Walter Link has been working with companies and governments for over 30 years to make sustainable growth mainstream. He now says for businesses to aim for sustainability itself is no longer enough.
Walter Link is Chief Executive of Now Partners, an outfit he Co-founded that helps private and non government organisations align their strategies to the environmental sustainability challenges the world faces. In the last decade or so Walter Link suggests that companies have become more willing to embrace regenerative value creation versus sustainability, to begin to reverse the damage that has been done to the planet.
He suggests that regeneration is now a megatrend propelling ESG (environmental, social and governance) investing where over 40 trillion dollars of private capital has already been deployed. Both business-to-business and business-to-consumer commercial relationships all have a greater preference for more sustainable products. The price and the quality have to be good, naturally, he says, but sustainability isn’t separate from overall performance because it has become a significant component used to evaluate companies.
Excerpts of an interview with Walter Link.
Looking at the challenges of the current day, has the agenda for a regenerative economy made a significant impact or is that only for the short term?
There are short and long-term trends in business success and economic development that are sometimes aligned and sometimes appear contradictory. Considering the investment side, when I started helping to create the sustainability, investment, and business movements around the world over three decades ago, what we now call ESG (economic, social, and governance) investing was minuscule. Today, it has since blossomed into a 40 trillion-dollar market, setting a megatrend that will continue for the future.
At the same time, coal and other carbon-intensive energies were still among the best asset classes last year. Short term trends are sometimes contradictory to long term ones, but it doesn’t diminish the truth of the long term trend. A company needs to be successful in the short, medium, and long term. We must monitor the market circumstances without being dogmatic and do what’s immediately necessary without losing the long term perspective.
ESG investors have a large amount of capital they can deploy in companies serious about their impact on the world. But how relevant is the availability of this investable capital for private companies in Sri Lanka? How can they tap into this capital?
An intriguing thing happened a few years ago at a business roundtable in the United States, which brought together the country’s biggest companies, represented by their CEOs. They said that the era of shareholder value moved into one of stakeholder value.
What changed within this conservative but forward-thinking business community who are aware of the short term realities and the long term trends? I believe it was that these megatrends propelling ESG investing were relevant to all stakeholders that are important for companies, not only investors. For example, if you look at the numbers for clients, both business-to-business and business-to-consumer, all have a greater preference for more sustainable products. The price and the quality have to be good, naturally, but sustainability isn’t separate from overall performance because it has become a significant component used to evaluate companies.
It is the answer to why a company like Tesla has become more valuable than the German or Japanese car industry. They integrate high performance with an engaging driving experience and an aesthetic look while positively contributing to addressing the climate crisis and sustainability. Tesla’s share value reflected everything that motivates people to buy cars in the present and the long term. Although Tesla was selling fewer cars than the Japanese or German automotive industries in the short term, investors extrapolated into the future, recognising this was a solution for driving and mobility as well as energy efficiency, pollution reduction, and making a lesser negative impact on the climate. Good things coming together helped propel the great value.
When Bayer, the largest and most successful German chemical company for decades, acquired Monsanto, an American agrochemical and agricultural biotechnology company that specialised in things like pesticides and GMO seeds, for 68 billion USD, Bayer considered the long-term perspective based on prices, seeing it as a fantastic opportunity that was valuable to the future success of the business. But the stock exchange did not share that opinion, and Bayer’s value collapsed, even below Monsanto’s price, down to 50 billion USD. It was the greatest destruction of corporate value in the history of the German Stock Exchange.
Bayer’s value collapse wasn’t philosophically motivated. It was the result of a long-term perspective that reflected in its prices as this way of doing agriculture is a thing of the past because the future need is regenerative agriculture which is very productive and is already available and happening all over the world. We now have regenerative agriculture methodologies that are much more productive than chemical-based conventional agriculture, and the German stock market was able to project that into the future and say – ‘not a good idea’.
The market’s valuation in Bayer’s case suggested this wasn’t a smart move. Many Sri Lankan companies access capital from global markets, both equity and sometimes debt, from large pools such as insurance money and sovereign wealth funds. Has the outlook of those managing these portfolios on behalf of these clients changed over the past five years in a measurable way? How can Sri Lankan companies approach ESG: environmental, social, and governance issues here?
The socially responsible investing movement I helped create over three decades ago has grown to over 40 trillion dollars today, which is measurable. It’s still not the majority of the market because investing in carbonheavy industries continues to yield good short term gains, but like Bayer, you may also lose money unexpectedly.
