Sustainability Leadership: How Companies Can Drive Positive Change in ESG Themes

In the last decade, there has been a marked shift in how businesses approach Environmental, Social, and Governance (ESG) issues. These issues encompass a broad range of topics, from climate change and water management to social diversity and inclusion, ethical supply chains, and corporate governance. Increasingly, organisations are recognizing that sustainability is not just a moral imperative but a business incentive. It drives innovation, reduces risk, and can improve financial performance (1). This article delves into the concept of sustainability leadership and highlights companies that have shown commendable progress in driving positive change in ESG themes.

Defining Sustainability Leadership

Sustainability leadership refers to the ability of an organisation to influence, motivate, and enable others to contribute towards the effectiveness and success of the sustainability processes of their organisations (2). This requires the development of innovative strategies that minimise harm to the environment and society while still providing value to customers and stakeholders.

Notably, leadership extends beyond the boundaries of a single organisation. It also includes influencing suppliers, customers, and even competitors to adopt more sustainable practices. Truly sustainable companies not only focus on their direct operations but also their entire value chains encouraging companies around them to adopt more sustainable practices (3).

The Role of Companies in ESG Themes

Given the wide reach and influence of businesses, they play a critical role in advancing ESG goals. By adopting responsible business practices and promoting sustainability within their sectors, they can drive significant progress on global challenges such as climate change, inequality, and corruption (4).

ESG factors are gaining prominence due to their potential impact on a company's performance and reputation. The integration of these factors into a company's strategy and operations can lead to long-term value creation, mitigating risks, and enhancing reputation (5).

Environmental

Environmental considerations are becoming a major focus for businesses. As the effects of climate change become increasingly apparent, companies are recognizing the need to reduce their environmental footprint. By implementing environmentally-friendly practices and processes, companies can drive positive change while enhancing their reputation, increasing customer loyalty, and potentially realising significant cost savings. This can involve reducing emissions, managing waste effectively, optimising energy use, and promoting biodiversity (6). These operational changes drive positive change for both the company and the environment at a time where every effort needs to be celebrated and encouraged.

Climate Change and Emissions Reduction

Addressing climate change is one of the most critical environmental challenges today. Companies can contribute to the solution by reducing greenhouse gas emissions, investing in renewable energy, and adopting low-carbon technologies. Google, for instance, became carbon neutral in 2007 and has been matching its energy usage with 100% renewable energy since 2017. More recently, the company announced its goal to operate carbon-free by 2030 (7). Google's commitment to becoming carbon-neutral has allowed them to support many initiatives, including the funding of new projects and initiatives in developing countries that are environmentally and socially responsible (8).

Resource Efficiency

Using resources efficiently is a key aspect of environmental sustainability. This includes optimising the use of water, energy, and other resources in operations and products. Resource efficiency not only reduces environmental impact but also lowers costs and reduces dependency on limited resources. Ford Motor Company has implemented a comprehensive water strategy aiming to reduce water usage in its operations by 15% by 2020, compared to a 2018 baseline. It also aims to achieve zero drinking water use in its manufacturing processes (9). Ford has recognised the benefits of their partnership with the Carbon Disclosure Project (CDP) and the valuable insights the water security program has added to their internal functioning. Through the project, Ford has been able to “[ensure] billions of gallons of water are preserved for human consumption” and are seen as corporate leaders in water security and climate change, being the first auto motor company to receive an 'A' score in both categories (10).

Waste and Pollution Management

Companies can drive positive environmental change by minimising waste and pollution from their operations and products. This can be achieved through strategies such as adopting circular economy principles, reducing packaging, and implementing effective waste management systems. IKEA has been working towards becoming a circular business by 2030. This includes designing products to be repurposed, repaired, reused, resold, or recycled, thus reducing waste and extending product life. The company’s effort to make circularity more easily accessible aims to encourage others to pursue it as well while also being more mindful and less wasteful in their development and designs (11).

