Strategy

3) What leadership competencies are needed

Sustainability is one of those ubiquitous words, which can also be very slippery, as different people understand the word differently.

At a planetary level, sustainability is meeting the needs of the present generation without compromising the ability of future generations to meet their needs (Brundtland - 1987); and how 9-10 billion people can live reasonably well within the constraints of one planet by mid-century (WBCSD 2010).

It is particularly important to remember that there are three pillars of sustainability: social, environmental, and economic – it is not just the environmental dimension.

At the firm level, sustainability is the purpose, business models, strategy, skills and resources required in order for a business to continue into the indefinite future. This means managing resource constraints (for example carbon budget, water, talent). Increasingly, we see businesses moving beyond doing no harm, and defining a societal purpose: “a concrete, pro-social goal or objective for the firm that reaches beyond profit maximisation.”(Henderson & Van der Steen 2015); and seeking to be net positive.

Hence corporate sustainability can be defined as “a business commitment to sustainable development, and an approach that creates long-term shareholder and societal value by embracing the opportunities and managing the risks associated with economic, environmental and social developments.” (Doughty Centre - Expanded from PWC - SAM - The Sustainability Yearbook 2008). There are broadly similar definitions from the UN Global Compact, The Conference Board and others.

Corporate sustainability commitments are increasingly common. But they’re also often ill-defined, narrow in scope, sometimes disconnected from broader corporate goals, and can be hampered by a lack of leadership ‘buy in’.

Yet look at the direction of travel, and it’s clear that it won’t always be that way—as forward-looking business leaders are already seeing.

Neil Carson, chief executive of FTSE 100 chemicals and process technologies firm Johnson Matthey from 2004-14, presciently said this of corporate sustainability, for instance:

“It’s like the quality revolution that we had in the 1980s. What happened was that companies either ‘got’ quality, or they died. And one day this is going to be the same for sustainability. But there’s an interim period where that’s only true for some companies, not all companies.”

So what exactly are the corporate sustainability leadership competencies that are required in organisations that don’t want to die?

Let’s look at three separate ‘takes’ on the answer.

The business leaders’ perspective

An influential taskforce-based study, involving corporate leaders’ own views on the issue, was published in 2010 by Business in the Community, a business-led charity promoting responsible business and corporate responsibility.

Entitled Leadership Skills for a Sustainable Economy, it defined a number of corporate sustainability leadership attributes, including the ability to consistently work towards a longer term vision of how the organisation might contribute to a sustainable economy, together with an ability to inspire people—both inside and outside the organisation—to take action on corporate sustainability.

Also important, the taskforce argued, was the ability to empower those people within the organisation to make corporate sustainability business decisions, commercial awareness to identify the risks and opportunities that might lie behind those decisions, and sufficient knowledge about corporate sustainability to develop successful business strategies.

Just as valuable were the ability to innovate in terms of sustainable approaches, technologies, products and services; the ability to work collaboratively with different stakeholders, and the possession of effective and persuasive communication skills.

The survey-based perspective

Cranfield’s Doughty Centre for Corporate Responsibility, visiting fellow Anita Hoffmann has published her own take on the issue, with the corporate responsibility coalition Business for Social Responsibility (BSR).

An experienced board level executive coach, she surveyed chief executives, chief human resource officers, company chairs, industry experts, NGOs, and chief sustainability officers around the world, probing their views on what constituted effective corporate sustainability leadership.

The answer? Six separate corporate sustainability leadership competencies: ethics and integrity; external awareness and appreciation of trends; visioning and strategy formulation; risk awareness, assessment and management; stakeholder engagement; and flexibility and adaptability to change.

The corporate sustainability expert’s perspective

Finally, for still another take on the issue, Canadian corporate sustainability expert Coro Strandberg’s 2015 report Sustainability Talent Management: The New Business Imperative distilled a decade of sustainability and management literature into just five interdependent competencies.

These, she decided, were systems thinking; external collaboration; social innovation; sustainability literacy; and active values.

Shared values

Clearly, as you might expect, there are some common themes here and also common ground with the views of real-world companies that have explored the issue of corporate sustainability leadership.

Look at those corporate sustainability corporate competencies viewed as valuable by Unilever—now widely recognised as a global leader in corporate sustainability—for instance, and distinct echoes of all of the above emerge. Unilever now has four key leadership competencies: adaptability; systems-thinking; empowerment; purpose & authenticity.

But defining corporate sustainability leadership competencies is one thing—and possessing them quite another.

So precisely what qualities is it that busy corporate executives should be working to develop?

Our perspective

When it comes to corporate sustainability leadership competencies, I’d suggest these four qualities are amongst the critical building blocks:

  • The ability to contextualise; to understand sustainable development trends, and how and where your own organisation fits into the wider system - strategic systems thinking;
  • The surfacing of a personal purpose, together with authentic values;
  • A capacity to inspire and empower in a corporate sustainability context; and increasingly,
  • The ability to conceive, create, continuously improve and—where appropriate—exit collaborations with other businesses and interested parties.

Easy? Simple? Straightforward? Of course not. But then, corporate sustainability itself isn’t any of these things, either.

