This is the first article in our BCG BrightHouse blog series about Environmental and Social Impact and Purpose.
SYNOPSIS
Between regulatory demands, stakeholder pressure, and mitigating risk, all companies are addressing ESG issues in some way. However, are all approaches equal? In this series, we explore how fostering purpose-driven approaches, transparency, and employee engagement can provide an edge to companies and in some cases, a clear competitive advantage. In this first post, we start by looking at what authentic ESG looks like in action: from having employees contribute to agenda-setting to shifting the status quo in their industries, these companies are blazing trails for purpose-driven impact.
How companies achieve change by approaching ESG authentically
Everywhere you look, companies seem to be doubling down on ensuring their impact on the world is known and clearly accounted for. Between incoming regulation and standardized disclosure standards, report publications, and target announcements, it’s almost ubiquitous. Bloomberg estimates global ESG assets are on track to exceed $53 trillion by 2025, reflecting the significant societal shift towards environmental and social considerations. With such an uptick in activity around sustainability, how do we best measure impact? At BCG BrightHouse, we look at impact through the lens of authenticity. In our framework for Authentic ESG, we show that “ESG can fundamentally transform the company—to seize an opportunity to create business and societal value by making their ESG approach part of the core business. Rather than continuing to think about ESG commitments as an obligation or a societal contribution, leading companies shift and treat them as a competitive advantage and, ultimately, a calling.” Of course, compliance is important, but what we’re looking for is authenticity and courage: the courage to transform your business, to move your ecosystem, to advocate for policy change outside your four walls, to engage your employees from agenda-shaping to implementation, to transform the very goods and services you sell. In short, for the courage to invest in what makes you unique so that impact is embedded into your organization. Companies that treat their environmental and social impact authentically move from focusing only on what’s material to shifting what’s meaningful.
Because large-scale change is difficult to achieve, we tend to hear about companies that fall short or fall prey to pitfalls. And yet there are plenty of successful companies who brave the challenge of responding to environmental and social challenges with authenticity, leading with courage and the ambition to be transformative. How do they do it? By embracing the interconnectedness of societal and business interests, some organizations navigate complex landscapes with a more holistic perspective. They anchor their actions on a broader mission and recognize the transformative power of purpose-driven leadership to create a positive impact beyond business metrics. In other words, they lead with purpose.
Authentic ESG means leading with purpose
Bank of Montreal (BMO) is the 8th largest bank in North America by assets and one of the oldest. In 2019, the bank revealed its Purpose, to “Boldly Grow the Good,” and since then has launched numerous initiatives to do just that: they drive the financial inclusion of women via educational programs and investment into women-led entrepreneurial ventures; they reinvest in their communities and build financial resilience in low- and middle-income communities by focused lending and financing.
Where BMO’s purpose-led impact is even more remarkable is in their approach to climate. Not only is the stability of banks and of the financial system worldwide disproportionately affected by climate change risks but it’s also recognized that the sector can have a positive influence on the global outcomes related to the climate crisis. How does BMO “Boldly Grow the Good” when it comes to climate? It has committed USD $300 billion for sustainable finance in lending, underwriting, and investment by 2025 (compare that to the USD $100 billion the international community has struggled to mobilize for climate finance annually since their agreement to do so in 2009) and it will mobilize USD $700 billion assets under advice as well as assets under management. To put BMO’s commitments in context, consider that BMO’s total AUM amounted to $830 billion as of April 30, 2019.
Sure, this has earned BMO many accolades on climate progressiveness and across ESG dimensions on its environmental and social action, but it’s about more than recognition. Seeing Darryl White, BMO’s CEO, leading with purpose to tackle these crises makes it clear: it’s about living up to the impact BMO can uniquely have in the world, leveraging its history, human capital, values, and deeply held expertise – and aligning impactful action with purpose.
Authentic ESG means being transparent about progress and sometimes failure
In January 2020, Microsoft announced three ambitious climate commitments: a) Carbon negative by 2030, b) Removal of all historic carbon emissions by 2050 (that is, of the equivalent number of emissions since the company’s founding in 1975), and c) a $1 billion climate innovation fund. These commitments, taken in isolation, are outstanding in that they put Microsoft on track to remove carbon from the atmosphere, while most companies are aiming to continue to emit, albeit at a reduced or offset rate. In Microsoft’s CEO Brad Smith’s own words, it’s a “moonshot.” And so, it’s no surprise that every year since the announcement, Microsoft has fallen short. Twelve months later in January 2021, then in March of 2022, Microsoft published a progress update explaining that their Scope 3 emissions, which account for over 96% of Microsoft’s total emissions, had actually risen. Then in May of 2023, they posted another update explaining that Scope 3 emissions had risen again. While many companies hesitate to communicate their progress when they are not on track to meet their targets, Microsoft has taken a different approach.
