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McKinsey’s Head on Why Corporate Sustainability Efforts Are Falling Short
Dominic Barton, the global managing partner of McKinsey&Company, discusses the firm’s sustainability efforts. He talks about the wake-up call he got about sustainability...
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Dominic Barton, the global managing partner of McKinsey&Company, discusses the firm’s sustainability efforts. He talks about the wake-up call he got about sustainability and how he tries to convince CEOs hesitant to make it part of their business model that doing so will improve company performance. He says he sees companies thinking about the environment. “But the speed and scale of what we need to do — I don’t think it’s sufficient.”
CURT NICKISCH: Welcome to the HBR IdeaCast, from Harvard Business Review. I’m Curt Nickisch, in for Sarah Green Carmichael.
In 2012, the No. 1 reason that companies around the world said they were working on sustainability — if they were working on it at all — was to improve operational efficiency. Not to protect the planet. Not to be in business long term. Not to meet the expectations of consumers or investors. Basically, companies saw sustainability as chiefly one thing: a way to save money now.
In just five years, that’s changed. The latest McKinsey Global Survey on the topic finds that the top reason firms pursue a sustainability agenda is because it’s part of their values.
DOMINIC BARTON: A sustainability agenda just goes hand in glove with performance of a company or an organization.
CURT NICKISCH: That’s Dominic Barton. He’s the global managing partner of McKinsey, and he says his consulting firm is increasingly focusing on helping clients address sustainability.
ADI IGNATIUS: Great, so we are now rolling. So, we might as well plunge right in. So Dom, let me ask. Why did you decide to pursue a sustainability agenda within McKinsey?
CURT NICKISCH: HBR editor-in-chief Adi Ignatius recently spoke with Barton and asked him where the new focus came from.
DOMINIC BARTON: What kind of shifted it for me was really actually working in Korea. There was a mayor in Korea, a business guy. He was known as the Bulldozer, the construction guy, and he went right clear on this kind of we’ve got to be thinking about the environment. We don’t think about this enough. We’ve got to get business to think this way, and he kind of pushed me in a way to say, are you guys doing enough? Why don’t you think about this? And I found it honestly a bit of a wake-up call because it was coming from a hardcore business guy that builds infrastructure. So that was a bit of a slap in the head for me to say that’s fine, you may believe in this in terms of companies’ performance, but are we really doing enough, are we measuring it enough, so that was a bit of a wake-up call.
ADI IGNATIUS: And are there things that have sustained you along the way since then?
DOMINIC BARTON: You physically see it happening and then again, more and more businesses started to get into this. This wasn’t an NGO issue; it was kind of becoming a business issue of people saying that we’ve got to take responsibility. Probably one of the biggest business drivers for me was doing work with pension funds. And Mark Wiseman I remember in particular used to tell me, and again I first met him in the mid-2000s, and he was talking about how ESG is real and they need to measure it because they’ve got a 60-year time frame, so this has real impact on the performance of their investment, so this isn’t some nice-to-have; it’s real and you better understand it. So getting that investor perspective, long-term investor perspective, was another driver to say we’ve got to do something more significant here.
ADI IGNATIUS: So you’ve talked about how you got interested in these topics or in making this a priority for McKinsey. In your role running a client service business, how do you view your role as an advisor in bringing focus to longer-term risk and sustainability issues to companies that don’t get it? How do you make that argument? Do you make that argument?
DOMINIC BARTON: Well, yeah, I think we should. We have this valuation book that a lot of CFOs look at, and when you think about creating value I think you have to start thinking about these are sort of measurable factors that affect the performance of an organization. I think it’s saying, you know, when we think about cost and performance and so forth, you have to think about total cost. Real costs.
What you find, for example, in the soft drink industry, to make a soft drink, like if you’re making Coke or Pepsi, it takes a lot of water. I think at one point it used to take two or three liters of water to make a liter of Coke or Pepsi. You can’t just say OK, that’s the way it works. If you’re building a business and you’re in a place where there’s not a lot of water, you better think about how you use that water because the community around them that doesn’t get access to it is going to get pretty ticked off if you don’t.
