ESMT Berlin’s latest executive education program, Sustainable Business Transformation, sets out to equip business leaders with the skills required to implement sustainability strategies across their organization.
Of course, the climate crisis demands that we change the way we do business — and as soon as we can. But there are a surprising range of additional factors that now make leveraging these skills at your organization more valuable than ever.
The business case for increased investment in sustainability
The escalating impact of the climate crisis has forced many businesses across many industries to reassess their relationship with the wider world around them. A growing movement towards stakeholder capitalism has begun to take hold, as both consumers and corporations have come to understand the high cost of inaction on environmental issues and the harsh social consequences of irresponsible, unchecked and unsustainable capitalism.
At the same time there is a growing consensus that sustainability offers business leaders more than just a clean conscious, with benefits to profitability, efficiency, employee retention, customer loyalty and innovation.
Let’s take a closer look at business case for investing in sustainability.
Broadening your stakeholders offers increased market awareness
Stakeholder capitalism, where businesses serve all their stakeholders and not just shareholders, offers opportunities to build a more responsive organization, which is in-tune with the wider context of the market. In order to create value for employees, supply chains, society, and the environment— in addition to shareholders — an organization needs to be in regular dialogue with a wider range of stakeholders, offering it a better position from which it can “read” economic, social, or environmental trends and react accordingly.
In contrast, by neglecting important stakeholders and focusing only on shareholders, organizations run the risk of damaging vital relationships that allow them to operate effectively. For example, a 2013 study on the gold mining industry found that “stakeholder relations can heavily influence land permitting, taxation and the regulatory environment”.
Sustainability offers new routes to innovation
The process of redesigning products or services in order to meet sustainability goals or address specific social needs can present organizations with new business opportunities or help develop innovative new technologies. Nike’s Flyknit line of sports shoes demonstrates how businesses can harness sustainability strategies to their own advantage. Utilizing a “specialized yarn system”, the Flyknit reduces waste by 80% compared to regular footwear, requires minimal labor, and generates large profit margins.
Performance, efficiency and sustainability go hand-in-hand
Organizations can benefit from significant cost reductions by being more efficient in their use of natural resources. By optimizing their routing, truck loading, driver training and implementing new technologies, Wal-Mart was able to improve fuel efficiency by 87%, saving nearly $11 million while cutting CO2 emissions by 15,000 metric tons.
This focus on efficiency means that sustainable companies can achieve stronger financial performance — a trend that has caught the attention of investors. A study by Arabesque and the University of Oxford found that good ESG standards are “positively correlated with good sustainability practices” and can “lower the cost of capital”.
Transparency and sustainability improves relationships with consumers and employees
Consumers increasingly value organizations that act responsibly, offer transparency and strive towards sustainability targets. Indeed, studies have shown that consumers in international markets “say they want to know how products they buy affect nature and wildlife” with nearly two thirds believing they “have a responsibility to purchase products that are good for the environment and society”.
This sentiment translates into a perception that products from sustainable companies have a “higher level of product performance”, while sustainability information has a “significantly positive impact on consumers’ evaluation of a company.”
These concerns naturally also extend to employees, who are increasingly concerned about work-life balance and whether the organization they work for offers a tangible purpose, such as providing value to society. As a result, organizations that act responsibly in demonstrable ways will find that doing so “positively impacts turnover and recruitment.” A recent study found that “a majority of MBA students would accept a lower salary to work for an environmentally responsible company”, while another found that greater corporate responsibility performance could reduce annual quit rates by “3-3.5% and save replacements costs up to 90% – 200% of an employee’s annual salary for each retained position.”
Why Greenwashing isn’t the answer
Given the extensive range of benefits that ESG policies and strategies offer, it’s no surprise that more and more companies are attempting to address these issues, as evidenced by expressions of accountability such as public commitments or sustainability reports.
Indeed, more than one-fifth of the world’s 2000 largest publicly traded companies have made net-zero commitments. But so-called “greenwashing” is a major issue, with the focus of many companies’ actions on external relations or public dialogue rather than actual business transformation towards sustainable practices and responsibility. While it may be tempting to take shortcuts so that you can benefit from the perception of being a sustainable brand, while not actually making the necessary investments, doing so comes with huge risks.
Research has found that customers are “highly likely to be aware of the gap between stated goals and implementation”, with customer satisfaction being adversely affected as this disconnect grows. The damage to your brand is not just superficial, studies have found that even small changes in an organization’s customer satisfaction score can have a significant impact on its performance.
But greenwashing isn’t merely the product of unethical business leaders aiming to hoodwink consumers and win positive PR. There’s another reason that even those with good intentions are failing to reach sustainability goals and targets.
The ESG Knowledge Gap
When it comes to Environmental, Social and Governance (ESG), there’s a big knowledge gap. Research suggests that, even if employees wanted to contribute to their company’s sustainability efforts, many lack the vital skills and insights required to make an impact in the context of their work. Nearly 9 out of 10 respondents expressed the view that the lack of investments in sustainability and ESG training (Salesforce 2022) presents the main obstacle to their contribution.
According to a recent study, 24% of respondents from larger companies strongly agreed with the statement “the culture at my organization encourages me to speak up about climate change and take action to support our goals.” However, despite this, only around 45% believed that their organization effectively offered “spaces and opportunities for them and their colleagues to share suggestions, experiences and innovative ideas related to climate change”.
Our research suggests that while private sector leaders are aware of the scale of change needed, most employees, including senior ones, don’t know enough about this topic, or the demands of the sustainable transformation to effect change in their professional roles.
However, this knowledge gap presents an important opportunity for your organization. A majority of the global workforce are eager to contribute to their company’s sustainability initiatives and significant benefits await those organizations that can effectively leverage sustainability strategies. Acting now could present you with new methods of gaining the edge over your competitors, attracting talent and investors, or building more valuable relationships with your customers.
Prepare your organization for a Sustainable Business Transformation
ESMT Berlin’s executive education program, Sustainable Business Transformation is designed with the objective of addressing this demand and provide comprehensive sustainability knowledge that will enable your organization to undergo a sustainable business transformation and seamlessly integrate sustainability practices into the daily responsibilities of your workforce.
The program targets executives looking to lead sustainable business transformations within their functions and departments, catering to a diverse audience that includes chief sustainability officers and executives in operations, finance, investment, accounting, auditing, marketing, sales, and human resources.
The aim is to offer a highly impactful learning journey through in-person sessions, with three guiding principles linking everything together:
- Individualization: Participants can choose topics relevant to them and their companies, creating personalized learning journeys.
- Application Support: The program includes application projects, recognizing that making a business sustainable requires change, and participants will work on practical initiatives.
- Peer Learning: By bringing together participants from various companies, the program fosters peer learning, allowing sharing of success stories and challenges in sustainability efforts.
Harnessing the myriad benefits that a sustainable business strategy can unlock means implementing a transformation of your organization, and this in turn, requires a revolution in mindset and daily decision-making. But the imperative for businesses to integrate ESG principles into their operations has never been more critical.
As companies face the dual challenge of meeting stakeholder expectations and addressing global sustainability issues, programs like ESMT’s Leading Sustainable Business Transformation offer a path forward. By embracing a holistic approach to sustainability, businesses can unlock new opportunities for innovation, efficiency, and customer loyalty, ensuring their relevance and success in a rapidly changing world.
