A New Breed of Industrial Leader
The concept of sustainable business is not new – for years, organizations have made great strides in adopting policies and practices that aim to “clean up” their business operations, or that are aligned with achieving the United Nations Sustainable Development Goals (SDGs). The challenges of becoming more sustainable are uniquely salient for companies in the industrial and natural resources sector, as their fundamental role in the energy and product value chain is to transform raw materials into useable goods. Over the years, the industrial sector has made improvements in their sustainability performance in general, and especially so when compared to the changes that have taken place in other industries (see Figure 1). Even still, an ever-growing body of stakeholders, ranging from customers and employees to investors and governments, are demanding even greater accountability for a corporation’s role and impact to society.
Despite the increasing imperative for board and C-suite leaders to make sustainability central to their organization’s culture and governance, most companies across all sectors still lack formal frameworks to evaluate executive talent on sustainability (see Figure 2). Securing long-term success will require a different breed of industrial leader, one that is fundamentally purposedriven and committed to the belief that commercial goals are not and cannot be separate from the wider societal and environmental context in which they operate. By more formally aligning talent management frameworks to assess present and future leaders for the core competencies of sustainable leadership, industrial and natural resources organizations can more effectively identify, promote and develop the leaders needed to deliver meaningful action alongside commercial success.
Coinciding with the 20th anniversary of the SDGs, Russell Reynolds collaborated with the United Nations Global Compact to answer the question: How can organizations make sustainability core to the DNA of their leadership team? Through this process, RRA developed a proprietary Sustainable Leadership model, based in part on data collected during in-depth interviews and background analysis with 55 cross-sector CEOs and board members who have demonstrated a track record of driving change by integrating sustainability into business strategy. To gain a clearer perspective of the unique challenges faced by industrial and natural resources companies, we conducted an additional 52 interviews with senior executives from industrial companies that are well-respected for their overall ESG performance. Companies included in our sample collectively received an average CSRHub score of 56.7, coinciding with a ranking in the 80th percentile across all sectors (see Figure 1).
|Industrial and Natural Resources||53.2|
|Interview Sample Average||56.7|
|All Sector Average||53.3|
Understanding the Scope of Sustainability
Throughout the report we use the term “sustainability” to encompass environmental, social and governance issues as covered by the Ten Principles of the United Nations Global Compact and the UN Sustainable Development Goals.
|Percent of Position Specifications Referencing Sustainability: Industrials vs. All Sector Average|
|Sector||Organization Reference||Person Reference|
Industrial companies are doing a great job of incorporating “the talk of sustainability” in places like their corporate description, but are falling short in taking action that would result in hiring leaders who will truly operationalize sustainability. Interestingly, despite such low numbers, the industrial sector leads all other industries of the economy with the highest percentage of sustainable candidate requirements, likely due to long standing and mature corporate health, safety and environment (HSE) functions.
While public corporate commitments are at an all-time high and 92 percent of CEOs recognize the critical nature of integrating sustainability into their business, a gap exists between the rhetoric and reality (see Figure 3). Only 21 percent of CEOs feel that their business is currently playing a critical role in achieving the SDGs.2 When the stakes are this high, but historic success rates have been so low, how can industrial organizations authentically embrace sustainability? Based on our analysis and conversations with sustainable leaders, we believe the answer fundamentally lies in how companies identify, assess, and promote people into key leadership roles.
FIGURE 3: THE RHETORIC-REALITY GAP
92% of CEOs believe integration of sustainability is critical to business success
48% of CEOs are actually integrating sustainability into their operations
21% of CEOs believe business is currently playing a critical role in achieving the SDGs
The Sustainability Imperative: Why Industrial Companies Should Care About ESG
End-users are demanding increased corporate transparency and visibility into the product supply chain, and are willing to pay the cost for more sustainable goods.3 Customer pressures are further influencing marquee consumer brands to apply similar pressure to their suppliers (including component manufacturers, agriculture and ingredients, and packaging) higher up the value chain. Pressures are greatest for companies closer and more visible to the end-customer.
