new era sustainabiltiy accenture ungc study 2010

8/9/2019 New Era Sustainabiltiy Accenture UNGC Study 2010

1/59

A New Era of SustainabilityUN Global Compact-Accenture CEO Study 2010


2/59

A New Era of Sustainability

CEO reflections on progress to date, challengesahead and the impact of the journey toward a

sustainable economy.

Peter Lacy

Tim Cooper

Rob Hayward

Lisa Neuberger

June 2010


3/59

1

Foreword ...........................................................................02

Introduction .....................................................................03

Acknowledgement of CEO participants ....................05

Executive summary ........................................................10

1. Shifting gears: Sustainability is changing ...........16

2. Making progress: From strategy to execution ...32

3. Approaching a new era: The road ahead .............40

4. Accelerating the journey and competingin a new era of sustainability ......................................46

References and additional acknowledgements .......56

Contents


4/59

2

We come together at the UN Global Compact LeadersSummit 2010 to mark a decade of progress in advancingthe corporate sustainability movement globally. It is fittingthat we use this occasion to understand the opinions andexperiences of the member CEOs participating in the GlobalCompact, and use those insights to help set the sustainabilityagenda for the next ten years. There has perhaps never beena better moment to contribute to the debate about how,

as we look to economic recovery following one of the mosttumultuous periods in our history, we can start to rebuild theglobal economy in a sustainable way.

The timeliness of this study is matched by its breadth. Nearly1,000 CEOs, business leaders, members of civil society andacademic experts have contributed to what is the largestCEO survey on sustainability of its kind to date. The globalgeographic and industry coverage of contributing CEOsfurther provided unique insights into the challenges andopportunities of the coming decade.

It is a decade that, CEOs believe, could usher in a newera where sustainability issues are fully integrated intoall elements of business and market forces are trulyaligned with sustainability outcomes. The survey andconversations conducted as part of this landmark studymake clear that todays CEOs are more convinced thanever of the need to embed environmental, social andcorporate governance issues within core business. Butthey are also convinced that good performance onsustainability amounts to good business overall: Theimperative to act has shifted from a moral to a businesscase. Furthermore, executives see significant progressin executing their plans to integrate sustainability.

Many challenges must be faced, however, before marketforces can truly be aligned with sustainable development.For example, CEOs see that engaging with the investorcommunity on new terms, improving the provision ofeducation and skills, and measuring a new concept of valuewithin organizations are critical conditions for change. Yetwe also see a strong determination on the part of CEOs totake the necessary actions to meet these challenges.

We hope that this first-hand voice of Global Compact CEOswill help set the agenda for the Leaders Summit 2010, andalso shape the conversation on corporate sustainability overthe coming years. As business, government and civil societyleaders convene in New York to mark the tenth anniversaryof the Global Compact, we believe that we can, together,set out a compelling collective vision for the future ofthe global economy. As we look ahead, we recognize thescale of the challenges that we facebut also recognizethe huge potential of the Global Compact as a uniqueplatform for engaging the economys most powerful force.If that potential is unleashed, we can build the necessaryfoundations of a new era of sustainability.

Foreword

Georg Kell, Executive DirectorUN Global Compact

Bruno Berthon, Managing DirectorAccenture Sustainability Services


5/59

3

In compiling the UN Global Compact-Accenture CEO Study2010, we conducted two principal strands of research.

First, we conducted more than 100 in-depth interviewswith global leaders. This included 50 CEOs, chairpersons andpresidents of UN Global Compact member companies, across27 countries and representing a broad spectrum of cross-industry perspectives. More than one-third of the interviewswere from the Global Compacts original founder companies.An additional 50 interviews were conducted with othersenior business executives (in most cases executive boardmembers), civil society leaders, external experts and UN

Global Compact board members. This approach has enabledus to assemble a rich and diverse set of insights, allowing usto explore, test and refine emerging themes and ideas.

Second, we conducted an online survey of 766 GlobalCompact member CEOs. Survey respondents were drawnfrom nearly 100 countries, across more than 25 industrysectors including automotive, communications, consumergoods and services, energy, financial services, metals &mining and utilities (see Figures 1 and 2). Reflecting theglobal split of the Global Compact membership, 439 of therespondents were from companies primarily based in Europe;

156 of respondents are from North and Latin America; 113are from Asia Pacific. Another 58 respondents are based inAfrica and the Middle East. This coverage has helped ensurea truly global multi-polar lens on sustainability issues,acknowledging the critical role that emerging markets playin solving todays global challenges.

The survey respondents were drawn from both publiclytraded and privately owned companies and represent someof the largest companies in the world. Respondents representcompanies that have joined the Global Compact across theten years of its existence, giving us a snapshot of businessesboth well advanced in embedding the principles of the UNGC

as well as those just embarking upon that journey.

The UN Global Compact and Accenture team would like tothank Jeremy Oppenheim and Sheila Boniniwith whom

I worked and who led the 2007 study for McKinsey &Company. This baseline has enabled us to draw importantinsights on how the sustainability picture has changed overthe last three years.

