The new rules of business leadership
The job of a CEO has always been challenging. Today it is tougher than ever, because the pressure to deliver rising valuations and ROI is matched by a new set of demands as investors, customers, employees and other business leaders call for profits to be balanced with social purpose.
After 20,000 of Google’s employees staged a walkout last November, the company overhauled its sexual harassment policies. Amazon was pulled into the spotlight late last year, when employees leveraged their stock options to submit petitions asking the company to create a plan to reduce its dependence on fossil fuels. And when high school survivors of the Parkland massacre helped make gun control a subject of national debate, Kroger, Walmart, Dick’s Sporting Goods and LL Bean put new restrictions on their retail firearm sales.
As BlackRock CEO Larry Fink wrote recently in his annual letter to executives, “contentious town halls” where employees speak up for “the importance of corporate purpose” are becoming a fact of life. “This phenomenon will only grow as millennials and even younger generations occupy increasingly senior positions in business. In a recent survey by Deloitte, millennial workers were asked what the primary purpose of businesses should be 63 percent more of them said ‘improving society’ than said ‘generating profit.’”
It’s no longer enough to post your values on the company intranet. You need to publicly and visibly put them to work.
Corporate environmental leadership is no longer optional, it’s a requirement
Last week, the Senate approved a former coal lobbyist to run the EPA, endangering the health of American families. As the current U.S. administration seeks to roll back critical environmental safeguards, business executives have started filling the leadership void. It began at the Vatican in December 2016, when 100 Fortune 500 CEOs committed to “helping governments everywhere implement the recent Paris Agreement on climate action,” and pledged “to deliver on our own public targets for reducing the carbon footprint of operations and supply chains.” Fortune editor-in-chief Alan Murray came away convinced that “global business is at a tipping point.”
Over 2,000 companies representing diverse sectors of the U.S. economy have signed the “We Are Still In” declaration showing the world that American business stands by the Paris Climate Agreement and are committed to meeting its goals.
When the Trump administration proposed a roll back of America’s Clean Car Standards, Ford publicly stated they “support increasing clean car standards through 2025 and [we] are not asking for a rollback.” James Verrier, CEO of Borg Warner, a leading component supplier, said he had no intention of going backwards as an industry. And a coalition of five automotive trade associations urged that “we continue to make progress on reducing emissions and oil consumption while saving consumers money at the pump.”
Last July, 34 businesses sent a public letter of thanks to Representative Carlos Curbelo of Florida for introducing a bill to fund infrastructure investment while cutting climate pollution. Some of the heavy-hitters on that letter include The Dow Chemical Company, General Motors, Lyft, PG&E and Shell.
As the head of EDF+Business, I might be expected to advocate for corporate sustainability above all else. But that’s not what I’m saying. In my view, businesses and the environment can and must thrive simultaneously.
The recent release of the Corporate Knights Global 100 ranking of the most sustainable companies makes a strong correlation between sustainability leadership and business success.
The 2019 Global 100 index, which mirrors industry composition of the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI), have shown a net investment return of 127.35% from 2005 to 2018 compared to 118.27% for the MSCI ACWI.
There are other key indicators of success as well. When compared to the ACWI, Global 100 companies have a lower CEO-to-average-worker pay ratio, derive more of their revenues from goods and services that have a positive green or social impact, and have a link between sustainability measures and executive pay.
Creating the balance between business and sustainability
By 2050, the world will be home to over 9 billion people, all wanting more food, goods and services that boost our economy while slapping a massive burden on the planet’s resources.
This growth cannot be sustained without a major shift in how we do business. Here are four things business leaders must do to raise the bar on corporate sustainability.
- Publicly commit to aggressive, science-based sustainability goals. Make it clear to customers, shareholders and suppliers that you support a future where both business and nature can prosper. Setting public sustainability targets, then doing the hard work to achieve them while communicating on progress, creates a virtuous cycle of innovation, organizational alignment and leadership.
To date, 169 companies have set Science Based Targets, and 165 companies have committed to source 100 percent of their global electricity consumption from renewable sources. Xcel Energy recently raised the bar for the electric power industry by committing to deliver 100 percent carbon-free electricity to customers by 2050, and to reduce their carbon emissions by 80 percent by 2030.
Seventy percent of business leaders surveyed by BSR last year also said that they are using sustainable development goals to guide their development of sustainability targets.
- Collaborate for scale. The biggest environmental challenges cannot be conquered alone. Businesses need to partner across industries and global supply chains to deliver impact at a transformative scale. Project Gigaton is one example: a collaboration between Walmart, environmental groups and over 100,000 global suppliers that seeks to cut a billion tons of carbon pollution from the company’s global supply chain.
A coalition of major consumer product companies including Procter & Gamble, Nestle, PepsiCo and Unilever recently announced the zero-waste Loop platform that will address the root cause of plastic waste. And in an unusual alliance among competitors, eight retailers including Amazon, Target and Rite-Aid have joined a leadership group to ensure safer chemicals in beauty and personal care products.
- Advocate for smart environmental policy. To step up and lead on climate, greening your supply chain is critical but it isn’t enough. Corporate executives must also publicly engage on environmental policy. Businesses need to weigh in on local, state and national environmental debates and ensure their policy stances reinforce their corporate sustainability standards.
Danone, Mars, Nestle and Unilever co-founded the Sustainable Food Policy Alliance a group formed specifically to advocate for public policies consistent with their environmental goals. These companies also filed joint comments supporting the Clean Power Plan and opposing the Trump administration’s deeply flawed Affordable Clean Energy rule.
- Accelerate environmental innovation. Some of the same technologies that are disrupting every sector of the economy are also changing the nature of environmental protection. They give business leaders a chance to scale solutions to their companies’ most urgent environmental challenges.
The oil and gas industry is exploring digital innovations like predictive analytics and remote sensors to manage methane emissions and drive operational efficiencies. According to Accenture and the World Economic Forum, these types of innovations have the potential to unlock trillions in value through business impact, reduced emissions, bolstering new energies and job creation.
And farmers in the heartland are using satellites, drones and machine learning to manage their working lands down to the square foot tracking plant health, soil moisture and estimated profit in real-time. The demand for precision agriculture helped tech startups raise $670 million in 2017.
From severe weather events and diminishing natural resources to power and supply chain disruptions, the impacts of climate change are costly. With regulators, employees, customers and investors all pushing for accountability, businesses need to provide honest and transparent plans for addressing climate risk.
Business leaders are making progress on sustainability, but the bar is being raised. With the right leadership from the corporate sector, I believe in the coming years we will break the logjam on federal climate policy. Our environmental and economic future depends on it.
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