Business & Society with Senthil Nathan
Inspiring and thought-provoking conversations with eminent thinkers and sustainability leaders about business in society. Hosted by Senthil Nathan, Chief Executive of Fairtrade Australia New Zealand.
Business & Society with Senthil Nathan
#19 Navigating the New Sustainability Landscape: Insights for Business Leaders with Tim Mohin
Corporate sustainability is more than just a trend—it's an essential element of modern business strategy. In this episode, we sit down with Tim Mohin, a seasoned leader in climate and sustainability, to navigate the intricate relationship between corporate responsibility and the dynamic market environment. We discuss how today’s corporate leaders must balance shareholder interests, regulatory pressures, and evolving consumer expectations.
As Tim shares insights from his extensive experience in diverse sectors, he sheds light on the crucial role of corporate values in driving sustainability. We explore the significant challenges companies face in articulating their purpose and the importance of engaging stakeholders effectively. With pressing questions about regulation and competitiveness, Tim provides clarity on how businesses can thrive under scrutiny and shifting political climates.
Moreover, the conversation delves into the future of global supply chains and the challenges of adapting to new realities within a highly interconnected economy. Tim's expert commentary guides listeners through the complexities of creating value—not just for shareholders, but for society at large.
Join us as we unpack the vital themes of sustainability and responsibility, empowering you to make informed decisions within your organization. Don't miss this enlightening episode, and be sure to subscribe and share your thoughts with us!
Link to Tim's ESG & Climate News newsletter
Link to Tim's book Changing Business from the Inside Out: A Treehugger's Guide to Working in Corporations.
Please visit our website, www.businessandsociety.net, for more inspiration.
Hi there, Senthil this side, Welcome to the Business and Society podcast. Every fortnight I sit with a world-leading thinker to understand some of the ideas at the intersection of business and society. If you're a corporate sustainability leader, I'm sure you're living through a challenging moment. There's a profound shift happening in government policies and corporate sustainability landscape. To understand some of the things that are happening out there, I sat with Tim Mohin. Tim is the global leader in climate and sustainability and one of the rarest executives I have seen who worked in government as a policymaker, a business as a sustainability leader and as well as a non-profit CEO. He is the former CEO of Global Reporting Initiative and a veteran of Personify, Intel, Apple and AMD. Tim also led development of key environmental policies in the US EPA and the US Senate. Currently, Tim is the partner and director at Boston Consulting Group. Tim, very warm welcome to the podcast and great to connect with you again today.
Tim:Thank you, it's a pleasure to be with you.
Senthil:Great Tim. Let's address this question, which is in most of business leaders' mind today. Looking at the developments in trade and politics that's unfolding over the past few months or so, if you meet a business leader who's concerned about sustainability, what would be your single strategic advice be? What should they do? It seems like many in the sector are paralyzed now with so many changes happening.
Tim:It's such a great question to start off with. First, let's set a little bit of context. I've been in this field for four decades now, which I don't think many people can say about sustainability, because it wasn't even around 40 years ago, we called it different things back then. But in all of those years I've never seen the pendulum move as far and as fast as it is moving right now. It was just a few short years ago that we had the Global Financial Alliance for Net Zero at the Glasgow meeting of the big climate COP, COP26. And we had most of the world's GDP aligning to net zero. And that was just one of many examples of how the world had sort of decided that sustainability's moment had come, that sustainability and business were one thing and not at all in conflict. And now look at it. We're in this phase where it's really become, sadly, very politicized and companies are under intense scrutiny on one side and they're being forced to disclose more than ever on the other side. So it's really an incredibly dynamic time. But to answer your question directly and we get this question all the time at BCG is what are company executives supposed to do with all of that? How are they supposed to react?
Tim:And I always come down to the two things that kind of brought us here. One is values. Does your company have values? Does it have a purpose? What is that purpose? How has it been articulated?
Tim:And then two, and very related is what's the value coming from? Your values? I mean, companies are for-profit institutions, they're not nonprofits, they're not NGOs, and so when they set values for their institution, they should have value that comes from that. For their institution, they should have value that comes from that. And normally those come from four different sources. They come from customers, brand, employees and investors. And those four pillars of value tend to hold up the values that companies actually espouse into the world.
