It Is Time for Businesses to Walk the Walk on Sustainability28 Oct 2021
It is not enough for companies to talk the talk of sustainability, says London Business School professor and creator of the LBS Sustainability Leadership and Corporate Responsibility program Ioannis Ioannou: they must translate their words into action.
The time to embrace sustainability in corporate governance came long ago, asserts Dr. Ioannou, Associate Professor of Strategy and Entrepreneurship at LBS, whose research focuses on sustainability and corporate social responsibility. “Sustainability is the challenge of our time; it is the task of our generation. We need to leave the planet in better shape than we found it. And that challenge extends to pretty much every aspect of our life right now – our lifestyles, our jobs, our economy,” he says.
“There is really big doubt about the ability of the capitalist system to deliver value for everybody. We have created a lot of financial value, but at a huge cost to the environment, the planet and society. This, in turn, creates a lot of pressure for companies to adopt a new model of corporate leadership which talks to these issues and meets stakeholder demands, all while increasing competitive advantage,” continues Dr. Ioannou, who participated in the third IESE-ECGI corporate governance conference, financed by STI: Boards of Directors and Corporate Strategy in an Uncertain Context.
“Sustainability is the biggest disruption that businesses have faced in the last 50 years,” he explains. “This is because businesses lack the experience, knowledge and expertise to tackle the issues in what we call the broader environmental and social domains, simply because they haven’t done so in the past. What businesses need to realize is that those who don’t make the necessary investment to adapt are likely to perish through disruption.”
In an article published this October on LSB’s website, Dr Ioannou outlines four key principles that business leaders must master in order to embed a culture of sustainability into their organization’s DNA; thus translating purpose into practice and, ultimately, results.
- When a company is genuinely committed to a purpose (in this case, sustainability), it is reflected in their governance structure. "The top of an organization sets the tone, signals a credible pledge to purpose as well as monitoring and advising," says Ioannou. "Leaders who set ambitious goals are more likely to inspire, enable and empower their people to find innovative solutions."
- Companies driven by a "high-sustainability" purpose are more focused on understanding the needs of, and creating purposeful engagements with, stakeholders. "We’re way beyond the world in which you deal with employees only when they strike, or with customers only when they boycott," Ioannou acknowledges. "But you need to look at your stakeholder-management process essentially as an investment that will create relationships. These relationships are the intangible assets that you can then use in your value-creation model. Simply put, more satisfied employees and customers can really enhance the quality and effectiveness of your innovation process."
- Long-term decision-making horizons and responsible leaders play a critical role in communicating the orientation of their organization beyond the short term. "Rather than only looking at today as you devise a strategy, you need to convey change will take time and effort and investment," advises Ioannou. "Communicating that will afford you external legitimacy and the patience of your stakeholders."
- High-sustainability companies are more likely to measure and report on environmental and social metrics, in addition to financial results. Being transparent and ultimately accountable is essential for leaders in determining how well they are executing their purpose, Dr. Ioannou’s research suggests. "Provide your investors with accurate, trustworthy data, financial and non-financial, so they get a full picture of how you run your business," he advises. "It’s no longer just about what you do within the walls of your own business. Showing you meet human rights or environmental standards ripples right through your supply chain. In essence, being accountable helps you bring more people on board – and ultimately impact more lives."
Dr. Ioannou is convinced that organizations armed with the tools, frameworks and insights to achieve goals and guide efforts towards sustainability leadership can gain long-term competitive advantage and become a force for change that adds value for society.
The LBS Sustainability Leadership and Corporate Responsibility program he created is aimed at senior leaders intent on developing sustainable practices within their organization. “Together,” Ioannou affirms, “we can have a profound impact on the way the world does business and the way business impacts the world. But it has to be a collaborative effort. And it’s one that cannot wait.”