From arduous mandate to key value driver
How sustainability helps build a resilient organization
The principle of sustainability has long since reached out beyond the ecological sector to embrace all areas of social, political, and business activity. And yet many companies still struggle to see more in the call for sustainable development than troublesome new compliance requirements. In fact, a new corporate understanding of sustainability and the translation of the underlying principle into strategies and processes can offer companies a host of business opportunities. To drive this change, however, they need to appoint the right sustainability leader and compile a strong, energetic, and open team.
THE MOST WIDELY quoted definition of sustainability and sustainable development is that of the Brundtland Commission of the United Nations on March 20, 1987: “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” At the 2005 World Summit it was noted that this requires the reconciliation of environmental, social, and economic demands – the “three pillars” of sustainability. Since then, no corporate leader has been able to pretend that sustainability was an externality, something related to the natural world and with little if any direct bearing on the commercial performance of their businesses. Grappling with sustainability for companies in the 2010s will be central to the resilience of their organizations. In fact, the most commercially resilient companies will recognize sustainability as a powerful business imperative. They will define and implement strategic and commercially relevant sustainability initiatives that translate into competitive advantage and drive superior business performance. The less resilient – those who fail to adopt sustainability as a core business principle – will inevitably lose ground to their competitors.
Based on our global experience, organizations adopt sustainability through three distinct phases (Figure 1): an early, intermediate and advanced phase of organizational capability. That is the conclusion that emerged from a series of in-depth interviews we at Egon Zehnder conducted with leading sustainability executives in Europe and the Americas, combined with additional research undertaken by our Global Sustainability Practice. Each phase is framed by clear demarcation points. Each requires different levels of organizational capability. And each requires a distinct set of skills on the part of the sustainability leader and sustainability teams. By understanding these phases, appointing the right lead sustainability executive for each, and assembling the right teams, organizations can greatly accelerate their progress toward lasting commercial advantage from their sustainability programs.
Phase One: Making the case
Each phase of the journey tests a different combination of dominant competencies in the lead sustainability executive – competencies that tend to be stronger in successful sustainability leaders relative to comparable leaders with other areas of responsibility. In the early phase, when the organization is largely unprepared to address sustainability, the lead sustainability executive must be adept at change leadership and at collaboration & influencing.
At this point, the organization still may lack a shared and consistent understanding of what sustainability means. Some executives may not fully appreciate the sustainability threats and opportunities the business faces, with some considering it merely a regulatory constraint, while others think it commercially irrelevant. Under these circumstances the sustainability executive must be able to overcome the barriers to adopting sustainability and develop business processes to manage previously unquantified risks and capture new opportunities. The sustainability leader must also be able to cultivate a compelling vision and gain buy-in from key opinion formers in the organization.
The lead executive’s skill at change leadership and collaboration & influencing should be matched by his or her team’s energy and openness. It is these attributes that are paramount in the sometimes Herculean task of bringing an unready organization around to new ways of thinking. While energy fuels the effort, openness helps ensure that all relevant issues are identified and acted upon. Listening, reaching out, persuading the skeptical, educating the uninformed, and persistently building the business case, the leader and his or her team together can change the organization faster than either could without such synergy. Sustainability teams in this phase, while often self-selected, must forge alliances across the organization to make a strong and commercially relevant case for change. Frequently, in fact, these teams are virtual rather than dedicated, with members diverted from other divisions and functions, which can be a source of strength in bringing the entire organization along. To secure consensus on the need for action, the team must be able to support and facilitate discussions at senior management level to maintain the long-term momentum of the sustainability strategy.
Sustainability teams must forge alliances to make a strong and commercially relevant case for change.
By the end of Phase One, through the complementary skills of the leader and the team, the organizational capability will have moved from the state of unconscious reactivity to that of conscious reactivity: The organization still lacks a comprehensive sustainability program, but the issue has begun to be framed in a more strategic context and senior leadership now sees it that way.
