I would argue the principal benefit to Timberland of a justice agenda was that we were able to recruit and retain a workforce that was, I'd say two or three notches better than we had any right to recruit and retain. Because people wanted to affiliate they wanted to work in a place where their values were the same professionally as they were at home.
Good morning, good afternoon, or good evening, wherever you are in the world. This is the climate 21 podcast, the number one podcast showcasing best practices and climate emissions reductions. And I'm your host, global Vice President for SAP. Tom Raftery. Clemmer 21 is the name of an initiative by SAP to allow our customers calculate, report and reduce their greenhouse gas
emissions. In this climate 21 podcast, I will showcase best practices and thought leadership by SAP, by our customers, by our partners and by our competitors if their game in climate emissions reductions. Don't forget to subscribe to this podcast in your podcast app of choice to be sure you don't miss any episodes. Hi, everyone. Welcome to the climate 21 podcast. My name is Tom Raftery with SAP and with me on the show today I have my special guest, Ken. Ken, would you like to introduce yourself?
Sure, Tom. Thank you for having me. I'm grateful to be here. My name is Ken pucker. I spent the bulk of my professional career working at Timberland which was based in New Hampshire. I was there for 15 years have 11 roles. The last seven years I served as Chief Operating Officer. And for the last decade or so I've been focused on the intersection of capitalism and natural capital are the climate across a variety of endeavors. I am a advisor to a private equity firm in Boston
Berkshire partners. I teach at the tufts Fletcher School of Management. I have been writing in a number of business periodicals and I invest in responsible companies.
Nice. Nice. And again, I mean, Timberland have a name and have had for a long time of being a highly sustainable company, a company that values sustainability very highly. And like I said, for a long time. I mean, back in the early 2000s, Timberland were doing stuff in sustainability when other people hadn't come across the expression. How did that all come about?
So we were fortunate the company was made it through three generations of family control. The first generation was a Russian immigrant who fled Czarist Russia for religious reasons. He passed the company off to his two sons, Herman in Sydney, and they created the brand Timberland actually in 1973. Herman was an accountant and Sydney was a manufacturing guy. Sydney gambled away is tuition money, sophomore year in college and hitchhiked home. And so his father then told him to
get a broom. And he ended up working in the factory. The two brothers didn't really get along. And in 1985 Vf Corporation came and offered them $16 million for the company and Herman the analytical and said, I can do that math, that's 60 divided by 230, I'm ready to leave. And Sydney said I love what I'm doing. I can't envision doing anything else. And so the company went public, via Merrill Lynch to pay out Herman so Sydney could stay in charge. He ran the company until he turned
60. And that day, he passed the keys off to his son, Jeff, who became CEO and Sidney moved down to Florida to garden. Different than his father, Jeff was over educated, he was pre med at Brown and went to Dartmouth Business School, and was really bright and did a super job leading the company. He and I worked together for many years. And by the time his father passed the keys, and Jeff became CEO, I became CEO at that point.
And Jeff had found faith on his own, and had decided that he wasn't interested in working for a traditional company anymore that made shoes and boots and budgets, but instead needed to find a way to blend faith in
commerce. And he actually created a platform at the time, which you're right was early in the early 2000s, called commerce and justice and decided that Timberland is an enterprise was going to stand for three things on the Justice front, environmental stewardship, global human rights and citizen
service. And that was for the time very, very progressive and forward looking perhaps even to too much so he devoted a third of his remarks every 90 days when we reported to Wall Street to Timberlands justice agenda. And for the 28 quarters, we sat together I Never heard one question back from Wall Street on that part of the story. So it may be that he was ahead of his
time. He was blessed. However, in the Timberland was, as I mentioned, a publicly traded company in the New York Stock Exchange, it was also a company that had Class B shares with 10 to one voting rights. So as long as the family controlled 11% of the outstanding shares, they could pretty much do what they
wanted. And so to be a company committed to commerce and justice before, this notion is or notions of environmental stewardship or global human rights or citizen service, were front and center was available to him just like it's been available to Patagonia, which is 100% owned by one family and privately held. And so the company had the advantage of being able to pursue an agenda which may have been more progressive or forward looking than others. But I still give Jeff credit for defining that
agenda. And being a leader when it came to issues of responsibility and sustainability.
Sure, sure. How did it impact the company that, you know, the company had this vision? How did it impact the company in terms of what did the employees think about what did customers think about you know, did it work in for the benefit of the company or not?
