Sustainability

After a period of corporate inertia and resistance in many sectors, more and more businesses are recognizing the need to engage with the issue of sustainability. Calls to action are coming from all sides, but how should companies respond? Corporate approaches that relied either on minimum regulatory compliance or on public relations initiatives are now seen to lack the broader strategic and commercial relevance required for success. What does it take to lead an organization on this journey? What does it take to define, promote and implement comprehensive, strategic, and commercially relevant sustainability initiatives? And what experience and competencies should CEOs look for when appointing senior executives to lead such initiatives?

From research conducted by our Global Sustainability Practice, it is clear that the scope of the sustainability agenda itself is viewed differently not only by competitors in the same industry, but also by different executives within the same organization (see sidebar “Sustainability: A Working Definition”). Even senior sustainability leaders have difficulty articulating what good looks like in this role. Because of these differences, progress can be uneven, alignment elusive, and leading an organization on a sustainability journey can be challenging.

Our research indicates that the adoption of sustainability by organizations evolves through three distinct phases. Each phase is framed by clear demarcation points (although organizational initiatives can be asynchronous in evolving through these phases); each requires different levels of organizational capability to address sustainability-related issues and seize related opportunities; and each requires a distinct set of competencies on the part of the sustainability leader. For senior business leaders who select executives to lead sustainability initiatives, it is therefore crucial to understand each of these phases and the leadership competencies they require (Figure 1).

Figure 1: Phases of Organizational Capability

In our experience, companies that make the most rapid progress on this journey do three things well:

• First, they determine the company’s state of organizational readiness for change – the degree to which staff understand sustainability and are committed to achieving it.
  
  
• Second, they clearly define the mandate of the lead sustainability executive – establishing their responsibilities and evolving these as key milestones are achieved in the corporate sustainability program.
  
  
• Third, they ensure that the right executive is appointed to lead at each phase of the program – selecting those who possess the right balance of competencies, experience and personal characteristics to lead the organization through each phase.

Appointing the right sustainability executive for each phase of the program accelerates an organization’s progress towards securing lasting competitive advantage from its sustainability programs, but requires more than seeking professionals with subject matter expertise. Companies that fail to select the right executive can delay or de-rail their efforts, running the risk that their sustainability programs are not aligned with overall corporate strategy and lack commercial relevance.

The Essential Competencies of the Lead Sustainability Executive

Egon Zehnder International has developed a comprehensive model of leadership that encompasses the core competencies of senior executives, a model based on our experience of working with senior management teams across industries and on more than 25,000 senior management appraisals conducted over the past five years. Combined with that research, our recent executive search and management appraisal for senior-level sustainability professionals suggest that six competencies are central to the success of sustainability leaders: (1) change leadership, (2) collaboration and influencing, (3) strategic orientation, (4) commercial orientation, (5) results delivery and (6) team leadership.

Figure 2: Executive Competencies for Sustainability Leadership

Although the lead sustainability executive will need a baseline of all these competencies, each phase of the journey tests a different combination of dominant competencies:

• In the early phase, when the organization is largely unprepared to address sustainability, the key challenge is to make a clear and compelling case for change. Because the organization is at best reactive to the challenges of sustainability (and usually unaware of the opportunities), the sustainability leader must be adept at collaborating and influencing in the course of convincing the organization to change from unconscious to conscious reactivity. At the end of the early phase, sustainability emerges as a powerful mandate that is pervasive throughout the organization.
  
  
• In the intermediate phase, senior leadership is on board and the task is to translate high-level commitments into a comprehensive change program with clearly defined initiatives and hard commercial targets. To make this happen, the lead sustainability executive must be good at delivering results and needs strong commercial awareness. At the end of the intermediate phase, sustainability becomes an organization imperative that is tracked through economic, environment and social metrics over the business planning cycle.
  
  
• In the advanced phase, sustainability becomes embedded in the organization’s DNA, much like quality or financial control. It becomes a core value and the organization is unconsciously proactive in sustainability. Now the lead sustainability executive must be adept at anticipating and evaluating long-term sustainability trends, spotting new opportunities and developing strategies to re-position the organization to benefit from them. While the need for commercial orientation continues unabated, it is now matched by strong strategic orientation. Although there is no endpoint to the advanced phase (as organizations will continuously raise the bar and leverage sustainability to create competitive advantage), the lead executive is now working in an environment that views sustainability as a strategic opportunity and gauges its progress with metrics that reach beyond the short to medium term.

