investing in already.
Rob
We invested in our first company, which we’re now public about is a company called E Core International. I don’t imagine that people on here will have heard of them. But if you’ve ever been to any gym in the United States, you’ve worked out on their product, they’re about 45%-50% of all gym floors in the United States, Planet Fitness, your hotel chains, Marriott, Hilton, all those kinds of places. And what you’re working out on, depending on which product line is somewhere between at the low end 55%, up to 97% up-cycled, rubber materials.
It’s a company that’s been around 30 years, and we invested in a controlling interest in that company just several months ago. What attracted me was, the two things that I said don’t usually actually exist in this company, which is, they are really circular, right? They use very, very little virgin product. Most of their products are north of 90% up-cycled materials.
They’re taking stuff that would otherwise be burned. And I can talk about how horrible the waste stream is for rubber tires in the United States. In fact, maybe I’ll go there. And that’ll come back to the second issue around profitability. But just to give you context, I’m going to ask the listener to think about how many pounds of rubber tires do we discard every year in the United States?
The answer is north of six billion pounds of rubber tire waist. Okay. And now you go, what happens to that? I mean, you don’t see it lying on the side of the roads, as much as you know, when I was a kid used to see that stuff where you’d see outdoor fires, but over 50% of that over three and a half billion pounds of rubber waste gets burned every year in the United States. And its carbon factor is worse than coal.
Now, it has slightly better energy content. So on an equivalent basis, it’s slightly lower than coal. But on a volumetric basis it’s worse than coal. And how can we be in a world where it’s okay to take this highly engineered material, that you can put 1000s of pounds on and run down the highway at 60, 70, 80 miles an hour, and then we’re going to burn it at the end of its life, that doesn’t make any sense. So this company, about 25 years ago, figured out how to actually up-cycle these things and turn them into high performance surfaces based on the chemistry of what’s in a tire.
The second area is they’re profitable. Now, this is the cool part, right? One of the biggest myths I always heard when I was at Microsoft is, you can’t do this profitably. I’m like, what are you talking about? We can make this thing super profitable. So think about when you go to Walmart to change your tires or any other place in the United States, you’re usually paying for them to take your tire and dispose of it. It’s called a tipping fee. Okay, well, there’s a subsidized stream of waste in the US. And there are many of them were just happened to be talking about rubber.
It’s like, okay, so now, tire company, changing company x puts them in a trailer, and now they gotta pay some amount of money, depending on where you are in the country to ship that stuff and put it somewhere. I don’t want to go to a landfill, I certainly don’t want to get burned. I want to take that stuff. And I want to turn it into a high-performance material. Great. That’s the business model. And of course, it requires IP and all sorts of other stuff. But the general premise is, we’re taking this waste stream, and we are getting paid to haul it. And then we’re converting it. And out the other side comes high value products across you know, whether it’s jams, but it’s also in operating rooms at hospitals, because you know, think about a doctor, would you rather stand on a rubberized kind of floor that gives you sort of energy as opposed to a concrete floor or something that’s super hard, like you’ll see in a lot of hospitals.
Michael
That’s awesome. And it’s great context for everything else we’re going to talk about. Let’s build on that, but pivot into just sort of definitionally let’s talk about ESG. What is it? Why does it matter more than ever now? And what are you seeing in terms of taking hold?
Rob
Sure. So if we think about, you know, ESG, environment, social, governance, it is a somewhat ill-defined and amorphous kind of thing, right? Frankly, where the sustainability market was when I started back 10–15 years ago, a lot of companies are self-defining it somewhat in their self-interest, right. So if I do a lot of environmental stuff, I’m going to focus on the E, if I’m a company that’s got a great social cause and believes heavily in social justice issues, I’m going to focus on the S. And you know, most companies don’t focus outwardly a lot on the governance, but I’d actually argue that governance is sort of the foundation for what you do everywhere in this thing, right. And so how do you think about ESG? I think the market still hasn’t fully defined that. But it’s clear you’ve got an environmental strategy.
