Climate change has been a hot topic everywhere, and the corporate world is no exception. More and more businesses are finding ways to balance profit and purpose, while others are still scrambling to catch up. What does the shift towards sustainability mean for a company and its employees? And what are today's CEOs doing about it? Read our blog post here >>
Priorities are shifting in the corporate world today. Companies are faced with new challenges as climate change has forced consumers and CEOs alike to rethink current consumer and business practices. With levels of public awareness increasing, governments and regulatory bodies are exerting more pressure on companies to focus on social and environmental considerations.
ESG, which stands for Environmental, Social and Governance, refers to a set of criteria that indicate a company’s standing with regards to their climate and social impact. While it is a promising indication that industries worldwide are being more aware of their impact on the planet, the ESG metrics are more of a hopeful list of recommendations than a set of practical guidelines. Yet companies across the board are expected to make significant and often pricey changes to their behaviors and, in many cases, infrastructures in order to abide by what are essentially ambiguous recommendations.
Which begs the question- what’s in it for the companies? Is it worth their while to make such sweeping changes, when there is no real way to measure their progress?
On the one hand, we are seeing a new generation of investors- and consumers- who are more intentional about where they invest their money. They care about whether or not the company they are investing in is mindful of their environmental and social impact.
On the other hand, there are still investors and shareholders who care more about financial returns than anything else. And these investors are pushing back against ESG values and throwing their support behind companies who prioritize fast money over green money. That leaves many companies conflicted; not only are the ESG criteria vague, there is also no guarantee that it would be financially viable for their organization to implement them.
As many businesses across sectors debate whether or not their company should prioritize ESG principles and to what degree, a brave few have decided to take the plunge and transform their organizations into sustainable ones. In a recent survey that asked CEOs to rank ESG on a list of priorities for their businesses, one in four reported that a significant amount of their decision-making is driven by sustainability considerations.
While these CEOs generally come from industries that are more ESG aligned, they can still pave the way for other businesses whose leadership or shareholders have been less inclined to go green; if these CEOs from large and diverse companies successfully shifted their business to a more sustainable and socially responsible model without taking a financial hit, there can be hope for others.
CEOs looking to truly incorporate ESG considerations into their companies often have to contend with powerful naysayers. Financially speaking, they are working within a fast-growing and competitive market that holds to traditional rules of corporate growth; make money first, and fast. They are also likely to come up against board members and executive teams who are either afraid of change or with whom their ideologies clash.
Some executives looking to gain from both worlds use a laundry list of tactics to avoid actually committing to change. Known in eco-friendly circles as greenwashing, these companies tend to market themselves as environmentally-conscious without making any real steps towards sustainability in their products or services.
What most of the CEOs had in common was their perseverance; they stayed the course and kept their eye on the prize. They expected people to rescind their support and weathered the ripple effect that followed. They parted ways with any executives who proved resistant to change and curated an environment with like-minded leaders who wanted to see the initiative succeed. Slowly but surely, they noticed their competitors following suit.
These transformations were only successful, however, because these leaders made sweeping changes both within their organizations and in their own mindsets as well. They recognized that in order for their impact to be authentic, long-lasting and truly transformative, they had to focus on developing and making profound changes within themselves.
This dual transformation is significant in its deep understanding of the current nature of the business world and society at large; true progress requires reflection, innovation and imagination. Transformative changes require transformative leadership, and these CEOs are prepared to do the work.
Even with a CEO who was on board with implementing ESG imperatives, a company would have to undergo significant changes, from the infrastructure to materials and products being used, to reevaluating work processes, and more. Depending on the size and scope of the company, not to mention the industry and the product, these changes could be vast, timely, expensive and complex.
Not too long ago, the Security and Exchange Commission (SEC) proposed a federal law that would require publicly traded companies to disclose compromising climate-related data. Their published reports would have to include the company’s greenhouse gas emissions as well as other potentially impactful risks. Unlike the ESG metrics, this would set up certain industry standards for companies to align with and a means to measure their progress. With the added sense of urgency, companies are expected to begin the implementation process immediately, whether or not they have the resources or tools in place to do so.
To date, only six percent of current directors have any practical ESG expertise, meaning that companies will have to find and appoint external sustainability experts to their boards regardless of their affiliation with the company or prior leadership experience.
But who are these experts, and where are these companies supposed to find them?
According to the SEC’s law, companies moving forward would be required to disclose what expertise their directors have with climate-related risks, how often management reports climate-related issues to the board, and how these risks are being addressed in the company’s strategies and goals.
What will this mean for the leadership of the company, if climate change experts are to be positioned in decision-making roles? A scientist may have expertise in one specific field of interest, but that doesn’t necessarily mean that they’re qualified to lead a company - let alone one in transition.
And what is to be the fate of the employees, whose vast experience likely does not align with the new responsibilities they’re supposed to undertake? Should they be retrained- which could take months, or even years- or replaced altogether?
If transitioning to sustainability means that every aspect of the company will have to change along with it, it is a far more complicated process, and a much more significant undertaking, than it would seem. Which is why these companies should turn to our vanguard CEOs for guidance; instead of reinventing the wheel, they should seek the advice of other leaders who have already started paving the way.
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