Last month, nearly 200 CEOs recently declared, through the Business Roundtable (BRT), that the purpose of business is no longer just maximizing shareholder profit. But are they ready to follow through? On Tuesday, a new and important study on CEO attitudes came out, and it sheds light on how chief executives think about sustainability and other global challenges. An amazing 88% of the CEOs “believe our global economic systems need to refocus on equitable growth.” Concerns about inequality have moved from “Occupy” protests a decade ago to the mainstream, and leaders see it as destabilizing. As one CEO said, “Unleashed capitalism has created extreme poverty, terrible social conditions and a difficult situation for our planet. If we cannot manage a better social transition of the wealth, we will be in trouble.” Sustainability is firmly on the agenda now, and that’s a victory many years in the making. All of the large company CEOs (ok, 99%), agree that “sustainability issues are important to the future success of their businesses.” In total, this study paints a mixed picture, much like the real world these companies are operating in. There has been lots of progress, but there are serious gaps and a lot remains to be done.
To solve the world’s biggest challenges, such as climate change and inequality, the business community will have to play a critical role. And we need CEOs who understand the challenges and want to drive deep change in how business operates. Last month, nearly 200 CEOs recently declared, through the Business Roundtable (BRT), that the purpose of business is no longer just maximizing shareholder profit. But are they ready to follow through?
On Tuesday, a new and important study on CEO attitudes came out, and it sheds light on how chief executives think about sustainability and other global challenges. Written by Accenture and the UN Global Compact, “The Decade to Deliver: A Call to Business Action” collects insights from more than 1,000 global executives. Published every three years, this report provides a deep dive on how CEOs view sustainability. I found reasons for both optimism and concern in the data, but at the very least, it shows that the BRT’s call for broader view of stakeholders was not a fluke.
It’s clear that CEOs are thinking about where their companies fit into society. Alex Ricard, CEO of Pernod Ricard, is quoted in the report saying “I need to recognize where consumers want us in ten years…I believe businesses that are only targeting profits will die.” (Note: all CEO quotes here are from the study)
To step back, the underlying context for this year’s report is that the world is running out of time on climate change. Last year’s study from the Intergovernmental Panel on Climate Change (IPCC) gave us all until 2030 to cut emissions in half to avoid some of the worst outcomes.
The new report revolves around a single idea: we’re not moving fast enough. As one of the lead authors, Jessica Long, Accenture’s Managing Director, Strategy and Sustainability, told me, “The study is meant to be a call to action. Lots of good work is going on, and companies are making more commitments. But current activity and statements without action just won’t get us to 2030.”
The report is worth spending some time with to explore the three “calls to action” they identified: (1) raising ambition and impact in CEO’s own companies, (2) “changing how we collaborate with more honesty about the challenges,”and (3) “defining responsible leadership,” which I read as the CEOs committing personally, as human beings, to change.
Based on my own years working with companies and execs on these issues, as I read through it, I found myself bucketing some key insights and data into categories: things that were not surprising/expected, surprising, promising, and worrying.
Not too surprising. Business leaders feel pressure to build more sustainable enterprises from key stakeholders. Customers and employees were the top two vote getters when the CEO’s were asked which stakeholders would be most influential on how they manage sustainability. Within those stakeholder groups, Millennials and Gen Z in particular want the companies they work for and buy from to stand for something. As Patrick Decker, President and Chief Executive of Xylem, put it, “The younger generation is drawn to higher purpose and mission – ‘why are we doing this?’ It’s not purely the profit motive.” And these demands increasingly seem non-negotiable. Mark Hunter, President and CEO of Molson Coors, says, “Our consumers and our customers are looking for assurances that we are doing business the right way. It’s becoming table stakes.”
The other area that was no surprise to me was the tension CEOs feel about the perceived tradeoffs between sustainability and traditional financial metrics. While I feel that this tension has always been overstated – sustainability creates business value in multiple ways – there is a real tension between short-term profit and long-term value. And in fact, more than half of the CEOs say “they face a key trade-off in the pressure to operate under extreme cost-consciousness while seeking to invest in longer-term strategic objectives.”
Some surprising findings. An amazing 88% of the CEOs “believe our global economic systems need to refocus on equitable growth.” Concerns about inequality have moved from “Occupy” protests a decade ago to the mainstream, and leaders see it as destabilizing. As one CEO said, “Unleashed capitalism has created extreme poverty, terrible social conditions and a difficult situation for our planet. If we cannot manage a better social transition of the wealth, we will be in trouble.”
