@ the IERP® Global Conference, August 2024
The views and opinions expressed in this article are solely those of the featured speakers and do not necessarily reflect the official view or stance of the IERP®. The content is provided for informational purposes only.
Sustainability, said Nidhi Agarwal, Partner, Finance & Risk at management consulting firm Oliver Wyman, is the overarching umbrella of everything that is environmental, social or governance-related risk. “It is even broader than ESG risk and can also include anything that ensures the business is sustainable and a going concern,” she said. “Sustainability is doing more than making money for your shareholders. It’s about doing your bit for the environment, for society, for the country in which you operate.”
Noting that sustainability as a concept has been around for a long time, she said that organisations have been making commitments to gender diversity, inclusion, and ensuring inclusive environments as part of their respective sustainability commitments. We need to talk about sustainability because, generally, organisations that have made sustainability commitments, especially public commitments, have realised commercial benefits in terms of reputation. Customers want to engage with companies that are sustainable; there are benefits from valuation and cost-of-funding standpoints.
Companies stand to gain when they become sustainable, and not just from a reputational perspective. Sustainability could ensure that investors and shareholders continue viewing the business as viable, and continue investing. But what works when it comes to sustainability, and what doesn’t? Agarwal said many organisations feel that their customers are not ready, or that they don’t have their infrastructure in place. “They have set targets but they don’t have KPIs in place,” she said. “They have not really embedded sustainability in the way they do business.”
Organisational commitment to sustainability needs to be operationalised; the first move should be to make the commitment public. “Even if you choose not to make it public, at least talk about it within the organisation,” she advised. “People within the organisation need a common goal, they need a common vision. The moment the organisation makes that commitment public, everyone will start angling around that common goal.” It is also important to set the tone from the top, define the organisational vision, and make the vision public.
Robust governance is imperative. “It needs to be someone’s day job to meet these targets, these commitments,” Agarwal emphasised, adding that roles and responsibilities must be clearly defined within the organisation, ie, who does what, who is responsible for what, and whose performance and compensation is going to be driven by whether these targets are met or not met. “If targets and commitments are not met and there are no consequences for anyone, then those commitments will never be met,” she said.
Targets and commitments must be subject to governance, and be embedded within the organisation. She stressed that the only way in which change could be brought about was to make it part of everyday life. “Unless your day-to-day business is driven by these targets, these considerations, it’s not going to happen,” she said. It was equally important to set metrics that the organisation could monitor against because “We all like to know how far we are from our goals, and how much we have achieved these goals.”
Systematic, reinforced change management was required, in tandem with the organisation’s commitment to sustainability, and to build capacity. She remarked that organisations often focused on structural changes, forgetting the softer aspects. “Everyone is fearful of change, but how you manage change decides whether it is successful or not,” she said. While many organisations have set governance targets before, many today are staking their businesses on sustainability. These targets were fundamental to the business and could change its entire shape.
Companies in the financial services industry were the first to start setting sustainability targets, followed by organisations in the ‘real’ economy. Governments and sovereign funds then decided to set targets. This put pressure on the institutions where they were investing, to do the same. Target-setting was initially driven by investor pressure, but what drives it now is peer pressure. “The drive to set targets was set by investors but now all organisations have set targets because they want to be in line or ahead of their peers,” Agarwal said.
Setting targets is important because if you don’t know what you want to achieve, you won’t know how to get there. That target may not be a Net Zero 2050 target; it can be whatever is achievable for the organisation. Although targets are usually set at the board or CEO level, they need to be cascaded across the organisation, with everyone having a role and responsibility in the realisation of the targets. “Only when people think it is part of their job description, will things get done,” she said. Some organisations also set up a Sustainability Office to meet sustainability commitments.
The scale of change is complex. “You need a champion…that will continuously spread the message and coordinate the organisation’s efforts,” she said. “Having a Sustainability Office essentially gives gravitas to the task; there is a team that is responsible 24/7 for ensuring the organisation is meeting its targets.” The further the organisation can push roles and responsibilities, or force ownership of targets and commitments, the more likely it is to meet its targets. Sustainability must be embedded in business processes.
For example, every time a bank gives out a new loan, they have to make sure it helps them achieve their Net Zero 2050 target. Every time its relationship managers have conversations with their clients, the sustainability conversation needs to be part of their SOPs. Good intentions must be reinforced with incentives. “We all want to do the right thing, but…you need to break it down into things that individuals can do,” she advised, giving examples of her own KPIs when managing projects for her firm.
Some organisations have now added sustainability to their Balanced Scorecards in efforts to embed sustainability practices in organisational processes but this may not be effective as clear metrics may not be quantifiable or defined, causing it to become a tick-the-box exercise. “What really works is quantifiable, measurable KPIs that the management gets evaluated against,” Agarwal stressed, adding that change management too was an integral part of the sustainability development process, and fundamental structural change.
“Change management’s main driver is clear, concise communication,” she said. Repetition and consistency of the message were crucial. Everyone in the organisation must speak the same language, and this needs to be top-down. With this must come capacity building, which she described as the most time-consuming but most important part of change management. This takes a lot of training, and organisations should not take it lightly. “It’s not something that everyone can just read up on their own,” she cautioned. “It needs to be done systematically and be centrally driven.”
This is where the Sustainability Office comes in, to generally drive communication, ensure that training plans are in place, and every person is trained on the key concepts that the organisation is trying to achieve. “Many companies are struggling with this,” she said. “They have put business processes and KPIs in place but employees are not equipped with the right knowledge and capabilities, and are unable to deliver on those targets. They get everything right on the structural bits but fail when it comes to change management.”
