Climate 21

The business of sustainability - a chat with Frank Omare

March 24, 2021 Tom Raftery / Frank Omare Season 1 Episode 17
Climate 21
The business of sustainability - a chat with Frank Omare
Show Notes Transcript

I wanted to have an episode of the podcast where we level set on the importance of sustainability for organisations, so I invited Frank Omare to come on the podcast to frame sustainability from a business perspective.

We had a fascinating conversation, I thoroughly enjoyed it. I hope you enjoy it too.

If you have any comments/suggestions or questions for the podcast - feel free to leave me a voice message over on my SpeakPipe page, head on over to the Climate 21 Podcast Forum, or just send it to me as a direct message on Twitter/LinkedIn. Audio messages will get played (unless you specifically ask me not to).

And if you want to know more about any of SAP's Sustainability solutions, head on over to www.sap.com/sustainability and if you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover the show. Thanks.

And remember, stay healthy, stay safe, stay sane!

Music credit - Intro and Outro music for this podcast was composed, played and produced by my daughter Luna Juniper

Frank Omare:

For those people who are not aware of the different types of indices, I would encourage them to actually just spend some time become familiar with footsie for Good, Dow Jones Sustainability Index, sustainalytics, all these really good metrics and measures and reports out there, which gives you an indication of how an organization is performing to the sustainability versus its peers.

Tom Raftery:

Good morning, good afternoon, or good evening wherever you are in the world. This is the climate 21 podcast, the number one podcast showcasing best practices and climate emissions reductions. And I'm your host, global Vice President for SAP. Tom Raftery. Climate 21 is the name of an initiative by SAP to allow our customers calculate, report and reduce their greenhouse gas emissions. In this climate 21 podcast, I will showcase best practices and thought leadership by SAP, by our customers, by our partners and by our competitors if they're game in climate emissions reductions. Don't forget to subscribe to this podcast in your podcast app of choice to be sure you don't miss any episodes. Hi, everyone. Welcome to the climate 21 podcast. My name is Tom Raftery with SAP and with me on the show today I have my special guest, Frank. Frank, would you like to introduce yourself?

Frank Omare:

Yes. Thank you very much. Hello, everybody. My name is Frank, Frank Omare. I work within the global value advisory team. I'm based in the UK and I have a global role. And I work with to work, my role is to work with customers, to help them to understand the value that they will get from making an investment in our solutions to help them solve business critical issues. Over the years, I focused on sustainability, because it is a passion of mine. it aligns with the values and goals of SMP. But we're also seeing sustainability becoming high up on the agenda of most organizations we work with.

Tom Raftery:

And why is it important to you?

Frank Omare:

It's important to me because I personally want us to have a much fairer and equitable world where we are building and creating ethical supply chains that eradicate modern slavery and level the playing field for everybody. These are things which I'm really, really passionate about. And I'm fortunate to be working for an organization that walks the talk in terms of actually doing these things internally, and doing them very well. But also provide solutions to enable customers and prospects to meet their own goals and to be successful.

Tom Raftery:

Okay, and talk to me about the kinds of things that we're talking about. I mean, you mentioned slavery there. expand a little bit on what what that is?

Frank Omare:

Yes, so sustainability means different things to different people. Yeah. But some people it's about recycling plastic from the oceans is about limiting global warming. For some people, it's about the business and human rights in the supply chain, modern slavery, human trafficking, creating diverse supply chains, and encouraging the promotion of social enterprises as the future of ethical business. Guess Well, it's all of the above, right. And the way to think about it is very simply to the three pillars. So you think about environmental sustainability, which is about climate action, and plastic recycling, that sort of thing, so forth, very neatly into the environmental side of things, then you've got the economic side of things, which is about decent work and Fair Employment. So ensuring that people in a supply chain are earning a living wage and are working excessive hours. And then you've got the social side of things, which is around human and workplace rights. And this is about making sure that employees are being treated fairly, they've got contracts. They're not the subject of modern slavery, and that they're earning enough to lift themselves and their families out of poverty. So you can see how sustainability is a very, very broad topic. But there are various strands into the three pillars. I'm just taking you through economic, social, and environmental which some people coined the phrase, the triple bottom line, because these are three pillars, which can actually input impact, revenue growth, as well as your bottom line.

