By Chiara Drochtert
Sustainable leadership can be defined as leadership that ensures the delivery of results that meet the triple bottom line of environmental, societal, ethical, and economic performances, while also managing an organization’s long-term strategy in alignment with sustainability targets (Werft, 2015). To add to this definition, Momentum Novum has introduced the three dimensions of Sustainable Leadership:
Personal Sustainability: Managing one’s own resources in a sustainable manner
Interpersonal Leadership: Leading by example and using emotionally and socially intelligent communication to empower and inspire people
Sustainable Management: Creating value-driven systems for tomorrow
In our most recently published whitepaper, which is available for free and can be downloaded here,we explore the three dimensions of sustainable leadership and offer techniques on how to develop and improve one’s leadership skills. But why does sustainable leadership matter? Here are five reasons to start with:
1.) Attracting skilled workers
Millennials, the generation born between 1981 and 1997 and Generation Z (born after 1997), make up the largest part of the global population. In the US over 45 % of the workforce are Millennials and Generation Z (O'Boyle, 2021). A large share of young professionals and students within this generation is conscious about the UN Sustainable Goals, and want to work in a company that is aligned with the SDGs. Therefore, companies with strong sustainability strategies, cultures, and practices can attract many young, skilled, and motivated workers, whereas the lack of the integration of sustainability into business practices reduces a company’s chances of getting the most skilled workers. According to a survey, 70% of millennials say a company’s sustainability plan (or lack thereof) will influence their decision to work there in the long-term, and ¾ of that group would even accept a lower income to work for a company that aligns with their sustainability values (Peters, 2019). Moreover, a recent study showed that 79 % of millennial employees are loyal to their companies if the company implements social safeguards (Cheng, 2019). Additionally, studies show that job seekers are more attracted to an environmentally friendly organization due to employee pride and the implication that the company cares about its employees (Jones & Willness, 2013). This speaks for the fact that employees are intrinsically motivated, rather than extrinsically because they accept a lower income for a “higher principle”. If employees are intrinsically motivated productivity rises because they can identify with their work and are willing to do more than their expected duties (Kihlstrom, 2020). This offers cost savings since the employees get more work done than workers that are solely extrinsically motivated.
2.) Improving brand image and competitive advantage
Integrating sustainability into the core of a firm’s strategy can result in an improved brand image, as well as a competitive advantage in the industry. If key performance indicators that are concerned with sustainability are not integrated, it may negatively affect a company’s reputation and thus lead to customers leaving them. To properly integrate sustainability into business strategies and practices, a company needs to be transparent and accountable in its operations. Otherwise, firms can be accused of greenwashing. Integrating sustainability into the core strategy of a firm improves the brand image, since it meets the expectations of society and stands out from competitors. This can easily result in a competitive advantage. With increasing brand image, people are willing to pay more for a firm’s service or product and therefore the margins of the product or services can be increased. A study by Trivium Packaging showed that 74% of consumers are willing to pay more for sustainable packaging and of that group nearly ¼ would pay up to 10% more for it (Moore, 2020).
A good example that fits all of the five advantages of being a sustainable leader is the well-known outdoor-wear company, Patagonia. The founder encouraged their employees to go outdoors, and have more flexible schedules, instead of working 7-5 hour shifts. In his book “Let my people go surfing: The Education of a Reluctant Businessman”, he explores how doing good and doing well in business comes together. By integrating this aspect of personal sustainability, as well as other sustainable operations and management techniques, they have been able to establish a brand image with a distinct long-term competitive advantage over its competitors.
3.) Fostering Innovation
It has been proven that sustainable leadership and innovation within a company are causally linked together, according to a Deloitte study from 2013 (Sustainability Driven Innovation). This again shows the potential that can be unlocked with sustainable leadership practices. Changing the way of leading a company and implementing a sustainability strategy within the business model contributes to more innovation. A shift towards sustainability leads employees to approach product development differently because they have to keep in mind for instance the net-zero commitments or/and social standards of the respective organization. The way of looking at a product, service, or business process from a future-oriented lens has the potential to unlock creativity and innovation. To give a concrete example, product developers or entrepreneurs often start with a better understanding of a sustainability challenge, such as plastic pollution, and then develop a product or service that can help to solve this problem, as for instance plastic-free detergents.
