Text Size: A A 
View Comments
Sustainable Investment Leadership
By Christoph Lueneburger, Julia Taylor Kennedy
September 7, 2010
This interview is part of the Council's second annual SEPTEMBER SUSTAINABILITY MONTH, which kicks off a year of events and resources on sustainability. Generous funding of the Carnegie Council's 2010-2011 sustainability programming has been provided by Hewlett-Packard and by Booz & Company.
JULIA KENNEDY: Welcome to Global Ethics Forum. I am Julia Taylor Kennedy,
and for the next half-hour I will be speaking with Christoph Lueneburger.
Lueneburger is leader of the sustainability practice and U.S. private equity
practice at Egon Zehnder International, a human capital advisory firm. His background
is in science, engineering, and philosophy. His prior career includes water
investment, and he has worked to bring sustainability into both his personal
and professional life.
Christoph Lueneburger, welcome to Global Ethics Forum.
CHRISTOPH LUENEBURGER: Thank you for having me, Julia.
JULIA KENNEDY: Go back with me and tell me how you first became interested
in questions of sustainability.
CHRISTOPH LUENEBURGER: Let me start by saying I was born in Germany, and
many of the questions that we affiliate with sustainability now are things that
have probably been more historically embedded in culture in Europe, for a variety
of reasons. So some of it has been with me for probably some period, although
not consciously.
I really became interested in sustainability as an investor when I worked for
a private equity fund where I was a partner leading the water investment practice
for that fund. It became apparent that it is almost impossible to make an investment
in water without seeing the social-environmental impact of what you're doing.
So it was through that nexus that I became interested in sustainability and
then took it from there.
JULIA KENNEDY: About how long ago was that?
CHRISTOPH LUENEBURGER: That would have been six years ago.
JULIA KENNEDY: What kinds of changes have you seen in the sustainability world
over those six years?
CHRISTOPH LUENEBURGER: Far and away, the most important change has been
an evolution away from what historically has been seen as either a corporate
luxury to do with NGOs and charities and other causes that weren't really related
to the P&L (profit & loss), or the purview of flower-smelling nudists
who just for some reason had this bug but didn't really see how to practically
embed this thing called sustainability into everyday corporate life. So that
is where we came from.
I think what you've seen over the last several years is the emergence of a much
more pragmatic and commercial approach to how to make sustainability a thread
in the overall strategy of companies and also, as you said earlier, individuals
in their lives seeking to think about how to live more sustainably.
JULIA KENNEDY: Tell me a little bit about the sustainability practice at
Egon Zehnder. You are doing sustainability and U.S private equity, which as
we mentioned before sitting down might have a tension in between those two roles.
How did you become the head of sustainability practice and then how do you negotiate
doing that and private equity on the side?
CHRISTOPH LUENEBURGER: Sustainability is the reason I joined Egon Zehnder.
I became convinced as an investor that the way to have the greatest impact in
sustainability would be not to buy a few companies here and there, not to speak
with people who already are convinced, but to have access to the board levels
and the CEOs of major companies for whom this increasingly is a topic.
By the way, the tipping point for me personally was when I became a father and
I began to think about what I'm doing professionally in a broader context to
do with how I would tell my daughter one day, and so forth. So that's really
what got me thinking that way in the first place.
I joined Egon Zehnder because Egon Zehnder's access to the board level of companies
globally is just unrivaled, and in fact it has turned out that it has made it
much, much easier to have impact with some of our global clients because of
these prior relationships we've been establishing.
JULIA KENNEDY: How do you approach your clients in terms of getting them
to consider these issues?
CHRISTOPH LUENEBURGER: Let me tell how I don't approach them first. It's
critical for us to articulate crisply that sustainability is not about polar
bears, it is not about trees in Papua New Guinea. Sustainability ultimately
is about the sustainability of our clients' companies. Everything else comes
from that. That is, you'll get to the trees, you'll get to the other things,
but not because they're primary stakeholders but because if you logically answer
a series of questions about how you interact with your stakeholders, with your
environment, where you get your resources, how you treat those resources, how
you allow your consumers to treat those resources as they consume them and thereafter,
if you answer those questions consistently and think about what would have to
be true for us to do this indefinitely, you will necessarily get to a point
where you have to think in some detail about the social and environmental issues.