Studies show that many companies are not on track to meet their targets, but updating communication periodically to inform stakeholders is rare. There is still widespread belief that nothing short of a perfect score will yield reputational benefits when it comes to environmental and social action, yet Microsoft is showing that transparency signals credibility, commitment, and accountability.
What sets Microsoft apart is not simply that they shared status updates even when they missed the mark, but that they also invested in research to better understand the landscape of corporate commitments on emissions reductions. This research shows that the two biggest obstacles to reaching emission reduction commitments are actually reducing emissions as well as measuring progress, so Microsoft has taken on a role within their landscape by developing software to record, report, reduce, and replace emissions. By drawing on their core capabilities and leveraging their key position in an ecosystem of clients, suppliers, and competitors, while being transparent on their own progress, Microsoft shows that difficulties need not pose the reputational risk they are perceived to.
Authentic ESG means engaging with employees to shape the agenda
Cisco, a renowned communications business, stands out for its commitment to employee-driven ESG initiatives. At the forefront of their efforts is the “Our People Deal” movement, which stems from the grass-roots effort of a group of employees, serving to drive culture initiatives and to close the gap in culture with senior leadership. Its very name shows that it is a form of contract between all employees of the organization and not a charter imposed from above. It has now become a prominent pillar in Cisco’s comprehensive talent strategy framework and has even generated wider-spanning culture programs, such as “Conscious Culture,” which encompasses the entirety of Cisco’s culture work.
What this has sparked within Cisco is a holistic approach to culture, including DEI efforts, which permeates every facet of employee work and interactions, and is responsive to employee input. This has led, practically speaking, to granting birthdays off, allowing for mental health days, and providing paid days for volunteer work. From being driven by employee mobilization to spark the culture agenda, to recognizing the significance of concrete action in meeting employee expectations, Cisco shows that change can be a “two-way street” between employees and senior leadership creating reciprocity for all.
It’s not entirely surprising, in this context, that Cisco is recognized as a great place to work, and that the tremendous value that Cisco places on their workforce translates into elevated levels of employee satisfaction and productivity.
Authentic ESG means telling your story in a credible way
Volvo, the Swedish carmaker, has built a reputation for manufacturing some of the safest cars on the market – we owe them the three-point safety belt, among many other safety innovations. In 2021, Volvo launched a campaign announcing the company’s new climate commitments – to have 35% fully electric sales by 2030, and to be carbon neutral by 2040, so that their customers can electrify their own fleets by 2050.
What’s the connection? In the video linked below, a crane drops a car from 100 feet in the Arctic Circle: Volvo sees climate change as “the Ultimate Safety Test.” With safety at the core of Volvo’s brand and history, sustainability and climate action must be at the center of the car manufacturer’s path ahead. Hakan Samuelsson, Volvo CEO, states “sustainability is now as important to us as safety” – and we immediately understand the depth of the company’s commitment, because we know how central safety has been for them for the last century.
For every company, there is an angle, an area of action, that is authentic and that will resonate with stakeholders. By expanding the notion of safety, Volvo communicates in a single instant the motivation, depth, and nature of their climate strategy in an authentic and unique way. Does it answer every question? No, since these topics are complex and intricate. Does it convey the kind of commitment necessary to tackle these complexities? Definitely.
Authentic ESG means changing the status quo
Government agencies worldwide demand Google disclose user information or remove content from their sites on a regular basis. Governments ask Google to remove political content, judges ask to remove information that’s critical of them, and police departments request the removal of videos or blogs that shine a light on their conduct. In 2010, in response to these demands, Google released a memo on the “freedom of information” requests they receive from the government to “provide hard evidence of how laws and policies affect access to information online.”
This memo showed it was not only possible but necessary to provide users with information regarding government information requests and censorship attempts, effectively shifting the status quo for transparency in the tech and communications industries. Apple, Microsoft, Facebook, Twitter, and Yahoo all followed suit with transparency reports of their own within three years of Google’s initial memo, and today transparency reports are regarded as a key means of reporting activities related to user privacy, freedom of expression, and safety. Numerous companies and governmental entities now regularly release transparency reports, and in certain jurisdictions, their disclosure is legally mandated.
Google’s 2010 memo was a novel attempt to align their actions with their mission—”to organize the world’s information and make it universally accessible and useful”—and their decision to challenge the existing norm established Google as a pioneer in promoting online transparency.
Discovering what it takes for authentic ESG
This list isn’t meant to be exhaustive, but we believe it’s inspiring. Each company can contribute to defining what’s authentic when it comes to impact because in doing so they will do something unique. These companies, and many more like them, have shown that it is possible to bring about meaningful change in the face of uncertainty or outright barriers. In the rest of this series, we’ll keep exploring what authentic impact looks like in practice – so stay tuned on this page for more explorations into how companies can drive environmental and social impact authentically, and how it works for them.