There is a lot of talk about how to get companies to report on environmental, social, and governance (ESG) factors. While this is important, the ESG movement has been hijacked by investors, and as a result, has shifted in focus from driving true internal change within companies to reporting on regulatory metrics.
For companies to achieve meaningful environmental sustainability and social equity targets, companies need to embed sustainability and social equity into their core business strategy and operations
So, how can your company go beyond “ESG washing” to truly embed the principles of ESG throughout your core operations? According to a new report from the Conference Board, companies face six challenges when it comes to integrating sustainability and social equity into their businesses:
- Defining what sustainability means for your company, and setting a strategy. This goes beyond simply conducting some ESG reports for investors. Rather, it requires an executive AND board level decision to commit to integrating sustainability and social equity as a part of a company’s long-term business strategy.
- Integrating sustainability into the core business by operationalizing it. Beyond setting long-term targets, this includes looking at how all aspects of the company – product/service creation, innovation, supply chain, delivery – can be operated more sustainably on a day to day basis.
- Setting sustainability goals for your business strategy, rather than for ESG investors. ESG requirements from investors are focused on risk mitigation and disclosures. ESG targets set by your business should focus on the strategy involved in operationalizing sustainability throughout your core operations.
- Organizing your leadership team and re-aligning incentives. Board managers, executives, directors, and even managers need to have updated business and compensation-related key performance indicators that align with the sustainability and social equity strategy.
- Communicating the sustainability story, and moving beyond greenwashing. Companies need to embrace and own their shortcomings, and understand that this process will be ongoing. You can’t become sustainable overnight, and claiming to is misleading consumers. Companies should be transparent about their targets, progress towards achieving them, and challenges to be addressed, which in turn will build trust and invite innovation from partners.
- Managing ESG reporting requirements without losing focus. Investors and governments require costly ESG reporting that is not always in-line with a company’s own strategy (usually, this reporting is a laggard to real priorities.) There are many different ESG reporting frameworks out there, and whichever a company chooses to utilize should complement rather than detract from its primary strategy.
According to the Conference Board, and its first working group session on Building a Sustainability Culture, the participating business executives agreed that of the six challenges above, #2 is the most challenging.
So let’s take a closer look at HOW to integrate sustainability into core business operations, and some examples of companies doing this well.
6 Steps to Creating an Environmentally Sustainable and Social Equity Focused Culture of Innovation
Step 1: Executives define the role of sustainability and social equity in the business, and its priority
Business leaders need to decide if sustainability will truly be integrated across the business, or if it is an afterthought unrelated to its core operations.
As an example, if a new product or service line is being created, are environmental sustainability and social equity deciding factors in whether the new product or service will be adopted, or not? Or, will the new product or service line be measured only on revenue and margins, with sustainability considerations only happening afterwards?.
According to the Conference Board, executives need to answer the following: “Is sustainability an enhancement to our current culture? Is it a more profound shift that involves embracing and integrating a new sense of purpose throughout the organization? Or is it part of an existential transformation necessary for the success or even survival of the company?”
Take one of our partners, Microsoft, whose CEO is not only compensated on certain ESG achievements, but has embedded social equity, climate neutrality, and consumer security into its core business strategy. These commitments are easily visible not only to employees, but even to consumers who now see Microsoft products making AI-driven recommendations to lower carbon footprints and improve accessibility in documents, virtual collaboration, speech to voice technology, and more.
Step 2: Set shared language and common goals
Sustainability initiatives struggle because of the varied definitions that exist for sustainability across business and regulatory environments. Take ESG for one. Investors use ESG to talk about material risks to the business that exist because of environmental, social, and governance factors (and therefore their investments), while activists use ESG to talk about how a company can align itself with the UN Sustainable Development Goals. As an example, a 2021 poll from the Conference Board found that only 32% of companies have an agreed upon definition of sustainability, and that “This lack of a common language makes it harder to build a sustainability culture, which by its very nature needs to be company specific.”
As an example, in looking at climate targets, ESG investors want companies to disclose how much carbon they are emitting because they know that in the future, governments may charge a carbon tax, and this will affect investment returns. Meanwhile, activists want companies to set zero carbon targets so that they stop contributing to global warming.
Companies need to define what ESG means at their company – are they doing this for investors, or are they truly investing in real systemic change? They then need to be transparent about this and communicate it broadly, including hosting education events on what this means for different parts of the business and its stakeholders.
As we train members of the MovingWorlds Institute Global Fellowship, whenever you are working on systems-change issues, shared language is a core foundation for aligning stakeholders.
Step 3: Set clear ownership WITH CEO sponsorship
To have a sustainability and social equity strategy be fully adopted into the culture of a company, it needs a clear champion that is highly visible across the organization AND it needs consistent CEO sponsorship and messaging. Executive champions can come from marketing, product, human resources/people operations, innovation, finance, or legal business units. However, companies should not assign exclusive ownership to a Chief Sustainability Officer (most don’t have one, even though they should) unless that is part of its predefined sustainability strategy. For a truly integrated sustainability and social equity culture, ownership should rest with an executive, or small team of executives, that have the most influence over a company’s most profitable business unit(s).
