Episode 776 06.21.22
Matthew Sekol, industry advocate, worldwide sustainability, Microsoft, joins Peggy to discuss ESG (environmental, social, and corporate governance) and how Microsoft intersects in a number of ways. He explains the importance of both data and culture to make a difference with ESG and shares how technology can help manage carbon, water, waste, and ecosystems.
Below is an excerpt from the interview. To listen to the conversation from The Peggy Smedley Show, click here or go to https://peggysmedleyshow.com/ to access the entire show.
Peggy Smedley: Matt, we have a lot to talk about today and I thought we would start just by talking about why you are so passionate about ESG?
Matthew Sekol: Well, you know, Peggy, you did a really great job, I thought of introducing my background, but ultimately if you read into it a little bit, I could never decide what I wanted to do with my career. I graduated with an English degree and went into IT, supporting all the great industries…. And I came into Microsoft about four years ago and when I arrived, it was my first foray into financial services. And I got segmented into capital markets and I started supporting some of these customers who were focused on ESG from the market perspective. And so, like I tend to do whenever I find something new, I immersed myself in that topic. I listened to podcasts, would read articles, engage people on social media about it, and try to learn as much as possible. And I ended up realizing that there was a big disconnect at the time between the way that markets were looking at their investments and what those investments, or basically the companies were thinking about. And so, I started talking and exploring with companies what ESG meant to them. And I found that in many cases, it didn’t mean anything to them. Then COVID hit, and the whole thing accelerated, and I found myself in an interesting position to kind of bridge the gap between the markets and the corporates. And that led me to the role that I’m in today.
Smedley: Matt, I find that so interesting because I know you wrote a whitepaper and even in the whitepaper, you indicated that only 54% of boards believe that ESG matters and has a financial impact. I mean, just hearing you talk passionately about that indicates why you see there’s so much more that has to be done when we look at all the verticals on that. So, in what way then, talking about what you just indicated now is Microsoft helping companies understand ESG because there’s a lot, I think, to really talk about and even kind of delve in further.
Sekol: Absolutely. There’s so much to cover this. So across environmental, social, and corporate governance, Microsoft intersects in a number of ways and we broke it down into three broad categories. First off, when we develop our products and solutions, especially our cloud solutions, they’re designed with sustainability in mind. And this comes through in both our sustainability reporting, as well as we give our customers tools to measure their carbon emissions based on their usage of those cloud platforms. The second category is this product and kind of universal challenges is the way I like to think about it. So, these are things like measuring your carbon reduction, which we do with the Microsoft cloud for sustainability, which I’m sure we’ll get into, but it’s also things like how collaboration tools can be used to foster a great employee culture, lowering attrition. I mean, that totally hits the S and then this last category is how we work with our partners and even some of our internal services organizations to build solutions that focus on more material issues, because every company has unique and bespoke issues that intersect with ES and G that they need to solve for their own business. And so, we work with our partners to try to pull together our cloud technology to solve those challenges.
Smedley: It’s interesting. When I hear you talk about that, because when we think about just product, when we think about partners, you think about all of those things, they intersect with everything. And, what makes me so intrigued by this is that I’m interested now in, how do we actually pull all of this together? And you mentioned it Microsoft’s cloud for sustainability. I think it comes into play even when you talked about how the sustainability manager fits in here, because I think that’s in infrastructure. And I would love for you to explain that because I think all of that integrates together, and I think that’s how we have to build when we think about collaboration, because that’s the piece the world comes together right now?
Sekol: Absolutely carbon is really a huge focus for every business. We’re seeing a lot of draft proposals from global organizations and standards bodies, like the SEC, the EU commission, the new international sustainability standards boards that are trying to organize around carving climate risk to start. And so, Microsoft has been on a long sustainability journey, and we’ve put together a product based on the learnings that we’ve had in managing our complex global organization. So, like many of our customers putting together a sustainability report, it takes talking to business units, gathering metrics and data silos, and then cobbling them together in Excel spreadsheets, putting them perhaps if you’re lucky into some sort of data lake in the cloud and then getting it out into the report. And so, we built this product called the cloud for sustainability, to be a SaaS offering, to help our customers organize around that data. And the first module just went GA on June 1st is called the Microsoft Sustainability Manager. And it’s really focused on helping our customers record, report, and reduce their scope one, scope two, and some of scope three category metrics. And now at Microsoft, we believe that technology can play the biggest role in helping firms manage their carbon, water, waste, and ecosystems. So, this is just the first module in what’s going to be, I think, a really interesting product that’s going to help businesses understand their operations in a new way.
