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Creating value from sustainability: A leader’s guide

Harmony Internal - McKinsey

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

It wasn’t so long ago that sustainability programs were just “nice to haves.” They have rapidly become critical to corporate strategy, but companies still struggle to generate tangible impact from their sustainability efforts. McKinsey research reveals a disconnect between sustainability values and action: there are considerable differences between the activities that organizations are pursuing and those that executives think have the most potential for creating value. Companies also find it difficult to come up with accurate financial measures of sustainability. Here are some ways to ensure that your organization’s sustainability efforts deliver value to the business.

AN IDEA

Set quantitative targets

Some companies do better than others at realizing value from their sustainability programs. They apply a distinctive set of practices, according to the results of a global survey reported by McKinsey’s Anna Granskog , Eric Hannon , Solveigh Hieronimus and their colleagues. In particular, value creators take a strategic, purposeful approach. Sustainability is likely to be a priority on their strategic agendas and aligned with their organizational goals, values, and purpose. Value-creating companies also develop KPIs for sustainability and engage their workforces and suppliers in sustainability efforts. A good first step is to view sustainability issues as business opportunities. The McKinsey researchers note that leading organizations “set tangible, concrete aspirations for their sustainability programs and convert those aspirations into quantitative performance targets.”

A BIG NUMBER

That’s the number of principles that emerging climate-technology companies are using to charge ahead—leaving many incumbents lagging behind. McKinsey senior partner Harry Bowcott , partner Philipp Hillenbrand , and their colleagues discuss how disruptive start-ups are quickly building green businesses by combining genuine passion and purpose with deep technical understanding, adept use of complementary technologies , strong empowerment and risk taking, and a full-speed-ahead, test-and-try mindset. Can incumbents ever catch up? They can if they take a three-step approach toward tech-enabled value creation: start with a clean sheet, create the right environment, and transform the investment and partnership strategy.

A QUOTE

“Few companies have organizational structures that are designed to treat sustainability as a material business issue.”

That’s McKinsey senior partners Aaron De Smet and Thomas Hundertmark and their colleagues on setting up an organization that can deliver on the practical requirements of sustainability—managing risk, addressing stakeholder concerns, and holding the enterprise accountable—all while capturing new business opportunities. Leaders can guide the redesign of their sustainability work in four ways, one of which is to design for specific topics (for example, green hydrogen and operational decarbonization ), not for sustainability overall, which can be overwhelming. Another important consideration is team structure. For example, out of five commonly used organizational models, three are more effective at capturing sustainability’s full potential.

A SPOTLIGHT INTERVIEW

Digital illustration of a tree constructed with high tech

Growing your organization sustainably while improving performance may seem daunting, but Fourth Industrial Revolution technologies —such as additive manufacturing, advanced analytics, robotics, and the cloud—can help. Throw in an engaged workforce, and productivity jumps several notches. In a McKinsey Talks Operations podcast led by chief people officer and senior partner Katy George , three leaders of companies that are at the forefront of sustainability reveal how they meet growing business demands while working toward sustainability goals. For example, one manufacturer deployed Internet of Things sensors to its equipment and utilities systems to gather data and generate analytics insights that enabled energy optimization across the entire factory. “Each of these companies has been able to demonstrate not only that they can pilot new technologies but that they have truly transformed their way of working in order to create sustained outcomes,” says George.

YOU’VE GOT IT ALL WRONG

Outline of an orange pencil shape amid many black-and-white pencil shapes

Business transformations often fail, cautions McKinsey senior partner Seth Goldstrom . Sustainability programs are even more prone to failure for similar reasons: lack of leadership commitment, poor planning, and inadequate incentives and resources, coupled with investor reluctance and “hidden enemies ” such as outdated metrics and frameworks. For any transformation to succeed, three core elements are essential, Goldstrom says: a quantifiable goal, commitment throughout the organization, and a trackable plan for which the sustainability team can be held accountable.

Lead sustainably.

— Edited by Rama Ramaswami, senior editor, New York

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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 02:26 - 23 Jan 2023

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Creating value from sustainability: A leader’s guide

Set quantitative targets

“Few companies have organizational structures that are designed to treat sustainability as a material business issue.”