People, Planet and Profit: A Winning Approach to Sustainable Transformation
09 November, 2022
Maria Carla Lombardi, PRAXI (Italy)
Sustainability comes up in everyday life and business with a looming sense of urgency, but many of us fail to grasp what it means in a clear and practical way.
Maria Carla Lombardi, Senior Consultant PRAXI Human Resources, decided to ask a true opinion leader, Paolo Taticchi, Professor of Strategy and Sustainability at the UCL School of Management in London, to peel back a few layers of complexity, and make corporate sustainability more approachable.
MC: We’ve been talking about sustainability for years, why is the market suddenly so tuned in to this issue?
Paolo: In the 1980’s, when the United Nations defined the concept of sustainability, companies and people alike set off to “save the planet”, but with few thoughts to economic factors. Corporate Social Responsibility Managers happily promoted initiatives that protected employees and the environment, and they were applauded, but there was no correlation with financial results. These were largely viewed as philanthropic efforts, separate from company performance.
Only in the 1990’s, when various large multinationals were engulfed in scandals for nefarious behavior regarding environmental and social issues, did we realize how much the financial performance of a company could, and should, be linked to its reputation and behaviors.
Today, sustainability has become a competitive advantage linked to improved positioning and profitability. Organizations that successfully integrate ESG factors into their decision-making, and commit themselves to the greater social good, generate more value for their supply chains and stakeholders. The resulting virtuous collaboration between the private and public sectors, creates a further ripple effect, that can be felt throughout the entire economy.
MC: Based on this evolution over the last 20 years, which key elements should companies consider when they begin a sustainability transformation?
Paolo: First of all, purpose: it must be clear, easily understood, and ethical, to inspire and guide employees, build customer loyalty and improve performance. Of course, it should also translate into best practices.
As mentioned above, another element is the creation of shared value: company activities must be able to generate benefits for a wide range of stakeholders, both inside and outside of the organization.
Third is the integration of ESG policies into decision-making processes, which is critical for sustainable development.
Finally, perceiving the resources needed as a strategic investment, meant to improve performance and competitiveness, rather than an additional cost.
MC: Profitability is a strong driver for Boards, but what is really driving companies to change, and to invest in sustainable development?
Paolo: It was only a matter of time. Pressure is arriving from all fronts: institutions, regulatory bodies, investors, customers, employees and, in general, the entire social system that surrounds us. No one can afford to bury their head in the sand.
Boards have gradually recognized that their sustainability stance impacts their brand, risk management systems and economic growth. Those able to recognize the competitive advantages will be able to drive transformation within their own organizations. The others will find themselves left behind.
MC: The financial markets offer many incentives to companies that prioritize sustainable development…
Paolo: Investors and institutions are an interesting source of financing for those who have certified sustainability credentials, although globally recognized and standardized certification still doesn’t exist. The financial benefits are available for large companies, who might be more constrained by regulatory requirements, but for small and medium sized enterprises as well.
MC: We have also seen significant shifts in the retail market …
Paolo: The retail market has been one of the biggest to suffer, but also benefit, from the effects of sustainable transformation. Not all consumers are ready to pay a premium for more “responsible” products, even though most consider the sustainability of the supply chain a discriminating element in product choice. This puts retailers in a tricky position.
MC: PRAXI’s recent survey “ESG Managers in action” showed that organizations have an urgent need to acquire the skills, experience, and relationships necessary to transition them towards sustainability. What should they look for?
Paolo: If we start from the premise that sustainable transformation will be crucial for market competition, certainly the challenge for Executive Search is considerable. To achieve the environmental objectives alone, an estimated 400 million new job opportunities will be created in the world by 2030. Not only will new professions emerge, but all existing roles and positions must be upskilled to reflect the new awareness and mindset that sustainability requires.
Over the last 20 years, an entire ecosystem has developed, and it’s still evolving beyond the most common players like rating agencies, the specialty practices of consulting companies, firms that collect and analyze ESG data, and others who build networks of partners to tackle the issue.
With any transformation, it’s critical that leaders have a holistic view, and be able to ask the right questions. These individuals must be able to identify trends, seize opportunities, face risks, engage people, and above all, influence their many stakeholders.
It’s an immense shift and without adequate leadership, the transition won’t be possible.
MC: How did the pioneers of sustainability move to identify the leaders of this function and of the teams involved?
Paolo: Fifteen years ago the sustainability profession didn’t really exist, but the earliest adopters were able to read the writing on the wall and began building internal expertise by shifting human resources within their organizations. If we look at the backgrounds of the current leaders and managers of Fortune 500 sustainability teams, we find a broad mix of functions, for example, from marketing, to operations, to finance. Fortunately, today there are specialized educational degrees to train a new generation of professionals and leaders, who will be more aware and better prepared.
MC: To what extent is Board awareness and involvement necessary to execute a sustainable business strategy?
Paolo: Hiring sustainability specialists and managers is not enough to lead such a complex transformation. It’s essential that the Board, C-suite and the entire organization be involved. Sustainable transformation is a highly complex issue that puts organizations and managers under a great deal of stress, so all must be motivated, prepared, and ready to act.
Although many organizations have successfully incorporated sustainability, far too many knowledge gaps exist to guarantee a smooth process. Global ESG principles are not well-defined, nor is there broad understanding of how to implement them. It’s fundamental to provide tools and training, for a better monitoring of the changing landscape, priorities, and risk areas.
CEOs and boards must drive this cultural enlightenment and fuel it with initiatives and enthusiasm. Certain technical issues such as decarbonization, reporting, and diversity may be better left to outside consultants for now, however, the sustainability strategy cannot be entrusted exclusively to consultants. For the system to become effective over time, it requires dedicated internal resources and collaboration.
MC: Our recent ESG Manager survey also highlighted the importance of professionals and sustainability teams having a direct line to the C-suite and oversight committees. What’s your opinion?
Paolo: I fully agree. The more structured organizations have large sustainability teams that report directly to top management, and participate in steering committees, which is critical for guiding the company through the difficult and sometimes unpopular decisions necessary in a quick and efficient way. The professionals dedicated to corporate sustainability are extremely important for the future of the organization, and as such, many companies have developed rewards systems specifically designed to encourage and enhance their performance and retention.
MC: Thank you Paolo for this precise and timely analysis of how the issue has evolved and how companies must adapt to the new market demands.
Companies today face the challenge of injecting sustainability into all areas of their business, based on regulations and guidelines that tend to confuse rather than clarify, and many organizations still need to find their footing. There are great opportunities for influential leaders and teams who can tap into the shared value proposition that sustainability offers and convert it into tangible results. Contributing to this virtuous cycle generates a triple win: for us, our planet… and profits.
About Paolo Taticchi
Paolo Taticchi is a Professor in Strategy & Sustainability at UCL School of Management (London). Alongside his work at UCL, he is regularly invited to teach on international MBA and EMBA programs and is also recognized for research works on corporate sustainability. Outside the academic field, Paolo has significant consultancy experience and has been featured over 350 times across media outlets like The Financial Times, Forbes, The Economist and more.