ESG Navigator: Steers From Concept to Results
A Conversation Between Christopher Skroupa, Skytop Editor-in-Chief, and Lawrence Heim, Editor, PracticalESG.com / April 11th, 2022
Lawrence Heim has been practicing in the field of ESG management for more than 35 years. He began working in environmental regulatory compliance and auditing. During this time he was granted a charter Certified Professional Environmental Auditor (CPEA) designation from the Board of Environmental Auditor Certifications during their inaugural year. He has worked in technical consulting, in-house with Georgia-Pacific, at global risk management firm Marsh USA helping create the Global Environmental Risk Consulting Practice, and as a founder of Elm Sustainability Partners. He became an internationally recognized expert in conflict minerals, responsible minerals supply chain due diligence and associated audit programs/practices. He was the only non-financial auditor selected by the US Securities and Exchange Commission to participate as an expert panelist on the conflict minerals rule and provided guidance on non-financial auditing to US Departments of State and Commerce. Lawrence remains one of only a handful of auditors to have conducted Independent Private Sector Audits (IPSAs) of Conflict Minerals Reports submitted to the SEC under Dodd Frank Section 1502.
During his time at the Responsible Business Alliance/Responsible Minerals Initiative, he led an unprecedented period of due diligence standards development, including spearheading an expansion into ESG standards for responsible mineral supply chains.
He is currently the Editor of CCRcorp’s PracticalESG.com, an online ESG information service with original and curated content emphasizing practical information for companies. Lawrence is the author of Killing Sustainability (2018) and is a Board Member of ASSET, the anti-slavery organization founded by award-winning actress and former UN Goodwill Ambassador Julia Ormond.
Christopher Skroupa: Tell us about PracticalESG. What is your mission and how do you achieve it?
Lawrence Heim: Our company’s mission is to provide practical guidance and resources to those who need it. We spend a tremendous amount of time reading and screening the deluge of information on ESG that overfills inboxes and internet search results, resulting in focused, relevant and usable information for in house counsel, outside lawyers, environmental professionals, sustainability practitioners, HR/DEI professionals and auditors/audit firms.
Christopher: Companies struggle to integrate ESG. What does it mean to do so?
Lawrence: I think there has been too much emphasis placed on what I call “sprinkling ESG fairy dust on shares.” What I mean is that too many companies and investors look at ESG as a direct link to share prices – like a meme. That may work for a very short time, but that isn’t a sustainable ESG strategy. Management and staff need to look beyond share price and focus on where/how ESG initiatives can link to business fundamentals – like lowering operating costs or finding new markets by following changes in customers’ key buying criteria around ESG. Integrating ESG means making practical, meaningful linkages between ESG initiatives/goals and business fundamentals. Successfully changing corporate culture so everyone is pulling in the same direction is also a part of that. If you take care of fundamentals, share price will follow. The other way around doesn’t work.
Christopher: What value does an integrated ESG performance add to a publicly-traded company?
Lawrence: I sound like a broken record, but I think integrated ESG performance manifests in improved business fundamentals. Now that looks different for each company/industry, but if you do things like reduce energy or raw material usage from efficiency improvements, give customers what they want in terms of product/service ESG performance, and create a work environment employees enjoy, then that will improve operating financials, which as I have said is the building block to larger financial value.
Christopher: What’s usually in the way? What prevents companies from effectively scoring “success” with their stakeholders on ESG?
Lawrence: I think you have to get your own house in order before you can effectively communicate with stakeholders, so let me start there. It depends on the company but I think there is fear of the unknown – which includes the lack of consensus on what ESG really is. And I hate to say it, but historically we as sustainability/environmental professionals have used “garbage economics” too much in our zeal to prove our value to management. I mean using financial valuations of environmental and social initiatives that are not at all realistic or aligned with existing internal benchmarks or methodologies. There is also a big communications gap – environmental and social responsibility practitioners tend to speak in their own terms without adequately considering the internal business audience they need to convince. Fear, garbage economics and communications gap combine to create a significant barrier.
Christopher: How do you define greenwashing? Is it a developmental hurdle and how do companies move beyond it?
Lawrence: Greenwashing is essentially the result of inadequate internal controls and governance. Environmental and social information that is presented to the public – whether in the form of a website, advertisement, product label or regulatory filing – needs to be thoroughly vetted by a group of identified internal experts across multiple departments, including legal, supply chain/procurement, environmental, internal audit, compliance/ethics, operations and manufacturing, at the least. Adequate and sufficient validated technical data needs to be available, cross checks for consistency with other departments/pronouncement/operations needs to be confirmed and certainly legal risks have to be assessed. I think the biggest thing companies should do to get past greenwashing is realize that publicizing ESG information is no longer a free PR exercise – it comes with substantial risk that can result in class action lawsuits, investor activism, regulatory enforcement and a loss of customers. Allowing marketing to drive the ESG bus should be a thing of the past.
Christopher: Boards care about ESG now. Why and what support is needed to empower them?
Lawrence: Investors have been successful at raising the profile of ESG issues to the board level. There are activist shareholders looking to change historical core business lines and replace board members. Recent regulatory changes in the SEC have made it much easier for shareholders to introduce ESG proposals and vote their proxies, and new SEC disclosure mandates are coming. The public has access to more information than ever and they are using it to put pressure on companies using various tactics. I think more than anything, directors simply need to know how ESG issues impact them specifically. I mentioned earlier the deluge of ESG information out there. They can’t be expected to track and filter it all – it is really management’s job to give boards relevant information and help educate board members on its importance to the company. Boards need to be given the opportunity to process the information presented in the correct context.