Use organizational enablers to support sustainability goals

Progress on sustainability targets will require deeply embedding ESG priorities across the organization, which means updating current operating models and governance approaches that are out of step with ESG implementation.

Table 1: Sustainability must play a role in every aspect of the operating model

Source: BCG. A Faster Path to Sustainability (1)

Accelerating progress toward ESG goals will involve an effective redefinition of an organization’s operating model. Companies will need to take action across a series of organizational enablers. Table 1 depicts some of the key facets of a company’s operating model that need to be tailored and enhanced to serve as critical enablers of the sustainability transformation.

Table 1

Realizing sustainability goals will draw upon every aspect of an organization’s operating model. Sustainability must become a natural component of a company’s operations and culture and needs to be viewed as a value-add, not an add-on. Companies fall into four categories across the ESG maturity journey: Starting, Developing, Advancing, and Leading. Leading companies integrate ESG to drive competitive advantage and reimagine future growth.

Below are some examples of companies embedding ESG into their organizations and the characteristics setting them apart:

Ikea: Ikea has a corporate sustainability team of around 60+ FTEs focused on environmental sustainability and social responsibility (2). Their chief sustainability officer is part of the executive board. In recent years, they have focused on the decentralization of sustainability efforts to fully embed sustainability across all layers of the organization. They have an ESG representative in all decision-making bodies across the organization at every level. Sustainability targets are built into compensation at all levels and ESG training opportunities are available for employees at all levels of the organization.

Unilever: Unilever has a central sustainability team of around 10+ FTEs and a focus on environmental sustainability and human rights (3). Company-wide goals and policies are set by the central sustainability team and functional leaders to ensure cross-company alignment. Ownership of specific strategy development is decentralized to allow for brand and region-specific priorities and adjustments. Decentralized teams are enabled to start new initiatives, but best practices are shared back with the central team. They have also set up external advisory boards, including a board with young advocates linked to youth bodies.

Siemens: Siemens has a central sustainability team of around 10+ FTEs focused mainly on CO2, climate, and energy (4). The central sustainability team acts as a center of excellence and drives key priorities in CO2 and energy globally. Sustainability officers of different Siemens brands (e.g., Siemens Energy) also connect to ensure consistent image across brands. For example, they have an ESG risk management platform for large investments to ensure decisions align with business ethics. They focus on anticipating regulatory and market sustainability demands via active stakeholder engagement.

Climate impact

Targeted emissions sources

Setting up sustainability enablers is critical to accelerating the realization of sustainability projects and initiatives, facilitating a sustainability transformation to meet ambitious emission reduction goals, and ultimately creating value. As such, it contributes to emissions reduction across all sources in Scope 1, 2, and 3.

Business impact

Benefits

• Enhanced brand perception: Making investments in emissions reductions better meets consumer and customer expectations, given that sustainability is a growing issue for consumers, especially for companies in high-polluting industries

• Ability to attract and retain top talent: Becoming a more attractive employer to jobseekers (particularly those from younger generations) who seek companies that create positive societal impact or robust plans to do so

• Increased financing opportunities: Implementing organizational enablers is essential to demonstrating ESG commitment, which can lead to improved ESG ratings, and potentially a lower cost of capital

• Longer-term strategy: Facilitating deep-seated future value creation opportunities by attracting investors who care about the long term, because investments in green projects often take time to pay back (5)

• Enhanced long-term resilience: Embedding climate decision-making allows better long-term resilience of the business toward climate related risks

Costs

One-time costs of new data systems and integrations, as well as temporary resources needed to realign organizational priorities.

Impact beyond climate and business

Co-benefits

Beyond climate, ESG realignment has the potential to impact other topics like nature/biodiversity, diversity and inclusion, and human rights if companies choose to make these part of their ESG priorities and strategy.

Typical business profile

Virtually all companies can and should set up organizational enablers to help realize sustainability goals. However, the timing and sequencing of these enablers varies widely depending on the company profile. Companies in the Starting category may need to create high-level structures and positions to implement sustainability in company operations, such as creating a central ESG team and designating an owner at the executive level to help steer the climate journey. At the other end, Leading companies may already have organizational enablers in place for sustainability, but may still need to fully embed decision-making processes, appropriate KPIs and incentives, and adequate upskilling across the company’s business units, while maintaining a center of excellence to provide support. Through the journey from Starting to Leading, companies will need to improve their strategy and vision, organizational design and accountability, decision-making and processes, etc. For more information, see the table in type: asset-hyperlink id: 6V6fcjKavLlYAVvka5bcHL.

Stakeholders involved

Given that re-aligning a company’s operating model has effects across the entire business, the transition would involve an array of internal stakeholders, and in theory all business units would be engaged for meaningful ESG integration. However, there are several stakeholders that must have especially meaningful roles:

• Company Board: To set the sustainability agenda and provide guidance toward ESG goals

• Executive Management: To set up and mobilize teams that enable the implementation of the sustainability agenda

• Sustainability Team: To centrally support cross-functional sustainability strategy, expertise, reporting, trainings, projects, etc.

• Sustainability Leads embedded in Business Units and Functions: To execute sustainability priorities within other parts of the organization, in coordination with the central Sustainability Team (e.g., finance to support with reporting, HR to support with training, procurement to support with supplier decarbonization)

• Marketing & Sales: To develop a sales strategy that seeks to create business value from sustainability and communicate accordingly to customers

• Investor Relations: To communicate sustainability efforts to investors and collaborate with the sustainability team for ESG reporting

Implementation and operations tips

There are some common pitfalls that organizations must avoid to ensure their sustainability ambitions become a reality (6)

• Weak commitment at the top: Senior leaders do not display a strong, visible, and consistent commitment to the sustainability agenda, limiting credibility with internal and external stakeholders

• Perpetual Chief Sustainability Officer: The company appoints a CSO with no plan to transition ownership to the business, limiting ownership of and accountability for sustainability outcomes among the organization’s leaders. CSOs can be a great catalyst for progress (e.g., in the Starting stage), but companies need to plan for the role to evolve (e.g., get to the Advancing or Leading stages)

• Commitments with no accountability: Performance management, including executive compensation, is not tied to sustainability outcomes, so long-term sustainability goals lose out to near-term financial performance

• Coordination problems: The role of the central sustainability team versus the business units is not clearly defined, resulting in disorganized execution and slow progress toward goals

• Failure to embed sustainability in the business: Sustainability is not a mandatory or material consideration in business processes, limiting employees’ ability to make decisions aligned with sustainability goals

• Talent gaps: Companies fail to anticipate and act on the fundamental shifts in skills and capabilities required to deliver on their sustainability agenda