Why entrepreneurial business leaders are focusing on sustainability

A strong ESG strategy is critical for customer-centric companies. It builds purpose, inspires loyalty and creates long-term value.

In brief

• Sustainability has become a business imperative for CEOs, with 73% reporting their companies have adopted ESG initiatives for strategic reasons. 
• Younger consumers expect companies to do right by the planet and will point out when they miss the mark — but they respect genuine attempts to do better.
• For sustainability efforts to make a true impact, companies need to work with others throughout their broad ecosystem.

Business leaders have plenty of immediate concerns to keep them up at night, from the talent shortage to supply chain snags and inflationary pressures. But they continue to look ahead, keeping customer needs at the center—and that’s driving deep commitment to environmental, social and governance (ESG) strategies. About 82% of executives see ESG as a critical value driver, according to the EY US CEO Outlook Survey (PDF) released in January 2022.

Sustainability has even overshadowed concerns like the Great Resignation. Asked about critical risks to future growth strategy, leaders cited climate change impact twice as much as talent. Those responses were echoed in questions about capital strategy, with planned investment in sustainability cited at roughly double the rate of investment in talent attraction and retention. Seventy-three percent have adopted ESG initiatives for strategic reasons, up 30 percentage points from April 2019.

ESG was also a focus for the entrepreneurs, CEOs and other executives at the 2021 Strategic Growth Forum® US, where they spoke at length about how purpose-driven sustainable initiatives are crucial to retaining brand authenticity and customer loyalty. Steve Cahillane, CEO and Chairman at Kellogg Company, and a featured speaker at the event, said this was especially true at the leading food company, where everything is guided by its ESG strategy to “drive growth through purpose.” He cited the company’s expansive Better Days commitment, which “focuses on the interconnected issues of well-being, hunger relief and climate resiliency to drive positive change for people, communities and the planet.”

“We are a food company. We know we can help families and farmers through [initiatives like] our net-zero commitment and recycled packaging. We are pushing ourselves, and our customers are pushing us. It’s a good thing,” said Cahillane. “We are making progress, but we have to do more.”

Business leaders agree that ESG initiatives represent a business imperative for creating long-term value.

“It used to be that sustainability was something we would talk about at the end of our innovation cycle,” said Guy Persaud, President of New Business at Procter & Gamble. “We would develop an innovation and figure out, ‘Oh, how do we make sure this is sustainable?’ We’re now building it into the beginning of our innovation cycle. ... Now, it’s at the core of our business model.”

ESG strategy touches all manner of CEOs’ concerns — not only talent but also funding, supplier relationships and just about every other aspect of modern business, noted Steve Payne, EY Americas Deputy Managing Principal.

“There needs to be a purpose there that resonates. It needs to be around ESG,” Payne said. “But purpose is [about] attracting money, it’s attracting customers, it’s attracting suppliers and ... attracting talent. [That’s] what will allow you to deliver the services and the products that you provide to your customer base.”

That brand purpose should inform both external communications and internal strategy. “We have a set of behavioral norms that represent who we are — here are the things we won’t accept — and then we decide how we externalize that,” said Steve Rendle, Chairman and CEO of VF Corporation. “We use our purpose as our guardrails for our external voice, or when we focus internally.”

“The most important brand attribute now and in the future is authenticity,” Cahillane said. “People can see through things. They want an authentic voice, and they want to interact with companies that ... share their values and share their purpose, and indeed have a purpose.”

ESG is crucial to the younger generations of consumers

Today’s consumers, particularly younger generations, increasingly demand the businesses they support represent their personal values, which very much include better care of the planet. They expect companies to “walk the walk” by carrying out those values in their business operations.

Inevitably, even the best-intentioned leaders and companies won’t always get it right. Sarah Shadonix left her job as an attorney with sustainability explicitly in mind: in 2017 she founded Scout & Cellar, a winery that makes clean-crafted wines based on its benchmarks for sustainable production and pesticide use.

The Dallas-based startup took off — fast. Scout & Cellar found itself scrambling to fulfill the orders pouring in that first summer, and the team needed to ship wine off quickly before the bottles were ruined by the sun beating down on its Texas fulfillment centers.

“We had to spin up a really quick summer shipping method in Texas six months into the company when we grew way faster than we ever expected — and so I’m very embarrassed to admit this, but we used Styrofoam in that first summer,” Shadonix said.

One Scout & Cellar customer wasn’t having it. They sent that plastic foam box right back to the company, appending a note: “Dear Sarah, I expected more.”

“Oof. And she was right. We had let our customers down. We had let our partners down by not really living out what we were talking about,” Shadonix said. “So, we did better.”

Within months the company launched “Scout Safe Ship,” using curbside-recyclable and recycled material for the boxes along with ice packs that customers could safely dispose of by pouring down the drain. Then they created a patent-pending box composed of corrugated cardboard that’s 30% to 40% lighter than other wine shippers, according to Shadonix. Scout & Cellar wine bottles are also 40% lighter than most.

“We’ve learned from our mistakes, and we’re trying to do better,” Shadonix said. “We all feel this responsibility to do better for our planet. That responsibility is inspiring me to continue to push beyond the bounds of our clean-craft commitment to reach the edge of our supply chain to make a greater impact, outside the bounds of wine, to do better for our planet.”

Extending sustainability throughout the ecosystem

Cahillane noted no business is an island when it comes to sustainability. Efforts must happen in concert with others — in each company’s broad ecosystem — to make a true impact. But it all starts with that internal purpose.

“The one thing we’ve all learned is you really have to look at the end-to-end supply chain to make the kind of advances that are necessary. One company can’t do it alone,” said Cahillane. “We impact other companies, our suppliers impact us, and we impact our customers by the way we do business.”