The 5Ps of Sustainability: Identifying risks & opportunities for social and financial value creation
Corporate purpose and the relationship between a company and its stakeholders has quickly risen to the fore of many leaders’ agendas, driven by the disruptive events of the last 18 months and the realization that companies must do more to earn the trust of their employees, customers and investors. While many companies have set bold targets for their sustainability transformation, far fewer have delivered on these ambitions to date.
In our work with many of the world’s largest and most complex companies, we see firsthand the challenges and opportunities that such transformation can present. Many wrestle with questions around where to focus, who to involve and how ambitious to be in setting their sustainability strategy. Companies that have effectively embedded sustainability across their strategy and operations – those that go beyond the empty promises of “greenwashing” to truly transform their operating model – apply a sustainability lens across five dimensions of their business in order to identify both risks and opportunities for creating social and financial value:
People: The skillsets, organization structures and leadership culture required to support a sustainable, diverse and inclusive business
Biosciences company Chr. Hansen embeds sustainability into its hiring processes by asking hiring managers to assess whether candidates “uphold ethics and values, encourage organizational and individual responsibility towards the community and environment.” The change in hiring practices has been instrumental in the company generating more than 80% of revenue from products that have a direct, positive contribution to the UN Sustainable Development Goals.
Products: Creating new products or redesigning existing ones to make them more sustainable or to address previously unmet market needs
After witnessing elderly cotton farmers in China laboring to work with heavy pesticide tanks strapped to their backs, XAG CEO Peng Bin decided to reorient the company’s focus from consumer drone technology to AgTech, to increase the quantity and quality of crops produced while lessening the strain on smallholder farmers. Rebranding from Xaircraft to XAG, the company’s products enable farmers to use less pesticide, reduce carbon emissions and physical strain on workers, and farm previously inaccessible or unprofitable land.
Process: Reconfiguring operational practices and processes to reduce waste, promote transparency and include stakeholders
IT equipment manufacturer TES has invested in circular solutions to its manufacturing processes in order to increase the recovery rate of raw inputs such as cobalt and lithium. Their facilities employ innovative recycling processes and equipment such as auto-punching machines, shredders, separators and chemical treatments to recover commodity elements safely with no harmful emissions. Recycling capabilities are vertically integrated with reuse and re-purposing to build "2nd life" battery energy storage systems that extend product life and achieve even higher environmental outcomes with improved, more sustainable economics.
Partners: Building relationships with suppliers, clients and other collaborators that share sustainable values
As part of its commitment to reuse and recycle 1 million metric tons of plastic by 2030, chemical company Dow has partnered with Indian startup company Lucro to “close the loop” by creating new products and packaging with the recycled inputs. Dow provides material science, application development expertise and testing capabilities at its Indian facilities, enabling Lucro to develop and manufacture new products using post-consumer recycled (PCR) plastics. The partnership enables Dow to reduce its environmental footprint through a revenue generating joint venture.
Profits: Embedding a sustainability lens into decisions around capital allocation, investments and corporate strategy
PepsiCo incorporates environmental sustainability criteria into its Capital Expenditure Filter, which is applied to all capital expenditure requests over $5 million. Each request is reviewed not only against business financial metrics and value to advance the business strategy but also for the impact (positive or negative) that it will have on environmental performance, including energy use and GHG emissions, and its contribution to the company’s efforts to achieve its climate goal.
Yet simply identifying the myriad ways that a company can embed sustainability is not enough – companies must also possess the talent and expertise to deliver on these opportunities. To better understand what differentiates business leaders who have driven successful sustainability transformations, we partnered with the United Nations Global Compact to study pioneering sustainability leaders for our joint whitepaper, Leadership for the Decade of Action. The research identified four unique attributes of sustainable leaders:
- Multi-level systems thinking: Sustainable leaders recognize the interconnectivity of the ecosystem in which the business operates. They are naturally curious, with high levels of ambition and results orientation.
- Stakeholder inclusion: Sustainable leaders do not just manage stakeholders, they include them. These leaders consider a wide range of viewpoints to drive decision-making and value creation, and demonstrate high levels of empathy and authenticity.
- Disruptive innovation: With the courage to challenge traditional approaches, sustainable leaders seek out the best available science but are comfortable not having all the answers. They identify novel solutions that do away with the tradeoff between profitability and sustainability.
- Long-term activation: Sustainable leaders set audacious goals and rigorously drive concerted action and investment. They possess the courage and resilience to stay the course in the face of setbacks or internal resistance.
Importantly, these attributes must be combined with a sustainable mindset: the purpose driven belief that business is not a commercial activity divorced from the wider societal and environmental context in which it operates, and that to be successful in the long term, leaders must innovate and manage across commercial, societal and environmental outcomes. Many leaders possess one or more of the four attributes above, but it is only when activated by a sustainable mindset that these competencies can be channeled towards outcomes that drive both social and financial value creation.
Despite their bold commitments towards change, companies are not yet delivering on their sustainability promises. We believe that the growing gap between what companies say they want to achieve when it comes to their sustainability agenda and what is actually being achieved is a result of the fact that sustainable leadership is rarely a selection requirement in senior leadership positions. In a recent analysis of nearly 4000 executive placements, we found that only 4 percent included sustainability experience or mindset as a candidate requirement.
It is clear that—despite genuine commitments towards sustainable practices—companies have not yet integrated these priorities into how they identify, assess and select their senior leaders. While roles such as chief sustainability officer are becoming more common, the scale of change required necessitates that senior leaders across the organization bring a sustainability lens to their decision making, not just those with a dedicated remit. Without intentional effort to embed sustainability into the C-suite, companies’ sustainability initiatives will remain stalled, no matter the authenticity of their commitments.