CEOs Need to Develop a More Sophisticated Understanding of Sustainability
The simultaneous global crises of climate change, global pandemics, geopolitics and racial and social injustices continue to wreak havoc on the business landscape. Events like these are a stark reminder of just how much work we must do to build a better, more resilient planet for all.
Leaders today have a once-in-a-generation opportunity to pivot their businesses to a more sustainable future. This isn’t just about making net-zero promises. While environmental goals are an important part of the story, they are not the whole story, because sustainable business spans the full range of the U.N.’s Sustainable Development Goals, covering everything from DE&I and health to economic growth and addressing poverty.
We now have clear data to show that thinking about both shareholders and stakeholders are not opposing goals. In fact, sustainability action unlocks sizable business opportunities. More innovation. Recent research found that taking societal impact into account when setting business strategy spurs innovation and helps companies identify new products, services and business models. According to another survey, millennials are 5.3 times more likely to stay with an employer when they have a strong connection to their employer’s purpose. And sustainability is becoming an increasingly influential factor in corporate investment. For example, The CFA Institute found that 75% of investment leaders expect ESG factors to become more influential.
The Risks of Doing Nothing Are Significant
Organizations lacking a stated and credible commitment to sustainability will lose market share, talent, and brand identity to their competitors. Revenues will fall, expenses will rise and shareholders will eventually revolt.
Only a third believe senior leaders display empathy, humanity and inclusivity. This view is not just held by frontline employees — even C-suite executives do not see these attributes in their senior leaders.
Against this backdrop, Russell Reynolds Associates set out to understand the real state of sustainability within organizations across 11 countries. By surveying three distinct groups — C-suite executives, next-generation leaders and employees — we were able to understand what a cross-section of the global workforce thinks about the maturity of their organization’s sustainability strategy and the ability of their leaders to advance the sustainability agenda.
We found that U.S. C-suite respondents are bullish about sustainability progress at their organizations: 49% say they have a sustainability strategy in place that has been acted upon and clearly communicated, while 69% say their CEO is personally committed to advancing sustainability and organizational progress has been made.
Understanding the Value Is Just Beginning
Yet there are also indications that business leaders are at the early stages of their understanding of the value that sustainability can unlock — both for their organizations and the communities in which they operate. For example, when asked about the driving force behind their sustainability actions, 46% of U.S. C-suite leaders cited brand management concerns — they wanted to be seen as socially responsible or reputable and use sustainability for competitive differentiation. By comparison, just 18% say value creation sets the agenda.
A brand-first approach is problematic because it is unlikely to lead to the transformation that is required to thrive in a new era of stakeholder capitalism. Our research demonstrates what is at stake: 54% of C-suite leaders who say value creation is the driving force of sustainability strategy expect their company to make good progress in the next five years, compared to just 36% of those who say brand management is the driving force behind their sustainability efforts.
There is a significant opportunity for leaders to challenge prevailing assumptions about the value of sustainability to their business. Those that see it as a core growth driver, rather than a threat to be managed, will go much further, much faster in the years ahead.
The Need for Empathy From Leaders
Sustainability can feel like an abstract concept. To really commit, people need to be able to “touch and feel” it. Building a culture of sustainability and galvanizing the entire organization behind the shift to sustainable business will ultimately require a different set of leadership skills than in the past, with softer skills like empathy, authenticity and self-awareness becoming ever-more important.
Unfortunately, our research indicates that many leaders lack many of these capabilities.
Only a quarter of employees believe their most senior leaders demonstrate humility or self-awareness. And only a third believe senior leaders display empathy, humanity and inclusivity. This view is not just held by frontline employees — even C-suite executives do not see these attributes in their senior leaders.
We cannot keep doing the same thing and expect different results.
For the U.S. to drive progress toward sustainable business at the scale and pace we need, organizations must elevate sustainability to an executive responsibility. CEO and board leaders need to make sustainability a fundamental strand of business strategy and spearhead radical, enterprise-wide transformation.
The New Mindset of Leadership
At Russell Reynolds, we believe there are three critical actions CEOs can take to deliver this make-or-break transition.
Who is on your leadership team and how that leadership team operates together has the potential to enable or torpedo your organization’s progress on sustainability. But what skills should you be looking for?
In 2020, we worked with the United Nations Global Compact to create a first-of-its-kind blueprint for Sustainable Leadership, defining the specific competencies that leaders must possess to deliver sustainability results. Our model was based on a real-world analysis of 55 sustainable leaders who are already delivering sustainability outcomes for their organization, alongside financial success.
Sustainable mindset: Possesses a deeply rooted belief that business is not a commercial activity divorced from the wider societal and environmental context in which it operates.
Multi-level systems thinking: Understands how their organization interplays with the larger business, societal and environmental systems that surround it.
Stakeholder inclusion: Actively seeks to understand a wide range of viewpoints and makes decisions with all stakeholders in mind.
Disruptive innovation: Challenges traditional approaches and asks: Why can’t it be done differently? Able to cut through bureaucracy to find novel solutions.
Long-term activation: Sets clear stretch goals. Stays the course in the face of setbacks and possesses the courage to make decisions that may be unpopular with some stakeholders.
Sustainability is a complex space; it covers an array of environmental, economic and social issues, as well as a large web of stakeholders, from investors, regulators and customers to employees. This makes setting and defining a clear strategy a difficult undertaking.
A good place to start is to orientate your sustainability strategy around your company’s core business and areas of competitive advantage. Your board has an important role to play here. Once in place, you need to translate your sustainability goals into concrete actions and measurable objectives that leaders and employees can feel in their day-to-day work.
Communicate and Build Employee Engagement
Sustainability goals will be harder to achieve when workforces are not engaged. To make progress, it is good practice to treat employee engagement as a strategic imperative.
Go beyond typical engagement surveys and use advanced culture analytics tools to get a deep scan of how connected employees really are to your organizational purpose and sustainability strategy and whether the right behaviors and values are manifesting. And don’t forget to tap into employees to drive innovation. Your frontline is often a critical source of creativity and inspiration for sustainable business practices.