“Extreme remedies are most appropriate for extreme diseases.”
– Hippocrates, Aphorisms
In their bestselling book, Speed and Scale, John Doerr and Ryan Panchadsaram describe how in 2008, America’s most fossil fuel-dependent state passed a set of laws to transform the financial, regulatory, legal, and institutional systems governing energy production and use. Initially burning oil to meet 90 percent of its energy requirements, the state set a goal of flipping its energy mix to achieve 100 percent local, clean renewable energy by 2045. Today it’s ahead of schedule, and is being upheld as model of energy transformation.
That state is Hawaii. I recently saw Ryan Panchadsaram and asked him why he thought Hawaii – a place most people associate with palm trees and pristine beaches – had become a paragon of environmental sustainability.
“Hawaii is an extreme place,” he told me. “Extreme places are more attuned to the climate crisis, so they’re quicker to align around action.”
My colleague Lori Teranishi recently described the important roles played by the history and culture of Hawaii in its climate action leadership. In our work helping organizations in Hawaii and all across the U.S. develop, enact and report on their environmental, social and governance policies, we find that many of our clients on the mainland struggle not with questions about what to do to address ESG matters, but whether to do anything. That’s because in the absence of extreme conditions, management teams are often divided as to whether action is really called for.
Here’s how we’ve come to think about it. ESG is a collection of irreversible trends and forces – some of them market forces, some of them extra-market forces. And for any business to operate sustainably – that is, to create value over an extended period of time – it must manage the risks and rewards associated with those forces.
Put another way, ESG is both tactical and strategic. The people of Hawaii recognized the fundamental connections between their state’s economic and environmental health, and they passed the country’s most ambitious climate change laws – not for ideological reasons, but for strategic ones.
In our work across different sectors, we often find that making this connection between ESG and business strategy is often the first step in overcoming organizational inertia. Banks and money management firms that think about ESG only as the financial equivalent of fast fashion neglect to allocate the resources to it that are needed for their long-term competitive strength. Likewise, energy companies that treat ESG as mere reputation-burnishing, law firms and accountancies that view it only as a practice area, tech companies that approach it as a way of appeasing scarce, demanding talent. Regardless of whether the pressure is greatest from shareholders, customers, employees, regulators or the broader community, leadership teams that take a comprehensive approach to the management of ESG matters gain significant competitive advantages that support long-term profitable growth.
In 1970, the first Earth Day was established by an unlikely coalition of environmentalists, students and lawmakers. This year more than one billion people in more than 190 countries will mark the occasion, calling for large-scale changes to public and corporate policies and human behavior. Maybe the founders of Earth Day were extreme, or maybe they were just really good strategists seeking remedies to what they recognized to be extreme circumstances.