We would also like to acknowledge the extraordinarycontributions of the UNGC project leads Georg Kell, GavinPower, Carrie Hall, Matthias Stausberg and Sean Cruse aswell as the Accenture coauthor team of Tim Cooper, RobHayward and Lisa Neuberger. There have also been manyfurther contributions from colleagues in Accenture toonumerous to mention here, but without whom our analysiswould not be as compellingMark Foster, Bruno Berthon,

Dave Abood, Lay Lim Teo, Mark Spelman, Mark Purdy, UlfHenning, Rod Kay, Lucy Cooper, Arnaud Haines, Helen Doyleand Chris Allieri deserve particular thanks.

Lastand most importantlyon behalf of the United NationsGlobal Compact and Accenture Sustainability Services,we would like to express our sincere thanks to the CEOsand chairpersons, business leaders and other stakeholderswho have participated in the study. The project team hasendeavored to understand and interpret their many ideas,reflections and case study examples in conducting the studyand delivering this report. Any insights are theirs while anyerrors are our own.

We hope that this study provides a rich, authentic andevidence-based platform to understand CEO views on theprogress, challenges and implications of the journey towarda new era of sustainability.

Peter LacyUNGC-Accenture CEO Study Project Lead 2010Managing Director, Accenture Sustainability ServicesEurope, Africa, Middle East and Latin America

Introduction


6/59

4

Figure 1: CEO online survey respondents (766 total)

Figure 2: CEO online survey respondents by most common industries

Africa & Middle East - 58

Americas - 156

Europe - 439

Asia Pacific - 113

8%7%

5% 5% 5%

4% 4%

3% 3% 3% 3%

18%

Professio

nals

ervice

s

14%

Cons

umer

good

s&servi

ces

Infrastr

ucture

&tra

nspo

rtatio

nserv

ices

Energ

y

Banking

Electronics

&high

-tech

Indus

trial

equip

ment

Meta

ls&

minin

g

Comm

unica

tions

Utilit

ies

Health&

lifes

cienc

es

Chem

icals

Automo

tive


7/59

5

Acknowledgement of CEOparticipants

We would like to thank the following

CEOs, chairpersons and presidents for

their insights in shaping this study. While

the views expressed in this study do not

reflect the totality of opinions received

from all contributing executives, their

participation and guidance have been

critical.

Jrgen Hambrecht,Chairman of theBoard of ExecutiveDirectors, BASF SE

Edemir Pinto,CEO,BM&FBOVESPA

BarbaraKrumsiek,President andCEO, CalvertGroup Ltd.

Rashid Toefy,CEO, Cape TownInternationalConventionCentre

Zhongshu Zhou,President, ChinaMinmetalsCorporation

Amr Sheira, CEO,CompuMe

Ben Verwaayen,CEO, Alcatel-Lucent

Klaus Kleinfeld,Chairman andCEO, Alcoa

HirokazuHashimoto,President &Director, AnritsuCorporation

Gareth Penny,Group CEO,De Beers

Ren Obermann,CEO, DeutscheTelekom AG

Paul S. Walsh,Chief Executive,Diageo plc.

Fulvio Conti,CEO and GeneralManager, EnelS.p.A.

Paolo Scaroni,CEO, Eni S.p.A.

Steve Lennon,Managing Director,Corporate ServicesDivision, EskomHoldings Ltd.

Didier Lombard,Chairman,France Telecom

Toshio Arima,Director, FujiXerox Co., Ltd.

Andrew Witty,CEO,GlaxoSmithKline

Alfredo Senz,Second ViceChairman andCEO, GrupoSantander

Stephen Green,Group Chairman,HSBC Holdingsplc.

Ignacio Galn,Chairman & CEO,Iberdrola


8/59

6

Carlos Ghosn,Chairman & CEO,Renault NissanAlliance

Svein RichardBrandtzg,President andCEO, NorskHydro ASA

Daniel Vasella,M.D., Chairman,Novartis AG

Wolfgang J.Ruttenstorfer, CEO& Chairman, OMVAktiengesellschaft

Mavi S. Isibor,CEO, PoiseNigeria Limited

Prida Tiasuwan,Chairman,Pranda JewelryPCL

Luiz ErnestoGemignani,Chairman,Promon S.A .

H.E. AkbarAl Baker, CEO,Qatar Airways

YS Chi,Vice-Chair, ReedElsevier Groupplc

Adam Crozier,CEO, Royal Mail

Helmy Abouleish,ManagingDirector, SEKEMGroup

Ernst Brtschi,CEO, Sika Group

Tae-won Chey,Chairman & CEO,SK

Idar Kreutzer,Group CEO,Storebrand ASA

Sung-joo Kim,Chairperson andCEO, SungjooGroup

YasuchikaHasegawa,President andCEO, TakedaPharmaceuticalCompany

PM Telang,ManagingDirector, TataMotors

Jamshed J. Irani,Director, TataSteel

Jorge Samek,

Director-General,Itaipu Binacional

Jeffrey Swartz,President & CEO,The TimberlandCompany

Kaspar Villiger,Chairman of theBoD, UBS AG

AlessandroProfumo, CEO,UniCredit S.p.A.