And there are many examples where thinking about the inputs that you use and the waste that you create can have real consequences to your license to operate, and I think what’s happened particularly I’d say over the last five years, there’s just increasing momentum that people see this. There’s pressure from consumers, so companies have to think about this. There’s actually pressure from employees, and I think there’s pressures from the community in which people operate. And so I’ve seen, at least from my small vantage point, an acceleration of this particularly in the last five years. And you’ve even got now energy companies which typically would be seen as on the far end of the spectrum of not interested, you’ve got organizations like Shell that are really embracing this. So I think there’s been an acceleration. We’ve got better capabilities or technology to measure this and we’ve got integrated reporting systems, which is also looking at this. More and more countries and companies are moving to that model of more integrated reporting which includes sustainability factors. And investors are asking more for this. You see it with BlackRock. Morgan Stanley has a significant initiative underway in terms of how they think about financing companies, companies that they decide to finance, how they look at the environment and so forth, so I think there are more role models out there.
ADI IGNATIUS: So when you’re talking to CEOs, and if I remember correctly you try to speak to two or three a day, right?
DOMINIC BARTON: That’s right, yeah. I try to have that as a discipline, two a day.
ADI IGNATIUS: So, which arguments are most persuasive for them? Is it basically do these things, you will save money as you cut down on packaging or whatever? Or something else? What’s the most effective argument to make to persuade these guys to pursue a sustainable route?
DOMINIC BARTON: Well, I find, and this may not be the best way, but as thinking again about performance and health in an organization, you’re trying to deliver the short-term performance but also the health of the organization over time. And when you broaden the set of lenses, if you will, on that performance and health, people start to say OK, yeah, I do need to think about these other factors like my environmental costs. But it also allows people to think too about are we spending enough on training and talent development, because the quality of your leadership is a health measure. The trust that you have in the community that you operate in, you know, the innovation rate of your organization, which means you need to be investing in R&D. And so thinking about it with that kind of dual lens is at least the way I’ve tried to describe it and also tried to think about it within McKinsey as well, too, because it’s very easy to lean toward the performance side of the cost of the health, and that’s not very sustainable for the organization. So that’s typically the way that I try and start the conversation, at least.
ADI IGNATIUS: And do you feel like there’s real progress, like the kind of progress that changes the world? Or that there’s slow progress and that you might hope that there’s real progress to follow?
DOMINIC BARTON: I think that there is real progress, but it’s too slow because I think the climate change and the impact of what we’re doing – and by the way, we’ve got 2.4 billion new middle-class consumers coming into the world over the next 20, 25 years – if we don’t get this thing set right, we’re on a bad course. So, I think the good news is there is real progress. I mean, I really do see companies thinking about that, even some of the ones that have been the most resistant, as I said, some energy companies, they’re actually embracing this. But the speed and scale of what we need to do I don’t think is sufficient.
ADI IGNATIUS: So it seems that you in your career at McKinsey have taken the company down what I would call very progressive paths in this in other areas. I’m curious, do you ever talk to CEOs who just say dude, you know, just tell me how to maximize shareholder value. I don’t really need all this from you.
DOMINIC BARTON: Yeah, there’s definitely that. And I should say too, there were people before me who were pushing this. There was actually a New York Times interview in 1971 by a senior partner I hadn’t heard of before named David Hertz who was really arguing that environmental issues are questions of economics and businesses need to get involved. So that was way back. Again, I don’t know how many people were listening to him and certainly how many people were listening to McKinsey, but I think that’s been in the system.
You know, I don’t think anyone says, that’s malarkey; we shouldn’t do it. It’s just a don’t translate it to measures or numbers. And I think those companies tend to be much more short-term oriented, as something that you and I’ve talked about before a lot, but I think some that are feeling a lot of pressure to deliver results, they may have some aggressive activists in there. It’s like that’s nice to have. I’ve got to survive here, so that’s interesting but I’ve got to focus here on the immediate term. So, I found it more because of that pressure than dependent on the industry they’re in. And then there’s just more of a myopic view.
ADI IGNATIUS: So when somebody says hey, I’d love to be on board but I have short-term considerations, what’s the response?
DOMINIC BARTON: What I try to do, but I don’t know how effective it is, is say maybe we should look at who your investors are. Can you change your investor base? Can we get more of a longer-term investor who believes in this? And is there a way to get the Norwegians involved in some dimension, because they really believe this stuff. I mean, they’re changing their portfolio based on the impact on the environment and climate. It’s a big factor that they think about, so I try and say can we try and change that because if you can’t help them try and change the condition they’re in, it’s kind of difficult or you just frankly get ignored. So can we think about changing the investor base? Can we at least start to develop measures? You may not want to switch them on right away, but you’re going to need to over time, assuming you’re going to be around for long term you need them, can we not at least develop the appropriate measures for your business that would look at these dimensions on sustainability? That’s sort of the measure. But if it’s a real intense activist effort it’s probably not the time to push that because they’re not going to spend a lot of time listening to you on it.
