Leading the Sustainable Business Transformation E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 447

Veröffentlichungsjahr: 2024

Beschreibung

Complete playbook to plan, execute, and showcase corporate sustainability initiatives

Based on extensive research conducted in the past several years at the International Institute for Management Development in Switzerland (IMD), Leading the Sustainable Business Transformation: A Playbook from IMD helps readers understand why sustainability matters, what it involves, how it fits with corporate strategy and how to implement it according to the specifics of their companies. This playbook emphasises both strategic and organisational work, delivering a framework to generate solid financial returns without depleting the world’s natural and social wealth.

With detailed case studies and quotations from executives to provide context, this book explores topics including:

• How social and environmental sustainability initiatives sharply differ from the much-criticised Environmental, Social, and Governance (ESG) framework
• Barriers to change based on gaps in organisational capacity and how to overcome them
• Minimising risks, accelerating change and fostering innovation through AI powered by Big Data
• Managing performance and measuring impact through new KPIs that utilise relevant metrics
• Marketing strategies to showcase sustainability efforts in a way that resonates with consumers

Filled with actionable strategies to navigate the intersection of global impact and financial success with precision and purpose, Leading the Sustainable Business Transformation is an essential read for executives and business leaders seeking to transform their organisations for the better.

Leseprobe

Table of Contents

Cover

Table of Contents

Title Page

Copyright

Foreword

Preface

PART I: Framing the Conversation

Chapter 1: Defining Sustainability

THE ESSENCE OF SUSTAINABILITY

ESG VERSUS SUSTAINABILITY: UNDERSTANDING THE DIFFERENCE

THE BALANCING ACT

Chapter 2: Why Now?

THE RISING CHALLENGE

RISING PRESSURES FOR DECISIVE ACTION

GAINING MOMENTUM

FURTHER READING

Notes

Chapter 3: Seizing Opportunities Rather Than Managing Risks

FROM RISK TO OPPORTUNITY

CAPITALISM FOR SUSTAINABILITY

THE REGULATORY ASSIST

THE GEOGRAPHICAL ADVANTAGE

EXPLORE AND EXPLOIT

NECESSITY AND INVENTION

FURTHER READING

Chapter 4: The Geopolitical Context

TENSIONS ARE BAD FOR SUSTAINABILITY

TENSIONS ARE GOOD FOR SUSTAINABILITY

CHINA PLUS ONE

TAKEAWAYS

FURTHER READING

PART II: The Strategic Imperative

Chapter 5: Roadmapping with a Future-Back Approach

HOW FUTURE BACK WORKS

FUTURE BACK IN PRACTICE

WORKING BACKWARD

FURTHER READING

Chapter 6: Scenario Planning

HOW CAN LEADERS FACE UNCERTAINTY?

SCENARIO PLANNING FOR CLIMATE CHANGE

SCENARIOS FOR SUSTAINABILITY

LEARNING FROM SCENARIO PLANNING

FURTHER READING

Chapter 7: Innovating Toward New Business Models

CIRCULAR BUSINESS MODEL ARCHETYPES

EMBRACING SUSTAINABLE BUSINESS MODELS

TAKEAWAYS

FURTHER READING

Chapter 8: Models for Social Sustainability

CIVIC WEALTH CREATION

FINANCING SOCIAL IMPACT

MANAGING TRADE-OFFS

TAKEAWAYS

FURTHER READING

Chapter 9: An End-to-End Perspective

WHAT END TO END MEANS

LIMITING CAPITALISM RUN AMOK

WHAT EXECUTIVES CAN DO

TAKEAWAYS

FURTHER READING

Chapter 10: Brand Strategies

WHY BRANDING?

