Bruno J. Navarro: The conversation around environmental, social, and governance, or ESG, priorities has grown more prominent and complex over the past couple of years. The underlying issues and efforts to address them on an organizational level have attracted quite a bit of attention, especially as thinking around sustainability and diversity has become more common among consumers, businesses, stakeholders, investors, and regulators. So how should organizations think about understanding ESG goals, setting targets, and measuring successes? I'm Bruno Navarro, and on today's Workday Podcast I'm joined by Andrea Walsh, global ESG and sustainability solutions leader and senior client partner at Korn Ferry. Andrea, welcome. Great to have you on the show.
Andrea Walsh: Thanks, Bruno. I'm happy to be here.
Navarro: Could you please start us off by telling us a bit more about yourself and your role at Korn Ferry?
Walsh: Sure. I have been in management consulting for 23 years, and I lead Korn Ferry's ESG and sustainability consulting business. And a lot of times, organizations will focus on setting their ESG strategy and making their commitments about their sustainability objectives, what they plan to achieve by 2030 or 2040. However, all too often, we see that companies aren't really sure how to achieve those goals. So, for example, if we focus on some climate-related goals, for example, a lot of executives and leaders start to think about the technology. They think about the processes that they need to drive change. However, they overlook that they need their people to change mindsets. They need to change their behaviors. They need to change their actions. And so what we do is we help companies activate and engage their people so that they can take intention and drive that to action.
Navarro: Before we go much further, I'd love to set a baseline definition, if possible. How do you define ESG?
Walsh: If you don't mind, I would love to talk about sustainability first because it's really sustainability that we're chasing here, supported by ESG. So sustainability, in the broadest sense, measures the endurance. It measures the competitiveness of a business over the long term. And so then, when you layer on ESG, it's really a framework that's used to measure the impact of all the sustainability actions that you're taking, and ESG is helping you track the progress over time. So a lot of times, we'll say that ESG is a framework that really offers a view into a company on its long-term value potential and how relevant it is to stakeholders.
Navarro: So what practical effect has the concept of ESG had on boardrooms and the C-suite?
Walsh: Well, ESG and sustainability have really turned into one of the hottest topics at the C-suite and at the board level. And it's really raised a lot of questions. So the questions that we hear all the time when we're talking to folks at that level is, "How much of an issue is ESG for us? Do our shareholders really care that much about ESG? Do our customers and our employees care? Is this a trend, or is it something more long term?" And so the truth is that the board and the C-suite has to play a really active role in discussing and, and answering these questions, so they have to provide that leadership and oversight on key issues that are affecting short- and longer-term sustainability. And a, a really key part of this is to avoid the greenwashing effect, and the way that they're doing that is they're embedding ESG into the strategy and embedding it into risk management. And in order to do that, it means they've got to transform the way the organization operates now as well as in the future because it's so critical that ESG not be standalone or on the side. It's got to be embedded. And so that's a lot of the conversations we're having. Uh, I was just talking to a CEO the other day that was referring to ESG as one of their projects and, and how they didn't want it to be just a project. They wanted it to be something that was embedded in the organization. And so that's exactly the type of things that we're helping leadership teams and boards to do.
Navarro: It's so interesting that you call it one of the hottest topics because, along with the attention, you also have naysayers. So what about those who have opposed ESG measures or have taken a stand against it, for whatever reason? Is there something they're missing?
Walsh: Yeah, there's so many opinions on ESG. There's those that are passionate about what it represents, and those that are naysayers like you just mentioned, and, and then of course there's folks in between. And so no matter where you're at, no matter which side of the fence you're on, it's become clear that ESG is here to stay and it's not going away anytime soon. So companies and leaders have to be ready to respond because they're going to get questions from customers. They're going to get questions from investors and employees. And so what we're doing is we're not suggesting that a company needs to be an activist. We're not suggesting that they need to believe in everything about ESG, you know. And at our firm, we're not leaning strongly one way or another, but what we need to do is we need to help our clients make sense of all the overwhelming statements, all of the activity, and the regulations and help everyone take an action that's right for them and where they want to be.
Navarro: That's great. In your recent article, titled “The Five ESG and Sustainability Questions You Need to Answer,” you focus on empathy, the flexibility to adapt, and a people-focused approach. Can you describe what role those traits contribute to the ESG conversation?
