The economy – and industry in particular – is facing unprecedented challenges: climate change, the rapid technological advancement and inter- and intra-generational justice. As pressure from the state and society to act sustainably increases, investment companies such as BlackRock have announced that companies not making a positive contribution to the environment and social sustainability will be removed from their portfolios. Overcoming these complex challenges requires a new set of skills: sustainable leadership.
Why are sustainable leadership principles needed?
The fact that political organizations, social groups, investors and other stakeholders expect environmental, social and corporate governance (ESG) measures to be implemented and integrated into companies means that we need sustainable leadership principles – after all, in most cases, change is initiated and driven by management!
Sustainable managers need to know how to run a company that meets the needs of today’s generation without compromising the needs of future generations. Specifically, this means gearing all decisions and actions toward ensuring the long-term balance of economic performance, social justice and environmental responsibility. In addition, managers empower not only their employees, but also other stakeholders, such as customers and suppliers, to reduce the negative impact of value creation on the environment and society and to make positive contributions to sustainable development.
1. Strategy Alignment
Successful economic action is closely linked to the corporate strategy. A company’s vision, objectives and policies define its positioning among future competitors and form the basis for a strong service commitment. Companies’ sustainability activities are often reactive and driven by external influences – integration into strategic business goals is usually only rudimentary. But viewing the business model and sustainability as separate entities is no longer feasible because sustainability is part of the bigger picture. A sustainable manager identifies the most effective sustainability leverage with the greatest business impact, prioritizes goals based on company-specific relevance criteria and ensures harmonization with the corporate strategy.
2. Governance Strength & Resilience
When compliance and risk management systems fail, the costs soon start to add up: BP paid out around $62 billion in the wake of the Deepwater Horizon disaster. Environmental pollution, human rights violations and corruption incidents have cost Shell more than €5 billion. In many cases, governance structures are already in place, but they are not effectively implemented and followed. Moreover, there is a failure to systematically uncover blind spots. The more far-reaching and complex the business environment, the more challenging it is to implement the control mechanisms in day-to-day business. While the legal requirements are becoming increasingly comprehensive and specific – take, for example, the German Supply Chain Act (Lieferkettengesetz) and the German Battery Act (Batteriegesetz) – and this legislation is also associated with tough sanctions, companies are frequently failing to integrate them effectively into business processes that are incredibly complex. Sustainable managers are responsible for compliance with legal and company regulations within processes. To ensure this, they must provide their employees with boundaries that allow them to act in accordance with the regulations. It is also the task of sustainable managers to continuously adapt these boundaries in response to changes in governance regulations.
3. Data Transparency
How sustainable is a company really? Companies face a key challenge when assessing data transparency: They need to ensure the transparency and usability of process, production and product data throughout the entire life cycle. Be it reducing emissions, safeguarding human rights or increasing product recycling rates – realistic sustainability goals can be defined and controlled only on the basis of valid data. This provides the basis for new insights that can be used to make strategic decisions and to strengthen the company’s market position. Since digitization and sustainability go hand in hand, there is considerable potential. Many of the Sustainable Development Goals adopted by the United Nations can only be achieved by using technology solutions such as big data, blockchain and IoT. A sustainable manager is able to recognize and utilize the potential of data to make business-oriented decisions.
4. People, Culture and Innovation
A common goal can only be pursued effectively if there is a common understanding of opportunities and risks, strengths and weaknesses, and provided there is a clear implementation plan with clear responsibilities. Specifically, it is important to reduce reservations about sustainability, highlight the sustainability potential and promote the individual responsibility of employees. After all, goals can be achieved efficiently only when employees’ awareness about sustainability is raised. As the challenges facing society and companies around sustainability become increasingly complex and diverse, further innovations are needed to develop new solutions and business models. A sustainable manager leads by example, thinking and acting in a sustainable way, integrates sustainable goals when defining employees’ targets and encourages ideas and concepts initiated by employees to promote innovation. This provides the basis for a sustainable corporate culture.
5. Stakeholder Communication
Employees and shareholders, customers and suppliers, governmental and non-governmental organizations and many more: A company’s list of stakeholders is long and diverse. Each individual places requirements on the company and on the management. In the past, it has been the negative effects of a company’s business practices in particular that have caused environmentalists and human rights organizations to take action against companies. However, stakeholder communication with partners can also lead to the joint development of sustainable solutions, the establishment of industry standards and the enforcement of legislation to ensure fair competition. A sustainable manager actively engages in dialog with stakeholders and identifies risks at an early stage to prevent any damage to reputation or sanctions.
A number of management theories have been developed, taught and pursued over the years. All of them have been in response to the challenges and expectations of their time. In view of the fast-paced digital revolution and the need for sustainable action, companies and managers that follow the principles of sustainability are now needed especially to successfully navigate these complex and ever-faster changes.