MARKET ACCORDING TO THE PRODUCT OR SERVICE, NOT THE CUSTOMERS

MARKETING FOR INDEPENDENCE, RESONANCE, AND DISSONANCE

CHANGING THE BRAND

TAKEAWAYS

FURTHER READING

Chapter 11: Navigating Climate-Related Financial Risks

PHYSICAL RISKS, ACUTE AND CHRONIC

TRANSITION RISKS IN MULTIPLE FORMS

STRATEGIES TO REDUCE RISKS FOR A RESILIENT FUTURE

A STRUCTURED APPROACH TO CLIMATE RISK MANAGEMENT

TAKEAWAYS

FURTHER READING

ADDITIONAL REFERENCES

Chapter 12: Nonmarket Strategy

THE NEED FOR NONMARKET STRATEGY

INTEGRATING MARKET AND NONMARKET STRATEGY

THE ELEMENTS OF A NONMARKET STRATEGY

HOW NONMARKET STRATEGY PROMOTES SUSTAINABILITY

TAKEAWAYS

FURTHER READING

Chapter 13: Navigating the New Era of Sustainability Reporting

THE FRAGMENTED LANDSCAPE OF MANDATORY SUSTAINABILITY REPORTING

THE PUSH FOR HARMONIZATION

GETTING READY FOR MANDATORY SUSTAINABILITY REPORTING

THE CHANGING RULES OF THE GAME ARE NOT ABOUT LEGAL SCOPE

TAKEAWAYS

FURTHER READING

Chapter 14: The Paradox of Digital Technology

BOOSTING TRANSPARENCY

IMPROVING OPERATIONS

SCALING WITH DIGITAL TOOLS

THE DILEMMA OF CONVENIENCE

NOT TECHNOLOGY BUT MINDSET

TAKEAWAYS

FURTHER READING

Chapter 15: Artificial Intelligence

THE AI OPPORTUNITY – AND THREAT

DATA AS A RESPECTED RESOURCE

COMPLEMENTING, NOT SUBSTITUTING FOR PEOPLE

THE COMPANY CONTEXT

QUESTIONS TO ASK

TAKEAWAYS

FURTHER READING

PART III: The Leadership Imperative

Chapter 16: Leading Change

WHAT CHANGE MANAGEMENT TAKES

WHEN TO START

CHANGE IN ACTION

PARTNERING – FILL GAPS IN THE BUSINESS MODEL

RESPECTING THE CULTURE

TAKEAWAYS

FURTHER READING

Chapter 17: Managing Change in the Organization

THREE UPFRONT STEPS

LEADING THE TRANSITION TO SUSTAINABILITY

PITFALLS OF MANAGING CHANGE TO SUSTAINABILITY

TAKEAWAYS

FURTHER READING

Chapter 18: Leading Transformation

THE DUAL TRANSFORMATION: TRANSFORMING FOR THE PRESENT AND THE FUTURE

DUAL TRANSFORMATIONS ARE HARD

MAKING DUAL TRANSFORMATION A REALITY

DEVELOPING LEADERS TO DRIVE DUAL TRANSFORMATION

A CONVICTION FOR CHANGE

TAKEAWAYS

FURTHER READING

Chapter 19: Developing Leaders’ Capabilities

THE OUTER JOURNEY OF THE LEADER

WHY THE OUTER JOURNEY ISN’T ENOUGH

THE INNER JOURNEY OF THE LEADER

ACCELERATING THE INNER JOURNEY

TAKEAWAYS

FURTHER READING

Chapter 20: The Courage of “Power With”

FROM HIERARCHY TO COLLABORATION

CULTIVATING A SUSTAINABLE FUTURE

FROM SURVIVING TO THRIVING

MOVING FROM A FEAR-BASED TO A LOVE-BASED APPROACH

NAVIGATING CHANGE WITH AWARENESS, ACCOUNTABILITY, AND ACTION

TAKEAWAYS

FURTHER READING

Chapter 21: Ecosystem Partnerships

OPEN ENTERPRISE

NOT ABOUT CORE COMPETENCE

ECOSYSTEMS FOR SUSTAINABILITY

PITFALLS FOR ECOSYSTEMS

ANOTHER ORGANIZATIONAL TOOL

TAKEAWAYS

FURTHER READING

Chapter 22: Changing Culture

FORGET SLOGANS, FOCUS ON ORDINARY CONCERNS

START SMALL, FROM BEHAVIORS

THE CULTURAL BIAS AGAINST SUSTAINABILITY

NARROW THE FRAME

CULTURE AS A TOOL

MEASURING CULTURE

TAKEAWAYS

FURTHER READING

Chapter 23: Improving Governance

FUTURE-READY GOVERNANCE

TOP-DOWN LEADERSHIP

THE EVOLVING ROLE OF THE BOARD

INTEGRATING SUSTAINABILITY INTO GOVERNANCE STRUCTURES

TAKEAWAYS

FURTHER READING

Chapter 24: Family Business

HOW FAMILIES WORK WITH COMPANIES

PIONEERS OR LAGGARDS?

FAMILY-CONTROLLED COMPANIES THAT MOVED QUICKLY

ASIAN DYNAMICS

TAKEAWAYS

FURTHER READING

Chapter 25: Leading for Inclusion

CONNECTING DEI TO BUSINESS GOALS

GENDER AS ONE STARTING POINT FOR INCLUSION

LEADERSHIP, METRICS, AND STRUCTURES

SUSTAINING DEI EFFORTS

TAKEAWAYS

FURTHER READING

Chapter 26: Talking the Walk

ESTABLISHING INTENTION THROUGH LANGUAGE

PRESENTING AUTHENTICALLY

LEVERAGING METAPHOR IN COMMUNICATION

FRAMING EFFECTIVE SUSTAINABILITY NARRATIVES

BROADENING THE NARRATIVE

START WITH THE END IN MIND

TAKEAWAYS

FURTHER READING

Conclusion

Contributors

Index

End User License Agreement

List of Tables

Chapter 26

Table 26.1 Metaphors commonly used to frame sustainability.

List of Illustrations

Chapter 2

Figure 2.1 A Timeline of Sustainability Concerns.

Chapter 6

Figure 6.1 How Humans Think about Uncertainty.

Figure 6.2 Mapping Driving Forces

Figure 6.3 Examples of Climate Scenarios

Figure 6.4 Interdependency of Essential Resources

Chapter 7

Figure 7.1 Circular business model archetypes by Binder and Braun, 2024, The...

Chapter 19

Figure 19.1 Focusing and mobilizing.

Figure 19.2 Doing and being.

Chapter 23

Figure 23.1 Global risks ranked by severity over the short and long term.

Figure 23.2 The roles of the board in sustainability strategy management.

Guide

Cover

Table of Contents

Title Page

Copyright

Foreword

Preface

Begin Reading

Conclusion

Contributors

Index

End User License Agreement

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EDITOR

Julia Binder & Knut Haanaes

LEADING THE SUSTAINABLE BUSINESS TRANSFORMATION

A PLAYBOOK FROM IMD

This edition first published 2025

© 2025 John Wiley & Sons

All rights reserved, including rights for text and data mining and training of artificial intelligence technologies or similar technologies. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.

The right of Julia Binder and Knut Haanaes to be identified as the authors of this work has been asserted in accordance with law.

