There are not many corporate dramas featuring ESG that have popped up near the gossip pages of French magazines. The saga around Danone, however, is one of them. A couple of years ago its chief executive Emmanuel Faber became the first of his ilk to turn the company into an enterprise à mission — a French legal structure similar to the B-Corp concept in the US. That turned him into a darling of the ESG world, and a quasi national champion for green business and long-term corporate vision in Europe. He also spoke out against excessive corporate pay.

But when food company Danone’s performance slumped during the pandemic, activists attacked Faber — and he was ousted this year. Some observers viewed this as a backlash against ESG; others said it reflected a personality-driven feud that was as complex and controversial as any French political drama.

Either way, the drama raises a big question for other executives, not just in Europe but America too: is it dangerous for them to embrace ESG and long-term perspectives? Moral Money asked Faber this, in his first English-language interview since his departure. This transcript has been edited for length and clarity.

Moral Money: Does your experience suggest that ESG faces pushback? Is it the end of the enterprise à mission concept in France?

Emmanuel Faber: The simple answer is, absolutely not. I think ESG is in its infancy. If you look at the situation as it truly unfolds, the activist investors were allowed to play for reasons that were related to a situation where the board was not functioning properly.

Activist investors are looking for short-term depressed share prices and situations where they can hope to split boards and gain influence over the strategy of the company or its management. The enterprise à mission [concept] has never been the real fundamental topic in this matter — ESG was [just] the excuse that people found to play this game. The enterprise à mission idea has actually been a stabiliser, more than anything else.

[Danone’s] results went down because of the pandemic, and the share price went down because of those results. So then an activist came in and the CEO was ousted. But [Danone] is still an enterprise à mission. So, I think it’s a perfect case, if things unfold properly, to show that it’s a very solid model.

MM: If there had been proper ESG reporting metrics in place, would the shareholders have shown less frustration with the short-term deterioration in performance? Could accounting reforms helped people understand your long-term goal?

EF: Yes! We need this [level playing field in reporting]. We need changes in reporting for all companies. This is so important.

Why? I don’t think ESG will work [if it is seen solely as a way] to save the planet.

If you are a food company, you can only be in business if there are agricultural resources, so you need agriculture to be resilient. To do this, you need soil that is in good health. Soil health is declining all over the place because of intensive agricultural models extracting carbon out of the soil instead of keeping carbon in the soil.

So when we speak about carbon, we are talking about how we are still going to have the raw materials we need at a proper price in five, six, 10 years from now — agriculture is the most at-risk sector from climate change. It’s happening now as we speak.

So [to report this], in 2019, we decided to go and create the carbon-adjusted earnings per share [metric]. It’s the first time ever for a listed company. We decided to value the cost of carbon at €35 a tonne and deduct that from EPS. And we said to our shareholders, if we pay a dividend to you above that carbon-adjusted EPS, it means that the money that you’ve put to work with us hasn’t finished its work. [We need] to make sure that we can continue to pay you dividends in three, four, five, 10 years from now.

This is a totally different perspective [from traditional corporate accounts]. And because Danone is now declining on full-scope carbon emissions [we said that] the post-carbon EPS is going to grow faster than the [standard] EPS, because the carbon cost is going to reduce over time.

This is a simple example, with carbon, [of what happens with ESG accounting]. If you can have that same [long-term perspective] on a variety of important material metrics for the company’s business, you’re then able to have a proper discussion of investment — and not a discussion about whether ESG is important or a distraction.

MM: Does your experience suggest that executives who want to chase ESG goals will have a target on their back should their short-term financial performance waver?

EF: No. The fact is that these activists had no plan. And without support from inside the board, they would [have got] nowhere.

The truth is, [CEOs should not worry] about activists. Just make sure that when, as a CEO, you’re looking to transition [a company] towards a more resilient, inclusive organisational structure, make sure that the board is there with you. So that’s the only lesson — have the board with you. But it’s not a new lesson.

MM: Some press reports have described you as authoritarian. Do you think that another message might be, if you are a CEO who wants to embrace ESG, it is important that you take the rest of your senior management with you?

EF: I really don’t think it is. Danone’s employees supported this. In France, there’s this saying [about making excuses for actions]: “If you want to kill your dog, say he has rabies.” For nine months, there was a clear campaign orchestrated to make sure that I would appear [as an isolated authoritarian.]

The issue was about the categories in which Danone is focused [during the pandemic slump in 2020]. We are not in pet food. We are not in coffee. We are in water and 40 per cent of that business is away-from-home. We are in baby fluids and birth rates have been declining dramatically during the pandemic. These were points of weakness. But do you think the new CEO will address these [challenges] better than the current one, or the current management team? So, [the activists] had to find something else [to attack me].

The people who know me would probably say I’m very demanding with myself and with others because I think we owe that to the company. But I listened a lot and listened to people quite often that others would not [listen to]. I go to places where no one goes to listen to people. I’m passionate about products, the deep reality of products in factories and R&D centres.

MM: Do you know what you want to do next?

EF: I’m a great believer in business. I do not think there will be a lasting change in this world without a strong, strong contribution from businesses. The economy is the solution. But it’s got to be a purpose-led economy.

I’m also a big believer that having [elites] get very rich and then giving back a little, or not [at all], is not the model that should be the priority because we are running out of time.

We have to have an immediately more inclusive economy. Companies [must be] inclusive of diversity, [fight] invisible inequalities, and inclusive of climate. Tackling climate challenges is about protecting the next generation. And it’s coming now. For agriculture, the challenge is right now — in the next five to 10 years.

But I don’t know about where, when and with whom [I will work next]. It’s too early for me. I’ve never been as free as I am now to use something which was once this incredibly precious and rare resource for me — which is time.

MM: Earlier you used the phrase: “If you want to kill your dog, say he has rabies.” In this instance, is ESG the “rabies”, so to speak? There’s certainly cause for scepticism around many companies’ ESG pledges. But what needs to be done to win over hearts and minds of those that are sceptical of sincere efforts to improve a business’s impact on people on the planet?

EF: I would say employees. The Glassdoor strategy. Employees, you know, they are the boss. So if you let employees be a voice in the company and outside the company about what is truly at stake, there will be a swing. The more this new generation will be there, [pushing ESG issues] the more need there will be for the top management to act. I think as leaders we should like [employee action]. But in reality the people that have power may not like this!

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