Doing Good Can Make You Money with Tensie Whelan, Director of NYU Stern Center for Sustainable Business

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November 3, 2022

On this week’s guest episode I chat with Tensie Whelan, a Clinical Professor of Business and Society and the Director of NYU Stern Center for Sustainable Business.

Many people think that sustainability and profits don’t align, but Tensie takes us through how they can by connecting the financial sustainability of a business to the social and environmental sustainability of a business's core focus. She believes companies should make money by doing better.

She also runs through the flaws of the broader ESG framework, suggesting ways to improve it.

Before she built the Center for Sustainable Business at NYU Stern, Tensie ran the Rainforest Alliance - a multinational non-profit designed to help conserve rainforests. We dive into that issue and touch on ways to tackle it as well.

These are some fascinating and important topics that I think every entrepreneur should think about. I hope you enjoy it.

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Transcript (this is an automated transcript):

MPD: Tensie, thanks for being here. All right, let's jump in. I think it's important in this particular conversation to start a little bit with your background. Would you mind giving us just a quick overview of what you're doing now, and then we'll rewind a little bit to how you got here?

Tensie Whelan: Oh, sure. No, I'll be glad to. So again, so much fun to be talking to you today and but my background, I'm currently running the Center for Sustainable Business at NYU Stern School of Business. I launched the Center about six and a half years ago, and the Center's focus is on helping current and future business leaders to really embed sustainability core to their business strategy, to drive better societal impact, but also better financial performance and competitive advantage.

And so we do that through working with our students. So we have programs, undergrads, graduates, executives. I do a lot of executive training, and then we also do a lot of research and thought leadership. But on the research side, we're looking at things like, how do you actually understand and monetize the business case for sustainability?

What can we learn about consumer purchasing of sustainability marketed products? We've done some really unique research there. We've also done research into private equity and the good, bad and ugly around how private equity can drive better societal performance and financial performance or not, right?

So a whole series of really interesting research initiatives that basically aim to help business, help society, but also help themselves and improve their perform.

MPD: I love the way you marry these two things together. Cause I think it's contrary to the common perception. Usually when we hear social impact or ESG or any of these other catchphrases, they're delivered in the assumption or context for the recipient of cost.

And you sing a tune about how it is financially desirable, which I love. . So we're gonna dive all into that. You have a non-traditional career trajectory you did a lot of social entrepreneurialism along the way. Can you share a little of your journey and how you got here and what you learned from it?

Tensie Whelan: Yeah it's been fun, Mark. I've been really lucky in the things I've been able to do. Let's see. Prior to coming to Stern, I ran Rainforest Alliance. 15 years. Rainforest Alliance is an organization that uses market-based solutions to drive both sustainable livelihoods and biodiversity conservation.

And the organization works in 60 countries around the world with. 5 million small producers, 5,000 companies to transform production of tea, coffee, forest products and things like that to make it more sustainable, both from a livelihood's perspective, an biodiversity perspective. And I came to that job having worked in Latin America as a journalist on environment and development issues, and came back to the States and took the rainforest lines job when it was just a $4 million organization that nobody really.

And then I built it into a $50 million organization working in 60 countries around the world with, as I mentioned, thousands of companies. And also with about let's say 20% of the world's tea, 14% of the world's cocoa. So really, Mainstreaming sustainability. And in that work I learned a lot about how do you, how companies can drive better performance.

How everybody in the value chain can drive better performance through more sustainable practices. And we can talk a bit about that, but that's fascinating. I got to go. Everywhere around the world, the Amazon obviously, and working on sustainable forest management or sustainable tourism, but, to West Africa, looking at Coco and Kenya, looking at tea and, just very fascinating set of experiences.

And then prior to that, I built, worked on a couple of different organizations, building them out. I built the Brooklyn Bridge Park Conservancy, so for those who live in New York we're gonna have a horrible, nasty development down in between the Manhattan and Brooklyn, bridges along the waterfront.

And so I was able to organize people to stop that and put in place a whole plan around building out a park which we have now along Brooklyn Bridge Park, which is just wonderful. And prior to that, I ran the New York, I built actually organization, New York League of Conservation Voters to help. Get politicians, Republicans or Democrats, but those that are pro-environment elected we had Larry Rockefeller and Bobby Kennedy on the board, for example back then, and then, bipartisan and then we I also built a federation of state leagues of conservation voters all around the country.

