Podcast | ESG Mindset – A Conversation with Matthew Sekol

Alyse Mauro Mason: Welcome to the Board Perspectives podcast, brought to you by Protiviti, a global consulting firm, where we explore numerous challenges and areas of interest for boards of directors around the world. I am Elise Mauro Mason, and I help lead the ESG and Sustainability practice at Protiviti, and I am joined today by Matthew Sekol. Matthew is a sustainability global black belt on Microsoft’s Cross-Industry team. Matthew leads Microsoft sustainability partners to help companies understand their challenges through data. In 2024, Matthew released a book called ESG Mindset, a guide for companies to think critically about ESG and take a holistic approach to the business. He also serves on the LP Advisory Committee of Morgan Stanley’s Next Level Fund, which invests in diverse-led and diverse-founded startups.

Today, we are going to discuss the ESG mindset, technology and where we are headed, and may even venture into other topics as well. We are joining you today in our personal capacity to share our experience, expertise and insights with you. Matthew and I have the pleasure of talking about ESG and sustainability often, and we thought it could be fun to have one of our friendly conversations, record it and share it with all of you.

Matthew, I love your story. For the benefit of the audience, can you share your path, your background and what inspired your transition to focus more on environmental, social and governance topics?

Matthew Sekol: It’s been a long and winding road. I graduated from college with a degree in liberal arts. From the beginning, I had this ability to communicate, but also to think a little bit differently about business. I jumped right into a career in IT where not a lot of people had that type of — adaptability is the way I’ve come to recognize it. I spent about 15 years in IT, moved into technology sales and ended up at Microsoft supporting capital markets.

This was the late 2010s, and I was aligned with the world’s biggest asset management firms, the world’s biggest ESG data aggregators, and I was like, “What is ESG? What is this thing that I’ve never heard of?” I started thinking back on my career, and I would find little examples here and there of where maybe it intersected, but the company had never said it. As I heard about others at Microsoft working with other companies, I would think to myself, “That sounds like an ESG challenge, but I don’t think the seller knows it, and I don’t think the company knows it.”

I started reaching out across Microsoft outside of capital markets, and I would say, “Have you heard of this ESG thing? Because I think that’s what that company is trying to explain to you.” And they were like, “What are you talking about?” I realized there was this big disconnect between where ESG had come from, born out of this financial concept, and what companies were doing — or, largely, not doing — about it. I set off on this personal mission to help companies understand ESG, and this led me to write a newsletter I started in the summer of 2022. I ended up writing a book because ultimately, I couldn’t find any content for companies about ESG. It was all investing, sustainable investing, sustainable finance — nothing for companies. That’s how I got on this path.

Alyse Mauro Mason: I love it. If we can’t find the answer to something, that means that there’s a major disconnect or a major gap, and you’ve helped fill that gap. What I did not hear you mention is being an author or an editor in your prior life, prior careers. How did that come into play for you? Was it a lifelong dream to be a writer?

Matthew Sekol: It’s always been a dream to write. I’ve been writing business articles on LinkedIn since about 2012, here and there, and then I got away from it for a while. But when I find something I’m passionate about, the words just come out. When the opportunity came to fill that gap, as you so rightfully called out, for companies around ESG, I reached out to a friend of mine who had written a book for fintech. I said, “I’m writing this newsletter. It’s about 2,500 to 3,000 words per week. That’s like half a chapter of a book. Am I right?” And she’s like, “You’re right.” So I said, “I think I want to write an ESG book,” because I’m cranking out half a chapter every week. In half a year, I could write a book with 12 chapters. So she connected me with her publisher, and I wrote a book proposal mostly centered on that idea that there is a gap in the market around this topic.

The book has been doing pretty well. It came out in April. They told me that in the first five months, it has outsold their typical title by two times, so it’s doing pretty well for them. I’m excited to get the word out there, but it has been a journey, and it is quite a thing to hold this thing that you wrote in your own hands.

Alyse Mauro Mason: One of the things I love that you talk about is the fact that an ESG mindset is crucial in today’s business environment. I would love to hear more about that. Why is it so crucial?

Matthew Sekol: When I was thinking about writing the book, I talked to a lot of chief sustainability officers, those working in impacted companies, because I was trying to ask them about their struggles: “What are you struggling with?” What I heard from them time and again was, this word mindset kept coming up, and they were like, “It’s really about shifting the perspective of the board and the company leaders that these issues matter not only to the world and its people, but they’re core business issues, and it’s an uphill battle convincing them of that.”

