The Clorox Company (CLX) Earnings Call Transcript & Summary

Hi, everybody, and welcome to ESG Investing at a Crossroads. I'm Dave Pettit, Managing Editor of Barron's Group, and we're delighted that you could be here with us today. This event is part of an ongoing series from Dow Jones looking at sustainability in the energy transition. Today, we'll examine ESG investing. A massive amount of assets are invested based on ESG principles, but skepticism remains about investment returns and ESG investing itself has become a hot political issue. Today, we'll examine what's ahead for ESG, how to maximize your returns while having the impact you'd like. We'll also hear from Linda Rendle, the CEO of Clorox. Clorox this month took the top spot in a Barron's ranking of the most sustainable companies. Before we begin, just a few things. First, we'd like this to be interactive, and that means we want to hear from you. [Operator Instructions] We'll get to as many of those questions as we possibly can. Also, events like today's wouldn't be possible without the support of our sponsor, Ecolab. So let's jump in to get started. I'd like to introduce Daren Fonda, the Managing Editor at Barron's, who oversees the most sustainable companies ranking. Daren, over to you.

Hello. I'm delighted to welcome Kathryn McDonald, Co-Founder and Head of Investing at Radiant ESG; and Leslie Samuelrich, President of Green Century Funds. Kathryn, Leslie, thank you for joining us.

Thank you.

Thank you.

Kathryn has been in equities for 25 years and was Head of Investments for Australia and New Zealand at Rosenberg Equities. She founded Radiant in 2020 and now has $30 million under management, including the HSBC Radiant ESG Smaller Companies Fund. Kathryn, how do you approach investing balancing ESG criteria with what makes for a good stock?

Yes. So our motivation is to really invest at the intersection of strong ESG and strong fundamentals with the belief that one without the other is just not sufficient. So when we look for companies, we're really anchoring on earnings quality and sentiment with, complemented by valuation on the fundamental side. On the ESG side, we're really interested in companies that are showing either leadership today or leadership tomorrow.

Great. And Leslie, your firm has $1 billion in assets. It's origins are with an environmental nonprofit public interest research group and profits from managing the funds belong to that group. Can you talk a little bit about how you approach investing through an ESG lens?

Sure, Daren. To start, we avoid companies that are environmentally harmful industries, including fossil fuels, tobacco, nuclear energy weapons, GMOs to truly help people align their investments with their values. In our 2 index funds, after we apply those screens, we apply -- invest in companies that meet the high ESG criteria that's determined and selected by MSCI as a risk mitigation strategy. In the actively managed Green Century Balance Fund, we're looking for companies that have consistent earnings, strong balance sheets, growth at a reasonable rate, and then we integrate the ESG data. We're looking for companies with good governance and companies with the ability to bring sustainability into their business strategy. And finally, in the fixed income portion of the balance fund, we're looking for investment-grade bonds, and as much as we can, green bonds that meet the green bond principles. We're at 63% now of green bonds in our fixed income.

So it sounds like both of you would really look for high-quality companies with strong fundamentals, and you overlay ESG criteria over those kind of core principles of what can make for a good stock. Kathryn, you look for companies that are ESG leaders, evolvers or impact leaders. Could you give us just some examples of each type of stock.

Sure. So with respect to ESG leaders, this is probably going to be what's most familiar to most people in that we're looking for companies that today at a point in time are leaders in relative to their peers and in absolute terms. And so a great example of that would be Iron Mountain. Iron Mountain is a company that's got excellent governance, is a data records and storage company, great governance, great ethics, very strong data protection. And we also like some ancillary things about the company on the social front in terms of the fact that they have a very diverse company and are willing to publish sort of gender pay disparity studies that they do.

That's a pretty high-yielding stock, right?

It is. And this -- Iron Mountain is probably not a surprise to anybody listening because a lot of people who are really looking into sustainability have rallied around Iron Mountain. On the evolvers' front, I'll bring up Armstrong World Industries as an example. So this is a building materials company that frankly is evolving positively away from being a company that was a bit of a polluter, a user of some nasty chemicals. We love the fact that they seem to be adopting sort of principles of circularity in their process, including recycling, really reducing the use of a lot of chemicals, phasing out of building materials that are harmful to the people and the planet. So this is a great example of a company that was kind of middling today on ESG. But when we look at what they're doing and we look at what commitments they're making, we think they're on a really positive trajectory. Finally, when it comes to impact, the definition of the impact for us is a company whose products and services positively align to the UN SDGs. And so the firm that I'd like to highlight is a firm called Bruker Corp. This is a life sciences company that makes instrumentation, diagnostics, including spectrometry. Its products are used in pharmaceuticals, pathogen detection, cell biology. This is a company that is 100% aligned with UN SDG 3. So we see that there's a great investment case to be made for positively aligning to the SDGs because we believe that there will be significant tailwinds for this company over time. So those are just 3 examples. But again, every company that we invest in really needs to be attractive along both fundamental dimensions as well as 1 of these 3 ESG dimensions while meeting a baseline hurdle for the other 2.

