Critical Success Factors of a Sustainable Company

Leadership, stakeholder engagement and execution (summary)
Critical Success Factors of a Sustainable Company
Publ. date 12 Sep 2012
A recent study by Professor Robert Eccles (Harvard Business School) found that ‘high sustainability’ companies significantly outperformed their counterparts over an 18 year period with 4.8% in terms of both stock market and accounting criteria, such as return on assets and return on equity. These survey results, and the increasing pressure from stakeholder groups such as investors, employees and NGOs on consideration of broad human needs, clearly underline the importance of being a sustainable company.

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Next, researchers Eccles, Miller Perkins and Serafeim described in Sloan Management Review what differentiates sustainable companies from traditional ones. In their study, they focused on two primary research questions:

1.       How does a sustainable company create the conditions that embed sustainability in the company’s strategy and operations?
2.       What are the specific elements of sustainable companies’ cultures that differentiate them from those of traditional companies?

Eccles et al. developed an identity and cultural model, consisting of two stages, that provides directions on becoming a sustainable company. 

Stage 1: Leadership commitment and external engagement

On the road to sustainability, leadership commitment from the top is essential. Leadership provides a strong incentive for employee engagement which is build on a high level of trust in each other. This allows employees to take necessary risks and change their behaviors. Strong leadership and external target setting are also required to engage external stakeholders such as suppliers, investors, NGOs and the public sector. PepsiCo, for example, organizes annuals meetings with their suppliers to share best practices on sustainability issues such as energy and waste reduction. Together, they define common metrics to track progress which creates commitment from the suppliers to become more sustainable.

Stage 2: Employee engagement and execution mechanisms

In order to create internal support for organizational change, employee engagement and execution mechanism are indispensable to change successfully. Engaged employees tend to be more productive and loyal and therefore are a valuable asset of a company. In this process, communication is important, not only on the importance of the employees’ work but also on the link between their contributions and the sustainability goals.

Execution mechanisms help to measure the progress in becoming a sustainable company. In their research, Eccles et al. found that sustainable companies are far more likely to have enterprise-wide management systems for executing sustainable strategies (83% vs. 20% for traditional companies). For example, IBM is linking their sustainability strategies and practices to the global environmental management systems at corporate level and in the supply chain.

The role of corporate culture in sustainability

In the future, the pressure on companies to become sustainable will ncrease even further. Eccles et al. indicate that the culture of a company is important in creating value from sustainability. Traditional companies have difficulties in adapting to change. In the identity and cultural model, leadership commitment, engagement from employees and external stakeholders, and execution mechanisms are the key drivers for sustainability. If all these drivers are in place, companies can successfully adapt a new sustainable identity.

For more information on stakeholder engagement and execution mechanisms to integrate broad-based commitment to sustainability, please contact Jan van der Kaaij, managing partner, at jan@finchandbeak.com or +31 6 28 02 18 80.

Source: Eccles, Miller Perkins and Serafeim, How to become a sustainable company? MIT Sloan Management Review, Summer 2012, vol.53, no.4

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