And we can talk about different phases of maturity there. Same on the social side, how do you think about everything from, you know, gender representation, social based issues, local community engagement, global engagement, depending on what you do in the social area, and then the governance is to have a framework which makes this thing happen. I would argue most of the companies that tend to fail, they fail on the GE side, because they have great rhetoric, but they haven’t figured out how to implement anything yet. And then how do you see, there may not be good answers for this, but I’m interested in your take on the relationship between ESG and stakeholder capitalism? Are they synonymous? Are there important differences? How do they relate to each other?
I think both of these terms are super amorphous, right? And just very vague, but to me, stakeholder capitalism is broader than ESG. So ESG has to be part of how you think about stakeholders, you know, but even in the context of the business we’ve invested in, there are many things that happen outside of ESG, which absolutely impact stakeholders.
Michael
Do you have an example that would land this with folks listening?
Rob
Yeah, so the business that I was describing that we bought, we both purchased directly, and then sourced or other people’s tires to turn into products, right. So we have an environmental commitment, we have a commitment around carbon, all that kind of, and we can get into more detail on ESG. But we have a whole series of ESG commitments we have, we’ve created a body at the board level, which I’ll talk about in governance. And so we’re off to the races on ESG. But the way the tire industry works, and I didn’t know this before, which basically is you’ve got the big companies who change tires, but then you’ve got a lot of sort of smaller tire shops around the country. And people will haul those tires to waste facilities. Now, what they’ll do to make a living is they’ll want to take basically tires off the trucks, literally, that can be resold or off a car, and then they can resell them, because they still have good tread life left, and they can sell those for 10 to 20 or 40 times what they can get for basically a discarded scrap tire.
In fact, they’ve got to pay to get rid of these tires, right. So now suddenly, you’ve got a revenue stream for a stakeholder, which is what I call truck tires, from shops to processing facilities. So in the interest of the stakeholders, you want those people to be profitable. Now, there’s two different philosophies in the industry philosophy. One is, give me all the tires, including the good tires, and I’ll go sell the good tires and make 3040 100 whatever dollars per tire. Great. Now I’m increasing my profitability. But if you actually want to help the ecosystem, you want the people who are physically picking up the tires to be able to take some of those tires, and resell them themselves, right? And so in a world of stakeholder capitalism, I would argue yet that would fall into stakeholder capitalism, which is I want the stakeholders to actually be successful. But in the world of ESG, maybe you can put it under s and talk about a social thing. But it’s not normally going to fall, in my opinion, under an ESG strategy, unless you’ve got a super broad ESG approach.
Yep, that’s a super interesting example. Because some of the differences that I’m picking up on might tell me you agree, thinking a little more broadly, about the ecosystem, you’re operating on the value that those players might need in order to thrive and want in order to continue doing business with you. And then thinking longer term, because if you ladder that forward in five years, if you’re the only one in town that actually enables them to make more money through this side business and maximize that they’re gonna choose you over the competitors, and that will shape the market and reinforce your leadership position. Yeah, exactly. That’s the hope. Which is you’re creating a healthier ecosystem. Right.
And, I mean, now we can look backwards, especially, you know, in light of events that have been happening around Exxon, I mean, you and I’ve talked about this over the years, literally, right now it’s sort of coming to bear in terms of companies that did pay attention to ESG or stakeholder capitalism, or in fact, try to cram down investors and say, look, it’s just about shareholder, shareholder shareholders, I don’t much care about stakeholders, they’re now starting to literally pay the price for that. Right? Like, if we go back 10 years, would you want to invest in a bunch of ESG? Or just the market itself? You know, S&P, or NASDAQ? Or do you want to invest in Exxon circa 2011?
