Ep. 13: How Microsoft maintains an ‘ESG mindset’ in the era of AI

Now that we’re halfway through 2024, it’s safe to say that ESG has been having a “complicated” year. With the anti-ESG backlash having been largely successful scaring many companies to backtrack or downplay their social and environmental work, the future of ESG remains unclear. Despite all of this, companies must strive to maintain an “ESG mindset”, according to Matt Sekol, author of the book “ESG Mindset” and Sustainability Global Black Belt at Microsoft. And in this effort, sustainability communicators have an important role to play. 

In this episode, Mike speaks with Matt about his new book, ESG Mindset, to help us better understand the confusion around ESG – and how sustainability communicators can help clear it up. 

Read the full transcript of the conversation below. You can also listen to this episode on Spotify, Apple Podcasts, Amazon Music and YouTube.

TRANSCRIPT

Mike Hower: ESG is shrouded by misconceptions around what it is and what it aims to do. Some critics claim that it is just a form of “woke capitalism” that seeks to impress certain political beliefs on businesses, while others complain it doesn't do enough to address stubborn sustainability challenges.  In his new book, ESG Mindset, Matt Sekol argues that businesses must adopt an ESG mindset by learning how to think critically about ESG to ensure that they remain resilient and derive sustainable growth in the long term.

Today, I'm excited to have Matt on the pod to talk a little bit about his book and help us better understand the confusion around ESG and how sustainability communicators can help clear it up. Thanks for being here today, Matt. 

Matt Sekol: Of course, it's my pleasure, Mike. Good to see you. 

Mike: So, just to kind of kick it off, you know, many people I've spoken with recently on the pod have argued that ESG is quote-unquote “dead”. Do you agree? Why or why not? 

Matt: So, releasing a book about this topic, I kind of don't think it's dead (laughs). So I'm going to start there. But the reason is mostly, I think companies have backed away from it. We've seen some pretty high-profile financial services people back away from the acronym itself. But when you look at the way that they're speaking or the way that they're writing, the content that they're putting out, it's clear that they're still focused on these topics.

So, what I think they're coming to realize is that, you know what, there are, to your opening point, certain political groups that don't want us to say these things anymore, but the work still has to continue because you just can't ignore it. If you're, you know, last year we saw Pfizer got hit with a horrible tornado in one of its manufacturing facilities.

That's climate risk. You can't, just because you don't say ESG doesn't mean that a tornado is not going to rip through a factory that you have. You still have to focus on these issues and deal with them internally.

Mike: Right. And I'm definitely seeing that with a lot of companies that I'm working with. Maybe they're not using the term ESG as often or as publicly, but the work is still being done because, as you said, at the end of the day, this isn't about risk management and about good governance and running a good business.

It's not about hugging trees, even though if you want to do that, that's fine (laughs). 

Matt: Yeah, absolutely.

Mike: So, again, in this whole ecosystem, what role do sustainability community communicators play in advancing a company's ESG strategy from where you sit? 

Matt: Yeah, this is a really good question. In the book I write about kind of a process by which, or a journey, that companies go on around this, where they start looking at their ESG issues, they go through their compliance and disclosures, but then there comes this tough step where a lot of the employees at the company don't understand this topic and which is frankly why I wrote the book.

I think for the sustainability communicator, it's not just about going outside the company and trying to deliver a message outside, but also taking how you as an individual understand your company's position and trying to educate. Whether it's individual contributors, the management team, the board, try to get them to see the value in these topics that you see. Whether that's, to your point, something that's sustainability-focused, something that's DE&I-focused, or whether it's a risk and opportunity, something a little bit more ESG-focused. 

In the book, one of the core things that I argue is that every company has a unique intersection with this topic. And when it comes to sustainability communicators, and really anyone with any sort of skills, that is, that are looking to fulfill a purpose, I think you have to look at yourself and say, “How do I move this forward? What is my unique skill that I can bring? And how can I help this company transition, evolve, digitally transform, whatever it is around these topics, in the way that you think it should be done?"

