One of the biggest gaps in moving forward with corporate sustainability practices comes from trying to manage the unknowns of the unchartered waters of environmental change.
These unknowns lead to a disparity in action and opinion.
For example, 45% of multinational executives see sustainability as a high or top priority today.
However, 75% believe it will be crucial in five years, according to the Global Executive Survey: Known Gaps and Blind Spots in Corporate Sustainability — Part 1, published by ENGIE Impact.
Seventy-five percent of the 200 executives surveyed believe that execution of a sustainability strategy will provide a competitive advantage. But less than 30% believe that their efforts have been successful to date.
In the whitepaper, ENGIE Impact looks to explain priorities, barriers, and key practices that impact sustainability transformation.
Using early adopters as a precedent, the authors explain three key gaps in the process: 1) managing the unknowns in leadership, decision making, and innovation; 2) engaging suppliers; and 3) redefining finance.
Managing the Unknown Starts with Leadership
Climate change itself is fraught with uncertainty. Changes in weather, supply chain disruption, new technologies and business practices, as well as politics and changing world views are just some of the landmines that businesses must navigate to determine the best way forward.
Good intentions alone do not lead to successful implementation.
Directions for following the roadmap must come through a committed and clear message from the top. The directive must create a culture that engages and encourages employees and business partners to take part, even though risk may be involved.
"...leaders must articulate a compelling vision of the future and embed it into the purpose of the company," the authors write.
Executives must be confident and certain in their undertaking, even if the journey is not clear.
“Successfully leading an organization through these unknowns will require leaders to accept and navigate a certain level of ambiguity, possibly increasing the risk appetite and tolerance of the organizations,” the authors continue.
Executive team members should take a greater oversight of sustainability goals and progress. According to the survey, companies with no C-level oversight were significantly less likely to report success. But oversight alone isn’t enough. Leaders need to align performance metrics and executive compensation to key sustainability outcomes, and this eventually will trickle down the organization.
Another suggestion was that goals should be tied to resource allocation. This means getting everyone on board, including employees and business partners. When investment decisions were tied to meeting the target, 82% of the companies surveyed were successful. This compares with only 23% when companies did not.
Decision-Making Tools
ENGIE’s survey results show that, “while leaders see value in better understanding climate risks and opportunities, they are missing key behaviors that are critical to smart decision-making.”
To rectify the problem, larger companies are investing in scenario analysis, and smaller companies plan to do so in the near future.
However, the survey “shows a concerning, but not surprising, lack of understanding of the financial impact of these sustainability factors.”
Only 11% of companies have introduced costs for unpredictable variables, which is a critical factor used to refine the inputs for a rigorous analysis.
There is also a significant blind spot in the slow adoption of digital tools, which could help accelerate the adoption of sustainability practices. These tools provide pertinent and much needed market, economic, or site condition information.
In addition to using tools to make better decisions regarding successful sustainability practices, the report suggests that companies create a feedback loop so that outcomes can be fed back into assumptions to help refine unknown factors.
Innovation is Crucial
“In reviewing the differences between executives that reported success in executing sustainability strategies and those that did not, our research showed a stark divide in the approach to innovation,” the authors write.
Successful companies focused on integrating sustainability into innovation practices, as well as investing research and development monies in order to make these ideas a reality.
Prakash Arunkundrum, Head of Operations at Logitech, says, “Designing through the full lifecycle served as a powerful tool to galvanize our activities and ladder up our environmental sustainability work.”
The report had some clear advice for executives interested in expanding innovation efforts:
- Build structured employee engagement programs.
- Steer clear of shortcuts that make superficial or short-term gains, and instead use a systems-thinking approach.
- Allocate budget to tackle the greatest, company-specific challenges.
Engaging Suppliers
A company’s supply chain resilience and carbon footprint are becoming increasingly important factors for investors, consumers, regulators, as well as the company itself.
The survey found that while companies recognize the importance of supplier decarbonization, they are counting on the suppliers themselves to meet compliance instead of working with them.
The authors feel this is a missed opportunity.
Especially since one of the largest barriers to supplier decarbonization is the simple fact that suppliers don’t have the incentive or expertise to make the necessary changes.
Companies should strengthen supplier relationships by helping facilitate access to finance, identify short-term investments, and centralize resources and knowledge to aid with the implementation of carbon-reducing processes and technology.
Arunkundrum agrees that such incentives are crucial. “Scale can be a significant barrier to supplier engagement. Most suppliers have many customers. If only one customer is asking for something, the suppliers are less interested in investing.”
One of those incentives may be as straightforward as helping suppliers move towards renewable energy.
“Renewable electricity has been a powerful vehicle to help unlock supplier engagement,” Arunkundrum says.
In fact, ENGIE’s research showed a common misstep many companies make is to focus solely on transitioning to renewable energy within their own operations before requiring it of suppliers. “In reality, these activities can be done in tandem and may face diminishing barriers…” the authors write.
Other incentives may include co-investing, performance incentives, or joining buyer groups to drive collective action.
Whatever path, companies seeking to drive transformative change in their supply chains must prepare to invest and collaborate in order to reap the rewards.
And the rewards will come.
“The relationships we have with partners have unlocked a much bigger benefit than we could achieve alone. Networks, partnerships and alliances can form the right enabling infrastructure to create the environment that we need in the future to be successful,” says Richard Marsh, Director of Reporting and Insights, BT Group.
Redefining Finance
The whitepaper also looks at the critical role finance departments play in a company’s sustainability transformation.
In the past, companies implemented carbon reduction practices only if there was a payback within 24 months or less.
However, as the business grew, the short-term payback solution could no longer keep up with the carbon output driven by growth.
Hence the need for a portfolio-wide approach that “bundles sustainability projects with short and longer payback periods, crowding in initiatives that might not make the cut on a stand-alone basis.”
This places the emphasis on the blended pay of a single site, across a region, or even globally, rather than on quick payback projects.
Heavy equipment manufacturing and materials processing have already made significant progress in this area.
To help secure low-risk sustainability without upfront investment, the report suggests looking to third party investors as a solution.
“Third-party partnerships can offer more than just capital,” the authors write. “In as-a-Service models, companies can partner with project developers that can help them offset risk and ensure specific outcomes. This is often a good fit for businesses looking to quickly decarbonize non-core operations.”