Smedley: Let’s unpack that a little bit because I think that’s where we, when we think about trying to record, report, extracting that information, we get lost sometimes in data, we talked about this so much on the show that data, data, data, and really trying to talk about how do you look at data? Can we delve into that a little bit more and when we want to reduce our impact and why that’s so important today? I think a lot of us understand it, but how do we really go about it gets a little trickier, right?
Sekol: It absolutely does. And what’s interesting to me is how it builds on the digital transformation story. That’s frankly been talked about since I tried to track down the beginning of this, I think it was 2014. Really, when we’re talking about this massive data challenge, what I see out there with my customers is that they’re trying to pull out insights from a lot of legacy systems and a lot of legacy business processes that haven’t been modernized. And I’m not saying the cloud is like a silver bullet to fix those things, but taking a look at your operations and starting to modernize them in the way that allows for those closer to realtime data to be pulled out and aggregated up, especially and shared across your organization, which is something that frankly, a lot of business units inside your company may not be comfortable with or familiar with doing, is a huge step in gathering this data. So, I see a lot of customers today, again, trying to pull together disparate systems painfully without putting in that legwork to modernize those systems first. But Peggy, I think you brought up an excellent point. Data isn’t going to necessarily solve everything. And this was put, this little story was put to me by, uh, somebody who is working in private equity, um, because I mentioned data to them and they said, well, if I’m running a logistics company, and I have paint on the bottom of one of my ships that’s leaching into the ocean, data’s not really going to fix that problem. Right. I need somebody who’s there looking at it to understand what the issue is. I need to dry dock that boat, get the paint off and repaint it. Like it’s not necessarily a data problem. The data might report that that project was done at the end, and maybe could quantify the amount of paint that we stopped leaching. That’s not necessarily going to fix it. So, data is great and it’s going to surface insights. It’s not going to be a silver bullet for all of your ESG issues though, you really need the culture to understand some of these challenges that your unique business has and surface them in the right way to the leaders to take action.
Smedley: So really what we’re talking about. So, we understand the data. So, we’re saying, okay, we need to look at it. So that’s where, but then we have to think about, you’ve got to empower that organization to understand it. So, I think that’s what you’re saying, right? So, if we’re empowering businesses and organizations, and I always say, anytime you’re going to change, it’s got to start with the top down. Would you agree? I mean, because once you empower those organizations, they can accelerate their sustainability efforts to progress business growth. That’s what you just described. I can’t fix the leaching. I mean, I’m going to do that, but then you just solve, you put a band aid on a problem. You haven’t seen the growth that’s going to happen. Is that what you’re saying?
Sekol: Right. Yeah. So, let’s say that you’re a sailor and you notice the leaching issue. If your leadership doesn’t appreciate what that truly means and is willing to invest the time to dry dock that ship and get their issue remediated, they’re risking potential legal fees or regulatory fees down the line. You really need your leadership on board. Now I do see this emerging in a couple ways, depending on the company culture. There is a ground swell right now of employees who want to make a difference in it, frankly, at a volume that I’ve never seen before. And so just for example, I’ve been in my current role at Microsoft for three months, I joined the sustainability team cause it’s a new team. I have never gotten so many reach outs from across Microsoft and outside the company of people who are working at companies who want to join a team that makes a difference. It’s incredible. So, there is this bottom-up kind of movement, but if you can’t convince the board and your leadership team that this is something important … what I really recommend is if you’re in this situation, get the data, because the data’s going to be the proof that you need to convince somebody that there’s either some sort of business risk or potentially, at worst case, a financial risk in a regulatory fine or lost business or something, and really trying to convince them. I know it sounds tough, and I’ve been in that situation, working in IT and trying to convince leaders to do cyber security initiatives, for example, it can be hard, but if you’re passionate, put the effort in, and with the market pressure we’re seeing, I’m really convinced that your leaders will step up and start paying attention.
