CEOs increasingly see sustainability as path to profitability5 min read . Updated: 13 Oct 2020, 01:23 PM IST
- Ilham Kadri, who heads Belgian chemical company Solvay, is among a growing group of leaders who say sustainability will play a role in their company’s future success
If Solvay SA wasn’t serious about sustainability, Ilham Kadri says, she wouldn’t have taken the chief executive job last year.
On her first day at the helm of the nearly 160-year-old Belgian chemical company, Ms. Kadri says, she started to work on a 10-year sustainability road map for the firm that was unveiled earlier this year. Her bonus is tied to the plan, which includes phasing out coal use and cutting a quarter of Solvay’s freshwater intake by 2030.
Her belief in sustainability is rooted in her childhood. She says wastefulness was a luxury she couldn’t afford as a young girl growing up in Morocco without tap water or a refrigerator at home. Decades later, the 51-year-old Ms. Kadri is one the few women of color at the head of a large company.
Solvay landed at No. 52 in The Wall Street Journal’s new list of the 100 most sustainably managed companies, notching high marks on air quality, employee health and safety, and human rights and community relations. To produce the ranking, the Journal’s research analysts screened a universe of more than 5,500 publicly traded companies on various environmental, social and other factors, using publicly available data and an analysis of hundreds of thousands of news articles about the companies. To be included, a company had to meet minimum data-disclosure standards in key categories including the environment, workplace, social issues and business model/innovation.
Ms. Kadri, who at one time worked on wastewater-recycling and desalination projects in the Middle East, says that using less water to make chemicals will save money and help Solvay remain profitable. The company makes ingredients for products ranging from lithium batteries to implanted medical devices.
“Sustainability is profitability," she says.
CEOs increasingly are embracing the idea that a company’s environmental, social and governance practices will play a role in its future success. For example, a quarter of CEOs now strongly agree that investing in climate-change initiatives could lead to significant new product and service opportunities for their businesses, up from 13% in 2010, according to a 2020 survey of more than 1,500 global CEOs by PricewaterhouseCoopers LLC, an accounting and consulting firm.
“Don’t underestimate the impact of one CEO or one major company making a decision," says Alan McGill, global sustainability assurance leader at PwC.
Meanwhile, the pandemic and social unrest over racial justice have sped up the pivot to sustainability at many companies this year after both fronts exposed inequality in the economy, says Rebecca Henderson, a Harvard Business School professor.
“Five years ago, the argument was all about trying to persuade CEOs to take sustainability concerns and move them into the mainstream of the business," she says. Now “everyone I talk to has the sense they ought to be," she says.
Christian Klein, the 40-year-old chief executive of German business-software giant SAP SE, is among the CEOs whose bonuses are tied to green targets. In the case of SAP, which came in at No. 67 in the WSJ research team’s ranking, that includes a fast-approaching goal of achieving carbon neutrality in direct emissions by 2025.
Years ago, it was much more difficult to convince shareholders that sustainability leads to profitability, says Mr. Klein, who became CEO earlier this year after more than two decades at the company, most recently as chief operating officer.
“That’s not a contradiction anymore," he says, adding that the business world is realizing that the customers of tomorrow won’t just care about price but about who is leading on environmental and social issues.
He says he is now focused on finding ways for the thousands of businesses world-wide that use SAP’s software to lower their environmental impact, including in their supply chains and manufacturing.
“We believe we can have a huge impact," Mr. Klein says.
The top leadership at Linde PLC, the industrial-gas company that landed at No. 62 on the WSJ team’s list, also sees a clear business case for sustainability. Linde was formed by the merger of Linde AG of Germany and U.S. gas producer Praxair Inc. in 2018.
CEO Steve Angel, who previously ran Praxair, says that for the last 17 years he has focused on making manufacturing more efficient and cleaner, which has translated into cash and emissions savings for both the company and clients.
Mr. Angel sees no conflict between Linde’s short-term profit goals and its longer-term sustainability targets, including achieving zero waste at 450 sites and more than doubling low-carbon energy use by 2028.
“I don’t spend any time during the day worried about an either/or trade-off," he says
Mr. Angel says he is aiming to turn Linde’s clean hydrogen business into a multibillion-dollar revenue powerhouse, serving companies that want to wean themselves of fossil fuels. Hydrogen produces near-zero emissions when consumed in a fuel cell. Most hydrogen today is produced from natural gas and other fossil fuels, including the $2 billion in annual revenue that Linde already generates from its hydrogen business. Linde says it wants to make more hydrogen using sun and wind power, or as a byproduct of natural-gas production.
Electric-equipment maker Schneider Electric SE, meanwhile, has been shifting toward sustainability ever since Jean-Pascal Tricoire became chairman and CEO some 14 years ago.
“Your business should go in the direction of the mega trend," he says. “If your business is going against sustainability, you’re bound to fail."
Schneider Electric is one of many companies in the Journal team’s ranking whose green efforts have drawn investors. In a note published in May by Credit Suisse, the bank says that Schneider Electric was among the 15 most popular European companies in the 109 ESG funds it tracks.
The French company, No. 85 on the WSJ list, in 2005 began setting sustainability targets and performance trackers that are renewed every three years and linked with managers’ bonuses, Mr. Tricoire says.
“At that time, it was a very lone crusade in our industry," he says.
Talk vs. action
Still, there appears a gap between talk and action when it comes to hiring CEOs and executives based on their sustainability experience.
Last year, about 15% of 4,000 job postings for nonexecutive or senior executive positions mentioned sustainability, but only 4% at most required actual experience in it, according to a report by the United Nations Global Compact and executive hiring consulting firm Russell Reynolds Associates.
“Businesses are doing a great job embedding talk of sustainability into descriptions about their company, but are falling short in driving decisions about which leaders to hire based on it," the report says.
Russell Reynolds CEO Clarke Murphy says he expects that to change in the coming years.
“I don’t think this is just chat, chat, chat."
Mr. Holger and Ms. Bugault are reporters for The Wall Street Journal in Barcelona. Email them at email@example.com and firstname.lastname@example.org.