But that's not where we start.
The starting point, the seed, if you will, with a CEO is going to be with the
kinds of topics that he will be thinking of when he thinks of either his income
statement or his balance sheet.
JULIA KENNEDY: Such as?
CHRISTOPH LUENEBURGER: Let's take an example. Let's say you are in the business
of manufacturing soft drinks. If you're in that business, there are things you
have to think about related to how do you, for example, harvest sugar cane.
What are the practices that you're using? Is there child labor in that process?
And various other things just to do with the raw materials, and not just the
raw materials that basically you're selling, which is a liquid at the end of
the day, but also the way you're packaging it—the aluminum, the plastic
in which you're wrapping it, the degree to which all of that needs to be cooled
on the way to the point of purchase, whether it is being recycled after it has
been consumed. These are questions to do with the very operational fabric of
these companies.
Then there's a broader context that may be around things like do we have chemicals
in the process—plastic bottling, for example? Do we introduce, for example,
endocrine disrupters into wastewater streams that may have adverse effects on
populations that get in contact with them, whether it is human populations or
other ones? Or, more generally, is the idea of selling a sugared drink, especially
to children, is that itself a sustainable idea?
Those are the kinds of very hard-hitting and immediate strategic issues that
a CEO will be thinking about before you have to worry about much more remote
things to do with what was the spotted owl population doing in Alaska.
JULIA KENNEDY: Are clients contacting you or are you going out and finding clients?
Then what kinds of services do you provide? How does that work?
CHRISTOPH LUENEBURGER: It varies. In some cases clients contact us; in others
we contact them. We do a fair a bit of—I guess you would call it marketing.
For example, we published, together with Dan Goleman, a
piece in the Sloan Management Review, the MIT publication, on the
kinds of management practices that will allow companies to embed sustainability
into what they're doing.
Dan Goleman, of course, wrote Emotional
Intelligence in the 1990s. So his approach to this topic is really around
the engagement bit: How do you get people to be motivated to want to do this—what
is it about the proposition of sustainability that relates to people on a visceral
and emotional level, and so forth—in addition to the hard-hitting economics?
That kind of publication, as you might imagine, certainly gets read very broadly,
and so clients will come to us and say, "Look, we read this. It turns out
we're thinking about some of these questions right now. Can we talk about this?"
We do that with some frequency. We did that before with People & Strategy
and other publications. So that is one way.
The other way, of course, is that when you do talk to boards, as we frequently
do—for example, we do a fair amount of board-effectiveness review, where
we go in to boards of major companies and we assess how effective is this board
as a whole. When you do that kind of work, you obviously get exposed to the
kinds of things that board is grappling with, the sorts of issues that are on
the agenda. Increasingly more frequently, sustainability is one of those topics.
It's a huge topic. It's growing.
So if you have that proximity, as we do, it is a quite natural step to say,
"By the way, we would be delighted to help you on that particular dimension."
JULIA KENNEDY: How do you encourage companies to implement change that really
is lasting? I think a lot of companies feel like they need to do certain, quote/unquote,
green initiatives for marketing purposes or to check a box. But how do you get
these companies to really move beyond that and look at underlying sustainability
issues with their firms?
CHRISTOPH LUENEBURGER: You have put your finger on probably what has historically
been the biggest issue for this sector. The good news is that it is much less
of an issue, and I think soon it will not be an issue at all. The reason for
that is that there are a couple of pretty prominent trends that are going to
be virtually impossible to navigate without addressing some pretty fundamental
practices inside these companies.
If you go back five, certainly ten years, what you will see is a real disparity
between the operational reality of sustainability inside companies and the public
perception. That is, companies could very well go out and market themselves
as being green to the consumer. First of all, the consumer wouldn't really know
what that meant. More importantly, they wouldn't have the metrics to independently
verify if you are really doing these things you're saying you're doing. So the
opportunity to use it as a marketing gimmick was substantial, and there are
a number of companies that did that pretty extensively.
The issue with that is that we are now coming into an age, or we have actually
entered an age probably about a year or two ago, where that is increasingly
impossible. The reason why it's impossible is that there is now an emergence
of tools.
