Sustainability – just another business risk or a real opportunity?
One of the most important questions for business leaders all around the globe is whether they recognise sustainability as just another business risk or a real opportunity. According to Bloomberg, the “most sustainable companies” have doubled their return compared to the “less sustainable” ones over the past 10 years. That might explain why more than 75% of large companies are now linking carbon targets to executive pay. In 2020 only half of them did so. A Danish advisory company for supply chain optimisation recently made a survey and asked CEOs about their most important task. A majority of them answered: We need to move from strategy to action. What they also revealed is that they don’t know how to get this done. It feels like they are in the middle of the ocean and don’t have a life jacket.
Even more astonishing than this revelation is the fact, that around 80% of the companies either already have a sustainability strategy or are in the process of developing one, including specific carbon targets. But still, only one-third of those business leaders who have set targets to reduce their greenhouse gas emissions are confident in their organisation’s ability to meet their own targets. The most important reason for this pessimistic assessment is that they are not sure they already have the necessary talents and skills in the company.
Being profitable used to be sufficient justification for running a business. However, today’s business leaders are experiencing a paradigm shift from being profitable to being sustainable. This requires a business transformation and a commitment to a holistic approach. Any business plan must take into account long-term socio-economic considerations. To achieve the triple bottom line of financial, ecological and social goals, ESG needs to be placed on the boardroom agenda. It goes without saying that this entails a change in leadership and the need for new leadership capabilities.
Which are the main challenges to be taken into account in driving the business transformation forward?
Companies need purpose-driven leadership that is both reflective and resilient, and entrepreneurial, to achieve the innovation required for this change as well as to seize the opportunities associated with greater sustainability. Management and HR need to assess the skills gaps of employees at all levels and take the necessary actions, such as creating learning teams, to close them. One in two CEOs cites recruiting and retaining employees with the right knowledge and skills as key challenges. Both specialists and managers are in demand because in addition to experts for specific tasks, there is also a need for generalists who have an eye for the big picture and the processes beyond the specialist area. This, of course, has to be in combination with a very solid business understanding.
So how can companies make sure they have the right people in place to deliver the best possible, and predictable results when it comes to driving their business towards more sustainability? Definitely not by recruiting and retaining people the way they do now, because still 50 to 60% of leader and specialist placements fail within 18 to 24 months after being made. That’s not better than a coin flip. Another problem is the exclusion of diverse plausible candidates while others enjoy special access to certain jobs – a phenomenon known as “The Old Boys club”. In addition, we know for a fact that approx. 90% of leadership development programmes have no or very limited impact on business and results. Most often, the reason is that the approach is too generic instead of adapting the programmes to the strategy, context, situation, precise needs of each participant, and goals of the company.
Be aware of shortcutting, stereotyping and subjectivity in leadership placement and development
One of the main challenges leaders face is how to make sure they have the right people in place to deliver the best possible results in this fast-changing and unforeseen business environment. The risk is to hire people based on too little, falsely evaluated or biased information. Shortcutting, stereotyping and subjectivity are each by itself dangerous because they inevitably cause a performance problem and a diversity problem. That’s why they need an objective, factful and systemic approach to leadership development and leadership placement.
Furthermore, to be able to take a holistic approach to sustainability and to outperform as an organisation, leaders need to develop a strong sustainability mindset and behaviour throughout the organisation. If companies want to outperform, they simply must change from being just externally motivated and compliance-driven to internally motivated and commitment-driven. This can only be achieved by leaders who lead with a purpose- and value-driven mindset and possess strong self-leadership skills. Only in that way, they can navigate the complexity, act as effective transformational leaders, change corporate culture accordingly, and turn employees and customers into motivated followers. Thereby, the whole organisation will be able to deliver on the important triple bottom line.
Possible steps - How to successfully develop an organisation from a compliance-driven to a commitment-driven approach?
Finally, any company that wants to develop from compliance-driven to commitment-driven needs to engage the employees. There are three main requirements to achieve this. First, they must create the most meaningful jobs in terms of relatedness and empowerment. Second, they have to develop tailored sustainability engagement programmes that embrace employees. These programmes should be based on individual engagement triggers, a strong ambassador team, and the right incentive models. And third, they need to build a corporate structure where employees can participate and impact through cross-functional and diverse innovation clusters and innovation hubs with an associated reward system. One of the global leading companies in logistics sets a good example: its employees may spend up to 10% of their work time on innovation projects that are not directly related to their specific role and team. Employees can simply sign up for a project that is close to their hearts or where they feel they can create added value and thus make a difference.
Would you like to know more? Then click here to learn more about leadership and sustainability. Or please don’t hesitate to contact Flemming Kehr and Monika Weiss.