This article has been updated on 9 May 2022 and was first written in November 2016
Paying attention to environmental, social, and governance (ESG) issues is becoming increasingly critical for all companies across all industries. In the latest McKinsey Global Survey, 83% of C-suite executives and investment professionals believe that ESG programs will generate more shareholder value in five years’ time than they do today. And in Accenture’s research on responsible leadership, companies with high ratings for ESG performance enjoyed average operating margins 3.7 times higher than those of lower ESG performers. Shareholders also received higher annual total returns to shareholders, outpacing poorer ESG performers by 2.6 times.
Simply put, sustainability is a business approach to creating long-term value by taking into consideration how a given organization operates in the ecological, social, and economic environments. Sustainability is built on the assumption that developing such strategies fosters company longevity.
As the expectations on corporate responsibility increase, and as transparency becomes more prevalent, companies are recognizing the need to act on sustainability. Professional communications and good intentions are no longer enough.
The following industry leaders illustrate what sustainability initiatives look like:
- Rated one of the world’s most sustainable corporations (Corporate Knights Global 100) and a green champion for over two decades, Schneider Electric offers technology and energy solutions to help companies shrink their carbon footprints. Schneider has accelerated its own formidable climate commitments to generate 80% “green revenues” by 2025 and to help its customers avoid up to 800 million metric tons of emissions.
- Finnish refiner Neste is pioneering solutions to conventional fuels and refining plastic alternatives and other materials. In March, Neste announced a billion-dollar investment in a joint venture with U.S.-based oil company Marathon Petroleum that it says will make it the world's first and only renewable fuels maker with global capacity.
- Danish state-owned energy company Orsted has revolutionized the power industry in its bid to reduce the effects of climate change. Divesting from coal-powered plants, it has reinvested into wind farms and is now the largest offshore wind farm developer in the world. Orsted achieved this feat by encouraging its supply chain ecosystem to align – and in so doing has reduced carbon emissions and achieved its net zero goal.
- In the airline industry, JetBlue is at the vanguard of attaining carbon neutrality through offsetting its emissions, which in turn are invested into forestry, landfill gas capture, solar, and wind projects. The airline has aligned itself with the UN’s Sustainable Development Goal 13 (Climate Action) and is exploring renewable aviation fuel options for its fleet.
- Nike and Adidas have both seriously stepped up. Nike has focused on reducing its waste and using renewable energy, while Adidas has created a greener supply chain and pledged that, by 2025, nine out of 10 Adidas articles will be made from sustainable materials.
- Unilever and Nestlé have both taken on major commitments; Unilever is targeting net-zero emissions from its goods by 2039 and a deforestation-free supply chain by 2023. Nestlé has committed to achieving net zero greenhouse gas emissions by 2050 and having 100% recyclable or reusable packaging by 2025.
- Walmart, IKEA, and H&M have moved toward more sustainable retailing, largely by leading collaboration across their supply chains to reduce waste, increase resource productivity, and optimize material usage. Walmart has pledged that, by 2040, it will have zeroed out emissions from all its vehicles and transitioned to low-impact refrigerants, IKEA is making strides to using only renewable energy across its value chain, and H&M has pledged to use 100% recycled or sustainable materials by 2030.
- In biopharma, Biogen and Novo Nordisk have both worked toward energy efficiency, waste reduction, and other ecological measures. Biogen even tied part of its employees’ and management’s compensation to achieving its ESG goals, while Novo Nordisk has committed to net zero emissions across its entire value chain by 2045 at the latest.
- Pepsi and Coca-Cola have both set ambitious goals for reusable and refillable packaging, as well as improving water stewardship and replenishment.
These firms have all made strong commitments to sustainability, in large part through transparency and addressing material issues. They are embarking on a more sustainable journey, and all firms should follow suit over the next decade.
Two gaps to beware of
In order to address sustainability appropriately companies need to bridge two critical gaps:
- “The knowing – doing gap”: A study by BCG/MIT that I participated in found that whereas 90% of executives find sustainability to be important, only 60% of companies incorporate sustainability in their strategy, and merely 25% have sustainability incorporated in their business model.
- “The compliance – competitive advantage gap”: More companies are seeing sustainability as an area of competitive advantage, but it is still a minority – only 24%. However, all companies need to be compliant. Management should address these topics separately, not mesh them together. Compliance is holistic, a “must do”. For competitive advantage, only a few material issues count.
