The pragmatist: A world where your company could be so dependable
Part 3 about the type of companies and efforts pulling away from ESG
Welcome to Part III of a three-part series on the types of companies and efforts pulling away from ESG. Each one will follow a similar structure to see what we can learn. Here are Part I on followers and Part II on superheroes. Enjoy!
Last week was Climate Week, and I had the opportunity to talk about this series as the restatement of sustainability goals was fresh on everyone’s minds. For followers, this year’s theme (“It’s Time”) is a poignant reminder that goals aren’t enough. It has already been time for superheroes for a while now, but they need to watch for disruptions and downturns. On the other hand, this message might have a different meaning entirely for pragmatists. It could be “It’s time to look at the changes in the world and change our business.”
As I have mentioned before, the reality of the pullbacks of goals is more nuanced than the media reports, which is why I’m writing this series. The following section, through “The pragmatist,” repeats content from the past two weeks for context. Feel free to skip down if you don’t need the reminder!
A couple of ground rules before we get into this:
It is essential to recognize that activists are pushing and pulling around ESG, trying to refocus companies to do more or less. In both cases, neither may be engaged in ESG, stakeholders, or materiality, and both may swing too hard toward values to drive impact.
The slowdown in institutional investors’ support of ESG proxy resolutions will not be covered here. Still, I believe they are doing their clients a disservice by not diving deep into nuances like these and the resolutions that arise.
When reading about these companies, I encourage you to go deeper and read the surrounding information. For example, what is in the company’s ESG report, 10K, or their industry news? Companies are not always getting ESG right, and the media is getting it wrong. Just as you approach any article with a healthy dose of skepticism, do that with ESG articles. After all, I don’t always get it right or complete!
The follower is a company doing the bare minimum to comply with emerging regulations. It likely has spun up a range of ESG-related programs post-2020 in the face of stakeholder pressure. They’ve examined their competitors and tried to match programs rather than examine stakeholders and materiality. This type of company is an easy target for anti-ESG talking points as the public-facing programs are often not material and are of low company or systemic value.
The superhero is a company that wants to save the world and its people. This company may or may not have the luxury of doing so, based on its ability to fund programs and stakeholder appetite. Materiality may or may not be a consideration in these programs as they lead with ‘ideal’ ESG-related values.
The pragmatist is a company that takes a balanced approach to ESG and either recognizes the risks and opportunities or approaches them through a business perspective.
Each group doesn’t exist in a silo, but I believe that companies skew into one of these categories. As we’ll see here, we may have followers who back away from their goals but have a clear vision for the long term. We may have superheroes who pivot into pragmatism or pragmatists with a mix of focus from the other. Companies may even be followers in one pillar of ESG and pragmatists in others.
Let’s make this real with examples of companies in the same industry appearing as pragmatists as they uncover the realities of a transition against market expectations.
The pragmatist
Some companies understand that the world is changing and that they need to change as well. This has led to a transition from follower or superhero to pragmatist, leading to a pragmatic restatement of goals. As with superheroes, I’m not sure I have seen a consistent, pragmatic approach executed across a company yet, but there are pragmatic ESG approaches to areas of the business.
This particular example will be tricky because it covers an entire industry and sits right at the intersection of what we need to transition away from the quickest while balancing a responsible transition and stakeholder wants.
Of course, I’m talking about fossil fuels.
In 2022, cars and vans accounted for 48% of global transportation emissions. As I drove into New York City last Tuesday to Secaucus Junction and then (as always) witnessed the gridlocked traffic in the city, I found myself utterly unsurprised by this statistic. In the US especially, it is rare to find public transport between cities, as in Europe, for example. On Thursday, I took the bus!
While hybrid vehicles have long existed, the move to Electric Vehicles (EVs) has accelerated, at least in goals that promise us a new fossil-free future.
There’s just one problem.
EV sales have been primarily driven by early adopters and have now plateaued. Without broader adoption, we are in a paced transition, not a hard pivot.
J.D. Power has seen the interest in EVs ebb in 2024. According to Stewart Stropp, executive director of EV intelligence at the company, there are a few reasons for this:
Shortage of affordable vehicles
Charging concerns
Lack of knowledge of the incentives and other benefits
There are other reasons listed, including concerns from drivers with longer commutes. For me, range fear and knowledge about battery performance in cold weather, both material concerns in rural Pennsylvania, have kept me on the sidelines.
Traditional car manufacturers, those not founded on electricity, have never been superheroes in this area despite the opportunity to significantly reduce global emissions. Ford’s 2024 Sustainability Report lists its net zero goals but with a pragmatic recognition that the worldwide energy industry needs to transition by then and that it can play its role with EVs along the way. General Motors seems to favor operational reductions in its zero emissions strategy. Volvo also has a net-zero strategy and includes timelines for fully electric EV adoption at 35% by 2030. All three manufacturers see opportunities in EVs and battery research and development. Ford and GM recognize the importance of green energy on the grid in their decarbonization efforts.
