It’s no secret that sustainability or ESG considerations are becoming increasingly important in the corporate and investment world. But these criteria, otherwise known as environmental, social, and governance, are more than just ethical concerns, they are also critical factors for long-term success.
While most large-scale businesses know that ESG is an important factor, they don’t know where to begin when it comes to defining and reporting on their goals. Oftentimes, they need an experienced professional to kickstart the conversation and manage the details for them.
Cliff Brown, ESG sustainability and strategy consultant at ESG Capital Group LLC, is an industry expert. In his role, he works closely with dozens of leading fund managers to help them understand, track, and report on the ESG impacts of the hundreds of companies within their portfolios.
For more than a decade, Cliff’s strategic advising has led and even shaped the landscape of corporate ESG. His consultant work creates ESG success for companies and investors alike, making a positive impact while generating a return.
From the early days of ESG
Like most, Cliff’s journey into ESG consulting wasn’t linear. He began his career as an engineer, gaining experience in analytics and data-driven work. From there, he returned to graduate school in business before shifting into management consulting working with major clients like Nestle and Clorox.
His break into ESG came when he was recruited by a friend to consult for a new investment program at one of the largest pension funds in the US, CalPERs. Cliff says, “they needed help, and we set about sort of figuring out impact and ESG before it was really a term. They knew that they wanted to invest in clean energy, and didn’t really know how to do that, how to go about making sure that the environmental benefits they were seeking were actually happening, and if those were measurable.”
As a result, his consulting work with CalPERs laid the foundation for one of the most rapidly growing consulting spaces today. “We just sort of jumped right into it and helped define this space. And it continues to evolve and grow over time, but we’re fortunate to just jump right in with one of the best clients that probably is out there in the field.”
Providing ESG guidance for over 15 years, he takes a data-driven approach to sustainability reporting and strategy. “We always feel that the story’s important, but you have to have facts and numbers behind it,” he says, “so that’s been a bit of a differentiator for the work we do.”
ESG consulting for investors and investments
With ESG Capital Group, Cliff works with investment funds to help them reach the impact and ESG goals of each company in their portfolios. These capital pools receive assets from clients like foundations, endowments, and pensions, each with their own commitments to ESG. They’d like to have a return on their investment but also want to leave a positive impact on the world
As a result, these clients require portfolio reports on the environmental and social outcomes of their investments, but many fund managers don’t know where to start. That’s where Cliff comes in, working with the managers and invested companies to quantify their ESG performance.
A large portion of his consulting work is conducting due diligence on companies before the fund managers decide to invest. Typically, during the start of the investment process, Cliff reviews all of the non-financial factors of a company that fall under the umbrella of ESG. If the private equity portfolio or investment fund makes a long-term investment, Cliff follows up with the company and continues to conduct annual diligence.
He provides data on their performance to the investment managers, and also works closely with these companies on furthering ESG initiatives. “We’re helping the companies to improve, reporting on their progress, and providing reports for the fund managers, who in many cases are looking to provide those portfolio reports to their clients,” he says, “they’re the long term investors that prioritize ESG as a means to be responsible, but also to manage risk and hopefully provide some kind of positive impact.”
Discovering hidden potential
Oftentimes, he finds that many companies don’t have much awareness of ESG, but they certainly have plenty of value to offer. “For the most part, they don’t have an ESG strategy, they don’t have policies, but they are likely to be doing more than they think,” he says.
Because the umbrella of ESG includes environmental health and safety, companies are often already operating sustainably in order to avoid legal or reputational risks. They’re usually complying with environmental laws and permits, creating a safe and positive atmosphere for employees and customers. “We just help them be more intentional with that and point out when they have gaps in what they’re doing,” he says.
Plus, the goals of ESG and investing are often directly aligned. Typically, companies that are safe investments are innovating a product or service in some way, creating new efficiencies in the market. Cliff says that because “they’ve solved a problem for their customers, they’re very focused on just making their business work. And so they’re often surprised to learn that accidentally along the way, they’re doing a lot of good things around ESG.”
While many think of obvious sustainable developments like solar or electric vehicles, it also extends to other markets like manufacturing or software. “Take, for example, a company creating a better motor. It’s lighter weight, uses less energy, and saves money. That has a direct sustainability impact to it as well. So, it really can span pretty much the full range of industries out there,” Cliff says.
But, every organization requires a bespoke ESG approach from Cliff, as there’s no one size fits all approach. “We look at their industry, what are the material issues? What are risks to manage? If they’re in heavy industry, that’s a whole different set of risks from a software company. And so we’re not going to recommend that those two companies should be doing the same things. They have a different set of priorities and risk factors.”
Data gaps in ESG reporting
A frequent challenge that Cliff runs into when working with companies is data availability around ESG metrics. While setting benchmarks for the organization can be easy, finding definitive data to measure performance is difficult–particularly on environmental criteria.