Tim:And so I often say look, if you were able to make those statements before about corporate value and purpose, then has anything changed?
Tim:And if it's changed, great, let's adjust. But if it hasn't, then it's as simple as re-articulating those values to the world and how they bring value to the corporation. And I think it's really about rising above sort of the current chaos that we're finding ourselves in and going back to those brass tacks and saying, really, what delivers value to my company and to our values as a company which is our purpose still ring true, still hold up, and that way you're not sort of a leaf in the wind, and , the last thing I'll say on this is it's really important not sort of a leaf in the wind. I mean, there's a real danger of being disingenuous when you're sort of bending to whatever political wind is blowing at the time, and so I really think that is important advice to all corporate leaders is to look long term, understand your values and the value that they bring.
Senthil:You talked about purpose and we often hear this rhetoric on one side, look, you're a for-profit entity working in a free market space. You've got to focus on making money and delivering one of the values you've talked about, which is values to customers and stuff, but on the other side, people say businesses have role beyond just making profits. Given your experience, seeing this from various angles why do businesses exist?
Tim:Why do businesses exist?
Senthil:Yes, why do they exist yeah?
Tim:Why do they exist?
Senthil:What is the core purpose? It's a question which was asked many times, but according to you, what is it?
Tim:Yeah, I mean it goes back to some very fundamental choices. I think most people will be familiar with the Milton Friedman statement of 1970. The purpose of business is to return value to the shareholders, and all the rest is just a distraction. And I'm paraphrasing and all the rest is just a distraction. And I'm paraphrasing. And then there was the Business Roundtable statement of about five years ago, where it was much more than just value or return to shareholders. It was value to stakeholders and society, and so I don't think there's one answer to that question. I think it's an evolving answer.
Tim:. However, to only think about those matters of shareholder return also leads to long-term ruin. A company has to have a long-term view of what its stakeholders need, who they are, what they need and how to deliver that, and I think it's super important to take that into account. So shareholder return is half the equation. The other half of the equation is what are we, as a corporation, delivering to our stakeholders, writ large, and that can be employees, and it can be communities, and it can be customers and it can be communities, and it can be customers investors all of the groups I mentioned before. Defining them, understanding their wants and needs and understanding how to deliver on those is super important for any corporate leader, and so that Shared value paradigm is where I would land.
Senthil:Tim, there is a lot of noise out there about what sustainability means for consumer, a business or a government. Please help us to cut all the clutter and give us a perspective on what does sustainability mean to each of these stakeholders.
Tim:Yeah, you ask hard questions. I mean, the definition of sustainability can be picked apart and made it into many different pieces and parts, and so when you really say governments, individuals, consumers they all want sustainability, they're probably all thinking about different things. Ultimately, I think what people want is to have the best products at the best price with the least impact, and that's a difficult set of things to weave together because they're often at odds. We're also living in a society where consumption is encouraged and we're seeing fast fashion being taken to a new level of consumerism, and so how do we square that circle? How do we reconcile the needs of consumption, the needs of the planet, the needs of shareholders as we discussed before, is a very difficult paradigm to solve, but I think ultimately, the immutable laws of physics will kind of lead us to a good solution.
Tim:You know, there's no sort of global government that's going to tell us what to do. There are market forces, however, and the market forces are increasingly feeling the impacts of things like climate change, biodiversity loss, water scarcity, etc. And those things are starting to really bite. You don't have to look any further than the tragic most recent wildfires in LA and the series of other climate-related natural disasters across the world. A statistic we saw the other day is that the natural disasters in the US, many of them climate-related, over the past year resulted in approximately 2% of GDP. Now, when you're getting into full percentage points of GDP in the world's largest economy, it's getting real, and the insurance industry is the tip of the iceberg in terms of the market forces that will exist that will drive sustainability forward.