Registered OfficesJohn Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USAJohn Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK

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Foreword

Michel Demaré and David Bach

At IMD, we are led by our purpose: challenging what is and inspiring what can be, we develop leaders and organizations that contribute to a more prosperous, sustainable, and inclusive world. Inherent in that purpose statement is the belief that prosperity, sustainability, and inclusiveness not only are not at odds with one another, but that they must go together. The task for this generation of leaders is ensuring that we don’t build future prosperity at the expense of people and the planet. Supporting leaders and organizations on this pivotal journey is what IMD is committed to.

Our school was founded in the aftermath of World War II by leaders who believed that business is the engine of positive change in the world and that by spanning borders and engaging diverse communities, international business in particular contributes to peace and prosperity. Over the past eight decades, life in most corners of the world has gotten dramatically better. We have witnessed astonishing declines in infant mortality, significant lifespan extensions, a dramatic drop in the number of violent deaths, and a much lower percentage of humans living in abject poverty. Business has been central to many of these achievements. Yet in the process, we have mortgaged our future by endangering our climate and presiding over the fastest biodiversity loss in scientifically examined history.

It need not be so. Business is pragmatic. It is solution oriented. With the right tools, leadership mindset, and supportive policy environment, we can bring economic growth into balance with societal and environmental needs. At IMD, through our daily access to global enterprises and their leaders, we are uniquely positioned to identify what works and what is holding us back. We are a vibrant meeting place for thought leaders and management practitioners, enabling us to deepen conversations and find answers to the most complex challenges. In the process, we have shifted our efforts from the “why” of sustainability to the “how.”

Over the last five years, we have embedded sustainability across our institutional activities and transformed our MBA program to ensure that the leaders of tomorrow have the skills and mindset to drive positive change. We have launched a number of “Sustainability Accelerators,” a suite of executive programs aimed at equipping the leaders of today with the tools that work, and supported dozens of blue-chip clients on their own sustainability journeys. In the process, we have listened, observed, studied, examined, tested, and started the cycle all over again as we’ve conducted comprehensive research with industry leaders.

The result is this Playbook. Based on the contributions of over 45 IMD faculty members and experts across all areas of sustainability, its aim is to support leaders looking to catalyze meaningful change by showcasing the opportunities that sustainability offers and pinpointing the organizational capabilities necessary to seize them.

We hope it will serve as a trusted companion to both challenge and inspire you as you navigate the complexities of sustainability to make a positive difference in the world.

Michel DemaréIMD Chairman of the Foundation & Supervisory Boards, Chair of theBoard at AstraZeneca Plc

David BachIMD PresidentNestlé Professor of Strategyand Political Economy

Preface

Julia Binder and Knut Haanaes

In the ever-evolving landscape of global business, sustainability has emerged as the defining challenge of our time. Whether a business is an international conglomerate or a local startup, established for decades or just beginning its journey, its role in fostering a sustainable future is critical. The challenge transcends borders, industries, and organizational sizes, demanding that every aspect of an organization engages deeply with the principles and practices of sustainability.

This book is a collective endeavor by faculty at the International Institute for Management Development (IMD), in Lausanne, Switzerland. They bring together diverse expertise and viewpoints to create a comprehensive guide on how sustainability affects organizational functions. From strategy and innovation to operations and leadership, our aim is to provide a holistic, one-stop resource that helps business leaders navigate the complexities of sustainable transformation. Each chapter reflects the unique insights of our faculty, woven together to offer a unified perspective on this multifaceted challenge.

As the editors of this book, we – Julia Binder and Knut Haanaes – have driven this meaningful project with the goal of showcasing the rich knowledge and insights at IMD. We sought to bring together the deep expertise of colleagues to equip business leaders with the knowledge and actionable tools they need to lead in this new era of sustainability.

Our own respective journeys toward sustainability have been shaped by our diverse experiences. Julia Binder’s academic path has been instrumental in shaping her thought leadership at the intersection of innovation and sustainability. After achieving her PhD from the Technical University of Munich, she advanced her research at École Polytechnique Fédérale de Lausanne, where she also set up the sustainability initiative Tech4Impact. Her academic work has consistently been at the forefront of sustainable innovation, with a particular focus on circularity.

Meanwhile, Knut Haanaes brings deep expertise in strategy, honed through years at BCG (formerly the Boston Consulting Group) and the World Economic Forum. At BCG, he founded and led the first global sustainability practice, with the goal to balance the dual imperatives of exploiting existing strengths and exploring new opportunities. His extensive experience in these areas has profoundly influenced his approach to sustainable business transformation, making him a key contributor to IMD’s leadership in this field.

Though our paths began in different arenas, they have converged at IMD, where our shared commitment to sustainability, alongside our esteemed colleagues, has become the foundation of our work. This collaboration makes the book unique – not the product of a single viewpoint, but rather the culmination of a diverse range of perspectives, each contributing to a comprehensive understanding of how sustainability can be integrated into business. While we work from rigorous academic research, we are profoundly inspired by the business leaders who have trusted us to accompany them on their transformation journeys. At IMD, we believe that the magic happens at the intersection of academic research and real-world business challenges. This vantage point provides us with an unparalleled perspective on the complexities of sustainability – a perspective we are eager to share with you through this book.

Our goal is to offer action-oriented, practical support to business leaders ready to move beyond understanding why sustainability is essential to tackling the critical question of how to achieve it. We recognize that there are many pathways to succeed in this endeavor. This book emphasizes the elements that can empower organizations to drive transformative change. It serves as a guide, providing insights and tools to help you navigate the complexities of sustainable business transformation.