Great. Leslie, let's talk about what you're investing in. Looking at the funds that you own, there's a lot of tech in the funds, including Microsoft, Alphabet and NVIDIA. Can you talk a little bit about what makes them sustainable?

Sure. We do have a high percentage of tech. To note, not all tech would qualify for the Green Century Funds, but it's probably no surprise that the ones that are larger and have more developed sustainability practices and better reporting do make it in. For the Green Century Funds, Microsoft, Alphabet and NVIDIA, they all have strong environmental stories, both around how they're managing their energy use, how their products are managing their energy use. For example, NVIDIA has chips that are really strong on that point and Alphabet has a big commitment to using renewable energy. In fact, they've committed to be carbon-free energy completely by 2030. So that is very attractive to us as a fund that's focused on environmental issues.

And Leslie, your funds also own Tesla. Now Tesla is an interesting company from an ESG perspective. Obviously, they're the leader in EVs and largely created the global market for it. And yet, they've also had some controversy over workplace conditions. And S&P removed Tesla from an ESG index last year, citing some of those problems that, in its view, did not necessarily make Tesla such a great ESG company. So what do you make of those criticisms of Tesla and Tesla's ESG credentials?

Well, I'd like to say like ESG, there's no such thing as ESG investing across the board. It is data. And so it's up to each asset manager to determine what's most important for their portfolio and their fund. And so for the Green Century Funds, Tesla's core business is the most important, which I think why it still has a place in our funds at the current time. And that's the difference is between different managers in what they prioritize. We do use ESG data, but we also are looking for solution-oriented companies. Not that investing in those companies necessarily makes an impact in the world. That comes from the other pieces of work we do and shareholder advocacy and our ownership. But it does help people align their values and support the companies that they want to support.

So let's kind of like broaden out a little bit to the idea of whether an investor who is interested in ESG has to kind of just make peace with the fact that they might not actually beat the market or even match the market. There's a lot of data out there on whether ESG funds and index funds can perform as well as, say, the S&P 500 Index. I think the data is all over the place depending on the time period that you look at and the benchmark that you look at. But this remains kind of a core issue or concern. Should investors who are interested in ESG assume their returns will trail the market? Kathryn, what do you think?

No, absolutely not. And I'll speak from my experience at this firm and at the prior firm, we definitely found ESG to be slightly additive over time in return space. I think it's folly to believe that ESG is some magical 10% alpha that nobody has tapped into. But at the margin, it helps us better and more robustly understand the threats and opportunities that companies face. And in our own analysis, it has made us better stock pickers intra-sector. If you look at some of the studies from, let's say, prior to 2022, most studies concluded that the performance impact of ESG was either positive or neutral. Here, come 2022, where we have this big rally in energy stocks, and it is true that many ESG and environmentally minded investors avoided traditional energy, and you see the tide turn and all of a sudden, people are criticizing ESG or skeptical of ESG performance abilities just because they're conflating it with the returns to energy. So I think that we're very wise to be pretty circumspect about all performance analysis of ESG considering the very, very short horizon that we've had for what would be considered a kind of a modern implementation of ESG. But again, our own experience is that it's additive. And we expect that over time, investing on the right side of ESG and impact will be accretive to alpha for our firm.

Yes. I think, Kathryn, that brings up a good point that I think there's a lot of misunderstanding about what ESG is and what its purpose is. And fundamentally, it's a risk mitigation strategy. It's an effort to look at things like climate change or a lack of diversity in the workplace or corporate governance and try to quantify the impact of that on a company's earnings, on their revenues, on their prospects as a business. Leslie, what is your view on that? I mean do you think that it is fundamentally the problem with ESG that people misunderstand it? But if you overlay it on a good investment strategy, you are likely to at least match the market's returns?