Let me give you one example, a company called Good
Guide. Good Guide is in the business of allowing consumers to make decisions
at the point of purchase based on completely transparent information.
Here's how it works. You go into a store. You're looking to buy a sunscreen.
It's an impulse purchase. But you've got your iPhone or whatever with you, and
as you look at the sunscreen, you take a picture, for example, of the bar code.
With that information, which you've sent to Good Guide, it instantly sends you
back some sorts of metrics around the kinds of things that are in this product,
the kinds of packaging and recyclability and whatever you happen to care about.
You may say, Look, I actually don't care about global warming, I think that's
bologna, but I do care about I don't want photocarcinogens, for obvious reasons,
in this product.
Then Good Guide will rate this product. And not only that, it will tell you
this product ranks, let's say a 5, but there's another product that's an 8 that's
in the store or another store that's close to you, because obviously it hones
in on GPS.
What that does it two things. One, it creates a sort of trusted agency that
has no stake in your purchasing this, basically. It really is interested in
informing you. Therefore, it makes transparent the product. In fact it can tell
you things about the product that in some cases the manufacturer will not know.
What I have begun to call this age as a result is it's really "Seller Be
Aware." We are coming to the point where consumers who are not particularly
informed but certainly wouldn't want to Google their toothpaste before they
buy it can spontaneously make decisions at the point of purchase based upon
really good scientific information.
So what that does, to get back to your earlier point, is it makes it very, very
difficult for companies to make claims that are spurious, that are not really
based in fact, because, increasingly, you have people who can verify very easily,
very conveniently, whether or not that's true. And, more importantly, if you
think about the average 18-year-old with a Twitter account, not only will they
make that decision, they will share it with their 1,000 best friends. So you
can imagine that the impact of that is something that boards worry about.
JULIA KENNEDY: Do you find that boards are worried about more informed consumers
and these agencies like Good Guide that move beyond the chamber of commerce
or something like that?
CHRISTOPH LUENEBURGER: Absolutely. We are doing a number of assignments
right now at the nucleus of which is that very idea. The dialogue is moving
away from glossy pages in a magazine to much more socially networked groups
that either you can choose to be part of and understand what the concerns are
and try to address them or you can just hope that you're okay, but that is probably
the more dangerous strategy.
JULIA KENNEDY: One question I asked you earlier that I want to want to return
to is: How have you made this work with your other role as the head of the U.S.
private equity practice at Egon Zehnder?
CHRISTOPH LUENEBURGER: It's a fair question. Obviously, having come from
the private equity realm before Egon Zehnder, it's a space that always, throughout
my time at Egon Zehnder, I've continued to do work in.
Interestingly, we've done a number of assignments that really straddled those
two areas; for example, for the World Bank, where principled investing goes
hand in hand with aspirational social aims; and even increasingly with private
equity funds that have a mandate that is sustainable in nature. So the overlap
is growing.
But even beyond that, many companies—private equity companies, that is—are
beginning to embed sustainability to what they do in a very real way. An example
of that would be, let's say, the Carlyle
Group. This is a major private equity house, over 50 funds, that has recently
struck up a partnership with EDF, Environmental
Defense Fund, that is really focused on improving the investment process
to make sure that the way that they're putting money to work doesn't just consider
the return itself but the way that return is being generated.
But just to complete the question, obviously, some of the private equity assignments
we do are purely private equity and have nothing to do with sustainability at
all. So there is a bit of a disparity at times.
JULIA KENNEDY: Right. I had an
interview last year with someone who was the head of Good
Energies, which is a fund that tries to invest in all sustainability.
CHRISTOPH LUENEBURGER: Richard
Kauffman.
JULIA KENNEDY: Yes, Richard Kauffman. He was on, I spoke with him. He was great
and very articulate and frankly told me that it's much, much more difficult
after 2008—I don't know if things have picked up—to be investing in
that sector; and you're shaking your head. So I wonder how you work around that
and how hard it is to stick to those kinds of sustainable investment.