Still, all are now pragmatists in one area: realizing that EVs might be ahead of their time and that consumers want to go on a journey, not make a hard left turn.
Automotive manufacturers have retreated from EV goals due to the plateau and are now returning to where customers are—hybrids. The EU saw a sharp decline in all-electric vehicle sales as consumers favor traditional hybrids, even over plug-in hybrids. Again, in the US, EV sales seemed to have leveled off.
An ESG mindset involves pivoting a sustainability goal around a stakeholder trend. Here, automotive manufacturers pivoted from a goal built on an opportunity back to reality. If a company doesn’t adapt as the world changes, it will likely suffer losses that prevent it from gaining meaningful market share later. A restatement or pullback here is a pragmatic move.
Here is the evidence of a pragmatic pivot. Ford has withdrawn from its ambitions to create a 3-row EV SUV, moving it to a hybrid and delaying the next-generation electric pickup truck. GM has also backed away from its goal of 1M EVs. Volvo has similarly delayed its goals for all vehicle electrification to 90-100% for all vehicles, including hybrids, by 2030.
While the headlines might make it seem like these companies are ‘giving up’ on EVs, the reality is that they are matching stakeholder wants and looking at the issue through the lens of their business.
If these manufacturers shifted to EVs and consumers didn’t go along, would they have saved anything or anyone?
Today, consumers favor hybrid vehicles with extended range. So, there will be a transition period, especially as battery technology evolves. Ford is focusing on lowering the costs of batteries by 2026 instead of developing new EVs, which could benefit the company in the long run. Meanwhile, GM is seeing a similar trend, with CEO Mary Barry saying:
[EV sales] growth will, at times, be very slow, as all-time horizons in the automobile business are vast, but the long-term trajectory suggests that higher volumes of EVs will continue over time. As EV infrastructure and technology improve and more models are launched, many shoppers sitting on the fence will eventually choose an EV.
A pragmatic move to pull back on overly ambitious EV goals is a recognition of reality. Those attacking the energy transition by mislabeling it as a boycott may rail against any progress here and celebrate this shift. On the other hand, activists will state that this is a massive setback in the journey to decarbonize and shift our economy. But again, the truth is more nuanced.
Meanwhile, it seems most consumers are just going along for the ride, company goals or not. Mass EV adoption is on the horizon, just not as soon as early adopters and activists want. Meanwhile, automotive manufacturers have businesses to run, and they appear to be recognizing their stakeholder trends and adapting accordingly.
Take a pragmatic approach, and then what?
Pragmatists are rarely only that. In some core business areas, they are focused on ESG, but in others, they share attributes with followers and superheroes. Still, the pragmatic company already recognizes that ESG issues intersect with its business, but likely with a single or limited focus.
Last week, we saw how Hellman’s mayonnaise intersects with food waste, an example of a pragmatic approach at a superhero company in transition. This week, we reviewed how several factors around EVs can shape an automaker’s strategy to transition to pragmatism rather than take a hard pivot in the hopes of making a market like a superhero.
While superheroes are closest to the ‘activist ideal’ state of sustainability, DEI, and impact, pragmatists are closer to the ‘business ideal’ state of ESG integration. For investors focused on fiduciary duty, this shows them that you understand your business. After all, if businesses don’t get to this point, they may be unable to do much more than be a follower, sitting on the sidelines, or worse, not exist.
Which leads us to the ideal state for businesses.
Companies must first transform themselves into integrators if they will ever save the world and its people, as only they can. This path lies through material issues and a long-term focus. However, as time passes, it is critical to recognize that a slow and orderly transition becomes more challenging.
Companies taking the pragmatic approach should examine all the aspects of the Environmental, Social (stakeholders), and Governance (leadership/processes) and scale successful efforts into other business areas.
Next, empower purpose-filled employees with an ESG mindset. Remember, your company has employees who are experts in your business and their field/work, but they likely came up without understanding the connection of ESG issues to your business. Even today, finding ESG integration in higher education beyond sustainability and social justice issues can be difficult. Upskill your employees on how business has changed and will continue to. Your employees are the best proactive offense against the powerful shifts coming, and waiting for anything else puts your company on the defensive.
…and understand that this isn’t a win-win but takes time and investment.
If you are a leader in your industry, take these steps to understand your business and work across your ecosystem, including with governments and financial services, to orchestrate financing and incentives for the material changes your industry and value chain needs. This action is more productive than disclosing, hoping someone else will figure out what you need. Spoiler: They won’t.
We need dependable companies to lead, those that recognize and act on the need to transition in the short term so that they can last in the long term. This is where resilience thrives, and companies that recognize this today will get there tomorrow.