“This is not a potentially transformative, but a truly transformative period in our economy,” he says. “If companies don’t change, then they won’t exist in the future.”
Forward-thinking leaders need to recognize that by building their strengths to become more sustainable, they also have the opportunity to innovate and outperform their peers, says his colleague Klaus Weberprofessor of management and organizations and faculty director of the sustainability program at Kellogg. That is, sustainability need not distract from the core operations of a business. On the contrary, it can strengthen them and create new opportunities.
“Businesses miss opportunities to innovate when they don’t proactively think about sustainability as a long-term strategy,” says Weber.
Given the outcome of the 2024 US presidential election—and the recent ESG backlash—companies undertaking global sustainability initiatives will need to contend with both the transition risks of future changes in consumer demand and regulation and the operational risks that they need to consider when deciding how to make sustainability work for them.
Weber and King spoke to Kellogg Insight about why companies need to embrace sustainability—and how they can work with activists to make change.
Turn sustainability into a competitive advantage
Many companies view sustainability as a burden and are reluctant to go beyond what regulations require. This is because it is really hard to change the way a business is run while trying to keep the business profitable. This is especially true for larger, publicly traded companies that meet investor expectations.
“Once you have performance shortfalls, you’re going to be controlled by investors who are primarily interested in short-term gains,” says Weber. “So there’s always the risk that your big sustainability initiatives will be cut or scaled back.”
Even when leaders “understand the importance of the problem, their motivations are not always aligned,” King adds.
But that attitude comes at a cost, Weber and King say. Companies that fall behind on sustainability suffer from reputational risks, operational risks and talent loss. But perhaps more importantly, they also lose one
opportunity to innovate and develop a competitive advantage.
“Sustainability isn’t just about reducing carbon emissions just because we have to,” says Weber. “It’s an opportunity to see opportunities in the market and develop new products and services that actually create new business areas for them.”
Weber notes that a very simple first step in this direction is robust data collection and measurement — and not just to meet reporting requirements.
“Most companies, especially the bigger ones, rely heavily on data in their decision making,” he says. “If you don’t have information at your fingertips about, say, the impacts of carbon emissions or water use for a particular design decision, it’s not going to be part of the decision-making process.”
Companies will need to ensure they have the in-house expertise not only to collect this data but to leverage it in sustainable ways, a practice Weber calls “up-skilling the workforce across the board.”
“This is the future of the workplace,” says King. “You can’t be climate illiterate if you’re going to be a successful operator in this business world.”
For large incumbents, making this change may involve adopting the mindset of a family business by taking a longer view.
“If all you care about is next quarter’s returns, you’re obviously going to underestimate the importance of sustainability,” says King. “Family businesses are about maintaining the long-term viability of that organization. They want to be able to pass the wealth on to the next generation.”
Embrace the role of activists
Weber and King also argue that activists have an important role to play in pushing businesses to take a longer view.
Activists come in many types. We’re all familiar with public activism—someone tying themselves to a tree to protest deforestation or pouring soup on billboards to draw attention to climate change. This type of activism most effectively targets large, consumer-facing companies that are familiar to many.
“Walmart cares about its brand reputation,” King says. “He doesn’t want to be cast as a bad actor and be seen as perpetuating the degradation of our world in any way. So Walmart has a very strong incentive to try to cooperate as much as they can. I don’t want to say they’re perfect, but they’re definitely doing things to try to be greener, more environmentally sustainable because of the pressures they’re facing.”
But while public activism excels at drawing attention to a cause, it doesn’t necessarily offer solutions and ideas to combat the problem. This is where other, less obvious factors can play a role in making businesses more sustainable. Investors who care about long-term returns and are highly attuned to risks from, say, climate change, can be active activists (or just involuntary activists if they shift their investments away from companies that don’t operate sustainably).
Internally, sustainability managers can also have an activist role, promoting sustainability in an organization. They bring valuable expertise, but if they are not given sufficient power or voice within the company, they may struggle to make an impact.
Then there are employees interested in sustainability, some of whom form employee resource groups. They may occasionally borrow tactics from classic activism to create visibility for their cause (think Google employees are on strike to protest the company’s handling of sexual harassment), but they can be much more effective than external factors.
“They act as inner clubs of activists to promote change in the organization,” says King.
“They are activists because they care about the issue, but they also have a lot more knowledge about how to operate in these spaces.”
Weber points out that having sustainability-minded and knowledgeable employees throughout the organization can be the most effective way to create change.
“You get really significant movement when marketing managers, product developers, finance people, business people all have that knowledge and actually do it without someone prompting them,” he says. “But I think it’s fair to say that most companies are pretty far from that situation at this point.”
King adds that activists on all sides should be seen as allies, not competitors, and vice versa.
“Companies that invite activists and give them a seat at the table, and activists that are willing to listen to the problems that companies face, those are the situations where you see the most learning and the most potential for innovation.”