How can boards bridge the gap between sustainability ambition and action?

The integration of sustainability into strategy must come with a deep understanding of the organizational implications and impacts inherent in realizing your ambitions.

Daniel Schmid, CSO of SAP, notes that once you have established the ambition you must then “decide differently” – everything from budgets and investments to innovation and governance. “It’s very important that it's not an isolated approach, but a connected approach — an integrated and embedded approach.”

The CSO, CFO and Board working together are essential for driving these differential decisions in a way that ensures a financially responsible and robust sustainable business strategy is aligned with the company’s growth ambitions.

These roles each have unique responsibilities, but they should bring complementary perspectives that ensure the business orients toward a shared growth ambition and makes the incremental, day-to-day decisions needed to get there.

However, effective collaboration among this trifecta is not a given. Unlocking the power of the CSO/CFO/Board relationship depends on a key leadership quality of the new economy: empathy. 

This entails stepping outside the business relationship to consider the person and how they approach their role based on their experiences, relationships, ideals and expectations. 

But empathy must come with a common purpose. The complementary power of these three roles will only be realized if sustainability is core to the business strategy and a clear part of the dimension each one of them owns.

CSO perspective

The CSO aims to be transformational and brings the outside in through stakeholder perspectives, sustainability insights and technical capabilities to catalyze organizational change. Focused on generating measurable impact against climate and other sustainability goals, the CSO works across the organization on delivery.

“I need to be the most insightful person at the table because this is what I do day in and day out. I bring an understanding of the stakeholder lens – who cares about this externally? My team helps guide and point out ahead of time what different positions and roles need to be aware of, so that the business can decide on priorities and focus,” says Renee Morin, CSO of eBay.

“I make sure that the business case is financially sound, but also that it will deliver significant impact,” says Absa’s CSO, Punki Modise.

CFO perspective

Focused on delivering financial performance, the CFO works to ensure the defensibility of sustainability investments. At the same time, the CFO monitors the company’s competitive position, including its sustainability dimension. The role speaks to both the Board and the market on performance and addresses risk in the organization.

Stockland’s Harrop sees her role as CFO as “providing a bit of challenge to what's being put forward by the sustainability team, almost as a go-between from the Board to the sustainability team. I have to be conscious of what's happening in the organization, but I'm also conscious of how we explain things externally. So, there's a healthy tension in diving deep with the sustainability team, really getting to the heart of what we're doing and understanding the impact on our financials.”

Harrop adds, ‘“sustainability has changed my role quite significantly. When I am presenting externally and positioning us, I need to have a really, really good understanding of what our sustainability strategy is, which was not happening previously.”

From the perspective of Absa’s Raju, the CFO “checks and challenges that to make sure that these are meaningful things that actually can make a difference to our stakeholders, and that we actually have influence over in terms of execution and implementation. And that whatever we promise from a sustainability perspective is achievable.”

“We have to be realistic about investors,” says Dominik Asam of SAP. “They care about money, so you have to make the link between the environmental topic and the money impact.”

Board perspective

The Board stewards a long-term sustainable business by protecting purpose and challenging the organization’s ambition. Answering to shareholders and stakeholders, the Board holds the CEO accountable.

“The Board's role is to set the direction of travel, the framework, and then challenge the CEO, CFO and CSO to construct the pathway to develop the detail,” says Ihron Rensburg, Board Director for Absa. “This is not a tick box exercise. It can't be – the stakes are far too high. It must be transformational in the sense that we are reimagining the corporate as a responsible social actor. It's impossible to imagine achieving this without a CSO.”

“The Board, sitting over the top, provides an outsider view,” notes Harrop of Stockland. Positioning and disclosure items are really what the Board is focused on. While they are very keen to understand the strategy itself and what that means for us, their lens is much more of a “How is this going to land?”

“The most common thing I've heard on this from the Board is: Will we be leaders in the space we want to be in? From a positioning perspective and from a brand perspective, is the goal reflective of our aspirations?” says Mahindra’s CFO, Manoj Bhat.

The Board plays an essential role in making this sustainability trifecta work effectively by ensuring that all three roles operate with a common purpose.

A common language

It is important to understand the lens that the others apply to sustainability, what success means in their terms, and speak a common language.

eBay’s Morin shares that “one of the challenges that CSOs face is translating concepts and value into business language, because that's what the CFO speaks. We have to step back as CSO professionals and realize this is not the world that a CFO lives in day in, day out. And that's what the Board ultimately wants to hear in a much more condensed version.”

Ultimately, understanding and empathy come down to human fundamentals. “Relationships are key,” says Morin. “Make sure that you have strong relationships in the sense that it's not a once-a-year thing, or it's not just a once-a-year email. There's actual dialogue happening, especially between the CSO and the CFO.”

