CEOs consider sustainability a huge challenge, only slightly behind cybersecurity

What's behind the steep jump? And what are the roadblocks to success?

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By Will Novosedlik

In the 25th annual edition of the IBM Institute for Business Value’s CEO Study, 56% of Canadian CEOs surveyed ranked sustainability as a significant challenge for the first time ever, second only to cybersecurity. This represents a spike from a year ago when only 31% of Canadian leaders cited sustainability among their top challenges.

So what’s behind the steep jump? We asked Jean-Francois Barsoum, senior innovation executive at IBM – who has over 25 years of experience at the company, where his focus is on understanding and communicating the societal and environmental impacts of technology – for the answer.

“That’s a really good question,” says Barsoum. “I don’t know that I have an answer for you, but there are a few hypotheses for why that might have happened. The first is that there’s been an acceleration in the number of extreme weather events over the past couple of years. Another is that the pandemic may have had an impact on our perception of how scientists talk about the challenges that we’re facing. Science was really at the forefront of the news. And in the middle of the pandemic, there was an emerging concern for environmental issues among consumers.”

IBM’s survey revealed that CEOs in Canada receive the greatest pressure on environmental sustainability from board members (79%) and investors (68%) – the stakeholders they tend to interact with most directly – as opposed to consumers (17%). Additional pressure comes from regulators (56%), government (55%) and ecosystem partners (52%). Pressure from employees came in at a distant 12%.

It’s pertinent to note that more pressure is coming from investors and board members than from consumers and employees.

According to the report, the perception that environmental and social agendas require a trade-off with improved business outcomes is crumbling. More than 80% of the CEOs surveyed now expect sustainability investments to produce improved business results within five years. Nearly half (47%) feel their sustainability investments will accelerate business growth. For energy and resource companies, that number is just over half. But in stark contrast to those data points, 57% of all CEOs cite unclear ROI and economic benefits as the chief barrier to investing in sustainability.

Some CEOs are leveraging their sustainability investments to optimize operations by driving efficiencies and improvements.

“That’s about reducing waste,” says Barsoum. “It’s about optimizing the amount of office space you use. It’s about using the ‘Internet of Things’ to monitor in real-time how your equipment is being used. One of the first steps for companies is to understand that they can at least make sure what they’re doing is optimized. Because I can tell you by reducing your environmental footprint, you’re going to reduce your costs. That’s going to be a no-brainer for most companies.” The challenge is that companies typically haven’t implemented any data capture and don’t have the analytics to understand these impacts.

The report points out that the path to sustainability is a three-stage process: The first stage is regulatory compliance, then operational optimization, followed by viewing sustainability as a business opportunity. The report refers to this as “transformational sustainability.”

Barsoum likens insurance companies as the canaries in the coal mine of transformational sustainability. They were the first to recognize that climate change was going to be their top expense and their top risk, so they needed to understand the impacts at a local and global level. The automotive industry has also been transformed by a shift to sustainability. For these industries, sustainability has become an integral element of their business strategy.

We asked if there was any variation in attitudes across different sectors, and there was. Predictably, the resource extraction industries identified environmental concerns as their biggest challenge, not cybersecurity. Eighty percent also said that sustainability investments will accelerate business growth and will improve business results within the next five years. At the same time, the old saw that no matter what environmentalists say, we’ll never get rid of fossil fuels, has changed dramatically. Seems the skeptics are in retreat on that one.

There were also geographic variations. Most notably, Canada was the only country that said cybersecurity was a higher priority than sustainability. For everyone else, sustainability was number one. It can be tempting to hope that we’re getting closer to a definitive business case that would convince leaders that sustainability and profitability are not mutually exclusive. But there’s still a ways to go.

The ideal tipping point is perhaps best imagined by Wu Jing, deputy GM of Sinochem Information Technology in China, a provider of computer programming services for the chemicals industry. “The more we invest in sustainable development projects, the better the benefits, the lower the cost, the larger the scale. It is a virtuous circle that enables good money to expel bad money.”