Much has been written on the topic of sustainability. Our contribution to the ongoing conversation lies in our holistic integration of the head, heart, and hands of sustainability. By “head,” we refer to the strategic underpinnings guiding organizations to make informed, sustainable decisions. “Heart” encompasses the leadership qualities necessary to inspire and drive emotional commitment to sustainability throughout an organization. Lastly, “hands” represent the actionable practices that turn vision into reality, allowing companies to implement and scale sustainable solutions effectively. This three-pronged approach merges intellectual rigor with emotional resonance and practical execution, providing a distinct perspective essential for driving deep and lasting changes in sustainability practices.

Bringing together dozens of IMD faculty members across almost as many chapters was no small feat. It required a tremendous amount of dedication, collaboration, and passion. We are deeply grateful to all our colleagues who went above and beyond to make this book a reality. Their contributions reflect our shared commitment to creating a positive impact in the world.

Finally, we wish to express our deepest gratitude to you, our readers. As business leaders, you catalyze the profound changes needed to shape a more sustainable future. Your dedication and commitment are pivotal; without them, our goals remain unattainable. We understand that your journey is challenging, fraught with complex decisions and significant challenges. We hope this book serves as a resource in your endeavors – a “sparring partner” with whom you can engage deeply, challenge ideas, and refine strategies. The insights and experiences detailed within these pages aim to inspire and empower you to drive sustainable transformations and contribute a lasting, positive impact on society.

We want to thank all our wonderful IMD faculty colleagues for their kind contributions, as well as Delia Fischer for our close collaboration. The book could not have happened without you.

PART IFraming the Conversation

Julia Binder and Knut Haanaes

In late 2020, as the world began to emerge from the worst of the COVID-19 pandemic, Wärtsilä, a Finnish corporation specializing in power systems, made a bold decision. Despite being a well-established company with a strong track record in manufacturing and servicing on-land and marine power systems, the company faced a significant challenge. Since peaking in 2017, both its operating margin and stock price had fallen by half, largely due to its reliance on fossil-fuel technologies at a time when the world was shifting toward carbon neutrality. Sales were likely to stagnate or even decline as global warming pushed industries to move away from carbon-intensive sources.

In response, the board made a strategic move by hiring a new CEO, Håkan Agnevall, from outside the company. Agnevall had successfully led Volvo’s bus division through a sustainability transformation, making it a world leader in electric-powered transportation. He proposed a similar approach at Wärtsilä, aiming to turn the threat of decarbonization into an opportunity.

Agnevall knew that the transformation would be a long-term endeavor. Customers in Wärtsilä’s sectors, on-land generation and marine propulsion, were conservative and cautious – after all, their investments were meant to last for decades. And with ocean-going freighters still lacking a reliable carbon-neutral fuel, the path forward was uncertain. But rather than waiting for technology and customer preferences to catch up, Wärtsilä took proactive steps.

The company developed decarbonization as a service, aligning with its existing strategic shift towards services, already nearly half of its business. Furthermore, despite the financial constraints imposed by the pandemic, Wärtsilä invested €250 million in establishing the Sustainable Technology Hub, a research institute dedicated to advancing sustainability through collaboration with industry partners.

In November 2021, just ten months after taking the helm, Agnevall unveiled Wärtsilä’s new strategy, positioning sustainability as the company’s primary purpose. The strategy set out clear values, principles, and actionable targets, with the aim of making Wärtsilä a global leader in decarbonizing the marine and energy markets. While the company’s stock price remained volatile and its operating margins were slow to recover, Agnevall and his team were convinced they were on the right path for the long term.

A TWOFOLD APPROACH: STRATEGY AND LEADERSHIP

The journey toward sustainability is neither simple nor straightforward. It requires a twofold approach that balances strategic vision with effective leadership – a combination of the head, which represents the logic and rationale of transformation, and the heart and hands, which embody the leadership and action needed to implement change. In many ways, this balance is the core theme of this book. To achieve true sustainability, organizations must integrate strategy with leadership, ensuring that plans are not just formulated but executed with conviction and agility.

Sustainability, at its essence, is about creating business models that are resilient, adaptable, and capable of enduring over the long haul. It’s not merely about compliance or risk management – it’s about fundamentally rethinking how businesses operate in a world facing profound environmental, social, and economic challenges. This shift from viewing sustainability as a risk to embracing it as an opportunity is crucial. Companies like Wärtsilä are showing that sustainability can drive innovation, open up new markets, and create long-term value.

The urgency of this shift cannot be overstated. The signals for change are all around us; climate change, resource scarcity, and social inequalities are reshaping the global landscape. Businesses can no longer afford to ignore these trends. They must act now not just to protect their bottom lines but to ensure their future viability. This is why sustainability is a global imperative, transcending borders and industries. No company, regardless of its size or location, can afford to stand still.

THE INFINITY LOOP: THE DYNAMIC INTERACTION OF STRATEGY AND LEADERSHIP

Sustainability isn’t a one-time project where you develop a strategy, implement it, and move on. It’s an ongoing process that requires a continuous interaction between strategic planning and leadership – a dynamic relationship that can be visualized as an infinity loop. This loop represents the constant flow between strategy and leadership, where each element reinforces and enhances the other.

On one side of the loop is strategy. Have you ever wondered how to craft a sustainability strategy that truly aligns with your company’s long-term vision? It’s more than just setting goals; it’s about envisioning a future where your business not only survives but thrives in a rapidly changing world. This requires breaking away from the limitations of the present and imagining new possibilities. Tools like future-back thinking and scenario planning aren’t just theoretical exercises; they’re essential for building a strategy that’s resilient and forward-looking.