Mike: So the book is called ESG Mindset, not The ESG Mindset, which I keep calling it for some reason (smiles). But what exactly is an ESG mindset? And how can sustainability communicators help companies develop one? 

Matt: Yeah. So, quick note, it was actually originally called The ESG mindset and I was thinking, “Let's just call it ESG Mindset” (laughs). And I know you and I had talked about it early on, so that might be why (laughs). 

Mike: Okay, that makes sense (laughs). 

Matt: Yeah. But I think in talking with practitioners - and I have a little bit of a corner of a practitioner in one aspect of what I do - in talking with actual ESG and sustainability practitioners, what I find is that they're talking about this effort that they would undertake to try to educate the company on the perspective I was just talking about.

And, you know, I'm on the commercial side here at Microsoft and I very much have sales calls often about this topic. And what I find is that companies are very focused on the disclosures and they haven't gotten to the point yet where they're looking at the actual material intersections of these topics with the business. 

And, so, the idea of an ESG mindset is how should companies really be looking at this and what in a world of globalization, controversies, intangibles, and interconnected crises - which I write about - what kind of perspective does a management team and board need and all the employees at the company need in order to make sure that the business is going to be around to save the world if, to your point, if it chooses?  Because you can pursue philanthropic efforts, you can try to do a kind of indiscriminate carbon savings and things such as that, but if you're not dealing with these core business issues, your business isn't going to survive long enough to actually try to have that impact. 

Mike: I like that. I definitely see that with the work I’ve done over the years as a sustainability communicator is, you know, I do a lot of the disclosures and the storytelling, but sometimes companies will approach me asking for that work and I have to tell them, “There's nothing to disclose. You haven't done anything yet” (laughs).

In order for me to tell a story about sustainability, you have to actually have substance for me to talk about. And, so, I think that I see that as a kind of a duty for sustainability communicators is, especially unless you want to be a greenwasher, which I don't think most of us do, you know, if a company doesn't have an ESG mindset and is trying to help make you communicate about it, basically I have to push back saying, “Hey, you know, let's take a step back. Let's develop the ESG mindset, do the work, then we can talk about it.” 

Matt: Right. That's a great point. And I see that often. You know, often I say to companies you might be trying to figure out how to report today, but in three years, if you're still only reporting your investors, your stakeholders are going to come back to you and say, “Well, what have you done? Because your carbon has gone up as your revenues have gone up. What's your story here?”

Mike: Right. I work with a very awesome company that I won't mention, but they've actually done the opposite where their emissions have gone down while their sales have gone up. So it is possible to do that, to do both, which is what we like to hear.

Matt: There you go. I love it. 

Mike: Great. So, you know, you're focused on the tech industry these days. I just kind of want to kind of hone in on your expertise there. So what are some of the unique conditions that the tech industry is facing right now when it comes to ESG and communicating it? Are there any specific risks or opportunities that we should think about? 

Matt: Yeah, I think tech is at a really interesting place, especially with the push for artificial intelligence now over the past two years. And when it comes to ESG, you know, it hits each pillar kind of individually. From the environmental perspective, I don't think the AI train is going to slow down. But we're going to need energy, we're going to need ever-growing compute, which is going to require raw material mining and things like that. 

So, I think there will be a lot of interesting materials research coming out of technology firms to try to minimize the environmental impact on the sourcing end through to optimizing training models and things like that for lower carbon, lower energy use. And in places such as Microsoft, we're investing in groups such as fusion energy, very nascent energy technologies to try to get them to scale in the market.Now, the S though is very often overlooked unless you're an AI practitioner. There's a lot of bias in existing data. If you have any sort of business process that now you're layering AI on top of, it can scale up that bias very, very quickly. So, companies need to watch for that as well, which is a social justice problem.

