Five ways that esg creates value mckinsey
Your business, like every business, is deeply intertwined with environmental, social, and governance (ESG) concerns. It makes sense,
therefore, that a strong ESG proposition can create value
1) How to integrate sustainability in your business strategy
3) What leadership competencies are needed
Sustainability is one of those ubiquitous words, which can also be very slippery, as different people understand the word differently.
At a planetary level, sustainability is meeting the needs of the present generation without compromising the ability of future generations to meet their needs (Brundtland – 1987); and how 9-10 billion people can live reasonably well within the constraints of one planet by mid-century (WBCSD 2010).
It is particularly important to remember that there are three pillars of sustainability: social, environmental, and economic – it is not just the environmental dimension.
At the firm level, sustainability is the purpose, business models, strategy, skills and resources required in order for a business to continue into the indefinite future. This means managing resource constraints (for example carbon budget, water, talent). Increasingly, we see businesses moving beyond doing no harm, and defining a societal purpose: “a concrete, pro-social goal or objective for the firm that reaches beyond profit maximisation.”(Henderson & Van der Steen 2015); and seeking to be net positive.
Hence corporate sustainability can be defined as “a business commitment to sustainable development, and an approach that creates long-term shareholder and societal value by embracing the opportunities and managing the risks associated with economic, environmental and social developments.” (Doughty Centre – Expanded from PWC – SAM – The Sustainability Yearbook 2008). There are broadly similar definitions from the UN Global Compact, The Conference Board and others.
Corporate sustainability commitments are increasingly common. But they’re also often ill-defined, narrow in scope, sometimes disconnected from broader corporate goals, and can be hampered by a lack of leadership ‘buy in’.
Yet look at the direction of travel, and it’s clear that it won’t always be that way—as forward-looking business leaders are already seeing.
Neil Carson, chief executive of FTSE 100 chemicals and process technologies firm Johnson Matthey from 2004-14, presciently said this of corporate sustainability, for instance:
“It’s like the quality revolution that we had in the 1980s. What happened was that companies either ‘got’ quality, or they died. And one day this is going to be the same for sustainability. But there’s an interim period where that’s only true for some companies, not all companies.”
So what exactly are the corporate sustainability leadership competencies that are required in organisations that don’t want to die?
Let’s look at three separate ‘takes’ on the answer.
The business leaders’ perspective
An influential taskforce-based study, involving corporate leaders’ own views on the issue, was published in 2010 by Business in the Community, a business-led charity promoting responsible business and corporate responsibility.
Entitled Leadership Skills for a Sustainable Economy, it defined a number of corporate sustainability leadership attributes, including the ability to consistently work towards a longer term vision of how the organisation might contribute to a sustainable economy, together with an ability to inspire people—both inside and outside the organisation—to take action on corporate sustainability.
Also important, the taskforce argued, was the ability to empower those people within the organisation to make corporate sustainability business decisions, commercial awareness to identify the risks and opportunities that might lie behind those decisions, and sufficient knowledge about corporate sustainability to develop successful business strategies.
Just as valuable were the ability to innovate in terms of sustainable approaches, technologies, products and services; the ability to work collaboratively with different stakeholders, and the possession of effective and persuasive communication skills.
The survey-based perspective
Cranfield’s Doughty Centre for Corporate Responsibility, visiting fellow Anita Hoffmann has published her own take on the issue, with the corporate responsibility coalition Business for Social Responsibility (BSR).
An experienced board level executive coach, she surveyed chief executives, chief human resource officers, company chairs, industry experts, NGOs, and chief sustainability officers around the world, probing their views on what constituted effective corporate sustainability leadership.
The answer? Six separate corporate sustainability leadership competencies: ethics and integrity; external awareness and appreciation of trends; visioning and strategy formulation; risk awareness, assessment and management; stakeholder engagement; and flexibility and adaptability to change.
The corporate sustainability expert’s perspective
Finally, for still another take on the issue, Canadian corporate sustainability expert Coro Strandberg’s 2015 report Sustainability Talent Management: The New Business Imperative distilled a decade of sustainability and management literature into just five interdependent competencies.
These, she decided, were systems thinking; external collaboration; social innovation; sustainability literacy; and active values.
Clearly, as you might expect, there are some common themes here and also common ground with the views of real-world companies that have explored the issue of corporate sustainability leadership.
Look at those corporate sustainability corporate competencies viewed as valuable by Unilever—now widely recognised as a global leader in corporate sustainability—for instance, and distinct echoes of all of the above emerge. Unilever now has four key leadership competencies: adaptability; systems-thinking; empowerment; purpose & authenticity.
But defining corporate sustainability leadership competencies is one thing—and possessing them quite another.
So precisely what qualities is it that busy corporate executives should be working to develop?
When it comes to corporate sustainability leadership competencies, I’d suggest these four qualities are amongst the critical building blocks:
- The ability to contextualise; to understand sustainable development trends, and how and where your own organisation fits into the wider system – strategic systems thinking;
- The surfacing of a personal purpose, together with authentic values;
- A capacity to inspire and empower in a corporate sustainability context; and increasingly,
- The ability to conceive, create, continuously improve and—where appropriate—exit collaborations with other businesses and interested parties.
Easy? Simple? Straightforward? Of course not. But then, corporate sustainability itself isn’t any of these things, either.
A subsequent blog in this series will explore how busy executives can work to develop these attributes.
David Grayson CBE is Professor of Corporate Responsibility and Director of the Doughty Centre for Corporate Responsibility. He is co-author with Jane Nelson from Harvard’s Kennedy School of Government of the award winning book Corporate Responsibility Coalitions: The Past, Present & Future of Alliances for Sustainable Capitalism.