Implications of the ESG agenda for leadership

We are living in an age where disruption is the new constant. On the one hand, we have digital disruption: new tech innovation disrupting the business model of incumbents — think Netflix, Uber, Airbnb, Spotify, WhatsApp, Amazon.

Then we have the hard-to-predict massive global shocks: The once-in-a-century shock of the COVID pandemic, which drove multiple disruptions on several levels, and more recently, the multiple disruptive effects of the war in Ukraine.

Alongside these sources of disruption, climate and other aspects of the sustainability and ESG agenda are also now driving their own disruption in two distinct ways. 

First, we have the disruptions driven by ESG challenges themselves. Think about all the disruptions arising from rising temperatures and their knock-on effects: heatwaves, droughts, storms and flooding, wildfires, not to mention their impacts on both health and agricultural productivity. There are implications on the business side. Unilever has said disruptions to the agricultural supply linked to climate change are already costing the business €300m a year.

But there are more worrisome disruptions linked to other environmental challenges relating to biodiversity and species loss, driven by pollution amongst other things, disruptions from increased focus on systematic discrimination against women and Black people — as we’ve seen from the #BlackLivesMatter and #MeToo movements in the U.S. and western Europe, and disruptions linked to human rights issues in Asia — for example, for apparel producers sourcing cotton from Western China amid genocide concerns.

Additionally, as more and more companies take leadership positions on responding to these ESG challenges, this in itself is leading to industry transformations that are also driving disruption. Think of the shifts toward wind and solar in power generation, and electrification in the automotive sector, which are disrupting the business models of incumbents. 

A new leadership role, and the skills and mindsets required to play it

Navigating these disruptions is transforming the skills and mindset required of senior executive leaders, including chief learning officers.

Our research, based on in-depth conversations with CEOs and senior leaders at more than 30 organizations recognized as leading on sustainability and ESG, found that compared with a generation ago, leadership has changed in three significant ways:

• A new leadership mindset. Today’s business leaders need to see addressing social challenges as at the heart of their job description. They are leaders in society as much as leaders of their businesses. Rather than seeing a trade-off between doing good and making money, business leaders need to aim to achieve each through the other.
• A new paradigm leading change inside the organization. CEOs see their new role as influencing change in their organizations to open up the space for others to behave differently.
• A new paradigm for leading change in the wider ecosystem around the organization. CEOs now see it as their role to lead transformation across their organization’s wider industry sector, proactively leading change in consumer and supplier behavior, industry norms and government policy.

This has brought to the forefront the importance of the leadership activities, behaviors and skills involved in leading cultural change in organizations, including:

• How you collaboratively construct a narrative about the purpose of the work everyone is involved in.
• How you link that to the goals that are set, the metrics that are tracked, what you hold people accountable for and what you recognise and reward them for.
• Having the courage to raise difficult issues in the face of vested interests.
• Using language and symbols effectively: what are you seen to ask questions about, what are you seen to prioritize spending your own time doing? What and who do you champion in the stories you tell? All this influences what others feel safe to prioritize doing themselves, and so creates the space for behaving differently.
• How to enable leadership to emerge through convening dialogue and framing good questions
• How to encourage innovation through framing challenges that inspire it.
• How to engage well with investors where some are coming from a new perspective demanding more ambition on ESG while others are operating from prior models prioritizing short term ROI?
• How to defend prioritizing creating value for multiple stakeholders to management above you operating from a more traditional mindset?

The new emphasis on leading change across the wider ecosystem around the organization has additionally required leaders to develop skills in areas that historically have not been a conventional part of the business leader’s repertoire including: 

• Contributing to public debate with an informed point of view.
• Relating well with multiple constituencies.
• Engaging in dialogue to understand and empathize with groups and communities with perspectives contrary to one’s own.
• Engaging in multi-stakeholder collaboration with unconventional partners, such as competitors, NGOs and trade unions.
• Engaging well with policymakers to advocate for more ambitious regulatory interventions from governments to help accelerate sustainability transitions across industry sectors.