So it's been, doing a lot of work like that, really building organizations that are gonna have a positive impact on. On our current status, but also in our future, and finding that win-win. That's what I like is finding the way to bring stakeholders together to create better opportunities for everyone.

MPD: Yeah. That is the novel twist, I think, and everything I keep hearing from you is really finding an alignment. Just before we jump into that, you talked about the raid Forest Alliance. That sounds like a huge job. , what was the motivation for you to jump from that to heading over to Stern to run the program you run now?

Yeah,

Tensie Whelan: So for Rain Forest Alliance, it was a huge job and as I said, working in 60 countries, I was traveling 60% of the time running this big organization. I also believe that, You need turnover running organizations that have been 15 years. So I thought maybe it was time and I was looking around for what I wanted to do next, and I was looking at do I want a chief sustainability officer job?

Do I wanna work for a foundation? Do I wanna go to another ngo? And I actually had gone to NYU undergrad and I had Taught as a guest lecturer at Stern when I was running Rainforest Alliance and right when I just serendipitously when I was thinking about what I wanted to do next, the head of that program at Stern asked me if I'd like to come teach.

And so I thought about it. I came back to him and I said, Actually, a lot of what I do is teaching. You're persuading people to engage, but I'm an entrepreneur and I can't just teach. How about I build a center for sustainable business for you? We'll put in place cuz they had nothing we'll put in place these programs, the research, I said I'll go raise some money.

And I showed them what their competitors were doing and that nine out of the top 10 business schools had sustainability programs and Stern did not. And then I got a million dollars from Citibank to get it started. And so they said yes, great. Made

MPD: it easy. Exactly. . Yeah, that's. So what is sustainable business just to baseline this?

How would you define that?

Tensie Whelan: Yeah, so sustainable business is business that looks to harmonize positive environmental impacts, positive societal impacts and profitability, right? You can't be. A sustainable company if you're not profitable. But also I believe you cannot also be a sustainable company if you don't take care of your people.

Take care of the people that are affected by your products, take care of the environment. And in fact, it makes good business sense to do I would also say that, if we get more into the details of what it means to be a sustainable company, it's one that doesn't see this as a corporate social responsibility exercise off to the side where you give a little money to charity, but it's actually.

Embedded in your core business strategy, right? Your business strategy incorporates what are the material most important environmental social issues in your sector and in your industry. It incorporates engagement with key stakeholders from non-profit organizations to suppliers to employees around what they think are important environmental and social issues for your company.

And. It means that you've set inside of your company key performance indicators that will help you drive, let's say more energy efficiency or more diversity and equity in your company, right? Those types of things. What are

the

MPD: misconceptions about this? Because this is, this has become a pretty, there's a lot of strong opinions.

It's been politicized and everything else. What can we take out of the conversation before we get started?

Tensie Whelan: Yeah. I think it's unfortunate it's been politicized because basically if you look at For example, the state of Texas who is opposed sort of ESG investments, right? And you look at what if you, when you go into the state of Texas, there's a huge sign everywhere on every street that says, Don't mess with Texas.

And it has an enormous fee for throwing your litter out the window, right? When you go to Texas, there are. Health regulations in terms of working conditions, there are environmental regulations in terms of ensuring that there is a negative impact of oil and gas extraction on people living near the site.

So this is stuff that is just done anyway, right? And so when you're looking at sustainability. It's about ensuring that you don't have negative impacts on people, which anybody should think you would want to do, right? That's what regulation does. Only this is a way to do it through market-based forces, which in theory, conservatives should like

And secondly it enables companies to not only manage for risks environmental and social risks, but also look for the upsides, look for the business opportunities. So I'll go back to. Huge generator of wind renewables. Huge opportunity right there. I can't imagine that the government of Texas would say to businesses, you can't be building renewable energy facilities, right?

Because it's good business. So what we wanna see around sustainable business is the recognition that it basically is good manage. What we're seeing is that sustainability is driving innovation. It's driving operational efficiency. It's driving employee engagement and retention. It's driving supplier resiliency, it's driving sales and marketing, all elements of good management.

And I can, let's see. Give you an example. Automotive companies. We did research with a variety of companies. Looking at the business case, looking at how they had Driven better financial performance. And for example, through their waste management strategies, they were doing things like recycling, paint, and solvent.

