Most of the companies about which I write in this column are new ventures commercializing cutting-edge technology to reduce or eliminate carbon emissions – companies like GlassPoint Solar, Carbon Engineering, and PrairieFoods.
As a society, we desperately need these kinds of cutting-edge innovations.
However, these kinds of innovations are not the only thing society needs. To the extent that people continue to live in houses with walls that need painting and indoor plumbing that needs faucets, we need companies making these kinds of products as well. And to fit another few billion people on the earth, we need these “old economy” firms to become more efficient and sustainable in their production.
A focus on increased efficiency has already created some material and measurable ecological progress.
For example, the Corporate Average Fuel Efficiency (CAFE) Standards has allowed an enormous rise in automobile fuel efficiency especially since around 2007.
This increased efficiency has, in turn, helped lead a decrease in greenhouse gas emissions in the transportation sector since over the last 12 years, despite an increased number of cars on the road.
In my opinion, efficiency and sustainability gains like those demonstrated in the transportation sector must flow through all sectors of the economy if we are to preserve our standard of living for future generations.
In the words of economist Herman Daly, we most focus on “development” rather than “growth” – using the finite resources we have more efficiently rather than more quickly.
In researching sustainability, I was lucky to have the chance to speak with Ms. Sara Osterman, Manager – Health, Safety and Environmental at Masco CorporationMAS (MAS), a $12 billion market cap company and component of the S&P 500 index. Masco’s products are well known – Delta faucets and Behr paints* are two of Masco’s brands you have probably bought yourself.
Masco is an “old economy” company – making products that consume metal ores and industrial chemicals. I was curious how a heavy manufacturing firm like Masco approaches the topic of sustainability, so was happy when Todd Fein – the founder and CEO of Green Diamond, a consultancy – arranged a conversation between myself and Sara.
Our conversation helped me understand how other old economy companies can (and in my opinion, should) approach the topic of sustainability. Here are some of the highlights of our conversation.
Erik: As a former stock analyst, when I hear the name Masco, I think of building products, not sustainability. Can you tell me how Masco’s sustainability program started and what led you to the role you’re now in?
Sara: Like most companies, Masco has had a sustainability program for several years. In the beginning, it was certainly not a data-driven program that fulfilled a critical business need.
I am an engineer by training, and through the course of my career, started to deal with compliance issues, which included making sure that our operations were adhering to EPA and other agency regulations.
As I worked more in the compliance field, I realized that there were a lot of potential business benefits from implementing a comprehensive, data-driven sustainability program. A lot of this early work was done in my role at one of Masco’s business units and, at that time, I was mainly focused on a bottom up effort to reduce waste and conserve energy.
I moved into a role at Masco’s corporate center in 2015, and it was then that I started thinking about the structural advantages of a sustainability program
Erik: What was Masco’s senior management’s reaction to your initial suggestions to take a more systematic approach to sustainability?
Sara: I’m lucky because our CEO, Keith Allman, is also an engineer by training and is very data-focused. I realized that in order to make the argument for sustainability, I would first have to start collecting data and making a fact-based case. This is when I learned about Todd and his work at Green Diamond.
In my opinion, the most important thing in influencing an organization is finding the motivation that will pull at executives’ heartstrings and purse strings. The fact is that most general managers of factories are not very focused on sustainability – they are focused on the bottom line.
So, to be effective in a campaign to increase sustainability, I had to find ways of showing that these programs could reduce waste and, in so doing, increase profits. Having good sources of data and being able to quantify the benefits and savings of the program helps to convince people.
Erik: Over the past few years, there has been an increased focus on sustainability. Are you seeing any other positive effects to a focused Sustainability plan other than cost savings?
Sara: You’re right there – there has been a big uptick in interest in these issues, and we see this especially as we engage with our shareholders. Additionally, more and more financial indices based on sustainability measures are being created, so a good sustainability program leads to a tailwind in the investment community.
In my time at Masco’s corporate center, I’ve noticed a change in the questions we receive. Early on, we were receiving more “check-the-box” kinds of queries about this or that product certification, for example. However, just a few weeks before we published our first Sustainability Report in 2016, we received a very detailed and thorough request for information from a large, influential investor. We were able to respond to that investor with a copy of our Sustainability Report and field other requests for this information – requests that have continued to become more numerous as time has passed.
Now, rather than taking a passive approach of fielding questions, we are more active in our messaging related to sustainability. We are collecting data from several different rating agencies, comparing their requirements to our actuals, and using that to figure out how to close some of the gaps.
We set up a Sustainability Steering Committee back in 2016, and it’s worth noting that two of the committee members from the executive team are from the IR and Human Resources (HR) departments.
Erik: So you’ve seen some positive effects on the HR side as well?
Sara: Certainly. Masco employees are part of their communities, so naturally we are concerned about the same things those communities are concerned about: carbon emissions, clean air, water pollution, and the like.
On the hiring side, I think it is too early to tell for certain – we have some anecdotal data that we haven’t been able to drill down on yet. It looks to me like a focus on sustainability may be a factor that can attract employees to join the company. Our ACE program – a job rotation for new graduates – includes training about sustainability, and it looks like people interviewing with us are reading through our sustainability-related materials on our corporate website.
Erik: One last question: What are your goals for sustainability at Masco?
Sara: I think one of the main things from a business perspective is to start to tie our efforts in sustainability to a brand premium. In other words, I would like to see consumers choosing Delta faucets over other brands because of our focus on sustainability and conservation features we’re adding to the products that will save them money.
From a data standpoint, I think we still have some work to do in measuring sustainability in our supply chain and in improving system-wide sustainability over time.
The conversation with Sara was enlightening to me – seeing how a large manufacturing concern with long and complex supply chains was approaching sustainability. It was also refreshing in that I met someone with a strong focus on quantitative measures and the power of companies to improve their approach to sustainable development.
Sara knows, like I know, that business as usual approaches will need to change if we are to be successful as a civilization. Intelligent investors take note.
* NOTE: Delta and Behr are registered trademarks of Masco Corporation.