That’s what led me to come up with this idea of an ESG mindset — thinking about how these issues are material to the business, how they affect the business. Where I landed, like, maybe halfway through writing the book was, I don’t know that these companies really understand that their impact is unique. The way one company impacts the world is not going to be the same as another, even if they’re in the same industry, because no company runs one-for-one direct comparison.

You have to take a hard look at these issues and find out where they intersect. It’s about risks; it’s about opportunities. But also, the mindset part is critical. It’s about shifting your mindset to understand it that way. Not a lot of leaders are good at that thing that you mentioned earlier — that dot connecting. They tend to look at either the headlines — and headlines today are like, the headline is the story, but it’s not — or they’re looking at issues through just one lens.

We’re seeing this even with carbon accounting: If you were to set your carbon goals, most of your carbon emissions for most companies sit in their Scope 3. And if you just start arbitrarily cutting suppliers, you are probably going to create all sorts of business disruption. If you’re not looking at and connecting the dots internally, you’re probably going to miss a lot of this. That ESG mindset is thinking about your issues through a multifaceted lens, trying to find the connections between the risks and opportunities, and then making the most informed decision you can to move forward.

Alyse Mauro Mason: I could not agree with you more. Part of that mindset shift is, there’s a common misperception that sustainability is somehow this loss center, that we’re affecting the bottom line in this negative way. Part of that shift, whether it’s with boards or your C-suite, is that sustainability can be a profit center when it’s done intentionally and when you are engaging with your suppliers and your value chain and your supply chain to be thinking about not just collective impact, but if we make this change, how does that impact your business?

Matthew Sekol: It’s true — and that misconception is maybe the biggest. What fascinates me is, it’s the same challenge I saw when I was in IT: Technology is a cost center. It couldn’t possibly do anything to drive opportunities. And now, 20 years later, you couldn’t have a business without technology, and technology is driving the world’s economies at the moment.

Sustainability has the same thing — I would hope you wouldn’t shut down your R&D because it’s an investment you’re making in the company. Sustainability is the same thing. It’s an investment that you’re making either to address a risk or to create some sort of opportunity. It’s not necessarily something that’s values-driven. It’s very much at the core of the business. Certainly, ESG scores represent an analysis of your business, but you can’t chase the scores. That’s not a way to operate your business. Nor is it about disclosures. I often hear, “ESG is disclosures,” and I’m like, “No, it’s the issues. The disclosures represent data points that can help you uncover the issues you need to address and track progress, which is critical. But ESG isn’t disclosures. It’s about your business.”

When I was in IT, one of my stints was working at a semiconductor company. It was around 2011 — and I write about this example in my book. Thailand experienced severe flooding, and most hard drives at the time were built in Thailand. We couldn’t ship our chips to Thailand, because they couldn’t make the thing anymore. From our end in the value chain through to the PC manufacturers, it was a huge worry that this climate risk was going to disrupt the entire PC value chain at the time. ESG was a thing at the time, but nobody was thinking about that. Nobody was thinking about climate risk at the intersection of your business — at that scale, anyway.

Upon reflection, it was interesting for me — an early example of an ESG risk that needed to be mitigated. Now, they certainly did mitigate it. Since then, they’ve built three-meter-high walls around their manufacturing facilities, and they’ve moved their equipment up to the second floor to mitigate that risk. But this was not something they proactively planned for. It was very reactive. Now that ESG has tipped over into the popular vernacular, we have the tools we need to start addressing these issues more proactively. It’s a question of whether boards get that mindset to start thinking about it that way and ultimately protect the value their business has.

Alyse Mauro Mason: At the end of your acknowledgments section in the book, it ends with wishing the reader good luck. I remember reading it for the first time, and I almost had a chuckle. I was like, “That’s funny, because we do need some luck.” I’m curious: Has anybody else asked you what that meant?

Matthew Sekol: Most people don’t call that out. Most people call out what I wrote in the beginning, which is, “This book won’t save the world.” But you bring up an excellent point, which is, what did I mean by “Good luck”? In talking with so many sustainability professionals out there, the focus on disclosures is a distraction from impact. We’re seeing a lot of burnout out there, and sustainability offices do not have the level of influence, nor do they have the level of budget, to make the changes they need or they want to see in the world or with their company.

When I say, “Good luck,” I hope that in writing this book, I have given people the tools to help shift the conversation in their business and start building that mindset throughout the company to make the impact they want. Whether it is the influence of issues going on in the world on the company, which is more ESG, or whether it’s trying to save the world and its people, which I touch on in one of the chapters, there’s opportunity for individuals here, but it can’t just be “I sit in the sustainability office, and great things are going to happen.” You have got to actively engage, and you have to actively engage the business on the things that matter if you’re going to push. A little bit of luck wouldn’t hurt anybody there.