And then lastly, the governance. Understanding those first two things for a board and balancing them out with the opportunities that AI is going to try to deliver is really a governance step. It sits with the management team, it sits with the board, and it also can, if it's unmanaged, create risks. So, it's ultimately a governance issue, too.

So, from a tech industry perspective, I think keep an eye on AI. Make sure that if you're implementing it at your company that you are considering those three pillars and where they stand because you certainly don't want to create more problems than you're trying to solve. 

Mike: I'm glad you brought up AI, because I know that was something I wanted to talk about. This is something that has been top of mind at many conferences lately and just all over LinkedIn. You know, there's a lot of anxiety around AI and not only what it means for corporate sustainability, but just what it means for society.

You and I were talking about, you know, you have kids graduating high school and I was asking you, “ Is it true that everyone's using Gen AI for papers?” I was telling you about how, you know, I'm still not using Gen AI for any of my real writing other than helping me riff or ideation.

Where do you see AI going?  You're working at a company that is developing AI. Is it as scary as we think it is, or should we be excited about it?  How should we be feeling about AI and particularly in its ability to help us address social and environmental challenges?

Matt: We should take a balanced approach. So, it could definitely create more problems. It can definitely solve a lot of problems. If you think about it, right now the world is chasing a lot of mitigation with carbon measurements, and carbon reductions, but adaptation is really overlooked in that climate risk lens that could be supplemented with a digital twin of the earth and AI models trying to protect communities.

On the flip side, we have healthcare companies that are potentially having extreme biases in some of the treatments that AI is recommending. I think it really takes a balanced approach and like this topic - in the book I argue that technology is kind of a fourth hidden pillar of ESG - it has risks and opportunities that any board and management team needs to balance in order to get an effective model out there and capture the opportunity. 

There are already White House orders on AI. There's the EU AI Act. But I think ultimately it's going to rely on individual companies and those implementing AI to do it responsibly. This is a tough lift because as we've seen in the past, when different technologies come up, there's always a rush. to get things implemented before your competitors. But nobody wants to rush an AI model and then find out that it's done some significant damage that was an unintended consequence, which is another thing that an ESG mindset would bring - externalities, unintended consequences.

You really have to think through this and kind of what I argue in the book, you kind of have to mainstream ESG throughout your business so that these things get caught because otherwise you'll put up a model and maybe it'll discriminate or it might get out of control. And then suddenly it's using up all this energy. By the way, that's all revenue that's going out the door to some cloud provider, which I would be more than happy with, but not really (laughs).

So, you have to have control of these things and really be thoughtful in their implementations. 

Mike: Shifting back to Microsoft, what are some of the specific communication challenges that you all are facing whether it's communicating internally or externally? As a reporter, I covered a lot of the great stuff Microsoft has done over the years, such as the internal price on carbon you implemented many years back. What is top of mind right now for Microsoft when it comes to communicating these topics? 

Matt: Yeah, it's a good question. So, I can only tell you what I see from an outsider's perspective because I don't necessarily sit on that team. What I'd say is we do a lot of things (laughs). Which is tough to wrangle. We have our annual sustainability report. We have an annual diversity inclusion report. We have a sustainability report specifically for devices. We have information on our approach to accessibility, which I've long argued is kind of an S pillar-type issue. We have white papers and research on responsible AI, which I just talked about. 

And then as if all of that isn't enough, there are projects all over this place. We have an all-up impact report that puts all of this together. I think we do a really good job of doing the work.  What I don't know is if all of it gets out there. I talk to companies, as I said, all the time, and there's a lot that we do that inspires companies, but it always amazes me - because I have a front-row seat to everything we're doing since I work here -  what people don't know that we do. And I think it's because we just do so much. 

We could be putting out our own book every year on what we do. It's just so much.  And I don't know how any sustainability communicator could stay on top of it, to be honest.