Tim:We're also looking at a change of administration in the US, which is having global implications, of sort of deregulation, and saying, well, what does that really mean for renewable energy and the whole path that we were on? Well, it turns out it's only going to be a shift in terms of the slope of the curve. The curve is still up and to the right in terms of decarbonizing our energy supplies and energy usage, because those trends are really hard to reverse. They've been going on for years, so we're going to see more and more of that, and I think it's these market forces that will lead us in the direction. The question is will it be fast enough to avoid the worst effects of climate change? Many people have different opinions on that. I'm not sure who's right. I do know, though, that, regardless of all of the distractions that we're seeing in the current hyper-dynamic world. We are moving in the right direction.
Senthil:So climate change is certainly one of the top themes which we often hear and read. Is there any dominant sustainability priorities that are in business leaders' mind around the world besides climate change, and what are the top two or three which you are seeing?
Tim:So the top two behind climate change are human capital and biodiversity. I might put plastics and circular economy in that list if I could have three. However, you know it's very interesting we use the words human capital. Humans are not capital, humans are humans. And human capital is an aggregation of many important socially related issues that have been with us for many years. I mean, we're talking about basic safety, labor, human rights, issues that have all been sort of bucketed under that large title, yet it's now becoming quite clear that those issues, as old as they may be, need care and feeding, and the reason for that is because we're now living in a globalized economy and value chains stretch across the world into many locations that may have less protection for human beings, and we're seeing, actually, some of the issues of forced labor, child labor and other egregious practices actually increase rather than decrease, even in today's modern world, and so those kinds of issues are clearly coming up the radar.
Tim:Then, when you look at biodiversity, I mean the question really is how much of the economy depends on the natural world, and study after study shows that we actually do depend on the natural world. Natural capital is incredibly important for business as well as all society. I think businesses are largely confused about their role and how they can either impact or positively benefit natural ecosystems, but that is now starting to become more and more part of the discussion, which I think is important. And plastics, I mean, my goodness, they were the sort of wonder material of the 1940s and 50s, and now we find ourselves awash in plastic. And what do we do? The Global Plastics Treaty last year unfortunately failed, and yet I think we're going to have another turn of the dice this year, which there is hope that we'll see some sort of international plastics remediation treaty, which will be wonderful.
Senthil:You talked about human capital. I've heard this term only from human resource executives talking about how much human capital they have, but it seems you talked about value chains, human rights and child labor. How different is it with the human rights which we work on supply chains, forced labor and all those stuff? Are they two different ideas, or human capital encompasses all these things?
Tim:It encompasses all of those things.
Tim:You know when I had a part of my career at Apple where I was in charge of what we called supplier responsibility, and it was at a period of time when the company was being criticized for labor and human rights abuses or alleged abuses in the value chain, and so I got to see this world close up and how many parts of the world work is treated differently.
Tim:Work is not only a place you go to to earn a living, but a place you live and eat and sleep, and your whole culture is around work, and so it brings on a whole different aspect, and I think many people living in the developed world have no idea of how work is done in the developing world, and yet, because we live in a globalized economy, many of our goods are made in these conditions, and so it really comes down to what is a globally accepted code of conduct for making goods across the planet, and this has been incredibly different.
Tim:It's difficult to define, and what I find super interesting is some of the issues we're talking about were actually incorporated in the Universal Declaration of Human Rights back in the 40s, right long, long time ago. But only now are we really starting to see that implementation corporations are the ones that are sort of manifesting what those standards really are, and not sort of the principles, but the deep down standards like what is a reasonable living space, how much square meters do we have? What is a reasonable number of work hours? Regardless of what the country's laws say, the practices are quite different, so it's those kinds of things that are left to corporations who, frankly, weren't designed to do this but find themselves in that role.
Senthil:Look, one of the concepts which I'm finding having a lot of merit nowadays is integrating sustainability into operation. You talked about value. I'm not sure you implicitly had this in your mind. Sustainability academicians, we had Tensie Whelan from New York University. She said that you have to implement sustainability strategy because it creates value to a business. It's not just a good thing to do, but it's a value creator. What is data saying? Do you see indications that, yes, implementing sustainability strategy creates value for business?
Tim:It absolutely does create value for business, but it is somewhat of a journey because many companies aren't, let's just say, in that leadership phase.