Consider how this strategic approach could come to life in your organization. For example, companies like Siemens have embedded sustainability into their core strategy, not simply to mitigate risks but to lead in the global transition toward a sustainable economy. By investing in energy-efficient technologies and smart infrastructure, Siemens is positioning itself at the forefront of the energy revolution, shaping the future rather than just reacting to it.

But even the best strategy can falter without effective leadership. This is where the other side of the infinity loop comes into play. Leadership isn’t just about implementing a strategy – it’s about inspiring and mobilizing your organization to make that strategy a reality. Have you ever seen a great plan fall short because it didn’t get the buy-in it needed? Leadership is the key to ensuring that your strategy isn’t just a document but a driving force that energizes your entire organization.

Effective leadership involves creating a culture where sustainability is more than a buzzword – it becomes a shared value that influences every decision and action. Imagine an organization where every employee, from the boardroom to the front lines, understands their role in achieving sustainability goals. This level of engagement doesn’t happen by accident; it’s the result of leaders who are committed to fostering a sense of ownership and accountability at every level.

The infinity loop illustrates that sustainability is not a static goal but a dynamic journey. As you implement your strategy, you’ll encounter new challenges and opportunities that require you to adapt and refine your approach. Are you prepared to pivot when necessary? This is where agile leadership becomes crucial, enabling you to make quick strategic adjustments while keeping your long-term objectives in focus.

The continuous interaction between strategy and leadership creates a powerful feedback loop. As your organization moves forward, you’ll gather insights and data that allow you to assess what’s working and what isn’t. This feedback helps you tweak your strategy, ensuring it remains effective in a constantly evolving environment. Leadership, in turn, adapts to these changes, guiding the organization through the complexities of sustainability with clarity and purpose.

So, as you think about sustainability in your organization, consider how well your strategy and leadership are working together. Are they in sync, each reinforcing the other? By embracing this infinity loop of strategy and leadership, you create a dynamic process that drives real, lasting change, making sustainability not just a goal but the very essence of your business.

The Wärtsilä example, as presented earlier, illustrates an important reality: the transformation toward sustainability is not a linear process with clear-cut phases. Instead, it’s an ongoing, iterative journey – an infinity loop where strategy and leadership continuously reinforce one another. Focusing on strategy can lead to missed opportunities for engagement, while concentrating on leadership may lack the strategic foundation needed for lasting change.

This infinity loop reflects the dynamic nature of sustainability, where adjustments in strategy prompt shifts in leadership and vice versa. It’s not just about setting goals; it’s about creating an environment where strategy and leadership are in constant dialogue, driving continuous improvement.

To succeed in this journey, leaders must develop a strategy that is not only aligned with the company’s purpose but also adaptable to changing circumstances. This strategy must be communicated effectively, supported by robust reporting and a commitment to long-term goals. However, strategy alone isn’t enough. Leaders must also ensure that sustainability is embedded in the company’s culture, making it a shared responsibility across all levels.

Moreover, leaders need to engage with external stakeholders – regulators, NGOs, and the broader community – integrating their insights and needs into the strategy. This holistic approach ensures that the company’s sustainability efforts are not only internally cohesive but also externally validated.

In this book, we offer a practical guide to navigating this complex landscape. The ideas and strategies presented here are designed to help you lead your organization toward a sustainable future – one where business success is intertwined with the well-being of society and the planet. The challenge of sustainability is immense, but with the right approach, it’s an opportunity to create lasting value for all.

Chapter 1Defining Sustainability

Julia Binder and Knut Haanaes

In today’s complex and fast-paced business environment, sustainability has evolved from a buzzword into an essential element of long-term success. Yet the concept is often misunderstood or oversimplified. Some critics question the necessity of sustainability, pointing to the challenges of sustainability investing or the slow pace of global decarbonization as evidence that the idea is overhyped. But when we talk about sustainability, we’re not merely discussing a moral obligation or a compliance issue. Sustainability is about ensuring that your business can survive and thrive in the long term. It’s about building resilience in the face of uncertainty and positioning your company to capitalize on the opportunities of tomorrow.

As a leader, have you ever grappled with the tension between delivering short-term results and preparing your company for the future? Sustainability offers a framework for balancing these often competing demands. It’s not about abandoning profitability or growth but about reimagining these concepts in a way that aligns immediate business needs with long-term viability. Sustainability is about making decisions today that will allow your business to continue thriving in an increasingly volatile world.

THE ESSENCE OF SUSTAINABILITY

At its core, sustainability is about creating business models that are resilient, adaptable, and capable of enduring over the long haul. It’s not about quick fixes or symbolic gestures; it’s about implementing practical, long-term solutions that integrate economic viability with environmental stewardship and social responsibility. In other words, sustainability is about aligning your business strategy with the broader trends shaping our world – trends like climate change, resource scarcity, and social inequality. By doing so, you ensure that your business remains relevant and successful in the years to come.

But what does this look like in practice? To truly grasp sustainability, let’s delve into three major challenges – and opportunities – that businesses face today: climate change, resource shortages, and social unrest.

Climate Change: A Business Imperative

. Climate change is no longer a distant threat; it is a present reality that is already reshaping industries and economies around the world. The earth’s atmosphere has been warming steadily since the Industrial Revolution, with scientists projecting a temperature increase of 1.5–2°C by 2040. This rise, largely driven by human activities such as burning fossil fuels, poses significant risks to both markets and societies. The potential impacts are vast, ranging from disrupted supply chains due to extreme weather events to heightened regulatory pressures as governments seek to mitigate the worst effects of climate change.

