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Well + Good – Q&A with Georg Kell (Part 2)

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Georg Kell is the founder of the UN Global Compact, vice chair of Arabesque Partners — and we are proud to say — an advisor to Edelman’s Business + Social Purpose practice. The following is a Q&A our editors conducted with him.

Q: The 2016 Trust Barometer shows while the informed public is becoming more trusting, the mass population is being left behind. You wrote about this earlier this year — describing it as a governance crisis. What do you see as the solution?

The time has come for business leaders to advocate for priority issues that go beyond the immediate interests of companies — not just to lobby for your own advantage but for sensible, reasonable policy measures that address inequality in its most extreme forms. Market systems are under threat. We see positive developments in co-ownership models that empower and include workers to make them more aligned with corporate goals. Companies leading in these ways are moving away from short-term returns to long-term value creation.

Q: What were your impressions of COP21?

We mobilized hundreds of companies and investors to encourage governments to be ambitious. Like everybody who invested so much, I was extremely happy when the conference concluded — for three reasons.

  1. At COP21 all heads of state and government agreed that climate change is real, and addressing it is a priority. This is unprecedented and shows everybody is now ready to move.
  2. So many CEOS demonstrated convincingly that low-carbon investments and green growth are the fastest growing segments of a variety of industries.
  3. For the first time ever, investors recognized climate as a real issue with material implications for long-term portfolio performance.
  4. The new climate regime defined by the Paris Accord depends heavily on country specific actions. As the business case for green growth is getting stronger and as policy measures will increasingly support low carbon growth, I have no doubt that we will see major transformations.

Q: In a recent article you said, “What started off as a moral imperative is now being complemented by a material imperative.” Tell us more about what you meant.

A growing number of CEOs now understand that some of these “soft” issues that used to be external to the long-term success of a corporation are now seen as having a direct impact on financial performance. These ESG issues are now materially relevant.  Take water, for example. Until recently water used to be considered a public good, a free, human right. But in an age of scarcity, water is becoming precious. Water stewardship is no longer an add-on philanthropic thing. Without access to water you cannot grow a business. Water management has become a serious issue. Water efficiency increasingly ensures a premium. Water has become material. The same logic applies to a host of other issues, such as climate change, good governance, and relationships with employees and consumers.

This is a fundamental transformation. What used to be external now has material relevance. There is a connection between how you tackle these issues and how they impact your risk and cost. Corporate responsibility and sustainability used to be a moral argument. It was about doing the right thing. This moral imperative is still very relevant — especially now with increasing income inequality and social discontent. But the moral imperative has now been complemented by the material relevance.

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