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John: Welcome to another edition of the Impact podcast. I’m so excited to have with me today, Evan Harvey. He’s the audit insurance managing director of sustainability in ESG services at the iconic and wonderful brand, Deloitte. Welcome to the Impact podcast, Evan.

Evan Harvey: Thank you, John. Pleasure to be here.

John: You know, Evan, you’re doing really, really important stuff with your colleagues at Deloitte in ESG and sustainability. But before we get going and talking about everything you’re doing at Deloitte, talk a little bit about the Evan Harvey story. Where did you grow up? How did you even get on this journey to become a subject matter expert in ESG and sustainability? Share a little bit about your career and background first.

Evan: Yeah, most recently I was 20 years at the NASDAQ stock market, the last 10 as the global head of sustainability. So I come at this subject from a capital market’s focus point of view. How does this discipline strengthen companies? How does it make it more attractive to key stakeholder sets like investors? And how can you embed an ESG or sustainability mindset into the management of a firm that not only helps make money over the long term but actually makes you more risk-proof over the long term? So to me, this has never been a choice between whether you are a sustainable company or a profitable company. Good companies do both.

John: Got it. And how long now have you been at Deloitte, in this new boat?

Evan: I started last year. So this is new to me. The work is not new but the scale is different. So at NASDAQ, I was part of a team that worked on sustainability for companies that came to the exchange, 3000 public companies, all kinds of different sectors, all kinds of different sizes, all of whom, all of which had their own angle on what sustainability meant and how they wanted to leverage it in house. For some, it was a reporting exercise. For some, it was a stakeholder engagement exercise. For some it was, they had a particular issue or a crisis they were dealing with or working around. So that was good training for the work that I do now at Deloitte, which is more of a large-scale branded strategy exercise with our clients some of whom are audit and test clients and some of whom are relationship clients, but all are looking for strategic insights on how to not only measure what sustainability is, but manage to it and actually tell that story publicly in a meaningful way to regulators, but also to other people.

John: So, Evan, I get to have so many wonderful folks on this show over the course of the last 16 or so years, but to many of our listeners, ESG is a new terminology. You are an ESG sustainability, OG someone who goes back 20 years focusing on this subject matter. Can you first tee up the macro part of this subject matter with regard to how the landscape of ESG adoption and acceptance and evolution has happened over the last 20 years and where we are today?

Evan: Yeah. I would argue, John, that it is not a new theme or even a new management discipline the way that we talk about it. And the way that it’s been interpreted has shifted over time. So, a generation or two ago we had impact-oriented investors, investors that were interested in key topics of diversity, energy water, and they were investing their values and driving companies to be better performers in those areas. We had the rise of a number of different reporting institutions like the GRI, which is now 20 years old, the Global Reporting Institute, which essentially looks at ways that companies can measure environmental, social, and governance performance. Stuff that’s not necessarily reflected or traditionally has been reflected in the balance sheet. So the reporting and the management of some of these data points has shifted and become more sophisticated over time. I think the reason why it feels new now is because we’re crossing that boundary from the voluntary reporting space into the mandatory reporting space. This is now a topic that is in the purview of the controllership of the company, the board, and the CFO, more so than the sustainability team. So that has helped to make it quote more real and more mainstream in terms of corporate awareness. But the ideas here are not new. The ideas of efficiencies, rooting out inefficiencies, being able to materially project cost over time. So if you have wild variations in your supply chain or in your energy sourcing or in the widgets that it takes to make your, whatever you’re making, that’s something you need to try and true remedy. Thinking about being able to maintain talent over time, being able to maintain customer acquisitions over time the PR reputation of the company. So the value of the brand at large, so much of a company, I learned this very well, working in the stock exchange space. So much of the value of a brand is sort of intangible. What people think you are worth is what you are worth. And sustainability became a much more meaningful attribution for the brand than it had been, say, 20 years ago when it was all about profit and loss in dollars and cents.