By understanding how these key executive competencies play out in each of the three phases, companies can make far better informed decisions about precisely what they should look for in their lead sustainability executives.

Phase 1 – Making the Case for Change

Historically, nearly every company has at some point been unconsciously reactive to sustainability: they not only were unaware of the threats and opportunities resulting from sustainability, but they were unaware of this blind spot. But then something happens that brings it onto the senior leadership’s radar screen. The trigger can be an external event – competitor activity, impending regulatory action, market, media or non governmental organization (NGO) scrutiny. More and more, internal pressures, such as scarcity of a key manufacturing input, force the issue. In our experience, one of the most frequent triggers involves a CEO, chairman or division head realizing that the business is running a range of known and unknown sustainability risks in its core operations and that addressing those risks requires dedicated focus and resources.

As an organization begins to engage with sustainability, the degree of organizational readiness is, not surprisingly, low. The organization lacks a shared and consistent understanding of what sustainability means. Some consider it to be a regulatory constraint; others consider it to be either strategically or commercially irrelevant. Senior executives may not fully appreciate the sustainability threats and opportunities the business faces. Even if a company appoints a lead sustainability executive, beyond a general sense that the company needs to act, the mandate for the newly appointed executive can be surprisingly vague.

Under these circumstances, the paramount competencies of the sustainability leader in this phase are:

• Change Leadership: the ability to understand and overcome the barriers to adopting sustainability and to identify, define and develop a specific set of business processes geared to manage previously un-quantified risks and to capture new opportunities.
• Collaboration and Influencing: the ability to cultivate and communicate a compelling vision and gain buy-in from key opinion formers in the organization and the skill to engage and partner with managers to weave sustainability into the fabric of the organization.

Lead sustainability executives should be comfortable with ambiguity and be able to champion sustainability in organizations that may only be starting to appreciate the need for change or may even be actively resisting it. Self-starters with a thick skin, they are able to question and counter strongly held views across the business. They also need to be able to link their proposed sustainability initiatives to overall corporate strategy, highlighting the connections and not being afraid to call out, challenge and bring innovative solutions to the table where there are major areas of difference. Some organizations we looked at were willing to revise their overall corporate strategies early in the process. Others preferred to see progress on discrete sustainability initiatives before making more fundamental corporate strategic changes. All had some level of strategic engagement in Phase 1 to ensure that initiatives launched in subsequent phases were linked to the overall corporate strategy and delivered lasting and commercially relevant change.

Recognizing and addressing major policy and regulatory issues that have the potential to radically affect the organization’s economic sustainability are critical components of the initial phase. While fundamental changes to corporate strategy and major new initiatives take place in subsequent phases of corporate sustainability programs, early identification of important, but as yet ill-defined risks and opportunities is important.

The challenge can be daunting. For example, one of our interviewees, the head of sustainability for one of the world’s largest global banks, recalls a meeting in which another executive stopped talking in mid-sentence, pointed at him and said, “I can’t say anything more as long as he is in the room.”

The head of sustainability at a leading European retailer reports that this phase can feel like “kicking at the door” in order to make senior managers understand the challenges that sustainability poses to the business and recognize the need to engage in a meaningful discussion. “You are a bit like the grit in the wheel – making things uncomfortable for the senior team and helping to shake up their thinking,” he says. “You have to walk a fine line between challenging senior leaders and pushing things too far and getting rejected by the organization.”

However, even the most persuasive argument for sustainability is unlikely to have lasting impact if the lead sustainability executive is unable to collaborate with and influence others. He or she must be able to influence different parts of the business, as well as external partners and stakeholders, to commit to the effort. They must be able to listen, build alliances across the business, and align leadership. Further, the role of the lead sustainability executive is often poorly understood in other parts of the organization. Under those circumstances, the executive has to make up in collaborative skills for what may be a perceived lack of clout. And he or she must do so from the beginning. Says a US manufacturing head of sustainability, “You need to tell a story that engages the general managers – not eventually, but the first time around.”