I think there's probably 2 main points of confusion about ESG. One is what ESG data does and doesn't do. And as you mentioned, Daren, it is mostly about risk mitigation and potentially enhanced performance. I think ESG also has come to mean everything under a very large banner from funds -- mainstream funds, they just use part of the data, maybe they're just looking at governance to deeper investing that is doing screening or community investing. And that doesn't -- ESG is not a sufficient descriptor of the full breadth of the field. And so there are certain periods where, for example, being fossil fuel-free can help performance and there are certain periods where it may not. But I think most individuals come to this thinking that they're going to align their values and make an impact. And I think most asset managers are using ESG to potentially increase performance and risk mitigation. But I think the marketing of the ESG products, especially by the mainstream firms out there, has confused individuals in part. I know I'm finding a lot of confusion when we are explaining what ESG is and what it can do and what it doesn't do, even among pretty seasoned financial advisers who have been in the field for a little time. So I think we need a whole education just about the various approaches to all the kinds of investing under the field.

Leslie, you mentioned fossil fuels, which brings up an interesting point that a lot of people wonder, what is a company like Exxon doing in an ESG fund when its contributing to carbon emissions and climate change at its core business. And yet, this raises a question of whether there is a place in ESG portfolios for oil and gas stocks in the fossil fuel industry in general. Kathryn, what do you think about that?

Yes. So we are currently not holding any exposure to traditional energy, but the best -- the kind of the twofold argument that I can certainly make for the right company in this space, I'm going to be provocative here and say I don't think ExxonMobil is the right company. But we do see amongst oil and gas players that there are some that are looking to transition their business, some more serious than others. But the idea that we can have an influence, you mentioned this in the beginning, by having a seat at the table, trying to influence management and the Board on the direction that they take. I think the stronger argument really is an investment or a returns-based argument that companies in the space that are really trying to position themselves for relevance in the coming 20 years are going to need to think very carefully about resource constraints, regulation, stranded assets to the extent that we see management really positioning the company for a future that looks very different than the past. We might be interested in taking a position in that company.

Leslie, what is your view on fossil fuels? You don't like fossil fuel companies and you exclude them, right?

That's right. We had some -- we've never had coal or major oil companies in the Green Century funds. We did hold some gas companies. And we were leading a 7-year engagement campaign with other investors to get them to make their fracking more sustainable, which, honestly, we have limited progress with. And at the end of the day, there's still fracking and has incredibly environmentally dangerous practice as well as to people's health. And so I think if you and your clients are looking for a place to align your values and their environmental values that fossil fuel companies just don't have any place in the portfolio. The seat at the table argument is really forwarded by people who, for whatever reason, have decided not to get out of energy. But for 25 years, really well-intentioned people have been trying to move the energy companies, but they haven't, they just haven't. Your seat at the table is like at the kids' table in the next room with the door closed, basically. So I think when there is a national or international campaign like with South African Apartheid, investors complete a huge role in putting pressure on an industry to change. And that is, in this case, through divestment.

Well, nobody wants to be at the kids' table, I think. So that's a great point. Let me bring up another point, which is really the elephant in the room right now for ESG, which is all the backlash that's going on against it and the criticism that a lot of it is just environmental or corporate window dressing to gather assets. There are politicians, conservative Republicans who primarily are criticizing ESG as a front for a woke capitalist agenda. And this is having a bit of an impact where you see states like Texas and Florida that are saying they're not going to invest or they're trying not to invest in companies associated with ESG or funds associated with that. Leslie, and I'll ask Kathryn, too, do you think that the backlash is going to have an impact on the popularity of ESG investing?

Honestly, in the long run, don't think so. People want to align their investments with their values. And I think the recent attacks really are an attack on individual freedom. Massive government overreach, and as you mentioned, Daren, it's driven by the fossil fuel industry. And unfortunately, they're playing politics with the retirement incomes of hundreds of thousands of individuals and potentially breaching their fiduciary duty. And I think people -- the numbers are still growing among the deeper people who do this kind of work as well as the lighter-touch ESG products, and I don't see it stopping.

So before the last question that I'm going to ask, we'd like to get some questions from the audience in just a few minutes. So if you have a question, please send it in now. So this is my last question, which is for Kathryn, and it's similar to the question that I asked Leslie. Is this going to put a chill -- the backlash against ESG, is it going to put a chill on the asset growth of the industry? Or is it going -- and also, is it going to result in more green-hushing where companies are reluctant to publicly talk about their ESG goals or achievements because they don't want to basically be blacklisted?