CHRISTOPH LUENEBURGER: Well, I think we have to delineate a bit—Good
Energies and other investors like them really had a mandate that's focusing
very much on the energy side of the equation. The obvious ones are wind and
solar, then there are things more remote like wave power, and then there's bioenergy
and so forth. That's a very, very important sector, because the problem with
the question is how do you get away from a fossil fuel economy. What kinds of
things are going to have to be in our future for us to be sustainable in terms
of our energy generation? That's important.
I would say that sustainability, though, is a broader field in that it has to
touch on everything. Let's say you're manufacturing sneakers. Not only do you
have to figure out how do I get the energy to heat the resin that I need to
make the sole but also what is in the resin. How does the resin—
JULIA KENNEDY: The supply chain, right.
CHRISTOPH LUENEBURGER: Exactly. Everything to do with it, to the point of
purchase where you actually hold the sneaker in your hand. What has happened
to this product? What is in it? And just as importantly, when someone throws
it away, what will happen to it then?
So I would say Good Energies and others like them play a very, very important
role focusing on the energy side. I do think that sustainability touches virtually
everything, including energy, under the sun.
JULIA KENNEDY: How do you try to incorporate those principles of sustainability
in your personal life? I am curious, did it start in your personal life, the
way you were living, and then jump over into the professional realm, or vice
versa?
CHRISTOPH LUENEBURGER: Gosh, I think it just happened sort of hand in hand.
It wasn't one leading the other. As with most things, the more you become entrenched
in something, the more you learn about it, the more it applies to other things.
There are people whom I have met personally because we have visited, for example,
farms that are sustainable in the way that they're growing foods. I recently
went to a farm like that with my wife and we met the guy who runs a business
that basically manufactures yogurt, that is sourced sustainably—you know,
happy cows and all that kind of thing. He was thinking really about the supply
chain; that is, can I get away from cups and deliver this straight to the consumer
in glass that is then being used again and again?
So it goes both ways. And, vice versa, the other day I had lunch with the CEO
of a fairly large-size company. We had it right around the corner here at a
place called Rouge Tomate, which is a locavore kind of place; virtually everything
is from 100 miles and organic and so forth. So I think those two things go hand
in hand.
JULIA KENNEDY: So it seems like in your personal life local food is very important
to you.
CHRISTOPH LUENEBURGER: When possible. There are certain things you will
find in my house, like Belgian chocolates and a few other things, that I think
will be difficult to eradicate. But, yes, when possible, absolutely.
JULIA KENNEDY: You mentioned earlier in our conversation you are German, you
were born in Germany, and it is more part of the culture there. How have you
watched it evolve since being in the United States? Do you think we are at all
starting to catch up?
CHRISTOPH LUENEBURGER: It's a pretty complex thing. In Germany and in Europe
in general, certainly in Northern Europe, sustainability is much more embedded.
I mean by that you will see many more people biking to work. You will see energy
consumption thought about differently. You see smaller cars using less gasoline.
The idea of driving a Hummer two miles to buy a hamburger, I think, in Europe
would be less intuitive than it might be in some places in the United States.
So at the consumer level, it is not really a conscious and noble thought, I
would say. It is simply much more naturally done. Frankly, many times it's not
something Europeans can take credit for, or at least I feel I can take credit
for, because the cities are built in a way that biking is easier. Walking is
easier, for that matter. The fast-food culture maybe is not quite as pervasive.
So many of the things work in favor of being more sustainable from that perspective.
Interestingly, it is nearly the flip side for corporations in the sense that
to do sustainability well and to make it, as you said earlier, a lasting part
of your strategy, it needs to have commercial impact. You must be able to link
it to shareholder value or whatever economic metric you choose to present your
success by.
In Europe that is a more difficult thing to do, because sustainability is seen
more generally as a social duty. The idea of making money with it, of—let's
use the word "exploiting" it—to actually be commercial is more
frowned upon in Europe because it is just supposed to be something you do. So
therefore it is almost hampered in a way, versus here, I think companies are
beginning to realize this is, just like you would have pursued a quality initiative
ten years ago—you would have done Six Sigma or lean manufacturing or just-in-time
delivery—all these initiatives ultimately were about either saving costs
or increasing market share or something like that.