Smedley: But we’ve seen from history that if you don’t look at the environmental impacts of what we’ve done to destroy mother earth, that we’re going to repeat the same mistakes. So, what you’ve just described is maybe there’s this ground swell of this new generation of workers that are saying, we’re not going to take it anymore. And we’re going to encourage our management and our leaders to say, look what’s happened. So that’s an interesting point that you just made is so whether it’s in oil and gas, whether it’s in manufacturing and we’re changing it to smart manufacturing facilities, we’re seeing this groundswell. So that means you yourself at Microsoft have had to go through this transition. So, there’s examples now of learning from our past mistakes and saying we have to do better. So, I would say you have to have empathy for customers who on their very own have had to experience some of the issues. I would imagine you’re trying to help companies go through and go through their own carbon goals. So right now, it’s not like you’re saying, look, I’m advising you to do this, but we don’t know how to do it. We’ve had to chug along and experience this and say, we’ve had to do carbon and water and waste the ecosystem. So, I would imagine you’re saying, look, we’ve had to learn to do this, and we’re still learning every day, and we have a groundswell of employees who want to make a difference. So, you have it from a tug, push, pull, all different ways too, as Microsoft.
Sekol: You’re absolutely right. In fact, there’s two things I’d call out. One is we have been on this journey for over a decade. And so, we do have a lot of learnings and really when COVID hit, all of these ESG issues really came to the forefront. And so, what happened was our internal environmental sustainability team, which is focused on these issues for Microsoft, really was under intense pressure to meet with customers and try to help them understand what our journey was. The pressure was so great that leadership looked at it and said, you know what? We kind of need those folks focused still on the internal stuff. This is a journey. It’s not, you know, once and done. They need to keep working. We need to build teams to focus on sustainability as a topic for our customers, which is exactly the team that I’m on. Like I am customer facing. I tell our story. I try to align our journey to our customer’s journey. In fact, I had a customer the other day say when I described how we do our reporting, they said, wow, I really see us in your journey. And I feel like we’re maybe six months behind you is how close he even saw his team. But the second thing I would say is at Microsoft, we have an excellent culture of things like employee resource groups for a range of topics. And one of those employee resource groups is focused on sustainability. And this is where a lot of that passion comes out. These are typically employees who are thinking about ways to help their customers or improve their products, because you know, we have a lot of engineers, along the lines of sustainability. And so, hundreds of people will come together every month and talk about the latest sustainability topics, and we have presenters and there’s a great article on our Green Tech Blog by a friend of mine named Drew Wilkinson that talks about how you can build that sort of sustainability community in your business. So yes, we have tons of lessons learned. It’s not only focused on the tooling, right? It’s all aspects of the business because we’ve been there, and we’ve transformed.
Smedley: We’ll talk about examples in a second, but what you’ve just said is this accountability, it’s a transparency, it’s accountability. So, companies who are going through this, they’re learning it and it’s a value chain that has to occur; it’s collaboration. But that’s what you’re seeing that maybe they didn’t see before, and that’s a good thing, and that’s a part of the journey that they’re going through. Is that correct?
Sekol: Yeah, think about it this way. Imagine if every employee in your company and I’m not saying every employee is interested in sustainability …
Smedley: Not everybody’s on board, right? Not everybody right away. You’ve got to bring people along gradually; it doesn’t happen overnight. I mean that I’m being honest. Right? We’re trying to get people to understand because everyone’s like I’m jumping on board and saying we’ve got to change climate change here. And everybody believes it because we all know not everybody believes at the same time.
Sekol: Right. You’re exactly right. So, everybody is a hyperbole for sure. But let’s say that you had a large group of your employees who really wanted to make a difference and started on their own time, understanding sustainability issues. Now think about what that means for you as a business owner. You now have somebody who has taken the time to explore an area of passion, but who also understands how your business works. When you think about financial services, organizations, customers of your business, other stakeholders, the communities in which you operate, that employee resource is immensely valuable and crowdsourcing ideas from those employees is huge. What’s emerging is this interesting, like sustainability expertise that suddenly everybody needs, but coincidentally employees are ramping up on their own because they’re passionate about it. And they’re trying to figure out ways to integrate it into their business.