And when you recycle paint and solvent, you no longer buy the virgin stuff. You no longer pay the waste disposal costs. And actually they had some leftover recycled product that they were selling. So they were saving money and they were had a small revenue Another example is a pulp and paper company in the southeast of the United States.

Water is free in the United States. So when they were looking at, should they reduce their water the company mill managers said, No, Why should We don't pay for it. So then they, the sustainability folks did a study. And what they found is all that free water, which where they were using an enormous amount of it because it was free

They used an enormous amount of energy to move it around to heat and cool it. And then they had enormous waste water to dispose of. So all of that free water was costing them 1.5 million per mill per year. But they never thought about it as what effect is, which is an operational inefficiency.

And. In both of the examples company's performance is improved by actually looking more closely at these issues that we tend to just think of as compliance, but actually create opportunities. And I can talk about a variety of other areas too, rather than examples. I wanna talk

MPD: about one here's a question for you.

When we think of sustainability and the nemesis of that, we think big. How can a company like Exxon be thinking about sustainability as an opportunity? , right? You're, you really taking a different lens, the way you present the alignment of this? I'm trying to understand, are there limitations where hey, in these particular scenarios hey the water actually has a cost associated with it.

Stop wasting and it becomes a good case. Or are there, And the question is, and are there also scenarios where there is no incentive or market force to drive a sustainable behavior and we just need government regulation to deal with negative external. I think

Tensie Whelan: we always need some government reg regulation.

Absolutely. If you look at when you have companies that are making steps forward on sustainability, undertaking these types of innovations, they still need, for example, on the positive side, incentives for all the research and investment, like what we saw early on with solar. Don't necessarily need that now, but we did early on.

So the incentive side is important. On the other side of things, on the sort of regulatory enforce. We need that as well, because otherwise you have bottom feeders who really undercut those companies that are doing a good job and make, offer. If we look at During the Charles Taylor's war in Liberia where he was killing people to keep in power.

He funded that war in his guns through cutting down all the forests in Liberia. That wood was then sold into the international market with nobody really paying any attention to where it came from, even though it was illegal, obviously, because it was cheap, right? And there was no enforcement of it.

So that meant that com, that. Companies that we're sourcing sustainably and responsibly were undercut, right? So you want enforcement of those kinds of things. But that said, I actually do believe that market forces can drive a lot of positive behaviors. So let me go to your oil and gas question. Right?

So what do you do

MPD: if you run a company that is supposedly the antithesis of sustainability, right? So how can you be sustainable

Tensie Whelan: within that? Yeah, so I do think that oil and gas companies need to begin from the understanding that their businesses are gonna sunset in the same way that, Kodak sunset it.

We have throughout history. Different technologies that sunset and this oil and gas is going to sunset. It's gonna take a while to get there. And we can't go from zero to a hundred overnight, and we need these companies to figure out their role in that transition. So how do we go about it?

One which they were just forced to do, bringing in people on their board and their leadership who actually have experience in carbon transition, in renewables, in new technologies who can help. Think through what those options are. So that strategic engagement, which has had been lacking and I think is still lacking at Exxon, but it's gonna be an important piece.

Secondly, looking at their existing capabilities and how they can be brought to a new sectors, right? Cuz they have a lot of expertise that you could use. For example, carbon capture technology, right? So how can they take what they already have and think about? Repurposing it to solve for some of these challenges.

Like how, what do we do with all these emissions and carbon capture is a really interesting place for companies to go. Another would be to, stop thinking of themselves as an oil gas company. Even not even many are calling themselves energy companies, but actually start thinking about themselves as a.

Low carbon future company and what is and if you think about that and you're thinking sort of 10 years, 15 years into the future, where do you wanna go and what should your mix be over that period of time and how do you begin to develop those other sources of all energy?

There's a shell has entered into. Joint venture with koan out of Brazil to create reen, R A Z E N, which means the roots, I think which is working with sugar cane, ethanol, solar, and a variety of other. Energies to create a one stop shop for customers around energy solutions that are low carbon.

And on the ethanol front, they developed sort of second generation ethanol that's more renewable and focused. So you need that kind of innovation. Again, that's a small bit for Shell right now, but it's an interesting place to explore. Yeah, so I think there's lots of opportunity. For companies like

MPD: this is, I guess it's a little bit not the appropriate question for someone in the crosshairs of a massive technological revolution, right?

