Responsible Leadership: An interview with EY’s Global Vice Chair – Sustainability

To begin the series, Virginia Bottomley interviews Steve Varley, EY Global Vice Chair – Sustainability.

VB: Steve, you went from running the UK to taking on the sustainability challenge. So, what does responsible leadership mean to you, to EY, to your clients?

SV: I think responsible leadership, both at corporate level and personal level is getting a lot more scrutiny nowadays on the back of the pandemic, and big issues like climate change. We have a good culture of consulting; we talk to each other a lot.

I think the starting point for responsible leadership is talking to colleagues when I've got a difficult decision to make.

Also, I think responsible leadership is anchored in your personal values, and your corporate values. But then I can make it even more simple. So, for me as a simple person, I sometimes do reflect on decisions, where I know that there's such scrutiny on being responsible. And I think about what my kids would say, if I had to explain this to them. How would I explain to my mum and dad, my grandparents, to friends more broadly, if I was on the stage of public opinion? How would I justify the decisions I've made? What I've witnessed, and I'm like you, I've done my fair share of parliamentary select committees. But that's I don't think the litmus test for me. The litmus test is, frankly, making my family and friends proud and comfortable of the things I do, my organization does every day. And that feels really personal to me.

VB: Really interesting. Only the other day, David Attenborough was saying that people will look back on our generation and the climate emergency in the same way as they looked back on slavery, in other words, that we will be condemned if we don't take action. And that's not just about government's taking action, but it's about businesses taking action, and individuals taking action. So, what have been the most difficult decisions you've had to make in setting your own target?

SV: I remember a conversation I had with my global board on how much ambition we should have in the area of carbon reduction, co2 reduction, greenhouse gas reduction and where we want to be seen on this leadership agenda. But crucially, how do we want to be judged by the people that we're recruiting tomorrow? Those individuals, typically young people that haven't yet joined us, how do we want to be judged. Maybe that connects back to that David Attenborough position on being judged by future generations on the decisions we make today.

I was lucky enough to be at Davos World Economic Forum two years ago, in a small group meeting with Greta Thunberg. My word, what a great speaker, incredibly compelling and one of the lines she used sticks in my mind. Greta said, we all recognize there's a climate emergency, but we're not acting as if it is an emergency. So where are you? We definitely do realize this emergency and that's why the carbon reduction ambition that we've agreed actually makes us carbon negative in 2021. So, we will offset an extract from the atmosphere, more carbon than we emit. We're a simple business, so we're not a manufacturer. We don't have a big loan book. But what we do is pretty important in judging people's ambitions in this area, and we were keen to have a really progressive position ourselves.

We'll be carbon negative this year, we'll remove and offset more carbon than we emit, I think, an incredibly important benchmark for us to set.

VB: You talked about being responsible in sustainability and other areas being a motivator for the new workforce. But what does it mean to the financial bottom line? Is this just doing good? Or is there commercial interest in it? Is it enlightened self-interest?

SV: I think there is a degree of enlightened self-interest. But the petition that we've taken both as a major organization and the work we do with our clients, is really focused on the value available from being more sustainable. The conversations we had and conversations we'd have with our major clients is what the upsides are, from becoming more sustainable. So, for example, to bring it to life;

If you're a consumer products company, looking to differentiate yourself, I think sustainability is a key area by which you can make yourself look different. And from that, get higher revenues.

Maybe there's some product innovation you can bring to bear. Maybe there are some new customer segments that you can access through these new products, maybe there's better cross sell, maybe there's premium pricing that you can get from your customers, because your products are more sustainable. If we think with enough imagination, with enough innovation, there is actually a value led business case to be heard. And that's how we're setting our stall out. We think that our carbon reduction ambition will make us more valuable in the eyes of our clients, because we're walking the talk, we have some new services that we're taking to market that underpin our ambition.

Also, crucially for us, we’re an organization that recruits so many young people. And the average age of our employees in the UK of 17,000 employees is about 27. We're the second or third largest graduate recruiter in the UK. So, what that population thinks of us is incredibly important.

The young population are telling us that climate change is one of their top two considerations when they think about their favorite employee and that's really important to us.

VB: That's really encouraging. I've been involved in health for many years as Chancellor of Hull University, that's a region with that one of the highest carbon burdens. And they have completely transformed the economy with tidal power, thermal power, wind power, hydrogen power. And so, it's fascinating to see how a real threat is becoming an economic opportunity. Is that something you see across business?

SV: Yes, I think there's a significant economic opportunity from the so-called green jobs, the green economy, and what we need to watch out for is the transition cost and transition friction to move from pretty much the heritage that we have today, especially in the UK, to perhaps greener pastures of tomorrow. I think the government can be more progressive on its policies, especially in the area of retraining. I've got no doubt that our young people and our academic institutions can help create a new generation of green engineers, green innovators, green scientists.

What we need to watch out for are those that are employed in industries such as fossil fuel, for example, how do we help individuals that are in good jobs, but those jobs may be becoming less useful in the future?

How do we help them take part in the green economy, and that for me is about retraining incentives at a corporate level to the personal level, to make sure those individuals don't get left behind because that will create societal tension. And as we know, societal tension can lead to populism. And I think that would be a bad place to go for the UK.

VB: Now there are strong social implications aren't there, tell me then about financial reporting. ESG reporting has often seemed slightly chaotic, different companies measuring different components. Do you see a greater convergence and coherence in social reporting?

SV: Well, what I would say is, I think ESG reporting is in its teenage years, it can be somewhat volatile. But on its best day, is incredibly insightful. But we need to actually appreciate that the trade of financial reporting standards took decades of work. And the challenge here is we don't have decades to work before we have a single coherent standard of ESG reporting that's used by everybody. This is a significant challenge.

If we are to deliver a safer, more responsible future, then ESG reporting has to grow incredibly quickly. I think we should all be worried about it, and therefore focus even more on converging our ESG standards into a new coherent, integrated standard that we can all use.

We are some years away from that, but if you asked me a few years ago, I probably said we're decades away. We are picking up momentum, which is good news.

VB: Lastly, Steve, you made that big choice. You went from being the UK Chair of the highly regarded business EY to becoming the global sustainability leader. Was that a good call?

SV: Well, after nine years of running EY in the UK, I could say maybe tongue in cheek, it was quite good to have a pass in a new opportunity. I like to think that I've had a career where I've had the opportunity to make big differences. And what better agenda to focus on than the sustainability agenda. I thoroughly enjoyed the last 18 months in a role. I've learned so much. I've got so much more to learn. But it's an agenda that gets me out of bed every morning and agenda where I think I, and we, might be able to make a difference. This is a great place to be.

VB: Steve Varley, thank you very much indeed.