Executives who rate well on collaboration and influencing are, in our experience, somewhat rarer than those who score highly on change leadership. The right leader for this phase is driven by the need to change – supporting change, advocating it and motivating others to initiate change. He or she knows how to get the support of others and how to build enduring partnerships across organizations and geographies. Both competencies are critical.

Although the first phase may already contain localized sustainability efforts, they will typically be unconnected by an overarching strategy. By the end of the first phase, however, the sustainability leader who can lead change and collaborate effectively will have brought organizational capability from the state of unconscious reactivity to that of conscious reactivity: the organization still lacks a comprehensive sustainability program, but it knows this – and recognizes the need to develop one.

Phase 2 – Translating Vision into Action

In the intermediate phase of organizational capability for sustainability, the mandate for change has been agreed upon by the senior leadership team and communicated throughout the organization. People now view sustainability as an inevitable thrust of the business. In terms of capability, the organization is beginning to develop and implement programs that translate vision into a series of discrete initiatives and tangible projects that deliver real change.

Where little data and no metrics existed before, there is now a concerted effort to follow the management adage that “what gets measured gets done,” which includes hard financial, environmental and social data. Sustainability initiatives are regularly reassessed and, where appropriate, adjusted, expanded, or curtailed. As organizational readiness and organizational capability rise in tandem, the sustainability leader begins to hand off operational responsibility to other areas of the business. Heads of business units, for example, adopt sustainability metrics as an explicit part of their performance dashboards and make sustainability part of their quarterly and annual focus.

At this phase of organizational readiness, the most important competencies for the lead sustainability executive are:

• Results Delivery: the ability to translate a sustainability vision into a comprehensive program of targeted initiatives whose success can be tracked based on clear metrics, and the ability to take corrective action if performance falls short of expectations.
• Commercial Orientation: the ability to focus and prioritize efforts that generate the most value for the organization over the business planning cycle, and the willingness to abandon initiatives that prove not to address sustainability issues.

To ensure that the corporate sustainability action plan addresses all of the major issues facing the business, the executive should be able to fully appreciate how issues as disparate as carbon pricing, resource limitations, and the social components of sustainability affect the company. At all times, however, the lead sustainability executive must be able to narrate the commercial relevance of these issues with a firm focus on risk mitigation and value creation. To do so, he or she must be able to engage and lead teams – both those who are dedicated and those who are disparate and often virtual – to tackle complex issues.

Successful sustainability executives in this phase have strong commercial instincts – they understand best practices and know how to use them to their advantage. As a Chief Sustainability Officer of a consumer product company remarked: “Half of what I do went under names like Lean Manufacturing and Just-In-Time a few years ago; it’s using less ‘stuff’ and using it more effectively.” And yet much change in this phase does not come easily: supply chains are restructured and product ingredients eliminated. Often, these efforts are burdened with significant pressures from PR and marketing teams to promote eye-catching initiatives before the overall sustainability program has gained traction and momentum. A Head of Sustainability at a multinational financial institution pointedly remarked that: “It’s difficult to reign in marketing – green is cool and they know it. But so much of what we need to do is less about being glossy than about delivering on goals we have committed to. These may not be glamorous, but they are hard and measurable. It’s a business, not a Broadway show!”

We have found that executives who rate highly on results and commercial orientation are consistently connecting market need to competitive advantage. They set aggressive goals that have real economic impact, and track their progress against plan as they strive to reach them. These executives are motivated by metrics, and they will drive hard to deliver.

By the end of this phase, the organization will be conscious of sustainability and no longer merely reactive to its implications; it will proactively leverage sustainability to manage risks and create value.




Phase 3 – Expanding Boundaries

In the third phase, sustainability has become a routine component of business dialogues at all operational levels. Strategic initiatives and the performance metrics framing them reflect social and environmental as well as financial goals. At this point, the organization has ceased to think of sustainability as an externality, but embraces it as a core value; the term stands for the sustainability of the business itself.