John: Got you. So you’re saying it’s become more codified now that it’s now a requirement, it’s now it’s not just a want anymore, it’s a need.

Evan: True. And I think that the lever there was really the investor, the institutional investor who decided or figured out that these signals of performance are meaningful. So if I want to invest in a company and hold them for 20 years, and I want my money to make money companies that do this well, companies that manage for the long term horizon are inevitably more investment-worthy than companies that are going to burn out in a quarter.

John: And they’re more also resilient. So they’re going to sustain. So since you brought up institutional investors, would then be the bellwether event, the Larry Fink email letter to the world, letter to his investors, basically in a letter to his portfolio companies that basically laid out that it’s no longer okay to just talk about sustainability and ESG goals. You now have to prove it up, and if you’re not proving it up, you’re no longer going to be a portfolio company a BlackRock, maybe I’m being a little bit harsh and reframing his terminology, but was that the beginning of institutions then once he set the table at BlackRock, then others followed from an institutional investor point of view, and that’s what sort of moved this whole movement in the right direction? Or am I missing it? Was it a lot of things before that as well?

Evan: I think there were a few things before that. I mean, that certainly was a mover. In terms of the conversation, the cultural conversation. Cause BlackRock is what they’re. But before that, we had investors that were particularly interested in exercising a moral judgment. They didn’t want to invest in prisons or drugs or adult entertainment or other things where they just didn’t want their money put to use in a way that was opposite from their values. And then we had a lot of companies or a lot of investors that were thinking they wanted to get out of apartheid companies or smoking or other things, they wanted to sort of exert a social value through where their investment dollars go. And there was, it was a smaller part of the market, obviously, 10, 15, 20 years ago. But those investors were in play. I think that one of the drivers of change recently, in addition to Larry Fink in the conversation, would be the rise of the PRI, the UN principles for responsible investment, which is essentially a signatory pledge where institutional investors say, not only will we value, trumpet these values, but we will invest these values. So environmental, social, and governance excellence becomes a paradigm that attracts our investment capital. And, this movement now has, I might want to check my numbers, more than 1500 institutional investors, just about every investor on the planet of any size that you can think of as a member by the signature of the PRI. So that commits them at least on paper, and I think in action to integrating these value lenses into how they create vests of stocks and how they invest. So it’s no longer just a bright algorithm around where value generation comes from using old signals. It is now how can we bake in ESG metrics into that formula and create an even better estimate of return.

John: What other global regulatory landscape issues or forcing companies now to do not only the right thing but to report on it, besides the proposed upcoming SEC regulations, which seem to get the vast majority of the media attention at least?

Evan: I’ll try not to drown you in acronyms, John. I mean, this is a spade rife with them. But, the CSRD, the Corporate Sustainability Reporting Directive is an initiative in the EU affecting EU countries that is essentially broader and more substantial sustainability reporting than even what’s in the SEC proposal. The interesting thing about this, it requires a broad array of signals to be reported in the financial reporting itself. So not as a separate report, not as something that somehow is exempt from that kind of scrutiny. But a number of US companies are subject to this regulation, whether they know it or not, if you have a, it’s a fairly low bar, but if you have operations and employees in a European Union country, then you are most likely subject to the reporting burdens in the CSRD. So, while companies in the US are waiting a little bit on the sidelines for what the SEC will do in terms of its proposed climate rule we are been advising clients that they should move forward because a lot of them are already subject to other disclosure paradigms elsewhere in the world. There’re other more regionalized ones. There’s a supply chain disclosure rule in Germany. There’s anti-human slavery and human capital rule that’s in the UK. So there’re pockets of, and there’s even things happening in the states individually around ESG disclosure. So pockets of jurisdictional action around ESG should not keep a company from staying on the sidelines until the SEC manages to put out its proposal.

John: When do you foresee that happening? And what kind of, how much is that going to move the marketplace? Or is everybody already moving in transition now in anticipation of those regs getting published in the near future?

