Yan Vermeulen, Partner and Head of the Global Chemical & Process Industries Practice at Odgers Berndtson, explains how responsible leaders are taking action on sustainability
The most successful corporate leaders share a number of common traits. They are visionaries; they can make critical decisions at pace; they are unafraid to take calculated risks; they demonstrate intellectual rigour; and they have high levels of emotional intelligence. All of these are critical for creating profitable businesses in a world of mounting disruption. But as sustainability becomes increasingly intertwined with competitor advantage, consumer demand, and complying with stringent regulatory requirements, a new trait is being demanded of the best leaders: sustainability intelligence (SQ).
As a result, a new kind of executive is stepping into the sustainability vanguard. These leaders are tackling everything from end-to-end supply chain sustainability to linking social impact goals with the business strategy.
To find out exactly how executives with high SQ are making their companies more sustainable, Odgers Berndtson interviewed leaders making significant sustainability changes in their companies. Our aim was to assess their views on sustainability, how they are transforming their businesses, and how they are incentivising their suppliers and employees. Below are five strategic initiatives being implemented by sustainability-focused leaders.
Taking a ‘triple bottom line’ approach to business
Leaders have always been concerned with their company’s financial performance. However, many now recognise the benefit of taking a ‘triple bottom line’ approach, focusing on planet, people, and profit. This means setting targets and strategic goals with clear social, environmental, and financial objectives. It’s an approach that helps leaders take a broader perspective on how their business affects the world while continuing to generate greater value.
In practice, this might mean setting emissions reduction targets, but also conducting supplier assessments to ensure labour conditions and human rights are being met throughout their supply chain. A number of leaders are achieving this by implementing measures to achieve zero injuries or harm in the workplace. Likewise, they are setting targets for the number of leaders from underrepresented backgrounds, the number of community projects the company is involved with, and how many ‘community members’ they have trained within the company.
When it comes to the profit aspect of the triple bottom line approach, many responsible leaders have targets in place to have a significant percentage of their revenues generated by sustainable products by 2030 or 2050.
Moving from sustainability to a more holistic approach
Leaders with high SQ have moved on from simply setting targets around things like emissions and waste reduction. They are now looking at the length and breadth of their entire business. This means prioritising responsible sourcing and conscious supply chain management, with the aim of becoming ‘fully circular’.
Many are now putting pressure on their suppliers to use the same standards that they adhere to. One example of this is the 31 largest chemical companies that are part of the Together for Sustainability initiative. This provides a framework for these companies to measure the environmental, human rights, ethical and sustainable procurement practices throughout a supply chain. If, for example, a supplier’s manufacturing processes do not meet the Together for Sustainability standards, then they will be unable to work with one of the 31 companies.
Responsible leaders are also transitioning sustainability from a set of targets to something they embed into the company’s sense of purpose. It means that all projects – not just those led by a CSR team – must improve the company’s sustainability footprint. So every conversation about product development, a new factory set-up, or supplier agreement, must be centred around creating a positive impact.
True sustainability cannot be achieved without involving a company’s entire supply chain. While some sustainability-focused leaders might refuse outright to work with a supplier if they don’t meet their sustainability standards, other approaches are also being used. Many are providing training programmes to their suppliers to improve areas of sustainability. Similarly, they might invest in joint R&D projects and technology development to create more sustainable processes. Joint objectives between supplier and buyer are also common, especially around waste production. For many industries this is critical to achieving sustainability; as responsible leaders increasingly look beyond their own company, much of their sustainability objectives will be in their suppliers’ hands.
Some executive leaders are even introducing scoring systems to rank their suppliers on quality, cost, innovation, delivery, and sustainability metrics. An additional advantage of working with suppliers in this way, is that it increases communication and strengthens relationships.
Many sustainability-focused leaders already have around 20% of their executive pay linked to sustainability KPIs.
Of the executive leaders Odgers Berndtson spoke to, the majority (79.3%) have concrete salary targets in place that are linked to sustainability goals. This could be related to their results on waste, water, or energy. But increasingly, they also include targets related to people-centric goals such as diversity, equal pay or the elimination of child labor throughout their entire value chain. Importantly, as a result of these sustainability-linked pay initiatives, most senior executives are willing to pay a premium for sustainably sourced raw materials and products.
Embedding sustainability intelligence in leadership roles
Adapting the way the organisation looks at revenue generation, moving to a holistic view of the supply chain, and incentivising suppliers and executives can have a significant impact. However, on their own these initiatives are not enough.
For any strategic mandate to be truly implemented it requires senior level sponsorship. When it comes to sustainability, this means embedding SQ throughout an organisation’s senior ranks. This requires key individuals from director level and above to become ‘responsible leaders’. These individuals need to have a passion for the subject; be honest and ethical; and have a strong sense of purpose that is, importantly, inspiring to others.
These individuals will need to be capable of working with different teams with different objectives while instilling a sense of importance and urgency around the sustainability mission. Essentially, they need to be highly adept at stakeholder management and aligning the financial goals of others with the goals around people and planet. Critically, they need to have the courage to take unpopular positions and point out unsustainable practices.