Urgent need to align businesses with net zero initiatives puts senior leaders in the spotlight

In 2015’s annual PwC survey of chief executives, global warming didn’t even make the list of key concerns or priorities, falling far below regulation and taxation.

In PwC’s most recent CEO survey, today’s leaders believe that we are living through extraordinary times, with one of the five broad megatrends reshaping the business environment being climate change.

The urgency for adaptation is clearly understood.

As PwC report, “CEOs’ race against time is especially urgent when it comes to climate change. A majority of global CEOs expect some degree of impact from climate change in the next 12 months—primarily in their cost profiles (where approximately 50% expect a moderate, large or very large impact) and their supply chains (42%).”

More locally, the situation in Germany has its own particular sustainability priorities. This is best illustrated by two particular headlines that show the outside forces facing CEOs and the senior leadership echelon.

Greenwashing and legislation

The first is what happens when you get it wrong. DWS lost €1bn in market capitalization on a single day in August 2021, reported the FT, when it was rocked by allegations that it had misrepresented the share of its assets that were invested using environmental, social and governance criteria. It was ‘greenwashing’, by any other name.

The second example of the mainstreaming of sustainability is more recent. It is the new law that means that German companies (with more than 3000 employees) will face fines of up to 2% of their global turnover if they do not construct a complete ESG inventory of their supply chains and take steps to prevent human rights abuses or environmental degradation within them. Fail to comply with the new law, and you also risk being excluded from German public contracts for up to three years.

"Given this type of real pressure, how are senior leaders doing in response? And are they doing the right things? Are they aware of the extent of the responsibility they bear?", asks Gabriele Stahl, Partner at Odgers Berndtson Germany.

Well, the importance of climate change is clearly seen in organizations’ investments over the past year: 75% say their organizations have increased their sustainability investments, nearly 20% of whom say they’ve increased investments “significantly.” 

But, and it’s a big but, while organizations are acting, what they are doing is failing in many cases to really make significant change. For example, only a third of respondents in the survey are tying senior leaders’ compensation to environmental sustainability performance.

Finding competitive advantage

Recently, we reported how businesses are responding to the climate emergency by seeking competitive advantage whilst avoiding accusations of 'greenwashing’ and what a ‘sustainability leader’ is looking like. 

For one thing, the successful sustainability leader of today is no longer an evangelist working in a silo, says Gabriele Stahl.

The role has evolved as organizations evolve their responses and begin to understand the scale of change that is required. Today, these sustainability leaders are business partners who integrate the sustainability agenda into the wider business plan so that trade-offs can be made.

We believe that sustainability leaders who succeed do two things well. They build a clear business case for change that aligns environmental goals with business objectives and highlights competitive advantage

Then, they engage multiple stakeholders to deliver change. Their ability to bring disparate parts of an organization together to achieve a goal is key to success.

“Sustainability can’t be the sole responsibility of certain functions or roles. But transparent responsibilities are something that organizations need to commit too”, states Thomas Dorn, Principal at Odgers Berndtson Germany.

CSO or not CSO?

Of course, the choice of leader will be determined by the business’ sustainability maturity level and industry.

It might be a dedicated Chief Sustainability Officer (CSO) on the Executive team, or, in other cases, there might be a dual role whereby another functional leader takes on the sustainability remit.

The role will evolve as an organization matures, and its response and understanding of the scale of change that is required becomes more apparent.

However, the organizational structure evolves, the CEO remains key to any success.

Climate change issues are just too public to fully delegate to other senior leaders. Employees look to their CEO to set the culture on sustainability. And CEOs will be fully engaged to understand our corporate strategy can unlock the profitability of new green technologies and initiatives.

We’re a very long way from the days of 2015, and for CEOs and many other senior leaders, including the CSO, their sustainability journey has only just begun.

If you want to discuss these issues and how they affect your talent and leadership planning, or perhaps want advice on your own career trajectory, please get in touch.