The role of CLOs

A recent study conducted by Russell Reynolds Associates in partnership with the U.N. Global Compact found 92 percent of business leaders believe integration of sustainability issues is critical to business success, but only four percent of C-suite role specifications demand sustainability experience or mindsets. There is a crucial role for CLOs to think about how best to develop this new leadership mindset and skill set across the C-suite, senior executives and future leaders, but how?

To help answer this question, we explored two additional questions through our research: First, how did senior leaders themselves account for what experiences helped shape their mindsets and develop their own skills? And second, what can we learn from innovations in leadership development different organizations have been pursuing to develop these kinds of leadership skills and mindsets?

While each individual’s story was unique, a few key themes emerged. For some, it was formative experiences around upbringing, university and business school study. For others it was influential mentors and participation in professional networks focused on ESG issues, or first-hand experiences like engaging with people living in poverty, personal experience of ESG challenges like the impacts of climate change or personal first-hand experiences of the changing interests of key partners and stakeholders.

This has a key implication for thinking about how to design impactful leadership development pathways and programs: The importance of first-hand experiences. Building literacy on sustainability and ESG issues is of course an important starting point and part of the mix, but our research suggests first-hand experiences are at the heart of what it takes for business leaders to build the emotional connection and commitment to put this agenda front and center in their work. 

First-hand experiences therefore should be incorporated into the design of leadership development and learning programs, as well as the wider management of talent management programs and succession planning, if those programs are to effect real change.

Further, our research shows that more and more organizations are structuring their leadership development activities to create opportunities for their current and future senior leaders to have precisely these kinds of personal, first-hand experiences, employing powerful experiential learning that:

• Gives senior executives the chance to develop relationships with people experiencing some of the world’s most pressing challenges, and also with people and organizations working to help address these challenges, including key organizational stakeholders.
• Gives them a chance to engage with new ideas to help make sense of the demands of this new business context like ecology, complexity, systems thinking and social constructionism and how these link with business through new concepts like “shared value” “brand substance,” “circular economy,” “base of the pyramid” and “integrated reporting.”
• Supports them to make their own sense of these experiences and relates them to their organizational roles through action learning, business challenge strategic projects and exposure to individuals in their own organizations already modeling this way of leading.
• Helps them develop and articulate their own authentically held view on the purpose of their work, and the value it creates for society as a whole.

Such experiential learning programs are most effective when they are integrated with a wider program of activities around the learning program in the organization to sustain participant engagement, including:

• The CEO personally championing the importance of these kinds of learning programs to the business. 
• Dedicated coordinators sending program participants relevant updates and news regarding sustainability and ESG challenges and business responses.
• Refresher reunion events.
• Nudging participants to submit updates on the actions they were taking as a result of the program..
• Challenging participants to take specific initiatives forward and granting them the time and resources they needed to do so.
• Granting participants an additional job title like “Climate Champion” to help them feel empowered to act in new ways.
• Assigning participants a mentor.
• Briefing line managers on the importance of the program and how they could best support participants.

Alongside leadership development L&D programs, these findings suggest additional specific activities valued when identifying the organization’s talent pipeline. If personal, first-hand experience like these are key in stimulating the required kind of business leadership for the current era, then these kinds of life experiences need to be deliberately encouraged, valued and sought after in recruitment, career development planning, the identification of high potentials and succession planning.

These aren’t just “nice-to-haves” that demonstrate a well-rounded individual. The crucial contribution they make to developing a worldview, relational ability and organizational culture is now essential for organizations to survive and thrive.

It will require being mindful about deliberately looking for something different when making these decisions about recruitment, career development planning, high potentials and succession planning and perhaps also require reassessing and, where necessary, reformulating the kinds of HR processes and indicators that supply the management information sometimes used when making these decisions.