Yes. I think we're living in interesting times where this has become a political hot potato in a way that it absolutely doesn't need to be. When we talk about using ES&G information, this is a giant body of information that we can use to simply better assess companies. I don't know an active manager out there that says, "Yes, I'll take less information, please." It's our job as active investors to get to the bottom of, again, how are the full set of threats and opportunities panning out for this company. So like Leslie, I do fear for the retirement assets in places where some states or some plans are precluded from investing with managers that take into consideration all of the forces that are upon us. There are lots of great debates that we need to have with respect to using this information. A very important debate could be around the use of -- around the concept of Horizon, for example. But these debates are not happening because it's turned into this kind of ridiculous, cartoonish criticism with the use of the word woke here and there, which really doesn't have any place in serious investing. And in fact, I will say, I have not once from any professional investor heard any of the criticisms that are being thrown out there by politicians. So I think that this is just something that's being used to whip a base into a frenzy. And unfortunately, retirees in certain places are going to end up, I think, paying the penalty. When it comes to either greenwashing or green-hushing, as you say, I think that we need to -- this is why we need to have serious dialogue about this stuff. Yes, there is greenwashing in the investment industry, and Europe is much further ahead than the U.S. is, but we need to get to the bottom of that. Green-hushing, I'm not sure that's really going to be a thing. Maybe it is right now. But ultimately, the steps that companies are taking to prepare themselves for the future, are things that any investor would -- should be interested in. And so whether they make hay out of it or whether they try and hide it on Page 106 of their annual report, we're going to get to the bottom of it and find it.

Well, thank you so much both for joining me today. I'd like to get to some audience questions. We have 2 questions related to the banking crisis that's going on right now. One is from Jeffrey, who says, in light of the current banking situation, could you address the importance of where you put your cash as it relates to ESG values and risk management? And we have a question from Leslie, who says, can you speak about Silicon Valley Bank, one of the largest holders with a sustainable investment fund? What lessons can sustainable managers learn, if any, so they can avoid investments like this? Leslie, do you want to tackle that first? And then Kathryn, could you weigh in?

Sure. I mean I think we're still learning from the failure and lessons that can be applied in the future. I think that the percentage of uninsured deposits and the concentration, particularly within one industry that also talks to each other and kind of created this frenzy and the run on it, certainly contributed to that. It is harder to imagine this happening as quickly without social media in place so that the news spreads so much faster. But I think that -- I mean, I know we have been looking at our bank holdings as well as our cash holdings and making sure that they are either collateralized or swept into agency bonds in the evening. So I think that's just a wise process right now for anyone thinking about it. .

Kathryn, we have about a minute left. Could you talk about that?

Yes. The only thing that I would add is that I agree completely that we're still learning, and we're right in the middle of this right now. So with SVB, it sounds like they made a couple of really bad calls on interest rates, then there was a run on the bank. These are things that ESG is not some magical panacea for 2 types of problems. But digging into it a little, could they may have done a little bit more on the risk control front? What were the controls that were in place and who was that person responsible for that, right?

I think they were missing a Chief Risk Officer for too long.

They were, yes.

Yes. So these are definitely lessons learned by the market, and we're going to have to see. We're watching Europe opened this morning, wondering what's happening with Credit Suisse and others. Hopefully, this -- the backstop of the Swiss government and all of the efforts that have come from the U.S. government will put a little bit of a backstop on it. But I couldn't agree more that this contagion is really only accelerated by social media in a way that we simply didn't have in 2007, 2008, 2009.

Well, this has been a fascinating conversation, but unfortunately, we are out of time. Kathryn and Leslie, thank you for providing your insights.

Thank you.

Thanks very much.

Hello, everyone. I'm Lauren Foster, a Senior Writer at Barron. Thanks so much for joining us. It is my pleasure to welcome Linda Rendle, CEO of Clorox, to the discussion. Linda, thanks for being here.

Thrilled to be here, Lauren. Thanks for having me.

Well, it's great to have you. A quick reminder before we begin. [Operator Instructions] We'll be sure to leave some time at the end to address audience Q&A. So Linda, as we just heard on the previous panel, there's been a lot of discussion and some criticism of ESG over the past year. You say ESG is embedded in your business strategy. Why was it important for the company to do that?

Lauren, this is something we've been hard at work at for a long time. And I want to make this clear, this is a business decision and a very clear business decision for us. Our purpose, to ensure that our brands keep people well and thrive in the world, is founded on having strong brands, and we have to deal with the opportunities that the different buckets of ESG raise for us and the risks. And by embedding ESG into our business, we're able to do that, and that really is about delivering value for all stakeholders and strong returns for our shareholders, and those things have to go together. And we believe we can't do one without the other over time. And that's why it's so important for us to embed that in our strategy, which we did in 2019 and ensure everyone in our organization is responsible for delivering both financial and ESG outcomes.