Numbers on greenhouse gasses emissions are arguably the most difficult to come by. It’s a key component of many ESG benchmarks and increasingly expected that companies measure, track, manage, and report on them. “We’re talking about something that is still, for the most part, not valued. There’s not a market,” he laughs, “it’s invisible and odorless. So, carbon emissions are generally estimated based on how much energy you use and calculated into a total emissions.”
Fortunately, Cliff sees an improvement in the technology designed to capture this information for companies. Because of the increased focus, there are now platforms that can quickly pull up data for both the organizations and their investors. This software enables them to quickly judge their performance towards ESG benchmarks. “You’re not having to literally pull up hundreds of utility bills and try to extract that data,” he says.
Launching an ESG strategy
With ESG becoming more integral to corporate success, Cliff sees more and more companies looking to develop a strategy “We’ve learned, from working with hundreds of companies, how to help them and how to prioritize what they should be working on,” he says.
Cliff recommends that most organizations start the ESG process with an internal materiality assessment. Either informally or formally, companies should begin a conversation with their employees, customers, and local governments to figure out which environmental, social, and governance issues matter to them. After looking for alignment between their wants, needs, and local laws, they can then prioritize what’s most important and take that input into their ESG planning.
From there, Cliff recommends finding quick wins based on how the planning aligns with the company’s existing processes. In fact, many companies already take steps but simply don’t use the correct language. “They’re always surprised to learn, ‘oh, we actually do, we just didn’t call it that. It was environmental health and safety,’ he says, “a lot of that’s already in their employment policies or scattered throughout the company.”
But a big piece of ESG success at companies, Cliff says, comes from buy-in at the very top. If the CEO or CFO determines that ESG strategy is a priority, the rest of the organization will rally around them and support these measures over time. “This should not be something that’s done just for marketing and PR purposes. You want to communicate what’s tangible and what’s real,” Cliff says.
To create good ESG goals for an organization, Cliff stresses that these measures should be fact-based, transparent, and digestible. Organizations should have the numbers and metrics to back up their claims, as well as visibility into where the data came from. They also need to be understandable to a broader internal and external audience, some of whom are not analytical or quantitative-minded.
For Cliff, these factors are an evolution in the way that ESG goals are communicated to the broader world. “If you look at a lot of corporate sustainability reporting, especially prior to the last few years, there’s a lot of pictures of trees and water and lofty aspirational messages. That kind of approach doesn’t really cut it anymore. It might satisfy some of your stakeholders, but not enough of them,” he says.
Preparing for the future
The world of ESG is still rapidly evolving, and businesses need consultants like Cliff to stay on the cutting edge. Although many large scale companies have infrastructure set up to meet today’s challenges, they need to be ready to meet the concerns of tomorrow.
The SEC’s upcoming regulations on carbon accounting are a perfect indication of the changes that are to come. Under the new ruling, companies must provide an account of their greenhouse gas emissions and the measures they’re taking in response. Essentially, it seeks to create an independent review of corporate carbon footprints of publicly traded companies over time.
Cliff views these regulations as important, but sees the carbon accounting guidelines as still in flux. “What’s happening right now is a little bit of a cart-before-the-horse challenge,” he says, “a majority of the emissions are within supply chains, called Scope 3 emissions. Since data is so hard to get there, companies are allowed to just estimate based on these very broad emissions factors. It doesn’t exactly give you a tool to actually reduce your emissions.”
Regulation is important, but ESG consultants and orgs push for them to be implemented with data in hand to make a difference. Fortunately, new software solutions are emerging to manage energy emissions and reporting, but it’s a very fragmented space.
Cliff predicts that in the next 5 or so years, these companies will converge and create a few industry leaders that will integrate with all enterprise reporting platforms. “Data collection is still sadly happening a lot in spreadsheets and isolated software tools that can maybe handle one piece of it,” he says, “I think this will become more integrated directly into company’s software platforms to manage ESG related issues.”
He also sees a C-level sustainability role becoming more prevalent amongst large scale organizations. Since executive buy-in is so important to the success of ESG programs, this role will encourage participation from all ends of the org by leading a committee made up of key functions. “It doesn’t need to be called an ESG committee, but something like that made up of operations, marketing, technology, purchasing. Those key functions,” he says.
Making a difference with ESG
With his vast experience as an ESG impact and strategy consultant, Cliff’s been an essential part of a rapidly evolving industry. His foundational work with investment firms and companies has helped create qualitative and data-driven results on portfolios and orgs. By educating brands on ESG initiatives and bringing private equity greater data on their investments, he creates long-term growth for all.
But ultimately, ESG is not just about monetary returns, it’s about making an impact, and Cliff is hopeful that human ingenuity will help companies address the issues facing Earth. “I believe technology is going to solve a lot of these challenges for us,” he says, “it’s really hard to change human behavior. People are going to turn on the lights. So we need to provide the technology to do that in a sustainable way so we’re not harming the planet, and hopefully leaving it better for our kids.”
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