Closing the execution gap in corporate sustainability

Setting ambitious sustainability goals is an important move for any corporation in today’s world.

Aside from the ethical implications of corporate social responsibility (CSR), clients and investors are becoming increasingly discerning about the companies they do business with – and many are now demanding cleaner practices.

The recent uprise of the Principles of Responsible Investment (PRI) association – in which signatories pledge to integrate ESG factors into their investment decisions – is a case in point.

This group of more than 3826 institutional investors worth over US$80 trillion is only the start of a wave of more sustainability-conscious financiers across the world, experts predict.

Unsurprising when you consider that customers, too, prefer greener business, with sustainability rated as an important purchasing criterion for 60 percent, globally.

Ambition to execution

While sustainable goal setting may be important, it is only half of the equation – and apparently the easier half.

Kate Hart ANZ Strategic Operations Lead and ESG co-lead at Kearney says there is a large gap between sustainability ambition and execution, with companies often falling prey to the ‘big numbers trap’ – where lofty ESG goals are set, announced, but not delivered upon.

This lack of consistency matters, with corporations increasingly being held to account for their ESG deliverables – not just their ideals.

To bridge the gap, Kate says companies need to build the strength of their ‘execution muscle’ and says three key things determine this:

#1 – Senior representation in sustainability teams

Corporate sustainability teams that have senior leadership representation (a Chief Sustainability Officer) tend to have more success in closing the execution gap.

Why? Because sustainability is considered integral to the business and not just a compliance requirement. As a result, sustainability is more broadly adopted across the operating model and seen as a source of value for the long term, Kate says.

“To be effective, sustainability teams need to focus on where the business is going over a long term horizon – at least five years – and make investments accordingly. If the team isn’t comprised of senior leadership then it likely won’t have this insight, let alone the power to set or invest in long term business goals,” she said.

“Sustainability is about so much more than KPIs and compliance. It is a source of value and often requires core business processes to be changed – so teams will need to think boldly about how they allocate capital to sustainability ambitions, versus the more sustenance-based approach of KPI setting.

#2 – Focus on adaptation, not just mitigation

When people think of sustainability they often think solely of mitigation – i.e. reducing greenhouse gas (GHG) emissions.

While mitigation is an important aspect of sustainability, it is only a portion of what corporations need to consider, Kate highlights.

Adaptation – where companies reshape themselves in response to current and future climate risks and opportunities – can often be the most impactful ESG measure for a corporation, she says.

“Adaptation is about accepting that the future is going to look different to what it is today and adapting your business structure in line with that. For example, how is the technology I am investing in now going to be relevant in ten years?” Kate said.

Next, companies need to build an adaptation framework, and think creatively about what adaptation looks like for them.

“It could be about diversifying your supply base, integrating vertically to maintain access to scarce commodities, or – if you’re an asset-heavy company – building certain products in light of what the future looks like,” Kate said.

Such frameworks are already beginning to emerge in Australia. Treasury Wine Estates, for example, is climate-proofing its business by acquiring land in areas it knows will be viable in the future. Meanwhile, NuFarm is investing in technologies that will be instrumental in driving crop yield in the years ahead.

“It’s all about companies making decisions today that that will yield results in ten years from now,” Kate added.

#3 – Move from a sustainability strategy to a sustainable strategy

Kate says companies need to move away from a ‘sustainability strategy’ and work towards a ‘sustainable strategy’ – the former being siloed, the latter baked-in to core business processes.

“Put simply, sustainable strategies are regular business strategies that are sustainable. In contrast a ‘sustainability strategy’ builds on existing strategies (often separate to the corporate strategy) and tries to make them cleaner. Needless to say, the former is much more impactful,” she said.

Dutch Railway in the Netherlands offers a high-definition example of sustainable strategy. After becoming the first company globally to power its trains with 100% wind energy, the company now makes a business out of selling or donating its defunct train parts to companies who use them in their product manufacturing.

Ceiling plates, floors, and seat fabric are just some of the train materials now used to make items such as tennis tables, shoes, and office furniture. Some parts are also re-used to modernise existing trains or platform infrastructure, helping the company save on both incineration costs and raw construction materials.

Although sustainable strategies are often more radical, the scope for failure may be smaller, Kate says.

“You could argue that completely restructuring a business might widen the execution gap because it introduces new risks. However, companies that totally embrace sustainability and embed it into their business actually achieve their ESG objectives quicker and often become more profitable as a result,” she concluded.

Kate Hart is a leader at management consulting firm, Kearney. She currently heads the company’s ANZ strategic operations teams and co-leads its ESG practice.

Hear more from Kate about how companies can better meet their ESG ambitions at The Sydney Morning Herald Sustainability Summit, hosted by Informa Connect.

This years’ event will be held 20 September at the Sofitel Darling Sydney.
Learn more and register.