Tim:There's a lot to do to just make a company profitable and bring out new products and services each and every year. And so to then think beyond that and say, well, we also have to think big thoughts and build them into our business strategy is beyond the capacity of a lot of companies, a lot of businesses. And yet we're seeing some of the biggest, most profitable companies starting to think this way. They're thinking long-term. What are the scenarios that could impact us in the future and how do we meet those future scenarios? And often that involves being more resilient to climate change, the impacts of climate change, adapting to those impacts, providing for people on the planet so that those conditions under which we're doing business are maintained. It's those broader level thoughts, but again, it's somewhat limited to the larger multinationals that have the resources to do that kind of thinking. You know, when Tensie and others make those points, it's great if you're a big company. It's much harder to do when you're a small company.
Senthil:Got you. And on this topic, I want to ask a last question before we move into discussions about sustainability regulations. What are some of the challenges business leaders you see face when they try to implement sustainability strategy? I spoke to a CEO who's leading a major consultancy and he said businesses don't communicate well about their sustainability efforts and some others say they don't have leadership. Some others say managing multiple tensions beyond creating shareholder value is hard. From your perspective, what is the top challenge business leaders face?
Tim:I think it's balance.
Tim:You have to balance so much when you're a business leader, especially a CEO, and I've seen it. I mean, there's some high profile cases in Unilever and Danone where we saw leaders that maybe got ahead of the board of directors and shareholders, driving sustainability too hard, and then other leaders who maybe ignored some of the telltale signs that they were getting into trouble. So it comes from both sides. But it's that balance of how do I satisfy shareholders, how do I bring out the best new products and services, how do I make sure the financials are going well and how do I look at this long-term sustainability picture? Are going well and how do I look at this long-term sustainability picture. Balancing all of those things takes a very special and smart individual and not everybody's there, and so that balance, I think, is super important, because if you just focus on one of the many different attributes that a CEO or business leader has to focus on, then I think you can go astray just by having those blinders on.
Senthil:Great. Let's talk about sustainability regulations. I was reading your newsletter today.
Senthil:Thank you so much for such a great newsletter. You got what? 100,000 subscribers
Tim:We're over 60, which I'm very proud of. But ESG and Climate News once a week on LinkedIn is our newsletter, and I appreciate the kind words. It's a labor of love, but because it is such a dynamic space, we try to keep everybody up to speed and in doing so, I keep up to speed myself with everything that's going on.
Senthil:Right, because you put all those thoughts into that one email trail, it makes our work so simple that we can quickly skim through and understand what's happening. So thanks for those efforts, Tim. Such a lovely newsletter, talking of which the title of that newsletter has somehow indicated that So I want to ask you two questions. So first is, give us a general take on regulations and second, does regulations always goes on collision course with competitiveness?
Tim:I mean, on your first question, you know, given my long history and starting as a regulator, I was at the US EPA for eight years and then I worked in the United States Senate after that. So I was in the federal government working on regulation for quite some time. And just to kind of set a context, back in those days the world was a little bit simpler. If there was pollution, for example, we set a regulation to lessen the pollution. Nowadays you have a lot of different mechanisms, from market-based incentives and transparency and disclosure and that kind of thing, that are meant to get at that same problem but in a much less direct manner. Back then it was sort of command control. That was it era into an era of, I think, corporate social responsibility, where companies were very aware that they had a reputation or a brand that was somewhat tied into the matters we're discussing on environmental and social, and so they started to do more than regulation, which was great, and we saw all of this kind of voluntary action which is still very much with us today, kind of voluntary action which is still very much with us today, still very impactful in terms of company action. For example, companies set net zero goals and then voluntarily each year produce reports that show progress against that goal. Fantastic, that's wonderful. Then we headed into this next phase of regulation which you were talking about, and I think the last three years especially has been super interesting because you're seeing things like disclosure regulation. In Europe we have the Corporate Sustainability Reporting Directive, or CSRD. Many different capital markets around the world are also requiring climate disclosure as part of financial disclosure. So we've taken the voluntary and we've gone full circle and now we've put it back into mandates and that's kind of an interesting switch, if you will, going from regulatory to voluntary, back to regulatory. And yet now, for whatever reasons, we're seeing a massive deregulatory trend, as you mentioned, and a good example of that is the US. We had a regulation in the Securities and Exchange Commission to require greenhouse gas disclosures, went through years of comment, proposal, litigation et cetera, and now it's pretty clear under the new administration it will be withdrawn entirely. And yet we're seeing states like California, like New York, like others, step up to fill that gap with new legislation and regulation, and certainly Europe. They're feeling the deregulatory pressure as well, but they seem to be sticking to the basics of their regulatory framework as well.