Tom Raftery:

Okay, and if I'm a company, or why should I care about these?

Frank Omare:

Yeah, you should, because the rest of the world does. And there's lots of research out there that suggests that consumers are now getting more involved in these social and environmental issues. They want to purchase products and serve visits from organizations that are committed to creating positive societal and environmental impact. So there was a kind of revenue or sales, protection angle. Investors are also saying, hey, look over the past few over the years, making a profit has been great. But that's not enough anymore. We want you to make a profit. But we also want you to make a positive contribution to society and environment as well as, and we do not believe that those things are mutually exclusive. So you can embed positive societal and environmental impacts in your business operation and make a profit at the same time. So trying to say those things are difficult, and one is going to severely impact the other is no longer acceptable in the world of investors. And for the listeners, I'm sure you've come across statements from Larry Fink, every year, every January, he puts out a statement. And his statements are becoming more and more direct, and less subtle. In terms of what I've just said, making a profit is great. But if you really want to attract investment, if you really want to proceed as an organization worth investing into the long term, you also have to have purpose in your goals and your missions and how you conduct business. So we've got the consumer side, we've got the investor side. And we also know that employees employees, if given a choice would rather work for an organization that has purpose in its mission. And put it puts its good intentions into practice. We all want to work for organizations like that. And that is going to be a key differentiator over the next few years, if it isn't already. And why am I saying that? Well, again, research reports out there suggests that in the next five years, Millennials will work will actually make up 75% of the workforce. Guess what, if we don't care about this stuff, they do. So if you want to attract and retain talent, you have to have purpose embedded in your culture and how you do business. And it's not about saying it, it's about actually, as I said before, putting those good intentions into use. We also know that millennials, if given a choice, 73% of them would purchase products, which are which have been ethically sourced, rather than those that happens. So if you compound those two factors, Millennials working most of the workforce in the next five years, and caring more about society and the environment, and are prepared to get their hands in their pockets and their purses to prove the point. If you do not take this thing seriously, you're going to be left behind. And if that's not enough, we know that there is a government legislation across the world where it's around modern slavery, carbon footprint tracking, carbon credits, carbon taxes. In Europe, we're seeing the EU are now asking organisations to think very carefully about the carbon footprint of their purchase raw materials, ingredients components, and also the carbon footprint of their finished product. And there is legislation that's coming up in terms of taxing organisations where their carbon footprint for that particular product is very, very high. Let's not forget modern slavery as well, legislation across the world, the UK four or five years ago, Australia now, France, we're seeing legislation around the world actually enacting forces or powers to actually stop or eliminate modern slavery. And and reporting in your angle statement to say you take modern slavery very carefully, is no longer adequate. Okay.

Tom Raftery:

But I mean, you mentioned the bottom line there. And I'm going to play devil's advocate here. Isn't it far cheaper not to be green, and therefore Won't your products end up being cheaper? And will customers pay extra four stuff, which, you know, is supposed to be green?

Frank Omare:

