“Sustainability is probably one of the biggest culture change jobs or change management jobs within a company,” said Levi Strauss’s chief sustainability officer at a National Retail Federation trade show earlier this year. “And if you’re working for a company with a very strong culture, I often find that you can use it to pull your strategy forward," reported Sourcing Journal.
Building a culture that embraces sustainability can serve as an accelerant, agreed the Conference Board and accounting firm Baker Tilly in a report released on July 10. For example, a prime benefit of embedding sustainability into the culture is ensuring “that sustainability is integrated into the company’s business planning processes and the microdecisions employees make daily,” according to the Conference Board report.
Environmental, social, and governance efforts and sustainability — which the Conference Board defines as “the full range of initiatives designed to promote the long-term welfare of a company, its multiple stakeholders, society at large, and the environment” — are increasingly on the minds of business stakeholders.
In addition to upcoming regulatory mandates, it’s why 494 companies in the S&P 500 disclosed some level of ESG-related information for reporting periods ending in 2021, 30 more than in 2020, according to a recent release from the Center for Audit Quality. And 320 S&P 500 companies disclosed having some ESG metrics audited, up from 282 the year before.
Slow Progress
But reporting is one thing, shifting company culture another.
So far, not many companies that participated in the Conference Board research have reached the goal of deeply embedding sustainability into their companies' cultures. (The data is from a working group of more than 250 executives from 160 companies that the Conference Board interviewed in multiple sessions over eight months in 2022.)
About 13% of the 73 executives who participated in the first session of the working group agreed that sustainability is deeply embedded in their firm’s cultural DNA. Most companies were at the early to middle stages of building a sustainability culture, with 49% saying it was moderately embedded and 37% saying it was slightly embedded.
It may take two to three years before [a] company begins to make tangible progress on the cultural front.
The Conference Board
According to the Conference Board, the “prerequisites” for building a company culture infused with an ethos of sustainability are:
- Conducting a strategic analysis to determine the sustainability areas the company should focus on;
- determining whether those areas intersect with the company’s business and processes;
- setting goals in those key areas and deciding how to provide incentives to achieve them;
- establishing appropriate governance structures at the board and management level to achieve those goals; and
- developing a core narrative that tells the company’s sustainability story.
“Once a company has those strategic elements in place, it can turn to culture — recognizing that changing culture will take time and resources,” according to the Conference Board report. “Indeed, it may take two to three years before [a] company begins to make tangible progress on the cultural front.”
The CFO's Role
The CFO would be crucial in at least four of those strategic tasks. But a CFO also has a big responsibility to help the CEO (who the Conference Board says should take the leadership role) build the business case for sustainability and, as part of that, bring in the perspective of investors, business partners, and regulators.
However, CFOs should note that making the case for building a sustainability culture involves “both the positive ROI (return on investment) and the negative ROI (risk of inaction),” according to the Conference Board.
“Explaining the negative consequences of failing to change can be a powerful initial motivator that supports the positive case for how increasing the organization’s focus on sustainability will improve the company’s performance in the marketplace, including the markets for products and services, talent, and capital,” the report said.
Positive ROI shouldn’t be neglected, however. As columnist Steve McNally suggested on CFO.com more than a year ago, “Sustainability initiatives can impact long-term planning and value creation. Seek sustainability initiatives with a positive ROI to benefit the organization’s bottom line."
Target Middle Management
For a cultural change to take root, it must have widespread employee buy-in. A culture of sustainability requires training employees, instilling in them a sense of personal responsibility and accountability, encouraging cross-functional collaboration, and providing incentives like senior management recognition, compensation, or both to change behaviors.
To do that, the Conference Board recommends focusing on middle management — the people making business unit-level decisions and running day-to-day operations.
"Savvy and well-resourced middle managers build buy-in and participation by translating company vision [into] day-to-day execution."
