Survey on Sustainability in the Rhein-Neckar Region: How companies can overcome modern challenges

Article by Moritz Hirschmann

Image by Pixabay

Sustainability plays an increasingly important role in today's society. In Germany, environmental awareness is especially pronounced: according to a study earlier this year, climate change is regarded as a serious concern by 70% of Germans. Furthermore, 65% of Germans expect companies to take environmentally responsible actions, and sustainability is therefore highly relevant to the choices of German consumers.

In light of this growing focus on sustainability, Momentum Novum partnered with the Centre for European Economic Research (ZEW) and the Climate Foundation for Citizens between December 2022 and May 2023 to survey companies in the Rhine-Neckar Metropolitan Region about sustainability issues. The survey asked companies to consider topics ranging from the status of their internal capacity-building for sustainability to their view on the importance of sustainability issues for their industry and main sources of pressure for change.

The survey garnered 116 responses from companies of varying sizes, with most being small and medium-sized companies with between 10 and 999 employees. The majority of companies (73%) agreed that the broader societal shift towards sustainability, as reflected in lifestyle and economic changes in Germany, would have a major impact on their business model, internal strategy, and corporate success. This response is consistent with findings indicating that 90% of executives see sustainability as important. Additionally, investor perspectives are also changing, with 85% of investors considering environmental, social and governance (ESG) performance for investments.

According to the survey responses, companies see corporate change around sustainability as being driven by both internal and external factors. For instance, 34% of respondents pointed to the need to comply with new regulations on sustainability. These regulations include EU directives such as the Corporate Sustainability Reporting Directive, which enables stakeholders to access relevant information to assess companies in terms of sustainability, and the proposed Corporate Sustainability Due Diligence Directive, which will ensure that companies identify risks in their entire supply chain and take action where necessary. At the national level, Germany has committed to a legally binding net-zero emissions pledge.

Turning to questions regarding stakeholders, in our survey, 40% of companies in the region indicated that a greater emphasis on sustainability can be felt in changed client expectations and behavior. Additionally, 21% of companies noted changed expectations of investors, while 34% of companies reported changed expectations of employees. These results are consistent with findings regarding the importance of sustainability for employees and potential talent. Recent studies have found that 51% of employees would not want to work for companies without a strong ESG impact. This number only grows with younger generations: 64% of millennials, projected to comprise 75% of the workforce by 2025, will not work for employers without a strong corporate social responsibility (CSR) framework, and 96% of millennial employees expect their employers to take the necessary steps towards sustainability.

Despite these indicators, our survey found that only 52% of companies take changing societal factors into account in their business strategy. This finding is consistent with existing research showing that despite the growing relevance of sustainability among executives, investors, and consumers, only 60% of companies currently have a sustainability strategy. Our survey also found that companies experience major barriers to becoming more sustainable, including inadequate financial resources (37%), insufficient internal capacities (31%), and legal challenges (23%).

While limited in scope, the findings of the survey conducted by Momentum Novum, the ZEW, and the Climate Foundation for Citizens are generally in line with other research on sustainable business transformation. The survey has further identified that sustainable business transformation in the Rhine-Neckar region is currently characterized by both progress and challenges. However, these challenges may lead to opportunities. For many smaller companies that may lack funding, opportunities exist in the form of tax credits or grants to make a sustainable transformation easier, for example in the form of the European Innovation Fund. In Germany multiple initiatives and opportunities, like the “Berliner Programm für Nachhaltige Entwicklung”, or the “Zentrale Innovations Programm Mittelstand” exist to enable sustainable business models of all sizes. Capacity-building can be achieved either by internally training employees using available resources, or by attracting talent. This is again an opportunity. The importance of sustainability for the emerging millennial and Gen Z workforce means that offering sustainable work will attract skilled labor. In the long term, sustainable business models also increase profitability and productivity; as such, the associated costs are short-term investments.

While our findings indicate that small and medium-sized enterprises face significant challenges in their sustainable transformation, research suggests the opportunities and benefits thereof are just as tangible.