While much focus will fall on internal issues that can have a swift short-term impact, the sustainability leader should also be able to identify longer-term issues and opportunities that require a more sophisticated level of engagement with external stakeholders – issues and opportunities that may have a more fundamental impact on business strategy and operations. The lead sustainability executive needs to bring strategic orientation and maintain and extend the commercial orientation of the previous phase:

• Strategic Orientation: the ability to develop multi-business sustainability strategies yielding high impact in complex corporate and competitive environments.
• Commercial Orientation: the ability to focus and prioritize efforts that generate the most value for the organization over the medium to very long-term, and the willingness to abandon initiatives that prove not to address sustainability issues.

Sustainability leaders in this phase are inquisitive and reflective, asking tough questions that probe the core purpose of the organization. What are the ways in which we can run our business without fear of environmental degradation or social inequity? How can we anticipate, influence and benefit from regulatory changes that relate to sustainability? How can we leverage those ways to create differentiation and competitive advantage in our markets? The task for this executive is one of continually enhancing organizational capability in sustainability. To do so, he or she will need exceptional strategic orientation – in addition to resolute competence in commercial orientation much like that in Phase 2. It is this combination that allows sustainability leaders in Phase 3 to synthesize multiple and frequently conflicting trends in developing a coherent long-term sustainability strategy, managing trade-offs, and ensuring that the overall corporate strategy is aligned with key sustainability principles.

Thus the leader evolves into a futurist, pursuing long-term investments and partnerships that strengthen and transform organizational assets ranging from internal capabilities and target segments to supply chains and distribution channels. He or she must be cognizant of new opportunities arising in the course of tackling sustainability issues. For example, one client company we interviewed was struggling to limit the impact of its waste in a traditionally asset-light industry. When their lead sustainability executive reviewed the challenge through a strategic lens, the issue appeared in a fundamentally new way. The lead sustainability executive helped develop a new co-generation plant that used the waste as a fuel, thereby saving energy costs and reducing carbon emissions. Another European retail client forged new links with a charity where consumers could recycle their clothes in return for vouchers to buy new clothes in stores. As is typical of Phase 3, the leaders of these efforts thought intensely about overcoming challenges for business, but no less intensely about creating businesses for challenges.

Such successes are a reminder that strategic orientation encompasses far more than an abstract intellectual ability. It also means having the creativity to develop new approaches to sustainability challenges and the courage to question the status quo. For example, the lead sustainability executive might challenge the way the business typically looks at investments, demonstrating how hurdle rates might be adjusted to take account of initiatives that would generate a significant return, but over a longer time period.

As new directions become visible on the business planning horizon, the lead sustainability executive must also be able to ensure that the appropriate changes are implemented at the operational level. At the same time, the goal is to disseminate responsibility for generating sustainability improvement from the corporate level to the business level by embedding best practices throughout the organization. As the sustainability leader for one of the world’s leading computer manufacturers succinctly puts it: “My job is to disassemble my team and spread it across a bunch of P&Ls.” Once initiatives are under way, the sustainability leader can become a key node for information exchange, facilitating connections across international business units and functional areas, as well as forging opportune – and sometimes non-obvious – external relationships.

Now able to leverage sustainability as a corporate value embedded in the organizational DNA, the lead sustainability executive can focus more sharply on opportunities to change the game in the company’s industry, seeking out new ways to compete. One seasoned CSO puts it this way: “I don’t worry about our earnings next quarter – even if it’s tempting. I worry about the new capabilities we’ll need to show earnings when I retire.”

Executives capable of developing long-term plans that shape corporate strategy can move the organization to being unconsciously proactive with respect to sustainability. Sustainability is symbiotically embedded in the operational processes and the long term strategy of the business.

You Are Here

An often repeated proverb holds that “it’s the journey that counts, not the destination.” Not with sustainability. What counts here is very much the destination - the point at which the organization can routinely and reliably extract the maximum value from its sustainability efforts. But to get there, Boards of Directors and CEOs must first know where they are on this journey. They can do so by asking some fundamental questions:

• What does sustainability mean to our organization?
• If we are ready to pursue sustainability, what goals and metrics should we adopt?
• What competencies do we need to reach these goals?

The answers will provide a compass for the journey ahead and help to select the right executive to make change happen.