Benjamin Franklin is quoted as saying (perhaps apocryphally): “The man who is good at making an excuse, is seldom good at anything else.”If we applied this standard to CEOs’ statements on sustainability, we might start worrying about their skills overall, as when it comes to sustainability, excuses are more common than solutions. By Fabrizio Ferraro, Professor of Strategic Management at IESE Business School
The private sector has a huge role in ensuring a safe future below the UN’s 1.5°C threshold. Yet, less than 25% of the world’s biggest companies are currently on target to meet their Paris Agreement goals. And ESG efforts are – slowly but surely – falling down the corporate agenda in C-suites around the globe.
With the globe itself in the firing line, business leaders – with their unique international viewpoint – must surely understand the cost of this complacency. Moreover, taking no action in such a climate is just as risky as making a big, untested commitment in the name of sustainable change. So, why are senior management teams still making excuses and supposedly dragging their heels? Here are four key reasons:
- Fickle consumer demand
While younger consumers, in particular, are pushing the case for brand trust rooted in sustainability, not everyone is ready to buy into that promise – especially when the trade-off is a higher price tag.
In the consumer-packaged goods sector, for example, executives say one reason their ESG initiatives are stalling is due to insufficient consumer demand. Even with a newfound spotlight on corporate responsibilities, this awareness doesn’t always translate to an uptick in ESG-related spending behaviour. And in a challenging economic climate, an emphasis on quality and price, rather than climate concern, tends to prevail.
This excuse assumes that companies are powerless when it comes to shaping demand. While this might be true in the short-term, and for smaller players, corporate leaders have both the resources and clout to reorient their marketing spend towards more sustainable consumption. The recent boom in electric vehicle ad spend shows us how. Not everyone is prepared to make the leap to EVs, not least because they are costly and most UK/European infrastructure is unprepared for the scale of the switch. But car manufacturers are nevertheless investing heavily in advertising EVs. This steers the direction of consumer interest and builds an attractive culture around electric transport – even where on-the-ground consumer appetite for it does not yet match it.
- Short-term profitability pressures
Back in 2015, then Bank of England Governor Mark Carney predicted the tension between climate risks and short-term thinking in his landmark “Tragedy of the Horizon” speech. The inconvenient truth is that, in business, the long-term value of sustainability initiatives frequently conflicts with a relentless drive for short-term profit.
Research from Accenture and the UN Global Compact shows that over half of global executives grapple with this trade-off, while just 40% see revenue growth as a sustainability benefit.
There are no easy wins here. Leaders who want to capture economic value from the sustainability process need to think creatively. It takes courage (and time) to rewire consumer behaviour, revamp supply chains and get the ball rolling with a new, more responsible set of suppliers.
Yet, even with short-term pressure, it is possible for business to make more sustainable choices. Footwear brand Veja convinced retailers to adjust their purchasing schedules to transition from air shipping to ocean freight (and reduce the brand’s carbon footprint).
- Lack of government incentives
Moving sustainability up the corporate agenda is a collective challenge. It deserves to be the focus not just of boardroom minds but also of those across governments, banks, and consumer groups. Although the threat of new regulations and higher carbon taxes is spurring some CEOs to push ahead on sustainability goals, a carrot is also needed for more radical change.
Subsidies, grants and tax rebates are all helpful tools that governments can use to incentivise the shift to sustainable business. This is all the more true given the massive upfront R&D costs and lengthy transition periods often required to trade “locked-in” carbon-heavy industries and business models for sustainable alternatives.
The EU’s Green Deal industrial plan, with its blueprint for a simpler regulatory framework and faster access to funding, is a step in the right direction. Yet, companies that benefit from novel incentives are the ones that have been experimenting with more sustainable business models, technology, and products for longer. Thus, waiting for incentives to be introduced might be a strategy for laggards, but not for leaders.
- Negotiating a complex and uncertain landscape
Even if you discount the distraction of a global pandemic, a recession or the current geopolitical situation – any of which could be reason enough to switch focus from sustainability – the roadmap to environmental responsibility in business can be dizzyingly complex and radically uncertain.
With many companies lacking an overarching strategy on climate action, it’s unsurprising that many business leaders see sustainability as a costly obligation as opposed to a vital investment in the future. Financial, legal, and ethical considerations all add layers of intricacy to the dilemma. At the same time, household brands such as Hyundai, Toyota and Coca-Cola have writ large the risk of greenwashing scrutiny and regulation.
Complexity and uncertainty should not become a paralysing excuse for inaction. Indeed only by committing to a sustainable course of action, can firms learn what works and what does not work, and find out what path of action to follow. Contemporary fashion brand GANNI may offer a route into this complexity, with its honest, transparent, small-step approach. “We don’t identify as a sustainable brand because, at its core, fashion thrives on newness and consumption,” the label says in a statement on its website. “Instead, we’re focused on becoming the most responsible version of ourselves. We’re not perfect but committed to making better daily choices, minimising our social and environmental impact across the entire business.” This approach is “robust” around the evolving landscape of sustainability and enables the company to develop sophisticated capabilities to deal with it. By 2023, GANNI had achieved 40 out of 44 targets set in its 2020 Responsibility Gameplan, and committed to a 50% absolute carbon reduction target by 2027.
For today’s CEOs, the raft of pressures shadowing the path to sustainability is all too real. But with the world warming faster than at any other point in history, there is no room to dodge the buck. Rather, business leaders must take the sustainability challenge as seriously as they take technological or financial challenges.
Above all, it’s a matter of mindset. Taking risks and thinking creatively will be vital to navigating the uncertain landscape ahead, and to building the organisational capabilities to be successful with that.
