Talk about getting pulled in opposite directions.
Welcome to torture, C-suite style.
You’re a CEO in 1992 and your annoying assistant keeps bringing up something called carbon footprint, but you haven’t had a chance to check the HQ lobby carpet for it because you’re trying to figure out why the tree huggers have chained themselves to your factory fence just because you set fire to the lake.
You’re a CEO in 2002 and you’ve got sweaty palms because you’re about to walk into the annual board meeting and bring up the awkward idea that clean water might actually matter. Not only to you, but to a solid percentage of your employees with whom you’ve privately met to discuss such matters, and for goodness’ sake, it’s possible that lakes shouldn’t burn, right?
As a CEO in 2012, you might’ve been careful what you’d wished for because it seems like thousands of your customers suddenly care about clean water because of your initiative and now the entire board who got leveraged into it because of YOU is breathing hellfire down your neck to see how all this sustainable stuff is going to translate into profit.
And now, congratulations, here we are, 2022, and you’re just off a COVID-19 conference call (yes, still) with the chairman of the board who’s decidedly concerned that the company’s not pushing hard enough in the area of sustainability. Seems he not only wants to achieve carbon neutral status, but be carbon negative — heck, Microsoft’s doing it, our customers will love it.
Talk about getting pulled in opposite directions. Welcome to torture, C-suite style.
Actually, it’s no longer possible for you to just be a run of the mill CEO. In these interesting times you now need to be a CEO of a green SME targeting SDGS in the circular economy.
Wait, what? Wasn’t SME one of Captain Hook’s men? With the glasses? How did we get here?
Chances are, if you’re in corporate leadership you’re running a SME, or small to midsize enterprise, because 90% of companies fall into that category comprising close to 70% of world employment. You just never had a groovy acronym before. And if you’re trying to be green, then chances are your efforts are aligning with one or more of the UN’s 17 sustainable development goals (SDGs) falling broadly into areas called ESG — environmental, social and governmental.
So there are plenty of buckets to fill, and you’ve got board support for your efforts — oh, and consensus among your peers. A report published at the UN by the United Nations Global Compact and the business consultancy Accenture found that only 21% of CEOs believed that business was playing a critical enough role in contributing to the global sustainability goals and over 71% thought that “with increased commitment and action, business can play a critical role in contributing to the Global Goals.”
So sure, we’ve come a long way from a lake on fire, but none of that makes it easy.
For starters, if you’re a CEO of a company, how do you even define sustainability? Depends on who you ask. Geoffrey Jones, a business history professor at Harvard and author of “Profits and Sustainability: A History of Green Entrepreneurship,” said “There is a crippling vagueness about what sustainability means. While carbon emissions are receiving much of the focus because of climate change, deforestation, water shortages and soil erosion are also serious problems that should not be ignored.”
An interesting place to look for answers may be in your own life experience. Behavioralists have observed that your personal experience often has more impact on your behavior than rational arguments. (See America 2019-2022.) And in today’s business climate, it’s possible that what you care about can also be what your company cares about. More and more often corporate sustainability is defined by the personal passion a CEO may have for a particular issue and it can absolutely be a game-changer in a company.
Paul Polman, CEO of consumer goods giant Unilever, is perhaps the greatest example of turning personal commitment into actionable steps to change the culture of a company. Working with team leadership he came up with a new “purpose” for Unilever: to make sustainable living commonplace. OK, not sexy, but he knew that the most successful green companies place importance on endowing a sense of “sustainable ownership” in their employees so that everyone from the mailroom to the boardroom carries the torch as part of their job.
Turns out most of us want to care about something larger than just making a living. As a Unilever factory worker in India put it: I would rather save lives than sell soap. And with Paul Polman at the helm, Unilever’s done a lot of both.
But what if you’re not the evangelical type? Your head overrides your heart, but you still want to push. Maybe do what IBM has done — when you talk about sustainable goals, identify opportunities for cost savings as well as revenue growth. It helps your constituents understand the environment drivers as well as the business benefits.
One issue that caring CEOs will surely encounter is how to put a value on their efforts. When it comes to reducing corporate environmental impact, costs are much easier to define than value. Which immediately creates for the CEO a mountain to climb, convincing the financial side that if we build it the value will come.
Certainly, buying renewable energy is a calculable savings, but, big surprise, not all sustainability solutions are that easy. For example, if you wanted to change your supply chain to use more sustainable raw materials, it will probably cost you an arm and a leg investment that may or may not pay off years later. The argument from the sunny side — and these days there will always be
one — is that, if marketed authentically and well, you’ll likely engender good will, brand loyalty and increased revenue from an increasingly environmentally friendly customer base, a business dynamic that’s proven itself over and over in the past several decades.
But the issue that most drives old-school business scions to distraction is that supporting real sustainability means actually encouraging your customers to consume less. Wait, what? Consume less? That’s madness.
Tell it to Patagonia, who for years has encouraged its customers to do just that. According to Doug Freeman, Patagonia’s former COO, their corporate mantle was “to build the best product, to reduce our impact, and cause the least amount of environmental harm.” And by all metrics it’s worked. Their enviro-conscious consumers indeed may buy less, but there are many more of them, drawn to the company’s pledge to only use renewable or recyclable materials in its products by 2025. And as Patagonia leads, many others have followed and will follow.
So no matter the painful toe stub on a CEO’s path to sustainable neverland, one thing’s for sure: The pressure on businesses to green up isn’t going anywhere. Want to see the stink-eye from investors? Ignore your market perceived over-reliance on fossil fuels.
Beth Davis-Sramek, Gayle Parks Forehand Professor of supply chain management at Harbert, said that “for many large investment companies the ‘aha’ moment came when they realized that climate risk is financial risk. We live on a finite planet, with finite resources and unless something changes the future of the planet is resource scarcity. Which will cause huge profitability problems for companies.” That’s when short-term quarterly earnings hopped in the back seat and long-term profitability took the wheel.
Indeed, investors of all sizes have ramped up their scrutiny of portfolio companies who aren’t scoring well on ESG. Which means more and more companies are integrating sustainability into their core commercial operations, focusing initiatives not only through the traditional P&L lens, but the sustainable one as well. One of those companies is 3M, whose CEO Mike Roman said, “Once you decide something is a priority, you set clear goals, allocate the resources, put a plan in front of you, then hold yourself accountable. The math and the path, so to speak.”
The math and the path. Pretty much says it all. In the history of business there’s always been the math. In the future of business, there will always be the path — and it will be green. If you’re a CEO, the trick will be mastering both.
—Rudy Gaines