Evan: I have no more insight into that than you do. When I worked at a stock exchange, I had no more insight into the machinations of the SEC than I do now. So, I would hope soon, we expected it by now. There’s been a vigorous amount of debate about the proposal. The proposal as written by the SEC is a substantial one. It is not window dressing. And it includes controversial topics like scope three: how do companies manage, measure, and enact governance over parts of their value chain that are outside their direct control? So it’s a significant shift in the marketplace when the rule is eventually published and we’ll see what happens in terms of, I’m sure there will likely be challenges to the rule. I think there’ll likely be in time to implement and a phase-in period. But I think what’ll happen with that, John, even though we talked about all the stuff that’s happening globally, it’s, again, another normalization factor. It moves more of this disclosure into the financial reporting space, into the CFO and controllership vertical of the company. And also introduces, an audit and assurance angle to this too, where companies cannot just voluntarily put data out there that essentially is unproven. There is now more of an assurance atmosphere around, the performance that you claim.

John: Funny. You should bring that up, Evan, for those who joined and I want to go into that a little bit more. For those who just joined us, we’ve got Evan Harvey with us. He’s the audit and insurance managing director and sustainability in ESG services at Deloitte & Touche, LLP to find Evan and all the great work he’s doing with his colleagues at Deloitte, please go to www.deloitte.com. So, speaking of assurances, this morning I wake up and I’m either reading the Wall Street Journal in the New York Times and long and behold, one of my favorite airlines is in the head of the business News Delta is being held has a class action lawsuit now by a bunch of folks saying that they don’t believe their net zero claims. I don’t want to specifically talk about that suit, obviously, because I have no idea if Delta’s a client of Deloitte or not. And I’m a huge fan of Delta, I’m just going to put that out there. But is this a trend that we’re going to see more of given the regs that are now coming our way? And given that more radical transparency is being needed by corporate leadership in the United States and around the world.

Evan: It’s just a feeling. But I would tend to agree with you, as disclosure in the ESG space moves from the voluntary realm into the mandatory realm. And as becomes more codified as we have this harmonization of standards and we have more companies that are actually creating apples-to-apples data comparisons between their performance and others obviously there is room for more comparative action like that. So yes, I think that companies have largely been exempt from it. While there’s been a gray area around just how applicable or meaningful the ESG data is. But once it moves into a financial report, and once it moves into what you put in the 10K and the 10Q and what you actually send to the regulator in this country and other places, I think that the scrutiny goes up and the risk paradigm actually changes too. So there’re a couple of reasons why you should be doing sustainability. I’ve always been a fan of, the positive kind of reinforcement. And it helps make and run a better organization, the resilience management of the resources, all kinds of reasons why it’s a good idea. The risk avoidance piece is going to become more of the conversation because if you get it wrong and you misreport or you have bad controls in place where you cannot actually manage this stuff and put it into a meaningful disclosure, that’s going to open you up for all kinds of jeopardy.

John: Well, let’s go into that a little bit more. So one of the, and I don’t want, I’m not calling out any names or anything, but one of the organizations around the world that were selling carbon credits, which by last week, their CEO had to leave unexpectedly because of issues around the credibility of those carbon credits. Is this still a highly on legalism a little bit like the Wild West? And is the regulations still needed to create more form and function around the opportunity to buy and sell carbon credits for offsets? And where do you fall on that whole carbon credit trading issue out there? Legitimate, not legitimate. And is that part of the future of people’s net zero goals and reaching them?

