Do CEOs still think profitability and environmental sustainability are at odds?
Most chief executives believe they have an important role to play in making their company more sustainable – but are their concerns that this focus competes with profitability petering out?
This was one of the questions that the World Economic Forum sought to answer through new research with 280 senior executives plus 140 individuals classed as ‘next-generation’ business leaders. These young professionals participate in the Forum’s Young Global Leader and Global Shaper initiatives.
Through interviews with these 140 people, Accenture identified three updates that they advocate to the traditional business case. These are embedding purpose, considering long-term business viability and broadening the definition of success beyond short-term financials. These people also commonly advocated for collaboration to drive change across the sector or, indeed, beyond the sector.
Seven in ten of the 280 senior executives said they agree that business cases should be amended per the ‘next-gen leaders’’ recommendations. 98% agreed that it was their responsibility to make their business more sustainable.
But 67% said they would still need to retain at least some key traditional decision-making norms. This highlights a feeling of tension between sustainability and the need to deliver strong returns in the near-term, annually or even quarterly.
A previous Accenture survey, of 1,496 executives, found that 58% believe there are potential conflicts between environmental and social sustainability and business growth.
The report resulting from the study includes several case studies proving that is more of a myth than a material concern – especially amid the challenges of the 2020s.
Many of these pertain to improving efficiencies and guarding businesses against supply and price shocks for materials and energy.
Some case studies are about new business opportunities from innovating to launch new ‘greener’ products and services, or products and services with a positive social impact.
Despite the strength of the ‘trade-off’ narrative, almost two-thirds (63%) of the chief executives polled by Accenture say their businesses have either launched new products or services with sustainability in mind, or are planning to do so in the near future. Almost half (43%) said these products or services had circular economy benefits.
The report cites recent research from NYU’s Stern Sustainable Markets Index, which concluded that sales of products marketed as sustainable grew by 7.3% between 2015 and 2021, while the rest of sales grew by 2.8%.
The report concludes that building a sustainable business case requires “evolution, not revolution”. While executives will still be interested in value creation and payback periods, most of them agreed that simply doing ‘business-as-usual’ would build up more risk for the future than properly embedding sustainability.
Included in the report is a three-step framework for accelerating sustainable transformation, while either maintaining or improving profitability.
The first step is developing a roadmap to change, and backing this up with the appropriate governance mechanism such as sustainability-related KPIs for all employees. In developing this roadmap, leaders should keep in mind why they are doing so in terms of long-term value creation.
The second step is investing to deliver the roadmap, with a focus on digital technologies that could accelerate progress. These include softwares for data collection, automation and immersive prototyping.
Changing your organisation’s talent strategy to deliver the roadmap is the third and final point. The report highlights how upskilling and reskilling will be needed to implement new technologies and processes. Moreover, being ‘greener’ and more technologically advanced are ways to attract and retain talent. Under this pillar, businesses may wish to introduce financial instruments such as shadow carbon pricing or sustainability-linked incentives.
Summarising the report’s findings, TerraCycle founder Tom Szaky said: “Companies are often stuck in the groove of comfort and convenience… getting out of this grove requires external forces, like pressure from disruptors, consumers, NGOs and regulation.
“It also requires serious upfront investment. Yes, you typically add costs at the start. But get it right and you can win big, too.”
Earlier this year, Szaky wrote about a phenomenon he calls the ‘triangle of stagnation’ within corporate sustainability. His theory is that complacent CEOs use small pilots, multi-stakeholder dialogues and future commitments to shirk the need for change (and investment) in the near-term.
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