Paul Polman,CEO, Unilever

Gerard J.Kleisterlee,President & CEO,Royal PhilipsElectronics

Hans Vestberg,

CEO, LM Ericsson

Martha Tilaar,

Chairwoman &Founder, MarthaTilaar Group

Steve Holliday,

Chief Executive,National Grid

Sam I. Ohuabunwa,

President andCEO, NeimethInternationalPharmaceuticalsPlc.

Paul Bulcke, CEO,

Nestl S.A.


9/59

7

Additional Business Leader InsightsWe would like to thank the following business leaders fortheir additional input:

Esra Ozer, Alcoa

Larry Stone, BT Group

Farouki Majeed, California Public Employees'Retirement System

Paul Hilton, Calvert Group Ltd.Weijun Xie, China Minmetals Corporation

Wolfram Heger, Daimler

Norbert Otten, Daimler

Ole Daugbjerg, Danfoss

James Suzman, De Beers

Birgit Klesper, Deutsche Telekom AG

Luis Neves, Deutsche Telekom AG

Carolyn Panzer, Diageo plc.

Dave Kepler, Dow Chemical

Bo Miller, Dow Chemical

Julia King, GlaxoSmithKlineDuncan Learmouth, GlaxoSmithKline

Marc Fox, Goldman Sachs

Andrew Howard, Goldman Sachs

Sean O'Neill, Heineken

Susanna Wilson, HSBC Holdings plc.

Nuning Barwa, Martha Tilaar Group

Marcelo Cardoso, Natura

Niels Christiansen, Nestl S.A.

Esko Aho, Nokia

Kirsten Hovi, Norsk Hydro ASA

Lise Kingo, Novo NordiskSusanne Stormer, Novo Nordisk

Wolfgang Kraus, OMV

Rich Delaney, PepsiCo

Marcia Balisciano, Reed Elsevier

Sir Brian Fall, Rio Tinto

Graham Weale, RWE

Sren Buttkereit, Siemens

Barbara Kux, Siemens

Rainer Weihofen, Sika Group

David Bresch, Swiss Re

Rolf Tanner, Swiss ReAnant Nadkarni, Tata Motors

AS Puri, Tata Motors

Sangram Tambe, Tata Motors

Betsy Blaisdell, The Timberland Company

Kate King, The Timberland Company

Christian Leitz, UBS AG

Gavin Neath, Unilever

Michiel Leijnse, Unilever

Miguel Veiga-Pestana, Unilever

Gerhard Prtorius, Volkswagen

Stakeholders InsightsAlthough this is intended as a CEO study, in order to gather awide set of opinions and insights we also interviewed UNGCboard members and a selected group of wider stakeholders.We are very grateful to the following:

UNGC board members

Guillermo Carey, Carey & Allende Abogados

Chen Ying, Beijing Rong Zhi Institute of Corporate Social

Responsibility

Fernando Chico Pardo, Aeropuertos Del Sureste

Juan de la Mota, Global Compact Spanish Network

Charles O. Holliday, Bank of America

Huguette Labelle, Transparency International

Sir Mark Moody-Stuart, Foundation for the Global Compact

Mary Robinson, Realizing Rights: The Ethical GlobalizationInitiative

Jean Rozwadowski, International Chamber of Commerce

Guy Ryder, International Trade Union Confederation

Manfred Warda, International Federation of Chemical,Energy, Mine and General Workers Union

Wider stakeholders

Graham Baxter, International Business Leaders Forum

Per Sandberg, World Business Council for SustainableDevelopment

Sophia Tickell, SustainAbility

Tensie Whelan, Rainforest Alliance

Simon Zadek, AccountAbility

Academic Advisor

Prof. Dr. Gilbert LenssenPresident of EABISThe Academy of Business in Society


10/59

8


11/59

9


12/59

10

The sustainability landscape is changingCEOs around the world are starting to see the shape of anew era of sustainability coming into view. In the face ofrising global competition, technological change and the mostserious economic downturn in nearly a century, corporatecommitment to the principles of sustainability remains strongthroughout the world: 93 percent of CEOs see sustainability asimportant to their companys future success.

This is one of the most significant headlines of our survey of766 United Nations Global Compact (UNGC) member CEOs,extensive interviews with an additional 50 member CEOsand further interviews with more than 50 business and civil

society leaders. The scale of this research is such that itrepresents the largest such study of CEOs ever conducted onthe topic of sustainability.

In the course of our survey and conversations with CEOs,we have witnessed a fundamental shift since the lastGlobal Compact survey in 2007. Then, sustainability was

just emerging on the periphery of business issues, anincreasing concern that was beginning to reshape the rulesof competition. Three years later, sustainability is truly top-of-mind for CEOs around the world. While environmental,social and governance challenges continue to grow andCEOs wrestle with competing strategic priorities, sustainable

business practices and products are opening up new marketsand sources of demand; driving new business models andsources of innovation; changing industry cost structures; andbeginning to permeate business from corporate strategy toall elements of operations.

After the storm: Rebuilding trustDemonstrating a visible and authentic commitment tosustainability is especially important to CEOs because it ispart of an urgent need to regain and build trust from thepublic and other key stakeholders, such as consumers andgovernmentstrust that was shaken by the recent globalfinancial crisis. Strengthening brand, trust and reputation isthe strongest motivator for taking action on sustainabilityissues, identified by 72 percent of CEOs. However, CEOsoften assume that their own company is more respectedand trusted than their industry in generalleading to a realconcern that executives may underestimate the extent towhich mistrust in business continues to be an issue in the

public mind.