As a business leader, have you considered how climate change might impact your company? Are your operations vulnerable to disruptions caused by unstable weather patterns? Companies that proactively decarbonize and invest in renewable energy are not only reducing their environmental impact but also positioning themselves as leaders in a low-carbon economy. Take Schneider Electric. This global leader in energy management and automation has embedded sustainability into its core business strategy. Schneider Electric has committed to achieving carbon neutrality in its operations by 2025 and net-zero emissions by 2030. This commitment not only addresses the risks associated with climate change but also positions the company as a pioneer in the energy transition, offering solutions that help other businesses become sustainable.

By taking these proactive steps, companies like Schneider Electric are not just avoiding risk – they are creating new opportunities for growth. For instance, Schneider Electric’s focus on sustainability has enabled it to capture a significant share of the market for energy-efficient solutions. Sustainability can be a driver of innovation and competitive advantage.

Resource Shortages: Turning Scarcity into Opportunity

. The world’s natural resources are under increasing strain as global populations grow and lifestyles become more resource intensive. Freshwater supplies are dwindling, arable land is being lost to desertification and urbanization, and biodiversity is declining at an alarming rate. These trends pose significant challenges for businesses that rely on these resources to produce their goods and services. But they also present opportunities for companies that are willing to innovate and adapt.

Have you ever thought about how your business might be affected if key resources became scarce or prohibitively expensive? For example, industries that rely heavily on water-intensive processes, such as agriculture or manufacturing, will need to find ways to use water more efficiently or develop alternatives to traditional methods. Companies that fail to adapt to these changing conditions may find themselves at a competitive disadvantage.

On the other hand, companies that embrace sustainability can turn these challenges into opportunities. Consider Patagonia, the outdoor clothing company known for its strong commitment to environmental sustainability. The firm has implemented various initiatives to reduce its resource consumption, such as using recycled materials in its products and encouraging customers to repair and reuse their gear rather than buying new items. These efforts not only reduce Patagonia’s environmental footprint but also strengthen its brand by appealing to consumers who value sustainability. As a result, Patagonia has built a loyal customer base and achieved significant growth, proving that sustainability and profitability can go hand in hand.

Social Unrest: Building Trust and Social Capital

. The benefits of capitalism have not been evenly distributed, leading to growing inequality and social unrest in many parts of the world. This erosion of trust in institutions, including businesses, poses a significant challenge for companies that rely on stable social environments to operate effectively. Companies that engage in exploitative practices – whether through poor labor conditions, unfair pricing, or lack of transparency – are deepening this mistrust and risking their social license to operate.

Have you ever considered how your company is perceived by the communities it affects? What steps can you take to build a more inclusive and socially responsible business model? Businesses that actively work to build trust and contribute to social stability are better positioned to thrive in the long term. This might involve improving labor practices, engaging with communities more meaningfully, or ensuring that the benefits of economic growth are shared equitably.

A powerful example of this is Ben & Jerry’s, the ice cream company known for its strong social mission. From its inception, Ben & Jerry’s has been committed to using its business to promote social justice, whether by supporting fair trade practices, advocating for environmental sustainability, or standing up for human rights. This commitment has not only helped Ben & Jerry’s build a strong brand but also fostered a deep connection with its customers, who see the company as a force for good in the world. As a result, Ben & Jerry’s was able to achieve impressive growth while staying true to its values.

ESG VERSUS SUSTAINABILITY: UNDERSTANDING THE DIFFERENCE

In recent years, the terms ESG (environmental, social, and governance) and sustainability have often been used interchangeably, but they are not the same. Understanding the distinction between the two is crucial for business leaders who want to make informed decisions about their company’s future.

ESG refers to investment criteria. Investors evaluate a company’s risk profile and financial performance based on environmental, social, and governance factors. ESG is a framework focused on identifying and managing the financial risks associated with these factors. ESG criteria might include:

Issues like carbon emissions, water use, waste management, and biodiversity (environmental).

Factors such as labor practices, human rights, community engagement, and customer privacy (social).

Corporate governance structures, board diversity, executive compensation, and transparency (governance).

ESG is fundamentally an “outside-in” approach, where the goal is to assess how external environmental, social, and governance issues could affect a company’s financial performance. It’s about protecting the company’s value by minimizing risks that could arise from these factors. In this sense, ESG is very much aligned with traditional financial management practices – it’s about risk mitigation and ensuring that the company remains a sound investment.

Sustainability, by contrast, takes an “inside-out” approach. It focuses on the effect that a company has on the environment and society. While ESG is concerned with how external factors might affect a company’s financial health, sustainability is about how the company’s operations affect the world. This people- and planet-centric approach goes beyond risk management to consider the broad implications of business decisions. True sustainability aims not only to minimize harm but to create positive impact – whether through reducing environmental footprints, enhancing social equity, or driving economic inclusivity.

Sustainability is also about redefining value creation. Instead of focusing on financial returns, sustainable businesses consider the social and environmental value they create. This might involve paying fair wages throughout the supply chain, investing in renewable energy even if it’s more expensive in the short term, or developing products that promote health and well-being.

For a business leader, it’s important to recognize that while ESG considerations are essential, they should not be the end goal. ESG provides a framework for identifying risks and ensuring that a company remains resilient in the face of external pressures. But focusing on ESG can lead to a “tick-box” mentality, emphasizing compliance rather than truly transforming the business for long-term sustainability.

True sustainability requires going beyond risk management to actively seek out opportunities for positive impact. This might mean decisions that are costly in the short term but that contribute to a more sustainable and inclusive future. Investing in sustainable materials or committing to zero waste, for example, might involve upfront costs, but these investments can pay off in the long run by building a stronger, more resilient brand.

