Internal alignment is crucial for a sustainable business

For­ward-look­ing busi­ness­es are tak­ing the first steps on the jour­ney to becom­ing sus­tain­abil­i­ty-led organ­i­sa­tions. Whether they are cut­ting car­bon emis­sions, pro­mot­ing work­force diver­si­ty or help­ing to build resilient com­mu­ni­ties, they are look­ing to play their part in cre­at­ing a more live­able world.

But get­ting every­one in the organ­i­sa­tion to share the same vision on how to car­ry out this sus­tain­abil­i­ty strat­e­gy is prov­ing tricky and could hold back progress.

A sur­vey com­mis­sioned by strat­e­gy firm L.E.K. Con­sult­ing found that the num­ber one bar­ri­er to real­is­ing the ambi­tion for long-term sus­tain­abil­i­ty in organ­i­sa­tions is a lack of align­ment among key stake­hold­ers. L.E.K. com­mis­sioned researchers from Lon­gi­tude to quiz 400 senior busi­ness exec­u­tives in six coun­tries about their com­pa­nies’ progress in adopt­ing envi­ron­men­tal, social and gov­er­nance (ESG) strate­gies.

Some 34% of respon­dents said a lack of align­ment among man­agers was a key chal­lenge to achiev­ing sus­tain­abil­i­ty goals and 33% said that lead­er­ship lacked align­ment on what their ESG ambi­tion should be.

“One of the biggest tasks in cre­at­ing strong ESG goals is get­ting every­one in the organ­i­sa­tion on the same page,” says John God­dard, vice-chair for sus­tain­abil­i­ty at L.E.K. “That means mak­ing sure every­one has a basic under­stand­ing of the impor­tant con­cepts in ESG by offer­ing third-par­ty sup­port through advi­sors and edu­ca­tion­al pro­grammes. Com­pa­nies need to estab­lish a com­mon lan­guage around sus­tain­abil­i­ty and devel­op goals and tar­gets which every­one can share in. They must under­stand the strate­gic choic­es made to achieve those goals. Once your busi­ness is aligned behind a com­mon vision, progress towards hit­ting sus­tain­abil­i­ty tar­gets becomes much faster.”

L.E.K.’s sec­ondary research revealed sig­nif­i­cant momen­tum behind ESG strate­gies, espe­cial­ly on cut­ting car­bon emis­sions. Some 60% of FTSE 100 com­pa­nies are com­mit­ted to reach­ing net-zero car­bon emis­sions by 2050, while two thirds of S&P 500 com­pa­nies have emis­sions reduc­tion tar­gets. Mean­while, around 720 of the 2,000 largest pub­licly trad­ed com­pa­nies claim net-zero goals.

But while many busi­ness­es have good inten­tions, they are strug­gling to put them into prac­tice. Only 36 of the FTSE 100 com­pa­nies meet the stan­dards of the Sci­ence Based Tar­gets Ini­tia­tive, a glob­al organ­i­sa­tion that offers com­pa­nies a sci­en­tif­ic basis for their emis­sions tar­gets. And very few com­pa­nies are track­ing their Scope 3 emis­sions – those by third par­ties, such as

providers of pur­chased goods and ser­vices, as well as areas such as employ­ee com­mut­ing and busi­ness trav­el. L.E.K. warns in its report that cur­rent cli­mate com­mit­ments are insuf­fi­cient to lim­it glob­al warm­ing to 1.5ºC by 2050, a goal of the Paris Agree­ment.

To reach the com­mit­ments on cli­mate and sus­tain­abil­i­ty that they have made, busi­ness­es need to cre­ate coher­ent poli­cies to set cred­i­ble goals. These strate­gies depend on com­pre­hen­sive data gath­er­ing and report­ing about the company’s emis­sions and oth­er activ­i­ties. And busi­ness­es must avoid engen­der­ing scep­ti­cism and alle­ga­tions of green­wash­ing by mak­ing sure their com­mit­ments are real­is­tic and achiev­able.

These require­ments demand a shared vision across the busi­ness, but many exec­u­tives and man­agers may strug­gle to see how envi­ron­men­tal tar­gets can fit in with their tasks of sell­ing more goods or increas­ing prof­itabil­i­ty. Some exec­u­tives may find it hard to grasp the role of their busi­ness in, for exam­ple, keep­ing glob­al tem­per­a­ture ris­es below 1.5ºC, par­tic­u­lar­ly when bal­anc­ing this against oth­er objec­tives.