Shareholders and institutional investors are demanding more sustainable business operations and an increased level of disclosure and transparency. Left unaddressed, these issues could result in investor activism or loss of access to future capital.
Employees (and the next generation of executive leadership) are demanding a greater sense of purpose and positive societal impact from their employers. Companies without a transparent and actionable core mission will soon start to lose out on best-in-class talent.
Sustainable products and operations are becoming a market differentiator, particularly for top tier suppliers. Companies that do not make a concerted effort to transform risk a loss of market share and may be left behind.
Existing (and future) policies will create a significant material cost for unsustainable business practices (e.g. carbon taxes), creating a financial incentive for a shift in behavior.
Moving beyond typical industrial focus on health and safety compliance, full adoption of ESG is ultimately a practice of managing and minimizing risk. Those companies that effectively integrate sustainability into their fundamental operating models will be more agile and able to respond to dramatic market shifts.
A New Model for Sustainable Industrial Leadership
It would be easy to assume that most sustainable leaders are “Born Believers,” with a passion for the environment or social issues fostered from an early age. In our collaborative research effort with the UNGC, however, we found that while many sustainable leaders are Born Believers (45 percent), a larger number (55 percent) were instead either convinced over time or attribute their passion to a pivotal moment of realization. This trend was even more apparent amongst the group of industrial executives we spoke with, where the overwhelming majority (75 percent) reported their passion for sustainability was developed either gradually over the course of their career or they became “Awoken” following a specific event (see Figure 4). These perspectives demonstrate that a sustainable leader mindset can, in fact, be fostered and developed over time, and that the pool of available leadership talent that could be engaged to drive forward sustainable transformation is likely larger than it might first seem.
|(% OF LEADERS)|
|The Born Believers||The Convinced||The Awoken|
Regardless of their professional journey, the sustainable industrial leaders we interviewed are all grounded in a strong personal motivation. These leaders are differentiated by their sustainable mindset – the purpose driven belief that commercial success is not mutually exclusive, but rather is dependent on improving the world around them. For many leaders we spoke with, one of the catalysts for such a sustainable mindset was entering parenthood, and a sense of new motivation to protect our resources for the next generation.
“Sustainable leaders find the issues to be personally relevant. Until it becomes personally relevant, it’s just a list of things to do.”
Mauro Penella – chief growth & sustainability officer, McCain Foods
“We realized very early on that in order to create long-term shareholder value, building a sustainable company was key. And now, sustainability is undoubtedly one of our key competitive differentiators. It is an integral part of our core purpose and business model - and everything else is built on top of it.”
A. Shekhar – CEO, Olam Food Ingredients
The Sustainable Leadership framework provides organizations with a method for assessing executives on four critical leadership attributes, underpinned by a sustainable mindset. Absent purpose-driven motivations, even the most capable executives will struggle to successfully incorporate sustainability into their business.
FIGURE 5: THE RRA-UNGC MODEL OF SUSTAINABLE LEADERSHIP
Multi-level Systems Thinking: Translating Sustainability to the Strengths of the Business
Sustainability has many different layers and definitions, and leaders in the industrial sector face a distinct challenge in translating lofty ideals into the language of the existing business, particularly when that business seems to the outside world as categorically at odds with sustainability, such as mining or chemicals manufacturing. To do so effectively requires a higher-level approach - the ability to recognize the interconnectivity of sustainable operating frameworks with what the business already does well. In our conversations with industrial leaders implementing sustainable initiatives, we heard that there is significant value in having an end-to-end commercial perspective. The rich understanding of the business’ operations combined with creative knowledge of how the organization generates value while balancing risk allows these individuals to better incorporate concepts of sustainability into corporate strategy – maximizing, rather than restricting, the overall potential of the business.
Industrial leaders who are effective at multi-level systems thinking can move beyond ESG compliance and act decisively to make sustainability a fully integrated component of strategy and decision making. They then can more effectively transition their approach from just reducing costs to genuinely selling and marketing sustainable solutions.