ADI IGNATIUS: Yeah, interesting. So, are you optimistic on our stewardship of the climate and the environment, or pessimistic, or does it depend on the day?
DOMINIC BARTON: That’s a good point. It probably depends a bit on the day. Again, I think the momentum is there. It’s just more back to this point about I just don’t think it’s scaling fast enough. We need to think about it — it’s like a change management program, and it’s going to require persistence, more role model examples, maybe some integrated solutions, again like in a city where you have a mayor, you have some businesses, you’ve got energy suppliers, you’ve got all the different players. Could they become role models to be able to scale this thing across the system? It’s maybe more difficult with countries. It may be cities may become a lever.
ADI IGNATIUS: So on the other side of the world you have the US, where the federal government has essentially said this is not a priority and that this all might be a Chinese hoax anyway. What does that do then to companies and their decision whether or not to pursue an aggressive sustainability long-term strategy?
DOMINIC BARTON: Well, first of all I’d just say it’s very sad. I just think it’s sad. It’s not science based or evidence based, if you will. So it’s got a bunch of dimensions on that front. I just think it’s sad and it’s wrong. The strange thing about it, though, is it has kind of prodded or poked people. If you look at the people that signed up to say they were not happy about any notion of moving away from the Paris Accord by businesses, that kind of stoked people to say you know what, we can’t take anything for granted. And so in some strange way it’s actually energized people. The worry, though, in the net of it, though, is that it does take the pressure off some organizations. I think what it’s done is it’s agitated and energized the leaders, and it’s allowed the laggards to go well, whatever, we got more time to think about this, let’s not do it. So probably net/net it’s not good, but I don’t think we should underestimate how much it’s energized the leaders to want to really push this and say what are ways that we can work to make this happen. It’s interesting seeing what some of the states are doing to try and separate themselves from that notion. But clearly a more collective global view would be much better I think overall for momentum and speed.
ADI IGNATIUS: So, last question. How do you make sure that these values that you’re talking about that you are pushing at McKinsey, how do you make sure that that lives on after you move on?
DOMINIC BARTON: Well, I think that fortunately it’s not dependent on me. I think we’ve got a group of people coming into the organization probably on the order of 5,000 a year, so it stays a pretty young organization. And that younger generation, this is really serious for them. So I think the pressure in a sense is coming from the bottom, which I think is great. The people are saying what are we doing, Dom, what is your carbon footprint, because we probably think it’s pretty bad, so what are you doing about it? I mean, I get those questions from first-year people. So I don’t want to stereotype and say all millennials are green, if you will, but there definitely is more of a sense of that. And people push it, and they say we joined the firm because we actually want to do work in this area. We want to work with companies that do this, so that actually gives me the most confidence is the significant pressure, in a good way, from the people coming into the firm and their expectations of where it is.
And then the other part is making sure we lock it into our core curricula, the valuation book, that that’s actually part of it. We may talk about it, but if it’s not in how we think again about valuation, again this point of performance and health, then it doesn’t mean much. So it’s getting wired in, but it’s mainly the young generations. And they’re probably going to push us. You may want to talk to them, because they probably think I’m going too slow, or they may think I don’t talk about it enough or pay attention. I hope you don’t talk to them because you may find that out, but that might be the view.
ADI IGNATIUS: I promise I won’t talk to them. All right, Dom, I know you’re a busy guy and I really thank you for your time. Thanks for talking to us. These are important issues, and it’s good to see you guys involved in it.
DOMINIC BARTON: Well, thank you, Adi. I’ve really enjoyed the discussion.
CURT NICKISCH: That’s Dominic Barton. He’s the global managing partner of McKinsey&Company. He was interviewed by Harvard Business Review’s editor-in-chief, Adi Ignatius.
For more lessons and stories from other leaders taking climate change seriously, check out HBR’s Future Economy Project. Go to hbr.org/future-economy.
Thanks for listening to the HBR IdeaCast. I’m Curt Nickisch.