Michael
Right. Now, what’s the answer there? The answer is a resounding you don’t want to invest in Exxon, because Exxon, I charted it out, I think they’re down something like 23%, or if we’d invested in June 2011. And the S&P and NASDAQ are up multiples I 234 times. So where do you want to put your money companies that did not historically and they did great prior to that, like prior to 2010? You didn’t want to pay attention to stakeholder capitalism, or ESG. You did great. That world has gone. Morningstar just came out with a report like I think in April, the number of flows into ESG funds. 2021, first quarter versus 2019. First quarter is up five-fold. Right? So like, we’re now talking, it was $185.3 billion of net inflow on top of a base of 2 trillion with a T dollars of ESG focused funds.
Rob
So you go like, why am I super excited to be in the private equity world and circular economy? The capital flows of the markets have already been decided, I just don’t know that all the companies in the world have figured that out. But the markets have decided. So this is no longer a hobby. These aren’t cottage industries. This is a mainstream shift. Yeah, it’s Yeah. And like, where we started the conversation when I started back in 2010 2011? No, not many companies, or many people were thinking about this. Now all of these companies have teams of people working on this stuff. So well, let’s build on that just to learn the point.
And then I want to get into more of the practice of this, but maybe myths and how you overcome those and put this stuff into practice. But yesterday, my understanding is that it started out as essentially a better investment thesis a way to sort of understand the potential future value of an organization by looking more broadly at the business and seeing whether or not they were attending to their ecosystem and a broader set of set of indicators that would suggest whether or not they’re going to succeed and lead in the future. I guess, check that thinking. And then based on that, how is it playing out as an investment thesis as you build the argument for ESG?
Because I don’t think you need to do this on a moralistic ground. This is like, good. Yeah, it’s great for business, it’s like, so if you are not, I’ll put it in the positive. If you were generally thinking about a broad range of issues, which fall under the umbrella of ESG. It means you’re paying attention to more components of your business and your supply chain and your stakeholders back to that concept than not right. And so in general, whether it’s correlation, or causality, or maybe a little bit of both companies, which are heavily invested in ESG, tend to outperform the market. And that’s sort of what you know, not to keep quoting Morningstar. But that’s sort of, you know, a big study that Morningstar put out, I think, June or July of 2020, sort of showing the trends over time of market performance and financial performance of companies that had strong ESG focuses versus those that did not. And so the big myth of ESG is not necessarily great for performance, because you can get distracted. I would be by and large disproven. It’s not 100% true, because certain companies have great ESG strategies and don’t perform well.
But often, the data is sort of now coming to bear that those companies which were brought ESG thinkers outperform the market. Great. What other misconceptions and myths? Are you seeing that that matters? Yeah, so they’re the first one is, you know, we talked a little bit about it in terms of overall financial performance, but let’s talk sort of a micro quarter to quarter which is it’s bad for cash flow, oh, I’ve got to invest in mitigating my carbon, oh, I’ve got to invest in rethinking my water strategy. And literally my physical infrastructure, so I can reuse brown water or something in my data center, some examples.
Rob
That, I guess technically is somewhat true. Depends on how you quantify value. Like if I invest a lot of money to retrofit my buildings, you know, but I’m saving massive amounts of energy. And my payback is less than two years, which is generally the case when people do these kinds of retrofits. Yeah, the myth is, oh, it’s bad for cash flow, if you want to sort of overemphasize that you got to put some capital in, but it’s like any cap like you’re investing capital to get a return, I would argue you get a huge return, like my own experience at Microsoft is, you know, we did when we first started down this journey, and we spent a little bit of money, but the return on investment was off the charts. So that’s sort of Myth number one. Myth number two, which I think is now gone, but a couple of years ago was not great from valuation. Now, actually, these companies get a premium. So that’s a legacy myth, I think it’s largely gone. Investor interest.
Michael
And then the other myth is, and this is unfortunately, still true, which is sustainability, or ESG is some, like, CSR thing, it’s not core to the business, like people who don’t understand that ESG must be core to their business have an unlock the value, they’re not going to.