It's a great question. I think, early books on sustainability, such as a book called Green to gold, made the point that, you know, everyone should be pursuing this kind of an agenda. Because if you are a green company, you'll just make more money. I don't believe that's the case. I think that some things in fact, you know, we'll return over time and other things are costs. In the case of Timberland, I would argue that it was
transformative. Timberland was the first company in the world to give all employees 40 hours of paid time for community service. When I say all employees, that includes people who worked in our factories and people who worked in our retail stores, timber them installed the largest solar array at the time in the state of California, Timberland powered its own factories on renewable energy. Timberland did a lot of things that were, again for looking for the time, and some of them did
cost money. When we were installing solar, for example, it's not like it is today, where solar is actually a cheaper form of primary energy, then a lot of fossil fuel energy was more expensive at the time, even with subsidies. And yet, we still did it. And so that was, let's say, a negative financial impact. But it was a commitment that we
made. And so we our commitment, we also committed to lower our carbon footprint, and did a good job of doing that in the last five years I was there we grew by about 15% a year and lowered our carbon footprint by about 15% a year. Now, if we want to get into the specifics of that, that was our scope, one and scope two footprint that didn't include scope three, which I'm happy to speak to later if you'd
like. But I would argue the principal benefit to Timberland of a justice agenda was that we were able to recruit and retain a workforce that was I'd say, two or three notches better than we had any right to recruit and retain. Because people wanted to affiliate, they wanted to work in a place where their values were the same professionally as
they were at home. And so the only evidence I can provide to you beyond performance of the company at the time, is, if you were to look today at every director level and above employee that worked at Timberland, when I was there, and what they're doing now, I think you'd find that an inordinate number of CEOs, CFOs, CEOs, running other companies, again, they were, I think, better than we had to write, to hire as a billion and a half
dollar company. And so I think they're putting Tech's net, I think it was a real benefit to the company. But I can't demonstrate to use that to you in dollars and cents when it comes to things like recruitment or retention. Okay, and
what about customers?
Such a great question. I don't think customers knew we didn't do a good job really of communicating to customers that we were a company with a platform based on Commerce injustice. When we tried, I think we were pretty unsuccessful. We once put together an eight page insert that ran in periodicals like GQ and Vanity Fair when magazines actually were a bigger deal than they are today. And it talked about our commission justice
platform. And in fact, the feedback we got from customers was more negative than positive. They asked at the time why it was our responsibility to attend to these things and who did we think we were? Again, this is a function of the fact that you know, this is, you know, 15 years ago, not today, but I think it's really hard for a company to be known for more than one or two things. Consumers are busy, they have
lives. And so I think Timberland was known as a company that made great durable high quality, high performance outdoor gear. And for us to also become famous for this notion of justice, I think is a hard task when you have kind of 40 years of brand building in your week. And so I don't think we did a great job of communicating to customers honestly.
Interesting. Interesting. I mean, that was, as you said, the early 2000s were no, you know, 20 years later, other companies have started to catch up, maybe even overtake what Timberland was doing. How do you see that has developed in the last 20 years? Who do you Who do you credit with being responsible for the shift in the mindset of organizations? And, you know, how can we do better?
So I'm grateful that other companies have joined, stepped up, stepped up? Yeah, I don't profess a Timberland was the best or only at the time, early days, I think companies like Patagonia, as I mentioned before, and Unilever have really fantastic track records. And so I don't mean to say we're alone. But it's great that there's more urgent interest in the topic, be it for employee retention, or for consumer contact or to retain suppliers, or maybe just
to save the planet. I mean, I think there's a lot more compelling reasons today, and a lot more urgency because the problems are bigger today. And so on the one hand, I think it's really good that today, for example, 90% of s&p 500 companies issue a CSR report, whereas in 2002, and Timberland issued its first CSR report, I think it was probably one or two hands, you could count the numbers of companies in the
world that did. But at the same time, I don't think we can confuse voluntary corporate action or CSR reporting as proxies for positive impact. And so for example, when I said Timberland issued the first CSR report, or one of the first CSR reports in 2002, I think the first CSR report ever issued was, was by shell. And so issuing the report and telling you what, or telling the world what your environmental social impact is, is not a proxy for
progress. And let me return to something I mentioned prior and be self critical. The results of Timberland achieved in terms of carbon reduction that I mentioned before, 15%, a year for five years when the company was growing, are in fact, laudable. But I mentioned it was scope one and two emissions. And for those not familiar with the greenhouse gas protocol on emission scopes, there are three scope one, two, and three scope one is kind of in your own
facilities. Scope two is purchased electricity, and scope three is everything else. There's 15 categories and scope, three, upstream and downstream emissions. And what I mentioned was tymberlee did a good job on scopes one and two, well, those are represented 4% of our total emissions. So we weren't able to report on the other 96, I can guarantee you they went up. And the reason we weren't able to report is not lack of interest,
or an attempt to deceive. We actually noted that in our report that we were only reporting on 4%. The reason we were unable to produce information on scope three emissions is there aren't regulatory frameworks or software or requirements that suppliers provide that information. And in Timberlands case, you'd have to track more than 50,000 data points every six months. In order to calculate what your scope three emissions were Remember, this is
transport. This is manufacturing your tier one, tier two, tier three, tier four suppliers. And I'm sad to report that today, you know, these 20 years later, less than 50% of the same s&p 500 companies that are reporting provide any information on their scope, three emissions, and fewer than 50% of companies provide audit verification of their CSR reports. And so while it's great that more companies are starting to be or are committed to this agenda, and it's great that more companies
are reporting. It's true also that carbon emissions today are 50% greater than they were 25 years ago. And so one has to ask, how much impact has this movement actually delivered?