So as we heard in the setup, Clorox recently earned the top spot in Barron's annual ranking of the Top 100 Sustainable Companies in the U.S. in 2022. From your perspective, what makes Clorox a sustainable company?

First of all, we're honored. So thank you on behalf of all of my teammates around the world. We're really excited for this achievement. But the reality is we have more work to do. So I would say that's an important attribute of a sustainable company is you recognize the work's never done. It's at a point in time, and we have to make more progress. And I think for us, what we think about for sustainability is, again, going back to that business model I talked about, this has to be about the way that we drive business outcomes. . It cannot be a separate part of the way that we manage governance, social, environmental, has to be embedded into how we drive good business results. And I think that's what the turn that we've taken over the last several years after 2 decades of really good work in the space, is to say it really has to be done at all levels of our company. So diversity matters in innovation, for example. It's not just about having representation and inclusion, but it's about getting to great innovation outcomes because we have a diverse set of people who can bring their best self to work and create great ideas for our consumers. On the environment side, we cannot make business decisions in isolation on what packaging we use or how we set climate goals in a separate organization versus a business unit. Those things have to be worked together so that we have an ecosystem that delivers, again, both good financial returns and the ESG outcomes that will help us do that on both a growth and risk management side. And I think that's what we've done really well is we don't look at this as something separate. We look at as something actually fundamental to how we create value for people.

So we just had 2 investors on the previous panel, and we know that many investors care about sustainability, but they also care about the bottom line. So I'm wondering what are you hearing from Clorox investors about ESG and sustainability? And what do you say to those who are still skeptical about sustainability?

Yes. As I mentioned, Lauren, we believe those things go hand in hand. And that's exactly what we hear from our investors. They see it as a way to both maximize any opportunities we have as consumers change in the world and as we have to deal with realities, but it's also really important for risk mitigation. And what we believe is it's the way we will maximize value in the future. And that doesn't mean that we'll have to make short-term trade-offs and invest in certain places. But we, again, believe, over the long run, those things in tandem done well together lead to both of those outcomes. And that's what we hear from our investors. And I think when you have a logical conversation with people and you take the emotion away from it, most people get there. They understand that the climate change we're experiencing, if we don't deal with that, it's a real risk to businesses all around the world. And it's certainly a risk to the consumer and living a life that they can thrive in. And that's what we're focused on, and that's what we believe. And we don't believe it's a fad. We believe it is the way to do business, and it's the way to maximize returns for our shareholders and maximize value for all of our stakeholders.

We all think of Clorox as the company behind the namesake household bleach. But honestly, I was quite surprised when I was reporting the story to learn that Clorox brands range from everything from like a bird feeds to Brita water filters, and that means you have different challenges for packaging across different brands. And one of the big themes that emerged in the list this year was company's efforts to reduce plastic waste and to create a more circular economy. Could you spend some time talking to us about the IGNITE Strategy? And I know that Clorox prioritized packaging as a key focused area. Talk a bit about the goals that the company set around packaging and why that was so important.

Yes. We love the diverse portfolio of brands that we have and the fact that they offer great value to consumers. And they do all have that challenge of coming in packaging, and that's what customer packaged goods -- the main issue that we have to deal with in our environmental impact. And as we look at a materiality assessment, that would tell us where we have to go first. So we prioritized it. And what was important, as I mentioned earlier, when we set our strategy, our IGNITE Strategy in 2019 is that we, again, embedded ESG into the business with those goals. And we set some aggressive packaging and chemicals, which I know we'll get to, but we really needed to attack packaging across the broad spots of our portfolio. So we set some signature goals. One, we have a goal to have 100% of our packaging recyclable, reusable or compostable by 2025. And then we set 2 additional 2030 goals: we wanted to double the amount of PCR that we have in our products; and we wanted to make, which is our big signature goal, a 50% reduction in the virgin plastic and fiber packaging we use in our brands, and that really requires a complete rethinking of our categories. And what we're known for and many consumer brands are known for is innovating to help consumers. And that's exactly what we're doing because we've embedded this in our business. Our general managers, our marketers, our leaders in R&D are attacking this problem from all sides, and they are able to use the swath of their tools to accomplish both. So let me give you a couple of examples that I think are really helpful. One, clearly, the pandemic made people think about cleaning more than they probably ever have before and how it keeps them well. And we also have the challenge of reducing packaging in that space. So our Cleaning General Manager knows exactly what they have to do to reduce packaging. They have an individual goal in their business unit in order to do that. They also have innovation goals, cost savings goals and growth goals. And they bring that together to try to come up with consumer solutions that meet those needs. So we just launched, as a result, a line of refillable cleaning products. And that allows us to use the same bottle, 30x from a consumer standpoint, reduce our carbon footprint, reduce the amount of packaging that we use and deliver a really great consumer experience that people are willing to pay for. And we can bring the magic of that, together, we can accomplish our growth and business goals. And again, taking that all the way to shareholder value, while significantly reducing the impact that we have on the planet. And that's really what we're focused on is ensuring that each one of our business units know exactly what they have to do to contribute to our overall company goals and that they're using their innovation tools and cost savings tools to help them do that.

