Peggy and Anne Munaretto, senior manager of climate change and sustainability services, Ernst & Young, discuss sustainability and ESG (environmental, social, and governance). Munaretto says ESG is an umbrella term—and they all are nonfinancial issues but do in time drive financial value for an organization. They also discuss the key drivers for how we get people to rethink being a make-take-waste society and how the younger generation fits into the equation.

Below is an excerpt from the interview. To hear the entire interview on The Peggy Smedley Show, visit, and select 05/25/2021 from the archives.

Peggy Smedley: Anne, right now I’ve been trying to help my listeners really understand what they have to be thinking about when it comes to sustainability. And there’s probably no one better right now than you with helping them understand what it means to understand the idea of not only of sustainability, but when we talk about acronyms, everybody gets confused. When we think about terms like CSR, or ESG. It’s alphabet soup, but I thought maybe the best way to start a show off today is really start from the basics. Or maybe it’s not from the basics, but really defining what ESG means for our listeners and how that’s going to impact them if they really start getting and diving into what sustainability means for their businesses.

Anne Munaretto: Yeah. Sure. So ESG, one of those acronyms you mentioned, is really an umbrella term. It encompasses environmental, social, and governance topics. And what they all have in common is that they’re nonfinancial issues, but that actually do in time drive a financial value for an organization. And a lot of times they come about because stakeholders identify them. So maybe there, for example, environmental issue might be pollution, maybe plastic packaging for the manufacturers and those consumer goods spaces. Maybe it’s going to be carbon emissions associated with either your manufacturing operations or maybe products that you produce.

And then on the social side, this might be something that like talent, the way that we’re developing our talent. It could be the way that we’re considering human rights in the supply chain, it could have to do with diversity, equity, and inclusion. So those are some examples of social.

And then governance, this is going to be things that … I think a lot of companies, especially in the U.S., have been doing well for a long time. Good strong board governance dealing with corruption, but more and more board diversity, cybersecurity, and also what are you doing around integrating ESG into risk management practices, climate into risk management practices?

So we’ve seen ESG now is really this investor-led term that basically means the exact same thing as sustainability. It’s just kind of how investors prefer to talk about it. And this has really evolved over time. It used to be kind of CSR, like you mentioned. And before that, people even talked about philanthropy. So it’s evolved from something that maybe you gave back because you were successful. Like, “We set up a foundation. We’re a successful company,” was sort of a foundation. To now it’s, “Well, we’re successful because we consider our stakeholders and because we’re considering these ESG factors. And now we’re able to really drive value for ourselves, for shareholders, but also for our broader stakeholders.”

Smedley: Anne, what I think is so important about what you’re seeing right now is when you think about investors today, and I think it runs the gamut whether you are a public or a private company, when you think about investors because stakeholders doesn’t just mean somebody who puts up money. You have stakeholders that are your employees, those are your stakeholders. You have to think about that diversity, equity, and inclusion side of this. You have to think about that social, that talent, that humanitarian side of things that you just described. And I think whether you’re polluting our waters with plastic, all the things that you just described, I think sometimes we don’t realize it runs the gamut. And I think we have to take a step back because today those shareholders, those stakeholders, are everybody. And I think we lose sight of that and that’s why ESG is driving what’s happening today with sustainability. Would you agree?

Munaretto: Yeah. Absolutely. I thought you said that well. And actually just kind of quoting one of my bosses earlier today, we’ve got one earth. If it doesn’t go well, that means it doesn’t do much for society, it means society doesn’t do well. And if society doesn’t do well, well then name your client, name your company, that company is not going to do well. The economy is a wholly owned subsidiary of the environment and wholly owned subsidiary of society.

Smedley: So how do we think differently? How do we get manufacturers? We’ve been a linear society for so long since the industrial revolution. How do we get people to rethink about being a make-take-waste society and start thinking about what role manufacturers have to play in advancing sustainability?

Munaretto: Yeah. The good news is I’ve seen a lot of good movement. I’m not saying that we’re there by any means, but I’ve seen a lot of good movement recently in this area. And it’s actually come from institutional investors. So when I think institutional investors, I kind of think of pension funds or those investors looking to not necessarily create quarterly returns, but to make sure that in 30 years when my teacher, who’s pension fund I’m managing, is going to be retiring, that they have a good strong investment portfolio. So I’m now no longer investing for the short-term, I’m investing for the long-term. I think that’s one of the key drivers that’s going to do exactly what you’re saying right now, which is that we want to shift from take-make-waste quick returns to, I need to think about this holistically and is this going to be something that’s going to really provide value? Am I going to always be able to have the resources, for example, in 30 years?

Munaretto: So I think that’s one of the key features that’s driving a lot of corporate focus. It’s listening to the institutional investors, but I guess what can companies do along those lines? So I think one thing is figuring out where some of your biggest impacts are and what you should be focused on because running a business is always going to be about prioritization, which is the same thing as kind of running a household. What are we doing today? What are we doing this month? What are we doing this year? What are we doing in the next three years? And so you need prioritization. And ESG, like I said, is this broadened umbrella topic. Which of these topics are you really going to focus on?