Markets always look ahead, adapting the future value to the current situation. Although some could say this happened because Germany is a western, modern market, I can talk of a similar example from Brazil, about a publicly traded Brazilian energy company that owned two profitable coal power plants. Because they were mainly into renewable energy, including solar, wind, and hydropower, they decided to sell the two, and no sooner than they did, their stock market value rose considerably. Traditional analysis would question why they would give away a cash cow that produces a lot of cash in the short term, but the market was making an arbitrage between short and long term benefits.
Circling back to the question of shareholder value and other existing important stakeholders, we talked about clients, but we also need to talk about talent. Skilled talent is the scarcest part of a business, which is true worldwide. These are people with MBAs, and engineering degrees, highly qualified professionals. The younger generation wants sustainability in addition to a good salary and success for themselves and their families, they want to make a positive contribution to the world. In a survey, global consulting firm BCG reported that they have a 300% preference for more sustainable companies.
While this trend may have yet to take root fully in Sri Lanka, it is prevalent in many countries. For example, according to friends who operate investment banks in Brazil, candidates used to stand in line for an interview when job opportunities arose, but employers now even have to provide incentives for candidates to apply. The new generation wants to make a positive contribution to the economy and society so that they can feel proud working for a company. Unilever realised this and shifted its international image and is now seen as a company moving towards sustainability and regeneration.
Was the former CEO Paul Polman, the person driving that?
Yes, but partners of mine in leadership there were laying the groundwork before, to which Paul came. He had a big struggle against Kraft Heinz, which operated much more traditionally, prioritising shareholder value and reducing costs with no care about social and environmental issues. Paul was determined that Unilever moves towards this new, integrated way of doing business that considered sustainability. For a while, Kraft Heinz’s numbers were good, but when the long-term trends hit, Kraft Heinz collapsed while Unilever rose. Today, two million people are applying for maybe 10,000 jobs at Unilever, giving them an incredible competitive advantage.
That number once again expresses what we call regenerative value creation, where you integrate the regeneration of people, society, nature, and climate with business success.
When SAP – Germany’s largest software company with sales worldwide – began to measure the connection between the satisfaction of their staff and their profitability, they found that their profit rose by 60 million each time their culture index went up by one percent. Suddenly, it wasn’t the assistant of the assistant who was doing the cultural survey anymore, the CFO was the one talking with the Financial Times in London about this phenomenon
We are in a time between paradigms, and it can be confusing. On the one hand, you have the success of coal, and on the other hand, you have the success of SAP and Unilever, among others. Nothing’s black and white, and as a CEO today, you need to learn how to navigate this very complex situation of a very pragmatic transition into a more fundamental transformation.
Your message calls for a shift in thinking that isn’t fully absorbed everywhere. If it is still challenging, it must have been worse thirty years ago when you started. What gave you the conviction to believe that you were onto something?
I think growing up in Germany and having a strong awareness of our second World War history played a part. Learning about the Holocaust and the terrible things human beings can do. With that came a very strong sense of responsibility. I was also part of a 140-year-old family business in Southeast Asia. It’s an industrial group of companies where we connect with companies like Siemens and Carrier in America and around the world. I wanted to translate this sense of responsibility into our company when I was coming into a leadership position there, and I think one of the reasons behind our success as a company for so long was that we were respectful guests in the countries we were present in.
We wanted to and did behave quite well, and could translate that into the social activities of the company, but it was harder to do that environmentally because the products we were selling were produced and designed in Germany, America, or other international markets.
Realising that I have to influence markets around the world, especially in countries that design these products to make my company sustainable, I left my brother to take leadership of the companies. Afterwards, I focused on creating these movements in North America, followed by South America, and then throughout Western Europe. At that time, Eastern Europe was also opening up and bringing together the companies around those regions that were already successful because they were more sustainable.
For example, Natura, a purpose-driven Brazilian startup doing beauty products, purchased The Body Shop, a British business in 2017, and today, it is one of the five largest beauty groups worldwide. They have scale, having bought The Body Shop, Avon, and Aesop, and from the beginning, they were very passionate about emphasising social and environmental values, but that didn’t mean they’d compromise on business success. Instead, they became more successful. If you visit Brazil and ask Brazilians about Natura, even those who don’t use their products are proud that such a company exists in their country. They have the best brand value reputation of any company in their market.
I brought together companies from different countries around the world that were successful because they were more socially and environmentally responsible, which translated into real corporate value as well as motivating the staff, clients, and investors and a better relationship with regulators in the state. When you see hundreds and hundreds of successful companies like that around the world, it gives you a clear understanding that this is the future of doing business successfully. We’re not talking about being philosophically nice; we’re talking about what will make you successful in the future.