One of the goals you mentioned earlier was PCR. Just for the audience who may not be familiar with that term, it's post-consumer resin, which is the recycled resin. So let's talk a bit about the progress against these goals. It's one thing to set goals, but how are you doing against those goals?

Yes. So on the first one we set by 2025, we've reached 84% of our packaging is reusable, recyclable or compostable today. And we're continuing to make progress against that. One of the things that's a challenge in this space and for any of our packaging or climate goals is it requires an ecosystem to do that. It's not just our decisions, but we need the technologies of our suppliers to get there. And that's what we're focused on to make that last 16% a reality, and that goal is working with suppliers and our partners around the world to be able to have the technologies to do this. And that is a challenge for companies who have a very broad and deep supply chain around the world. And then we're making good progress against those other 2 goals as well and on track. We have a number of years, 7 more years before we have to achieve that, but we have a good glide path, and we believe we're on track to accomplish those by 2030.

And how do programs like this affect costs? Do these initiatives lower the cost of production?

They impact them both ways. And as I said, this is about the long term, and we have to balance that. So some of this is investment. PCR has been -- post-consumer recycled goods have been more expensive. And so what we have to do is we have to find the right balance of what we invest in and also how we can remove cost. So that example that I gave on the refillable cleaning products that we have, that's also a way for us to reduce costs. And so yes, PCR is more expensive, but we can reduce cost in shipping, for example. We can reduce other material costs because we don't have to use outer packaging as much, corrugate in order to transport that. So we're trying to balance the equation. We believe, again, over the long run, this is the best scenario from a cost and risk mitigation, that sweet spot. But there are places we absolutely are going to have to invest in order for our goals to become reality.

So one of the things we learned when we were reporting this recent story on plastic for Barron's cover was that many companies are struggling to actually find cheap recycled plastic. There is simply not enough to meet demand. Lots of companies are putting out these goals, and they just can't get enough of the recycled plastic. What are some of the other impediments to progress in terms of implementing these goals, aside from the obvious thing of just finding enough of the recycled content to incorporate into the products?

Yes, that is absolutely one of the biggest challenges we have. The other challenge that we have, though, and this is in the United States, but this is true around the world, regulations and municipalities, everybody has their own program. So having standard recycling processes, having standard ways that we think about responsibility and who owns the waste streams that come out, that's all varied. And it's similar to how a lot of rating agencies do different types of looks at sustainability metrics. Because we don't have common ground, it becomes difficult to navigate. So you have one state doing one thing in the United States, one doing another. And we're trying to ensure that we meet the needs of all of them and making sure that we're complying, but we need to make a transition there. And there's been lots of good work from consortiums that we're part of in order to further that conversation and ensure that we have access to tools like recycling, that we have access to the materials that we need at the right cost. And that requires investments from the whole ecosystem, and that's what a lot of these consortiums are working on, and we're making progress.

I'd like to go back to the IGNITE Strategy for a moment. There's some -- also some goals around lowering carbon emissions. Could you talk a bit about that?

Yes, a very important set of goals. And we set our net zero goal for 2050. Right now, if you look at our profile, Scope 1 and Scope 2 is about 7%, but Scope 3 is 93% of our emissions. And so we set it to 2050 because there's a lot of work in the ecosystem in order to get there, given how much is outside of our control. And as an important first step in meeting that 2015 net zero goal, we have our 2030 science-based targets, which seek to reduce our Scope 1 and Scope 2 emissions by 50% and our Scope 3 emissions by 25%. We've actually already achieved our Scope 1 and Scope 2 and we're hard at work on Scope 3 right now, which, Lauren, as you highlighted, that ecosystem is required in order to do that, but we're making good progress. And we've also published our road map to give our investors and other stakeholders a clear line of sight to what we see the different buckets of work required are to get to that 2050 net zero.