And so from that perspective, it’s kind of understanding what your stakeholders are thinking about when they’re making decisions about you, when an employee decides to take a job with your company or another company, are there any ESG factors that are coming into play? When a customer is choosing to buy from you or not, are there any ESG factors that are coming into play? So kind of thinking about this from a broader stakeholder perspective and also thinking about your company strategy. Which of these ESG factors are going to be relevant to you executing on your ESG strategy?

It’s starting with materiality and starting with where you have impacts throughout the value chain. We’ve got a big impact from a supply chain perspective. For example, maybe for an agricultural products company, we’ve got tons of agricultural products coming in and there’s a big impact on the environment or maybe I’m an automotive manufacturer and so my products are producing emissions. Thinking about that as well as kind of strength will hopefully help companies figure out what are the couple things that we’re really going to focus on in the next several years.

Smedley: We always talk about digital transformation. That you really have to think about where you want to go. That it’s a journey when you think about technology. Where have you seen … I guess maybe the better question I want to ask on this: we’ve seen manufacturers struggle in trying to implement technology because they don’t realize it is a journey. Is the same thing holding true for sustainability? Not understanding that sustainability is a journey as well. It’s one and done. That sustainability is just that?

Munaretto: Yeah. Absolutely. Great point, Peggy. Yeah. Journey is on half of our slides. I know I’m talking to you about slides today, which is very fish out of water for me, but that’s on … The work journey is on about half of our slides probably. And something that I think some of our clients do struggle with. One of my clients, she’s developed a steering committee, pulling people from across the organization … And you need steering committees because ESG, like I said, is an umbrella topic. It’s pulling in topics that usually are covered by maybe HR, and product development, and operations, and finance, and IT. So you need kind of a steering committee to go ahead and be able to come manage these things effectively, set the strategy together, monitor performance, but she was having trouble with telling the steering committee, “This isn’t a one and done thing. This is not going away.” I think that’s maybe one thing. First of all, to realize that this is really not going away. It’s really only kind of continuing to increase crescendo, if you will.

I know I started working on this back in 2011, 2012. It was smaller then, but now the organizations that were working on sustainability then are really considered the leaders today. And those leaders, they always say, “We have room to grow. We have a lot more to do.” There’s a couple of companies that just are seemingly perfect, but half of the time they’re B corporations. They have a different standard than the rest of corporations. I think for most corporations, there’s always room to grow, room to improve, and journey is very much part of it.

Smedley: I’d love for us to do a webinar on this, even more. I’ll really do more education on this because I think the young innovators are the ones who can lead organizations, and I agree with you on this, but what advice would you give young people wanting to do this in their careers? Because I think it’s really important for them to understand they can lead the charge, but they have to get companies to understand. It’s almost like I think Jack Welch was saying, “Everybody has to be a black belt.” I think everybody in the organization has to lead the charge of sustainability. Do you agree with me on that? It can’t just be just a few. It has to be everybody has to be involved in being sustainability champions.

Munaretto: Absolutely. We know we will have failed when there’s just one person with sustainability in their title and they’re the only person looking at it.

Smedley: Oh, I’m so glad to hear you say that.

Munaretto: Yeah. So the good news is that I think what we’re definitely seen in across employee populations, the millennial population is starting to balloon. It used to be 10% of an organization’s employees, and now maybe it’s 30, it’s 40% of an organization’s employees, depending on where you are. And so along those lines, millennials kind of generally care about this stuff. I guess kind of from a corporation perspective, yes, you do need to harness these people’s passion to, one, do excellent work and really consider sustainability, whether it’s when we’re designing new products, when we’re considering how can we go ahead and make our operations more energy efficient, maybe? These are people that are on the ground every day, have eyes, have a voice, and can use it to kind of go ahead and advance, but to some extent they need a venue, they need an area for people to listen. Something that’s part of that.

Smedley: Anne, I know we’re running out of time, but quickly, what are a few of the companies that you would tell other young innovators who are sustainability companies or want to be leaders in sustainability that they should role model themselves at? These are companies who say are doing a really great job and they’re still learning, they’re still getting better at it. Are there a couple companies out there that you’re saying, “Look, they’re doing a good job and they’re still learning to get better at it.”

Munaretto: Gosh, I think that’s almost all of my clients to be honest.

Smedley: Right. Good for you.

Munaretto: It is a long list. And so maybe what I would suggest to young people is think about the … If you’re familiar with the UN Sustainable Development Goals, the United Nations Sustainable Development goals. It’s about 17 goals with a 2030 time horizon, with 30 achievable things like zero poverty throughout the world, but at the same time they’re meant to be a little bit aspirational. And so as a young person, if you can kind of identify which one of those most resonates with you, research it, and then see how you can apply it to your own role, because really at any organization, it seems like all companies are seeking to do more from an ESG perspective now. It’s seemingly everyone. So kind of considering what you guys … what your role is, where your passion is, make it happen because we do need all hands on deck.