Sector News

Six pitfalls to avoid when mobilizing for sustainability

April 30, 2022
Borderless Future

Companies across industries and regions increasingly see sustainability as a critical driver of competitive advantage. And many are setting audacious sustainability goals—reflected in concrete environmental, social, and governance (ESG) targets—including commitments to reach net zero, moves to ensure humane practices and living wages for people along their supply chain, and pledges to expand diversity, equity, and inclusion. The challenge: most are struggling to translate their goals into action. According to a recent survey of board members by BCG and the INSEAD Corporate Governance Centre, the top barrier to improving company ESG performance is the inability of the organization to execute.

What are the factors blocking effective corporate mobilization to deliver on ESG goals? On the basis of our extensive work helping companies improve the sustainability of their businesses, we have identified six common pitfalls organizations must avoid to ensure that their ambitious targets become a reality:

  • A Weak Commitment at the Top. Senior leaders do not display a strong, visible, and consistent commitment to the sustainability agenda, limiting credibility with internal and external stakeholders.
  • The Perpetual Chief Sustainability Officer. The company appoints a CSO with no plan to transition ownership to the business, limiting ownership of and accountability for sustainability outcomes among the organization’s leaders. CSOs can be a great catalyst for progress, but companies need to plan for the role to evolve.
  • Commitments with No Accountability. Performance management, including executive compensation, is not tied to sustainability outcomes, so long-term sustainability goals lose out to near-term financial performance.
  • Coordination Problems. The role of the central sustainability team versus the business units is not clearly defined, resulting in disorganized execution and slow progress toward goals.
  • A Failure to Embed Sustainability in the Business. Sustainability is not a mandatory or material consideration in business processes, limiting employees’ ability to make decisions aligned with sustainability goals.
  • Talent Gaps. Companies fail to anticipate and act on the fundamental shifts in skills and capabilities required to deliver on their sustainability agenda.

The right approach to executing a sustainability strategy for an individual organization depends on a number of factors, including the company culture, the industry, and the issues that are material for the business. Overall, however, all organizations should keep these six pitfalls in mind as they hone the operating model to deliver on their sustainability ambitions.

A Weak Commitment at the Top
The absence of credible support for sustainability from senior leadership is one of the most common challenges we hear about from sustainability leaders and practitioners. One former executive at a large multinational oil and gas company points to a lack of leadership commitment as one of the primary stumbling blocks his team faced when rolling out the company’s sustainability strategy. “Strong commitment from top-level leadership is a key determinant of success or failure of ESG initiatives,” he notes. “When there is top-level management support, it makes a night-and-day difference.” And the data backs this up: surveys consistently find that executives cite a lack of senior-leadership support as one of the top barriers to progress on sustainability.

Leaders can demonstrate their commitment to building a sustainable advantage in a number of ways. Executives at top sustainability performers often establish themselves as thought leaders in the sustainability space through publications and talks on the topic. They also work to drive industry- or society-wide change outside the four walls of their company by participating in sustainability-focused coalitions.

Just as important as external engagement is how leaders communicate internally about sustainability. Executives at companies recognized for their sustainability leadership speak to their employees frequently about the sustainability agenda. They spread a consistent message highlighting the links between the company’s sustainability goals and its mission, vision, and strategy, underscoring how sustainability connects to corporate purpose and helps create business value. This demonstrates a credible, authentic commitment.

The Perpetual CSO
Many companies appoint a dedicated leader to oversee the sustainability agenda. Although a CSO can create focus and momentum on sustainability early in an organization’s journey, the most effective companies understand that the role should evolve over time.

In a sample of S&P 500 companies, we found that a majority (roughly 80%) have appointed a dedicated sustainability leader. And most of them have given the CSO the authority required to be a true catalyst for change, with about 86% placing that person within two levels of the CEO in the organization chart. (See the exhibit.) READ MORE

By Marjolein Cuellar, Tristan Heinrich, Anastasia Kouvela, Suketu Shah, Vinay Shandal, Connie Baik, Alice Bolton, and Jill Ross

Source: bcg.com

comments closed

Related News

May 15, 2022

Reengineering your business for a smart and connected World

Borderless Future

The shift from standalone hardware to smart, connected products is pervasive—and it’s here to stay. Forward-thinking hardware companies are taking leadership positions in a new era of product development. Will you be one of them?

May 7, 2022

Is real-time data too late?

Borderless Future

It’s interesting to reflect on the opportunities which were imagined back in 2010, and which regularly appear on today’s supply chain agenda. Some progress has been made over the past decade, but there are still plenty of early observers to be convinced, and early adopters who haven’t realized that real-time information alone will not necessarily deliver competitive advantage.

April 24, 2022

Chemicals and capital markets: Growing sustainably

Borderless Future

Green chemicals—those with a low-carbon product portfolio or a higher exposure to end markets supporting sustainability—are being rewarded by capital markets and safeguarding future cash flow. This McKinsey article illustrates how capital markets are increasingly recognizing sustainability, and it details five steps companies can take to act upon capital-market expectations.