Listen reflectively

Working hard to arrive at a common language born from intentional listening can accelerate progress in achieving common goals. Abanti Sankaranarayanan, Mahindra’s Group Executive board member overseeing sustainability, says she connects with “particular board members regularly to use them as a sounding board." Similarly, Asahi’s Kondo says, “when we listen to the feedback from the board members with a wider range of backgrounds, we often learn new perspectives.” Jennifer Li, supervisory board member at SAP agrees: “having senior management engage the Board might provide a perspective that could be a paradigm shift and help the organization take the next leap into sustainability achievements.”

Empathy and listening can’t stop at C-suite or even the boundaries of the organization. “It's important to include a wide range of perspectives, such as various department members, a wider range of people with different age groups, including younger people and external stakeholders who make up our ecosystem,” says Asahi’s Sakita “doing so provides us with stronger, more nourishing foundations from which to generate new initiatives and value for society.”

Stevens, of Stockland, shares the powerful impact of taking a listening approach with Indigenous stakeholders: “When we first engaged with First Nations people I’ll admit we used to go out with a set of PowerPoint slides. We’ve come a long way since then and the reality now is very much to listen and receive – which is the heart of reconciliation in the Australian context. The depth of emotion and creativity that results is quite staggering.” 

Sustainability must make sense commercially and meet the test of a successful business case, but numbers alone rarely change minds or move hearts. As with other corporate transformations, sustainable business transformation needs to be human-centered and inspiring to mobilize the organization and stakeholders. “It's not just about numbers, goals and progress, it's the why.” says eBay’s Morin. Effective storytelling becomes central, not just the right stories, but also the language they’re told in.

Purpose provides a foundation

Purpose provides the foundational story for sustainability, the organization’s ‘why’. “If you have a purpose, then you can rally your team and the company together to solve problems. Because setting goals by themselves without purpose is meaningless,” says Li, of SAP.

Mahindra’s ‘Together we rise’ purpose has been instrumental in enabling progress on sustainability. “I think the fact that we have a philosophy that is about helping our communities rise is what makes the business naturally absorb and execute sustainability strategies,” says Sankaranarayanan.

Stevens, of Stockland’s board, notes that the organization doesn’t need to have a large sustainability team because purpose steers the company: “When you have a purpose that says we believe there's a better way to live, sustainability locks hand-in-hand with that purpose and everybody is involved in executing and pursuing that purpose on behalf of our customers, our stakeholders and our investors.”

Share a view of the future and the stakes

A future-back vision helps frame strategy and investments and the story behind them. Work back from the preferable future, given different scenarios. Focus on short-term performance but keep a medium and long-term view. 

“When we consider the future in 30 to 50 years, we need to be sensitive about what kind of environmental change it would cause. And based on that perspective, we conduct back casting to define the risks and opportunities” says Asahi’s Sakita. 

Tanimura, on Asahi’s board, adds: “To be honest, it's not easy to prove upfront that our goals are achievable as it takes time to conduct long-term investments. That's why it's important to provide the story of how these can help solve social issues and business problems.”

Understanding the stakes in sustainability can help reframe how teams view their role and purpose. That’s what happened at Stockland, says Stevens: “We’re getting into nature and what biodiversity means, nature-positive climate transition, respecting the land as a curator of the land and a custodian rather than just an owner and a developer, that's how deep it is.”

Be an authentic, multilingual storyteller

CSOs must be fluent in ‘multilingual’ storytelling – speaking the language of the CFO, the Board, investors, and other stakeholders. “The stark realization for me that is that the role also is about change management and the criticality of taking people along with you,” says Absa’s Modise.

Morin of eBay advises: “Don't forget the storytelling, especially when you're at that board level. How are you going to make them want to actually understand and think and pay attention to what you're speaking about? And it can't just be charts and numbers.”

CFOs, too, need to find the right language for critical audiences. “For every number we report, I, as a CFO, should be able to explain to my investors why that matters to you and why it matters to the society,” says SAP’s Asam.

Source: Research by EY and the University of Oxford Saïd Business School, The Future of transformation is human

Sustainability leadership today means delivering on commitments. As easy wins become scarcer, progress depends on deeper and oftentimes more capital-intensive and systemic change. Geopolitical tensions, global policy uncertainty, economic headwinds and the need for systemic change only add to the delivery challenge.

The EY Sustainable Value Study shows that many organizations are responding by pushing back their commitment dates significantly, with the median deadline moving back 14 years from 2036 to 2050.

