BCG: Sustainability success tied to experience & board

20 January 2015

In a recent report from MIT Sloan Management Review in collaboration with the Boston Consulting Group, the way businesses collaborate to meet sustainability goals is explored. One of the key findings is that the most successful projects are completed by businesses that have experience with collaboration as well as a shared language with their partners. Another critical element is a board that is actively supporting the collaborations, something that is not always forthcoming.

In the “Joining Forces: Collaboration and Leadership for Sustainability” survey, MIT Sloan Management Review, Boston Consulting Group (BCG) and the UN Global Compact asked more than 2,500 business respondents about their view on the role of sustainability cooperations* in their business.

Collaboration and leadership for sustainability

One of the central findings from the report is that businesses need collaboration partners to reach their sustainability goals, 67% strongly agree that such a collaboration is necessary with 23% somewhat agreeing – only 4% disagreeing with the need for collaboration. The research shows that not only is collaboration necessary, the way companies work with their collaboration partner is also important to the success of the project.

Indicators of success
While sustainability projects succeed for the most part, only 18% of companies respond that their collaboration project is very successful, with 27% saying that the project was only somewhat successful. There are several factors that influence how successful a collaboration project is, and these are tied to both experience as well as the will of the company’s board to be on-board with the project.

Corporate Views on Sustainability Collaborations

Experience builds positive bonds
One of the findings from the report is that the number of sustainability related collaborations is correlated with the success of the relevant projects.  Experience in working with sustainability collaboration partners or going through a number of collaborations with different partners creates an atmosphere in which the projects are on the path to success. With low (1-3) collaborations the incidence of very successful projects is only 8% and slightly successful projects 14% at the other end of the scale, with 50> projects under the belt, very successful falls at 50% with no projects coming out as slightly successful.

Greater Exerience with Collaborations Leads to More Succes with Each

Some of the keys to successful collaborations lay in the development of relationships between collaboration partners, knowledge sharing — both formal and informal — is another key ingredient to ensuring that collaborations are successful. Speaking the same language and understanding shared terms and practices is also seen as an important indicator for successful collaborations, as well as the development of trust between partners taking on the collaboration.

All on board
The board of directors too has a considerable influence according to the survey results. If a board is actively engaged with the project, then 21% of the collaborations turn up as very successful, and 46% as quite successful, with only 5% meeting slight success. The numbers fall significantly if the board does not actively support the project with only 6% finding high success, 26% quite successful and 26% only meeting slight success.

Board Support is linked to Collaboration Succes

Given the high impact active board support has on collaborations, the survey results show that only 22% of managers perceive that their boards provide substantial oversight on sustainability issues. This is not the only research that shows tepid board engagement, with another research review indicated that no more than 10% of US public company boards have a committee dedicated solely to corporate responsibility.

So what is holding the board back from engaging with collaborations? Based on the authors’ survey and interviews, the strongest barriers to greater board engagement seem to be: unclear financial impact, a lack of sustainability expertise among board members, other priorities, short-termism and the view that boards should focus on shareholder value. There are players looking to develop pathways that lead boards toward sustainability and long term strategy. MIT professor Robert G. Eccles has developed an approach that may help reduce the focus on maximizing shareholder concerns so boards can think broadly and act deliberately about both long-term and short-term issues. Eccles argues that boards should articulate a meaningful story about which stakeholders and material risks are most important to the company’s long-term goals, and communicate that story to the markets.

* Collaborative relationships between various parties, both public and non-public, in which participants agree to support a common sustainability-related cause or to achieve a common sustainability-related purpose ranging from single-industry collaborations to multi-sector collaborations (e.g., Business-Government-NGO partnerships).


Private equity firms ramp up sustainability focus

19 April 2019

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.