Ethics in Business: Interview with Christoph Lueneburger, Sustainability Practice Leader

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.