I brought together companies from different countries around the world that were successful because they were more socially and environmentally responsible, which translated into real corporate value as well as motivating the staff, clients, and investors and a better relationship with regulators in the state
You talked about your time leading the family business your brother now runs. Germany has a rich heritage of family-run businesses that dominate a large part of the economy. There’s a word for that.
“Mittlestand” refers to companies small in size but with billions in turnover, which are also the backbone of the German economy, in a way.
Sri Lanka also has many family businesses, even fairly large companies that are still family-owned. Does having a large portion of the economy controlled by families create an environment to make sensitivity or the alignment around those issues that you talked about – environmental, social, and even governance – easier to achieve in a country?
I believe employed CEOs tend to look at the short term and maximise the company’s financial success and not necessarily think about the long term because they’ll be working elsewhere in the future. Family-owned companies must be successful in the short term but must also think about their children and future generations. I believe they think about maximising both short term financial success and long term economic success.
For example, if they are looking at short term financial success at the cost of the company’s reputation, then dividends in the short term will be good. But in the long term, the value of the company will drop because the value of a company also includes how well respected it is in the country. As a family like myself, you want to be respected. If you harm the economy, maybe you’ll get away with it for years. Still, with society waking up very fast currently, you don’t want to have your family name associated with bad business practices. You’re looking at the longer-term economic value for you as a family and society.
We also need to consider nature because 20, 30 even 100 years ago, nobody gave a thought about it. There was clean air and water everywhere, the climate was fine, it was in abundance, and in a way, people didn’t need to think about it. In retrospect, it would have been great if we had, climate change is in front of our faces now.
You have deep connections with Asia. Your family business has deep connections in Thailand and the supply chain in the region. You also have a connection with Sri Lanka. Can you tell us what endears you to Sri Lanka?
I had the honour of meeting Dr A T Ariyaratne, the Founder of Sarvodaya, about 15 or 20 years ago, when I was hosting a big conference in New York, being on the board of an organisation there. I remember Al Gore was speaking, and we had 5000 attendees; it was hectic. And this very energetic man in a sarong and a traditional white shirt came to me and said, ‘Walter, I want you to help us take Sarvodaya into the 21st century. I’ve read your books and heard you speak, and I need you to come to Sri Lanka’. So, I agreed, he was very convincing, as he can be.
About a month later, I came to Sri Lanka on my way to Thailand. After he picked me up at the airport, we were on the way to Moratuwa, the headquarters of Sarvodaya, when he said to me, ‘oh, by the way, I have invited 250 leaders of my organisation. For the next four days, you will run a Strategy Workshop for them to help us see what we will do in the coming years. That’s how I was recruited. Since then, we have been working closely together, helping to develop Sarvodaya and Sarvodaya Development Finance, which, under Channa’s great leadership, has become such a successful microfinance institution that financially supports Sarvodaya’s social, environmental, and other good work. It was a great honour and a great pleasure, and this was my introduction to Sri Lanka.
Walter, this has been a great chat. Anything you think you need to add to round it off?
We are planning a World Future Economy Forum to be held next July here in Sri Lanka. Although the dates aren’t finalised, the aim is to bring together Sri Lankan business and finance leaders, policy leaders and other stakeholders with representatives from around the world to look at the future of the economy here in Sri Lanka and around the world. They are related because you are an export and tourism-oriented country and the interface between the Sri Lankan economy and the global economy is very strong. It will be similar to what we did in Egypt during COP27, where we brought together 400 business leaders from around the world and Egypt. They represented not only the biggest companies but also many family businesses, big financial institutions, the government, the stock exchange and more, where we looked at the future of the economy and made very clear solutions, initiatives and how we can translate them into reality.
For example, here in Sri Lanka, you had a traumatic experience in the agricultural sector as the conventional, chemically driven Bayer/ Monsanto-type agriculture system changed virtually overnight when the President banned imports of any chemical fertiliser or pesticide.
It resulted in the collapse of the agricultural output and gave a bad name to organic because the farmers didn’t know how to do farming in a new way. But there is a way to do regenerative agriculture that is much more productive than conventional agriculture, which is why the German Stock Exchange punished Bayer.
Regenerative agriculture brings together the success of farmers because it’s more productive and beneficial to their health; they are working without toxins, after all. Moreover, alternative regenerative energy production and agriculture on a large scale can solve our climate crisis. Sri Lanka could play a key role globally if it introduces regenerative agriculture at scale in a way that’s better for farmers, consumers, nature, and the climate.
Sri Lanka could play a key role globally if it introduces regenerative agriculture at scale in a way that’s better for farmers, consumers, nature, and the climate