The head of the largest publicly traded U.S. water utility, and Raymond James’ lead director, is focused on environmental, social and governance issues
Susan Story, the CEO of American Water and a board member for Raymond James and Dominion Energy, doesn’t just give environmental, social and governance (ESG) issues lip service.
American Water, the largest publicly traded U.S. water and wastewater utility company, was named one of the “100 Most Sustainable Companies” by Barron’s magazine this year with a 26% drop in greenhouse gas emissions. And under Story’s stewardship, the company reached gender equity in the boardroom and relocated its headquarters to the waterfront of Camden, N.J., a city trying to revitalize.
An ESG focus, she stresses, is not only good for society but it’s also good for the bottom line.
Encouraging corporations to consider the greater good is nothing new. It has had many iterations and names, i.e. corporate responsibility, socially responsible investing and “the triple bottom line.” ESG is the latest salvo, broadening the concept to include everything from gender inequality to pay equity to climate change; and it’s gaining momentum in Corporate America, partly because large investors are demanding it.
Social and environmental issues are becoming more important to the occupants in the boardroom, but there are still many directors who see it as inconsequential or don’t think these issues should factor into strategy discussions, according to PwC’s recently released Annual Corporate Director Survey. The survey found that directors think the focus on these topics is overdone with about one-third of board members saying shareholders pay too much attention to these issues.
At American Water, however, the board champions ESG. “I know each of us on the board are very supportive of the ESG efforts of American Water and all of its employees,” says Veronica Hagen, a board member who serves as chair of the corporate governance and nominating committee. “Susan has done a tremendous job leading and highlighting the value and importance that environmental, social, governance issues have at American Water.”
“The whole ESG thing,” Story adds, “it’s kind of who we are.”
The following is a Q&A with Story on her mission to bolster ESG at the companies she serves and beyond.
Do you think ESG issues are becoming mainstream in corporate America? Why or why not?
Yes. Corporate social responsibility has increasingly become important for customers, communities and investors. Stakeholders expect corporations to not only be aware of, but to provide leadership on ESG issues.
How do you see the current ESG movement differing from past CSR and sustainability efforts in business?
The current ESG movement is much broader today. It includes environmental leadership and sustainability; employee engagement, safety and equity; active community outreach, civic and charitable involvement; and increasing demands for transparency and good governance. Stakeholders want to see more than just words, they want to see defined and measured actions and results that are reflective of a company’s commitment to ESG.
Under ESG, people seem to have similar parameters for governance, but environmental and social categories seem to be more nebulous. Does “social” include employees or the community at large? Does it include involvement in social justice or just a living wage, etc.? And what about “environmental”? Does that mean the immediate company or does it extend to any partners? Does it impact partnerships?
The definition of ESG is evolving and there is quite a divergence of what is measured and tracked by different ESG entities. This can be a challenge for companies like American Water when we are trying to structure our reporting to give our stakeholders a comprehensive view of our culture and initiatives which are very supportive of ESG principles. I believe “social” is a view of a company’s impact on everyone it touches — employees, customers, communities, investors, regulators, vendors, etc. It is by definition, our “culture,” or how we do our business. American Water is a values-driven company and our employees represent the communities we are privileged to serve. Every day, our people take pride in delivering the critical services of water, sanitation and fire protection to more than 14 million Americans. Our 7,100 employees serve over 1,600 communities across the country, and we aspire to make every community better because we are there.
Environmental leadership is one of our five values at American Water. We have the responsibility to treat and deliver the most precious of life’s needs — water. Sustaining that critical resource for generations to come is core to who we are.
Tell me about American Water — its history and an overview of business operations today, and how that plays into the company’s current ESG focus?
With a history dating back to 1886, American Water has long been responsible for providing safe, clean, reliable water and water services to our customers. Whether it is water that is safe to drink, fire protection to save lives, or basic services to ensure safe sanitation, this responsibility and commitment is core to who we are and everything we do as a company. Our commitment is always to hold ourselves to the highest standards of integrity, deliver the safest and highest quality services and utilize the resources of our business to serve the public good while delivering growth and value to customers, employees, shareholders and communities.
You recently stated, “Companies do well by doing good. Financial results are an outcome of doing the right things the right way, and we believe that how we do something is just as important as what we do.” Please expand on this.
More and more, employees, customers and investors seek to align themselves and invest with companies that are actively committed to the betterment of society, make a positive impact to communities, are fully transparent, and offer opportunities to get involved and give back. People are actively searching for companies with responsible policies, a diverse and inclusive corporate culture and one that has a positive impact and cares for the environment and the communities they serve. When you do these things responsibly, we believe that long-term financial sustainability follows.