A subsequent blog in this series will explore how busy executives can work to develop these attributes.

David Grayson CBE is Professor of Corporate Responsibility and Director of the Doughty Centre for Corporate Responsibility. He is co-author with Jane Nelson from Harvard’s Kennedy School of Government of the award winning book Corporate Responsibility Coalitions: The Past, Present & Future of Alliances for Sustainable Capitalism.

 

Finance and Sustainability

Loving Controlling - Chapter 7: Sustainability Financial Controller, my (your) future role

Published on December 22, 2017

 
Juan Jose Piedra Galan

Fortunately during this time things have dramatically changed: sustainability is key within the strategy of many multinational companies. Some of them create an individual, yearly sustainability report: The Coca-Cola Company (TCCC), Procter & Gamble (P&G), Apple, General Motors (GM), etc and have own Chief Sustainability Officers (CSOs or equivalent positions) reporting to the CEO, as an evidence of the important position they hold.

I attended recently to a presentation done by Bérangere Magarinos-Ruchat, Global Head of Sustainability at Firmenich, my current company, and I must admit it was really inspiring (it was actually the trigger of this article). In her speech she mentioned the 17 sustainable development goals for 2030 from United Nations, which among others include:

-         No poverty: No people living with less than $1.25 a day,..

-         Zero hunger: Ending all forms of malnutrition, especially in children and vulnerable communities,...

-         Quality education: All girls and boys complete free, equitable and quality primary and secondary education,...

-         Gender equality: End all forms of discrimination and / or violence against all women and girls everywhere,…

-         Clean water and sanitation: Achieve universal and equitable access to safe and affordable drinking water for everyone,…

-         Reduced inequalities: Achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average,…

-         Responsible consumption and production: halve per capita global food waste at the retail and consumer levels and reduce food losses among production and supply chains,…

-         Climate action: Integrate climate change measures into national policies, strategies and planning,...

-         Partnership for the goals: Adopt and implement investment promotion regimes for least development countries,…

These goals are fully aligned with the targets declared in the UN Climate Change Conference held in Paris in December 2015 where the countries specifically committed to:

  • Holding the increase in the global average temperature to well below 2ºC above pre-industrial levels (if possible 1.5 ºC)
  • Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas (GHGs) emissions development, in a manner that does not threaten food productions
  • Making finance flows consistent with a pathway towards low GHGs emissions

All the above goals and commitments linked to sustainability are established at country level, so you may think nothing will change from micro-economical point of view, but I don’t think that will be the case. Companies will be for sure impacted by those targets because two main reasons: first, national laws and regulations connected to sustainability will be adjusted to those UN goals sooner or later and timelines are quit stretched (12 years is a narrow time-frame in a multinational lifetime) so it will be important to make an step ahead as quick as possible. The second cause is a matter of reputation: companies are starting to share their sustainability achievements at the same level of importance as the financial ones, in a kind of race to be positioned on the first place as best sustainable company within their own sector. 

Considering the above context, I strongly believe the position of Sustainability Financial Controller (SFC) will be soon created in large multinational companies. The skills and techniques of finance business partners such make comprehensive reports to analyze data or drive and lead productivity initiatives are fully applicable under the umbrella of sustainability topics. SFCs shall be responsible of, among others, the following tasks:

  • Calculate sNPV (sustainability NPV) and sPayback (sustainability Payback) using comparable drivers such CO2e (CO2 equivalent) or CO2/kg produced. In these calculations it will be necessary to use an equivalent of a cost of capital for the financial ones, that could be based on the percentage of temperature increase provided by international environmental organizations.
  • Support right prioritization of alternatives to reduce GHGs – Scope 3 (emissions that are a consequence of the operations of an organization, but are not directly owned or controlled by the organization) including employee commuting, business travel, third-party distribution and logistics, production of purchased goods
  • Lead productivity initiatives to improve waste efficiency rates, including fees to offset carbon footprint e.g. via carbonfund.org

 

I really hope this vision will come true. And I expect that in 2030 the sustainability financial controller will be a standard financial role to apply to in many companies. Today I see obsolete the idea I had 20 years ago on implementing recycled paper in the office so, hopefully in the next 10 years, this article will be also considered obsolete.

 

Loving Controlling' is a set of articles based of finance topics with a main goal: shake your brains. Juan Jose Piedra is a finance controller, Star Trek follower, Real Madrid supporter, Mary J. Blige fan, flawed writer and above all a proud father

Finance Sustainable Priorities

Crescita sostenibile e finanza Le responsabilità dei CFO

Pianificare strategie di crescita che tengano conto di molteplici fattori.

Prestare attenzione non solo al profitto, ma anche al Pianeta e alle persone.

Cercando di mantenere invariato il grado di indebitamento.