How­ev­er, new­er employ­ees with­in busi­ness­es have grown up with sus­tain­abil­i­ty and equal­i­ty issues and are well-placed to help dri­ve these strate­gies. The move to sus­tain­abil­i­ty is a good oppor­tu­ni­ty for empow­er­ing employ­ees and putting them at the heart of cor­po­rate strat­e­gy.
One of the big ques­tions man­agers and exec­u­tives need to agree on is the extent to which the com­pa­ny should trade-off between short-term gains and the longer-term vision of sus­tain­abil­i­ty.

A com­pa­ny may decide that invest­ments in plant and new tech­nol­o­gy can pay back more grad­u­al­ly if they also believe these invest­ments – for instance in renew­able tech­nolo­gies – will help achieve sus­tain­abil­i­ty goals.

L.E.K.’s sur­vey found that 58% of organ­i­sa­tions feel that there are “sig­nif­i­cant dif­fer­ences of opin­ion with­in the lead­er­ship team” on bal­anc­ing short-term pri­or­i­ties with long-term ESG goals. Ulti­mate­ly, it is down to the chief exec­u­tive to dri­ve through these poli­cies. But encour­ag­ing buy-in from across man­age­ment is vital to mak­ing those goals a real­i­ty.

Mean­while, 79% of exec­u­tives said their organ­i­sa­tion had more to do to put the required skills and capa­bil­i­ties in place to deliv­er sus­tain­able goals. This strat­e­gy may help com­pa­nies suc­ceed in the grow­ing war for tal­ent, in which sus­tain­abil­i­ty can act as a major com­pet­i­tive advan­tage.

Over­all, ESG issues are seen as a way of dri­ving growth by many organ­i­sa­tions – 51% of organ­i­sa­tions are focused on ESG as a growth dri­ver, while a fur­ther 20% are tak­ing an inno­va­tion-led approach, which involves putting sus­tain­abil­i­ty at the heart of their inno­va­tion strat­e­gy to cre­ate new prod­ucts and ser­vices offer­ing envi­ron­men­tal and social ben­e­fits. Tak­en togeth­er, some 71% of com­pa­nies see sus­tain­abil­i­ty as a way of dri­ving growth. And many are pre­pared to pri­ori­tise long-term goals over short-term ben­e­fits; 51% of respon­dents said com­pa­nies should address ESG issues even if it means a short-term sac­ri­fice.

Trans­form­ing com­pa­ny activ­i­ties to hit sus­tain­abil­i­ty goals requires a new set of incen­tives for man­agers and direc­tors. This could involve mak­ing bonus­es depen­dent on cut­ting car­bon emis­sions and reduc­ing waste or edu­cat­ing employ­ees on how to min­imise emis­sions. So, when train­ing dri­vers in trans­port busi­ness­es, com­pa­nies can edu­cate employ­ees on fuel usage or improve under­stand­ing of elec­tric vehi­cles as a means to reduce emis­sions.

But incen­tives can only be imple­ment­ed when there are clear mea­sure­ments of the company’s per­for­mance. Busi­ness­es must care­ful­ly choose the rel­e­vant key per­for­mance indi­ca­tors which show evi­dence of the jour­ney to sus­tain­abil­i­ty. Deter­min­ing the right process­es for data col­lec­tion and track­ing can help align the com­pa­ny behind its ESG objec­tives. Accord­ing to L.E.K.’s sur­vey, only a quar­ter of organ­i­sa­tions have any enter­prise-lev­el KPIs relat­ed to the ESG agen­da.

As God­dard says: “More needs to be done to estab­lish account­abil­i­ty for deliv­er­ing against ESG goals, includ­ing align­ing exec­u­tive remu­ner­a­tion to ESG tar­gets. To make progress, busi­ness­es need to mea­sure things that mat­ter and reward good per­for­mance against these met­rics”.

Mov­ing a busi­ness to a sus­tain­able plat­form is a mas­sive, super tanker of a task for large com­pa­nies. Mak­ing sure the whole busi­ness shares a com­mon vision is vital to keep the organ­i­sa­tion head­ing in the right direc­tion.

To find out more, please vis­it info.lek.com/sustainability-strategy

Pro­mot­ed by LEK