From SMBs to Large Companies, Sustainability Affects Everyone
As EY ’s Americas Sustainability and ESG Markets Leader, Orlan Boston has broad insights on how businesses are driving sustainability forward and the progress that lies ahead. He believes that sustainability is “the hottest space since digital” and believes that it’s probably the “challenge of the decade.” Outside of the businesses he consults, even his employer, EY , is taking steps to be “net carbon zero” by 2025. In a recent episode of YPO presents Ask the Experts , WING IMPACT’s Dr. Martin Z. Wilderer and Boston explore the reasons sustainability has gained importance for global chief executives, factors driving its growth and strategic options for leaders of all size businesses that will yield positive results.
The Timely Case for Sustainability
Until recently, sustainability was a niche topic that played a small role in an overall business plan, but today, it is being discussed and strategized in boardrooms and C-suites around the globe. Driving this change is a shift from “shareholder centricity to stakeholder capitalism,” explains Boston. Chief executives and business leaders now consider how their decisions impact a broader set of stakeholders including employees, customers, vendors and partners. Leaders realize that these stakeholders are making decisions about with whom they want to work or from which company they want to buy based on its sustainability stances.
These expectations are being driven by real-world experiences that have global impact. For instance, evident climate change has caused unpredictable weather and disastrous events such as storm surges, droughts and volatile fluctuations in temperature, which affect business operations like supply chain disruptions, increased fuel prices and rising inflation. For the everyday consumer, says Boston, “it’s no longer something that’s conceptual and theoretical; the world is experiencing it now.”
Sustainability is also part of the growing expectation that businesses align their values to social issues. Boston cites the fight for racial equity in the U.S. and the war in Ukraine as examples of how companies are being asked to take a position and support causes by using their influence for good.
Finally, regulations are also forcing sustainability to the forefront. In the U.S., the Securities and Exchange Commission (SEC) proposed new rules in March requiring registrants to report on greenhouse gas emissions, disclose climate-related risks in 10-Ks and annual reports, and have all claims verified with third-party assurance. If ratified, these proposals could be in place as early as 2023. “What the SEC is proposing carries some teeth,” Boston assures. He explains that the impact of these regulations will trickle down the whole value chain of a business, including smaller companies that are not publicly listed on a stock exchange.
Innovation as a Sustainability Driver
Boston believes that while regulations can be effective, lasting change will come through innovation. In his experience, chief executives and business leaders view sustainability in terms of risk and compliance, or they view it as an opportunity to build a competitive advantage. He cites Tesla, Rivian and Uber as companies who have prioritized innovation to disrupt an industry with sustainability as a key value. He also cites X, the moonshot factory (a research and development arm of Alphabet) as a company willing to invest heavily in radical innovation with the potential for significant impact but also with a spirit of experimentation and embracing failure. Large legacy companies can also embrace innovation through partnerships. The development of the Johnson and Johnson COVID-19 vaccine is an example of how an ecosystem of players can deliver timely solutions at scale and distribute it equitably to those in need. To make innovation part of company culture, leaders should tap into their ranks to crowdsource ideas, especially from younger employees. Boston says, “this is a topic that couldn’t be more prominent for younger generations — for Millennials, GenY and GenZ. They’re expecting to be part of the solution. They want to contribute. How do you unleash that innovation, those creative ideas, as a leader, from your younger generation of employees and staff?”
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First Steps for Implementing Sustainability
To have a value-driven strategy for sustainability, Boston says a long-term approach is needed, and leaders must make decisions that may not see results until five years down the road or longer. This can paralyze some leaders, causing them to view sustainability as simply a compliance exercise. But if stakeholders are brought along and goals are aligned with an organization’s purpose and culture, this gridlock can be mitigated. The key is communicating strategy and measuring progress. “It’s not enough to just declare an ambition that’s 10 years out and then not progress in any measurable, visible way, not update your stakeholders along the way, not have specific milestones that get you to that ambition,” warns Boston. He encourages business leaders to define what’s material for their organization, decide what pillars to focus on, and then design a strategy around these pillars. Processes, systems and structures are going to need to be revisited. “Don’t underestimate the inertia associated with the status quo or business as usual,” he adds. Change is difficult, especially if a business is doing well.
Leaders should not be discouraged. Sustainability is perceived as a positive for business, and resistance is typically out of frustrations around implementation, not a denial of a goal’s importance. After all, jokes Boston, “Tree-huggers are now in the C-suite.”
For resources related to this topic, visit ey.com/sustainability and ey.com/private .
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