Tommy Linstroth is Founder and CEO at Green Badger, a leading SaaS provider simplifying sustainability and ESG in the built industry.
For companies of every size in every sector, environmental, social and governance (ESG) commitments have become routine, viewed as an essential signal and step forward into the future of business.
A 2022 IBM survey found that nearly half of C-suite respondents ranked sustainability among their highest priorities. According to McKinsey & Company, more than 90% of S&P 500 companies publish ESG reports, while many small and medium-sized businesses increasingly view ESG as critical to their competitiveness and access to investment opportunities.
However, as many companies now understand, making promises and operationalizing commitments are two different things. Faced with short-term challenges, wavering leadership devotion and a complex operational environment, I see companies frequently fall short of their commitments. While some companies are accused of intentionally exaggerating their results, others are quietly underperforming, kicking the proverbial can down the road.
Common Hurdles To Change Management
Enhancing ESG commitments is an exercise in change management. As CEO of a leading SaaS provider specializing in simplifying ESG, I can say with clarity that understanding this framework can help leaders address common challenges and implement effective solutions, allowing them to follow through on ESG commitments, satisfy their constituencies and accelerate business outcomes. Here are three common hurdles to change management that often derail a company’s ESG efforts.
1. Stakeholders have a short-term outlook. With companies and their shareholders carefully scrutinizing quarterly earnings and short-term financials, it can be difficult to justify long-term investments in ESG initiatives that take years to positively impact the balance sheet.
For example, solar panels often take up to ten years to pay for themselves. While this technology lowers or eliminates monthly electricity bills and can eventually put an end to electricity costs entirely, the upfront expense can cause decision-makers to stick with the status quo.
In other words, leaders often struggle to balance the short-term business outlook with the long-term benefits of sustainability initiatives. This clash was captured by an Ernst and Young analysis, which found that 84% of business leaders say stakeholders have a greater expectation of ESG-driven growth. However, a similar number say that short-term economic uncertainty is the top challenge to implementing ESG goals.
Similarly, the Harvard Business Review reports that 58% of executives said “there are ‘significant differences of opinions within the leadership team’ on balancing short-term priorities with long-term ESG goals.” Simply put, when today’s problems are the only priority, tomorrow’s challenges are difficult to tackle.
2. There is no top-down authenticity. Sustainability isn’t just a top-down initiative. It requires everyone to play an important part in reducing energy output and increasing efficiency. However, for these efforts to be authentic, they must start at the top.
When leadership fails to follow sustainability initiatives or offers platitudes without taking action, it’s easy for energy-saving initiatives to feel like penny-pinching prerogatives. To combat this perception, I’ve seen some leaders are connecting their compensation to ESG results, putting a financial incentive to support ESG outcomes.
A successful ESG initiative will require more than executive compensation. Sustainability is everyone’s job, but it’s most impactful when stated priorities are supported by authentic buy-in from the top down.
3. A leadership vacuum is formed. New sustainability initiatives are often led by an operations manager tasked with fulfilling the company’s new pledges. This person frequently faces enormous expectations without any real power to enact or enforce change, creating a leadership vacuum that undermines ESG priorities and forces a lose-lose scenario for companies and their stakeholders.
How To Make Sustainability A Success
Although many companies will fail to fulfill their various ESG commitments, underwhelming results aren’t inevitable. Companies can take proven steps now to make sustainability a success in the months and years ahead. Here are three that every organization can take today.
1. Appoint a leader to champion sustainability. Having a clear, proven leader to champion ESG initiatives is critical to the program’s success. This sustainability champion should be someone who can produce results that matter and last. Task this person with ensuring the program succeeds and empowering them to implement real change.
2. Invest in expertise. Highly-effective ESG initiatives are powered by expertise. Companies can invest in expertise by appointing or recruiting a Director of Sustainability or a Chief Sustainability Office who can leverage their experience and expertise to effect meaningful change.
Critically, this needs to be a full-time resource, not a fractional or part-time hire.
3. Create a system that recognizes and rewards sustainability efforts. Companies that are serious about sustainability can create measurable objectives and benchmarks that are published and part of corporate and individual goals. Make sustainability metrics a part of evaluations and performance reports.
If sustainability is an outcome worth pursuing, then it’s a goal worth measuring and evaluating.
Why Sustainability Matters In 2022 And Beyond
Enhancing sustainability isn’t just an altruistic effort. It’s a business imperative that companies can’t afford to ignore. For instance, 86% of consumers say they want “to see a more equitable and sustainable world after the pandemic.” Companies that facilitate this outcome can be more competitive than their stagnant counterparts.
At the same time, boards of directors, governmental regulators and economic realities are making companies to adopt ESG efforts by choice or by force.
Sustainability is a business opportunity. Sustainability is about the bottom line, it’s about people and it’s about making money. That’s why an effective ESG initiative is a rare win-win-win that positions companies to meet the moment by every objective that matters most.