Biodiversity and Conservation

Biodiversity loss is another major environmental challenge. Companies can contribute to the solution by implementing responsible land-use practices, minimising the impact of their operations on ecosystems, and contributing to conservation efforts. Mining company BHP has developed a global biodiversity strategy, to outline their actions across the company and to ensure they align, manage and enhance biodiversity values related to their activities. They have also committed to not undertake mining activities within or adjacent to UNESCO World Heritage properties. BHP is one of the leading mining companies in the world, so taking on this responsibility sets a precedent for their peers and competitors. They have taken actions to increase nature-based solutions into their functions to reduce their impact on the environment and its biodiversity (12).

Embracing Environmental Factors

The abovementioned factors that have seen to drive benefits for companies are just some of the many examples. The companies used as examples above have benefited from other knock-on effects as a result of their improved environmental stewardship. These companies are further seen as pioneers in the sustainability space and provide encouragement to their peers and competitors to implement more sustainable practices in their processes.

Benefits that stem from increased environmental awareness are extensive, however the most noticeable ones include:

• increased brand image and reputation;
• cost savings;
• increased access to capital markets;
• investor confidence and attraction;
• employee attraction; and
• risk mitigation

As seen in the examples above, environmental awareness drives positive change and opportunity for companies. Increasing environmental awareness and practices have also become requirements for entry into certain markets. This is further driven by the expectation from customers to be more environmentally friendly. Ultimately, enhanced environmental consciousness can drive a company's sustainable growth, profitability, and long-term success.

Social

On the social front, companies have a responsibility to ensure they have a positive impact on the communities in which they operate. This involves promoting diversity and inclusion, ensuring fair labour practices, and contributing positively to local communities. By strategically focusing on these themes, companies can drive positive change in society while simultaneously enhancing their brand value and stakeholder trust.

Labour Practices and Human Rights

Promoting fair labour practices and safeguarding human rights should be a fundamental responsibility of any company. This includes offering fair wages, ensuring safe working conditions, upholding labour rights, preventing any form of forced or child labour, and treating all employees with respect and dignity. Tech giant Apple, for instance, has implemented strict supplier standards, including no involuntary labour, safe working conditions, and the prohibition of underage labour (13). Its annual supplier responsibility reports provide transparency into their supply chain and measures to uphold labour and human rights, which are increasingly being achieved.

Diversity and Inclusion

In the era of globalisation, companies benefit from diverse perspectives, ideas, and approaches. Hence, promoting diversity and inclusion is not just morally right, it's also good for business. Fostering an inclusive workplace environment, where everyone feels valued and appreciated, is a key aspect of the social pillar of ESG. Many companies are setting ambitious diversity goals. Google, for example, has published its diversity annual reports and has committed to improving leadership representation of underrepresented groups by 30% by 2025 (14). This has increased the training and development and boosted diversity among leadership within the company.

Health and Safety

Companies have a responsibility to ensure the health and safety of their employees. This includes providing a safe working environment, appropriate safety training, and effective health and wellness programs. For example, ExxonMobil, despite being an oil and gas company operating in a high-risk sector, has been recognized for its commitment to safety, which includes a comprehensive approach to managing workplace safety risks (15). This has boosted employee morale and satisfaction at the company, resulting in more efficient and productive workspaces.

Product Safety and Responsibility

Companies can drive social change by ensuring their products or services are safe, ethical, and contribute positively to society. Companies in sectors like food and beverages, pharmaceuticals, and automobiles have significant opportunities in this regard. Unilever, a consumer goods company, is a leader in this domain, with its Sustainable Living brands, which aim to reduce environmental impact and improve health and well-being. These brands grow 69% faster than the rest of the business, demonstrating that responsible products can be profitable as well (16). The company has been able to save billions in costs and realise remarkable achievements including improved water and energy efficiency in their factories, reducing their material requirements and their waste generation (17).