Yes. Well, again, there is research out there that suggests that Humans will actually pay more for those particular products. Now, of course, there's a social economic aspect around that, Will people who are disadvantaged, have low incomes be able to afford to actually put their values into practice? Well, my argument is, is that we are actually seeing technology coming in to play here, where we're going to see more recycled products. And we're gonna see more recycling per se. And that will actually reduce the price of recycled products versus products versus made with Virgin material we are going to see as a result of COVID are kind of what I call a recap, or equilibrium of the supply chain. And what do I mean by that? Well, the name of the game over the last 1020 years has been around low cost country sourcing. And that created a lot of efficiencies, globalization across organizations, but that's very risky. We've got supply chain growth around the world separate time, we've got many players, organizations have very limited visibility of what's happening a supply chain, to have resilience in your supply chain, as we're now calling it required visibility. So the name of the game is actually to streamline your supply chain, make it more efficient, and have greater levels of accountability across the supply chain, which will actually mean, again, going back to this re equilibrium or rebalancing recalibration, call it what you will, where we'll actually see more local sourcing versus what we've seen during the last 1020 years. And what I mean by local sourcing, I mean by using local suppliers, local expertise. Why because that improves resilience, if there's an issue with your supply chain that can be identified, resolved very, very quickly. versus having a supply chain that goes around the world several times that you don't know who the key players are. That's Fact number one. Fact number two, and we alluded to it earlier on in our conversation, Tom is when we talked about carbon footprint. If you want to reduce your carbon footprint, eliminate the amount of transportation, shipping, and all that sort of thing. And I don't just mean carbon footprint offsetting, I mean, really getting into the nuts and bolts of what contributes to the carbon footprint of your products and services. One way to tackle that, to reduce your carbon footprint is actually to have more local sourcing. So you can see the argument here for having sustainability embedded in your business operations. It's not just a social economic side of things. There's also the long term sustainability of your operations, local sourcing versus low cost country sourcing, reducing your carbon footprint for your products and service, as opposed to having things shipped in from 1000 miles away with very limited visibility of what's happening supply chain. COVID has taught us that in terms of how organizations were caught out, didn't realize that their supply chain was so complex, and you have essentially the House of Cards effect, a supply far away, lower down in your supply chain has an issue. And that impacts the entire supply chain. So COVID has actually taught us a few lessons in terms of resiliency, and getting the balance right between local sourcing versus low cost country sourcing. So we'll actually see more local sourcing, there will be some efficiencies created there, we may see some price increases, we may not. But over a period of time, we will see the cost model start to adjust itself.

Tom Raftery:

So Frank, what's to stop a company saying, Yeah, I'm super sustainable. I mean, how do we verify a company's claims? How do we measure and verify a company's claims around their sustainability?

Frank Omare:

Yeah, I mean, that's a good question. And the reason why I'm glad you raised that is because there are some people, consumers, even investors, who have become very cynical on quite a few organizations saying they do this and they do that. And there's the so called greenwashing as much as we call it, organizations have to walk the talk. They have to be exemplary. They have to spell out very clearly what they're doing to support local communities to support local enterprise to reduce their carbon footprint, etc. So it's no longer it's no longer acceptable to make these high level statements. So this is what I was alluding to earlier on. If you think about how the modern slavery act, if I just pick that as an example, the genesis for that was, look, we've got 14 million people trapped in modern slavery across the world, we've got to do something. We're expecting corporate organisations to take the lead here and actually saying what they're doing about it. Unfortunately, the legislation stopped at people just saying, yep, we take it seriously. And we are doing this, or we're not doing anything at all. As long as you step into the statement. That was it, what was in the statement was immaterial. Now, what we're seeing is legislation to encourage people to say, well, spell out very clearly what you're doing in your statement. Oh, and by the way, we don't want a paragraph hidden in your annual report is a portal is where you upload your statement, just your statement, nothing else. So what we're seeing is legislation, gentle coercion, to actually bring about the cultural change in corporate organizations that you and I Tom and the listeners are looking for. Also, let's not forget the internet, which can be a force for good, they can also be a force for bad, but let's just focus on the false false for good. Whenever an organization has an incident, it goes viral on social media within minutes. And this is before the corporate PR of machine of any organization has been able to kick in and say, Hey, this is a problem we've contained, hey, we are committed to the environment, as our record will show, we are committed to human rights, as our record would show before you've been able to put out any of those statements, it's already got out. And it's not long before consumers investors will actually seen as a disconnect between what you're saying versus what is being reported in the media whenever there's an incident. So you have to walk the talk. And if you take this thing very seriously, as I said before, tell people in your your employees will recognize that they'll want to invest time working for you. And if you're not taking these serious things seriously, Millennials who won't make up three quarters of workforce in the next few years will not work for you. Or if you're working for you, it's not long before the long work for somebody else who takes this thing seriously. But let's not forget investors. Again, it's not enough to just make a profit. And it's not enough to make a profit saying, Hey, we are doing these things. They want to see evidence. And we also know from Barrett research that's been done out there. Whether it's by Harvard, Columbia school, Columbia University in the US, McKenzie has all sorts of reports where they've actually done some really detailed analysis, looking at the 10 year time frame of various organizations that take purpose seriously versus those that don't. And the conclusions are there, and they speak for themselves. Columbia University looked at some data from organizations of a 10 year period. And those organizations that took a purpose seriously. So talk to your point, don't just talk about it, but actually do it outperformed the market by almost 5%. Brands said an organization that looks at the most highly valued brands in your in the world and it does lots of analysis. Again, they've said something very similar organizations that take purpose of sustainability seriously outperformed the market by three to one versus those organizations that do not investors are looking at this, they will not invest in organizations that do not take this thing seriously. So you can talk about it or you like you can make some very high level statements. But sooner or later, consumers will not buy your products. Good, highly talented individuals will not come to work for you. And investors will not want to invest in your stock.

