Future Economy Sustainability is a Change Management Program Dominic Barton is the global managing partner of McKinsey. McKinsey’s Sustainability and Resource Productivity Practice helps business leaders around the world understand and implement sustainable business practices. McKinsey consultants have worked with energy companies, financial institutions, cities, and countries to adapt to increasing environmental instability. This interview has been edited and condensed. Learn about the future economy project Bloomberg/Getty Images Barton talked with HBR about his firm’s sustainability efforts as part of The Future Economy Project, an HBR initiative that shares real-world lessons on sustainability leadership. HBR: Why did you decide to pursue a sustainability agenda within McKinsey? BARTON: A sustainability agenda goes hand in glove with the performance of a company or an organization. If we’re trying to improve performance, particularly in companies, you have to include sustainability. You have to be thinking about the environment. You have to be thinking about the governance of the institution and its license to operate. But what shifted it for me was working in Korea. There was a mayor in Seoul in 2002 who later became president, Lee Myung-bak, who was known as the “bulldozer”; he was a big construction guy. He was clear that we had to be thinking about the environment, that we’ve got to get business to think this way, and he pushed me by asking me, “Are you guys doing enough? Why don’t you think about this?” And honestly I found it a bit of a wake-up call, because it was coming from a hardcore business guy who builds infrastructure. So that was a bit of a slap in the head for me. Later, in the mid-2000s, there was a senior partner at McKinsey named Jeremy Oppenheim. He wrote a note to me and suggested that he build a new practice, the sustainable resource practice. And when I saw the memo he wrote and how passionate it was, that got me fired up. He’s the one who really orchestrated the carbon cost curve that we were able to use with companies, governments, and so forth. Andrew Liveris Former Chairman and CEO, the Dow Chemical Company , and Executive Chairman, DowDuPont “Look at sustainability as part of your business model; don’t look at it as a side initiative.” Are there things that have sustained you along the way since then — authors, articles, books, movies, anything of that nature? Yes, clearly what Al Gore was writing about; also, a visit to the Arctic to see the glaciers shrinking. One of the most interesting forests that exists is up on Ellesmere Island, which used to look a lot like the redwood forests in California millions of years ago. The “forest” has been buried under ice for millions of years. With all the melting you can now see the mummified wood. You physically see global warming happening. Probably one of the biggest business drivers for me was doing work with pension funds. And BlackRock’s Mark Wiseman used to talk to me when he was at the Canada Pension Plan in the mid-2000s about how ESG is real, and they needed to measure it because they’ve got a 60-year time frame — it had a real impact on the performance of their investments. So this isn’t something that’s just nice to have; it’s real, and you better understand it. Getting that long-term investor perspective was another driver. How do you view your role as an adviser in bringing focus to longer-term risk and sustainability issues to companies that don’t get it? How do you make that argument? We have this valuation book that a lot of CFOs look at, and when you think about creating value I think you must start thinking about the measurable factors that affect the performance of an organization. When you think about cost and performance, you have to think about total costs, real costs. You can find an example in the soft drink industry. It takes a lot of water to make a liter of soda. If you are Coke or Pepsi, you can’t just say “That’s the way it works.” If you’re building a business and you’re in a place where there’s not a lot of water, you better think about how you use that water, because the community around you that doesn’t get access to it is going to get pretty ticked off if you don’t. And there are many examples where thinking about the inputs you use and the waste you create can have real consequences for your license to operate, and I think what’s happened, particularly over the last five years, is that there’s increasing momentum around this. There’s pressure from consumers, there’s pressure from employees, and I think there’s pressure from the communities in which companies operate. And so I’ve seen, at least from my small vantage point, an acceleration of this. We’ve got better capabilities or technology to measure [environmental impact] and we’ve got integrated reporting systems, which include sustainability factors. And investors are asking for more of this. You make it your practice to talk to two CEOs a day. I’m curious, do you ever talk to CEOs who say “Just tell me how to maximize shareholder value”? Yeah, there’s that. I don’t think anyone says [of sustainability], “That’s malarkey, we shouldn’t do it.” It’s that they don’t translate [sustainability] to measures or numbers. And I think those companies