Rob
Because it’s a mindset shift. It’s about thinking about your business fundamentally differently than the way you used to think about it and finding opportunities to make a lot more money and be a positive contribution to society. That third one is super interesting. And I want to go back to your experience of Microsoft, you mentioned phase three, was when they got into competitive advantage and, you know, new forms of business value through ESG, almost like you’re, you’re in third and fourth year, and you’re really weaving a deeply in your business and using it to your advantage. What did it take there? To get to that stage?
You have to go through all those stages? And maybe that took five, seven years? And a lot of effort on your part and others? Well, I think there are answers. I’m not sure today, if it would take effect, I am sure today that it would not take as much time because the problem or was that being a little too early in the market can be tough. Right? So let’s take the issue I was just talking about which is energy efficiency and buildings.
Rob
If the market writ large is not very focused on reducing its energy consumption, producing the software or partnering with companies to produce software to optimize energy efficiency, and your buildings won’t take off. And that was a little bit of the experience, which is we were pushing the envelope. We did this thing. Microsoft tickets 100 plus buildings in its corporate headquarters, and instrumented them up, and we were gathering 500 million data points a day. And after we had done that, which took about a year, we then spent a year evangelizing this, but eventually the market caught up, right. And so it did create competitive advantage.
Now, today, I think the markets are much more in tune with these kinds of things. But there’s still lots of those kinds of examples where we’ll get into your core and create a competitive advantage. The question is, what’s the timeline? Yeah, that makes a lot of sense for you. I mean, we’ve all seen lots of examples where you have the right idea and timing is everything, you’re a little premature in the market. And it takes too much effort to actually create the demand and find that product market fit.
Michael
I know that you’ve also, in your work on this, been developing a maturity model to assess an individual organization and how far along it is on a TSD journey. Can you talk a little bit about that, because that starts to get into a little bit of the how as we think about stages of maturation that you might have to go through and maybe you can leapfrog some of these to make faster progress there are kind of four levels, in my opinion of how you think about this, right? There’s sort of the basics, which is you’re not violating any of the core tenets of what ESG is about.
Rob
Then you’ve got developing, which is you’re working on stuff, you’re starting to get some governance models together, you’ve got some checklists, you’ve got some level of risk assessment. And you’re so you started down the path of trying to become more proactive, then you and that, you know, if you go basic and developing, that’s a significant percentage of some of the world’s companies today, right. Now, when you start to think about performing. Now you’ve got ESG checklist and metrics, you’ve got board met, like maybe a board charter or a group on the, you know, special committee, you’ve got it in your operations, you’ve got company goals, and you’ve starting to put people’s bonuses and compensation tied to ESG performance. And you’ve done a lot of risk assessment.
Right. And now, the top category, which is probably fewer than 5%, is leading, and there’s very few companies there. So I’ll give you an example in a company that we’re now invested in who I would not put as leading yet. Right, which is, in February, there was a big storm in Texas, right. The company, had it been a leading ESG company would have looked at its supply chain, and said, where do we have geographic risk for climate based or weather based so that you know whether or not you want to say that was a climate change issue or not, in some ways is irrelevant. But if you’re being very thoughtful about it, the strategy, you would have a risk assessment that says, oh, I’ve got x materials that are impacting my business, where each of those gets sourced from.
And what happens if there’s a disruptive weather event or tornado or hurricane, a deep freeze, a heatwave, a power outage, whatever. Okay. That’s where you start to become leading. I love that. So let’s pivot off of this, and I would love to hear your thoughts on the half. And so this is where we’re starting to get it like, what do you do? Let’s say you’re advising, pick an organization, it is either a generalist difficult saying, and they want to make progress, and they’re interested in gaining competitive advantage and to thrive over the long run by applying ESG. Well, what’s your advice for them?
