Turnaround Needed for Real Change
By putting sustainability on the agenda, companies have generated a lot of motivation and enthusiasm in recent years, both internally and towards clients. However, the discussion has now entered a new phase. Companies can no longer expand their profiles by formulating net-zero ambitions and science-based targets. Commitment to ESG goals is now a hygiene factor – companies that do not commit simply will not exist in a few years’ time. Therefore, there needs to be a shift in focus from 'why' and 'what' to 'how'. Which concrete steps are being taken in order to achieve the goals set and how is progress being monitored in order to ensure things are on track?
In practice, we see many organizations struggling with the 'how'. That’s all too understandable, because what awaits companies and their leaders is quite overwhelming. Tracking your footprint, saving energy, investigating potential human rights violations, labor law, environmental law and corruption in your supply chain, reducing CO2 emissions within your own business operations and across the lifecycle of your products or services... It is a busy and complex agenda, which in many respects requires you to act outside the framework of your own organization. Those who want to change in a sustainable way need to immerse themselves in the matter on a detailed level and often enter into uncharted territory. Moreover, there is usually a lack of standards for reporting on ESG goals – and some standards have now emerged organically. On a corporate level, however, there is a much greater need for harmonization, meaning that annual reports can be compared more easily, for example.
All this together leads to a lot of concern and uncertainty. So, where do you start? Which investments do you make? How do you maintain long-term enthusiasm? How do you deal with the fact that you sometimes depend on suppliers and competitors in order to take the next step? It is difficult to control all these variables. Leaders have to make decisions without knowing whether they are the right ones, and that makes them uneasy.
Data and Facts
To make the whole thing less overwhelming, long-term sustainability ambitions need to be broken down into small, manageable steps. A good analysis of all available data is an important tool and starting point. Whoever knows which aspects of the business operations are responsible for the majority of the ecological footprint also knows where to start in order to realize the greatest impact. The UN climate panel, the IPCC, described five scenarios for global warming, which also offer some relief. Understanding the scenarios allows you to better anticipate the risks of each scenario for your business. In addition to understanding the risks, it is essential to understand the commercial opportunities of increasing sustainability. Research from Kearney, for example, has shown that sustainable or ESG products sell better and clients are willing to pay a better price for them. Launching innovative sustainable products can therefore be a new source of revenue for some companies.
Preparing the Company for Success
We cannot achieve the 2030 or 2050 goals if we continue to use the 2015 business model. Many companies are taking energy-saving measures or starting to travel less and more sustainably, but these are the quick wins and, moreover, mostly isolated initiatives. In order to initiate real change, we need to move towards a situation in which sustainability is a well-integrated part of daily business operations. A company’s sustainable transformation is not managed by a sustainability department or a group of people with a passion for the subject. They can provide support as experts, but knowledge of how to do business in the best way is spread throughout the company. Ultimately, input and responsibility are required from all departments. There has to be true co-creation. The transport department could focus on reducing the CO2 emissions of its own fleet, and the real estate department could work on reducing energy consumption. The purchasing and sales department could address sustainability in the supply chain, while the commercial department could do the same towards clients. In short, the roles and responsibilities of all parties involved in implementing the goals need to be clear, as well as how that affects the way in which people are assessed. Once the roles are clear and people know what is expected of them, you can assign sustainability KPIs to every position in your company.
The change that is needed will not be achieved by continuing to see sustainability as a project that will be completed in a few years’ time. It involves a permanently changed way of thinking and working, which challenges old truths and perceptions. For some people in the organization, this culture change will naturally align with the purpose of the company and their own values, while for others it may feel like a culture shock causing stress and discomfort. That also needs to be addressed.
The Business Case for Sustainability
As the general public becomes much more knowledgeable and the activist community grows, it becomes all the more important to take the right steps each day. The pressure from shareholders, employees, clients and citizens to implement the goals in practice is now palpable. The lawsuit by Friends of the Earth Netherlands against Shell demonstrates the risks organizations run if they do not think through and implement their policies sufficiently. Local, national and international regulations are also forcing organizations in the right direction. One specific example is the ban on polluting cars from many European city centers.
All this automatically makes the business case for sustainability stronger. At the same time, we see that many companies do not want to hold back and sometimes even push ESG goals where governments are partly failing. More than 5,000 companies have now signed up to the United Nations' Race to Zero campaign, which strives to halve global emissions by 2030. While governments proved unable to agree on phasing out coal at COP26, financial organizations founded the Glasgow Financial Alliance for Net Zero (GFANZ), promising to align their investment strategies with net zero.
Integrating Sustainability into All Decisions
Companies looking for the business case for sustainability will only find it if they manage to structurally align sustainability with their current business case. It has to make sense from both sides. Given the scale of the challenge, it is all the more important to integrate sustainability into all business decisions now and to consciously consider about where investments are going. After all, every euro still spent without a positive impact on ESG goals is actually a missed opportunity.
Becoming a truly sustainable company may be a considerable challenge, but there are also huge commercial opportunities: attracting talent and investors, an improved brand image, competitive advantages, finding and keeping clients, a healthier working environment for employees, better preparation for future legislation and costs... Those who make the first move will ultimately make the most gains.
This essay was published in Management Scope 03 2022.