On October 24, a group of fashion executives met in a Downtown Los Angeles hotel to talk about how manufacturing practices could be modified so that companies would go beyond simply acknowledging the G7 Fashion Pact signed two months earlier, to truly acting on it. By the time this meeting took place, the number of fashion companies signing onto this sustainability pledge had swelled to 60 from 32.
The fashion pact outlined three goals: first, to get to zero greenhouse gas emissions by 2050; second, to restore biodiversity by reinstating natural ecosystems and protecting endangered species; and third, to protect the oceans by such initiatives as eliminating single-use plastics, by 2030. It’s perhaps not widely known, but fashion is one of the most environmentally unfriendly industries where manufacturing practices particularly around cotton require huge amounts of water, and where dyes, a leading pollutant, have a deleterious effect on water. (We’ll address child labor and human rights issues another time.)
It takes 1,320 gallons of water to make one pound of cotton, according to the Water Footprint ... [+]
As asset managers particularly focused on impact and ESG investing, this was very encouraging news to us. That said, it’s one thing to be an activist investor cracking the whip to bring about better corporate behavior. But the most recent discussions in Los Angeles got me reflecting on what it’s like to be on the other side of the table in terms of what these companies have to be thinking about day-to-day, as they change long-entrenched processes and operations in order to reduce their negative impact on the environment. So, for readers less aware of these inner workings, I thought an article on the roles driving these corporate changes might be of interest.
Clearly, corporate sustainability efforts must now go beyond compliance and keeping government and regulatory watchdogs at bay. Companies of all sizes across the spectrum of industries are now approaching sustainability to meet external expectations. Investors and customers alike are demanding that companies act responsibly, at the very least. Creative solutions and innovations around sustainability become a huge incentive and major selling proposition for the companies executing them. And with this comes the challenge to innovate: who can devise the best new ways to reinvent their processes so they can move their companies into the future? Because, without making these changes, as I’ve previously mentioned in these pages, there may be no future for them.
A good start to understanding how companies are creating sustainability frameworks is a seminal 2014 study out of Harvard University, Chief Sustainability Officers: Who Are They and What Do They Do?, which inventories the direction companies have been taking toward sustainability and the roles played by key individuals along this path. Overall, the Harvard authors suggest, firms begin with measures that are easy to implement, then evolve to initiatives that are more complex but come with greater rewards. Since publication in 2014, the process has become more urgent.
The authors call the first stage Compliance, which is characterized by a focus on existing business practices—for example, making a company’s internal policies more efficient, or saving energy or water. The second phase is Efficiency, during which companies begin to look at sustainability through a more strategic lens. New measures begin to impact the company’s bottom line, perhaps by reducing waste and increasing the efficiency with which they use resources. It’s during this time that the company’s people—employees, management, investors, and even outside partners—begin to share common understandings and goals about sustainability. A key to starting any sustainability process is gaining legitimacy with stakeholders. They must believe in the company’s vision, otherwise there are major barriers to getting anything achieved at all. And that’s only the starting point.
The third and last stage, Innovation, is characterized by a reframing of the corporate identity overall to introduce sustainability as a defining characteristic of the organization. It is at this stage that sustainability is brought to the level of strategic thinking at the C-suite level. That’s when a CSO, or Chief Sustainability Officer, can make sense. Now sustainability policy becomes proactive rather than reactive.
This market-driven approach to corporate sustainability uses a broader array of inputs, with more rigorous and better metrics. It includes both top-down and bottom-up approaches, involving management and employees alike, as well as people from outside the organization, who are brought in to provide constructive criticism. One exponent of this strategy is L’Oreal, whose Chief Sustainability Officer is known to have traveled around the world, speaking to NGO leaders and government officials along the way for their expert input and suggestions to improve the company’s processes as well as those of its supply chain, from farmers who grow botanical beauty ingredients to retailers who sell the finished products.
For corporations, the journey to sustainability is not one-size-fits-all. It’s dependent on company culture, and it’s important not to get too hung up on standardized roles or titles across different companies. The earlier stages might be handled by Heads of CSR, Directors of Sustainability or other mid-level positions tasked with everyday compliance issues of managing and reporting on sustainability requisites. There may be regulatory or risk element which brings this within the purview of the CRO. However, as the Harvard study notes, there’s an increased number of Chief Sustainability Officers (CSOs) appointments, reporting directly to the CEO, although not every company uses the same name for this position.
It’s clear that compliance without innovation or strategy is merely table stakes when shareholders and clients are demanding more sustainable options and more corporate accountability. Extinction Rebellion, Greta Thunberg and David Attenborough played their roles – the capital, and the practical solutions exist to deliver real change which demonstrates that profit and purpose are not in competition, but conjoined.
Elizabeth Heider, CSO of Skanska—a recognized global leader in sustainable building materials and practices—explains that to achieve real success, there has to be a higher calling. She noted that during the Great Recession, the only construction companies that maintained growth were those considered leaders in “green building.” In a further example, Nike’s CSO Noel Kinder has addressed the popular notion that sustainability and business interests are mutually exclusive, countering that in fact they are far from it.
Despite similarities in the general direction, paths toward sustainability will look different for every company. Not only the 60 subscribers to the G7 Fashion Pact, but virtually all companies have a role to play in improving their environmental impact. The Harvard study points out that, to begin re-steering the status quo, companies need to put people in place who will think creatively, listen thoughtfully, and agitate when necessary.
Corporate ESG (environmental, social and governance) measures need to be backed with bold thinking and active steps to make a real difference—businesses can lead the charge to reach net zero, even as they maintain the goal of being profitable. But I’d argue that to get there, it’ll take much more than the appointment of a CSO. Rather, to achieve a shift whereby sustainability is fundamentally built into a company’s DNA, beyond strategy, where the company has made the shift from add-on value to core value, everyone from the directors to the janitor must think like a Chief Sustainability Officer. Companies that put their resources, ingenuity, and muscle behind making sustainability part of their culture, are likeliest to survive well into the future, and thrive.