Rob
I would say pick a time in the future. Not too far. Don’t do I mean, many companies had 2050 goals, which is fine. But think you’re sitting in a room? Three years, maybe five at most from today? What do you want to be true? What are the outcomes you want? Right, financially, behaviorally, perceptually? Like, what do you want your customers and your stakeholders to think? And what would need to be true in order to get there? That is not currently true? It sounds easy. But having now done this, you know, not just with Microsoft, but with a bunch of other companies. It’s hard. Right? It’s easy-ish to make some broad statements like, Oh, yeah, we want to have, you know, carbon zero net zero impact by 2050. Okay, great.
Well, what are you going to do tomorrow morning and 2021? To get you on that journey. Where do you want to be by 2025? Do you want to be 50% 8% 30%? I don’t know, like, okay, and what would Oh need to be true, right. And then the other part of this exercise, which is critical, is what are your guiding principles? Because the challenge that I see and have experienced is when you’re in a room, and you don’t agree on the guiding principles, it’s really hard to come to a conclusion. Because what’s guiding, you’re like, I have an opinion. And Michael, you have an opinion, and somebody else in the room has an opinion. And we’re all coming from it. From a different values perspective. I’ll just say my own experience at Microsoft having some great guiding principles that we largely agreed to, when we started this process, made it much easier to make informed decisions. Because you would look at it through that lens and say, oh, only two things can be true. Either. We can’t do this, or we can, because it’s consistent with our guiding principles, or our guiding principles are wrong, and we have to go revisit those. So I mean, you guys do this all the time. And this is one of the great things about your business, which is like, this ideation and info, like really thinking hard about these questions is the most you want to talk about too much. It is the most critical part of this process.
Michael
Yeah, and having those hard conversations is the process. That’s where a lot of the value is. Yeah, yes. Okay. So this is great. So to two things, which may sound deceptively simple, but they’re actually messy, very challenging, but vital, well, establishing a sort of near term vision for the future. And through that having all these hard conversations, were you making real decisions implicitly and explicitly as part of that, defining a set of principles that can help guide your decision making and then testing those and revising those of you realize they’re not serving you really well. Also really challenging because you want to get those to be the fewest number of most essential ones, you want to be clear and actionable. And you get hung up on language and different interpretations, things like that. So those two are vital, which makes tons of sense to me. What else? Is there a third fourth? I’d say that the next biggest one, where most failures happen? It’s about accountability.
Rob
Right? You know, I’ll say I was super lucky, at Microsoft, in that, when we originally rolled this thing out, the discussion was, we’re going to have a carbon tax. And one model would be, oh, some central group, at a company pays for it. Different model, which we proposed, and the company approved was, no, everybody pays for it. It gets distributed everywhere. And the theory was, if somebody else is going to solve the problem, I don’t have to worry about it. I don’t need to think about it.
It’s like, no, no, you need accountability. As broad as you possibly can get it. So that’s the classic mistake. I want the CEO to have accountability. I want their bonus tied to it. I want the CEO, the head of operations and manufacturing, I want to have a sale. Think about it. Like people need to wake up every day and know that their compensation and their accountability and their performance metrics and KPIs are tied to ESG. If you don’t do that and you expect some centralized group to solve the problem. Start to Finish it, it won’t work.
Michael
Yeah, that makes sense. Related that maybe this is a companion to it. But I love the idea that you shared with me in the past on how to activate an organization, the ingenuity within an organization to solve these problems. And there was, I think, at Microsoft, a system by which you could recommend innovative solutions and unlock funding to make those real.
Rob
Yes, absolutely. No, that was it. Thank you for bringing that up here, which is there is a crazy amount of, you know, ingenuity, innovation in the world, right then lying literally in people’s heads. And the problem is, now we’re talking in the world of ESG, the G column in governance, how do you unlock people’s creativity and potential, and give them a framework in a systematic way to unlock capital and or time to go after these issues. So yeah, we had a fun time and people could apply to the fund. And then if it got approved, we would work with him.
