Icahn move begs new approach to ESG commitments

Blog by Charlie Arnot, CEO of Look East, originally appeared on Meatingplace.

Carl Ichan’s recent attempt to seat two new members on the McDonald’s board of directors to change the company’s policy on sow housing reflects a growing challenge and opportunity for companies across the food system. (Quick aside – while this blog is not about sow housing per se, it’s worth noting that most animal welfare experts and swine veterinarians agree that limiting a pregnant sow’s movement for four to six weeks while pregnancy is confirmed is the right thing to do because it reduces the likelihood of miscarriage.)

As a billionaire activist investor, Ichan is an anomaly, but his demands that a leading brand take action on a single issue is an increasingly popular strategy. While the passion of single-issue advocates is impressive, they often fail to take into account the growing number and complexity of ESG issues companies must balance in today’s hyper-polarized environment where everyone with a smartphone is empowered to engage in the debate.

Today’s corporate ESG leaders are charged with the often-unenviable task of balancing the input of multiple stakeholders (frequently with competing interests) with the business objectives of the organization across a growing number of issues that impact people, animals and the planet. In fact, research from The Center for Food Integrity (CFI) identified more than 250 ESG attributes including health and wellness, worker treatment, food waste and packaging, climate change, diversity and inclusion, and much more. No organization can effectively manage 250 disparate issues.

Today’s increasingly complex ESG environment requires aligning company values, brand attributes and the interests of key stakeholders. This new approach creates organizational clarity and alignment and reduces the risk of “headline hopping” to address the endless parade of emerging issues.

Without a strategic framework to examine the potential interconnected nature of ESG commitments, the risk of adopting conflicting positions increases. For example, a commitment to specific housing systems in animal agriculture may increase greenhouse gas emissions, which would undermine a commitment to positively impact climate change. Or a change in fruit and vegetable sourcing may result in reduced shelf-life and increased food waste.

A Path Forward

There is no “easy button” but there is a relatively straight forward three-step process that can provide clarity and direction.

Step One: Clarify company values that will serve as the foundation for ESG decision making. Organizational values must be the foundation for all ESG positions. Consistent values-based decision making creates clarity and predictability and reduces the likelihood that the organization will take positions that could be in conflict. Values serve as your ESG North Star.

Step Two: Identify the brand attributes relevant to your ESG portfolio. While your values are your internal guideposts, your brand is how your company comes to life in society. Are your ESG positions consistent with your existing and aspirational brand attributes? If not, should they be calibrated to better align your performance with perception? Depending on the relevance of an issue, you may choose to lead, follow, collaborate or simply monitor based on the relevance to your brand and alignment with your values.

Step Three: Identify and map the key stakeholders critical to ESG success. Not all stakeholders are created equal and your positions on key issues are likely to be applauded by some and alienate others. Clearly mapping and prioritizing both internal and external stakeholders by issue creates clarity and guides your engagement strategy.

Even if your position does not appease a specific stakeholder group, acknowledging concerns and explaining how and why decisions are made can blunt criticism. In the current battle for talent, do not overlook both current and prospective employees as key stakeholders. Mission-driven Millennials and Gen Z may use the strength of your ESG platform as key criteria in determining their employer of choice.

The Power of Pre-Competitive Collaboration

Partnering with others to better understand and manage complex issues is an essential strategy that builds both capacity and capability. While the position any organization takes on a given issue is ultimately the responsibility of that organization, partnering with others on a pre-competitive basis leverages collective expertise. Most companies are willing to collaborate on a pre-competitive basis on issues of social concern, and collaboration can both inform individual decisions and provide a framework for collective action that may have more impact.

While Carl Ichan may not be looking for a seat on your board of directors, the passion and influence of single-issue advocates, and the number and complexity of evolving ESG issues require a strategic approach to build trust in your products, processes, people and brands.

Learn more about CFI’s Optimizing Sustainability framework and Look East’s work on the initiative.