The leaders in this study have each found a way forward, focused on the impact they can and need to have based on the unique imperatives of their businesses. For Stockland, for example, greater impact comes not by expanding their commitments but accelerating the delivery of their existing ones. “Go faster because this is working,” is how Stevens describes Stockland’s approach. “The benefits are great. It's not ‘do more’, it's do what we're doing and do it earlier. This is a game changer for us.”

Align to the core business

Impact also depends on aligning sustainability initiatives to the core value drivers of the business. “It has to be very closely linked to the business that we naturally do, then converting that natural business activity into a set of real commitments and metrics,” says Absa’s Raju. “The minute it's not linked I would question the execution ability around something like that.”

When you achieve this alignment it drives value, observes Steve Priest of eBay “You do get a really great return on the investment, because guess what, when you do the right thing on the platform, when you invest in the right areas, it creates momentum and stability, and customers continue to come back.”

Accelerate with technology

Technology will be a critical accelerator for delivering on climate commitments. Indeed, the EY Sustainable Value Study shows that 66% of CSOs say that they are investing in-house to develop new climate-related technology. The majority of study participants (63%) also said that advances in artificial intelligence (AI) have significant potential to optimize their supply chains and reduce carbon emissions.

‘AI will change the way we do business, making more impact than the internet. The technology is a huge paradigm shifter when it comes to productivity improvement, quality of life, and I think AI will also play a huge role in sustainability,’ says Li of SAP. The broad business and sustainability impacts of AI underscore the need to involve the whole leadership team, including CIOs and CTOs, in delivering a sustainable business strategy.

As discussed in How can AI help us accelerate the pace of change the world needs?, AI enables business leaders to address the pace, scale and complexity of change and take bold steps on sustainability, but stakeholders must have confidence in AI as an exponential technology for good.

Addressing the environmental impact of exponential AI energy use by data centers is an immediate stakeholder concern. Schmid, CSO of SAP observes, ‘The energy consumption to cool data centers is immense: the entire IT industry has a clear responsibility for this’.

However leaders need to address the ethical considerations on the responsible use of AI – clarity on the use of data, by whom and for what purpose, as well as the broader workforce impacts of AI. “In this structural transformation process, there will be winners and losers and how to manage those potential impacts will be a very important task for us,” acknowledges Asam, CFO of SAP.

Focus on equity to enable acceleration

For organizations in the Global South, such as Absa and Mahindra, sustainability must incorporate both the need to meet the development aspirations of their communities – long-term growth depends on it – while addressing the climate impacts they are disproportionately experiencing. Absa’s Rensburg argues “for a balanced approach that demonstrates a response to the social dimension of these communities who are impoverished and looking for interventions. And on the other hand, a deep concern about our planet about our climate and about the sustainability of humanity in the next 50 to 70 years.”

3. Reframe time horizons and ROI

Develop business cases for medium- and long-term investments that meet the simultaneous imperatives of short-term performance and an era that requires major transformation. Get comfortable with uncertainty on time horizons while challenging management to do the math on funding commitments around climate and biodiversity. Consider an internal carbon price across the entire business and ask management to re-run scenarios consistently.  Develop clear roadmaps with long time horizons. Crucially, have a clear view of your rationale, grounded in organizational purpose, to support making long-term investments where returns are unclear.

4. Expand your ecosystem

Cultivate and orchestrate external ecosystem partnerships in a pre-competitive manner with peers, and across your value chain to accelerate sustainability progress and upsides. The EY Sustainable Value Study research indicates that companies “leading on climate action” have pursued partnerships more actively (96%) to address climate change. Encourage comfort with partnering with competitors to solve problems faced in common –  57% of climate leaders partnered with direct competitors in a pre-competitive manner.

5. Rethink governance

Embrace representative stakeholder engagement to truly give the full range of voices (such as nature) a seat at the board table. The Board, and particularly the chair, should consider the following structural builds into the way they govern:

• Increase the number, quality and medium of touchpoints between the Board and the CSO as a center of excellence, while establishing board champions for different dimensions of sustainability. 
• Address internal factors that limit companies’ ability to unlock value from sustainability (e.g., limited board diversity and knowledge of key sustainability issues, siloed or inflexible organization structures, misaligned culture, strategy). 
• Fully integrate sustainability issues into board structures and decision-making processes: have sustainability as a standing agenda item.
• Insist on executive compensation weighted toward growing sustainable social and environmental value.

A final thought

Sharon Sutherland, EY Global Center for Board Matters Leader, offers a final thought “Innovators don’t say why, they say why not? Like these leaders who are actively challenging the status quo it's time for us all to stop expending time and energy on why and instead be the visionaries who are committed and passionate to affecting change through collaboration to redefine and rewrite a sustainable future.”