An energy company. But it is for the rest of us, a normal industries or other industries, and it's no normal. Is sustainable sustainability a nice to have or a must have? How should people be faking about. Conversation we're having as they're opening up their own curiosity for their own

Tensie Whelan: industries.

Yeah. I think companies have seen it as a nice to have rather than a must have. But I think that I am, I've seen that change and it's changing for a number of reasons. The first is that A number of risks are becoming very material. If we look at climate risk and you are a business in property and casualty, or in food and agriculture or in many industries, and you're not understanding that climate risk, that impact of extreme weather.

You are probably gonna be really challenged financially. If you like do you, if you like coffee, like most of us second most traded commodity in the world after oil climate change is dramatically affecting the productivity of the beans, even to the extent of The altitude that they grow in the top.

Quality greens go in, are going higher and higher, and you only have so many tops of mountains where you can grow coffee, right? So if you're on coffee and you're not planning for that risk and figuring out how you're gonna manage it, you're gonna have real challenges. So there's that risk side that is becoming increasingly apparent to business.

I of course, like the opportunity side more because I like cuz of the entrepreneurial side of things. I wanna see like where I can go with it, right? So on the opportunity side, There's the employee engagement, retention piece, right? There's a war for talent right now. We see generation Z and millennials really care about this.

They are choosing companies that have a purpose, right? So if you wanna compete, that's another big element. And actually, if you are a bad actor, as we've seen, you're likely to see social media tweets and a bunch of stuff coming from your employees about how they're unhappy with you, right? So that's another area.

Another benefit for business, as I mentioned, the operational efficiency side. Companies think about waste as compliance, but actually it's the ultimate operational inefficiency and they need to shift their mind, their thinking about that. There's also the sort of innovation play, right? So we're seeing a lot of new products and services being developed with sustainability as a driver.

I'll give you an example and cuz it shifts how you think about things. It's like a design. This is a prototype, but I'll give you, I'll give you a bunch of real examples too, but I love this prototype type example. Goodyear engineers created a tire. Okay? This tire is 3D printed, so only printed on demand.

It is printed out of recycled rubber, right? So reuse, it's hard, so it lasts longer. Rather than being inflatable, it has moss embedded. Outside the hubcap that moss takes in carbon dioxide and emits oxygen. So it contributes to reduction of climate change. It also when the road is wet, when it's raining, the moss makes the tire stickier on the road, so it improves safety.

And then finally the hubcap has a little AI element that. Talks to an autonomous vehicle when you have one. Now it's a prototype. I don't know that I'll have anything that complex, but it's fascinating. This is like a freaking tire, right? And they're thinking about how to solve for all these different issues within the tire, right?

And there's so many things IKEA has Curtain that this is not, this is real. That that is an air purifier, right? Nike, their fly net technology has reduced waste by 80%, while at the same time it's a higher performing shoe because it's lighter. It's made out of one strand of recycle poly rather than stamping it out, creating all this waste, right?

And all of those come through like different design criteria, right? When you bring together sustainability. But like with Nike, just as an example I talked with Hannah Jones, this former cso, and she showed me the first prototype, like ugly, hideous, heavy, sustainable shoe they made cuz they only included the environment as a criteria.

But then when they started to look at it with design, like we wanna hire performing shoe and we wanna reduce waste, then they come up with this really innovative like product that is now a category disruptor. Everybody's using it.

MPD: I love these examples because these are not. Examples of companies just trying to do good when management happens to care.

These are attempts to create products that will be more marketable cuz consumers care and that have more improved efficiency or better applications. Exactly. And so they're real, to your point, alignment of economic incentives and market forces to drive a better for a better earth. I love that. You know what I think about.

I think about how these applications we're talking about are generally r and d for large companies interplay our team, we're living at the frontier of innovation. The very beginning of idea inception, companies that we're funding are, 10, 20, 30 employees we're starting new companies. We're coaching companies that, are three to five employees typically in extreme cases, one or.

So we're living at the beginning stages. Do you see the sustainability thinking applying to certain stages, Is this more of a conversation for hedge funds looking at public markets or the LBO folks who are dealing with private companies that are more mature typically? Or does it also apply to early stage or anything in.

Tensie Whelan: I think it applies at all stages. It's just gonna differ, right? I think we're seeing more and more startups and more accelerators and more venture funds focused on companies that are developing solutions for some of these environmental and social challenges. I'll give you an example of one of my a stern alum.

