Why do 98% of Sustainability Programs fail

The 2019 KPMG CEO outlook study lists sustainability-related risks as a top priority for business success. However, addressing or mitigating these risks through sustainability programs may seem like an uphill battle. Especially as noted by a Sustainability and Change survey (of over 300 companies) conducted by Bain & Company in 2016, where sustainability programs had a dismal success rate of 2%. In this article, I summarize 5 reasons and a related industry example of why sustainability strategies and programs may fail to achieve their full potential.

1.      Absence of a robust business case

2.      Misalignment in leadership values and corporate vision

3.      Failure to prioritize sustainability goals and to make a public commitment

4.      Lack of incentives for employees and business partners

5.      Weak business processes and systemic controls

1.      Absence of a robust business case

Sustainability has proved to be a valuable lens through which corporates have identified opportunities that they might have otherwise missed—to cut costs, reduce risks (regulatory, reputational and operational), and generate revenues.

HINDUSTAN UNILEVER LIMITED (HUL) – PROJECT SHAKTI: For multinationals, the cost of reaching and serving rural markets is significant, as typical urban distribution approaches do not work. At a time when more than 70% of India’s population resided in rural villages scattered over large geographic areas with very low per capita consumption rates, HUL’s Project Shakti (launched in 2001) overcame these challenges by actively understanding the organizational needs and addressing a critical societal issue. HUL partnered with three self-help groups, whose members were appointed as Shakti entrepreneurs (all women) in chosen villages. Entrepreneurs received extensive training and borrowed money from their self-help groups to purchase HUL products, which they then sold in their villages. By 2008, Shakti had provided employment for 42,000 women entrepreneurs covering nearly 130,000 villages and 3 million households every month. In the same year, HUL sales through the project approached $100 million. This project could be viewed as a quintessential win-win initiative as the project was founded on a sound business case based on a sales and distribution initiative that delivered growth, a communication initiative that built brands, a micro-enterprise initiative that created livelihoods, a social initiative that improved the standard of living, and catalyzed affluence in rural India. Subsequently, in 2010, Unilever announced their global sustainability program, the Unilever Sustainable Living Plan (USLP). By 2017, USLP products contributed to 70% of its turnover growth and a product growth rate of 46% faster than the rest of the business.

2.      Misalignment in leadership values and corporate vision

In the 2018 BSR State of Sustainable Business survey, 25% of respondents acknowledged investor influence as one of the top 3 drivers of sustainability efforts at their organization. For long term commercial success, future leaders will be motivated by a purpose that aligns the business by creating shared value for society. However, to realize this, a synergy must be attained between an organization’s shareholders and executive leadership.

BLACKROCK: In January 2019, Larry Fink, CEO of BlackRock, the world’s largest investor with $6.5 trillion under management, conjured shareholder backlash when he announced his plans to change the firm’s hiring and compensation model to advance diversity and inclusion. The shareholders viewed Mr. Fink’s commitment to diversity as a form of “corporate socialism,” accusing him of using his CEO office and business resources to advance a personal agenda. This announcement follows on the heels of his annual letter to CEOs where he asserted that companies need to embrace a purpose beyond just profit maximization. Mr. Fink, although a veteran leader in investments, still has a long way to go to achieve his ambitions.

3.      Failure to prioritize sustainability goals and to make a public commitment

Companies can benefit from bringing discipline to their sustainability initiatives by applying principles commonly used for performance management such as: set SMART (Specific, Measurable, Achievable, Relevant and Time-bound) goals, create accountability for performance, and communicate the financial impact. Additionally, bold public commitment to sustainability targets create a shared sense of mission throughout the organization and help companies steer through dif?cult phases. An analysis of companies that are part of the Carbon Disclosure Project concluded that firms that set visible public goals did better when it came to cutting emissions and yielded better financial returns on sustainability investments.

MARKS & SPENCER (M&S) – PLAN A: M&S publicly launched Plan A in January 2007, setting out 100 commitments to tackle 5 select sustainability issues - climate change, waste, resources, fair partnerships and health in 5 years. In 2012 they extended Plan A to 180 commitments to achieve by 2015, with the goal of becoming the world's most sustainable major retailer. 

By 2017, Plan A saved M&S $950 million in costs (10 years since its launch) and reduced its absolute carbon footprint by 70% while increasing its energy efficiency by 39%. Leading to this phenomenal success, Plan A 2025 was launched the same year to strengthen their commitment to addressing the earlier chosen 5 sustainability issues with revised 100 bold targets. Plan A is led by the Director of Sustainable Business, who reports directly to the CEO. The Director oversees and coordinates the implementation, measurement, and reporting of Plan A, with support from a small team of social, environmental and ethical specialists. The team today provides support and advice on change management, community partnership programs and other specialist topics that cut across the entire business.

4.      Lack of incentives for employees and business partners

According to a 2013 UN Global Compact CEO study, only 1 in 12 companies link executive remuneration to sustainability performance and only 1 in 7 reward their suppliers for good sustainability performance.

NIKE:  Nike witnessed public outrage and massive consumer boycotts against its sweatshop labor practices in the 1990s, and ever since has executed one of the greatest image turnarounds through several transformational sustainability programs. Today, the sports manufacturer along with its established and reinforced code of conduct for labor practices directs more of its business to suppliers who receive high scores on its Sourcing and Manufacturing Sustainability Index. This index is one of the many tools that Nike has developed for assessing factory performance and gives sustainability factors equal weight with quality, cost, and on-time delivery. Nike requires lower-performing factories to resolve issues in a timely manner or else face penalties such as reduced orders or even a termination of the business relationship. Through this, Nike has witnessed a 20% improvement in the number of suppliers who meet its standards.

5.      Weak business processes and systemic controls

Companies that set ambitious sustainability goals must embed sustainable behaviors, sound processes and system controls throughout the business that make line managers accountable for delivering results.

VALE: Brazil’s Vale, the world’s biggest producer of steel-making ingredient iron ore, reeled from a deadly dam disaster (Brumadinho) that spewed millions of tons of sludge and killed more than 230 people in 2019. This tragedy has cost the company $4.9 billion. Vale has been consistently releasing a sustainability report annually for the past 10 years, the most being the 2017 report, which listed the company’s main actions and results during the period, including financial and non-financial information related to the company’s economic, environmental and social performance. However, a close analysis of the dam disaster and their earlier sustainability reports reveals the lack of streamlined business processes and strong systemic controls that could have empowered mid-level managers and operational leaders to monitor ESG issues in real-time and create timely forecasts to avoid such catastrophic events.