Do you see that in the more recent last, say, five years or even less, that there's been a shift from CSR to ESG. And that this is more than just I think, more than just a changing of the initials. You know, I think when people start to shift to ESG, from what I've seen, it it seems to be taking And more seriously, it seems to be more of a board issue. CSR was typically more of a marketing role, I think where ESG tends to come in more under
the CFO organization. And with that in mind, you would hope that ESG reporting would become more reliable, I guess, as a as a proxy for actual data on emissions.
Yes, you would hope I, I reflect definitely two things. First of all, you know, there was a very newsworthy announcement two years ago by the Business Roundtable in the United States, which is, you know, an aggregation of some of the hundreds of biggest companies publicly traded companies. And they declared that they were no longer going to be focused on shareholder first or shareholder primacy.
But we're going to attend to the needs of stakeholders broadly, to include employees and customers and suppliers and the environment. And a study was just recently undertaken by professors at Harvard Law School to determine what was the impact of that declaration. And sadly, what they found is nothing, that not a single company of those that made this pronouncement have changed their incentives, for example, for executive pet.
In fact, they found that very few, less than five companies even had a consultation with their board prior to signing the Business Roundtable statement. And so I guess it's to say that, you know, claims and commitments are cheap. We have to judge progress based on action. And with specific reference to your question about ESG. Well, ESG is you know, yet another acronym. It's really the flip side of what companies call CSR, the investment world calls ESG, environmental, social
governance. And I think it's great again, that investors are now more engaged in questions of ESG or CSR than they were when I mentioned, Jeff was reporting to Wall Street, and we've got no questions. So net, I think it's good that you know, investors are concerned and investors view ESG as either a business risk or opportunity, and it's getting more focus and reporting and transparency and conversation.
Again, though, if we peel back the onion just a little bit, look at what ESG is purported to be versus what it actually is, I think there's a distinction between the two, you'll read headline numbers that ESG investment is now represents more than one in $3 invested globally, there's some form of ESG proxy or mandate for those
dollars. So that's about $35 trillion, according to the latest report from the reporting aggregator of invest ESG assets, well, more than half that $35 trillion, or what's called negative screen funds, their funds to just commit not to invest in specific industries, they may not invest in tobacco, they may have a religious mandate not to invest in companies that engage in pornography, they may not invest in weapons manufacturers or
fossil fuel companies. And I think it's fair to say that if the funds or assets are being deployed in anything but a specific industry, it's unlikely that they're going to have much of a profound impact in terms of behavior change. So that's call it you know, 18 trillion of the 35 trillion. The next biggest category is ESG integration. And that's just a proxy for thinking
about ESG benefits and risks. In combination with fundamental analysis, when BlackRock or Morgan Stanley or Vanguard are thinking about how to aggregate their their funds. I'll give you an example. A fund which is, which falls under this category called ESG. integration. BlackRock, the largest asset manager in the world, they manage I think, over $9 trillion of assets right now led by Larry Fink, who has been very, very vocal about the needs of companies to attend to climate
change in the light. They launched a fund on April eighth of this year called the US carbon readiness transition fund. And it was the most successful ETF lat launched in a single day, it raised $1.25 billion in one day, which on the one hand, one would think that's awesome. Investors are caring more about these outcomes, like climate and carbon in transition and deploying capital behind those concerns. And on the face of it, that's true, however, their holdings are available
publicly online. And so you can look at what is one of the invest assets that comprise this us carbon transition readiness fund? Well, you'll find their biggest holdings earning information technology firms like Google, or Facebook, etc, Microsoft, that represents over 20% of the fund the next big 27%, I think the next biggest holding is our healthcare companies, we represent 13% of