Walsh: If you look closely at the impact of ESG on organizations, it is going to be so different for every company. Every company is unique because it depends on their purpose as an organization. It depends on their priorities, where they are in their journey. And along the way, they're going to need to redefine objectives. They're going to need to make changes to their business strategy and, ultimately, how they define success and what their priorities are along the way. But the one thing that's absolutely true no matter what, whatever is unique for that company, no matter what, we're talking about true transformation here. When we look back at 50 years of data that we have at Korn Ferry, we see that there is a significant number of transformations that fail. In fact, about 70% of transformations fail. And you're probably wondering, "Why did they fail?" Well, it's, it's because no one has considered that we're dealing with people. And with people, you need to be thinking about adapting among the ambiguity. You need to be thinking about empathy. You need to think about resilience. And we've been calling this a radically-human approach to sustainability.
Navarro: It's interesting that you talk about how people are sort of centered in ESG initiatives and ESG efforts. So how do leadership structures and organizational culture play a role?
Walsh: Well, you know how I mentioned that 70% of transformations fail? Well, they fail for two big reasons, according to all of the data that we've looked at over the years. First, they fail because senior leaders didn't have the right mindsets or they didn't say the right things or do the right things to bring about large-scale change. And second, these transformations tend to fail because the culture wasn't ready to support the change. And, you know, everyone's favorite statement that culture eats strategy for breakfast, well, that's certainly the case here. Because if the culture is not ready, then you cannot bring about the large-scale change that needs to happen for any transformation and especially for ESG.
Navarro: In your article, I was intrigued about how you tied leadership talent and skills to ESG strategies and outcomes. What’s the connection there?
Walsh: Well, it gets back to these big, sweeping statements that are being made about the commitments to show large change associated with these ESG strategies. So these are back to these 2030, 2040 statements. It really comes down to it when we ask a company how they plan to achieve these commitments. A lot of them will come up empty on the short- and longer-term actions that they're planning to take. So leadership, in particular, plays a huge role in making the commitment a reality. So are leaders thinking about topics outside of their function? Are they thinking outside of the organization, for that matter? Are leaders leading inclusively? Are they connected to the purpose of ESG or the purpose of the organization, and are they rallying others around that same organizational or ESG purpose? And the most important thing that really comes up when we talk about leadership is: Leaders need to be making sure they're getting the job done, but they also need to be transforming the business, when we're talking about ESG. So it's like these leaders are wearing two hats. And we just finished a survey of chief sustainability officers at large, global organizations, and the resounding outcome that we heard from these leaders is that ESG and sustainability are about full-scale change management. It's about change in leadership, skills, and culture. And so as we were talking to this, we had this epiphany that, oh my goodness, the companies that realize this now are going to be so much further ahead because they're understanding the people aspect of the change that needs to happen. And they're going to be so ahead of others who aren't yet recognizing that.
Navarro: Sure. That makes sense. Thinking about the old adage of what gets measured gets managed, how should organizations go about developing the framework for assessing their effectiveness? I read recently an argument that there's still a pick-your-metric mentality around ESG goals.
Walsh: Well, there's definitely still a pick-your-metric mentality out there, but, in some ways, that's okay, and that's to be expected because every company is on its own path for ESG, and they're dealing with unique industry or business challenges. And they're all at different places on what they want or need to measure. So our advice here, when they're thinking about metrics, is to not overlook the people aspects as part of the success plan. So I'm not just talking about metrics under the S of ESG or that social category, but I'm talking about even, for example, within the E, a metric such as what percent of your leadership team has been educated on work associated with the new process and skills required for a circular economy. Or what percent of your middle managers have a metric in place in their performance in order to help you achieve incremental net-zero goals? So thinking about these people implications within the E, the S, and the G are going to be really critical for companies that are measuring and tracking progress.
Navarro: You mentioned earlier that 70% of ESG efforts fail. Can you identify what are the key elements that predict whether an organization is going to be successful?
Walsh: Yeah. A success versus failure really gets back to the point that you just raised again about this being a transformation. And so organizations who get everyone activated and engaged in the change are a step ahead of those who aren't doing that. And we're seeing the most success from organizations that are integrating E, S, and G under that broad sustainability umbrella and embedding ESG into all aspects of their business. So it becomes part of how, how they're doing business and not something that they are afraid of or something that they're reporting off of, on the side. It becomes part of the fabric of the organization and how everything works together.
Navarro: You've mentioned the word "transformation" a few times. I can imagine that that term can cause fear in some corporate leaders. What's the feeling that you get from talking to clients?
Walsh: It can cause fear, and, and I would say that that's common, but the real leaders in this are those that are going to see this as an opportunity. And, and I think transformation really does make people think about, "This is an opportunity to look at everything we do as a business, to look at everyone that we're hiring, all of the skills that we thought we needed for the business and seeing if those are still the skills we need for the future." It's more of an opportunity than something an organization should be fearful about.