“We must have people who care passionately about sustainability, but with the commercial edge and a track record of value creation. The edge to cut through the complexity and take a more holistic view of the issues to find the right path through.”
Emma Fitzgerald – CEO, Puma Energy
“If leaders believe there is a choice between doing the right thing and growing the business, they’re looking at it the wrong way. Sustainability should never be treated separately from the main goals of the business – they need to be aligned.”
James Pitcher – head of sustainability, Bunzl
Multi-level Systems Thinking:
SVP, sustainability and government affairs, Bunge
Robert Coviello serves as senior vice president of sustainability and government affairs at Bunge, where he is a member of the executive leadership team. Over the course of his 17-year career at Bunge, he has held a variety of commercial leadership positions in Asia, Europe and the US – most recently as managing director for Southeast Asia and China. Bunge is a global agribusiness and food company with an integrated value chain linking origination, storage, and transportation to activities further down the line, including processing, packaging, and distribution. The company works with a purpose of connecting farmers to consumers to sustainability deliver food, feed, and fuel to the world.
When Coviello assumed his current role leading sustainability for Bunge, he reported that his commercial background enabled him to take a more wholistic view of the business and helped him see how each segment could benefit from incorporating sustainability into their existing business model. From Rob’s perspective, he believes “sustainability has the potential across the organization to be the universal lever that really drives value.”
Coviello has found success in communicating his sustainability agenda to the rest of the organization by exclusively framing the conversations internally in terms of “creating the most value.” By simplifying the discussion and focusing on business drivers, he has more effectively garnered support for sustainable initiatives with the goal of enhancing the company’s operations.
Stakeholder Inclusion: Restoring Public Trust
Demands for higher levels of corporate transparency are coming from an ever-increasing group of stakeholders, including investors, customers, governments and NGOs. For industrial and natural resources organizations, the primary challenge faced is a lack of public trust. To restore that trust, industrial companies must move beyond health and safety compliance and traditional community engagement strategies, toward concrete communication of their core purpose and guiding mission. In short, how do they plan to improve the wellbeing of all relevant stakeholders?
Now more than ever, leaders are viewed not only through the lens of traditional operational and functional skills, but also face scrutiny on competencies such as empathy and authenticity. These characteristics require leaders who not only manage stakeholders, they include and engage them. Companies and leaders who synthesize their goals by incorporating the perspectives of all relevant stakeholders are most likely to inspire greater levels of trust and ultimately will drive a greater sustainable impact.
“Sustainability is ultimately about how to stay relevant and maintain that relevance for an extended time. In strategy, everything must be motivated from an outside-in view – why do employees want to work for organizations and why do customers demand certain products? From there, you shape your organization to fit the demands of the customerand employees – not the other way around.”
Eelco Hoekstra – CEO, VOPAK
EVP human resources, CSR and health & safety, Bureau Veritas
Helen Bradley serves as executive vice president, human resources, CSR and health & safety at Bureau Veritas, a world leader in laboratory testing, inspection, and certification services. Bradley brings more than 25 yearsof international experience. Before joining Bureau Veritas, she worked for Schneider Electric for 20 years, holding various HR management positions, supporting both regional operations and company business units. Throughout her career, Bradley has seen managing people relationships (employees, Board, stakeholders) as critical to the growth and sustainability of a company’s core business. She stressed, “Sustainability shows up in “stakeholder capitalism” – it’s about prosperity for all – people, plant and profit- and you must be engaged with the needs of different (kinds of) stakeholders.”
In addition, Bradley believes that for organizations to be successful they need/must have someone at the top with a strong stakeholder inclusion mandate, “The organization needs a “north star” – either the CEO or someone close to the CEO – who is absolutely convinced about the importance of the Sustainability agenda and is able to authentically influence others. Individual values should be aligned with the company’s mission, and leaders must be able to articulate it to both internal and external stakeholders – while also being pragmatic and realistic. One can’t compromise the company’s overall vision and values.”