So for our audience who you may not be familiar with this term Scope 1, Scope 2 and Scope 3, would you mind just giving them a quick sort of snapshot on what those terms refer to?

Yes. I would -- let's keep it simple. Scope 1 and Scope 2 are basically the emissions that are more under our control. And Scope 3 are the emissions that are in the broader ecosystem, so it can be downstream, upstream suppliers, et cetera. And so Scope 1 and Scope 2 are things that we have much more immediate control over. And again, Scope 3 would be things that we would have to partner with others in that ecosystem to fix. So that's broadly how we think about it. And I think that's really the big challenge of ESG today is that most people have broader exposure to Scope 3, that broader ecosystem, than Scope 1 and Scope 2. .

So when Calvert Research and Management creates the Barron's ranking of sustainable companies, their methodology considers several factors, one of which is customers and that covers things like product safety and quality. And Clorox is in many people's homes and scored very highly on that category. Can you talk a bit about the company's efforts on the product safety and quality side of things?

Absolutely. We are in 9 out of 10 U.S. households with our brands, and that is an incredible honor for us to do that, and of course, in many millions of homes around the world as well. And so we take product quality very, very seriously because we have such an opportunity to impact people's health and well-being with our products in the home, and that starts with product quality. We've been long focused on that around ingredient safety, and we've done work for the last many years to ensure that all of the ingredients that go into our products are rigorously tested and safe. And we work with agencies in the U.S. and around the world to do that, and we work with consortiums as well. For example, we have a restricted substance list that we have published. And of course, we don't use those in our products. . And then we also work with agencies to get certifications. So around our transparency that we use those third parties to give reassurance to consumers that what we say is in our product is what it is and that they are performing safely for them when they invite us into their homes. And then I would say, on that line of transparency, I think that's going to be critical for the future for all companies. Consumers when they build relationships with a brand, and for our portfolio, 75% of our portfolio is deemed superior by consumers. And a lot of that is the trust that we've built with them over time. But when they invite you into their home, they want to know that you're going to do what you say you are. And so transparency for us has been something we've been focused on for a really long time to ensure that they know what they're getting and that they can make that informed decision for their family when they invite us into their home. And I think that will be something we're going to need to see the industry to continue to focus on and we certainly have at the forefront of our product quality with consumers.

We're going to get to audience questions in just a few minutes. So if you do have a question, now is your chance to send it in. Before we go to the audience Q&A, I have more question, Linda. Another stakeholder category that Calvert considers is employees, and that topic covers things like workplace diversity. Now I know in 2022, you appointed the company's first Chief Diversity Officer, and she's reporting directly to you. And you also expanded diversity, equity and inclusion to include allyship. Tell us a bit about why it was important to you to have a CDO report directly to you and also to add allyship.

We have made a lot of progress in diversity for a number of years. This goes long before the last few years. And with that, we've gotten to a place that we're really proud of. If you look at our Board of Directors, it's 50% female and 25% people of color. We have on our executive team, 50% women, 14% people of color. We have more work to do there. If you look at our management around the world, 40% -- 47% of our managers are women and over 50% of our people around the world are people of color. So that progress that we have made has been tremendous. But to take that to the next level, we needed to do those 2 things. So I did hire our first Chief Diversity and Social Impact Officer, Shanique Bonelli-Moore, who reports right to me. And she has come into the company and has evaluated what we can continue to build on and then what are the next steps that we need to take to fully embed inclusion, diversity, equity and allyship into our business. . And that's really why she reports to me, and she sits on our executive team is because it's a business imperative. And in order to ensure that whole ecosystem is integrated, she has to report to me and have an equal seat at the table, and she's done a terrific job so far in doing just that. And then to your point, we added equity and allyship this year as part of our expansion of inclusion and diversity. And we did that because we think in order to fully realize a company and a community that is diverse and where people feel they can do their best work, we need to ensure that people are treated equitably. And for example, we have pay equity work that solidifies that and puts that into practice. We ensure that no one is paid differently for factors that don't matter, which means outside of performance. And we've been able to confirm pay equity across our population for the last 2 years, which we're very proud of and we'll continue to do moving forward. And then on allyship, this can't just be the job of diverse people. And in many cases, that ends up happening. And so we talk about allyship in the company. We have 13 employee resource groups that are all sponsored by executive team members, I sponsor one myself. I sponsor our black employee resource group, and they have direct access to me to talk about the issues that are on their mind. But it can't just be those employee resource groups. It needs to be every single person at Clorox creating a culture where we can be our best, where we can innovate, where we can serve a diverse set of consumers and we can accomplish our goals. And so that's the reason we did those 2 things. It's about really bringing that integrated business strategy and these inclusion, diversity, equity and allyship goals to life and realize them in full.

