IMI: Stand out in crowded market with progressive sustainability strategy

Organisations risk being left behind unless leaders step up as reformers

Companies that don’t take action risk being left behind by consumers, new markets and investors.

To state that embracing sustainability is critical for organisations across all industries is not a particularly original statement. However, far from being a box-ticking exercise or merely a response to increased stakeholder pressure, organisations should be embracing sustainability if interested in long-term business growth — with leaders proactively turning this challenge into an opportunity for competitive differentiation.

“Organisations who are leading through sustainability — and integrating sustainability, circularity and ESG into core practices — are not only unlocking new growth opportunities and building brand credibility,” says Mary Cronin, programme director for the Irish Management Institute’s Transformational Leadership in Sustainability programme.

“They are also creating viable longer term business models as well as creating a healthier planet for future generations.”

As we navigate the challenges of a rapidly changing world, sustainable and responsible leadership is not an option but a necessity, according to Ms Cronin. While climate change consequences and social inequality themselves are reason enough to take action on an individual level, organisations that fail to embrace sustainable practices risk direct economic and market consequences.

“Companies that don’t take action risk being left behind by consumers, new markets and investors,” she says. “They may face increased costs, reduced profitability and a business model that’s not viable in the longer term.”

Bottom line growth

All data points toward organisations that align their business strategy to sustainability, and have high ratings for ESG performance, reaping the rewards when it comes to bottom-line business growth. 

Organisations with high ratings for ESG performance enjoyed 3.7x higher average operating margins compared to lower ESG performers, and 2.6x higher annual average total returns for shareholders. 

Put simply, sustainability is a genuine business strategy for creating long-term value and fostering company longevity, often going hand-in-hand with increased organisational agility and customer-centricity.

And yet, despite ESG being identified among the top three priorities for Irish CEOs and widely understood as a key value driver, scepticism remains among stakeholders over cost and potential benefits. In fact, a staggering 83% of Irish CEOs have experienced resistance to implementing certain ESG measures.

The data is clear: companies with high ratings for ESG performance can and often do reap the long-term and short-term rewards. So why the pushback from investors, shareholders, and other stakeholders? 

Be it taking a ‘wait and see’ approach, or an active scepticism around cost versus benefit. And while sustainability and ESG might be classed as a top priority for Irish CEOs, are these good intentions resulting in the urgently required actions necessary for long-term, sustainable growth? And if not, why not?

Too many leaders still think of sustainability through a very limited lens: usually as a box-ticking or compliance exercise. 

One thinks of the co-opting of the 3BL sustainability framework — the “triple bottom line” of people, planet and profit — being reduced to merely an accounting and reporting tool, rather than a tool for systematic change as originally intended. What’s required is a new lens through which to view sustainability from a leadership perspective, which has led IMI to partner with the UCC Environmental Research Institute on the aforementioned Transformational Leadership in Sustainability programme.

Developing this new lens is critical in order for leaders to bridge key challenges around sustainability, such as the ‘knowing-doing gap’ and ‘compliance-competitive advantage gap.’ 

For those unfamiliar, a recent BCG/MIT study found that 90% of executives consider sustainability important, but only 60% of companies incorporate sustainability into their strategy, while a mere 25% have sustainability incorporated within their business model (again we return to good intentions not resulting in the necessary actions).

Likewise, only 24% of companies currently see a competitive advantage when it comes to sustainability. While all organisations must be compliant, opportunities abound for the progressive leader to make their organisation’s sustainability strategy a competitive differentiator in a crowded market.

'CEO-stakeholder gap'

However, the most critical and damaging leadership challenge to be overcome might be the ‘CEO-stakeholder gap.’ 

As mentioned, 83% of Irish CEOs have faced stakeholder resistance to ESG measures. But senior leaders need the support of stakeholders so as to drive the strategy of sustainability.

This requires a paradigm shift in leadership, with CEOs and senior leaders driving the sustainability agenda and ESG investment, not merely delegating it to sustainability officers. If there’s no buy-in from stakeholders, nothing changes —until it’s too late. 

Unless leaders step up as reformers, they — and their organisations — risk being reformed and left behind if they remain reactive rather than proactive.

As leaders navigate the challenges of a rapidly changing world, sustainable and responsible leadership is not an option but a necessity.

Along with pushing their organisations to be more agile and customer-centric, leaders at all levels must think differently about the choices they make and their organisation’s environmental impact in a more ethical and climate conscious society.