Why ESG matters

Allen Dorsey: 

Hi, I'm your host, Allen Dorsey. I work in our Nous Group Melbourne office and I love chatting with my really interesting colleagues about all the things that they are passionate about. And today I got to talk to Carlos. He runs the gamut when we go from talking about his fast playing rugby to working in ESG and we really discuss why it really matters to all these different businesses and what people are misunderstanding about it and what really happens when organisations use it to create real value. So grab your coffee and let's jump in. Well, welcome to the podcast, Carlos. It's so great to have you.

Carlos Blanco:

Yeah, great to be with you, Allen. I'm really excited.

Allen Dorsey: 

Oh, wonderful. So let's get a couple of things straight. Firstly, you are a principal here at Nous and you work really in the private sector with private sector companies. You also work in government, not-for-profit, and you also specialise in strategy and performance through the lens of ESG, but also you are a former rugby player. And we have to note you are also an incredible DJ. Does all that sound true?

Carlos Blanco:

That all sounds very true. I'm a man of diverse interests, that's for sure.

Allen Dorsey: 

And like I said, you really specialise in ESG. And so I'm wondering, it's a really big topic. Can you summarise it for us in 60 seconds?

Carlos Blanco:

Yeah, absolutely. Love to. So first of all, ESG stands for environmental, social, governance, just to get the acronym out there for everyone. But basically it's a way for businesses to understand how things like climate change or labour standards, modern slavery, or just governance affect their business. And it also asks businesses to think about the impact that they have on things like climate change or the wellbeing of their workforce. So it's kind of got those two sides to it. So to give you a kind of more tangible example, if you are a business working in manufacturing, for example, you'd want to think about your energy usage, how that then impacts climate change, and you'd also think about things like safety of your workforce and how that also creates risks and opportunities within your business.

Allen Dorsey:

Yeah. Wow. So it feels like it's a really broad spectrum. It really kind of touches every part of the thing that you do, which is really interesting. And the other thing is that it feels like it's suddenly something that everyone's talking about. It's really on everyone's mind. And I wonder what's kind of driving that shift?

Carlos Blanco:

Yeah, it's a great observation. I want to dispel one myth though before we get stuck into why it's kind of driving now. It's that businesses have been doing great work, being responsible, ethical for a long time. So if you're a successful long-term business, it's generally because you do things the right way, whether that's looking after your employees, thinking carefully about your products and what sorts of environmental impacts they might have. But it is a big topic now and I like to think about it. It's kind of like a pincer movement on businesses at the moment. So on the one side, you've got regulatory pressure coming from governments and increasing expectations around environmental performance, social performance that's translated into regulatory requirements on businesses. So that's one side. And then the other side is consumer and stakeholder expectations are much higher now of businesses, but that creates a competitive advantage or opportunity for a business.

So if your consumers are expecting more of you, then you can start to position your products and services in a way that deliver better environmental or social outcomes to create competitive advantage. So that pincer movement of regulation on one side, but also opportunity on the other is why businesses are paying much more attention to ESG these days.

Allen Dorsey: 

Yeah, that's interesting. I mean the idea about a pincer kind of feels like I could be in a position where it's like, oh, I'm just thinking I need to tick this box. I need to tick this box just to get through it. But I wonder what's kind of misunderstood when you just only think about it in that lens?

Carlos Blanco: 

I want to come back to something you said earlier as well, Allen, around how it feels like it's everything, because I think that's another thing that businesses get wrong. It feels like it's everything, but it should be those things that are most important to your business, which means generally it's kind of three to five really important things. And then the other things are important potentially from a regulatory compliance perspective, but it's those three to five most material issues where you can get the most value, which brings me to your direct question around that compliance versus value. What we observe when we work with businesses is they might come to us thinking about ESG from that compliance perspective. So a good example is right now in Australia, mandatory climate reporting has come into force for a number of businesses and that started a conversation within those businesses around what ESG means to them.

I think what we help businesses do is start to turn that initial compliance-focused discussion into a more strategic discussion because ESG is most effective when you start with your business and how it aligns with your strategy and what you want to achieve in terms of that long-term sustainability of your business. So really want to shift businesses from that compliance mindset through to more of a strategic mindset around how ESG drives value for your organisation.

Allen Dorsey:

And so I wonder, I mean, obviously it's really helpful to think, okay, there's so many things we could do. We distil it down, we distil it down, we distil it down. Now we understand the things that we want to do and we want to achieve and what's great for our business. And so then once we've done that, what does good look like?