Tim:And then the last thing I'll say to sort of address your second question is, if there's a few different ways to regulate, and regulation can often be viewed as the enemy of competition or competitiveness. And where that starts to get blurred is when you have incentive-based regulation versus the sort of command and control like thou shalt report your scope one and two emissions in your financials. That's command and control. You must do it, as opposed to the Inflation Reduction Act which basically said for companies that are developing climate-friendly or climate tech products, we will provide grants and other subsidies, tax credits, et cetera, to support that kind of activity.
Tim:And when the US did that, I think many other countries were like wow, that is actually brilliant, you know, because it's putting incentives rather than disincentives for decarbonizing activities. So you get both. You get both economic activity and you advance sustainability at the same time, sustainability at the same time. Whereas in Europe the reason they're having this debate at all is because some of the command and control regulations they put in are costing businesses a lot of money. And the Draghi report you may be familiar with, the former prime minister of Italy produced a report saying Europe is less competitive because of all these sustainability regulations, really sort of tipped the dominoes over and now Europe's sort of rethinking their entire approach to this, looking at the US, looking at other countries that have incentive-based programs and saying, well, maybe we did it wrong. So that's what I think you're seeing going on in terms of competitiveness and regulation.
Senthil:Hmm, what are the interests that is driving this deregulation momentum? So, is it businesses pushing this or consumers demand that? Could you just take us behind the curtain and tell what's happening out there?
Tim:It is business, I think there is a lot of frustration over let's just say burden, and you know when a company gets a lot of additional requirements thrown at them to go off and research, figure out what the right answer is, produce a report, and they don't really intuit that there's any benefit to their bottom line or their top line or any line they're like. Well, why am I doing that? That's just really just a check the box exercise. And so that feeling is coming from a lot of companies now and just saying that cost, that burden with no return, is something we cannot afford. And maybe the benefits are there, Maybe they're more societal, but companies themselves are really not acquiring those benefits, or at least not acquiring them in the short term, and saying, well, we can't afford that cost.
Senthil:Hmm, and one question which often emerges in the part of the world I work in which is predominantly Asia is all those pushes towards regulation, the green subsidy which the last year's administration announced. People see it as more of a protectionist measure. Do you have any view on this?
Tim:You know you've touched on an incredibly important issue. I actually think that trade and environment, which has been around a long time, has actually morphed into one of the most important issues going forward into the future. So it used to be that trade and the environment were much more like hey, if we're buying goods from a country that has lax environmental standards, then we're just really exporting our pollution. That's changed now and companies are looking at it differently and they're saying well, if we're buying products from a country that has lax environmental standards, then we're actually hurting ourselves because we've decarbonized our own economy and yet we're importing basically carbon-intensive products from other jurisdictions.
Tim:One of the comments I love from John Podesta, who was President Biden's climate advisor in the last administration, he said we import more carbon from China than we could ever hope to reduce with the Inflation Reduction Act, which is quite a statement. So really, when you're again in a globalized economy, you have to start looking at things more globally, and so you're seeing things like carbon border adjustment mechanisms, CBAM. There's one in Europe, the UK has one. Other countries are looking to put in a carbon tariff. Tariffs are now suddenly back in vogue. I do think we're going to see more and more of that kind of thing we're also seeing, you know, other sort of protectionist mechanisms. Even under the last administration we had a 100% duty on Chinese electric vehicles because the Chinese have subsidized that industry and so it's fascinating to me that the next of level this is really looking at the decarbonized world and how we can level the playing field across the different nations who are moving further and faster because of subsidies. But I do think that's going to be the future.
Senthil:And is this the end of global supply chains? You talked about value chains and you've worked in supply chains for quite a few decades now. What's going to happen to that trade that stretches 10, 20 countries, and what is the future of it?