THE BALANCING ACT

Navigating the path to sustainability requires a delicate balancing act, one that demands a nuanced approach to decisions. Sustainability often involves trade-offs, where environmental, social, and economic goals come into conflict. As a leader, have you ever found yourself at a crossroads, where pursuing a sustainable initiative seemed to jeopardize short-term profitability or operational efficiency? This is the crux of the balancing act that sustainability demands.

To successfully balance these competing interests, leaders must think strategically across different time horizons. The concept of managing across three horizons is particularly useful in this context:

Horizon 1: The Present Business

. This horizon represents your company’s current operations – the products, services, and business models that generate today’s cash flow. These activities may not yet be fully sustainable, but they are the foundation of your company’s financial health. The challenge here is to maintain and optimize these operations while gradually integrating sustainable practices. For example, many automotive companies continue to produce internal combustion engine vehicles, even as they invest in electric vehicles. This dual approach allows them to fund the transition to a more sustainable future while continuing to meet current market demands.

Horizon 2: The Entrepreneurial Transition

. This horizon involves the exploratory work needed to transition your business toward sustainability. It’s about innovation, experimentation, and learning. In this phase, companies must invest in new technologies, business models, and processes that may not yield immediate returns but are essential for long-term success. For example, oil and gas companies investing in renewable energy projects are operating in Horizon 2. These initiatives might not yet be profitable, but they represent a critical step in the journey toward a sustainable future. The key challenge in Horizon 2 is managing the inherent uncertainty and risk associated with new ventures while ensuring that these efforts align with the company’s overall strategic goals.

Horizon 3: The Sustainable Future

. The third horizon represents the long-term vision for your company – a future where sustainability is fully integrated into your business model and your company thrives in a new, sustainable economy. This horizon is where the investments and innovations of Horizon 2 come to fruition. For example, companies like Tesla, which started with a bold vision of a zero-emissions future, are now reaping the rewards of their early investments. The challenge in Horizon 3 is to maintain focus and commitment over the long term, even when the path forward is not always clear.

Balancing these three horizons is crucial for leaders looking to navigate the transition to sustainability without sacrificing current performance. It requires a delicate dance between exploiting current assets and exploring new opportunities. For instance, as car manufacturers develop electric vehicles (Horizon 2), they continue to rely on the profits from their traditional internal combustion engine vehicles (Horizon 1) to fund these innovations. Eventually, the goal is to transition fully to Horizon 3, where the company’s operations are entirely sustainable.

This balancing act is not just about managing resources; it’s also about managing expectations – both within the company and with external stakeholders. Shareholders may demand short-term returns, while employees and customers increasingly expect companies to act responsibly and sustainably. Leaders must navigate these competing demands, ensuring that short-term decisions do not undermine long-term goals.

The challenge of balancing these horizons becomes even more pronounced in industries facing significant disruption. Consider the energy sector, where companies like BP and Shell are investing in renewable energy projects while still heavily reliant on oil and gas revenues. These companies must carefully manage the tension between their legacy operations and the need to transition to sustainable energy sources. This requires not only strategic foresight but also the ability to communicate the company’s long-term vision effectively to stakeholders, ensuring continued support during the transition period.

The long-term payoff of a proactive sustainability strategy is not just about financial returns. It’s about building a business that is resilient, adaptable, and capable of thriving in a rapidly changing world. Companies that lead on sustainability are better positioned to attract and retain top talent, build strong relationships with customers and suppliers, and navigate the uncertainties of the future.

Furthermore, as investors prioritize sustainability, companies with strong sustainability credentials are more likely to attract capital and enjoy a lower cost of capital. This trend is reflected in the growing interest in green bonds, sustainability-linked loans, and ESG-focused investment funds. In the long run, sustainability pays.

Chapter 2Why Now?

Julia Binder and Knut Haanaes

“The bigger risk today is not to jump on the train of transformation, which is of course a risk for any venture, but to be left on the platform. Because you will lose out not only on the economic benefits, from a taxation point of view, but also from a brand point of view, from recruitment of people, and in looking at yourself in the mirror.”

—Jesper Brodin

These words from Jesper Brodin, CEO of the Ingka Group (IKEA) at the 2023 World Economic Forum, point to the driving reason for companies to embrace sustainability. Even with the recent backlash against ESG investment, CEOs are faced with unprecedented pressure to address environmental and social concerns now.

Brodin started with the economic benefits of sustainability but emphasized the larger, structural reason. It’s increasingly clear that governments alone cannot effectively address the three sustainability crises described in the previous chapter: climate change, declining freshwater and other resources, and rising inequality. Companies can’t sit back and merely comply with the regulations set by local authorities, because those regulations will never be enough to prompt the innovation and development we need for a truly sustainable economy and society.

Along with government guidance, we need businesses to move aggressively, to transform their own operations and those of their value chain. Businesses possess unique agility, expertise, and resources to spearhead innovation and experimentation, fostering a diverse array of potential solutions. While governments provide essential oversight and support, the dynamic nature of business enables quicker adaptation and implementation, ultimately accelerating the pace of transformation.

In the past, many business leaders could operate much like the generic merchants in Adam Smith’s Wealth of Nations. They could pursue their own personal and corporate ends, while resting assured that an “invisible hand” would promote the public good out of the workings of their and their rivals’ companies. All they had to do was comply with the law. That approach worked brilliantly for generations, but the complexities of the twenty-first century have revealed its limitations. What succeeds in the short run can now pose substantial risks not just for a company but also for society as a whole.