Evan: I’ll leave the legitimacy or illegitimacy argument for others to answer. I do believe that it’s a part of a lot of plans, especially with pledges to get to net zero and to become less carbon-intensive. I think that it’s a maturing space. So, there’s a lot of talk about greenwashing and about exploitation of the market because there’s such an intrigue or an interest in sustainable products. I think that as any new area, fairly new area comes to maturity, they’re going to be missteps. They’re going to be labels that don’t quite fit. They’re going to be methodologies that don’t quite fit. I think that investors have found this too, as they’re trying to find the right ESG formula to bake into their algorithms in order to create more meaningful investments. So for me, it’s not a question of legitimacy versus illegitimacy. I think that just as we are trying to take on all of the above approaches to attacking the climate problem globally, we need probably a lot of different solutions at a lot of different scales in order to fix that problem. I think companies are attacking carbon usage and their environmental footprint in the same way too. A lot of different tactics trying to see what works. Not all of them will. Not all of them will be as impactful as others. And so as with everything in business buyer beware certainly, and do your research.

John: Yeah, it makes sense. And this is a journey. There’re no perfect answers and no silver bullet. And like you said the journey is what’s important. But no one’s going to pick all the right answers and solutions right off the bat. It is just impossible. Let’s go back to terminology more recently in the last year or so, I’ve been climate change has been with us for a while. The terminology of climate change and I want to go into that in a second, but I’ve also started seeing some very interesting terminology around the terms nature positive. Can you explain your feelings about the terminology of climate change, nature positivity, and how companies are thinking about nature as it relates to their overall sustainability reporting efforts?

Evan: Well, we believe that the process of understanding, managing, and creating a business-positive environment in terms of a climate-constrained future is inherently related to nature. So you have a lot of companies, like you said, that are thinking not just about climate positivity or climate net zero, but also nature positivity. So it’s a broader argument around the E and ESG than just climate, because it takes into account sea level, land use, natural weather patterns, biodiversity, how we affect or impact how these businesses affect or impact animal species around the planet. And although the connection between that destruction or creation seems distant from businesses, there is a connection and it does have an impact on businesses. And so companies are taking more of a positive and open-minded approach to how they manage nature. So we have the rise of certain standards in that sector too. One more acronym for you. TNFD, the Taskforce on Nature-Related Financial Disclosures, which attempts to take a page from the TCFD book and apply it to nature, their framework comes out their version 1.0 comes out in the fall. So that has a lot of attention right now, biodiversity, how companies impact biodiversity wherever they have significant physical imprint or impact. That is part of the nature part conversation. So I think John, one way to think of it’s just a wider lens on the E of environmental and ESG not thinking it of purely as a climate argument or as a climate change argument, but as a planetary responsibility item.

John: Well then it’s interesting. So a couple of days ago I was watching a speech by no other than Arnold Schwarzenegger, who’s very big, whether people liked him or not when he was the governor of California, he was very green and he was very focused on making the world a greener and more sustainable place. But he had an argument, he knows something about marketing and brand building. He said he thinks we’re making a gross error calling this whole movement, terming it in terms of climate change. He said it’s too fancy. He says we should just be calling it what it is. Pollution. Pollution affects the environment negatively. And our goal is to reduce pollution. Are you moved by that argument? Does that make sense? Is it a simpler term for all of us to understand in terms of the reduction of pollution instead of terming it climate change? Or what’re your thoughts on what he was talking about?

Evan: I’ll answer it this way. I mean, I agree with the impulse to try to simplify the messaging for people. Cause this is a topic and a practice that we need people to understand and not fear and hopefully embrace in their personal lives and in their business lives. I think that calling it pollution limits the number of inputs that we need to look at when we’re trying to figure out how the system is working or not working. Pollution is a byproduct of a system that is generating a certain amount of environmental impact. If you can lower the impact at the source, if you don’t create the pollution in the first place, then you don’t have a pollution remediation problem on the seven on the other side. So I like the idea of trying to lower natural consumption, lower the actual resource drain at the outset as opposed to trying to fix it on the, once it’s out into the atmosphere side. So yes, pollution and water clarity and cleanliness and potability, those are all parts of what we’re talking about, but it, I think only tells half of the story.

