… and how companies are better integrating their financial and sustainability thinking
By Bill Hatton
One raison d’etre for the corporate responsibility/sustainability movement has been to break open silos and make organizations and supply chains more transparent. That’s why CR and sustainability pros visit all the individual departments and compile their findings in a CR/sustainability report.
Unfortunately, that report can easily end up in its own kind of silo. For example, investors and analysts must read the financial reports. The CR report, being off by itself, can easily be seen as “nice to have” instead of “must read”—even if stakeholders in fact really must review the CR report to get a full assessment of the material and emerging risks a company faces.
Sandy Nessing, Managing Director, Sustainability & EHS Strategy & Design, American Electric Power, offers a more in-depth illustration from her company:
“The investor relations team said that the analysts and investors were grabbing the sustainability report for the disclosure on environmental performance and for the climate and policy positions.” That’s why American Electric Power has gone to an “integrated” report—combining the sustainability/CR reporting and financial reporting in a single report.
Nessing spoke on a panel at a Nov. 5 symposium on Integrated Thinking: Drivers and Evolving Best Practices organized by sustainability event-programming firm Skytop Strategies and hosted at the Edelman public relations company’s office in lower Manhattan.
“We have been doing an integrated report for six years now,” Nessing said. “We’re entering our tenth year of reporting overall. We call it a corporate accountability report—it made a lot of sense for us to integrate both our financials and our non-financials.”
What causes silos? “The term silo has been used for more than 30 years,” says Susanne Katus, Vice President of Business Development of a sustainability data software-as-a-service provider eRevalue of London. Katus hosted a panel that offered six answers:
- Functional. This is the classic definition of a silo. People are busy with their own tasks and don’t know what others are doing. Finance and marketing are busy with their own priorities. Information-sharing is limited across the functions.
- Groupthink. People get locked into one mindset – work teams don’t know what they don’t know; there are unknown unknowns; there are potential allies available, but no one knows they are out there and no one asks. McDonald’s, for example, didn’t know it had allies when it began to look at sourcing some of its products in a more sustainable way, said co-panelist James Reeves, Vice President, Business & Social Purpose, Edelman.
- Temporal. Executives think in terms of quarters. The city of Chicago, for example, has a 50-year sustainability plan. The need for immediate results can place medium- and long-term plans outside the silo, until immediate priorities for financial performance are met.
- Problem/solution. Companies think some problems are so big that one company can’t take it on, e.g., climate change. The idea that you can’t change it, that it’s too big, and thus remains outside of your locus of control, can became a problem/solution silo as you naturally gravitate toward problems you can solve. Again, this misses a potential opportunity to find allies—for climate change, that means a broad range of allies—to address the problem.
- Political. “It’s not Republicans versus Democrats, but about how you perceive the role of corporation in society,” explains Reeves. “I’ve seen a spectrum of people in companies – people who are in opposition to the spirit of sustainability, people who are toned down a bit and sort of indifferent of the role of sustainability in business, and then people who are completely unaware. When I was at Office Max, there was a culture gap, especially in the ‘aware’ category. At Office Max, the first CSR report helped break out of it.”
- Us-versus-them mindset. This is a tendency toward stereotyping the opposition. We are over here in sustainability and over there are the business units. This silo includes seeing people (and potential allies) as opposition. Reeves offer one solution exemplified during stakeholder dialogue with McDonald’s. “They brought in the stakeholders to react to the sustainability strategy one year prior to it being launched publicly. And that served to acculturate executives to a broader view, but also changed the way external stakeholders were viewed.”
Working across silos: In the Forest
CR and sustainability teams can get bottled up themselves in their reporting, but with access to broad arrays of information, CR and sustainability professionals have a unique opportunity to help companies break out of silos.
“Sustainability professionals are moving from data chasers to data stewards, since they’ve come to learn so much about a company,” says Katus.
American Electric Power offers one example. Sandy Nessing explains: “Communication. Appreciation. Listening. You need to have all three to break down silos. You need to build trust with people, that they know you have their back. You have to listen to what they are saying and what they are not saying as well. You need to learn about their job.”
American Electric Power (AEP) is currently building numerous transmission lines throughout the country, and a big challenge is siting, i.e., getting easements for rights of way. “You have to work with landowners, who don’t like it when you tear down trees and rip up the land; even though you restore it after, it’s still a huge issue in dealing with communities.”