the fund. And if you look at specific companies that are held within that fund, Apple's the largest holding, but that fund also holds Exxon, and Chevron, and Dover industrial corporations, which makes pumps for gas stations and the like. And so I would argue that there's really nothing much about it, that is driving towards climate transition, or carbon reduction. And so that's the second biggest category is ESG integration. So I think there are certain funds that actually are committed to
impact, positive impact. And but they're few and far between. There's a category of funds that are called impact investments, that most of which think about social environmental returns as a primary objective. And I think those do have an impact. There's another category called now climate tech, which is venture capital that's focused on E or s endeavors. It's growing very
quickly. It's now in the first half of this year was it's at $16 billion, and is likely to crest over $35 billion this year, which is great and fast growing. And it means that venture investors are thinking more about the opportunity behind things like renewable energy, or electric vehicles, or ag tech or things that have to happen. And so both those categories are think are good. And I think now some private equity firms are even creating big funds focused
on the same issues. But if you look at the sum of capital that's being deployed against what I would think are ns fundamental issues, kind of existential issues, it looks like it's about 1/5 to 1/10 annually, the capital that's required, in order to ensure that we have a sustainable future, or an economy that keeps global warming to less than one and a half or two degrees Celsius. So on the one hand, is real progress of the impact area, some of the bigger impact funds, the venture area, in what
I call climate tech. But the broad ESG narrative, I think, is still really, really oversold.
How much of that do you think is because this is still a very immature space? I mean, from what you were saying there a second ago, it seemed like the investors aren't keen for these kinds of stocks, is just in some cases, you might argue they were sold a pup
is an excellent point, this this space is mostly unregulated. The EU, again, is ahead of the US and Asia as it typically isn't these fronts. But at for the most part, the vast majority of ESG. Assets are unregulated. And so what you think constitutes an ESG fund, you can label as such now that is changing unequivocally first in Europe, and then likely in the United States as well. But your point about our investors
interested? I think the answer is increasingly So as a result, the asset managers are productizing, or making more products to satisfy that investor demand. And lo and behold, asset managers get higher fees on ESG funds, considerably higher fees, according to an analysis by factset. Recently, they concluded that ESG funds carry a 43% higher fee than traditional
funds. So if you're an asset manager, there's certainly incentive from a financial standpoint to create ESG opportunities for investors, and they certainly demand for them. The question really is twofold. One is do they deliver superior returns? Which is what many are promising? So alpha, is the financial term for that? Do they deliver alpha or better returns in traditional funds? And two, did they deliver impact? Did they deliver better social
environmental outcomes? And well, 1000s of studies literally have been done to determine the answer to the first question of do such funds deliver alpha? I could only find less than five studies that have looked at the question of whether ESG investment delivers impact positive impact. It's assumed almost that they do because how Couldn't you if you're investing in better stuff per se? But if you believe what I just went through about what they're investing in, they're mostly
investing in the same stuff. And so I would argue that the ESG movement, as currently situated, is overselling its ability to deliver impact, which I think is dangerous. Because if you believe that ESG is the solution, or ESG investment is the solution that will defer what I think are more readily trusted solutions that are required. So how to fix it. So I think we know how to fix it, but
it's hard to stare at. For those with long memories, they'll recognize that, in the 1970s, the United States was the most active period of environmental regulation in the country's history. At the time, there was a Republican in the presidency is Richard Nixon. At the time there was Republican Congress, which is hard to fathom today. But water acts
were passed, right.
