An annual survey of global CEOs by Software AG has revealed that sustainability ‘takes a back seat to commercial objectives’ when the business faces an economic downturn.
The research, published in a white paper, asked about the balance between digital transformation and sustainability projects and found that although 95% of companies rated sustainability as a top or high priority, 84% admitted it was pushed down the priority list when there was economic turbulence.
Significantly, 82% of respondents admitted that they would even be prepared to pay regulatory penalties instead of spending on sustainability, which Software AG suggests points to a perception among CEOs that ‘sustainability is too expensive or too difficult to take on, on its own merits’.
In contrast, corporate investment in technology continues to be a priority, the white paper has found, with 69% of CEOs planning to divert resources from other business areas to enhance digital transformation. What’s more, 83% plan to increase investment in existing technology when times are tough and have also earmarked spending on new tech, new talent and employment development.
Software AG notes that companies that prioritise digital transformation when times are tough are typically more resilient and better equipped to cope with future economic downturns. However, it points out that those that ‘think about sustainability and digital transformation together’ will be in an even stronger position.
Digging deeper, the white paper finds that although CEOs are committed to sustainability principles, they appear to be struggling to connect it with other business priorities. Significantly, 84% see digital and sustainability transformation as separate initiatives.
Software AG, however, challenges the perception that sustainability can’t play an important role in helping a business to grow. The white paper argues that although the connection between ‘sustainability and the bottom line isn’t always the most direct one,’ it is clear that ‘strong, transparent sustainability initiatives do support the growth of the business.’
To start with, the research argues that there is strong evidence to show companies want to buy from other companies that take sustainability seriously.
The white paper reveals that 97% of the CEOs admitted that a potential seller’s sustainability credentials are ‘either essential or important’ when they make buying decisions. An equal number also say that the sustainability positioning of a product that they are considering to purchase has a strong influence on whether they will proceed.
‘This is a strong connection between top line sales and sustainability policy and could be enough on its own to prompt more investment,’ notes the white paper.
Another important driver in investment is younger employees who greatly value sustainability principles and bring vital skills to the workplace.
The research reveals that 84% of companies acknowledge that they risk losing employees without having a clear sustainability strategy. At a time when there is a skills gap, especially in technology, Software AG says it is also essential to source and retain the right skills.
‘The skills gap is a major issue for organisations, and while a majority are increasing their investments in hiring, they may not be setting themselves up for success if they aren’t able to retain that talent,’ argues the white paper. ‘[It’s] another strong reason to think about sustainability.’
And as IOSH’s Catch the Wave model illustrates, sustainability is more than just the environmental impacts that a business has. There is also an important social dimension that IOSH argues is the backbone of resilience (https://iosh.com/businesses/iosh-for-business/catch-the-wave/).
‘A business’s human capital is like any form of capital – its value can rise as well as fall,’ says IOSH.
‘Having good sustainability practices and setting high standards in your business for the treatment of your workforce, communities and supply chains will reward you with stronger performance and growth.’
Related to this, Software AG notes that investors are increasingly looking at how companies position themselves on sustainability and its importance as part of their wider Environmental, Social and Governance (ESG) performance.
The white paper reveals that 87% of CEOs believe that they will lose investors if they don’t have a clear sustainability strategy.
‘It’s easy to dismiss this stance as overly-fearful, but there are signs of this being institutionalised,’ notes the white paper.
‘In the US, the Labor Department issued new pro-ESG rules, the EU and the US Securities and Exchange Commission (SEC) have both either issued disclosure rules, or are preparing them, and investment rates in ESG are “soaring”. While these regulations don’t represent the will of individual investors, they are likely to usher in a cultural change that will trickle down’.
Significantly, Software AG points to the emergence of Activist ESG investors, who they add are looking for both strong financial returns and strong ESG credentials. They don’t expect one at the expense of the other.
The white paper notes that one of the reasons why sustainability is not taken as seriously as digital transformation is that its goals are often not ‘baked into the company culture in practical ways’.
When surveyed, 82% of CEOs revealed that their employees don’t have clear targets, incentives or reporting on sustainability.
Software AG argues that CEOs need to drive cultural change from the top, pointing out how only half of those surveyed had got sustainability goals aligned to company processes.
‘Finding ways to include [sustainability] in company culture and processes – even if that means forcing it at first – gives employees more empowerment to play their part,’ says the white paper.