Tom Raftery:

Okay. I mean, we've mentioned the investors a few times. Let me dig into that a little. How do we know that the investment community's interest in this is not just a fad, and next year, they'll be interested in something else entirely?

Frank Omare:

Well, we know this because we're seeing the amount of investment in organizations which are highly committed to sustainability. And we've seen a huge growth in that. So I think at the moment it currently stands at about 25% of the total investment is actually on is actually focused on organizations that have a purpose of sustainability mission, their goals. So that's an organization that do nothing else, but care for the environment or care about human rights. That's 25%. Now, that doesn't mean, and then you've got to also include other organizations who I could name, who are taking things seriously, and are actually, if you like, the leaders, in terms of ESG sustainability, calling once you will, and the various indices out there, whether it's footsie from God down job Sustainability Index, again, these are markets where you can very quickly go have a look, see who's got the highest index, and actually see who is doing what it's all in their reports, in terms of the detail of what they are doing. So yeah, investors are taking this thing very seriously, they are taking a long term view of those organizations that do. And they are proactively reach using investment in organizations that don't take this thing seriously. And it's almost like a chicken and egg situation. If you decide to invest in those organizations that take sustainability, or purpose seriously, then those organizations will only appoint CEOs, C suite types, who also text in take this seriously. And then that encourages the business operations to align with those goals, which takes sustainability seriously. So you can see the spiraling effect of investment versus CEO versus values, that is company culture versus retention of people who really take this seriously, and be able to attract people who take this thing seriously. And then those organizations are highly branded, because people recognize that they're not just talking about this, they're actually walking the talk. And in the communities in which they are present, they are highly visible, they're encouraging local enterprise. Now compare that to investing in an organization that doesn't take these things seriously. Sooner or later that investment is going to dry up. And also, I suppose from a selfish angle, investors would prefer to put their money investment in organizations is that take this thing Seriously, why? Because organizations that takes us inability, seriously, are aware of all their risks, their environmental risks, their social risks, that human rights, risks, risk, they're aware of all these risks, because of the practices that pull requests to identify them and mitigate these against these risks. If you're an investor, you only want to invest in organizations that are perceived to be low risk, or if they are risky, they are doing something to mitigate those risks. So from a selfish perspective, if you're going to invest funds in an organization that identifies and mitigates risks, versus those that are not aware of their risks, or don't do anything about it, where are you going to invest?

Tom Raftery:

Yeah, I mean, that brings us then to how do you measure these things? Because it's all well and good for, you know, Company A to say, we're very strong on ESG and Company B to say, yeah, we're also very strong on ESG. How do you compare and contrast that could be in two completely different industries?