The groups involved:
- Senior management has four-to-six percent growth goals, and more than half its capital goes to the transmission business. So building transmission lines is a high priority.
- Forestry, which manages the rights of way, is primarily concerned about reliability. Trees knock out power lines; forestry doesn’t want that to happen.
- Environmental services, which is worried about permit compliance and conservation, as well as restoring the land afterward. Part of their job is to keep regulators and community members happy.
- Transmission outreach and siting teams. Their job is to build the lines: “Their job is to put that steel in the ground and get it done,” says Nessing.
- Community members and landowners, who prefer as little disruption as possible.
“Forestry is very concerned about reliability,” says Nessing. “Because if a tree comes down and hits a transmission line, it could mean fines of as much as $1 million a day, depending on what kind of line it is. So it’s a huge risk to the company. If we are not being good stewards of the environment, there are reputational risks as well as financial risks. The foresters were not interested in what the environmental team had to say about ‘We can restore the land, one that attracts habitat, we can put the land back better than what it was.’ Forestry was just focused on reliability of those lines. They used to joke, ‘blue sky, you take it right down, you scorch it, so there’s absolutely no risk of a tree growing into a line.’ We’ve gotten away from that, thankfully.”
Forestry was where a key obstacle was in breaking free of silos, and thus creating a more environmentally friend solution that would keep the other groups happy.
“Forestry was where the obstacle was,” said Nessing. “If I could get through to forestry, then I could everybody to the table and I could get something done.”
Nessing visited the head of forestry to get a walkthrough of the processes and concerns. She learned about forestry, business returns and budget issues, and even went up in a helicopter one afternoon while they patrolled transmission lines. Key: Listen and get inside the heads of that business unit.
“It was really beneficial because I earned his trust–he knew that I wasn’t going to throw something at him that would put reliability at risk,” said Nessing. “He was then willing to come and talk to the environmental services group and I worked with them one on one as well and helped them understand where [forestry] was coming from, and then brought in the transmission team. As a result, we did work with Wildlife Habitat Council and we developed a conservation toolkit the foresters and the outreach teams can use when they are siting transmission lines. So the teams came together for that project.”
Working across silos: License to Fish, License to Build
Another issue in silo-breaking is where do you start, top-down, or bottom-up? Can’t an organization just say, “Share this information and work together”?
Yes, says Silvia Garrigo, a lawyer who has retired as manager of global issues and policy at Chevron Corporation: “There is no doubt that if the CEO or someone on the executive management team tells their function ‘This is the law, abide by it,’ there will be action that will follow that pronouncement; however, in my experience, those kinds of hierarchical decisions and mandates really lead to transactional experiences and results as opposed to the transformational results. I’ve got to go up, down, center, and always deep.”
Garrigo was in charge of creating a human rights policy for Chevron. She says one key was the idea of a “license” to investigate where she needed to, to convene who she needed to convene, and talk to whomever she needed to talk to.
“We had executive champions who said, ‘Silvia, you and your team have an official license, you can go and convene whoever you need to decide if we are going to adopt a human rights policy. What we did – we went out to the field and spoke to seven or eight different business units, chose those which had the most difficult or sensitive operating environments within their day-to-day business, and asked, ‘What are your thoughts on the supply chain, security issues, labor issues’– sometimes mining security is providing by the host government and they have a different concept about how to use power.”
“We went and met all the different functions—procurement, HR, supply chain, functional heads of those units and leadership teams and went deep into their organizations and asked the same questions: ‘What do we already do in human rights and what do we do that touches on human rights that we can leverage on?’ Then we went back to the executive team. They said, ‘Fine, Silvia, your fishing license has now been extended to a construction license. Go back and do more work. Create a policy, an implementation plan and implementation guidance team, and create a governance plan. Who are you going to convene, who are you going to work with and co-create, and what enabling environment are you going to create, and then how are you going to govern all of that?’”
As a result, the team created its policy and its implementation plan, including:
- what to prioritize in the field first and how
- what clear expectations to set under the policy
- what governance to set under that, and
- what review and audit protocols to set, i.e., “If we have a standard, how do we know we’re doing what we say we’re doing, how do we satisfy that standard,” said Garrigo.
The bottom line: Thinking across silos involves a systematic plan for reaching out and then finding ways to create protocols to keep the communication moving across boundaries. It involves upper-management support to dig and change, but to become transformational instead of transactional, requires real understanding of others’ concerns—and then communicating that back to the various stakeholders as they prepare to create real change.