In some cases, we had to move people around to get access to the right teams and stuff. But it started with people writing up their proposals of things they could do differently. And in fact, we’re doing the exact same thing the company just invested in, around its waste stream. And solutions are coming from all parts of the company. Right? Because the person who’s literally touching the materials every single day, has the most insight into how to reduce the waste trips. Yeah, I love that. Because there’s, there’s a theme that I keep seeing in stakeholder capitalism, which is inverting the decision making processes and sort of flipping the script on power, some of these dynamics, just going from tops down to bottoms up, or finding a nice balance between the two, where management management’s job is to make these commitments to recognize what’s important for the business, and maybe redefined the right problems, possibly in partnership with people throughout the organization, but then activate the organization to solve them. And classically, we saw this a bunch at Microsoft and other organizations, you get management, believing, and I was probably guilty of this in my career several times, that is my responsibility to come up with the big answers, and then people execute against them. And I think things have been shifting in a healthy way. Maybe you want to talk about that, in this context a little further. You know, I think I think what you’re saying and correct me if I’m wrong is like, how do you empower people across and within an organization to be the engine of transformation?
Rob
Yeah, and that’s, that is totally a GE part of the governance model. You know, we haven’t talked much about us, right? But ideally, you have goals around, you know, diversity inclusion. And so you’ve got diversity of thought, as opposed to, you know, in addition to diversity of other types, like, you know, gender or race and other stuff. But, you know, that is when the magic happens, not three smart people who will come up with good ideas if they’re sitting in a room. But when you’ve got, you know, depending on the size, you know, a significant percentage of your organization, regardless of the size, is empowered to be creative, and have a systematic way to submit those submissions. I mean, especially in a bigger company, that becomes significantly more difficult than, you know, the company I invested in, it’s small, certainly compared to Microsoft.
So how do you get that done? Yeah. And in my mind is going even more broadly to, okay, awesome. If you could do it in your company? What if you could load it up across your stakeholder ecosystem, and co-create with supply chain partners and distribution partners and communities? And yeah, and I would, I would suggest that, you know, we did a little bit of that when I was at Microsoft, but you know, since I’ve left, I mean, it’s, it’s incredibly impressive to see what they’ve done in terms of, you know, I think it’s a billion dollars, if I’m not mistaken, in terms of a fund that people can apply to, and they’ve invested in a bunch of super interesting stuff, you know, a lot and it’s not unique to Microsoft. It’s just one I’m more familiar with. It’s, it’s, it’s great, right? How do you get your supply chain? because now you’re rethinking partnerships. Right, which is, this artificial idea that your company ends at the boundaries of your employees is kind of antiquated.
Michael
And how do you co invent solutions? In fact, that’s one of the things we’re looking at now with some of our supply chain folks, right, which is, how do we jointly solve this problem versus us dictating you, you have to say, solve it or we’ll just solve it for you. It doesn’t work as well.
Rob
And talk a little bit more about how that factors into governance. So when we say governance, how should we be thinking about that? Because I think you have a broader and more active concept there, then people might think initially when they see that term, so let’s maybe put some building blocks in, which is there’s a sort of fundamental level of governance, which is how does, how do things operate? How do they get done? Right? Like, what are your checklists? How do you get these things done? How is there some level of base level accountability, that sort of a sort of foundational level basic if we want to go back to the framework level of governance, but now you actually start to say, No, no?
How does this really get embedded at a senior level across leadership, because many companies still haven’t really embedded this at the senior level, though, that may have a person. But it’s very different from having a group of people or majority people at the top level of the company. And then how do you actually create, especially in large organizations, cross functional roles, and accountability? Right. And then, if you can figure out how to do that, internally, you know, division a and division B, and division c working together? What do you actually think about in terms of your supply chain?