Also, the EPA was founded at that time, and those who had a profoundly positive impact that argue on things like air quality, and water quality and things like that, and pollutants in the atmosphere. We have another great example in the Montreal Protocol, which was a treaty that was signed by over 170 countries to actually ameliorate the damage being done
to the ozone layer. And if you look at the data, the ozone layer is repairing mercifully, and so there are examples of collaborative governance or even nation state governance, that have had a profound impact on outcomes, I think we had, that's where we have to look for solutions, I think that investors are asset managers or companies will continue to operate based on the incentives of the system that they operate in. And our current system argues for growth, and argues
for enhanced profitability. And so CEOs whose 10 years ever shorter are going to continue to optimize against the current system. If the rules change the system, then they'll optimize against the new rules. So if a rule change says, all of a sudden, you're gonna have to internalize externalities, you're gonna have to pay for pollution, then no, minimize pollution. And the transition to renewable energy will happen
faster. And the good news is, we're in a better position for that tap now than we've ever been. Because as I mentioned prior, the costs of renewable energy, and the capabilities of batteries are such that they weren't, you know, 10 years ago, they're now economical. And so we have an answer, at least as relates to primary energy generation. The question is, how fastly? Can we engineer a transition? That's in the
benefit of all stakeholders. And I think in order to do that, we need to have better policy, we need to stop subsidizing fossil fuels at the trillions of dollars levels that were fought we're doing today, globally, I think we need to put a price on carbon. I think we need to continue to support with government incentives, renewable energy and batteries, we need to probably also think more clearly about how we measure success and progress as societies, not just
as companies. But you know, we bow at the altar of GDP today, which is a fine measure, but it's not a comprehensive measure. And the OECD has recommended a measure like wellness, to think about, you know, societal progress. And given that we live on a finite planet. And given that we're approaching fast approaching 10 billion people, I think we have hard decisions and choices to make about how we measure success.
Are you optimistic for our future?
Well, I have children, and so I can't not be hopeful. At the same time, I'm clear eyed, and the problems aren't getting worse. The environmental problems without question, as I mentioned before, I talked about carbon, but we could talk about a number of other measures as well. And that is the effect of compounding math. I mean, simply if you grow population by 1%, a year or one and a half percent a year, and you also grow purchasing power because of either expansion of GDP growth or deflation in
certain categories. You know, the math just gets hard. You know, the, in the space I'm from, which is, you know, the apparel or fashion space today, we probably produce twice as many garments as we did 20 years ago. And so we've had all this conversation over the last 20 years about things like bio based materials and new business systems. And rental and reuse and circularity and renewable and all these things. And yeah, we're making twice as much
stuff. And if you run the math forward 10 years, just looking at things like population growth and GDP growth, because of an increasing number of people who are making it to the middle class, you know, we will increase production by another 50%. And so we need intervention, which is much more aggressive in order to live within our planetary boundaries.
We are coming towards the end of the podcast now can Is there any question I haven't asked that you wish I had? Are there any topic we've not touched on that you think it's important for people to think about?
Well, one thing we've sort of touched on, but I probably wasn't clear enough is I mentioned before that we're talking about the ESG movement. There's a focus on two things. One is alpha or, you know, financial performance and others impact. And I talked about impact. Some I didn't talk much about alpha, which is the financial piece of it, maybe because I'm less concerned about that I'm more concerned about
the planet. But I would say that there have been, as I mentioned, 1000s, of studies done to look at whether investing in high ESG companies delivers alpha. And about two thirds of those studies say likely that there's some benefit, and asset managers have touted those academic studies, his rationale for why one should invest in ESG assets. And I would just be careful on that interpreting that outcome. Because it's not clear whether that relationship is causative or correlated, or said
differently. Is the benefit financially, because the companies are high ESG companies? Or is it because ESG and performance are both correlated with management? And they're just well managed companies? Right? And if in fact, they're just well managed companies that are we looking at the wrong signal? I would argue probably the answer is probably yes to that. And so I just think it's, we have to be careful about not confusing causation with correlation, when it comes to looking at ESG.
Sure, I mean, it stands to reason that if you are measuring and reporting on ESG, you have a very, you have a better handle on where, you know, waste is happening in your organization, and you're optimizing against it. So yeah, that makes a lot of sense. Interesting.
Yeah, you have more bandwidth also to think about risks and tending to risks that are risks to intangible assets, like your brand, or operating risks from weather events, or things like that. And so I do think there's a correlation between the two, as opposed to ESG being the causative factor. I've just written a paper about this that will be published in the next week or so an institutional investor, that's called the ESG, fantasy, linking
ESG to planetary impact. And for those of your listeners that are interested, I'd point them hopefully to Article.
Oh, super, super video, send me the link when it's up, and I'll include it in the show notes. I will indeed, fantastic. Can if people want to know more about yourself our ESG or even Timberland or any of the topics we discussed today? Where would you have me direct them?
I think you could find me either on LinkedIn where I have a profile or you can email me at Ken Dodd pucker at tuffs t UFT s.edu.
Ken, that's been great. Thanks again for coming on the podcast today.
Thanks for having me, Tom.
Okay, we've come to the end of the show. Thanks, everyone for listening. If you'd like to know more about climate 21 Feel free to drop me an email to Tom Raftery at SAP comm or connect with me on LinkedIn or Twitter. If you'd like to show please don't forget to subscribe to it in your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast it really does help new people to find the show. Thanks.
Catch you all next time.