Carlos Blanco: 

One observation I have is when we go and work with businesses, they already have good practice in their business. So we recently worked with a cable importer and supplier. So they work with big infrastructure developments, think renewable energy, big transport projects or mining projects. They already had a really strong safety culture within their business, but they hadn't yet figured out strategically how do we talk about that to our customers? How do we talk about that to regulators? And how do we turn that into a competitive advantage? So that's the first thing I'd start with. There will be pockets of good practice across those material ESG issues within businesses, and you want to find those and then start to put more of a strategic lens across them. But then there are also gaps and I think what good practice looks like is identifying gaps and then starting to address those gaps.

So for example, that business I mentioned earlier, although they had put in place some really interesting programs to recycle materials or to reduce energy usage, they were not collecting data to help them, A, understand what impact that was having, and then B, to be able to communicate that to their customers. And their customers were asking for more and more information from them around their environmental performance, for example. So look for what good already exists within the business. Identify those gaps where you need to fill some missing data or whatever it might be. And then the last step is to make sure all of that is embedded in the strategy of the organisation. It shouldn't be to the side. It's not this thing that sits by itself. It should be integrated with the core strategy of the business because that's when ESG delivers the most value.

Allen Dorsey: 

I wonder, there's obviously so many conversations, people are working through so many of these kind of big questions, distilling down and trying to add value for themselves, for the earth, the society, people around them. What are you most optimistic about in this kind of space about what's coming next for people when we really start to achieve these goals?

Carlos Blanco:

Yeah, I love that question. Well, it's why I love working in this space, Allen. It's the fact that when businesses do this well, they're contributing to solving some of our biggest challenges. And that might be an environmental challenge like climate change, might be a social challenge, like dignified work for people who might not have that opportunity. I'm a big believer in capitalism and free markets, but it needs to have the right goal. It's not just about maximising shareholder returns or whatever it might be. It's about creating a society that is what we all want to live in. And so when businesses do this well, what excites me most is that they're contributing to solving those big challenges. And when I talk to businesses about this opportunity, they want to be a part of that. Who doesn't want to be a part of solving big challenges that we all face?

And so that's what excites me most.

Allen Dorsey:

I love that. I love that. I love that optimism. And we love a challenge, don't we? Who doesn't love a good challenge, right? It's really good in there. Speaking of challenges, Carlos, this year I am really trying to read a lot more books. I want to really expand my mind. So tell me, what are you reading? Do you have a good book recommendation for me?

Carlos Blanco: 

Well, I'm going to cheat a little bit here, Allen, and give you three books in one. So I recently finished a trilogy — the Three-Body Problem trilogy. It's a science fiction trilogy. There's a Netflix version of it released recently, so that might be an entry point. I love science fiction because it really expands how you think about the future. What might the future look like? What are the possibilities? Specifically with this trilogy, it makes us think about what happens if we're not alone in this universe and we come face to face with that reality. How would we respond both individually but as a global society? And then the other thing, just to put the sustainability/ESG hat on that I loved about this, is it went 400 years into the future and then you see a vision for how, or what, a sustainable society might look like.

So imagine an automated food system that means everybody has access to nutritious food no matter where you are in the world. So really pushing us to think about what that future can look like. And it's pretty inspiring as well when you get those sorts of visions thrown at you.

Allen Dorsey: 

Oh, that's so good. Yes, I'm definitely going to add that to my list. Thank you, Carlos. Yeah. Well, thank you again so much. I mean, obviously it's a huge topic. I feel like now I've really distilled it down and it's really just about what matters most to you and how you can actually achieve those goals and really thinking about what's best for you, but also for everyone else and how we can build that society together. Super cool.

Carlos Blanco: 

Yeah, absolutely. And just don't make it over-complex is my other final parting thought. It can feel complex. It can feel like you've got lots of different influencers pushing you to think about specific things. Bring it back to your core business. What are the things we do really well? How do we then want to use those to contribute to solving some of the biggest challenges that we face? So keep it simple and focused on who you are and your core business.

Allen Dorsey: 

Keep it simple. What a great piece of advice for business and for life. Thank you so much again, Carlos, for stopping by. It's been really great chatting today.

Carlos Blanco: 

Yeah, it has. Thanks so much for the time, Allen.

Allen Dorsey: 

Awesome. And thanks so much everyone for tuning in. We hope to see you next time.

Thanks for tuning in to this week's episode. Next week, Rachel guides us through the world of co-design, exploring how involving people in the process leads to better, more meaningful outcomes for everyone. We'll catch you then. Nous Group is an international management consultancy and for the past 25 years, we've helped public, private and not-for-profit clients deliver better outcomes for their customers, communities, and society. You can explore more of what we do on our website at www.nousgroup.com or follow us on socials.