The drivers and approaches to

sustainability are changingIn 2007, education was the top development issue on theminds of CEOs. Concerns about education are still prevalentin 2010 and focused on the failure of education systems,talent pipelines and the capabilities of future leaders tomanage sustainability. Seventy-two percent of executivesidentified education as one of the critical developmentissues for the future success of their business. Perhaps

unsurprisingly, climate change was second at 66 percent asconcern about greenhouse gas emissions continues to grow.However, in our conversations with CEOs, we found that abroader set of issues are starting to appear on the corporate

Executive summaryJourney to a new era of sustainability


13/59

11

radar. Resource scarcity (water in particular) and healthissues are of increasing concern.

The ways in which CEOs are addressing sustainability issuesare also changing. Our research reveals three key ways inwhich approaches and strategies are shifting as we movetoward a new era of sustainability:

1. The consumer is (or will be) kingEnd consumers as well as business and governmentcustomers are increasingly driving a companys strategyfor developing sustainable products and services. CEOsidentify the consumer as the most important stakeholderin influencing the way in which they will manage societalexpectations over the next five years: 58 percent of surveyrespondents selected the consumer among their mostimportant stakeholders, even above employees (45 percent)and governments (39 percent).

2. Importance of technology and innovation

CEOs are aware of the critical role that innovative,leading-edge technologies are playing in advancing thesustainability agendain areas such as climate change (e.g.,using smart technologies such as grids and meters); andin terms of increased transparency through social mediaplatforms. Ninety-one percent of CEOs reported that theircompany would employ new technologies (e.g., renewableenergy, energy efficiency, information and communicationstechnology) to help meet their sustainability goals over thenext five years.

3. Collaboration is critical

Across the board, the CEOs we spoke to confirmed thatpartnerships and collaboration (e.g., with suppliers, non-governmental organizations, government agencies, etc.) arenow a critical element of their approach to sustainabilityissues. Businesses realize that todays global challenges aretoo broad and too complex to go it alone. Seventy-eightpercent of CEOs believe that companies should engage inindustry collaborations and multi-stakeholder partnershipsto address development goals. Nevertheless, while CEOsbelieve civil society is an essential partner in tackling theseissues, they believe non-governmental organizations (NGOs)are declining in their influence on corporate sustainability

agendas. Just 15 percent of CEOs identified NGOs as oneof the key stakeholders influencing their approach tosustainability, down 12 percent from 2007.

A new sustainability era on the horizonOur survey found widespread agreement among CEOsabout what the next era of sustainability will look like: Itis one where sustainability is not only a separate strategicinitiative, but something fully integrated into the strategyand operations of a company. As one emerging economyCEO told us, Currently, the burning issue is how to betterincorporate sustainability into daily practice.

CEOs see that a new era of sustainability will entail a numberof business imperatives and change the face of competition.For example, companies will need to develop a broadersense of what value creation means to society as a whole.

Businesses will have to grapple with a new concept of valuethat moves beyond a focus purely on profit and incorporatesnonfinancial metrics, putting a new onus on the ability tomeasure and communicate progress.

CEOs also acknowledge that a new generation of leadership,and concerted efforts to shape a corporate culturesupportive of the goals of sustainability, must underpin

success in the new era. In other words, todays businessenvironment provides a multitude of new challenges tomanage, but also significant opportunities for those who canmaster its dynamics.

Challenges to overcome: From strategy to

executionCEOs believe that execution is now the real challenge tobringing about the new era of sustainability. Confidenceamong business leaders about their progress toward thisnew era is strong, and their companies are taking concrete

steps toward embedded sustainability. Eighty-one percentof CEOscompared to just 50 percent in 2007statedthat sustainability issues are now fully embedded into thestrategy and operations of their company. For example, wesaw cases of companies beginning to integrate sustainabilityissues into their executive compensation packages, as well asdesign and innovation functions, more than in 2007.

However, our conversations suggest that while sustainabilityhas clearly become part and parcel of how many businessesoperate, it has yet to permeate all elements of corebusinessthat is, into capabilities, processes and systems.In particular, the difficulty of implementation, especially

across supply chains and subsidiaries, is seen by CEOs asthe top barrier to the full integration of sustainability. Ourresearch finds a significant performance gap between thoseCEOs who agree that sustainability should be embeddedthroughout their subsidiaries (91 percent) and supplychain (88 percent), and those who report their company isalready doing so (59 percent and 54 percent, respectively).Furthermore, full integration of sustainability intoperformance management frameworks and approaches totraining and development remains some way off.

Ensuring the right external conditionsHow long will it take before the majority of companiesworldwide reach this new era in which sustainability is fullyintegrated across their global business footprint? Fifty-fourpercent of CEOs surveyed feel that this tipping point is only adecade awayand 80 percent believe it will occur within 15yearsan optimistic view unthinkable in 2007 and testamentto the sea-change taking place. However, CEOs see thatprogress toward that destination is by no means guaranteed,or irreversible, and will require them to overcome severalserious challenges, both through their own actions and incollaboration with stakeholders. These challenges include:

Investor uncertainty: Many CEOs believe that theinvestment community is not supporting corporate effortsto create value through sustainable products and servicesby failing to factor performance on sustainability issues intovaluation models.


