Presented by Software AG
A solid, credible sustainability policy baked into a company’s overall business strategy is crucial today — and most companies are aware of that. In a survey of CEOs around the world, Software AG found that 95% of companies consider sustainability a top or high priority. So why are 84% admitting that when times are tough, sustainability gets shuffled to the back, in favor of commercial objectives, even as digital transformation remains a priority, both boom and bust?
While it’s true that prioritizing digital transformation in more lean economic seasons can make an organization more resilient, both in the present and in the case of future droughts, sustainability and digital transformation are actually inextricably linked. Business leaders need to approach their business strategy with that top of mind, says Sanjay Brahmawar, CEO, Software AG.
“Companies investing in digital transformation are actually already investing in running their companies more efficiently, because that efficiency enables them to create better differentiation, and bring more value to their customers,” Brahmawar says. “The problem is that 84% of companies still see digital and sustainability transformation as separate initiatives, and that’s a complete misunderstanding.”
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Why sustainability can’t be an afterthought
There is a strong connection between top line sales and a credible sustainability policy. In B2B relationships, companies want to buy from an organization that is serious about sustainability. A full 97% say that a business’s sustainability credentials are either essential or important in buying decisions, and the same number say a product’s sustainability positioning has a strong influence on whether they will buy it. But that’s not all.
“Sustainability is crucial in how a company creates value propositions for customers, but also for their own employees,” he explains. “Sustainability initiatives impact so many facets of every employee’s job, and they directly experience the benefits.”
Employees, especially those of the younger generations, genuinely value sustainability – and most companies are very aware of that. In fact, 84% believe that without a clear sustainability strategy, they’re not only going to lose employees, but it will impact the size of their talent pool when hiring.
And they’re not wrong. EY research found that 37% of employees reject jobs that don’t align with their own ethics, and within a year, 29% will leave a company that doesn’t share their values. That becomes a major crisis in a time when the skills gap, especially in the technology industry, just keeps yawning wider and retaining talent is a challenge.
But investors are also looking at sustainability. In the U.S., the Labor Department recently issued new environmental, social, and governance (ESG) regulations, and the EU and the SEC are keeping pace. In the wake of these new rules, investment rates in ESG are “soaring,” signaling an oncoming cultural change.
Why not both: “And” vs. “Or”
The “Genius of the And” is the key to building sustainability into an overall business strategy that prioritizes both agendas, Brahmawar says. Business writer Jim Collins pointed out the “Tyranny of the Or”: in other words, the belief that different goals are always in opposition. And on the flip side, the “Genius of the And” is about embracing these two extremes and synthesizing them to game-changing effect.
“It’s turning a challenge into an opportunity,” he says. “It’s embracing sustainability by design, rather than sustainability as an afterthought, and building those values into what you stand for, how you operate, and how you deliver your services. If leaders flip that switch and say, when I think about sustainability, we become an organization that stands for something, my employee value proposition becomes a hiring benefit, and it directly impacts commercial success.”
Securing stakeholder buy-in
The crucial first step is to outline the benefits of sustainability in ways your audience can relate to. For instance, a CFO would of course need to understand the commercial benefit of baking sustainability into the business pie – not only cost out, but over the long term, cost optimization and operational excellence. For employees, it’s about connecting them with the purpose and values of the company, what it stands for, and how sustainability goals and their ongoing support can make a difference.
“People don’t just come to work for money, they come to work for a sense of fulfillment, a sense of belonging, a sense that they’re doing something more beyond just their day-to-day job,” Brahmawar says. “That can be put together into a very strong employee value proposition. It can attract talent and retain talent and get talent excited.”
As for investors, many are getting very particular about the companies they want to put their money into, and if a company doesn’t have a clear sustainability mission, solid goals and an airtight plan for achieving them, they’ll walk away. Sustainability is a sophisticated strategy, and investors look for that kind of business maturity – otherwise, you’re restricting your investor pool.
The final stakeholder is the most important: Customers.
“Customers are getting very conscious,” Brahmawar says. “If you want to be a true partner to your customers, you need to match them on the topics and issues that are important to them, and today they’re placing a lot of emphasis on sustainability.”
Going all-in on sustainability
Companies need to find ways to bridge the perception gap between sustainability initiatives and digital transformation. Part of that is a coordinated effort in operationalizing sustainability efforts. Unfortunately, the survey found that two thirds of companies surveyed haven’t yet built sustainability projects into their technology roadmap. But better digital capabilities, and digital maturity can help with data-backed decisions, and identifying and implementing the most effective sustainability efforts.
Cultural change is also central to sustainability transformation, exactly as it has been for digital transformation. Unfortunately, 47% believe that not every employee understands the strategies they’re trying to put in place – which can often be a communication challenge, or the result of a strategy that’s too amorphous or too complex.
The other challenge, say 82%, comes when employees aren’t given clear targets, incentives or reporting on sustainability, similar to the ones they have for revenue goals. Companies often have no idea how to pinpoint the most powerful targets, even with technology on their side.
“When you’re committed to embarking on the journey, the very first step is doing an assessment and getting an understanding of what you need to do to be able to achieve your goals,” Brahmawar says. “To define them, you first have to understand your process and your operations, which will help you find the most realistic, credible path to get to your goals.”
That’s the foundation for the roadmap, which requires concrete steps as well as milestones along the way. It’s important to be transparent about these steps to all of your stakeholders, to ensure they understand the depth and breadth of your journey toward sustainability.
“This is why sustainability by design, rather than an afterthought, should be the core principle of any initiative,” he says. “Problems happen when sustainability is an afterthought and companies only offer half-baked plans, which can then damage a stakeholder’s trust. It’s better to have a more conservative goal, but have a credible road map to get to that goal, and design your products and your processes and the ways you engage with your clients all the while thinking about sustainability.”
See how your approach to sustainability compares, with Software AG’s Sustainability Maturity Calculator.
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