4.) Reducing costs
With sustainable leadership, business risks and costs can be mitigated. Businesses can save money in the long term because not implementing the SDGs into the core of a company’s strategy results in financial risks since it is a megatrend that needs to be followed. Otherwise, they are at risk of losing shareholder returns, business opportunities, their license to operate (through upcoming regulations) and competitiveness can diminish. This can be seen in a recent study from McKinsey, which found out that following a long-term strategy brings better results, than only looking at short-term indicators (McKinsey, 2020). Regulations and future regulations also play a crucial role in influencing companies and their future costs. The regulations mainly address the environmental footprint, by issuing taxes on emissions, such as the carbon tax which is being further integrated into the European Green Deal. One regulation that one can name that addresses the social dimension of sustainability, is the new Supply Chain Act in Germany. This new law addresses German companies that have over 3,000 employees. This act has the intention to ensure human rights in the entire supply chain and companies have the obligation to report on their activities (Federal Government Germany, 2021). Additionally private citizens choose and consume alternatives that avoid harm to the environment, which will be vital in developing future strategies.
Sustainability can directly lead to cost reductions. One example of this could be that fewer resources are used and a circular approach is implemented in the firm, which offers enormous cost savings (PWC, 2018). Furthermore, cost savings can be realized through higher productivity as explained in the third advantage. Moreover, there will be potential to cut operational costs due to enhanced sustainable leadership skills. Long-term research shows that “greener” practices are booming, and therefore new technologies will become cheaper, whereas technologies that have a negative impact on the environment will become more expensive. This can be proven by the development of solar power schemes; according to the International Energy Agency (IEA), solar power is now the “cheapest source of electricity in history” (Rowlatt, 2020).
5.) New Opportunities
Sustainable leadership offers new opportunities that benefit your organization while being ethical to the planet and society. Therefore sustainability should not be seen as an added cost, but a new opportunity. For example, new customers can be acquired through having a sustainability strategy, because many young people are aware of sustainability and choose to consume products from specific, sustainable companies. This of course goes along with the previous advantage, since in this way new revenue streams occur, which helps drive profits. Furthermore, new markets can be acquired because sustainable products can open new doors such as an organic store. These opportunities can be equally profitable and support long-term resilience. Sustainable leaders have the ability to facilitate the realization of these opportunities.
These are merely five of a multitude of reasons why sustainable leadership represents the future of a smarter and greener business that will help ensure that our society remains without planetary boundaries. Learn more tips and tricks to unleash your full leadership potential in our free white paper.
References:
Cheng, Marguerita, 2019. 8 Characteristics of Millennials that support Sustainable Development Goals (SDGs), Forbes, retrieved from: https://www.forbes.com/sites/margueritacheng/2019/06/19/8-characteristics-of-millennials-that-support-sustainable-development-goals-sdgs/?sh=62ea0c1a29b7
Deloitte, 2013, Sustainability Driven Innovation Harnessing sustainability's ability to spark innovation accessed on 24.06.2021, 12:30 http://www.korusustainability.net/wp-content/uploads/2016/03/Sustainability_Driven_Innovation_102513.pdf
Federal Government Germany, (03.03.2021).Greater protection for people and the environment in the global economy, retrieved from: https://www.bundesregierung.de/breg-en/federal-government/supply-chain-act-1872076
Jones, D., & Willness, C. (2013, June 7). 3 Reasons Job Seekers Prefer Sustainable Companies. Network for Business Sustainability. https://www.nbs.net/articles/three-reasons-job-seekers-prefer-sustainable-companies
Kihlstrom, Greg, 2020. The relationship employee motivation, engagement and revenue, Forbes Magazine, retrieved from: https://www.forbes.com/sites/forbesagencycouncil/2020/03/13/the-relationship-between-employee-motivation-engagement-and-revenue/
Moore, D. (2020, September) accessed on 23.06.2021, 1pm https://www.circularonline.co.uk/news/three-fourths-of-consumers-willing-to-pay-more-for-sustainable-packaging/#:~:text=According%20to%20research%20by%20Trivium,pay%20more%20for%20sustainable%20packaging.&text=And%20of%20the%2074%25%20who,cost%20of%2010%25%20or%20more.
McKinsey, 2020, October. How executives can help sustain value creation for the long term
O'Boyle, Ed. 2021. 4 Things Gen Z and Millennials Expect From Their Workplace, Gallup. Retrieved from: https://www.gallup.com/workplace/336275/things-gen-millennials-expect-workplace.aspx
Peters, A. (2019, February 14). Most millennials , would take a pay cut to work at a environmentally responsible company. Fast Company; Fast Company. https://www.fastcompany.com/90306556/most-millennials-would-take-a-pay-cut-to-work-at-a-sustainable-company
PWC, 2018. Closing the loop – the circular economy, what it means and what it can do for you. PWC, retrieved from: https://www.pwc.com/hu/en/kiadvanyok/assets/pdf/Closing-the-loop-the-circular-economy.pdf
Rowlatt, Justin, 2020. Climate change: You've got cheap data, how about cheap power too? BBC, retrieved from: https://www.bbc.com/news/science-environment-54723147
Werft, M. (2015). 10 Reasons The World Needs More Sustainable Leadership. Retrieved from
Innovate with leading people analytics solutions https://hrforecast.com/