Young he was family came of immigrants. They had hard, real challenges accessing credit because they had no credit history. So he's developed a company called a Susu that's done very well, but, like a startup that. Works with rental information and landlords to plug that information into credit bureaus so that if you pay your rent on time, which obviously your landlords want you to do so they have an incentive to participate, then you can build that credit history and it's going really well.

And he's got great investment in it, But it comes out of this kind of social purpose is where he's focused. And there's others another startup that. Got to know, called Water Plan has developed tools for companies to manage water risk in their supply chains. So there's just, I think there's all kinds of opportunities for smaller companies who are set up to, to solve for some of the challenges that the bigger companies aren't the, they're not the innovators they need to buy that stuff in.

MPD: Is there a stage where you typically see a stronger penetration or adoption of this

Tensie Whelan: mindset? And so there's two mi, There's two types of mindsets, right? One is this embedding sustainability in my core business strategy. I would say I see that more at the big multinational level than I, and I think small and medium size companies are beginning to get there.

And obviously some had it, you have some family owned companies or some just companies with Patagonia, like Patagonia that have had that kind of ethos forever. But still, I would say the, you see it more typically in the large multinationals. But then you have more of your social entrepreneurs and those tend to be the smaller companies that in some cases are getting bought by the bigger companies.

But that I see across, small companies often, right? A lot of companies started by founders who really care about whatever particular environmental social issue they're trying to manage for. But that's a more of a pure play impact as opposed to an integrated kind of sustainability into a broader company.

MPD: Got it. Makes total. Okay, so you're out at nyu indoctrinating the next generation of leaders on this mindset, which is really powerful. What are other channels or mechanisms available that are working for getting leaders, management entrepreneurs, executives to adopt this way of thinking?

How do you, how does this go viral? How do we get, how do you get the word.

Tensie Whelan: One thing that I'm doing is a lot of training for management consulting firms, so actually training thousands of their employees the big, amongst the Big Four and others, and. That for me is exciting cuz they're force multipliers.

They're going out and consulting with the companies on these topics and when we want them to do a job be, for me that's an investment and it goes much wider than that one particular person. So all the companies I interact with, so that's one area. Another Area that companies can access or are industry associations are increasingly incorporating sustainability and creating pre-competitive collaborations around tackling challenges that industry might have.

If you look at World Business Council for Sustainable Development, for example, that brings together businesses or the Ethical Tea Partnership or the World Cocoa Foundation, they're. Industry plus other stakeholders working together to solve for some of the bigger challenges and opportunities for those sectors.

So that's another way that companies can get help. I would say the board leadership really important to ha to recruit and engage board members who have both a commitment to and a background in esg. As well as improving that diversity of the board as that's been a conversation, an ongoing conversation.

I did some research looking at the Fortune 100 boards, 1,188 board members. Only three of them had climate credentials. Only eight of them had cybersecurity credentials. None had worker voice credentials. It was like amazing to me to look at that, in our biggest 100 companies. One of the challenges with boards is they tend to be people.

Who used to run companies before these issues were important, right? There tend to have a pretty narrow perspective of not a lot of experience and therefore don't bring that to the board strategy conversations. And I think that's a challenge. So I think putting in place a good board engagement around sustainability and strategy both in terms of their governance and committees and in terms of their credentials training or bringing on board members would be an important element.

Two aligning incentives, right? And so when I'm looking at companies and trying to decide how really embedded their sustainability strategy is, one thing I ask them is, Okay, so are you incentive to so you, Oh, great, you have these ESG targets, Are you incentive to meet them? Nope. . Okay, then well , or what about capital allocation?

Right is this is another thing. You've got these great commitments. What about how do you run your capital allocation process to ensure that you're actually investing in those commitments? This goes very much for oil and gas companies amongst others, right? And actually talking with some companies who have put in place unique.

Capital allocation and IRR analyses to be able to ensure that they invest like Microsoft has created that internal price on carbon right where they tax their units based on their emissions, and then they take that money and put it into energy efficiency improvements and offset purchasing, right?

So there's a lot of ways that you can drive behavior through these types of mechanisms. Did that get it at your.

MPD: It did. It did. The interesting thing about this market is this is, when you're talking about it, it seems like such a no brainer, right? You can make more money, do better for the world, drive innovation in good ways, particularly in large corporations and, educate the next generation of leaders to think this way.

Okay? There's a backlash, right? There is a market ESG has taken. A different meaning to some folks, it