Exploring the views of over 1,400 CEOs from PwC’s 19th Annual Global CEO Survey to uncover their approach to today’s sustainability issues.
We’ve explored the thinking of over 1,400 CEOs from our 19th Annual Global CEO Survey to uncover their approach to today’s sustainability issues. If your first thought about sustainability takes you to the environment, that’s only part of the story. Sustainability is about business longevity – it’s about those behaviours, processes and technologies that will keep you in business for longer, your reputation intact, and your customers happy. Engaging with society and government to understand expectations and demands, and to put a value on your own impacts (positive and negative) and the future implications of your strategy, are all key.
‘Business through a new lens’ discusses the relationship between business, and society, the environment and government. All are interconnected, exerting an impact on and having dependencies on each other. It suggests that business models are changing, moving away from shareholder centric models to encompass wider stakeholder needs too, and discusses the potential increase in influence of governments as the Sustainable Development Goals are embedded. It also talks about decision making – it’s changing too, moving from a reliance on financial data alone to now include non-financials, with impact measurement becoming more important.
Stepping back to view business from this new perspective raises some interesting questions:
If a company doesn’t make a profit, it’ll soon be out of business, but there is real recognition amongst CEOs that running a business is about much more. Profit isn’t the only driver or measure of success. 82% of CEOs say they prioritise long term profitability over short term and 76% of CEOs say business success is about more than just financial profit.
"There’s always that challenge of determining whether the metrics of success will be for today or for the future. Looking at the short term and the long-term there’s always been that trade-off between the business imperative and the social imperative. I believe that they both have to strike the right balance but the challenge is how to get that right balance. I also believe strongly that the search for responsible private profit can sometimes lead to the creation of social good.”
CEOs are aware of their business dependencies – without customers, there is no business; with non-compliance comes fines and closure; without workers, revenue declines. In fact, 90% of CEOs say their customers and clients have a high or very high impact on their organisation’s strategy; 69% say that governments and regulators do as well; and 51% point to employees as a big influence. There is real recognition that it’s not just business that shapes strategy, other stakeholders are influential too. Identifying and engaging with stakeholders is key to developing a real understanding of their expectations and demands.
In September 2015, the Sustainable Development Goals were agreed and since then governments have been working through how to achieve them – the teams, initiatives, new taxes and policies they need to put in place, and the measuring, monitoring and data collation that needs to happen. CEOs already recognise that government has a big influence on strategy and many say that regulation is a threat to growth. As governments implement their plans, it’s in the best interests of business to know how they help or hinder the goals being achieved and to take action.
We all know what gets measured gets managed, so it’s interesting to see that measuring success is no longer confined to financial metrics to meet the needs of regulators, the treasury, shareholders and investors. 86% of CEOs are already responding to changing stakeholder expectations by making changes to how they measure success and what they hold themselves accountable for. 80% say they are making changes to minimise social change and environmental damage. CEOs are pushing the boundaries on their business wanting to take responsibility for impacts and outcomes beyond financials and therefore have tighter control on a wider set of risks too.
“We measure success by the traditional financial means… as well as total return for our shareholders. But we also consider some things that might not have a financial metric. One is, are we living our purpose? We believe that doing so will make us a better company for all of our stakeholders that you not only can make a profit, but you can make a difference.”
CEOs feel the pressure to address wider stakeholder needs but, what’s not clear is if it drives profit too. 84% of CEOs told us they are expected to address wider stakeholder needs and 74% recognise that their purpose revolves around more than their business. 52% of CEOs say that the approach helps them to be profitable. This is a great example of business working at its best, embedding sustainability principles into business-as-usual to provide optimal value to its stakeholders, with potentially all parties benefiting.
Addressing wider stakeholder needs more profitably is a win:win scenario for business, and society too.
“We believe that the issue of sustainability may have been optional for companies in the past, but today it is a must. We also have a very clear vision that we are living in an era of change. In other words, we have moved from the era of shareholder value to an era of stakeholder value.”
CEOs recognise that customer’s perspectives are changing, with 27% of CEOs said that their customers seek relationships with organisations that address wider stakeholder needs, and this rises to 44% over the next five years. CEOs will need to take action to respond to this change to maintain customer relationships and win new ones.