Disruptive Innovation: Daring to Transform and Take Action
Innovation in both technologies and business approaches is naturally a prerequisite to bring about a more sustainable future, but the industrial innovation life cycle is often time intensive and requires significant capital expenditure. Commitment to sustainable innovation requires leadership that can look past short-term costs, remaining steadfast in their commitment to the development and integration of more sustainable technologies. Innovation will also be required in how industrial companies compete – many of the external barriers to advancing sustainability are structural and will not be changed by a single organization acting in isolation. Sustainable leaders possess the humility to recognize where their organization’s capabilities may be lacking, the courage to ask why things cannot be done differently, and the strength to forge partnerships across and beyond their industry where necessary to create win-win scenarios.
Disruptive innovation for industrial organizations will require not only significant time and investment but an understanding of the scientific and competitive barriers that may exist. Looking to the parallel example of data security and digital transformation, companies that seriously invested in their digital capabilities ahead of the 2020 COVID pandemic were much better positioned competitively to handle the turbulence of the crisis. The same will be true for sustainable innovation. The boat is moving, and companies must start addressing these questions of
“Transformation is not something that the industry will do on its own. But if the customer values it, and the brands are driving it - that is ultimately what is going to drive change in the industry.”
Bob Maughon – EVP, technology & innovation, SABIC
President & CEO, Total E&P Canada, Total
Christine Healy serves as president & CEO of Total E&P Canada. A lawyer and economist by background, Christine carries a wealth of experience in global energy. Prior to joining Total, she was chief strategy officer and general counsel for Maersk Oil where she was responsible for corporate strategy, business development, communications and commercial negotiations supporting operations in 14 countries. Total E&P Canada is a subsidiary of the French integrated oil and gas company Total SE, which aims to be the responsible energy major. Since 2016, Total has committed to contributing to the SDGs, and is devoted to becoming a toptier renewable power producer. In 2019, Total dedicated its $400 million global venture fund to fostering carbon neutrality, investing in innovative technologies and solutions focused on renewables, energy storage, and new mobility.
Given the nature of Total’s hydrocarbon-based business, questions of sustainability and navigating the Energy Transition are front and center for Healy’s strategic agenda. Adopting a broader view of sustainability beyond the environment, Healy believes Total can be a positive force in the world by providing affordable, reliable and clean energy, particularly for those who may not otherwise have access to it. “It’s about all aspects of ESG goals; if done right, fossil fuel projects can have positive impacts on society”. With the energy industry facing even greater activist pressure than other industrial segments, Healy acknowledges the pressure Total faces to adopt more sustainable operations and notes the company has committed to 2050 net zero emissions targets. Healy recognizes necessary changes will require “more investments in technology to get there, and ultimately taking those ideas to commercialization. 2050 is not so far away, so we have to work to ensure some of the bolder ideas mature quickly.” And yet, Healy is highly optimistic that such rapid change is possible. “When COVID passes, people will have a point of reference for how significant corporate and societal change can occur much faster than we previously thought possible.”
Long-term Activation: Embedding Sustainability in Process
Public companies are often so hyper-focused on quarterly earnings that it can be difficult for them to move away from the short-term focus on delivering returns. This culture has been enabled by pressures from investors and shareholders to perform, deliver and drive quick action. While long-term orientation is critical to the viability and success of any business, sustainable leaders go one step further to activate their strategy by embedding sustainability in all aspects of governance and process. They set audacious goals and rigorously drive concerted action and investments in their pursuit of those goals. To do this requires a great deal of courage and resilience to stay the course in the face of setbacks and to make decisions that may be unpopular with short-term oriented stakeholders.
“Strategic orientation is important. If you are short term focused, you cannot do the job.”
Alexandra Brand – chief sustainability officer, Syngenta
“In order to improve, you must measure. Data is the base that allows every single action to drive sustainability forward.”