Community Relations

Companies can significantly influence the communities in which they operate. Through community investment programs, support for local economies, and engagement with local stakeholders, companies can foster a positive relationship with these communities. Starbucks provides an excellent example through its Community Stores initiative, in which they commit to opening stores in underserved communities, providing local jobs and creating in-store training programs for young people (18). This initiative, among many partnerships that Starbucks runs in parallel, has resulted in strengthened community relations and support for the coffee chain.

Social factors for success

Social factors are a huge driver for companies due to the impact it has on their employees. Many social factors are also legal and ethical obligations that companies are required to fulfil. Despite these factors being enforced across many industries and sectors, the effects they have on companies offer significant business advantages. The examples above highlight how implementing social factors into company practice can have positive benefits for the company but more importantly their employees, consumers and the community. The initiatives these companies have set up have benefitted them directly and indirectly, while also having a host of other positive effects, including:

• improved employee morale and brand reputation;
• increased productivity and work quality;
• improved community relations and interaction;
• supply chain stability;
• risk mitigation; and
• increased market access through compliance

The examples above highlight some of the ways in which companies who focus on social factors drive positive change within their industries and sectors. Increasing social awareness and effort within organisational structures is fast becoming a legal and an ethical norm, so having these factors in place sets companies up for enhanced success and reputation. Therefore, heightened social consciousness can contribute to a company's overall sustainability, profitability, and long-term success.

Governance

Good governance practices are essential for ensuring a company's long-term success. This can include issues such as board diversity, executive pay, and business ethics. By prioritising strong governance practices, companies can enhance trust, mitigate risks, and set a strong foundation for long-term success.

Board Diversity and Structure

Diversity in the boardroom can lead to a broader range of perspectives, improved decision-making, and better stakeholder representation. In addition, an independent and competent board is essential for providing effective oversight and strategic guidance. For instance, General Motors made headlines when it announced in 2014 that it had appointed Mary Barra as CEO, making it one of the first Fortune 500 companies with a female CEO. Today, its board continues to be gender-balanced (19). General Motors strives to be recognised as the most inclusive company and they hold their partners and to the same expectations. Having a gender-neutral board that boasts diversity and different perspectives are crucial for profit and bring unique experiences to a company (20).

Executive Compensation

Executive compensation is a critical aspect of corporate governance, as it aligns the interests of management with those of shareholders. It is vital that compensation be transparent, fair, and tied to company performance. Netflix provides a model example with its "Say on Pay" policy, where it provides its shareholders with a direct advisory vote on the compensation of its named executive officers. This policy ensures transparency and gives shareholders a voice in executive compensation. Netflix has remained loyal to their policy and invites shareholders to voice their opinion, which in turn has resulted in changes of Netflix's policy and greater enthusiasm from shareholders, boosting company performance and policies (21).

Shareholder Rights

Respecting shareholder rights, including voting rights, is an essential aspect of good corporate governance. It's also important to ensure transparency and open communication with shareholders. Warren Buffett's Berkshire Hathaway is famous for its annual shareholder letters, where Buffett provides a clear and comprehensive overview of the company's performance and strategies, setting a gold standard for shareholder communication (22). This ‘personal touch’ to the company’s shareholders adds significant value and encourages them to take an active role in the company.

Business Ethics

Maintaining high ethical standards is paramount to any company. This includes issues such as avoiding corruption, respecting human rights, and ensuring fair business practices.

Microsoft, for example, has a strong commitment to ethical business practices, with a comprehensive code of conduct and robust compliance procedures. The company also provides a clear process for stakeholders to report potential ethics violations (23). Microsoft was recognised as one of the most ethical companies for a number of years in a row, which has been lived out through their employees and company values (24).

