Every day we hear about sustainability in our daily lives and business activities, but we do not always grasp its most substantial aspects.
Maria Carla Lombardi, Senior Consultant PRAXI Human Resources, spoke with a true opinion leader on the subject, Paolo Taticchi, Professor of Strategy and Sustainability at the University UCL School of Management in London, to better understand how to untangle this complex subject.
We have been talking about sustainability for many years, so why is market sensitivity so heated today?
In the 1980s, when the United Nations defined the concept of sustainability, the idea of “safeguarding the planet” was pursued, without making explicit a direct connection between this end and economic development. The actions that Corporate Social Responsibility Managers were promoting in the company to protect employees and the land were often considered good behaviors with marginal impact on the bottom line, so companies, strongly oriented toward profit and the development of their organization rather than some perceived philanthropic end, did not readily identify with this goal.
It was not until the 1990s, following a number of scandals that engulfed large multinational companies for dastardly behavior impacting the environment or social issues, that we realized how much a company’s financial performance was linked to its reputation, and more.
Today, the concept of sustainability is much broader, inclusive and competes in the first position to improve the competitive positioning and profitability of organizations through the continuous creation of value, the relationship with the supply chain and stakeholders, and the integration of environmental, social and governance (ESG) factors in decision-making. Companies take on a social role in which they fully recognize themselves and which they are gradually making their own, creating virtuous mechanisms of collaboration among all those involved, at various levels, in the economy: large and small companies, the third sector, Public Administration, and Institutions.
Based on its evolution over the past 20 years, what are the key elements a company needs to take into account when approaching sustainability?
First and foremost is purpose: a clear and well-identified purpose, inclusive of virtuous behavior, makes it possible to inspire and guide employees, build customer loyalty, and improve performance.
Another element is the creation of shared value: the company’s activities must be able to generate benefits for a plurality of stakeholders, internal and external.
The third key element is the management and integration of ESG policies into decision-making processes aimed at sustainable development.
Last but not least is the awareness that it is a strategic investment, not a cost, aimed at improving performance and competitiveness.
Profitability is one of the main motivators recognized by Boards. But what really drives a company to change, to invest in sustainable development?
The question is absolutely timely. Pressure is coming from all sides: institutions, regulators, investors, customers, employees, and, in general, the entire social system around us. No one can remain deaf to market demands.
Gradually boards are recognizing that actions related to sustainability issues impact brand, risk management and economic growth. Those who can grasp their competitive advantages will be leaders in their company’s change process; otherwise, they will face the consequences of their own short-sightedness.
We can think, for example, of the benefits that the financial market offers to those who encourage sustainable development initiatives…
That’s right, the financial market offers access to financing and investment systems intended only for entities that have implemented sustainable and demonstrable strategies with solid reports that meet the requirements of clarity and transparency. This applies not only to large companies, as regulations already require, but to tend to SMEs as well, more than 25,000 companies if we look even just at the Italian territory.
Even in the retail market we have seen significant changes…
The retail market was one of the first to come under pressure from consumers, who today may not yet be ready to pay significantly more for a sustainable product, but who consider the sustainability of the supply chain to be a discriminating factor when choosing products.
Many organizations have taken action to address the issue of sustainability, setting up ad hoc committees to define appropriate strategies and policies and identifying Managers capable of grounding the most appropriate actions to achieve the expected goals. Our “ESG Manager in action” Survey also clearly shows the need to identify skills, technical and relational, appropriate to this specific process of change. What characteristics should professionals working on these issues express?
If we accept that sustainable transformation is a crucial element on the level of market competition, certainly for Executive Search the challenge is considerable.
Without adequate leadership no transition would be possible. Just to achieve the goals pertaining to environmental issues, it is estimated that 400 million new job opportunities will be created in the world by 2030.
In the last 20 years, realities specifically dedicated and vertical to sustainability issues have sprung up: rating agencies, special business units of consulting firms, professional firms that collect and analyze ESG data, up to companies that facilitate networking to accelerate transformation. A whole “ecosystem” has emerged that is still growing. But it’ s not just new professions that will emerge; we will also need to work on awareness and skills for many existing positions.
Then there are more “cross-cutting” characteristics that are necessary in any change strategy: being able to identify and read signals, seize opportunities, address risks, and engage the resources involved in the process. We will need excellent “influencers,” able to ask the right questions by having a holistic view of the issues involved.
How did sustainability pioneers go about identifying leaders in this function and the teams involved within the market?
Until about 15 years ago, there were no “sustainability professionals.” What the pioneering companies did was to “move” professionals involved on other fronts and support them in developing vertical expertise on the specific topic. If we look at the background of the current leaders and Heads of Sustainability Teams of the Fortune 500 companies, we find heterogeneous functions: from marketing, to operations, to communications. Today, fortunately, there are specialized paths of study that are forming a new class of leaders, more knowledgeable and prepared, new recruits who choose the subject with passion and openly discuss it.
How critical is Board awareness and involvement in implementing effective policies in a business strategy that takes sustainable transformation into consideration?
Sustainability specialists and leaders are not enough to lead such a complex transformation; it is critical that Boards, CEOs, and the whole organization understand the importance of change.
Sustainable transformation is definitely a topic that puts organizations and Managers under a lot of stress, so you have to be prepared and ready to act.
Even today there are still too many gaps and too little knowledge to ensure a smooth process. Literacy is still low, as is understanding of key elements, at all levels. This is why it is important to train resources with new tools and enhance the specific skills needed to understand priorities and risk areas. CEOs and Boards need to actively participate in this cultural process and support it with initiatives and enthusiasm.
Issues such as decarbonization, reporting, diversity & inclusion are the ones on which companies today request the most interventions from consulting firms. However, sustainability strategy cannot be entrusted exclusively to external consultants; it needs dedicated internal resources and teams working together so that the system can be effective and continuous over time.
In PRAXI’s “ESG Managers in Action” survey, the importance of positioning these professionals and sustainability teams to report directly to CEOs and regulators also emerged. What is your opinion on this?
I fully agree. In the most structured realities, there are nurtured teams that report directly to the Top Manager and are part of the Steering Committees, ready to guide the company through the most difficult choices with speed and efficiency, with the necessary delegated authority to make even unpopular decisions if they are incongruent with the shared sustainability policies.
The importance that these Managers represent to the company is also highlighted by the fact that reward systems have been built to value the contribution they make to the organization.
Thank you Paul for this precise and timely analysis of how the issue has developed and how companies will have to react to adapt to the new demands of the market as a whole.
Companies today face a truly daunting challenge, and existing regulations or guidelines can confuse rather than guide. Clearly, organizations will need to know how to choose wisely the leaders of tomorrow, recognizing their competencies and entrusting them with the delegated authority needed to achieve the expected results.