Frank Omare:

Yeah, that's right. And that is why the level of sophistication in terms of ESG reporting or sustainability reporting is actually improving and increasing. So if you look at the Dow Jones Sustainability Index, and for those people who are listening, other indices are available, they actually do a classification by industry. So if you pick the organization that you and I love, and work for, they are the top players in their industry, in terms of the Dow Jones Sustainability Index. So that means we are being compared and contrasted against peers in our industry. And that makes perfect sense. We have different business risks, we have different business operations are comparable, which is different, etc, etc. And then they'll be different in there'll be competitors, for the likes of Unilever shall, who are all in different industries. So that is what you need to that's the thing to bear in mind that the level of reporting have become more granular and more sophistic As the years have gone by, and if you look at yahoo finance or sustainability, or sustainalytics, for example, they don't just benchmark organizations across the whole world, they benchmark organizations, which are the ESG performance against their peers. Okay, so in their own industry. So as an investor, you've got, there are certain things you need to consider, right? Okay, if I'm going to go into the oil and gas industry, what the rest, I really want to go into there. If I go into consumer products industry, do I want to invest in there, okay, what the risks, and then when you go into the oil and gas industry, or consumer products, or technology or telecommunications or whatever, you are aware of the industry risk, and then you go into that industry, and then you look at the key players and see who is outperforming that peer group. So for those people who are not aware of the different types of indices, I would encourage them to actually just spend some time become familiar with footsie for good, Dow Jones Sustainability Index sustainalytics, all these really good metrics and measures and reports out there, which gives you an indication of how an organization is performing to the sustainability versus its peers. And that should answer hopefully, that this question, which is front of mind for most people, in terms of how do I really know that an organization takes things seriously? Where are the report? Where are the metrics? Where the comparative? Where are the indices?

Tom Raftery:

Okay, very good. We're coming towards the end of the podcast. Now, Frank, is there anything I have not asked you that you wish I had, or any points we've not addressed, that you think it's important for people to be aware of?

Frank Omare:

I think, I think that the thing that people need to be aware of, and maybe I've kind of alluded to it, but not making it explicit, is this whole thing about sustainability? And I mentioned before the various pillars, and I don't want people to think that one pillar is more important than another pillar in terms of the economic, social and environmental pillars that we talked about, they are all equally important. And they are actually interrelated. Give me an example. Frank, listeners are probably thinking, well, Take, for instance, this thing, whole thing about global warming and the Paris Agreement. Now, there's been some analysis done out there, which suggests that if the world temperature increased by two degrees centigrade, that would cause 190 million people to be displaced, in terms of not having anywhere to live not having food to eat, etc. Okay. So that's today. So just remember that two degrees centigrade rising temperature, 190 million people being displaced. Now, if that's doubled to four degrees, unfortunately, that 190 doesn't double Yes, increased by a factor of 10. So we've got four degrees writing sample equals 1.9 billion people to be displaced. So you can see there's actually a link between climate, climate action or global warming, versus the well being of people, which affects the social economic dynamics of those vulnerable parts of the world. So that just gives you an example of how these things are all interrelated. You cannot just focus on climate action, and not think about the social and economic side of things. And vice versa. They are all linked.

Tom Raftery:

Super, super. Frank, if people want to know more about yourself or about any of the things we talked about in the podcast today, where would you have me direct them?

Frank Omare:

Well, that's what the call would be to write them directly to me. And I can be reached at SAP. Francis dot Omare at sap.com.

Tom Raftery:

Super Frank, that's been great. Thanks a million for coming on the podcast today.

Frank Omare:

Thank you. It's my pleasure, Tom.

Tom Raftery:

Okay, we've come to the end of the show. Thanks, everyone for listening. If you'd like to know more about climate 21, feel free to drop me an email to Tom raftery@sap.com or connect with me on LinkedIn or Twitter. If you'd like to show please don't forget to subscribe to it in your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time.