Most companies are not actively managing sustainability, even though executives think it’s important to a variety of corporate activities. Those that do are reaping benefits for themselves and for society.
March 2010
More than 50 percent of executives consider sustainability—the management of environmental, social, and governance issues—“very” or “extremely” important in a wide range of areas, including new-product development, reputation building, and overall corporate strategy, according to the latest McKinsey survey.1 Yet companies are not taking a proactive approach to managing sustainability: only around 30 percent of executives say their companies actively seek opportunities to invest in sustainability or embed it in their business practices, for example.
This survey explored how companies define sustainability, how they manage it, why they engage in activities related to sustainability, and how they assess as well as communicate this engagement.
Companies are defined as being most engaged with sustainability if their executives say that sustainability is a top-three priority in their CEOs’ agendas, that it is formally embedded in business practices, and that their companies are “extremely” or “very effective” at managing it.2 … Energy companies, not surprisingly, also take a more active approach.
Why companies engage in sustainability
One potential reason so many companies don’t actively address sustainability despite the attention paid to it by the media and some consumers and investors is that many have no clear definition of it. … Among those that do, the definition varies: 55 percent define sustainability as the management of issues related to the environment … In addition, 48 percent say it includes the management of governance issues …, and 41 percent say it includes the management of social issues … .Fifty-six percent of all the respondents define sustainability in two or more ways.
Executives in business-to-business companies are likelier than their counterparts in consumer-facing companies to seek new growth opportunities through sustainability activities (20 percent, versus 14 percent).
Even with this range of definitions, most respondents see sustainability as creating real value…
The difference in views on short- and long-term value creation may be explained in part by the fact that building reputation is in a class of its own when compared with other, more immediately financial reasons for engagement such as alignment with the company’s business goals or improving operational efficiency. Indeed, 72 percent of respondents say considering sustainability is “extremely” or “very important” for managing corporate reputation and brands. In addition, 55 percent agree that investment in sustainability helps their companies build reputation, and 36 percent see building reputation as a top reason for addressing sustainability issues (Exhibit 1).
…But companies consider sustainability in a wide range of other business activities as well (Exhibit 2). …
Given sustainability’s importance, it’s surprising that only 27 percent of respondents say their CEOs or other C-level executives run their companies’ sustainability initiatives on a day-to-day basis.3 …
Uneven management efforts
Despite sustainability’s importance to various corporate activities, only a quarter of executives say it’s a top-three priority on their CEOs’ agendas. The lack of weight in leadership’s top agenda shows in the relatively small number of activities companies actually pursue related to sustainability… (Exhibit 3).
Companies where sustainability is a top-three priority on the CEOs’ agendas are likelier to pursue sustainability due to alignment with business goals (38 percent) than for building reputation (27 percent).
By contrast, senior executives in the energy industry take an active approach to managing sustainability, likely because of the potential for regulation and increasing natural-resource constraints. … Further, energy executives are much likelier than others to be active in seeking opportunities to invest in sustainability (40 percent versus 28 percent), to integrate it into their companies’ business practices (43 percent versus 29 percent), and to shape regulation actively (29 percent versus 16 percent).
Except among energy companies, reporting practices are relatively poor, considering the impact executives say sustainability has on business. Particularly in light of the role of sustainability in reputation-building efforts, for example, it’s surprising that companies do not take an active approach in communicating their initiatives externally (Exhibit 4). Indeed, 62 percent of respondents say their companies do not report sustainability metrics to investors or are unaware of their companies’ sustainability-reporting practices—even though more than 50 percent keep track of the value created by sustainability in terms of reputation building and cost savings (Exhibit 5).
The picture is again different for energy executives: 74 percent of energy executives incorporate sustainability when developing their companies’ regulatory strategies, compared with 53 percent of respondents overall. Similarly, 54 percent of respondents in the energy industry say their companies embed sustainability data in communications with investors, compared with 35 percent overall.
What the proactive do differently
Just over 6 percent of executives say that sustainability is a top-three priority in their CEOs’ agendas, that it is formally embedded in business practices, and that their companies are “extremely” or “very effective” at managing it. These engaged companies actively seek opportunities to invest in sustainability: 88 percent of the respondents in this group say so, compared with 23 percent of all others (Exhibit 6). …
Other findings indicate how much sustainability is a part of the fabric of these companies. Their executives, for instance, are more aware than executives at other companies of the metrics their companies track. … More importantly, among the group that is aware of what’s being tracked, the engaged companies are far more likely to be tracking relevant sustainability indicators such as waste, energy and water use, and labor standards for their suppliers and consumers.
In addition, these engaged companies do more than others to communicate externally the impact of their sustainability programs (Exhibit 7).
Dealing with regulation
Regulation, particularly environmental regulation, can have a very strong effect on companies’ sustainability activities. However, only about 35 percent of executives say their companies have quantified the potential impact of environmental and social regulation on their businesses; only 40 percent feel prepared to deal with regulation in the next three to five years and are personally confident about handling climate change issues. …
Looking ahead
- Seventy-six percent of executives say engaging in sustainability contributes positively to shareholder value in the long term. Companies that manage sustainability proactively are much likelier to seek and find value creation opportunities.
- Companies where sustainability is a top item in their CEOs’ agendas are twice as likely as others to integrate sustainability into their companies’ business practices. This suggests that senior executives who want to reap the benefits of incorporating sustainability into their companies’ overall strategies must take an active role in the effort.
- A first step to gain recognition and improve the impact of sustainability activities could be to communicate better with investors and other stakeholders.
Notes
1 The survey was conducted in February 2010 and received responses from 1,946 executives representing a wide range of industries and regions.
2 Energy companies, which are overall more engaged in sustainability activities than are companies in other industries (likely as a result of potential regulation and natural-resource constraints), were excluded from this group.
3 Also surprising, 11 percent of respondents say “no one” coordinates initiatives on a daily basis, and 5 percent are unsure.
About the Authors
Contributors to the development and analysis of this survey include Sheila Bonini, a consultant in McKinsey’s Silicon Valley office, Stephan Görner, a principal in the Sydney office, and Alissa Jones, a consultant in the Copenhagen office. They would like to acknowledge the contributions of their colleague Michaela Ballek.
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