Una crescita sostenibile anche sotto il profilo finanziario è possibile

"Come viene segnalato dagli studiosi più attenti ai temi di ‘frontiera’ e da alcune ricerche, sarà necessaria, rispetto al passato, una 3P growth strategy, dove la tripla P sta per Profit, Planet e People. In base a questo approccio si suggerisce di adottare una strategia di crescita che a livello aziendale presti attenzione: oltre ai risultati eco-fin e alla sostenibilità finanziaria della crescita (Profit), all’impatto ambientale della crescita aziendale (Planet) e alle conseguenze sociali della stessa (People).

Solo così si darà attuazione a una crescita sostenibile e duratura, anche quando il mercato tornerà a frenare."

Auditing Sustainability

Auditing Sustainability and The Greater Good

This article is co-written by Anders Liu-Lindberg and Wei Chien Yoong.

Is climate change a hoax? That has been a question debated by many. But for those of us living in the tropics, near the equator, temperature is rising, and raining season seems to be more erratic then before, and most peculiar would be some exceptionally cool weather which is hard to imagine near the tropics!

Now as finance professionals, we ask ourselves what the profession can do to make a difference to mother earth and humanity. While searching for an answer, we also realize climate change is not the only human survival issue, it is much broader – it is a question of how do we sustain our existence (in good quality) for generations to come. 

From research and work Wei Chien has done on the topic of sustainability audit, consensus appeared as: sustainability is an emerging risk area that is yet to be covered comprehensively by most traditional internal audit functions.  However, it is certainly an area of focus for the future. Most of the professional audit/ advisory services firms provide sustainability reporting and assurance services, focusing on reporting and regulatory compliance. There remain huge opportunities for internal audit to add value by partnering with businesses in addressing risks associated with social, environmental and economy and how to mitigate them.   

What is a Sustainability Audit?

Before we can answer the question, we probably need to have a conceptual understanding of what is sustainability There are many definitions, but the best will be a picture of 3 elements existing in perfect harmony, hence, ensuring life of our future generations are secured.

Now an audit can be an assessment of any of the above elements yet the most commonly focus area has been environment. However, an environment audit does not equate to a comprehensive sustainability audit hence businesses need to start exploring the other areas too.

Audit Approach

The delivery of such audit may take the form as what Anders and Maya Hotait have shared on the step by step model, from planning to contracting and recommendation. To do the sustainability audit effectively, an auditor certainly require those “internal audit master” characteristics that have been highlighted by Anders and Maya. However, a sustainability audit is certainly not a business as usual financial or operational audit! Below are the main differences you need to look out for if you want to audit sustainability. 

Strategic risk imperative and understanding of macro and megatrends: Sustainability is an emerging strategic risk for business, and an imperative for business survival. Audit has a role to call it out in a broader perspective, from changes in industry, consumer behavior; to much broader global public policy and agenda shift. To do this effectively, an audit master needs to collaborate with subject matter experts (both internal and external) to keep abreast of emerging trends.  

High level support: While connecting the external dots to specific sustainability opportunities or risks that a business is facing, the internal auditor is then able to conduct a progressive and productive discussion with the C-suite and audit committee, hence, lobbying for support. To effectively roll out the sustainability audit initiative in the organization, endorsement of senior leadership is absolutely critical. 

Collaborative and using external help: A sustainability audit takes a snapshot of the current state, in terms of policies, procedures and practices in sustainability. To make the audit meaningful, the current state will be referenced against industry best practices, and the audit identifies risks/opportunities across a wide range of sustainability categories. To execute the audit effectively, requires internal audit to leverage and work with different functions, notably supply chain, which encompasses most of the goods or services movement. Given that the skillset may not reside within the internal audit function, leveraging on external consulting company is common. 

Communicate and impact change proactively: To effectively communicate the findings and impact, internal audit is required to put on hat of the business stakeholder and here strong business partnering skills will be helpful. What will make the business stakeholders buy in to your recommendations?

  • Costs savings or waste elimination.
  • Broader consumer demand preference, new segment or market opportunity.
  • Reputation risk at stake.

If we get the above right, before internal audit knows it, there will be stakeholders knocking on the door for an audit visit, and that is the demand model internal audit should thrive for!  

Let’s Visualize it for You

As we started the post with weather changes at the tropics, let us talk about the role of sustainability audit in the world’s most controversial and rapidly growing industries: Palm Oil

A Malaysian conglomerate – IOI – has been under some external scrutiny on their sustainability practice last while. Specific areas under attack were – deforestation and labour abuses, which are the environment and society dimensions of sustainability. 

In hindsight, a sustainability audit driven by the internal audit team to evaluate customer demands or what is happening at the broader industry level would have benefited the company with an identification of opportunities vs threats. This is a great example of how internal audit by focusing on sustainability would be able to help you stay ahead of these issues and tackle them proactively. 

We Want to Hear from You!

While finance is exploring ways to better partner the business in midst of changing dynamics of profit, margin and risk, opportunities exist in the space of sustainability, where finance can be at the front line, influencing and driving on positive change to our community, environment and economic prosperity. 

What insight do you have on sustainability audits? What good practices have you observed? We encourage you to add it all in the commentary field and we will update the article as they tick in. If you disagree to some of the statements in this article what would you do instead? We look forward to feedback and comments to start a good discussion on sustainability, and how internal audit and Finance can pioneer the change.