So now you’ve got your upstream, and maybe your shipping and your transport and all that. So inbound and outbound, that’s sort of let’s call it level three, or this performing level. And now, if you want to get to leading, this is where I was going a little bit earlier in our conversation, which is, what are you going to do with the end user? And what’s your partnership with them? How are you going to get those materials back? Right, now you’re talking about a much broader, I mean, we started in governance, which is, you know, a couple people looking at a couple of checklists. And now all of a sudden, we’re talking about No, no, my governance model is my relationship with everybody, everybody in my value chain, and my end customer, and how do I get the stuff back. And now I’m thinking about my world very differently from a governance model, which is, my customer isn’t a one-time transaction.
Michael
My customer is basically a partner who happens to pay me and I’m a partner who gives them a service in exchange for that. Now that big, I mean, Philips is a great example, the steward, they’re thinking about lighting, as a service, like all sorts of business, are now starting to think about this fact, one of one of the companies I looked at recently was doing this with apparel, you’re not buying the apparel, you’re kind of using it for a while, but then you’re giving it back. Okay, I love that concept. Yeah. And the concept of a customer as a partner. Yeah, over time, that’s where the world starts to get interesting. Yeah. Yeah, just a playback on governance, essentially, it’s about operationalizing. These concepts and commitments at scale within your organization across your ecosystem.
Rob
Yes, absolutely. And then, you know, back to where we were about brainstorming and bringing people to help you think about, it’s like, what would be a KPI like, with your end user? If you think of them as a partner? What commitments do you have to the customer? Beyond delivering them a good, good or great product at a good or great price? Like, that’s fantastic. But that’s where you go from there. Yeah. Like, what? What is success? Well beyond just a transaction.
Michael
That’s awesome. I want to make sure we have time for the magic wand question. If you were, and I know you are, very interested in accelerating and deepening you know, the business world adherence and operationalizing of these ideas for ESG. What is one thing you would have business leaders do tomorrow?
Rob
You know, tempted to sort of think about a tactical thing, right? hire somebody to do something or bring in a consultant or something. But I think it is. If you haven’t already done it, you have to think differently. You got to flip them all. You have to flip the model where you don’t upend your approach with stakeholder capitalism or ESG. You start your program with that thought. Like bake it into the just like you wouldn’t run a business without thinking about profit and loss, that you just wouldn’t do it. I don’t think you should run your business without thinking about ESG. And however, you wanted to find that and, you know, stakeholder capitalism in a different way than you would think about your finances or your legal or any of these other core competencies.
Just fundamentally reimagine it through that lens and then think differently. Yeah. And then, and don’t, don’t fall into the trap or listen to the old myth of, well, that could hurt profitability, because at least in my experience with many companies now, it unlocks growth. It doesn’t curtail growth.
Michael
Great. One last question. You can talk to yourself 10–15 years ago, when you’re just getting started in this space? What would your advice be?
Rob
You know, this is a hard question, because I almost have two opposite answers. One is, be patient, right? Because I very much felt like, you know, the metaphor of pushing a boulder up a mountain is kind of how I felt early in my, my, my time on sustainability. And it can be brutal, like I saw a lot of my colleagues just burn out, you’ve got to have just some good wins and some luck. And like I said, I was super lucky to work in a place like Microsoft, where they were very receptive to aggressive change. So you know, one would have been, maybe be patient. But the other is, we’re kind of at a time, so go faster, right. So those two things. So maybe that balance was about right. But I would also, to my younger self, be more conscious of the context of meeting people where they are versus where you want them to be.
So taking a company that’s basic and hoping that they’re going to be leading tomorrow, that’s an unrealistic goal. Be happy that like, okay, this company is basic, but now all of a sudden, they’re starting to ask themselves some questions they didn’t ask themselves before. And so that’s where I get to the be patient side, which is to be much more sensitive to meeting people where they were awesome.
Michael
Well, this has been fantastic, Rob, I appreciate it. It’s always great to talk with you and I look forward to checking back in soon.
Rob
Yep. Thank you so much. Thank you, Michael. Thank you for inviting me.
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