Putting sustainability at the core of one’s business model requires leadership and the ability to implement change, says strategic adviser, author and speaker Neil Gaught.
Businesses of different sizes, operating in different sectors and policy environments, are approaching ESG in different ways. For many, the approach to ESG and sustainability isn’t that much different to their approach to CSR. It’s about compliance and doing enough to tick the boxes required to ensure they can continue to operate.
For others, it is understood that ES & G are each critically important factors that institutional investors are increasingly looking at to help them judge the future viability or economic sustainability of the businesses they are backing. In a world where the expectations of highly informed customers, employees and society in general are rapidly evolving, as the consequences of capitalism on people and planet (in its current form) becomes more widely understood, sustainability has taken centre stage.
The drivers of these changes are a complicated mix of socio/economic/enviro and political factors, but the headlines include: the Global Financial Crisis, climate change and Covid-19. Today, businesses are worried about two big things: activism and the impact of ESG on their ability to operate. Neither were on the business radar before 2018.
‘Business as usual’ is coming to an end
Businesses are generally carrying on ‘business as usual’ and the pursuit of growth; which is what they know and understand. Those businesses that are embracing a new way are extremely rare; in 14 years, only 3,500 B Corps – the most famous social enterprise ‘ movement’ — have been certified worldwide. In the UK alone there are 5.9 million privately-owned businesses. Of course, there is not a board or senior management team on the planet that is not aware of the increasingly urgent call for change. New rules and regulations will inevitably mean that even the most hardened climate-sceptics will soon have no option but to make changes. Whatever the underlying motivation, the problem is still the same: what do you do when you don’t know how to change?
Unfortunately, the generation of business leaders in charge today are totally unaware of the 21st-century tools and approaches required to make change possible. Very few know much about ESG, sustainability or technology. And even if they are aware of them, the vast majority are simply too heavily invested in the status quo to want to make change possible. Unfortunately, that also includes many ’trusted advisors’. The scale of this issue is massive when you consider what is required: It is not just some ESG-driven ‘tweaking’, but a radical change to the core business models that sit at the heart of these corporations.
One of the biggest issues is that there are very few cases to point at — those that try to change often fail to do so (see Danone’s Emmanuel Faber and Anthony Jenkins of Barclays Bank). It is a fact that businesses with sustainability at their core do perform better than traditional businesses, but this is not recognised by the mainstream because there’s simply too few of them; or they are easily dismissed as in some way being born out of special circumstances. If you can’t or don’t want to change, it is easy to deny, delay or disrupt any attempt to do so — especially if the pressure comes from outside your bubble.
Barriers to progress
The greatest barrier is leadership. Unless you come across one of the rare business leaders who does something because ‘it matters and makes business sense’, the first question businesses ask is: what’s the likely ROI? Herein lies the problem: Hard tangibles such as money in the bank, business won, projects completed, stuff sold, cost of sales etc, are easy to measure. Intangibles, such as brand, reputation, CSR/ESG and sustainability are much harder. This is compounded by the fact that while there are agreed international measurements for the former, there are none for the latter, though there are a lot of organisations working on it.
Another obstacle is the perception that the process of moving to a more sustainable business model is likely to be long-winded and complex. The reality is that it doesn’t take as long as you think to get your business on the path to sustainability; in just a couple of months, you could be on your way to identifying your ‘North Star’ and placing it at the core of your business.
Putting sustainability at the core
Ultimately there is a choice to be made. You can either ‘bolt-on’ ESG and hope you’ve done enough to tick the compliance boxes and placate your stakeholders. Or, you can put sustainability at the very core of the business strategy and make it the ‘North Star’ it needs to follow. If you put it at the core, you are immediately able to determine and plan how the business should be organised for the future and what the business should start, stop and keep doing across all its functions: people and culture, sales and marketing, processes and systems, design, innovation, procurement and communication, etc.
Putting sustainability at the core of the business presents many long- and short-term opportunities.. One of the major upsides of identifying and defining a sustainable core purpose in the short-term is the ability to engage with all the businesses stakeholders to collaborate in that process, but trust is a big issue for most businesses. When the 181 US Roundtable businesses declared in 2019 that each of them had a greater purpose than making money, the reaction was understandably cynical and predictably correct. Almost all of those businesses have been called out for not delivering on their ‘purpose promises’.
A recent IoD survey of more than 700 directors revealed that whilst 90% had a purpose, mission or vision, that guides themselves and their company, only half felt that companies should have a stated purpose to help solve problems in society. A total of 62% said they were for wider purposes than just profit, but 28% of directors still agreed that the sole purpose of the company is to make money and generate shareholder profits.
For all those firms claiming to have a purpose, how many are really organised around it? There is a real danger that many businesses are simply creating shallow ‘purpose promises’ which will inevitably fail to result in real, sustainable, organisation-wide change. Treating CSR or ESG as a ‘nice to have’, a bolt-on afterthought or ‘social licence to operate’ is no longer going to cut it, it’s time to take action.
Four steps to progress
Despite concerns over the complexity of initiating change, I want to emphasise that it really isn’t as hard as you think. Real, tangible, long-lasting progress can be made in a relatively short space of time by following these key four steps:
- Identify and engage with all of your stakeholders – Stakeholders are essentially ‘anyone who can help your business be a force for good’ and most businesses find that once they start looking, they identify many more stakeholders than they first anticipated. Without understanding what concerns them – what they need, want and care about – your business cannot define and organise itself around an idea that matters and has value to them.
- Define your ‘North Star’ – Next, you need to understand your values not as aspirations, nice-to-have culture shapers, or beliefs, but as solid unquestionable commitments that will ensure the delivery of positive, tangible outcomes. You should be inspired by your research (workshop exercises, interview questions etc) but ensure you are equally determined in your resolve to define a set of values that can ultimately be delivered. It’s not just about what the crowd thinks, but by what commitments you believe need to be made.
- Begin the process of alignment – To ensure that your ‘North Star’ isn’t seen as a work of fiction, you need to turn it into fact. You shouldn’t think of the approach to aligning with a single organising idea as a sequential process that is set at one pace. Instead, it’s an ongoing constant that relies upon different levels of commitment and action at different times from different parts of the business.
- Continually measure – Finally, it is essential to continually monitor, measure and assess your progress. Not just for the sake of it, but so you can respond through initiating ‘learning loops’ that connect you with the ecosystem of stakeholders that your business relies upon to ensure it continually improves and, crucially, avoids the trap of you just ticking CSR and ESG boxes.
Reorganising your business and placing sustainability at the core is no mean feat, but it’s not the complicated, costly and time-consuming activity that so many businesses perceive it to be either. It’s a challenge that has to be walked towards and will demand courage, collaboration, belief, empathy, commitment and, ultimately, leadership.