Alyse Mauro Mason: I love this idea of community and collaboration because no one person, no one business unit is going to solve the issues of business resilience over time. The way companies operate, the element of having a CEO in a position for 20, 30, 40 years is not where we are today. How do we make sure that as CEO tenures and C-suites turn over, that resilience carries forward?

Matthew Sekol: It’s a great point. What I came to realize after writing the book was, because I was pretty hard on the disclosures in the book, the disclosures do one thing well: They build relationships. If you’re a chief sustainability officer and you have to put out a CSR report, you’re going to have to go to every single business unit, get their activity data and recalculate it, which means you’re going to have to explain to them why you’re asking for this data.

If you stop at “I need to get this data so we can report out to regulators and our stakeholders,” you’re missing a huge opportunity. You have to go to them and say that and say, "We also are looking at these issues through a new lens here. We’re trying to figure out what the intersection of our company with these issues is — and that involves you, operations, you, finance, you, marketing, you, sales. All of you play a role in how this intersects with your business.” And that fosters that sense of collaboration if you approach it that way, and not just through “I need your data.” For any sustainability officers out there, and for sustainability offices, you’ve likely built relationships across your business already. Now is the time to start going back to them and building on them to say, “Let us help the business be more resilient together.”

Alyse Mauro Mason: We’ve been talking about data, and I know data is a big part of disclosure. It’s also a big part of measurement, so whether you’re disclosing that information or you’re measuring success inside your organization, how does Microsoft technology help with all elements of this?

Matthew Sekol: I wrote ESG Mindset about the people and processes, but my day job is about the last part — it’s about the technology. From Microsoft’s perspective, we’re trying to take the end-to-end value-chain proposition of data specifically. We have environmental metric calculations and tooling like our Microsoft sustainability manager. But we also think there is business value in that data that needs to be democratized throughout the business so boards and company leaders and business units can make decisions that help the business grow, because ultimately, when our customers do well, we do well.

ESG is part of that, but it also involves things like the groups I mentioned — democratizing data to sales so when they get an RFP, they can respond to the sustainability questions, or marketing, so when they are telling a story and making claims out in the world, they have the data to back that up, or finance, so that they understand, what is a sustainable component in my product and what does it mean to switch suppliers, both from a sustainability and a finance perspective? All these things need to be centered around data.

What I’m finding a lot of times is, companies are laser-focused on the compliance and reporting piece. Our first-party tool that does the calculations, has the pretty Power BI dashboards, that get a lot of attention. But what I find inevitably is, once companies have that solution or comparable solutions, they come back to us and say, “What do I do with this data? Besides reporting, how do I use this data to get more budget, to get more influence, to actually make reductions? We’ve replaced all the LEDs in our headquarters, and now we’re hitting some material decarbonization. This is hard.”

All of that — the cloud and our Azure data services — can help in a lot of ways. But it involves that people-and-processes part too — you have to have the structures in place, you have to have the enablement done throughout your business, so that people understand that this is a different perspective on your business that has some value. Once you start doing that, you’ll find that you’ll get that influence, you might get that budget, start doing things like kicking off data modernizations.

I am convinced that out of everything that’s going on right now, sustainability professionals sit in a unique position because they are the ones who are manually doing this work in a lot of cases today. Even if they have a platform, they are still going around building the relationships, getting the data, trying to make sense of it. But you can’t have it become another data silo. You need to start pulling in that information alongside all the other business information and democratizing it back out to the business so they can make the best and most informed decision they possibly can. That’s where the technology comes in.

Alyse Mauro Mason: Coming back to the manual process, the concept of work smarter, not harder, I get the question about generative AI a lot. With any kind of innovation in business, there’s generally a positive/negative impact on risk and opportunity. The opportunity I see in generative AI is having an effective and efficient reporting mechanism, collection mechanism, saving some time on the manual process. Microsoft has Copilot, which is helping across your sustainability cloud. Some of the things that come up in our conversations — and I know, Matthew, in your conversations — is, what is that risk of generative AI, and then the consumption and usage element.

A study from Hugging Face and Carnegie Mellon University tried to answer the question of how much energy is needed to make AI images a viewable reality. Their findings showed that a single image generation can consume up to half of a smartphone’s battery charge. Similarly, from a water-consumption perspective, the University of California says that half a liter of fresh water is needed to conduct between 20 and 50 typical AI chatbot inquiries on average. If not daily, weekly, you and I get this: What’s the opportunity, what’s the risk, what’s the impact? And all can be true. There can be this idea that yes, there’s going to be increased consumption and increased usage, but what are some of the benefits?