Phase Two: Translating commitment into commerce
In this intermediate second phase, when senior leadership is on board, 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 results delivery and commercial orientation. The sustainability leader must 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 responsible executive must be able to narrate the commercial relevance of these issues with a firm focus on business results. In the absence of such a framework, companies risk doing the wrong things or failing to see regulatory and policy issues in a commercial context. Even if the company focuses on internal, cost- or risk-reduction initiatives in the early part of Phase Two, the sustainability leader makes sure that they are seen from this broader strategic perspective.
Where little data and no metrics existed before, there are now hard financial, environmental, and social objectives. Initiatives are constantly assessed and adjusted. At this point the sustainability leader begins to pass on operational responsibility to other people throughout the organization. Heads of business units, for example, begin to adopt sustainability metrics as an explicit part of their performance dashboards and make sustainability part of their quarterly and annual focus. The leader’s commercial orientation and ability to deliver results is reinforced by the team’s resilience in the face of resistance and its efficiency in translating sustainability into concrete, measurable initiatives. To overcome resistance to sustainability initiatives, the team remains cohesive and composed under persistent internal or external stress. And it continually makes calculated trade-offs to optimize resources and minimize wasted effort.
By the end of this phase, thanks to the commercial and results orientation of the lead sustainability executive, coupled with the internal resilience and efficiency of sustainability teams, sustainability initiatives with hard commercial targets will be in place throughout the enterprise. The organization will no longer merely be reacting to sustainability but, instead, proactively leveraging sustainability to manage risks and create value.
Phase Three: Changing the game
Since sustainability has now become a core value of the organization, the lead sustainability executive must have not only the commercial orientation of Phase Two but also strategic orientation in the largest sense. It is this combination that allows sustainability leaders in this advanced stage 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.
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. 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. With responsibility for sustainability widely distributed in the company, 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.
As sustainability becomes part of the fabric of the organization, the perspective of teams dedicated to sustainability changes. In addition to working on the execution of current sustainability efforts, they often work on long-term initiatives, investments, and partnerships. To succeed they need the openness of Phase One, but it must be on a far broader scale now that sustainability encompasses every aspect of operations and long-term strategy, and extends far beyond the walls of the company. They also need alignment in order to collectively and consistently put sustainability within the overall strategy of the enterprise. Like the lead sustainability executive, they are alive to new opportunities that arise in the course of addressing sustainability issues.
Of course organizations do not advance in a smooth, linear fashion towards Phase Three – different initiatives occupy different phases of the spectrum. As a consequence, the increasingly multi-faceted teams leading initiatives can range from dedicated to virtual, and they will rely on the lead sustainability executive to define overall direction and assure mutual alignment.
When the teams are aligned with each other and with other functions, and the lead sustainability executive is capable of developing long-term plans that reflect and shape corporate strategy, sustainability is symbiotically embedded in the operational processes and the long-term strategy of the business. The organization moves to being unconsciously proactive with respect to sustainability. At this point, the organization has ceased to think of sustainability as an external force and instead embraces it as a core value. The term stands for the sustainability of the business itself.
Sustainability Pulse Check
In our experience, boards and CEOs increasingly want to know where their companies stand on their sustainability journey. A sustainability leader or a team that falls short in the dominant competencies required for success in each phase will act as a brake on progress. So boards and CEOs need to ensure that both their sustainability leader and teams have the requisite complementary competencies for each phase.
They can begin by asking themselves the fundamental question taken from Egon Zehnder’s Sustainability Pulse Check, a diagnostic tool we use with our clients to assess the level of engagement across their organizations around sustainability: “In your company, is sustainability regarded as primarily (1) an issue of regulatory compliance, (2) an unavoidable but arduous mandate, (3) an imperative operational competence, or (4) a key commercial driver of value?”
The answer should not only tell you where you are and how far you have to go, but also what kind of people you will need to take you there.
Richard Murray-Bruce is a consultant in Egon Zehnder’s London office. He is a member of the Sustainability and Financial Services Practices and leads the UK asset management Practice.
Special thanks goes to co-author Christoph Lueneburger, formerly with Egon Zehnder (2008-2015).