Smedley: Are we actually seeing by doing that and maybe this is where the example comes in that by doing this, you are truly seeing operational improvements, operational improvements to that you’re reducing your carbon footprint a little bit at a time. Is that what companies are getting to see and say, look, we’re reducing some waste? We’re not using as much water. We’re seeing real changes that make a difference. Not only in us, but in our suppliers, in the material use, in overall waste. Is that where you start saying, wow, we are doing something that can achieve new carbon goals?
Sekol: Right! That is exactly the hope with a tool like the Microsoft Cloud for Sustainability. It’s great to organize your data. Like the recording and reporting out, especially our stakeholders, (it is) absolutely critical for them to understand how you’re addressing these issues. But you actually need to address these issues, which is the third thing that we focus on, which is the reduction. Because one of the things that we don’t want, I don’t think anybody who’s focused on sustainability, or the climate, or the environment wants to see is a bunch of numbers. Nobody wants to just see the numbers because measuring can quickly become an excuse for inaction. And stakeholders will sniff that out. If you’re reporting your scope three and year over year it’s identical, they’re going to know that you’re not doing anything despite commitments that you made. So, and there are people, your stakeholders are now scrutinizing this information to try to figure out what you’re doing as a business, anyway. I mean, Microsoft, even in our latest sustainability report, we openly admit that our scope three went up because of our continued cloud successes, as well as increased device usage like Xbox during COVID. And we’re taking steps to try to remediate that scope three increase and bring it back down. And it kind of showed us that this isn’t really going to be a linear journey, but we need to keep at it because we’ve made those commitments and we need to meet those commitments as an organization.
Smedley: So, when you look at that and you say, okay, we’re using a tool, that’s going to give us insights… And we’re seeing where we’ve got to make improvements. Is the improvement just with Microsoft or is it everybody in the collaboration of all the partners that are a part of this and that’s what customers and partners need to understand?
Sekol: Right! You’re exactly right. It totally takes place for many companies, including Microsoft, most of the carbon emissions happens in the value chain. In other words, the impact that your company has because it exists, really sits with all those other organizations that are supporting your business. And so, in a lot of cases, it requires working with suppliers. Now it’s not every industry. I mean obviously oil and gas, right? And even financial services like it’s for financial services, it largely sits in their investments in what’s called scope three category 15, which is financed emissions, but many, many companies, it’s your supply chain, it’s your value chain.
Smedley: Is there one organization or industry that’s going to see immediate success over another? When we talk about examples, are some industries right away jumping and saying, we see instant results, and other industries are saying, this is going to be a lot harder?
Sekol: You know what? I don’t see industries emerging like that. Every customer that I talk to has unique challenges around carbon, especially, but the broader climate risk and environmental risk social justice issues. But what I would say is it is emerging as a challenge for mid-market and small and medium business companies. And the reason is similar to what I saw back when I used to be at a Microsoft partner. It’s because a lot of those companies don’t necessarily have expertise in this area. And so, if you think about a 500-person company—to the earlier point—you may not get everybody looking at sustainability and you may not be able to crowdsource that type of information, because you have 500 employees, they’re probably focused on running the business. So, it’s less about which industries are going to solve for this. It’s more, I see the big players trying to impact their value chain, which are a lot of mid-market and small medium business, but I see a lot of those mid-market small, medium businesses kind of struggling. What big companies are doing though, is that their procurement teams or their supplier teams are mentoring those mid-market and smaller companies and saying, look, this is how we look at this, this is why this is important to us, and here’s what we think you should be doing. It’s very similar to what frankly, what I think it’s similar to is what financial services firms with stewardship teams are doing to their investments. They’re bringing them up and saying, hey, we want to get these carbon numbers, we think you have this climate risk, we think you should be doing this, but so it’s less about industry, and I’d say it’s more about size right now.
Smedley: And when we look at that, should any size company be afraid of looking at sustainability, or should they say, no, we’re all in this together?