14/59

12

Consumer uncertainty: The consumer may be king whenit comes to driving profitable sustainability, but the CEOssurveyed are looking for clearer signals that sustainabilityactually drives buying behaviors. Similarly, they are unclearas to the extent to which sustainability concerns will drivepurchasing decisions by businesses and governments.

Regulatory uncertainty: Across the board, CEOs spoke of the

need for greater clarity around the shape and scope of futureregulation in response to regulatory challenges.

Accelerating the tipping point: Business

action is neededIn order to overcome these challenges and accelerate atipping point in the integration of sustainability into corebusiness, CEOs believe that a number of must-haveconditions need to be put in place. Businesses need to takea leadership role to bring them about, often in collaborationwith wider stakeholders such as the UN Global Compact:

1. Actively shaping consumer and customer awareness,attitudes and needs. To create a market for sustainableproducts and services, CEOs see the need to increase theprovision of consumer information and set clear standards,as well as direct government incentives and investment inareas such as energy, transport and public infrastructure.

2. Generating new knowledge, skills and mindsets forsustainable development. Although businesses believe thatformal educational institutions and business schools needto do more, CEOs also recognize the need to increase theirown efforts to engender the right skills and mindsets in their

managers and future leaders.

3. Leading the creation of an investment environmentmore favorable to sustainable business. CEOs need to bemore proactive in engaging with investors to ensure thatthe value of sustainability activities can be demonstratedthrough traditional metrics such as cost reduction andrevenue growth.

4. Embedding new concepts of value and performanceat the organizational and individual levels. Businesseswill need to measure both positive and negative impactsof business on society, track and manage sustainabilitys

impact on core business drivers and metrics, and embedsustainability in individual performance frameworksfor managers across their organizations (e.g., throughremuneration packages).

5. Creating a clearer and more positive regulatoryenvironment for sustainability. To avoid the unintendedconsequences of regulation, build trust and provide amore informed basis for policymaking, businesses shouldadopt a more proactive and collaborative approach withgovernments to seek out genuine opportunities for businessand societal benefit.

The role of the UN Global Compact:

A forum for education and sharing of

best practices

CEOs are more aware than ever that their ability to takethe next step along the journey to integrated sustainabilitydepends on partnerships, collaboration and joint efforts

with governments and with private entities such as businessschools. No one alone has all the answers.

The UN Global Compact has a vital role to play in bringingdifferent stakeholders together in dialogue and the pursuitof shared goals. This represents a significant developmentin 2010 compared to the last survey in 2007. Then, CEOssaw the UNGCs role as one primarily focused on making thebusiness case for sustainability and setting future strategicdirection. While executives still see this role as important, in2010 that role has been extended to help companies sharebest practices as they work to improve their ability to deliveron these critical execution challenges.

Two-thirds of the CEOs we surveyed are looking to the UNGCas a forum for the sharing of best practices and emergingideas on sustainability. Just over half are also seekingguidance from the UNGC about execution of a sustainabilitystrategy.

A similar number are looking for the UNGC to facilitateother kinds of dialogue and collaboration, such as workingwith business schools and educators to shape the nextgeneration of leaders or continuing to partner with theinvestment community. Both of these findings are a strong

reinforcement of the value of the UNGCs pioneering workin founding the Principles for Responsible ManagementEducation and the Principles for Responsible Investment, anda mandate to go further.

These findings underscore the fact that companies aretaking the long view when it comes to sustainability. Thereare no easy answers, and the journey will not necessarily bea short one. But, arguably, the modern era has never beforeseen such a high level of executive commitment to theenvironmental, social and corporate governance agenda.

UNGC member CEOs are acutely aware of the power their

companies have to change the worldbut similarly consciousthat they cannot go it alone.

Executives are willing to step up to the challenges ahead andthey recognize thatas the Global Compact celebrates itstenth anniversarythis is the end of the beginning and notthe beginning of the end in the transition to a new era ofsustainability.


15/59

13

CEO opinion:by the numbers

93%93% of CEOs believe that sustainability issues will be critical to the futuresuccess of their business.

72%72% of CEOs cite brand, trust and reputation as one of the top threefactors driving them to take action on sustainability issues. Revenue growthand cost reduction is second with 44%.

72%72% of CEOs see education as the global development issue most critical toaddress for the future success of their business. Climate change is secondwith 66%.

58%58% of CEOs identify consumers as the most important stakeholder group

that will impact the way they manage societal expectations. Employees weresecond with 45%.

91%91% of CEOs report that their company will employ new technologies(e.g., renewable energy, energy efficiency, information and communicationtechnologies) to address sustainability issues over the next five years.


16/59

14

96%96% of CEOs believe that sustainability issues should be fully integrated intothe strategy and operations of a company (up from 72% in 2007).

49%49% of CEOs cite complexity of implementation across functions as the mostsignificant barrier to implementing an integrated, company-wide approach tosustainability. Competing strategic priorities is second with 48%.

