Internal alignment is crucial for a sustainable business
Corporate objectives are in place to introduce a sustainability-led strategy, but work needs to be done in order for businesses to successfully transform
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
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