We've had a lot of questions coming from the audience, and so I'm going to pivot to those questions. Dan asks, what gaps do you see and what consumers say they want versus what they'll actually pay for? And what are consumers green premium tolerance?

Yes. This is the fundamental question we ask on all of our brands. And I will tell you, as I know and love about consumers and we see in the research, they don't love trade-offs. And I think that's a great challenge. They want a product that works great and also is better for the environment, and that's exactly what we're focused on. And we don't want them to have to make trade-offs if we can at all avoid it. Can we give them a great cat litter that works terrifically but also has a lower environmental footprint. And that's why we again have embedded this in our business because we have to address that. But I would say there are very few consumers at this point who are willing to pay that green premium. And that is the challenge of what we need to do, and that's why innovation is so important in this space because they're just not willing to do it. Now there are a small group of consumers who are, and you see some brands that cater to those. But we really need to attack the mass problem that we have for every consumer who goes to their local store, and they have a limited amount of money to spend, and we want them to be able to make the right choices for the planet and the right choices to have a great experience in their home without trade-offs.

Question from Sanjit, what is Clorox' approach to engaging with suppliers across this value chain on sustainability? Do you enforce certain requirements or do you help suppliers through their own transition plans?

It's partnership, and that's been our approach to suppliers for a number of years. We can't do it without them, and they can't do it without us. And so the conversations we're having are very much in the partnership realm. And we're happy to say the vast, vast majority of our suppliers are aligned to where we are and where we're going. They know the impacts that they have and the changes they need to make and what we're talking about is how we do that together over time. And so I have found that relationship to be great. Some are ahead, some are behind, just like everybody, but we're all working in the ecosystem to make improvements. . And what I would say is we're really clear on our goals. So we hold them accountable to goals. They hold us accountable in equal measure to goals so that they know what we're working against and that we can scorecard each other. And it's important for them to know we need the visibility and transparency in order for us to achieve the goals that we've set out. So I would say it continues in the way that it has in the past, but it's one of the #1 focuses of our conversations with our suppliers is how we accomplish these goals together.

So earlier on, Linda, you mentioned carbon emissions and there's a question from Genevieve, and she says, are you expecting you'll need to reset your carbon baseline over the next year or 2? And if so, how much do you anticipate that your carbon footprint will increase?

I think what you're potentially meaning would be changes in demand, et cetera. We're -- I hope I'm interpreting the question enough. If I'm not, please resubmit it, right? But we have established a baseline and we think that baseline is correct, and we've taken into account the volatility that we've had from a portfolio perspective given COVID, and we think we have that right baseline. But of course, we need to make sure we are operating from the right baseline. And if we needed to make an adjustment, we would do that, we would fully disclose that. But at this point, we are taking all of those things into account. And also, of course, recognizing we've taken a lot of pricing, and I don't know how many of you know that who are listening, but we've had to do that to deal with inflation, and that is changing our volume profile. And so there will be a lot of things in flux, and we'll be looking at it carefully. But no, as we have more information, we'll share with people if there's any adjustments we need to make.

We only have about 30 seconds or so left. Then just a quick question from Sean, how do you handle sourcing from emerging market countries that may struggle with reporting on sustainability or ESG metrics?

If you look at our portfolio, we are in over 100 countries around the world, but the vast majority of our business is in the U.S., just over 85% of our business is in the U.S. And we work with some pretty big suppliers and have minimal emerging market exposure. So that has helped us in that, but we're looking very carefully at tertiary suppliers, et cetera, to understand that impact to ensure that we're not missing anything. But for us, our portfolio has allowed us to be a bit more insulated from that, and that is advantaged us in moving a bit quicker.

So Linda, it's been a fascinating conversation, but we're unfortunately out of time. And thank you so much for providing your insights.

Thank you so much, Lauren. It was my pleasure.

And to the audience, thank you all for joining us, and we hope you'll join us for more events in our Dow Jones Energy and Sustainability Series. next up, on April 13, we'll look at the state of the transition to renewables. It's getting a reset after a year of disruptions. You can find more information about events and other events at dowjones.com/impact. Thanks again for joining us today, and we hope to see you again soon.