Getting strategic on environmental, social, and governance issues

In a Q&A with the KPMG Board Leadership Center, Bob Langert, former vice president for Sustainability at McDonald’s, offered insights for directors and management on addressing ESG issues.

A senior sustainability advisor for The Context Network, Bob Langert spent over three decades at McDonald’s Corp., where he retired as vice president for sustainability in 2015. In The Battle to Do Good (2019, Emerald Publishing), Langert recounts his journey as a sustainability leader, including triumphs and some bumps in the road. In a Q&A with the KPMG Board Leadership Center, Langert offered insights for directors and management on addressing environmental, social, and governance (ESG) issues.

KPMG Board Leadership Center (BLC): In your book, each chapter includes insights or “nuggets” you learned from the hard knocks you experienced along McDonald’s ESG (corporate social responsibility (CSR)/sustainability) journey. Of all those hard knocks, which ones were the hardest?

Bob Langert: I always thought during my 30-year sustainability tenure, and I still believe today, that the practice of not proactively handling emerging social and environmental issues is a major flaw throughout the business world. Time and time again, companies prove that it’s wait, wait, wait for the crisis. Then the company leaps in, galvanized with orders from on top to solve it. Time is crunched. Science is discounted. There’s a rush to placate public pressure. Excessive costs are incurred. The brand is tarnished. And the solution is most often temporal and half-baked. 

We played defense for the longest time at McDonald’s. We let others define what we stood for. The solution is for the C-suite to get strategic about CSR. Create the purpose/mission that is right for your company. Set goals and measurements that make sense, too. I am not saying this part is easy, but it sure beats spinning wheels due to the whims of external stakeholders, which include those interested in collaboration and those looking to tear you apart.

BLC: Most companies initially see ESG issues as compliance or reputational risks to be managed. What was it that pushed McDonald’s view of ESG ssues from a set of risks to opportunities for value creation and long-term performance?

Langert: At McDonald’s, we were guilty for the longest time of the same “let’s stay out of trouble” and short-term mind-set. Years ago, one of our key leader’s mandates was for McDonald’s “to get caught doing good.” Some of this was truly due to not tooting our own horn, but due to fear of opening Pandora’s box, and inviting criticism of our company in some other corner. After all, no company is a perfect corporate citizen. 

The opportunity side began to surface as the company studied the ongoing metrics for Brand Health. Half of the 40-plus attributes were long-term and CSR-related, such as environmentally responsible packaging, concern for kids’ well-being, treatment of people, supply chain sustainability, and concern for societal issues. For each one, McDonald’s was perceived poorly.

McDonald’s market research experts showed how a 1 percent improvement in Brand Health could deliver 2 percent growth in sales. The catch was that it takes a three-to-five year timespan. In general, our system historically desired sales tomorrow, not five years hence. So our $2 billion annual marketing dollars were spent for short-term benefit.

The solution was right in our face for many years. Success spoiled any solution. We were serving a growing customer base, 60 to 70 million customers a day. For a decade straight from 2002 to 2012, McDonald’s same-store sales were increasing month by month. Why change?

There were many reasons for the McDonald’s business crisis that hit in 2012 and escalated the following couple of years. Addressing Brand Health was part of the turnaround effort. The emphasis on Brand Health was the primary driver for creating and implementing an overarching CSR strategy. By 2014, we defined what we stood for and set goals best for our business and society by integrating a 2020 Sustainability Framework. The reactive battle came to an end! Since I retired in March 2015, this framework has exponentially evolved.

BLC: Like other name brands, McDonald’s set ESG goals for itself that were clearly bold. Do ESG efforts necessarily need to be bold, or can incremental progress work just as well?

Langert: Whether you pick small steps or big steps is secondary. Getting started with a proactive, integrated, C-suite-driven approach on ESG is the key. Companies without their own plans might claw forward and thrive for a while, but lagging will leave them behind. The risk of being complacent is far greater than being proactive.

I highly recommend incrementalism. I know the ESG activists want audacious targets, but not every company can be a WalMart or a Unilever. Many of the big changes we made at McDonald’s started small, got pilot tested, and expanded slowly to ensure we were doing it right. Sustainable fish was that way. We created a partnership with Conservation International. They worked with our fish suppliers to develop a scorecard that slowly was put to use. Trust was gained. After 10 years of incremental advances, by 2013, all fish for McDonald’s worldwide was Marine Stewardship Council certified.

BLC: Terms like “climate change” and “social responsibility” can easily fall flat in a boardroom conversation about corporate performance and profitability. How did you frame the strategic importance of ESG activities for different stakeholders, including McDonald’s leadership, franchisees, and investors?

Langert: We used business terminology, not ESG/CSR terminology. For instance, we framed our work to franchisees as all about reducing their energy costs, and even though the societal benefit was related to climate change, we did not use that language since it can be divisive. The 2020 Sustainability Framework we developed was headlined: “Growing our business by making a positive impact on society.” This big idea that doing good is actually good for business was a sea change for us.

Our culture always looked at doing good through an ethical/values lens. I would go to meetings about tough environmental issues and the question first asked was, “What’s the right thing to do?” That’s important, but it is not a strategy. We eventually adopted a 2020 CSR & Sustainability Framework formulated on a thorough business case. The business case will vary by company but can include improvements to brand and reputation, supply chain resilience, cost savings, employee recruiting/retention, innovation, and more. McDonald’s instituted an environmental scorecard for its primary suppliers that measured water, waste, and energy usage and costs—and we showed annual savings in the $30-to-$40 million range.

BLC: ESG encompasses many issues, but we’re finding that social issues—the “S”—are particularly challenging for companies to address. Any words of wisdom for boards to help them get their arms around the “S”?

Langert: I would replace “social” with "Shared Value". Stressing “social” does seem like an improper stretch for a company. But if a company says it is committed to delivering shared value for both business and society, then company management can be more at ease and work on the social and environmental issues most germane to their own business success while helping to solve an important society issue as well.

For example, McDonald’s didn’t set a goal to purchase sustainable beef simply to do good. We had $5 billion beef brands. Beef was getting attacked on several sustainability fronts and becoming less relevant to consumers. We decided to collaborate with the beef industry and NGOs to develop sustainable beef principles and standards in order to sell more beef.

BLC: Ask and answer your own question for directors and senior corporate leaders regarding corporate sustainability programs and initiatives.

Langert: Why are you holding back on making ESG an important driver for business success?

We are in the midst of a major conversion when it comes to companies’ relationship with society. For the past 25 years, the primary approach was risk aversion, laying low. CSR was but a do-good thing on the peripheral of the core business, important only when a crisis occurred.

That approach no longer works. From now on, successful companies must see CSR as central to their business. The best companies will successfully locate and navigate through the intersection of doing good for society while helping their business prosper. Business and capitalism need both a good financial bottom line and a responsible societal bottom line.

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Getting strategic on environmental, social, and governance (ESG) issues
Insights for directors and management on addressing ESG issues from Bob Langert, former vice president for Sustainability at McDonald’s.

The views and opinions expressed herein are those of the interviewee and do not necessarily represent the views and opinions of KPMG LLP. 

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