Three things every CEO needs to know about sustainability

sustainability-leadership

For sustainability to be truly embedded in a company’s business model, it needs to be prioritised at the top.  

Senior leaders, and the CEO in particular, play essential roles in establishing the strategy, goals, and culture of their firm. By bringing sustainability into their business decisions, they can create long-term value for shareholders and society.

In the face of pressing global challenges such as water scarcity, climate change, and rising social inequality, it is clear that we need business to be part of the solution. For that to happen, we need strong sustainability leadership from CEOs.

Below, I outline three things every CEO needs to know about sustainability to be a change-maker.

One: It’s an investment, not a cost

Sustainability has traditionally been viewed as a cost of doing business, involving ‘giving something back’ after profits have been made. Today, the mentality is shifting as a growing body of evidence shows that, when integrated strategically, sustainability is a key driver of financial value.

How? Sustainability can act as a driver of employee engagement that increases productivity. It attracts (and helps retain) top talent – especially amongst millennials - helping improve overall company performance. Customer advocacy and loyalty leads to strong sales and brand reputation. Finally, a well-thought-out sustainability strategy boosts investor confidence.

See: Emmanuel Faber, CEO of Danone - In a 2017 investor conference, Faber referred to the company’s dual economic and social project as ‘an investment in the future’ because it attracts employees to the company and because consumers are increasingly requesting evidence that companies “behave properly”.

Two: Investors are paying attention

Investor interest is growing amid greater evidence of the link between sustainability and financial performance. Researchers at Harvard Business School analysed the performance of 180 companies over an 18-year period, and found that those grouped as ‘high-sustainability’ dramatically outperformed their ‘low-sustainability’ counterparts in terms of both stock market and accounting measures.

As a result, investors are increasingly seeking out corporate sustainability data to help them make decisions. The largest number of shareholder resolutions filed by investors now concern social and environmental issues.

See: Larry Fink, Chairman and CEO of Blackrock – “We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates.” 

Three: It’s part of their duty to the company

Sustainability has the potential to impact the long-term performance of a company, and can therefore fall under the remit of fiduciary duties owed by CEOs that serve on the Board of Directors. Central to fulfilling this duty is understanding which sustainability issues are value-relevant to a company, and which are not.

If this sounds like a tough challenge, SASB’s Materiality Map is a good source for help. This interactive tool shows the most relevant sustainability issues for different sectors and industries and suggests metrics for measurment. As highlighted by Ceres, “where sustainability is material to a company, boards have a fiduciary duty to act”.

See: Paul Polman, outgoing CEO of Unilever – “I don’t think our fiduciary duty is to put shareholders first. I say the opposite. What we firmly believe is that if we focus our company on improving the lives of the world’s citizens and come up with genuine sustainable solutions, we are more in sync with consumers, society, and ultimately this will result in good shareholder returns”.

Do you know a CEO that knows these three things? Or one that could benefit from reading the article? Tag them below to spark a conversation about sustainability leadership.