Matthew Sekol: Generative AI has some pretty interesting use cases in this space. The one that keeps coming up that is undervalued is the amount of research published in English around climate change that is inaccessible to a non-English speaker. Something like generative AI can help translate and summarize the information for a non-English speaker, democratizing the access to the information globally.

What I see a lot of companies making missteps in around generative AI right now is, they’re trying to use it as, “Let’s lead with generative AI and not our problem.” I was talking with a financial services institution that has forms you have to fill out for lending, let’s say. They were talking about generative AI, and I said, “Have you thought about making your forms more accessible to marginalized communities to get the information more easily through some sort of generative AI model, explaining to them what the form is because they don’t have that financial acumen that they need to fill it out?” And they were looking at me like I had three heads because they were taking the approach "What do we do with this technology?” I’m like, “What are your problems?” Lending has a lot of problems with reaching funding to marginalized communities, so I hit on that one. There are all these interesting social use cases for something like generative AI.

Machine learning is very similar. It’s very energy-intensive, very water-intensive. But machine learning also has a lot of interesting sustainability applications, like finding operational improvements with IoT sensors and things like that, and tracking and monitoring for alerts when there are water leaks, let’s say, and automatically dispatching somebody to go fix it. Or even innovations like Microsoft has an interesting use case around trying to reduce the amount of lithium in solid-state batteries that I often talk about. We applied machine learning and some high-performance compute to that challenge and took an R&D process that would have taken years down to like 80 hours — that application of artificial intelligence to material science, especially when we need things like battery storage, is such a huge benefit.

It’s about assessing that environmental risk you rightfully mentioned. By the way, all sustainability goals were set before AI was a big thing in business. And then finding, what are those use cases that can move the needle forward for the business, or if the business decides its impact out on the world. That is like trying to think about this mindset shift: How do we use this new thing to impact the business? My advice would be to always start with the problems you’re trying to solve. Don’t start with the technology.

I was on an AI roundtable recently, and I said, “AI isn’t the answer to everything,” which got a lot of strange looks in the room. But not too long ago, California was under a heat dome and the grid was about to go offline. They sent a text message that said, “Everybody in California, go turn down your air-conditioning because we’re about to have rolling blackouts if you don’t.” And they mitigated that entire issue through a text message. They didn’t need artificial intelligence to do that. They just needed text messaging, which has been around forever. Start with the problem you’re going to try to solve. Don’t just blindly apply technologies here and there. Find the right one, and solve your problem.

Alyse Mauro Mason: Thinking about the future of ESG, the foreword of your book begins with a Dr. Martin Luther King Jr.– inspired sentiment around continuing to move forward. We often think about ESG and sustainability as a journey, and we’ve said that word multiple times throughout this conversation. What you and Andrea do and did in the book by referencing the universe is powerful. The quote reads, “The arc of the ESG universe is long, but it bends toward progress.” How do you see the arc of ESG bending and adapting in, let’s say, the next decade?

Matthew Sekol: I’ve been thinking about it a lot this week. Looking back on recent history, ESG is 20ish years old, and we’ve seen, since the late 2010s and early 2020, two of the pillars tip over. One is environment, with all the climate risk and increasingly severe extreme weather events globally, especially in the global north, where it’s hitting the people with more money. So now they’re paying attention to it, which the global south has long been at risk of. Then we’ve had two big social events. One was COVID, of course, and the second one was the murder of George Floyd. We’ve had these E and S issues tip over. What we haven’t had yet is a big governance issue, and we’re entering a time now of uncertainty where boards are going to have to think hard about how their business runs in this operating environment they’re about to enter.

We’re getting our hands under the E piece. I think the S has been struggling because there’s been a lot of political controversy around DEI. But ultimately, the real focus of the S is on stakeholders. That is completely unavoidable and will win out in the end. That G piece, though, is what is at the core of an ESG mindset, and we’re about to see boards do one of two things: They’re either going to hunker down and prepare for the next decade and hope for the best, or they’re going to take an active role and realize that these things are not going away and the world is becoming more uncertain with geopolitical conflict, these regulations coming out, all sorts of economic uncertainty. They really have to pay attention.

One of the other things Andrea says often is, “The time of sitting inactive on a board is over.” She’s right: You can no longer just sit there and wait and let things play out around you. You have to be in an active role. I assume most listeners are not board members, but if you’re on a board, take an active role. If you’re an employee, they’ll take an active role. Think about how these issues intersect with your day-to-day work, with your products, with your services, and start planning, because things are rapidly changing.

