Creating a Sustainable World
Are leaders doing enough?
Sustainability is nearly always in the spotlight. From companies announcing carbon emissions reductions in the lead up to COP26 and in anticipation of the World Economic Forum, to ongoing media coverage of environmental and social issues, awareness has never been greater. But is enough action being taken by leaders and companies, or is it too little too late? We surveyed hundreds of executives globally to find out.
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“Are we doing enough? Absolutely not. How could any of us say we do enough? We need to move much harder and faster in order to protect our planet for future generations,” notes Wolfgang M. Neumann, Chairman of the Sustainable Hospitality Alliance.
He is not alone in those sentiments. Many leaders agree time is of the essence. “There's just so much to do, and we're not on pace to get it done,” says Frank O’Brien-Bernini, Chief Sustainability Officer of Owens Corning.
Part of the challenge is that you cannot simply become a more sustainable company overnight, especially when it comes to embarking on large-scale transformation. “Our pep+ announcements on regenerative agriculture, our targets to become a net-zero emissions company by 2040, net water-positive by 2030 and efforts to ensure that we achieve a 50 percent reduction in the amount of virgin PET we use by 2030 – those are really bold aspirations, and they're not easy ones,” notes Eugene Willemsen, CEO for Africa, Middle East & South Asia at PepsiCo. “It requires leadership to put those targets out there and then also to work through all the mechanics and tactics to deliver on them together with other stakeholders in the value chain.”
To preserve our world, it will take more than just vanguard leaders and companies taking action. From consumers to investors—there is opportunity for everyone to act as responsible global citizens. “We need the whole ecosystem to move and accelerate and we must act now, and we must act fast,” says Naïm Abou-Jaoudé, CEO of Candriam. For Janet De Silva, President and CEO of Toronto Board of Trade, there has never been a greater sense of responsibility in terms of climate accountability. “Through the pandemic, we’ve seen horrific supply chain disruption which has also driven new thinking around the need for global sourcing versus domestic production to address the environmental impacts of shipping of our goods and medical supplies. The world at large is at a place where this is a top-of-mind issue.”
Addressing major environmental, social, and governance (ESG) issues can be overwhelming for companies of every size and industry, but it is not impossible. At the heart, it’s a leadership challenge; it starts with commitment, layered with vision, leadership, strategy, alignment, and persistence. This survey unpacks the main challenges leaders are contending with and inspires hope in the better world they see ahead.
Our analysis covers medium to large companies whose revenues range from millions to tens of billions of dollars annually across every industry. While most of those surveyed work in publicly listed corporations (60%), private, family-, investor-, and state-owned companies are also represented in this study.
CEOs own the sustainability agenda and must empower their teams to deliver on it
Most respondents (68%) say a single person owns the sustainability agenda; 66 percent of them say it’s the CEO of the company, while 9 percent say it’s the Chief Sustainability Officer.
About 27 percent of respondents say that the ownership was shared by the top team: C-Suite or board. SunLife Financial Inc. Chair Bill Anderson notes, “I think it's a responsibility for all of us as directors to understand what's going on. We all have to be committed to this equally and be prepared to spend time reading, being involved in webinars, and spending time with the executives around what they're doing.”
Most of our survey respondents (82%) believe that their boards are well-equipped to monitor sustainability threats and opportunities. Those who expressed concern (18%) believe that lack of relevant skills among board members is the biggest reason behind lack of preparedness, followed by management’s and shareholders’ conflicting priorities and lack of enough or sufficiently good data.
“I expect to see boards adding a focus on competency in this area,” adds Mark Hershey, SVP, General Counsel and Executive Sponsor for Sustainability at Armstrong World Industries. “If you look at a typical skills and experience matrix for a public company board, I can easily see sustainability expertise being added as a new attribute. This attribute might focus on direct experience designing or leading sustainability initiatives, with backgrounds reflecting applicable technical skills, environmental, health and safety management backgrounds, or simply what it takes to build and implement a long-term vision for an enterprise-wide sustainability journey.”
While board members will not have all the answers, a significant part of their role can be to encourage constructive and ongoing conversations about integrating sustainability into the core of their companies. “Apart from just the governance aspect of the directorship, we really hope that the directors can be a sounding board for management and bring different expertise and experience to the table,” says Stephanie Lo, Managing Director, Corporate Development of Shui On Land. “We have leaned on our directors a lot on those aspects to strategize as to how we can better integrate sustainability into the business, and it’s been very effective and very helpful.”
Beyond the CEO and board, many other leaders also contribute to setting the goals and strategy. “A really challenging part is to have a broad consensus, not so much on the principles but on the scale, and how to break it down into small pieces within different functions of the organization to drive the ESG agenda. If it’s about energy consumption, maybe the operations team will be responsible. If it’s about diversity and inclusion, the HR department. But mostly, we need somebody who is coordinating all these various efforts to make sure that an organization is driving a collective agenda,” notes Amy Fong, COO of FountainVest Partners.