Gianfranco Sigro – EVP, contract logistics, Kuehne & Nagel
Operationalizing a long-term sustainable commitment is easier said than done. Much like large capital projects – only 5 percent of which are successfully completed within their original budget and schedule4 – implementing a sustainability initiative requires significant investment and a lengthy time horizon, often a decade or more. Success for industrial organizations will require not only commitment from the leaders currently at the top, but continuity in sustainable leadership and organizational commitment through the lifecycle of any goals set today. It is imperative for industrial leaders to inspire critical change and empower vocal champions at every level and business unit to set their own sustainable targets and achieve them. These targets should also be combined with concrete and inclusive sustainability KPIs and metrics from the C-suite all the way to the plant level, providing the tools to measure performance and incentivize progress towards collective goals. Sustainable leaders activate long-term goals through interim targets for achievement, driving continued action and inspiring buy-in throughout their organization.
SVP, BU Masterbatches, Clariant
Bernd Hoegemann serves as senior vice president, BU Masterbatches at Clariant AG. He also serves as a member of the executive committee. He has held positions as head of corporate planning and strategy, as global head of talent manager and as head of Clariant excellence, devoted to innovation and continuous improvement within the organization. Clariant AG is a Swiss multinational specialty chemicals company focused on four business areas: care chemicals; catalysis; natural resources; and plastics & coatings.
Hoegemann describes sustainability within Clariant as data-driven strategy. “We conducted analysis for every business unit in the organization, so that we could clearly see that what we needed to accomplish in order to be climate neutral by 2050. Then, we broke that down to 2020-2025, 2025-2030, as well as what these metrics mean at each individual plant level. In order to achieve this larger goal, significant CAPEX and evaluation/analysis by each business unit is required.”
He additionally noted that sustainability “is also a key corporate strategic topic” guiding Clariant’s future, which sometimes means disrupting the status quo in unexpected ways. “Clariant continuously evaluates acquisition targets, and we ultimately rejected a potential target, among other reasons because their sustainability metrics and mandates were targeted significantly behind our own organization.”
The Path Forward:
Embedding Sustainability into your Leadership Culture
For CEOs and board members to effectively drive the transformation needed to integrate sustainability into business
strategy and operations, it must be woven into the fabric of the leadership culture of their organization.
To do this, organizations must make it clear that a sustainable mindset and the four leadership attributes critical to
future success and viability – multi-level systems thinking, stakeholder inclusion, disruptive innovation and long-term
activation – are requirements to be a senior leader.
As our analysis shows, sustainability mindset and acumen are only a requirement in 7 percent of industrial executive
and non-executive appointments today; however, organizations have demonstrated a strong ability to shift their leadership profiles in response to other market dynamics. Digital experience has quickly become entrenched in
executive searches, being a requirement in one third of searches now, while diversity is a requirement in over half.5
The best industrial organizations are taking concerted steps to embed sustainability into the frameworks and processes that drive how leaders are selected, promoted, rewarded, and developed. This provides a powerful signal from the top that the leadership team will back its commitment to sustainability with real decisions about current and future leaders.
To set your company up for success, focus on four key areas:
- Selection: Ensure boards and CEOs apply sustainable leadership potential and track record as key criteria when selecting senior leaders
- Succession: Embed conversations around sustainable leadership potential into your succession management framework and succession planning
- Reward: Integrate sustainability into the objectives, incentives and remuneration of board members, CEOs, and executives.
- Develop: Make sustainable mindset and leadership aributes a core focus of leadership development and crucible experiences.
