If you are a fan of motorsport, you may have followed this year’s Indianapolis 500. Part of the Triple Crown of Motorsport, the Indy 500 attracted roughly 325,000 spectators to the Indianapolis Motor Speedway in the U.S. state of Indiana. This year’s crowd was the largest since 2016, but there are other features that distinguished this year’s race from those of the past.
An electric “E-Z-Go” golf cart stationed at the venue’s entrance displayed branded merchandise made from recycled plastic bottles. Indy 500 T-shirts made from recycled materials—reportedly well priced and comfortable—were among the items for sale. The cart and merchandise were some of the most visual symbols of the efforts made by Penske Entertainment, the Penske Corporation subsidiary that owns the Indianapolis Motor Speedway, to make motorsports more sustainable. And there’s more on the horizon: In 2023, the INDYCAR series will introduce 100% renewable race fuel through a Shell-INDYCAR partnership.
Different Times, Different Opportunities
The Indy 500 example demonstrates an ability to transform challenges into opportunities. An example from a 2012 Harvard Business Review article also illustrates the power of this ability. The author describes two companies that depend on contracts with the U.S. federal government. Government spending cuts meant a potentially significant loss of revenue for the businesses. In response, one business scaled back in preparation, while the other took the development as an opportunity to identify new revenue sources, retooling its go-to-market approach in the process.
As the author points out, managers like the one in the second case “see problems in a different light — as a signal from the environment that it’s time for fresh thinking.” In the case of the Indy 500, fresh thinking was applied to address climate change, and we’ll all benefit from it, whether or not we like motorsports.
The ABCs of ESG
Given the Indy 500’s outsized carbon footprint, Penske’s focus on its environmental impact is warranted, and it’s commendable, too. The privately held company is one among many businesses worldwide that are directing more attention to the “E” in ESG (Environmental, Social and Governance).
But before we move on, here’s an ESG refresher: The social aspect looks at a company’s treatment of employees, value chain workers and the communities that are home to its offices and operations, among other things. Governance includes (but is not limited to) executive pay, internal controls, board composition, tax strategy and political affiliations and donations. And the “E” is clearly about environmental impact. Fortunately, a growing trend toward standardization of reporting frameworks is making it easier for companies to monitor and report their performance, particularly in relation to their environmental impact.
The Positive Results of ESG Investment
Naturally, there are costs associated with the environmental progress achieved at the Indy 500. Aside from eco-friendly merchandise and renewable race fuel, Penske Entertainment is also building its ESG credentials through use of Bridgestone Americas’ sustainable tires, which are made from guayule-derived natural rubber. Bridgestone has invested over USD 100 million in its effort to commercialize guayule, and the investment is part of the company’s drive toward carbon neutrality. Bridgestone’s goal also features the use of 100% renewable materials for tires by 2050.
Investments like these are significant, and they raise the question: Are investments in ESG worth the cost and effort? Many say yes.
A 2015 sustainability report from Oxford University and Arabesque Partners—From the Stockholder to the Stakeholder—was based on over 200 academic studies, industry reports, newspaper articles and books. The report noted that 88% of the research showed that “solid ESG practices result in better operational performance of firms.” The report concluded that investors and corporate managers would be well served by incorporating sustainability considerations into their decision-making process.
Much has changed in the seven years since the report’s publication, including our understanding of climate change. But what hasn’t changed is the belief—backed by evidence—that responsibility and profitability are not mutually exclusive.
For example, an EY-Parthenon analysis measured the profitability of the top sustainable corporations worldwide based on Corporate Knights’ 2020 Global 100 ranking. The analysis found that sustainable companies outperformed their industry peers on gross profit, EBITDA, EBIT and net profit metrics.
Buy-in From Business Leaders
The adoption of Stakeholder Capitalism Metrics also points to broader support for the ESG framework. In January 2021, a coalition of more than 60 global business leaders signed on to ESG metrics and disclosures that were released in September 2020 by the World Economic Forum and its International Business Council. The metrics and disclosures were developed after a six-month consultation process with over 200 companies, investors and other stakeholders, and they focus on four themes: people, planet, prosperity and principles of governance.
Signees include Banco Santander, Credit Suisse, Dell Technologies, bp, HSBC Holdings, Siemens, Nestle and Mastercard.
Bill Thomas, KPMG International’s global chairman and CEO, also voiced support for the application of ESG metrics, noting:
“The good of a business is defined not only by its financial success, but also by the impact it has on our environment and our communities. But if you can’t measure it, it’s hard to change it. That is why comparable, transparent and unified ESG-focused metrics are so important.”
Learn How to Measure, Then Manage
Mr. Thomas raises a good point: ESG performance begins with measurement. But measurement of ESG factors is complex. What should you measure and how should you measure it? Will your measurements satisfy existing and emerging requirements from regulatory bodies—even under different jurisdictions?
Business leaders need to figure this out. And the business leaders who can understand today’s challenges and then create opportunities out of them will be those who are featured in tomorrow’s case studies and textbooks. Our challenges—particularly with respect to the environment—are monumental and growing. But then, so are the opportunities.
Gain a Better Understanding of ESG at Sphera’s ESG Summit
Understand the challenges, identify the opportunities and then embark on an ESG journey that tackles those challenges and capitalizes on those opportunities. Questions and concerns are part of the journey, and your first step is to find answers. You’ll find the answers and expertise in abundance at Sphera’s ESG Summit, to be held virtually from June 21 to June 23. Among the event’s sessions, you’ll find:
- A Day 1 session on Investing in the Future that will feature Nicholas Bourdier, partner at PwC, and Elizabeth Lewis, managing director and deputy head of ESG at Blackstone. Among other things, this session will look at:
- How higher investment returns, lower risk and better resiliency are tied to strong ESG performance.
- The ESG criteria that private equity and investors are applying in their investment assessments.
- A Day 2 session that will cover carbon accounting and the Scope 3 challenge, with participation from James Chamberlayne, senior manager of the supply chain at CDP, and John Haeflinger, senior VP, sustainability & maritime policy at Carnival Corporation. This session will examine:
- The challenges of quantifying Scope 3 emissions, particularly as it relates to the availability and accuracy of supplier data.
- The identification of hotspots and reduction potentials.
- A Day 3 keynote session on the Roadmap to Becoming an ESG Leader, delivered by Kim Knickle, research director, ESG & Sustainability at Verdantix.
Whether you’ve set your sights on establishing your company as an ESG leader, or you want to gain a better understanding of ESG, you’ll benefit from Sphera’s ESG Summit. Register now!