THE RISING CHALLENGE

Worries about sustainability are not new. Back in the 1960s, scientists began sounding alarm bells about the detrimental effects of pollutants, emissions, waste, and climate change. While initial fears about resource depletion were misguided, and governments were able to reduce most noncarbon pollution, some of those concerns – especially climate change – have persisted. (See Figure 2.1, A Timeline of Sustainability Concerns.)

In the 1970s, those concerns sparked a call for “corporate social responsibility” (CSR), advocating for companies to purposefully contribute to societal needs. But this call gave rise to a regrettable trend of superficial, disconnected CSR initiatives – mere tokens aimed at showcasing a company’s commitment without integrating social responsibility into its core strategy. The worries intensified in the 2010s, especially around those three worrisome areas of climate change, freshwater scarcity, and income inequality. Events such as COP conferences, Fridays for Future, and the “Occupy” movement underscored the unsustainability of business as usual. We can understand the changes in five shifts:

From Seeing Future Challenges to Addressing a Current Crisis

. Climate, water, and inequality have gone from vague concerns to be addressed in the future to areas that demand immediate attention. The once abstract concepts have materialized into catastrophes that affect our daily lives. With the recent surge in extreme weather events, water-driven conflicts, and antidemocratic populism, the three crises have taken on urgency.

From Narrow Awareness to Broad Anxiety

. In the 1970s, concerns about the environment and society were primarily confined to academia and think tanks. What had been scientific discussion has now become general knowledge, which has helped to bring widespread awareness in civil society. This heightened awareness has also brought about a noticeable shift in people’s emotional connection to these crises, with growing anxiety, particularly among the youth.

Figure 2.1A Timeline of Sustainability Concerns.

From Government Responsibility to Business Imperative

: The 1992 Rio Earth Summit presumed that governments held the main responsibility for taking action, with companies expected to adapt to regulatory changes. But that approach has failed to stem the crises. Fast forward to today, and the broad society expects businesses to step up and take a central role in addressing the crises. Regulation and subsidies aren’t enough. Companies are no longer bystanders, but pivotal players that need to actively reduce their deleterious impact and craft sustainable solutions. Companies such as Paragonia and Vaude are actually lobbying governments to intensify regulations on sustainability in order to help them plan for major investments. And many young people say that corporate brands are better positioned than governments to solve social problems.

From Voluntary Communication to Mandatory Disclosure and Reporting

. Just a decade ago, few companies reported on the environmental or social impact of their activities. CSR reports were discretionary, often written by marketing or communications staffs. No more: increasingly, governments are passing laws to make companies take responsibility and disclose the environmental impact of their activities, including emissions, waste, water usage, and harmful chemical use. The European Union, for example, now addresses not just what a company does but the impacts of its entire value chain. Separate laws mandate disclosure on social issues such as compensation ratios and racial composition. With this knowledge, companies can do much more to improve their secondary impact on the world.

From Solo Efforts to Team Sports

. Finally, we see increased interest in collaboration among companies and between the public and private sectors. The crises we face require coordinated efforts along value chains and systemic transformations in specific sectors. These alliances can drive deep-seated and lasting change by combining expertise, resources, and influence. As these partnerships strengthen, they can mobilize collective action against the crises, offering a beacon of hope for a more sustainable future. Governments are already rethinking antitrust rules to encourage this collaboration.

Some business leaders may think now is the wrong time to push for sustainability given that the movement for ESG investing has suffered strong pushback, especially in the United States. On the social side, the much publicized American call for stakeholder capitalism, with dozens of prominent signatories in 2019, largely fizzled out in the pandemic as many of those same companies resorted to layoffs and other actions that harmed stakeholders.

We see the pushback as a temporary and natural resistance to an inevitable corporate transformation, especially with the continuing introduction of new regulations by governments in this area. And as we pointed out in the previous chapter, sustainability is quite different from calls for investing in companies with superior ESG policies. The ESG movement was about companies recognizing their vulnerability to external risks. Sustainability is about what companies are actively doing to minimize their deleterious impact and pioneer new approaches for their sectors. ESG thinking focuses on risk management in a defensive way, while sustainability involves going on the offensive to benefit both society and the bottom line.

Even the recent European movement back to fossil fuels came about less from sustainability blowback and more from inadequate investment in low-carbon energy before Russia invaded Ukraine. When Europeans lost their access to cheap Russian natural gas, they weren’t prepared. Sustainable economies, and sustainable businesses, are ready for volatility in conventional energy markets.

RISING PRESSURES FOR DECISIVE ACTION

In numerous industries, businesses are already confronting threats from extreme weather events, droughts, flooding, or geopolitical instability. These risks can manifest in supply chain disruptions, market fluctuations, or threats to employee safety. According to a recent Deloitte survey, 97% of more than 2000 C-level executives have already noticed the effects of climate change on their business, and half say these have disrupted supply chains and business models. Climate change and the water crisis are no longer far-off problems, and these risks are only getting worse.

As for material inequality, companies have been seeing its effects with the waning of the COVID-19 pandemic. From the “great resignation” and “quiet quitting” to shrinking labor forces, companies are getting less effort and engagement from their talented employees. They’re also facing increasing criticism on the social front when they abstain from taking a stance on significant societal issues, such as the #MeToo movement.

Executives don’t have to believe in “late capitalism” or reject “neoliberalism” to recognize that stakeholders demand a different approach from companies. As the three crises call for an all-hands-on-deck response, companies must contribute as well – and even take the lead in some areas.