88%88% of CEOs believe that they should be integrating sustainability throughtheir supply chain. Only 54% believe that this has been achieved within theircompany. An almost identical performance gap is seen for subsidiaries.

86%86% of CEOs see accurate valuation by investors of sustainability in long-

term investments as important to reaching a tipping point in sustainability.

64%64% of CEOs see the most important role of the UN Global Compact assharing examples of best and emerging practices on sustainability. Guidanceon implementation is second with 51%.


17/59

15


18/59

16

CEOs belief in the importance of

sustainability is stronger than ever, inspite of the recent economic downturnIn 2010, CEO support for corporate sustainability isnearly unanimous. Ninety-three percent of the 766 CEOsresponding to our online survey believe that sustainabilityissues will be important or very important to theirfuture success. Corporate commitment to sustainability,according to the survey, has increased considerablysince 2007. Sustainability now has to be on everyonesagenda, and that represents a fundamental change,according to Klaus Kleinfeld, Chairman and CEO of Alcoa,

one of the largest aluminum producers in the world. Thisbelief in sustainability is seen against the backdrop ofthe most challenging global economic downturn of ourlifetimesa crisis Alfredo Senz, CEO of banking groupSantander, called a perfect storm for the industry.

The global economic downturn might have been expectedto weaken the commitment to environmental, social andcorporate governance issues (see sidebar, Understandingthe Scope of Sustainability). In fact, it seems to havehad the opposite effect: 80 percent of CEOs believe thatthe economic downturn has raised the importance ofsustainability as an issue for top management. Just 12

percent of CEOs report that their company has reduced

investment in sustainability as a result of the downturnand 74 percent say that the downturn has led theircompany to align sustainability more closely withcore business. Although some CEOs believe that thedownturn has reduced the speed at which they havebeen able to integrate their strategies for sustainability,or slowed their philanthropic activities, the vastmajority agree that the downturn has not derailed theirlong-term plans to drive a sustainability agenda.

One reason for this continued support is that, during sucha time of hardship, businesses have been forced to examineclosely how their sustainability activity delivers core business

value, measured in terms such as cost reduction and revenuegrowth. As one European business leader pointed out, Ifmanaging a business sustainably is about using resourcesefficiently, then it serves the cost agenda as well. Forexample, Dow Chemical has generated significant savingsby reusing treated wastewater in its manufacturing plants,reducing energy consumption in its Benelux plant by 65percent. This is the equivalent of reducing carbon dioxideemissions by 60,000 tons per year.1 Deutsche Telekomhas realized savings of 50 million (US$59.6 million) perannum over the last ten years through increased energyefficiency and other overhead reduction measures.2

Chapter 1Shifting gears: Sustainability is changing


19/59

17

Throughout this report, we use the termsustainability to encompass environmental, socialand corporate governance issues, as embodied inthe United Nations Global Compacts Ten Principles.

These ten principles, covering areas of humanrights, labour, the environment and anti-corruption,

enjoy universal consensus and are derived from: The Universal Declaration of Human Rights

The International Labour Organization'sDeclaration on Fundamental Principles and Rightsat Work

The Rio Declaration on Environment andDevelopment

The United Nations Convention Against

Corruption

The Global Compact asks companies to embrace,support and enact, within their sphere of influence,

these ten principles:

Human Rights

Principle 1Businesses should support and respect theprotection of internationally proclaimed humanrights; and

Principle 2Make sure that they are not complicit in human

rights abuses.

Labour Standards

Principle 3Businesses should uphold the freedom ofassociation and the effective recognition of the

right to collective bargaining;

Principle 4

The elimination of all forms of forced andcompulsory labour;

Principle 5The effective abolition of child labour; and

Principle 6The elimination of discrimination in respect of

employment and occupation.

Environment

Principle 7Businesses should support a precautionaryapproach to environmental challenges;

Principle 8Undertake initiatives to promote greaterenvironmental responsibility; and

Principle 9Encourage the development and diffusion of

environmentally friendly technologies.

Anti-Corruption

Principle 10Businesses should work against corruption in all its

forms, including extortion and bribery.

Understanding the scopeof sustainability


20/59

18

Also bolstering the continued commitment to sustainabilityduring the economic downturn has been demand forsustainable products and services. Although one businessleader reported increased volatility in consumer interest andspending, others have seen the downturn accelerate demandfor green products and services. This growth in demandspans traditional consumer segments, but also business-to-business transactions and government spending decisions.

For example, Siemensa leader in providing productsthat allow their customers to address energy efficiencychallengesexperienced strong demand for its greenproducts throughout the downturn. Its EnvironmentalPortfolio encompasses almost all relevant areas relatingto the generation, transmission, distribution and use ofenergy as well as other environmental technologies. In2009, Siemens generated revenues of 23 billion (US$28billion) from this portfolio of products and services, an11 percent increase from 2008 and nearly one-third ofSiemens total annual revenues. Last year alone, Siemens

helped customers cut approximately 210 million tons ofCO2 emissionsthe equivalent of the annual emissions ofBerlin, London, Munich, New York and Tokyo combined.3

Geographic perspectives: Belief in

the relevance of sustainability differs

according to regionbut not always in

predictable ways

Large majorities of CEOs from every nation see sustainabilityas important or very important to the future success of their

business. In the words of Hirokazu Hashimoto, Presidentand Director of the Japanese technology company AnritsuCorporation, Sustainability issues are critically importantfor our companys future, recognizing the role that thecommunications and high-technology sector will play inhelping business and consumers address sustainability issues.