tend to be much more oriented to the short term. I think some of them are feeling a lot of pressure to deliver results; they may have some aggressive activists in there. It’s like, “Sustainability is nice to have, but I’ve got to survive here.” So when somebody says, “Hey, I’d love to be on board, but I have short-term considerations,” what’s the response? What I try to do is say, “Maybe we should look at who your investors are. Can you change your investor base? Can we get more of a longer-term investor who believes in this? Is there a way to get the Norwegian Government Pension Fund Global involved in some dimension, because the [Norwegians] really believe this stuff. Can we at least start to develop measures? You may not want to switch them on right away, but you’re going to need to over time, assuming you’re going to be around for the long term. Can we not at least develop the appropriate measures for your business that would look at these dimensions on sustainability?” But if there’s a really intense activist effort, it’s probably not the time to push that, because they’re not going to spend a lot of time listening to you on it. Do you feel that there’s been real progress, the kind of progress that changes the world? I think there is real progress, but it’s too slow. I really do see companies thinking about sustainability, even some of the ones that have been the most resistant. But I think the speed and scale of what we need to do is not sufficient, and I think about this not only in terms of the average temperature of the Earth but also in things like water, the shortages we may see in 20 years because we’re not pricing it properly or thinking about its use effectively, the garbage and pollution that we’re putting into the oceans, and so on. The scaling of the solutions is not at the level I think is required to deal with the problems we’re going to be facing. So that suggests that there needs to be big solutions beyond what any company can do in terms of voluntary reductions of carbon or any other material. What obligation do businesses have to lobby for action? I think it’s very important for a business to step up and do it and not wait for it to happen, because I don’t know who’s going to be able to make it happen. That’s why I happen to personally believe in some version of a carbon tax or some other way to better capture carbon’s cost. I think the challenge is to level the playing field, and this is where I think it would be better to have more of a global solution. So I do think we need something substantive. Are you optimistic on our stewardship of the climate and the environment, or pessimistic? It depends a bit on the day. Again, I think the momentum is there. I’m very excited by this new mayor of Beijing. He was the president of Tsinghua University and then the environment minister. There will be requirements in that city, which is bigger than some countries, to operate differently. So you’re getting some governments that are being quite aggressive. You’ve got some good companies that want to do things, so the ingredients are coming together. I just don’t think it’s scaling fast enough. It’s going to require persistence, more role models, maybe some integrated solutions. For example, in a city where you have a mayor, you have some businesses, you’ve got energy suppliers, you’ve got all the different players — could they become role models to be able to scale this thing across the system? On the other side of the world you have the U.S., where the federal government has essentially said this is not a priority and that this all might be a Chinese hoax anyway. What does that do to companies and their decision of whether or not to pursue an aggressive long-term strategy on sustainability? Well, first, I’d say it’s very sad. I think it’s sad and it’s wrong. It’s not science-based or evidence-based. The strange thing about it, though, is it has prodded or poked people. If you look at the people who signed up to say they were not happy about moving away from the Paris climate accord, it kind of [prodded] people to say “We can’t take anything for granted.” And so in some strange way it’s actually energized people. The worry, though, is that it does take the pressure off of some organizations. I think it’s agitated and energized the [climate] leaders and it’s allowed the laggards to go, “Well, whatever, we’ve got more time to think about this, let’s not do it.” So, net-net, it’s not good. How do you make sure these values that you are pushing at McKinsey live on after you move on? Fortunately, it’s not dependent on me. We’ve got a regular stream of people coming into the organization — probably on the order of 5,000 a year, representing nearly 20% of the total organization — so McKinsey stays a pretty young organization. And particularly for that younger generation, this is serious for them. So I think the pressure in a sense is coming from the bottom, which I think is great. I don’t want to stereotype and say all Millennials are green, if you will, but there definitely is more of a sense of [the importance of sustainability]. And people push it, and they say we joined the firm because we want to do work in this area, we want to work with companies that do this. So that gives me confidence.