John: Understood. Deloitte is one of the most iconic and wonderful accounting brands on the entire planet. And obviously, accounting has to do with numbers. And when we’re talking about ESG and sustainability, part of it is measurement, measuring where folks are and where they need to be, and then basically helping them manage it better, which then also makes what they’re doing more transactional in terms of brand building goodwill and things of that such. Let’s go to one of the hottest topics that are right now in the business media and things of that such. The issue of AI. How much is AI going to play a role now and in the future with regards to helping predictive analytics around, as you were just mentioning, weather patterns and other things that affect people’s sustainability abilities and ability to track what they’re doing and track it well? Is AI going to play a role in ESG and sustainability reporting in the future?

Evan: It’s a fair bet. I think it’s potentially a significant transition in how we process data. How we, like you said, how we do, how we manage analytical inferences based on that data in terms of how we do more with less, how we can take machines and essentially process more information and create hopefully more meaningful and strategic outcomes as opposed to plowing through it by hand with a pencil and a slide rule. So there’s no doubt that it’ll have an impact on that side. There are legitimate concerns, obviously, on the other side there are these algorithms are programmed by people, so they might be inherently as flawed as people are in some ways you can build the same kinds of prejudicial information into an AI model as you could into a human model. So I would argue that it will speed things up and it’ll help us do something John, in ESG, which has alluded us for a long time, which is the forecasting part, a lot of ESG data is sort of looking backward from a point in time. This was our performance last year, the year before. Here’s our trend up now. We haven’t been great at trying to model future performance based on where we are. And I would hope that an artificially intelligent model would help us to create more meaningful forecasting around how changes in corporate behavior or corporate performance, resource usage, technology, and innovation that things that might improve things more generally, how we can forecast what the future looks like using that technology more so than we do now, which is dependent on historical factors.

John: Understood. I’m going to give you a scenario. Let’s say I’m a Stanford engineer graduate, and I put my head down and I created the next greatest widget, and my company’s growing and growing and growing, and finally I go public and now on the marketplace, on the public markets, it’s worth a hundred billion dollars. But because I’ve had my head down for the last 15 years, Evan, I know nothing. I mean, I am void of any information on good ESG and sustainability behavior. And because we went public, Deloitte is our accountant, and so now I’m in your presence up in Deloitte’s offices. And I’m looking for guidance and advice on where to start my journey and why what are the benefits of a good sustainability strategy. Because I know I created the next, the world’s next greatest widget, and that’s why my company’s worth a hundred billion dollars. But I don’t know, I’m not convinced of anything about why I should have a sustainability strategy. Tell me why.

Evan: Well, being an audit firm primarily and accountancy, we would start with the numbers. So we’ve done surveys on this sustainability action report, which I think was done last year. Established pretty clear priorities in the space and why you would do this work. 52% of the respondents said that it was about talent attraction and retention. You just can’t hire and keep people if this isn’t a priority or a value for the company anymore. Especially if your performance record is negative, it’s very difficult to find and retain and keep people. Increased efficiency and ROI, an old-school argument, but still a good one. We could talk about carbon or water or other aspects of ESG that seem unique, but it’s all about commodity preservation. How do we actually do more with less? And how do we make our cost per whatever we make, as efficient as possible and as resource un intensive as possible? And then 51% saw it as a stakeholder trust, engagement, exercise, building stakeholder trust. So I would argue investors are very high up that list, but there are lots of other stakeholders that matter to a company. So the current potential employees, regulators executives, and leaders, peers and competitors, nonprofits, NGOs, media, in terms of reputational space, PR. So there are lots of reasons why you would do this work. So I’ve always had pretty good luck with those arguments in terms of even the most hostile environments around we just don’t do ESG. We do old-school business. And my point has always been ESG is a pretty old-school business.

John: Right. That’s great. How do you then help, now I’m convinced you’ve convinced me, and I agree that my life shouldn’t just be about widgets. We have to make this part of our culture. How does Deloitte and of course, you and your team help its clients? I’ll be one of them if I have my widget company turn these items that you’ve shared with me, these interesting and compelling reasons into an action plan.