Thank you to the following executives for their participation in this study:
Gwenaelle Avice-Huet, president & CEO, Engie North America and EVP, renewables, Engie
Helen Bradley, EVP human resources, CSR and health & safety, Bureau Veritas
Alexandra Brand, chief sustainability officer, Syngenta
Jeff Zhu Cabot, SVP & global president, performance additives and president, APAC region, Cabot
Alastair Cochran, chief financial officer, Petrofac
Paula Cousins, chief sustainability officer, Weir Group
Robert Coviello, SVP, sustainability & government affairs, Bunge
Filipe de Botton, CEO, Logoplaste
Ian Edwards, president & CEO, SNC Lavalin
Per Ericson, EVP, human resources & sustainability, Autoliv
Emma Fitzgerald, CEO, Puma Energy
Christine Healy, president & CEO, Total E&P Canada, Total
Bernd Hoegemann, SVP, BU Masterbatches, Clariant
Eelco Hoekstra, CEO, VOPAK
Susan Hooper, independent board member, Uber UK
Joanne Howard, VP, sustainability & corporate communications, Crestwood Midstream Partners LP
Michelle Jou, president of business unit polycarbonate, Covestro
Thomas Knudsen, CEO, Toll Holdings Limited
Susan Lewis, SVP, enterprise operations, Corteva
Michael Lewis, CEO, UK, E.ON
Alexandre L’Heureux, president & CEO, WSP
Ian Lobley, managing partner, asset management group, 3i Group plc
Daniel Martinez‑Valle, CEO, Orbia
Bob Maughon, EVP, technology & innovation, SABIC
Eric Norris, president, Lithium, Albemarle
Steve O’Neil, CEO, REC Solar
Mauro Penella, chief growth & sustainability officer, McCain Foods
Ian Pinner, SVP, chief strategy & innovation officer, Archer Daniels Midland
James Pitcher, head of sustainability, Bunzl plc
Beverley Postma, CEO, Roundtable of Sustainable Palm Oil
Graham Ramsbottom, CEO, Wheatsheaf Group
Jim Rowan, former CEO, Dyson
Jean Jacques Ruest, CEO, Canadian National
A. Shekhar, CEO, Olam Food Ingredients
Gianfranco Sigro, EVP, contract logistics, Kuehne & Nagel
Irena Spazzapan, partner, SystemIQ
Alfred Stern, CEO, Borealis
C K Tan, APAC president, Lubrizol
Rui Teixeira, Interim CEO, EDP (Renewables)
Federico Tonetti, group safety & sustainability director, Compass Group plc
Claudia Toussaint, GC and chief sustainability officer, Xylem
Jeremy Weir, CEO, Trafigura
Hayati Yarkadas, president, water infrastructure, Xylem
Matthias Zachert, CEO, Laxness
Michael Zacka, chief commercial officer, Amcor
Additional thanks to our colleagues Thorsten Bauer (Munich), Mauro Gimenez (Houston), Kevin Harris (Shanghai), Casey Houghton (Dallas), Pierre Lefebvre (Montreal), Gautham Parthasarathy (Atlanta), Katy Schawe (Houston), Abigail Skerrett (London), and Katie Whittum (Boston).
Appendix: Interview Sample Demographics
|Chemicals, Materials and Packaging||37%|
|Industrial Services and Infrastructure||31%|
|Global Energy and Natural Resources||21%|
“CSRHub”, November 12, 2020, https://www.csrhub.com/
The Decade to Deliver: A Call to Business Action, The United Nations Global Compact – Accenture Strategy CEO Study on Sustainability, 2019
Jenny Davis-Peccoud, “Sustainability Is the Next Digital,” Bain & Company, September 8, 2020, https://www.bain.com/insights/sustainability-is-the-next-digital/
David Knox, “The Art of Project Leadership: Delivering the world’s largest projects,” McKinsey & Company, Capital Projects & Infrastructure Practice, September, 2017
- CATARINA ABRANTES STEINBERG is a member of Russell Reynolds Associates’ Industrial Services & Infrastructure practice. She is based in London.
- GREG DESNOYERS is a member of Russell Reynolds Associates’ Energy and Natural Resources practice. He is based in Houston.
- SARAH GALLOWAY co-leads Russell Reynolds Associates’ Sustainability practice. She is based in London.
- GRANT GILCHRIST is a member of Russell Reynolds Associates’ Industrial and Natural Resources sector Knowledge team. He is based in Boston.
- EUAN KENWORTHY is a member of Russell Reynolds Associates’ Chemicals and Agribusiness practice. He is based in Singapore.
- OLIVIA LIANG is a member of Russell Reynolds Associates’ Industrial and Natural Resources sector. She is based in Shanghai.