Bob Hirth is the immediate past chair of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), having served from June 2013 to January 2018. He joined the Sustainability Accounting Standards Board (SASB) in May 2017, having previously served on the SASB Foundation’s board of directors. Hirth also served on the Standing Advisory Group of the Public Company Accounting Oversight Board (PCAOB) from 2012 to 2016. He continues to serve as a senior managing director of Protiviti, a global internal audit and business risk consulting firm. He began his career with Arthur Andersen and is a graduate of Southern Methodist University in Dallas, Texas.
I have a little saying, you know, you have to make the next quarter, but we also have to be here in 100 years. The real dynamic is, how do you balance both of those things? We have investors and we have this short term system where we need to make the next quarter, we need to make the earnings for the year. At the same time, we now have issues like how much water is available and what's the cost of water, regulations on greenhouse gas emissions, the use of certain kinds of materials, the use or non-use, hopefully, of child labor. You have to begin to look at and focus on those things.
I mentioned that many companies now, don't just see this as a cost. They see this as a way to increase profitability. What do I mean by that? Well, if you think about these issues, if you do things like use less resources or use more economical resources, or recycle materials, or have fewer accidents, for example, etc., at the end of the day, that all actually costs less money. Some companies, I use the word sustainability activities; they've now described how these sustainability activities that some people might think of generally as a cost, actually improves profitability.
Let me give you an example of that, that's in writing. The airline JetBlue issues a standalone SASB report that takes all the SASB standards and lays all that out. But then they talk about how their activities make them a better and more profitable airline. They have a story that I call the water tank story. For an 18-month period, JetBlue studied every single plane that landed and looked at how much water was left in their water tanks. They provide water while you're on the plane. They found that over 18 months essentially, every single plane that landed, landed with their water tanks more than half full. They certainly don't want to run out of water on any one airplane, but they came to a conclusion after that study that they didn't have to fill the water tanks all the way to the top. Well, that's sort of a sustainability activity, right because they're using less natural resources.
But what did it do to their business? By not filling the water tanks all the way up to the top, they used less water, which cost them less money, because they bought less water. Having less water on the plane makes the plane lighter, so that lighter plane uses less gasoline. Therefore, they came to the conclusion that this sustainability activity that they now followed, which didn't create any unsafe situations, actually increased the profitability of the airline.
There's story after story from companies. It could be around the amount of packaging that's being used, the sort of suppliers that use.
Another example is putting in some more protocols around safety. Because when they have an accident, look at what an accident costs them. Now, I think what's turning around is rather than now this being a cost, that this is an opportunity to, in some ways, increase short term profitability. But remember my valuation comment that investors see companies thinking about the future, being more thoughtful about how they're planning their business for the future, they are also worth more.
I think you end up getting two things. You can get some short-term profitability through these sustainability activities. But in some cases, you also will get or may get an increase in your valuation, because investors think, first of all, you’re doing the right thing, you're doing things that are better at making more money, but you've got a focus on the future beyond just those couple of quarters. So you're the kind of company that's going to be there in 100 years, and, therefore, you're worth more money.
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Bob Hirth is the immediate past chair of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), having served from June 2013 to January 2018. He joined the Sustainability Accounting Standards Board (SASB) in May 2017, having previously served on the SASB Foundation’s board of directors. Hirth also served on the Standing Advisory Group of the Public Company Accounting Oversight Board (PCAOB) from 2012 to 2016. He continues to serve as a senior managing director of Protiviti, a global internal audit and business risk consulting firm. He began his career with Arthur Andersen and is a graduate of Southern Methodist University in Dallas, Texas.