Mike: Yeah, I mean, I see that at a lot of companies. There are definitely the companies that aren't doing enough. And then there are companies that are doing a lot and then aren't talking about it. It’s almost an indirect form of greenhushing where it's not even intentional. To your point, it's as if you're doing so much that you don't even know how to prioritize it.

And I know where I see it when I often work with companies is you generally have pretty large marketing teams, but a lot of them don't understand the subject matter to really even be able to use it. So that's where having people at an organization that can speak both languages - understands ESG and sustainability and its impact to the business - and then also gets how this could be useful for marketing and comms needs to be there.

Whether it's an actual role or a consultant, some companies increasingly are creating a sustainability communication director or manager role, which can be effective, or even bringing someone like me in to help and speak between both worlds. That's a good problem to have I would say, that not every company has. 

I think it's something that even makes the business case for why you should invest in sustainability in that it just gives you so many good stories to tell to build your brand narrative and build that brand equity. 

Matt: Yeah, absolutely. And there's a lot. Even with the front-row seat, I still don't see everything. I can't possibly see everything we're doing, we're just such a big organization 

Mike: What advice would you give companies that are looking to improve how they communicate ESG in this crazy environment? Since you just spent the past year or so really thinking about ESG mindset and how companies can create it, what would you tell companies that are trying to communicate these issues? What would be the most important things to think about? 

Matt: Yeah, I think a lot of companies miss the core idea of why I wrote the book, which is that every company does have a unique intersection with this business. You're sitting on passionate people who have just come out of COVID, just come out of the social justice issues that we had in 2020, are experiencing extreme weather, they’re filled with purpose, and they're trying to figure out what the company's doing and they have a whole lot of human intellectual capital that is focused on your business.  

It's an interesting challenge because I don't see a lot of companies matching up that intellectual capital on what the business is doing with sustainability and other ESG topic stories.

They're kind of very focused on the disclosures. They're indiscriminately going out and doing these projects. They may have philanthropic projects, which is great and I would not discourage anybody from doing those. But, what I think we're going to see in the next couple of years is that the companies who really get this right are the ones that will last.

The companies that pivoted around the attention that ESG got, the attention that DE& I got after 2020, and stood up these transient programs, they're just going to fall. They're just going to fall down. You really have to take a look at your core business and come at these topics from that angle first, understand them better, and then you'll find that you have all sorts of ways to impact this whether it's impacting the company and from a resilience perspective or impacting the world and doing well by doing good.  But it starts with the core business 

Mike: So to wrap up, your book is definitely more focused on companies that want to understand sustainability and ESG and how to create this mindset. Why should a sustainability communicator read your book? 

Matt: That's a really good question. I would hope that in reading my book It helps pivot sustainability communicators to be empowered to do what we were talking about earlier, to really focus on their skills in communication, not only to impact external stakeholders, but to bring the company along on the journey and drive it.

There are a lot of voices that management teams listen to across a company, but somebody who can articulate the value in doing this work will drive impact like you can't believe and can also secure others to do it, right. 

Form little virtual teams of people who get what you're saying. I would think that that would be an amazing way. I would be thrilled if somebody called me in two years and said, “Oh my gosh, I read your book, I went around the company, we stood up all these projects because I was able to effectively communicate why it matters to the business.” That would be a dream.

Mike: I think you just said why I chose this as my career path because I really do believe the untapped power of storytelling to drive change is just, to me, super exciting. And that's why I like to nerd out about it all the time. 

Matt: I love it. That's why I wrote the book because, like you, I was an English major and that's what I’m good at. 

Mike: All right, Matt. Well, thank you so much for coming on the pod today. Everybody, Matt's book, ESG Mindset, is now available. I believe you can get it on a couple of booksellers. I will include the link in the show notes so be sure to pick up a copy. And Matt, as always, thanks for coming on and I'm sure we'll check in with you again soon. 

Matt: Of course, Mike. Thanks so much.