One in three CEOs see sustainability as a top priority, new McKinsey study finds
- 13 August 2014
LONDON: CEOs worldwide are twice as likely as they were in 2012 to identify sustainability as their top priority, a new report from leading consulting firm McKinsey reveals.
In a global survey of over 2,500 respondents, the premier consulting firm found that large numbers of top business officials are backing the green agenda, with 36% identifying sustainability as a top three priority, while 13% saying it’s their number one goal.
Breaking away from results of previous editions of McKinsey's annual survey, the majority of respondents assert their rational for pursuing sustainability reforms was to achieve greater alignment with the goals, values and company mission, surpassing both reputation and cost cutting as prime motivator.
In 2012, 36% of CEOs reported cost cutting though improving operational efficiency was the main driver of sustainability activities. But today’s business leaders are taking a more holistic approach, with 43% expressing a desire to integrate sustainability with overall company culture and targets.
Reputation still remains highly relevant though, and now one in three CEOs acknowledge that a well communicated environmental policy will entice the increasingly engaged consumer base.
Reducing energy is the most popular sustainability activity, pursued by 64% of respondents. However, decreasing waste and corporate reputation management also feature prominently. In fact, CEOs are most likely to view reputation management as having the highest value creation potential for their sector over the next five years.
But the degree to which companies actively pursue reputation building exercises varies across industries, just as the type of sustainability activities pursued differs from sector to sector.
For example, 74% of companies working in extractive services use external reporting and transparency around activities to boost reputation, whereas just 57% of financial companies adopt this approach. When it comes to the implementation of policies which champion sustainability, the manufacturing and high tech industries lead.
A notable 39% of respondents believe communicating sustainability initiatives is key for financial success, and many companies, particularly those in the manufacturing sector, are publicizing their green credentials.
The data though, does show a gulf between the sustainability activities CEOs believe will increase the company’s bottom line and those which the business actually undertakes.
For instance, 34% of respondents state "changing core business practice to strengthen or improve reputation" is important for maximizing financial return, yet only one in three companies in the financial services and tech industries are currently reforming their practices.
As a final point, the analysts argue one of the main differences between “sustainability leaders” and other survey respondents is related to organizational characteristics. Those at the forefront of environmental best practice were 4.8 times more likely to set “aggressive [sustainability] targets or goals” and over 3 times more likely to have a unified sustainability strategy. Coordination is one of main challenges for delivering a sustainability strategy, according to the CEOs surveyed, but similarly employee motivation and capability buiding must also be addressed to achieve success.
Ben Ferrari, Head of Partnerships at The Climate Group, shared his thoughts on the new study: “There are two important takeaways from this latest study by McKinsey. Firstly, corporate sustainability is no longer viewed as an optional extra embraced by just a few environmentally-engaged CEOs; rather it is now seen as an integral component of 21st century business strategy, with over a third of CEOs globally listing sustainability as a top three priority. But secondly, despite a growing number of business executives recognizing green business is good for business, there is significant room for improvement to ensure the full financial gains associated with sustainability are achieved.
“In a competitive global marketplace, a strong reputation for sustainability will distinguish a company from its competitors. But reputation is not built on rhetoric alone, so it is vital core policy is amended to reflect the zeal of the CEO.”
Graphs courtesy of McKinsey
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By Alana Ryan