Take SAP for example. SAP is consistently one of the highest ranked companies on sustainability indexes as well as employee sentiment, and this is for good reason. Even during trying times, its leadership team, including the CEO and Board Members, continue to prioritize messaging related to SAP’s sustainability and equity journey. Marketing sponsors initiatives, while also integrating them into its advertising. Engineering embeds sustainability thinking into its new products. Operations and procurement are measured on progress towards sustainability amidst its own operations and its suppliers. HR builds training and coaching programs to align current and future leaders.
Step 4: Continue to nurture the sustainability and social equity culture at all levels of the organization
Most companies are still very early in the process of creating a sustainability culture, as seen in this chart from the Conference Board:
According to the report, “A culture shift is about far more than setting the tone at the top. It needs to take hold in the middle where the business units make decisions, run day-to-day operations, lead innovations, develop products, and manage risks.”
Setting a culture of sustainability means that companies need to conduct a variety of activities to build momentum so the culture can take root, like:
- Clearly communicate their sustainability and equity goals to all employees
- Implement measurement processes that tie to incentives at all levels
- Provide training internally
- Integrate messaging into all company announcements
- Add sustainability priorities to external communications
- Build and empower an “ambassador” program
- Add it to new employee onboarding roles as well as annual training requirements
- Align promotion pathways to goal progress
- Find time to publicly recognize and reward employees – at all levels – so that there are a variety of incentives that motivate people to alignment and action
Step 5: Invest in change management
In training our MovingWorlds Institute Global Fellows on social intrapreneurship, one of the things we highlight is that any time you try to change ANYTHING, even if it’s implementing a world-positive solution, you will have to “navigate the naysayers”.
One of the best ways to do this, according to, the Conference Board, is to “replace people’s natural resistance with a sense of ownership” by focusing on the following:
- An environment of trust and collaboration, which helps to overcome the natural resistance to cultural change. The board, C-suite, and employees should talk openly about existing strengths as well as challenges, and be candid about their own journeys.
- Emphasize the virtuous cycle among sustainability, innovation, and opportunity for the company and individuals within it. A sustainability culture requires adaptability, flexibility, autonomy, and an ability to think things through, which in turn allows employees to put forward new ideas and innovations necessary to address societal and environmental issues.
- Don’t underestimate the impact that purpose has on culture. When people understand the “why” behind this desired new way of working, they can take it with them in everything they do until ultimately it’s reflected in the microdecisions made by employees at all levels.
In our own work with companies looking to accelerate progress towards their environmental and social impact targets, we use a CSR scorecard to assess an organization’s readiness to scale its social impact programming. We see that engaging mid-level managers is of paramount importance, particularly when it comes to moving from resistance to a sense of ownership (here’s a guide for managers to manage CSR).
As an example, SAP’s internal talent development programs led by HR consistently partner with SAP’s CSR team to embed skills-based volunteering with social enterprises into leadership development programming. Beyond volunteering, executives also encourage the participants to learn more about impact investing, social entrepreneurship, and human-centered design so that up-and-coming leaders are ready to lead in a socially and environmentally responsible culture.
Step 6: Align your value chain (supply, innovation, distributing, hiring, etc.)
No company can produce a service or product without partners. This may be something as simple as hosting technology on a cloud service, outsourcing advertising, buying raw materials, engaging with vendors to manage an office space, or it may be more integrated like a manufacturing process across different companies. Regardless, a culture of sustainability and social equity cannot take hold without participation from upstream, central, and downstream partners.
Take Unilever as an example. In partnership with MovingWorlds, SAP, TRANSFORM, and the World Economic Forum, Unilever is working to build the capacity of social enterprises so that it can develop better products, distribute them to consumers in the first and last mile, ensure healthier utilization, and then minimize waste. To this end, Unileverhas provided social enterprises with capacity building support so that social enterprises can more effectively contribute raw materials into Unilever’s supply chain (i.e. providing capital and employees as skills-based volunteers through the TRANSFORM Support Hub). This has helped it develop new partnerships to ensure that clean water exists for consumers to be able to utilize its products healthily (i.e. supporting DrinkWell in Bangalore), that its essential hygiene products can be distributed more efficiently (i.e. supporting women’s health and hygiene company Kasha), and improve the way it manages the waste created by its products (i.e. by partnering with plastic upcyclers like TrashCon).
According to a new report from our partners at Yunus Social Business, written in partnership with BCG, supporting social enterprises will create a massive opportunity for businesses to create more regenerative, sustainable, and equitable business models. A previous report from our partners at Acumen highlighted over 100 social enterprises already partnering with corporations to help corporations achieve their sustainability and social equity targets.
Even with the risk of recession, governments, employees, consumers, and investors continue to put pressure on corporations to operate more ethically and sustainably. Some even hypothesize that with democracy in crisis, the onus will fall even more so on corporations to achieve climate and social equity targets as outlined in the Sustainable Development Goals.
Much must be done for corporations to fully embrace environmental sustainability and social equity, but increasingly, forward-thinking and high-performing CEOs know that business models of the future will only be achieved if they invest in building a sustainability- and socially-minded culture today.