Framing Sustainability Through The Value Creation Lens

Sustainability is not just a financial or marketing initiative; it should be woven through the fabric of how an organization does business. Using environmental, social, and governance initiatives to drive value for the business creates more fully integrated and longer-lasting strategies than individual sustainability projects or initiatives.

In this three-article series ‘Commitment to Sustainability’, we delve into research from the Russell Reynolds Associates’ 2021-2022 Global Leadership Monitor and 2021 Divides and Dividends to help organizations in different geographic regions and industries build and maintain effective sustainability strategies for the future.

Ultimately, executives need to fully grasp three key areas when setting sustainability goals and metrics. Read on below to learn about framing sustainability through a value creation lens, or navigate to our other articles in the series:

1. How CEO commitment affects sustainability integration

2. Framing sustainability through a value creation lens

3. Holding executives accountable: tying financial metrics to sustainability outcomes

What’s motivating leaders’ sustainability actions?

Companies are typically motivated by at least one (and possibly multiple) sustainability objectives:

• Value creation: The objective is to increase financial and social value, e.g. creating new sustainable products or services or serving new markets or customers.
  
  
• Brand management: The objective is to be viewed by stakeholders as socially responsible and reputable, for the sake of competitive differentiation.
  
  
• Impact reduction: The objective is to reduce the negative consequences of unsustainable operations or products and services.
  
  
• Risk avoidance: The objective is to avoid the negative impacts of regulation, fines, boycotts, or diminished access to capital.

CEO commitment by sustainability driver

Leaders with publicly committed CEOs tend to approach sustainability strategy through a value creation lens slightly more than their global counterparts, and five times more than those without a committed CEO. Organizations without CEO commitment struggle to set a clear sustainability approach four times more than their global counterparts, and 17 times more than those with a committed CEO. This underscores how critical CEO commitment is to integrating sustainability into the fabric of the business for a successful sustainability strategy.

Sustainability Driver by CEO Commitment to ESG

Global view: Value creation on the rise in sustainability strategy

Value creation is rising as the most common approach to sustainability strategy globally, and organizations tend to be more successful when they focus on the creation of value rather than other approaches such as brand management or risk avoidance.

The focus on value creation as a sustainability driver has risen by 9% from the RRA Divides & Dividends research in 2021 to the RRA Global Leadership Monitor in 2022 , while all other approaches have declined relative to 2021.

Which of these statements is the closest to describing the driving force behind your company’s approach to sustainability?
2021 to 2022

Globally, 30% percent of leaders report that their organizations’ sustainability strategy is driven by value creation, while 29% say it is rooted in brand management. Value creation is also a more common approach among board directors (37%) and next generation leaders (35%) than current C-level executives (23%) and CEOs (27%).

The success of a value creation approach

Taking a value creation approach to sustainability strategy has several benefits for organizational success. Leaders whose organizations approach sustainability with a value creation mindset are more likely to believe that their leadership team effectively embraces sustainability outcomes, and more often expect that their company will make good progress in the next five years.

_{Source: Russell Reynolds Associates’ 2022 Global Leadership Monitor Survey, n = 1,590 global executives. Russell Reynolds Associates’ Divides & Dividends research, n = 907 C-suite leaders.}

Regional view: Value creation adoption highest in China/Hong Kong and Germany

Different regions apply different lenses to sustainability approaches, due to individual, regional, or national governance laws. Executives in China and Hong Kong adopt a value creation approach 42% of the time, which is more than their global counterparts.

Executives in Germany also favor a value creation approach more than other strategies, with 38% adhering to this approach. Australia, the United States, and the United Kingdom are more even on their distribution of value creation versus brand management adoption, with approximately one-third of executives in each country adopting value creation or brand management.

Which of these statements is the closest to describing the driving force behind your company’s approach to sustainability?
By Country

Industry view: Value creation adoption highest in the industrial and natural resources industry

Value creation is adopted at a particularly high rate in the industrial and natural resources (INR) industry and financial services industry, whereas consumer and professional services organizations tend to use a brand management approach more frequently.

The INR industry is over 1.5 times higher than their global counterparts on value creation, and nearly two times higher than the next closest investment of 26% for brand management within the industry itself. For industries that have more external facing clients, such as professional services, the focus is 45% on brand management and only 13% on value creation. The majority of these leaders from the INR industry are from oil/gas/energy, construction/infrastructure, manufacturing/capital equipment, chemicals, or automotive subsectors.

From our sector work, we know that many companies in the INR industry have historically felt threatened by initiatives to increase sustainability, but now see them as opportunities to enter new market areas and expand their product offerings. Companies are moving towards integration in their overall strategy.

Which of these statements is the closest to describing the driving force behind your company’s approach to sustainability?
By Industry

Turning these insights into action

Authors

Beth Hawley is a member of Russell Reynolds Associates’ Center for Leadership Insight. She is based in Chicago.
Tom Handcock leads Russell Reynolds Associates’ Center for Leadership Insight. He is based in London.
Gabrielle Lieberman is a member of Russell Reynolds Associates’ Center for Leadership Insight. She is based in Chicago.

Acknowledgments

Francesco Menonna is a member of Russell Reynolds Associates’ industrial/natural resources team. He is based in New York.