Tim:I think it's such a great question. I don't have the crystal ball. I will say this, having worked in global supply chains, it's almost impossible to untangle them now. We have basically disaggregated the value chain for just about every product, and so components come from all over the place and the component makers are very good at what they do maybe the best at what they do most efficient. We have just-in-time deliveries, we have everything set up to assemble that final product in the most efficient, effective, high-quality way possible. And now we say, well, okay, forget all that, let's just make it all here. Well, we don't have the capabilities to do that all here.
Tim:I heard today, because of the new tariffs that were proposed between the United States and Mexico, that some car parts make the journey across that US-Mexico border four or five times before they make it into final assembly. So imagine paying a 25% tariff each time you cross the border. So it shows you how difficult it is to apply tariffs in a globalized economy. And yet I do think that is where the world's going. So I don't know the answer. I just do know that it would be near impossible to untangle some of these globalized supply chains now untangle some of these globalized supply chains.
Senthil:Tim, I'm going to ask you a few questions, which I ask all of our guests. How do you manage differences of opinions or setbacks?
Tim:I wrote a book back in 2012 called Changing Business from the Inside Out, and I touch on this point exactly because let me just say that, being a professional, a sustainability professional in business it can be a roller coaster. There are great days and there are bad days. You're trying to essentially move a for-profit industry into being a more sustainable enterprise. It's very difficult to do and you always run into roadblocks and the path to progress is a bumpy road, and so when you hit a bump, when you hit a wall, when you get sort of told off, the time is to retreat and to live again, to fight another day, and I think strategic retreat incrementalism, you know is the way forward. You know, as a very old guy at this point, one thing I've learned over my many years is adaptation. You must adapt, things change. You have to keep your goal in sight and realize that you're not going to win every battle and when you lose some, it's not the end of the world. Regroup and think about how you're going to attack the next day.
Senthil:Wow. The second question. You may say that you already answered this question. What are some of the skills essential for business leaders today?
Tim:I talked about resilience and adaptation already, but the other is communication, and as a young man I would have always eschewed this. I would have said no, no, no, it's about you know, intelligence and technical knowledge and so on and so forth. I didn't realize then what I realize now, which is great leaders have followers. How do you have followers? You're a good communicator. You're able to espouse a particular message in a way that people find compelling and are willing to follow. And so mastering communication and reading the audience and knowing who you're speaking to and speaking in their language so that you can be understood clearly, is such an important and transferable skill, and maybe even more important in the world of sustainability, because we are covering a vast variety of issues, working in a whole bunch of different environments, from business to NGOs, and they're very emotional issues, let's face it. I mean, people get kind of worked up about these things, and so even more important to be a good communicator in that environment.
Senthil:Fantastic. Finally, what are one or two book recommendations you'll give to our listeners?
Tim:Well, I already recommended my own book
Senthil:I'll leave a link to it, but I'm sure you read a lot.
Tim:So I do read a lot. I do read a lot and I think that you know this may be a little bit off topic, but I read the Comfort Crisis recently and I thought it was an amazing book because it sort of speaks to how we've become so comfortable in our modern lives and how we've lost the ability to feel discomfort and how we can be sort of more resilient by being a little uncomfortable every once in a while. It was a really good reminder to me to read that book and to see how things have changed and then to understand the sort of political environment that we're in and how it has evolved around us. I read the Coddling of the American Mind and I found that to be a very interesting read as well. So both of those books kind of recent reads gave me a good lift.
Senthil:Excellent. Tim. What a pleasure talking to you today. Thank you so much for joining us and giving your time and sharing all your valuable perspectives.
Tim:It's been my pleasure. I hope we do it again sometime.
Senthil:That was Tim Mohin. I'll leave a link to his book and his newsletter on the description section of this podcast episode. I highly encourage you to subscribe to his ESG and Climate news. It gives a very comprehensive perspective of all the happenings in the corporate sustainability sector and I found it really useful.
Senthil:Thank you so much for tuning and listening to our podcast today. It was a delight to have you and when you get a chance, please do not forget to leave a rating and review of this podcast and feel free to write to me if you have any thoughts or comments or what kind of episodes you'd love to hear in the future. Thank you so much you.