@ the IERP® Global Conference, August 2023
Stefanie Braukmann, Director of the Business Council for Sustainable Development (BCSD) Malaysia, was the final speaker for the Conference. She focused on leadership through a time of transition, and navigating between commercial, financial and sustainability considerations, in an era where ESG factors were gaining traction. There was a greater demand for leaders to take a stand, she said. Her presentation covered navigating sustainability in leadership; characteristics of effective ESG leadership; the role of boards in driving transition; the new CEO mandate; visionary leadership and becoming a game-changer; the need for collaboration; insights, learning, and action points.
She pointed out that among the characteristics of effective ESG leadership are the ability to make ethical decisions, engage with stakeholders, and possess long-term vision and strategy. Effective ESG leadership also manifested itself in not just compliance but commitment as well. It was reflected in transparent communication and could ultimately empower employees. Quoting Blackrock CEO Larry Fink, she said that the relationship between a company, its employees and society was now being redefined. As such, it has never been more essential for CEOs to have a consistent voice, clear purpose, coherent strategy, and a long-term view.
Not only do CEOs need insight and data to drive stakeholder capitalism, they also need to mitigate risks and capitalise on the opportunities presented by ESG to improve society and drive change. Integrating ESG into leadership must be done with trust and collaboration, with everybody being aware of the risks and opportunities that ESG represents. “Everyone is under pressure over ESG,” Braukmann said. “It can be used as protectionism. If companies in Malaysia do not comply with ESG, for example, other markets may not allow their imports. This is where it becomes political.” When clients come to her, she added, they usually are already facing, or have faced a crisis.
This may not be of their own making because, as she explained, “Inadvertently, companies (may) find themselves in a situation where there may not have been an active breach but because of social media, there is a crisis.” The ESG environment is a dynamic one. There are new standards, and also a great deal of criticism about it, including the opinion that the world’s top leaders are imposing ESG on the rest of the world. “What do you do if your stakeholders come to you and ask these questions, because they think it is a conspiracy against them? It looks like Western countries are imposing regulations on other countries.”
Citing the example of palm oil, she remarked that it seemed the EU was pushing for one thing while the US was pushing for something else, but countries in Southeast Asia suddenly found themselves in the position of being criticised – and suddenly palm oil was a ‘bad thing’ based mainly on sustainability arguments. Leaders need to take a stand, and stakeholder engagement is key to this. “We are not looking at shareholder management,” she stressed. “We are looking at stakeholder management. Shareholders are only one group of stakeholders.” Urging companies to push their commitment beyond mere compliance, she underscored the importance of anticipation.
“You need to anticipate what you need to achieve, not just follow what the regulators require,” she said, acknowledging that communication could be simultaneously easy and difficult. “You have to speak the right language. Very often, we talk about things from our own perspective but when we communicate with different stakeholders, it is very important that we are…transparent. The natural inclination, especially of corporate people, is to share as little as possible. The natural impulse when you have a problem is not to talk about it. You do not want to be exposed; if social media finds out, it can very often be used against you.”
But for leadership to be effective, particularly through a transition towards a more sustainable operation, transparency is imperative; obstacles and failures should be shared, as well as successes and achievements. It may also not be possible to know everything when dealing with ESG matters. Organisations often need help from external parties like NGOs. “NGOs are not just outside watching you, or potentially hostile. You can look at them as advisors, as people who are very focused,” she advised. “You can go to them and say you have a problem, and (consult them on) how best to deal with it.”
Organisations should also empower their employees as drivers of sustainability efforts. Employees should feel free to criticise constructively, find better ways of doing things, and be encouraged to innovate and externally represent the spirit of the organisation. Commenting from the board’s perspective of oversight, she said that boards now have to be much more than they used to be. They need to communicate more with stakeholders, not just shareholders. “There is an understanding that boards must be knowledgeable about ESG and deal with ESG-related topics in their regular meetings,” she said, although for some this may be new, uncharted territory.
A new kind of leadership, with a consistent voice and clear strategy that can articulate long-term views, is needed, but this was attainable only if ESG was thoroughly understood. It is not just the role of the board which is changing; the CEO’s role is changing as well. Quoting from an EY report – “If you are a CEO today, you have to decide between defining the future and defending the past” – she stated that the growing urgency of problems in the world is increasingly shaping the CEO’s role. “Stakeholders want the CEO to lead,” she said. “The CEO may say, “It’s not my role” but the expectation is that because you are part of the community, you have to address this issue.”
With companies operating in global markets, CEOs will be required to step out of their comfort zones and embrace new attitudes and activities. While these may be too risky, and leave CEOs quite exposed, research has shown that the CEOs of larger companies, especially, agree that it is in their best interests to do so. CEOs who own their own companies are less likely to take active roles in these areas. The majority of boards also support a more active role for CEOs; it also has to do with things that happen in other markets. Customers in different markets have different expectations and cultural sensitivities and look at other factors to form an opinion about you, unlike the stakeholders in your local market.
“How do you keep your integrity, principles and values intact, if you have to face completely different cultures and markets? It is interesting to see that only 67% of CEOs think that they should take public positions on sensitive or political issues but 76% of boards and 79% of investors think CEOs should,” she said. However, it should not be just the board and CEO overseeing and steering; Braukmann advocated the collaboration of the entire leadership team, as it was a matter of driving commitment to give long-term value to stakeholders. Different members of the leadership will have different approaches.
“The COO may look at how to operate more efficiently. The CFO will look at the integration of ESG into financial performance. The CRO will ensure how resilience to changes can be developed to mitigate risks,” she said, urging that all these were appropriately documented and compiled to form a cohesive strategy, even though they may sound contradictory. “Every organisation that wants to find effective ESG leadership has to find their own processes and ways,” she said. “The key word is communication. There must be harmonisation, a regular system in place to check your progress.” She illustrated with the example of Paul Polman, CEO of Unilever.
“He focused on key stakeholders, not just shareholders, and integrating sustainability into his business model,” she said. “He leveraged on partnerships with researchers, government scientists and multi-stakeholder consortia to really learn on all fronts, and always have the latest scientific knowledge to inform his plans.” Polman faced a lot of challenges, like scepticism and initial resistance to his plans; shareholders were probably the first to resist, and stakeholders were not on board, she added. “His challenge was how to balance profitability with sustainability, and how to maintain this consistently and globally.”
He held open dialogues with his critics and used a lot of innovation, including empowering his employees as change agents. “Unilever made a voluntary public commitment to give shareholders a say in its sustainability plans – although a lot of people would have advised it not to do this,” she said. “The idea is that shareholders have only short-term or profit-centric views. However, in the case of Unilever, it developed a climate transition plan and put it to shareholder vote by holding many individual smaller group meetings with investors. It found that investors voted in favour.” Summarising the Unilever story, she said, “Take all the advice and expertise you can get.”
People on the ground – employees and other stakeholders – are capable of providing important input for decision-making. A culture of communication should be fostered although people may not want to listen to you. “Initial resistance to you will change when they realise that you want to listen to their concerns,” she said. “You will find collaborators on different levels. Have regular sessions. Be open and listen.”