Well, sustainability need not be different from that. It really can be an extraordinary
differentiator in the market and therefore commercially highly relevant. So
that is where I think the United States has really gotten a lead and is probably
now the place to watch in terms of best practices.
JULIA KENNEDY: So what do you think is the next step? Where should companies
be looking and moving?
CHRISTOPH LUENEBURGER: If I could crisply answer that in a sentence or two,
I would, I'm sure, be very successful with many of our clients instantly. It
depends, obviously, on the sector. The answer for the automotive industry is
different from the answer for banking or from food.
But I would say this. One thing that holds true across sectors is that, as I
said earlier, you have to be commercial. You have to figure out a way to link
it commercially to your balance sheet and in fact even your income statement
in a more immediate way. To do that and to do it for the long term, I think
companies have to really think about the kinds of people that are entering those
companies today.
JULIA KENNEDY: So it's a human capital question.
CHRISTOPH LUENEBURGER: Well, in my opinion it is, hugely. It is exactly
a human capital question. It is a question of culture change. Frankly, when
you now go to a campus to recruit as a major company, that is probably the first
question and certainly the most frequent question you hear: What do you do about
sustainability?
Let me tell you a little episode, if I may. I happen to serve on a board with
a CEO of a company that is in the personal care business. This is a company
that is highly sustainable, whose products are sustainable, whose brand is built
around sustainability.
We had a conversation off to the side about the commercial impact of sustainability
and so forth, and he said something quite interesting. He said, "There's
obviously the bits about our margin and product placement—end of aisle
and all these kinds of things. We're good at that. But, frankly, a great value-creator
for us is when I go to recruit at campuses, I routinely get the very best people,
and I get them at 10 to 15 percent below what someone else would have to pay
them to get that talent. That's because they're attracted to the values that
the brand that I represent brings to them and how that aligns with their own
values. It's a premium that they ascribe to it."
So now you've got a scenario where you're getting the best people. You get people
who care fundamentally about this thing called sustainability. That means they're
going to be tied to you in a much more emotional or, as he said, even spiritual
way than just the functional here's my paycheck, which means other good things,
which means loyalty, which means you really can build a brand around people
who will be there for the long run.
So what do companies have to do? I think one thing they have to do is really
think about how do we build our people strategy in a way to engage the kinds
of leaders who tomorrow will take over and allow this topic to blossom the way
that it will.
JULIA KENNEDY: You mentioned something a couple of minutes ago, which is
that ten years ago a lot of firms would have been thinking about quality control,
but those were actually efficiency questions and marketing questions. Do you
fear that sustainability will be like quality control and in ten years they'll
be focusing on something else?
CHRISTOPH LUENEBURGER: In a way I hope that's going to be true. Quality
control really was a wave, but it wasn't a wave that subsided. It was a wave
that became embedded in organizations; it simply became part of the DNA. At
this point being ISO-qualified and all kinds of standards simply is part of
how people do business.
The ideal scenario for sustainability is one where you don't really have to
think about it, right? We build a model for sustainability which is part of
this MIT publication that has as a last step unconscious proactivity; that is,
companies routinely and unconsciously think about sustainability in everything
that they do, which is where quality is now.
So, ideally, ten years from now, this question of sustainability is going to
have subsided to the degree that the everyday will be thought of in sustainable
way, and really, what a chief sustainability officer will do at that point is
think about the very long term. What happens to our business? I run an airline.
What happens to airplanes 20, 50, 100 years from now, and what kinds of things
ought we be doing today to get ready for that future?
JULIA KENNEDY: Great. Well, Christoph Lueneburger, it has been such a pleasure
having you here on Global Ethics Forum. Thanks so much for joining me.
CHRISTOPH LUENEBURGER: Thank you.
Read More: Business, Environment, Jobs, Sustainability
- Sustainable Risk Management (Audio)
- Good Energies (Audio)
- Connecting Executives with Nonprofit Boards (Audio)
- Investing in the Poor (Audio)
- Customer Social Responsibility (Audio)
TWITTER
Follow us on Twitter.
> Go
FACEBOOK
Become a friend on Facebook.
> Go
PODCAST
Subscribe to the Carnegie Council Podcast.
> Go
RSS Feed
Subscribe to our RSS Feed.
> Go