Evan: First and foremost, we advise clients to get started right away, not to wait on the sidelines for some more meaningful regulation to force their hand. Two, don’t treat reporting even though we are in the business of reporting. Don’t treat reporting as a terminal exercise. Yes, you might have to put certain information into the system, but if you have to do that and you have to measure it anyway, manage to it use. You should probably be generating more useful and actionable ESG information, sustainability information, about your performance that lives in a management dashboard than you ever would talk about publicly, because it’s going to help you drive behavior in the right way. So where you invest, how you put teams together, where the resourcing fits for a different product development or a service offering. So ESG can help with all of those old-school analytics too, just how you run the business. We also are big believers in sort of cultural transformation. So the idea that this isn’t something that lives with a small team somewhere adjacent to headquarters or the board and has dotted lines to a couple of executives, this should be a ground-up transformational exercise and when run well, it can really impact the productivity levels of the rank and file if they feel engaged in the mission of the company. Certainly helps, I believe, with investor dynamics, not only finding new investors that care about this topic, and as we talked about earlier, there are thousands of them that do, but also they keep them around longer, or investor turnover is an expensive prospect. And, the more long-term holders you have who buy into your vision and you can articulate it with ESG 5, 10, 15 years into the future as opposed to giving the next six weeks that’s a much more meaningful relationship. And I would hope a much more supportive economic position for companies in order to create, strong robust economies that create jobs and all the other things.

John: Got it. So, Evan, you’ve had a long career in ESG and sustainability and seems as though it’s like your day has come, like the world is really into it now, more than ever before. That’s what I’ve seen in my career doing what I’m doing in the recycling industry. So now you’re in this, you have this wonderful platform up at Deloitte, and you’ve been there a year or so. What’s the horizon look like? What’s next for you and your team at Deloitte in terms of ESG and sustainability?

Evan: This is where I’m probably going to shock you. My vision of the future is that this goes away, and this is what I mean, it goes away because this just becomes good management. This just becomes how we run businesses. This isn’t a separate category called ESG, and we have to do a separate board presentation and a separate report, and a separate set of metrics that we have to send to a separate set of experts who care about this. But this is just rank and file management of a company and oversight and governance of a firm. So from the board down to the rank and file is just embedded in how we do business. So respect for resources, respect for people, respect for boundaries, respect for stakeholders, and trying to get the most out of all of the above in order to create the product or service that we do. That would be ideal in my estimation. Not that I want to strip the ESG or sustainability as lay off of things, because I think it, as you said, it’s been a long time coming to prominence and to legitimacy. But I think it gets even more legitimate when it loses the label, just becomes how we run companies.

John: But is it, I agree with you, but are we still quite a ways away from that?

Evan: I can dream, can I, John?

John: Yes, you can. Evan, you are just really a delight and you are really one of the greatest experts in ESG and sustainability we’ve ever had on the show for our listeners and viewers to find Evan and his great colleagues at Deloitte and find all the great work they’re doing in ESG and sustainability so they can coach you too on what to do and how to get your company moving in the right direction with regards to ESG and sustainability, please go to www.deloitte.com. Evan, thank you for all the great work you’ve done over the last 20 years. Thank you for the great important work you’re doing at Deloitte right now. And thank you more importantly for making an impact and making the world a better place.

Evan: My pleasure to do it, John, thanks for the conversation.

John: This edition of the Impact Podcast is brought to you by Engage. Engage is a digital booking platform, revolutionizing the talent booking industry with thousands of athletes, celebrities, entrepreneurs, and business leaders Engage is the go-to spot for booking talent. For speeches, custom experiences, live streams, and much more. For more information on Engage or to book talent today, visit letsengage.com. This edition of the Impact podcast is brought to you by ERI. ERI has a mission to protect people, the planet, and your privacy, and is the largest fully integrated IT and electronics asset disposition provider and cybersecurity-focused hardware destruction company in the United States and maybe even the world. For more information on how ERI can help your business properly dispose of outdated electronic hardware devices, please visit eridirect.com.