You asked about generative AI. Who would have thought that was a thing two years ago, even? I used to go around and talk with customers, and they would ask me to solve some challenges around qualitative information. I would say to them, “There isn’t any tool for that.” Now, suddenly there is. I’m going back to them all and saying, “Do you remember when we talked about this? You can fix that problem now.” Who would have known that level of disruption would come so quickly?

Alyse Mauro Mason: So quickly, and then solving for it quickly. These are concepts that were being talked about, and then look how quickly Microsoft responded to them and built what you’ve built with the different sustainability products in the market and how they’re helping customers and, coming back to connecting the dots, with fabric and other elements of sustainability. It’s not just sustainability. This is a good way to run your business.

Matthew Sekol: And running your business is governance. Coincidentally, it’s the same way we talk about data and AI. That word, governance, is often pegged on the back of those two terms because they require governance. The next decade is going to see a lot of interesting governance challenges crop up and have to be addressed by boards. They will be ENS issues probably too. I write in the book about how these issues interconnect with each other. But governance is going to play a big role coming soon.

Alyse Mauro Mason: The accountability part of it — public boards versus private boards, should there be a difference in how they’re thinking about these things? On a private company board, there’s an advisory element and maybe less of a fiduciary element. How do you see that intersection of, you can be an adviser and you can have fiduciary responsibilities or not, but what is that ESG mindset that every board member should be thinking about?

Matthew Sekol: Boards, regardless of whether they’re private or public, some things have been overlooked with the disclosures of late. The biggest one is climate risk. Climate risk is a part of every regulation, but it is something that nobody ever talks about. I don’t know why that is, because it is the one thing that is going to shut you down if the hurricane blows through and takes your facility with it.

Being on a board today involves a much bigger understanding of how the world works and where it’s evolved to. There’s so much disruption, but I don’t know necessarily that it’s separate from that fiduciary duty either. We often hear in our ESG space this idea of a win-win, but these things are not win-win, and you have to be pragmatic. I’ve been accused of being overly pragmatic, but you need to be a little bit pragmatic with these issues and think about “What is going to impact me? If this happens, how will it hit, and what can I do about it?” And if you’re sitting on a board, regardless, that question is going to be a fiduciary one likely because, one, you’re going to have to make an investment to mitigate that risk or create that new opportunity to capture. It’s kind of a bet. Two, you’ll reap whatever you sow there. There’s definitely a fiduciary component to it as well.

Public companies, though, have that additional level of scrutiny because of the regulations, because of the disclosure. We’ve even seen that Hester Pierce, who was the dissenting voice on the SEC Climate Rule, wrote, “If these issues are material, they should already be in the 10-K.” She’s right. Granted, financial services firms need comparable data, which is what the FCC was trying to drive to. But she’s right — if these issues are material, materiality should be disclosed in that financial document. You should probably understand those things.

What I’m seeing more and more is that some public companies are understanding that, but it is very much hit-or-miss. There’s still a lot of boilerplate template in there, that language that alludes to, maybe they’re not thinking about this all the way. I’ve seen some 10-Ks where they have been hit with a climate crisis, like an extreme weather event, and it’s been on the 10-K for two years because it cost them so much money to recover. That’s no different than a private company getting hit with an extreme weather event. You have to be prepared as much as you can, and be comfortable in the uncertainty because this is an ambiguous space. This is why I like this topic so much: There are no clear answers. It isn’t binary. It requires critical-thinking skills to assess these issues and then move.

Alyse Mauro Mason: Matthew, thank you so much for your time today. I want to give you the last word to close out our conversation: three key takeaways, quick hits, for our audience that you want to leave today.

Matthew Sekol: We talked about so many different things. Don’t be so focused on the disclosures that you miss the intersections with your business, like climate risk, like stakeholders. If you’re a chief sustainability officer or sitting in a sustainability office, make sure you are leveraging those relationships you built around the disclosures to move the sustainability agenda forward for your business.

Start with the business problem. There are systemic issues that we need to face as a planet and as a people. I don’t care how big your company is; you are not going to solve those issues without working with other people. Start with your business. Start with what matters because what matters is your path to helping solve those broader systemic issues.

Alyse Mauro Mason: Thank you so much, Matthew, again, for being here. Matthew mentions in his book ESG Mindset, “The path of resistance leads to clarity, and together we can find clarity and continue to bend the arc toward progress.”

Thank you for being loyal listeners. We hope you enjoyed our discussion today about the ESG mindset directly from the author and a Microsoft sustainability leader and my dear friend Matthew Sekol. If you have any questions, please reach out to us at Protiviti and our friends at Microsoft. Until next time, take good care.