How did American Water become a top-ranked ESG company?
As I mentioned before, water is the most precious resource for life. We aren’t just a water utility, we are in the health and safety business. As the largest water utility in the U.S., we must be committed to the sustainability of this critical resource. We have been a company since 1886 and we are in this business for the long term. This requires sustainable environmental leadership and commitment to our employees, customers and communities for generations. Our investors also understand our commitment to their long-term future.
Can you share some key ESG metrics that your company has achieved, and also provide some goals you have for next month, next year and further out goals?
We have several, and I will just mention a few. In environmental, we have a goal of reducing GHG emissions 40% by 2025 from 2007 baseline, and have already achieved a 26% reduction through 2017. From a governance standpoint, we were recognized in 2017 as having the highest percent of female board members among S&P 500 companies — 63% — and our commitment to gender parity resulted in our recruiting two males board members in 2018 to reach 50% men and 50% women. Not a story many S&P 500 companies can tell. In social, we have a strong commitment to employee and customer safety, as well as to employee diversity in order to reflect the communities we serve.
What role did the board play in bolstering ESG at the company? Can you provide details, maybe a story about the discussions or steps taken by directors?
Our board has always and continues to play an important role in driving us to become a leader in ESG. We believe a company, its employees, its leaders and its board should reflect our customers and communities.
We find that ESG principles are reflected in all our standing board committees. For example, in 2018 our board set up a new committee — safety, environmental, technology and operations (SETO). This committee has specific oversight on employee safety performance; environmental and sustainability strategy and initiatives; technology development and integration as well as cyber and physical security strategies and initiatives; and oversight of customer service and general operations efforts. Our executive development and compensation committee goes beyond simply looking at compensation and formally is charged with executive development, training and succession. Our finance, risk and audit committee ensures the highest standards of transparency, sound accounting and risk management practices, and reporting integrity. Our nominating and governance committee oversees director education efforts, a board skills matrix, and strong board and director evaluations along with more traditional responsibilities.
Do you see the ESG conversations happening more in the boardrooms you’re in? What should the board’s role be? What has been your role on the boards you sit on outside of American Water?
In addition to what I previously shared about how our American Water board leads our ESG efforts, I am seeing a strong focus on ESG on the two other company boards on which I serve.
For example, Dominion Energy’s board of directors recently established a sustainability and corporate responsibility committee which oversees the company’s performance as a sustainable organization and responsible corporate citizen, including oversight of strategies, activities and policies regarding environmental sustainability, corporate social responsibility and public issues of significance. It is chaired by Helen Dragas, one of the board’s three female directors.
My other public board is Raymond James, on which I serve as independent lead director and am one of three women who sit on that board. Raymond James has made significant investments focused on growing diversity within its financial advisor and capital markets ranks as well as within its management team. They also have developed a comprehensive suite of sustainable investing options available for clients and make giving back to their communities a core operating principle in each of their 2000+ locations.
Why are ESG standards so critical to a company’s success?
I think it goes back to my earlier philosophy of “Companies do well by doing good.” Values matter. The “how” is just as important as the “what” for long-term financial sustainability. Being committed to ESG principles means, to us, being a leader in environmental sustainability; keeping employees safe and injury-free, and developing them to their fullest potential; being obsessed with outstanding water quality and customer service; and making communities better because we are there.
In a recent quarterly earnings call, you said the company hasn’t always done a good job at communicating your ESG efforts to investors. How has that changed?
We have always been a leader in ESG/CSR, but haven’t always been the best at telling our own story. It has simply been how we run our company, and we didn’t track or follow how others measures those efforts — or even communicate with them that widely what we were doing. And yet, we have received several recent recognitions and honors from investment funds, magazines, newspapers,and various organizations for our leadership on ESG. We realized that it was important that we tell our entire story and demonstrate our commitment to these defining principles for outstanding companies.
As a CEO, how has a focus on ESG made you rethink or enhance the work you do? Do you think executives have a responsibility to focus on more than just the bottom line?
A commitment to ESG principles has to be a priority for the entire company from the board to leadership to every employee. As CEO, I must model that commitment. Whether it is respecting the dignity of every person I work with; ensuring the safety of our employees and customers; committing to transparency and integrity in all my actions; finding ways to serve our customers better; committing to environmental leadership; making our communities stronger; or assuring the best board governance practices. It starts with me. Of course CEOs must focus on more than just the bottom line. Our companies matter on many levels.