Sekol: I’d say any company should be looking at it regardless of the size and seeing what they could do. It may be that the risks aren’t as great, but think about, I live in a pretty rural area, and we have some local coffee shops that are not chain focused. For them, source, like sustainably sourcing their coffee is a huge issue because, with climate change, there’s all sorts of issues around coffee beans, as I’m sure a lot of listeners know, for a small coffee shop that could potentially be a deal breaker for them, if they can’t figure out a way to find a sustainably sourced farm, or a farmer that understands the impact of climate change and is looking to remediate their risk, they’re going to be out of business in a couple years. So even at the smallest scale, you need to be thinking about this. How is the climate going to impact you? What kind of changes can you make because your customers may care as stakeholders, you know, are you putting that extra paper sleeve on your coffee cup, or is there a better way to do it? Are you using one-time plastics, or is there a better way to do it? There are all sorts of angles that need to be looked at with this.
Smedley: And that’s the most important thing is you have to look at things you might not have looked at before to be the most successful organization can be even, with their employees. And that leads me the most important question I wanted to ask you, which is probably going to be a tough one. What’s your vision when you think about, because it becomes investment, it looks at everything for ESG and sustainability. I think in the next decade, we think about where we are right now, but should we be addressing maybe a global standard, not just looking at things so narrowly, because I think we here in North America think about the way we do things here, but we really have to be looking at this from a global perspective because we have to think about forests, we have to think about the water, the oceans, what we’re polluting, the environment, CO2, we have to think about everything. And I think sometimes we don’t realize this is a global effort, but I guess for you, someone who’s looking at it day in and day out, and what’s your vision for this? And I know it’s a complicated question. I’m not going to let you off the show until you really get a chance to help us understand that because that’s how we can make change.
Sekol: So, I am a huge fan of science fiction. So, this answer likely sounds a little science fiction, but I’m going to attempt it anyway. In the long run, the standards will help, certainly, streamline how we look at the impact that businesses and governments of the world are having. But what we need to get to is a point where we’re really digitizing the way that we do business to all sing from the same song sheet. We all need a standardized way, not only of reporting environmental, social, and corporate governance data in a standardized way, but also figuring out what are the digital standards that layer on top of this, so that if I’m one large retailer, and I need to figure out what the item level carbon disclosure is of all my products that I sell, it’s no different than my competitor, because it can’t be. I think even Gary Gensler, the chairman of the SEC had this analogy of like milk. Like, you know, what 2% milk is, right? Like it shows up on the carton, even like the color is standard and on food, we have things like standardized ingredients. Like you need to almost have those standards, but have it digitized in a way that we can do analysis to figure out where are the areas that we can make improvements. And so, you know, at Microsoft, we have this idea of a planetary computer, which is largely focused on pulling together the largest environmental data sets and democratizing them for customers and researchers and all sorts of people to look at. If I was going to paint a vision, it would be some sort of secured value chain globally that everybody has access to, and they can unlock it if it’s relevant to them and get the information and do the analytics to really make better decisions and help us meet our climate goals globally.
Smedley: Is it realistic for us to hope for a democratized secure value chain in the next decade? Is it realistic that we can hope for that?
Sekol: Depends on who you talk to in my family, I’m usually an optimistic person, but not always. I like to think it’s possible. And the reason is because it almost has to be, we almost have to get everybody on board in this way, so that we can make more intelligent decisions. I mean, 70% of goods come through the port of Los Angeles and we saw what happened when COVID impacted the port, right? Then we saw the president come in and say, well, we’re moving to 24/7 operations. That is a precursor to what we’re facing. And if we can’t get everybody on board, if we can’t come up with creative solutions as a planet to address those types of complexes, I mean, evergreen, the evergreen ship, same thing. Like if we can’t come up with better ways to address these crises that emerge, we’re going to be in some serious trouble in the next 50 or 100 years. And granted, I am likely not going to make it another 50 plus years, but I don’t want to leave my kids with this problem. Like I want to start working on it now, and that’s circling back to the beginning of the conversation. That’s kind of what led me here.
Smedley: And that’s the point, Matt, we need to leave our planet better than where we came into it. I love that point that you just made, Matt Sekol, industry advocate, worldwide sustainability at Microsoft. Thank you so much for your time. Today’s been a wonderful conversation. Where do we want to send any of our listeners? Where can they go for more information?
Sekol: Good. If you’re interested in learning about what Microsoft’s doing with sustainability, go to microsoft.com/sustainability.