Hurdle or Opportunity? Sustainability and Strategic Management

As a key strategic issue, sustainability is both an opportunity and a challenge. This is how European companies are turning sustainability into a success factor. 

"Thinking about the present from the perspective of the future" - this is how Prof. Dr. René Schmidpeter outlines the challenges which companies will have to face during this decade. As Professor of Sustainable Management at the IU International University in Erfurt, he clearly considers sustainability to be a key issue for strategic management. Increasingly, more and more companies see it as their duty to prioritise sustainability, whether as a result of customer expectations, their own efforts or new regulations.

However, this prioritisation is not always easy. Too often, measures which started with strong motivation fail to materialise. Process adjustments are met with resistance from within the company. As much as the topic of sustainability represents an opportunity, it is also often associated with a paradigm shift that deeply affects the corporate culture and substance and thus proves to be a hurdle.

How do European companies succeed in tackling this challenge? How can stakeholders, from management to employees, be convinced of the relevance of the issue? And what are the advantages of investing in sustainability now?

The Status Quo: Sustainability in European Companies Today

How high on the list of priorities is sustainability already for European companies? An article on LinkedIn forecasting job trends in 2022 provides some insight. On the list of jobs with the strongest growth in demand, Sustainability Manager landed the top fifteen for a variety of European countries - for example, Spain at fourteen and France at thirteen. In some countries it was even in the top ten - these include Sweden at ninth place, Italy at fifth place and Germany at fourth place. All together, sustainability was thus clearly part of the trend for 2022.

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However, the role of Sustainability Manager - also known as Head of Sustainability, Sustainability Specialist or Corporate Social Responsibility Manager (CSR) - remains underrepresented among employees. As stated by a report from the European Association of Sustainability Professionals, the “average European S-CSR unit is made up of less than two people.”   

Also, the understanding of the basic concepts pertaining to what sustainability means can vary from country to country. According to the Sustainable Leadership in Europe Report, a scoring system was created to gauge how familiar one is with concepts related to sustainability. The scale ranges from 1 – the minimum – to 5 – the maximum. Concepts include areas like “Circular Economy”, “Environmental Impacts” and “Sustainable Procurement” to name a few. The average understanding within the EU was 3.36. Some nations within the EU were above average in their understanding – such as Italy with 3.4 and Spain with a 3.45 – while others lagged – such as France at 3.32 and Poland at 3.27. 

The current state of sustainability is also not dissimilar to the early phase of digitalisation. Change is inevitable - but strategic thinking still too often lacks the conviction that sustainability as a success factor for the future is a core area of entrepreneurial action.

Watch now: How to Shape the Future of Retail Sustainably.

Just a Trendy Topic? Sustainability and Leadership 

There is no doubt that sustainability is a current buzzword in the European and international economy. However, the hurdles that companies face should not be underestimated. After all, sustainability is by definition an overarching discipline. "Sustainability can be found in all areas of our company," reports Stefan Kauß, sustainability manager at the Bitburger Brewery Group, citing raw material purchasing, resource consumption and employee training, among other things. "And we must not lose sight of the fact that we also have to think and act economically in all of this."

Professor Schmidpeter precisely points out this supposed contradiction between sustainability and profitability. "Sustainability does not mean less, but rather more profit and success," he stated in an interview with the PR company Cision. However, on the contrary: "Sustainability is the polar star that sets the direction in which profits can be made at all in the future." Sustainable management must be the new mindset for companies as a means of getting rid of its contradictory connotation. This applies above all to companies involved in the stock exchange, for example DAX companies.

The concrete obstacles that sustainability managers face are numerous. For example, with the introduction of the Green New Deal, a survey conducted by PWC in 2021 – which involved 300 companies in 13 European nations - found that 66% of companies surveyed have “earmarked capital to invest in becoming more sustainable over the next three to five years.” However, the same survey states that “the largest perceived challenge to companies is to embed all the EU Green Deal dimensions into the entire organization and processes to quantify the costs of the Green Deal levies.”

This latter challenge works in tandem with the area of finance which is a major concern. Ingo Speich, Head of Sustainability & Corporate Governance at the Deka Group, explains with regard to the financial sector: "We are currently seeing a sensitisation of customers in the market with regard to sustainability issues. So what strategies can sustainability managers and other stakeholders use to convince company management of the importance of the issue?” 

Convince Management, Motivate Employees: 4 Strategies for More Sustainability in Companies

Sustainability managers often fight on two fronts at the same time: on the one hand, they have to convince management to provide them with sufficient resources and decision-making power on a continuing basis. On the other hand, they have to motivate employees in all areas to implement measures consistently. With these 4 strategies, the balancing act can be achieved.

1. Demonstrate Advantages of Sustainability

Sustainability becomes more tangible for both management and staff when investments in this area are reflected in tangible benefits. These can include:

• Positioning as an industry leader with customers, stakeholders and competitors
• Securing future viability through crisis prevention and long-term competitive advantages
• Increased returns through process optimisation and responsible use of resources
• Attractiveness as an employer
• Preventive, not just reactive, compliance with legal requirements

Successfully communicating these and other benefits can be achieved with the help of non-financial KPIs, among other things. 

2. Measure Successes - and Celebrate Them

The new reporting requirements like the CSR Directive already make the collection and tracking of sustainability KPIs a necessity. But the right selection - and preferably automated documentation - of meaningful KPIs can also become the motivator and driving force behind changes in the corporate culture. Only when successes become quantifiable and thus tangible can they positively influence individual action.

3. Define Responsibilities 

Establishing the role of sustainability manager is not enough: employees from all areas must be involved in sustainability processes so that long-term change is possible. A crucial part of this onboarding is the concrete definition of tasks and responsibilities. Only when everyone involved is fully aware of the contribution they can and must make to corporate sustainability will success be possible at all management levels. 

4. Communicate Commitment - Internally and Externally 

To further strengthen the strategic role of sustainability, companies must communicate it consistently. Communication around sustainability issues is not a one-way street - honest feedback from customers and employees can reveal gaps in the process and contribute to optimisation. Another key factor, however, is to demonstrate commitment with the help of concrete goals and their achievement, in reporting as well as in internal communication.

Prioritise Sustainability Now and Ensure Long-Term Entrepreneurial Success

"Investors have long since recognised that the risk-adjusted returns of sustainable companies are higher than those of others", is how Prof. Dr Schmidpeter sums it up. The management of companies of all sizes, from large corporations to SMEs, is thus under pressure to act. The faster measures can be taken to ensure sustainability in the long term, the greater the potential competitive advantages.