To be a more sustainable company, current culture and purpose may need to shift
Recognizing the need for a mindset shift is critical, but the real challenge is embedding sustainability into the core of the company—a major departure from traditional business models for many. “It's not just change, but in some cases, radical change that's required and that's going to take a lot of bravery. It's going to take a lot of strategic sense of direction, being clear about where we're headed,” explains Miguel Veiga-Pestana, Head of Corporate Affairs & Chief Sustainability Officer at Reckitt. “It's going to take a lot of innovation. And it's going to take a kind of cultural shift in most companies.” Some companies are already down that path: A full 37 percent of respondents describe their own organization’s approach to sustainability as “transformative,” while the next largest group (27%) call it “innovative.”
Overall, and across industries, cultural challenges are the biggest obstacles to progress, according to 16 percent of respondents. Short-term shareholder expectations and operational challenges are the second and third biggest challenge, respectively.
Leaders who are tackling the culture challenges may be pleasantly surprised that nearly everyone is likely to find part of the agenda that is important to them, whether it’s addressing climate action or diversity, equity and inclusion, which can create a more cohesive culture. “People feel good about themselves that they can contribute to sustainability. There is a sort of inherent logic in sustainability that appeals to almost everyone—once you can convince them. Massive transformation is required to make people much more aware of their impact on the health of our planet,” says Erik Berglöf, Chief Economist of Asian Infrastructure Investment Bank.
The leaders who are instrumental to a culture of sustainability are typically those who display a genuine love for the work, the organization, and the planet. They tend to naturally gravitate towards an ESG agenda, and they do it very passionately, notes Amy Fong, COO of FountainVest. “That pride and love would translate into pride and love within the organization. You know there is a oneness agenda, because one single person cannot make anything happen on their own. He or she can only drive the agenda with significant and broad support from the entire group of staff.”
Making Progress Toward Net Zero
A conversation with Rich Lesser, Global Chair of BCG about the critical role leaders play in steering their companies toward a path of sustainability—and potential strategies they can implement in their organizations. Watch
Veiga-Pestana argues that companies need commitments that work in the long run and highlights a framework leaders can adopt for a stronger impact. Watch
In addition to culture adjustments, companies may need to realign their purpose with their business outputs. “We have a very honorable purpose, which is to empower the next generation to explore the wonder of childhood and reach their full potential,” notes Pamela Gill-Alabaster, Head of Global Sustainability at Mattel. “I think that’s what turns people up to work—the notion that we’re making a better life for kids. There has to be purpose-driven alignment when you have such an inspiring intention, while also understanding that the products you create use valuable resources and can contribute to waste and carbon emissions.”
Companies are at different points in their purpose and culture shifts, depending on when they began their sustainability journeys. Among our respondents, almost a quarter were including sustainability as part of their strategic agenda more than 10 years ago. However, more than half of the companies surveyed have been focusing on sustainability for less than 3 years.
Our survey also reveals that industries have come on board at different times, which suggests varying levels of maturity in digesting and embedding sustainability goals, depending on the organization’s activity. For example, while for the majority of industrial/manufacturing respondents (58%) and energy/oil/utilities respondents (42%), sustainability became a priority between 2-4 years ago, more than 40 percent of investment and financial advisory industry respondents felt the change took place for them over 10 years ago.
Lack of universal metrics is an ongoing challenge for most companies
Companies do not all define sustainability in the same terms, and they often use different frameworks and systems to measure progress.
There is not a specific sustainability agenda. Sustainability is seen as a way to future proof the business.Survey respondent
We include in our sustainability agenda several goals: decarbonization, circular economy, sustainable use of water resources, smart and resilient cities, quality of our services and products, diversity and inclusion, health and safety, people skill improvement, etc.Survey respondent
We decided deliberately not to talk about a sustainability strategy. Because what that does is it creates that sense of division between what is the core business operating framework and the core business priorities with sustainability.Miguel Veiga-Pestana, Head of Corporate Affairs and Chief Sustainability Officer of Reckitt
But even for companies that have embedded sustainability in their core, there is still the issue of tracking progress. Commitments to specific ESG targets is one way of measuring. About 86 percent of companies that participated in this survey have signed up to ESG targets, and those that have not said they are in the process of doing so. This high level of commitment sends a strong message that sustainability is a seed with potential to create deeply ingrained roots across businesses globally. But it needs to be well cultivated—and measured.
One company that has successfully adopted a clear methodology to support its sustainability goals is Ecopetrol—one of the world’s 40 largest oil companies. Monica Jiménez, Secretary General – Corporate Governance and Corporate Responsibility, explains that the company is adept at ongoing assessment efforts. “Our strategy includes continuous identification of ESG material issues, stakeholder mapping and their expectations since they can evolve depending on circumstances. We are also focused on understanding how energy transition impacts our broader environment, including communities, water, solid corporate governance and our decarbonization efforts,” she says, noting that another critical component of the company’s sustainability plan is technology. “In oil and gas companies, technology is key in order to leapfrog as fast as you need in order to achieve your decarbonization objectives.”
Defining and Measuring Progress
Fong examines how FountainVest’s adoption of ESG considerations into its due diligence process is generating value. Watch
Anderson says that setting ambitious ESG targets is only the start for companies to become more sustainable—it will take time and heavy lifting. Watch
Jang talks about the roles of the board and of executive leadership in ensuring companies have a bold vision, resources, and goals. Watch
A CSO leading the sustainability charge should be a baseline, not a “nice to have.”