In addition, some of the results on how sustainability creates value were somewhat odd to me. As the authors say, “CEOs recognize that sustainability can drive competitive advantage,” but fairly low numbers of respondents cited specific value creation: 40% see revenue growth and just 25% cost reduction (which might just reflect that the easy wins are gone). That revenue number doesn’t completely gibe with another statistic; when talking about barriers to implementing sustainability, only 28% of CEOs cite the “absence of market pull.” That’s a pleasant surprise after years of complaints that the demand for sustainable products is weak.
The promising and reassuring results. Sustainability is firmly on the agenda now, and that’s a victory many years in the making (trust me). All of the large company CEOs (ok, 99%), agree that “sustainability issues are important to the future success of their businesses.” (Funny side note: just 62% of those CEOs would link their pay to sustainability outcomes). And fully 94% feel a personal responsibility for laying out their company’s core purpose and role in society. In another piece of good news, some barriers to action seem to be dropping. Only a quarter of the CEOs cited “no clear link to business value” and merely 8% said “lack of knowledge” was a problem.
On the biggest challenge of our times, climate change, the denial level in the c-suite has shrunk dramatically (in my anecdotal experience and in the data in this report). Companies no longer see climate change as an issue for future leaders to manage. The chairman of BASF, Martin Brudermüller, says, “We are already experiencing the impact of climate change today, and virtually every day.” The report also notes that CEOs are understanding the need for system-level change to tackle issues as big as climate.
One other clear theme emerged around trust and expectations from society. Three-quarters of CEOs said citizen trust would be critical to competitiveness. Natura’s CEO João Paulo Ferreira says, “If at any point, consumers learn that a company or brand cannot be trusted, those brands will be heavily damaged.” And De Beers CEO Bruce Cleaver painted an even clearer picture: “The time will come when there will be a threshold question that consumers will ask which is ‘can I trust this brand?’, and if the answer is ‘no’ they won’t buy anything. It will become a binary question.”
What’s still worrying. Four key findings concern me. First, for all the silver linings, the report’s overall theme is that we’re not doing enough fast enough to achieve the Global Goals (formerly the Sustainable Development Goals, or SDGs), the UN’s guidelines on the targets we need to hit to build a thriving world. The CEOs acknowledge this gap. Only 21% think business is playing a critical role in contributing to the Global Goals. Dr. Rolf Martin Schmitz, CEO of RWE AG, said, “Sadly too many people are only talking about it. What we really need is more action.”
Second, business and the world are not doing enough on climate change. While 59% say they’re deploying low-carbon and renewable energy, only 44% see a net-zero future for their company in the next decade. And just 41% are decarbonizing their supply chains. In line with this lukewarm level of action (in comparison to the scale of the crisis we’re in), I was particularly sad to see that just one-third of the CEOs say they have or plan to set a science-based carbon target.
Third, the survey showed limited belief in investors. No matter what the BRT statement says, most companies won’t act aggressively unless they believe investors value their sustainability efforts. And while there is actual movement in the investor community of late, as CEO of EDF Energy, Simone Rossi, says “There is a great disparity between the public statements put out by banks and investors and their apathy towards sustainability behind closed doors.” No wonder only 12% of the CEOs cite pressure from shareholders as a motivation.
Finally, the CEOs cite political and economic uncertainty as big distractions. Two-thirds said macro volatility is critical to their strategies and 42% say it’s reducing their sustainability efforts. For me this highlights the long-standing disconnect on sustainability – the implicit assumption that it’s a distraction from “real” business rather than the path to profit and building thriving businesses. And, to be blunt, if leaders are waiting for less volatile times to act on climate change, they’ll wait forever.
In total, this study paints a mixed picture, much like the real world these companies are operating in. We’ve seen progress, but we have serious gaps and a lot remains to be done. I do take comfort in the fact that leaders now recognize that we’re falling short, that these issues are incredibly complex, and that we need more real action. These CEOs, according to Lise Kingo, Executive Director of the UN Global Compact, “are not content with current progress and calling for their sectors and peers to step-up and turn commitment into action.”
Perhaps the best finding in this whole report was the third action item that Accenture and the UN highlighted, the personal responsibility angle. I’ve found in my own CEO research that all the business case logic in the world only goes so far. To buy into a new vision of business, CEOs need to connect to it as people and write it into their own interior narrative of how their work fits into the world. They need to ask: What’s my legacy? And that’s a good question for all of us to answer.
read more at http://hbr.org by Andrew Winston