Grasping Governmental Importance

Corporate governance is a crucial aspect for companies to focus on to ensure they have the processes, structures and mechanisms in place that influence the control and functioning of a company. Ensuring governmental processes are in place ensure standards are kept high and companies function in an ethically sound manner. The way in which a company is governed has a direct influence on their success and reputation. Acknowledging the different parties and groups that play roles in companies is crucial for maintaining healthy relationships with the various groups. Other benefits of good corporate governance include:

• investor trust and confidence;
• greater stability and continuity;
• improved decision-making;
• better understanding of the marketplace and consumers;
• increase performance; and
• risk mitigation

The example explored above emphasis how increasing corporate governance can benefit companies and push their governance priorities, and in turn their sustainability agenda. Ensuring strong corporate governance is an important consideration for companies considering that many investors are interested in it. Having corporate governance structure in place within organisations has been seen to drive company success and is thus becoming standard protocol for companies. Strong corporate governance makes a company more appealing to investors and stakeholders and reduces the risk of legal issues and sanctions. Thus, superior corporate governance contributes to the company's sustainability, resilience, profitability, and long-term success.

Conclusion

Sustainability leadership is becoming an increasingly important capability for businesses. By integrating ESG factors into their strategy and operations, companies can drive positive change and create long-term value for both their stakeholders and society at large. Through incorporating environmental considerations into their strategies and operations, companies can drive positive environmental change and at the same time realise significant business benefits, from cost savings and risk reduction to improved reputation and customer loyalty. A strategic focus on social themes within the ESG context can lead to significant benefits for companies. By recognizing and addressing these social themes, companies can not only drive positive change in society but also enhance their own brand reputation, foster customer loyalty, and achieve long-term success. By prioritising governance, companies can build trust with stakeholders, mitigate risks, and lay a strong foundation for sustainable success. These strong governance practices are fundamental to a company's long-term success.

As demonstrated by the examples in this article, sustainability leadership can take many forms. However, what all these companies share is a commitment to aligning their business practices with a more sustainable, inclusive, and prosperous future.

Sources

1. Clark, G. L., & Viehs, M. (2015). From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance. University of Oxford and Arabesque Partners.
2. Visser, W., & Courtice, P. (2011). Sustainability Leadership: Linking Theory and Practice. SSRN Electronic Journal.
3. Lee, M. D. P. (2008). A review of the theories of corporate social responsibility: Its evolutionary path and the road ahead. International Journal of Management Reviews, 10(1), 53-73.
4. United Nations Global Compact. (n.d.). The Ten Principles of the UN Global Compact. United Nations Global Compact.
5. Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The Impact of Corporate Sustainability on Organizational Process and Performance. Management Science, 60(11), 2835-2857.
6. Reid, E. M., & Toffel, M. W. (2009). Responding to public and private politics: Corporate disclosure of climate change strategies. Strategic Management Journal, 30(11), 1157-1178.
7. Google. (2020). Environmental Sustainability. Google.
8. Google. (2023). Building a carbon-free future for all. Google.
9. Ford Motor Company. (2020). Sustainability Report 2019/20. Ford.
10. Ford Motor Company. (2023). Ford Highlighted As Corporate Leader In CDP Water Report, Building On Double A Score For Water Security And Climate Change. Ford.
11. IKEA. (2023). Why the future of furniture is circular. IKEA.
12. BHP. (2023). Environment. BHP.
13. Apple. (2020). Supplier Responsibility 2020 Progress Report. Apple.
14. Google. (2020). Diversity Annual Report. Google.
15. ExxonMobil. (2020). Safety, Health and Environment Report. ExxonMobil.
16. Unilever. (2019). Sustainable Living. Unilever.
17. Unilever. (2020). Unilever celebrates 10 years of the Sustainable Living Plan. Unilever.
18. Starbucks. (2021). Community Stores. Starbucks.
19. General Motors. (2021). Board of Directors. GM.
20. LaReau, J.L. (2021). GM just became only automaker with board of directors that's majority women. Detroit Free Press.
21. Netflix. (2023). 2023 Proxy Statement. Netflix.
22. Berkshire Hathaway. (2021). Annual Shareholder Letters. Berkshire Hathaway.
23. Microsoft. (2021). Standards of Business Conduct. Microsoft.
24. Ethisphere. (2023). Past World’s Most Ethical Companies. Ethisphere.