Navarro: What about, for an organization just getting started thinking about ESG? How should they go about developing an ESG framework? What are some of the key elements its leaders should be thinking about?
Walsh: For companies that are just starting out, it starts with identifying what ESG issues are most material to the company and its operations, and then developing a strategy and an action plan. For those of you that aren't as familiar with the materiality assessment, the main goal of that is to figure out what's most important to an organization and making sure they're getting input from all of the various stakeholders. So you might get input from the board, from the executive leadership team, from employees, and also a lot of the external stakeholders like the customers and the regulators and the investors. And, and then, once all of that information is gathered, there's likely to be a handful of priorities. So, for example, you might have a priority around water or a priority around ethics, for example. And once you get that leadership alignment and focus, then there's the opportunity to create that strategy. But again, strategy for strategy's sake is not enough. It then needs to consider all of the people implications of that strategy. And so even for companies that are just starting out on their journey, it's not good enough to have just a strategy. Because the next question is going to be, "How are you going to accomplish that strategy?" And the answer needs to be, "Through people." And so even for these early-stage clients, they should still be thinking about the purpose. They should be thinking about leadership, talent, and culture, and all of these really have to work together to achieve sustainable success in both the short and longer term.
Navarro: It sounds a little bit like an ongoing process. There's no such thing as a one-and-done scenario here. Is that correct?
Walsh: That's exactly right. A lot of times, as we're out there talking to organizations, we see it thought of as sort of a check-the-box exercise, and it's absolutely not checking the box, and it's constantly changing. So not only is the world constantly changing around us, but everything related to ESG is constantly changing, and again. It's the whole idea that it's fully embedded within your business and within the way that you're working. It's got to be able to flex and change over time. And so that's the whole part of why embedding it makes so much sense because it needs to be able to move with the organization and not be a strict framework that just appears to be rigid and holds you back.
Navarro: That makes me think of another question. And just how much room is there for innovation in terms of setting strategy, setting an organizational plan? Can you talk a little bit about that?
Walsh: Innovation has to be one of the biggest pieces of setting the strategy and the plan. So yes, ESG, depends on whatever framework you're following. There's going to be some guidelines in there and things that investors are expecting to hear from you, that customers are expecting to hear from you. But there's still so much room for making it your own and adding things that talk about the innovation that you're doing as a company, the innovation that you're doing for the good of the world, and innovation that you're doing internally. And so, absolutely, and one of the things that we often talk about in our role is this concept of inclusive sustainability, that inclusion is really needed in every part of ESG in order to achieve sustainability. And the reason why I'm bringing inclusion up here is because inclusion is one of the number one things that impacts innovation and impacts an organization's ability to get that next thing out there and to continue to innovate. These have to go hand in hand. And again, to make ESG something that's rigid and holding you back is not going to allow you to unleash the full opportunity that's out there.
Navarro: How about for an organization that has already embarked on achieving their ESG vision? How do they get to the next level, and, and what does that look like?
Walsh: We like to ask companies that are already well on their journey what are their pain points. What's keeping them up at night? How is it going? And nine times out of 10, they tell us that it's the people-related issues that are keeping them from moving ahead. For example, we often hear a lot of chief sustainability officers and CEOs talk about the frozen middle, and this is that middle level of management. They've already got too much on their plate. They don't have the bandwidth to take on new responsibilities. They don't feel accountable for ESG. "That's somebody else's job because I just don't have enough time." They are not feeling supported in the way that they need to take on these new tasks. And so a lot of times companies will say it's lack of engagement and action from the frozen middle that's keeping them from meeting the longer-term ESG goals. And so, we'll come in, and we'll figure out how to get that frozen middle engaged. How do we take other things off their plate so that they can make sure that ESG is something of a focus? I would say the other common thing that we hear that's keeping companies from achieving their vision is they haven't really updated KPIs and goals to align with their strategy. Once that's adjusted, we can see companies start to make real progress. So those are just a couple examples, but it's really unique to every company what the pain points are, but those are just two that we hear most often.
Navarro: Andrea, thank you so much for joining us today. It's been great speaking with you and hearing your perspective.
Walsh: Thank you, Bruno. Really enjoyed this. Appreciate the time.
Navarro: We've been talking with Andrea Walsh from Korn Ferry about the ESG questions organizations need to know. Don't forget to follow us wherever you listen to your favorite podcasts. And remember, you can find our entire catalog at workday.com/podcasts. I'm your host, Bruno Navarro, and I hope you have a great workday.