Closer scrutiny of the geographic data, however, revealssome significant differences among CEOs in different regionsof the world (see Figure 1-1).

The top three regions in which businesses cite sustainabilityas most important to their future success are Asia Pacific,

Latin America and sub-Saharan Africa. This may reflectwhat one business leader termed the lens of proximity ofsustainability issues. That is, corporations and the publicalike in these emerging economies see sustainability invery personal, local and immediate termse.g., accessto clean water, more direct dependence on the naturalenvironmentand therefore perceive their future success tobe more directly threatened by environmental degradation.However, in the Middle East and North Africa, only 22percent of CEOs believe that sustainability issues willbe critical to future success. As one CEO in the regiontold us, Sustainability is not a common theme in ourpart of the worldits a new concept altogether.

In Latin America, 78 percent of CEOs believe thatsustainability issues will be very important to the successof their business, reflecting the progressive stance taken bymany Latin American companies. For example, tapping intothe strong concern among Brazilian consumers and societyas a whole around sustainability issues, Natura Cosmeticos,a US$2.3 billion revenue So Paulo-based cosmetics andbeauty products company, has social and environmentalissues at the core of its strategy and operations.

Natura only invests in new product platforms based on thesustainable use of natural resources, with 80 percent of thematerials in all their products coming from renewable plantsources. This includes its Ekos range, which is made withresources from the rich Brazilian biodiversity extracted ina sustainable way and through fair trade. The company hasestablished partnerships with rural suppliers to promotesustainable research and development. It is significantlyincreasing its investment in its workforce, training andeducating its employees on environmental issues: Spendingon training rose by 44 percent between 2008 and 2009 andin 2010 the company aims to provide 100 hours of trainingper employee. It also encourages its direct sales force of1 million women to take part in social programs in localcommunitieshelping to achieve an exceptionally low level of

employee turnover (7.5 percent per year) within the industry.

Placing sustainability at the core of its business strategy hasgiven Natura a significant advantage in promoting its brandand reputation, and has helped the company to grow froma small local enterprise to become Brazils largest cosmeticsfirm. Revenues have grown by nearly 40 percent over thelast three yearsbottom-line growth by 44 percent over thesame period. The quality of its relationships with customersand its innovative distribution channel means Natura hasbeen able to consistently outperform its industry peers.4

How important are sustainability issues to the future successof your business?

Source: United Nations Global Compact CEO Survey 2010(based on 766 completed responses)

54%

57%

78%

60%

48%

59%

22%

39%

41%

19%

37%

45%

31%

Very Important Important

Middle East &North Africa

79%

North America

Europe 93%

Africa 97%

Latin America 97%

Asia Pacific 98%

Overall 93%

57%

90%

Figure 1-1: CEOs see sustainability as critical to theirfuture success, but this varies by region


21/59

19

Industry perspectives: Belief in the

importance of sustainability varies

considerably by industryCEOs belief in the importance of sustainable businesspractices and products to their success is strong acrossall industries surveyedthough with some significantdifferences (see Figure 1-2). Fully 100 percent of automotiveCEOs identify sustainability issues as important or veryimportant to their future success. This finding reflects howenvironmental concerns present both a challenge to theindustry and an opportunity to serve a new market with low-carbon alternatives such as e-vehicles. Given the decline ofsome high-profile players in the automotive industry duringthe economic downturn, matters of long-term viability are,not surprisingly, occupying the minds of CEOs in this sector.

CEOs from the energy and utilities sectors also seesustainability issues as critical to their future success.Wolfgang J. Ruttenstorfer, CEO and Chairman of European

oil and gas company OMV, said, I regard these issuesas bringing competitive advantage in the long term; atransparent approach clearly oriented toward values,human rights and environmental objectives is the onlyright approach that will be appreciated in the long term.To ensure OMV is aligned with this long-term positioningand future value, in 2006 it established the OMV FutureEnergy Fund, a wholly owned subsidiary to support projectsin renewable energy. The fund holds more than 100 million(US$122 million) to initiate the shift from a pure oil and gasgroup to an energy group with renewables in its portfolio.Already numerous projects are underway in the field ofbiomass gasification, bioethanol, biodiesel, geothermalenergy and carbon capture and storage. The aim is for thefund to reach a total of 500 million (US$609 million), whichwould constitute more than one-fifth of the companysannual capital expenditure.5

The importance of sustainability to industries nottraditionally associated with significant environmentaland social impacts is also clear from the survey. Supportis especially high in the banking industry, for example: 68percent of CEOs note that sustainability is very importantto their successa number matched only by the energy andutilities industries. Although the banking supply chain may

be less intimately connected to the natural environment thanthat of an energy company, a commitment to environmentaland social issues may be a prominent part of restoring brandvalue as the financial industry struggles to regain the trustof consumers.