While most of our survey respondents believe CEOs “own” the sustainability agenda, 60 percent say CSOs lead it. CSOs are often the missing link for organizations when trying to connect business and sustainability goals. “As someone who has led companies in that transformation to become a more sustainable business, you've always got to strike that balance between challenging the business and asking those tough questions and pushing, without losing credibility because you're seen as out of touch with the business reality,” explains Michael Kobori, CSO of Starbucks Coffee Co. “The other thing that I keep in mind is sustainability isn't a standalone. We're not doing it because it's a good thing to do. Of course, it's important for the planet and it's important for our posterity. But it's also deeply intertwined with business success.”
Embedding sustainability within broader company strategy and goals is challenging, but some companies are finding successful ways of doing so.
How Leaders Are Connecting Sustainability and Business Goals
Denoly describes what led Schneider Electric to embed, gradually, sustainability into its core. He also examines experiences and required skills. Watch
Lo outlines how Shui On Land’s Green Pledge is successfully harnessing community support, with a 90 percent adoption rate among the company’s tenants. Watch
Goh argues that challenging the conventional wisdom and bringing diversity to the boardroom can lead to better decision-making. Watch
While progress is being made, there are still missing links and resources needed for companies to truly transform. When we asked CSOs in our survey the one thing they wanted to change in their organizations in the next 12 months to make progress on their sustainability agendas, their responses centered on four main themes:
- Incorporate sustainability into the business, including compensation structures, hiring incentives, and culture
- Allocate more resources, including enlarging the sustainability team and ESG training for all employees
- Reduce carbon emissions and ensure all employees understand the role they play in this
- Align on the same targets and collaborate more
A Sustainable World Starts with Finding Human Answers to Complex Issues
Committing to sustainability is not a light-switch to be turned on and off. If you want to make a positive impact on the planet, you must be willing to lead in your company and in your personal life. In the same way organizations are seeking to embed sustainability at their core, leaders similarly must internalize it as well and embrace the key role they have in translating their commitment and energy to those around them.
The moment leaders realize the importance of their work on ESG, the creativity comes out in a scale that is far beyond our imagination,” notes Amy Fong, COO of FountainVest Partners. “Unleash the power of creativity through getting people to buy in, through the spirit of understanding and joy and passion and love, and the sharing of the same values and mission. There are no boundaries to what can happen.
As leaders make both initial and deeper commitments to sustainability, that puts companies at different stages of their sustainability journeys. We asked survey respondents to share one thing they would recommend to other leaders looking to advance their sustainability agendas.
In Their Words
- Be real. Authentic. Honest. Some businesses will not have a long-term future without ESG.
- Socialize a better and more relevant (targeted) value proposition to various stakeholders.
- Ensure purpose-driven leadership from the top.
- Instill a sense of urgency.
Chief Executive Officers
- First and utmost: Believe in your own duty and possibilities for your stakeholders and the planet.
- Align with your Board Chair on what it means and how important sustainability is.
- If you have not yet started, really move this to the top of your priorities.
- Accelerate and include ESG targets in the variable incentive scheme.
- Dare to believe investments in this area will pay off — and in several ways, including, financially, retaining talent, and being a more attractive supplier or brand.
Chief Sustainability Officers
- If you have not yet started, really move this to the top of your priorities.
- Board support comes first. Embed it into governance.
- Set tough targets—you don't have to have all the answers.
- Communicate and align across all levels of the organization and the whole value chain.
- No greenwashing. Take a commercial approach, everything you do operationally should create social and economic value.
Chief Financial Officers
- Establish clear ownership, doing it for the right reasons and not because of others’ expectations.
- Ensure that the responsibility for the sustainability strategy is carried cross-functionally.
- Think beyond your own commitments, towards value creation along value chains.
- Think long term.
- Balance social and environmental agendas, both are important.
Creating the World We Deserve
The question we posed at the start of this survey, “Are leaders doing enough?” has a simple answer. No one is ever doing enough. While there are pockets of companies around the world that are making progress, we have yet to hit a tipping point to spur large-scale change. Leaders find themselves “between a rock and a hard place” — as society, investors, employees and businesses, all parts of a system of systems — face the climate emergency with their own hopes and fears, the ability to convene and be open to other perspectives, and the prospect of change to our traditional mental models. Leaders need to consider alternative perspectives, and this requires new skills or underutilized skills.
We are starting to see leaders exhibiting more empathy, driving us closer to the point of change. “To what extent are you able to put yourself in the shoes of somebody else? To what extent are you able as a CEO to put yourself in the shoes of your least paid worker and understand what that life is like? What is it like to work for your company as a supplier? What is it like for the local citizens of the place where your manufacturing plant is?” asks Alice Steenland, Chief Strategy & Sustainability Officer of Signify. “And do you care?” These questions require distinctly human answers—they are not able to be answered by changing a reporting system or adopting technologies. By listening and then acting, leaders can help take us from the world we have today to the one we deserve.
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