For banks, sustainability also presents risks and opportunitiesto asset values and investment portfolios. For example,Goldman Sachs SUSTAIN index, launched at the UN GlobalCompact Leaders Summit in 2007, is part of a growing trendof investment banks and financial institutions quantifyingthe strategic implications of sustainability trends on assetvalues. Other banks are looking to create advantage infinancing growth markets such as the transition to a low-carbon energy infrastructure. For example, Italian banking

giant UniCredit S.p.A. has a portfolio of 4 billion (US$4.8billion) in loans for renewable energy projects, mainly in windfarms, photovoltaic, solar thermal and biomass installations.6

According to our survey, CEOs in the communications andelectronics & high-tech sectors are the least likely to identifysustainability issues as critical to their future success

just 22 percent and 31 percent of those industries CEOs,

respectively, cite sustainability as very important to theirfuture success. This may reflect the limited degree to whichthese sectors see themselves as affecting the environment interms of their carbon footprint.

However, leading companies in these sectors are beginningto think beyond the direct physical impacts of their businesson sustainability issues, and are looking to shape a vision ofthe role that they can play in society by driving sustainabledevelopment. Some of the leading communications and high-tech CEOs we spoke with, from companies such as Alcatel-Lucent, Deutsche Telekom, Nokia and Philips, believedthat they could act as a significant part of the solution tosustainability challenges, providing companies around theworld with new technologies and ways of working that willhelp them achieve their own environmental objectives.

As Accentures recent study with Vodafone, CarbonConnections, demonstrated, growth in wireless-enabledmachine-to-machine technology within smart grids, smartlogistics and smart manufacturing, as well as virtualcommunications could save customers 43 billion (US$52billion), require 1 billion new connections and save 113million tons of carbon per year by 2020 in the EuropeanUnion alone.7

Source: United Nations Global Compact CEO S urvey 2010(based on 766 completed responses)

54%

62%

63%

68%

62%

68%

51%

68%

50%

31%

67%

22%

39%

38%

35%

29%

34%

26%

42%

24%

42%

56%

17%

59%

Very Important Important

Communications 81%

Media &entertainment

84%

Electronics& high-tech 87%

Health & lifesciences 92%

Utilities 92%

Professionalservices

93%

Energy 94%

Metals & mining 96%

Banking 97%

Automotive 100%

Overall 93%

Consumer goods& services 98%

How important are sustainability issues to the future successof your business?

Figure 1-2: The extent to which CEOs believe sustainabilitywill be important to their success varies significantly byindustry


22/59

20

An important motivating factor:

Rebuilding trust in businessFar and away, the most commonly cited factor motivatingCEOs to take action on sustainability issues is brand, trustand reputation, selected by an exceptionally high 72 percentof CEOs as one of their top three factorsfollowed byrevenue growth and cost reduction (44 percent), personal

motivation (42 percent) and consumer/customer demand(39 percent) (see Figure 1-3). The message from CEOs wasloud and clear on the imperative of regaining and rebuildingtrust. As Didier Lombard, Chairman of France Telecom, toldus, Sustainability is essential to building our brand and ourtrust with consumers.

Sustainability has long been viewed as one of many elementsin companies strategies to build their market reputation.This may mean developing products and services such asmicro-finance or renewable energy that directly tackle globalsocial and environmental problems; it might mean ensuringsustainable production processes for existing product lines;or it could mean more corporate social responsibility-typeinitiatives designed to be seen to give back to society andput a human face on business.

However, the economic downturnand particularly theperception that business, and banking in particular, mayhave played a role in precipitating the financial crisishas brought the issue of trust into sharper focus. Inthe words of the chairman of one of the worlds largestbanking groups, Trust in banks in general has beenbadly damaged by the events of the financial crisis andit cannot be rebuilt overnight. Echoing this sentiment,

Kaspar Villiger, Chairman of global financial servicescompany UBS AG, told us: We have lost trust, and weneed to regain it with a culture of responsible behavior.

The fallout from the global financial crisis in terms of trustis not only being felt in the financial services sector. Acrossthe board, CEOs appear to be united in their recognition ofthe problem that, as one business leader in the consumergoods sector put it, The scarcest of all the resources istrust. There was a strong sense in our conversations thatbusiness leaders appreciate the scale of the challenge inreestablishing confidence in the corporate community. AsSteve Holliday, CEO of global utility provider National Grid,told us, To make the transition to a new era, we need alot of trust in the systemand were not in that place rightnow. As one European pharmaceutical executive told us, Ina situation where you lack trust, you simply have to change.This sentiment is borne out by independent analysis: EdelmanTrust Barometer 2009 found that public trust in businesshad declined to just 38 percent in the United States, downfrom 58 percent the year before. Similarly, two-thirds ofrespondents in nine European Union countries reported thatthey were less trusting of business in 2009 than at the sametime the year before.8

Regaining trust is therefore critical, according to CEOs, whobelieve that a competitive advantage can be achieved bybusinesses that are able to effectively build and maintain

trust. For example, in 2008, 91 percent of consumers saidthey had bought a product or service from a company theytrusted, whereas 77 percent had refused to buy a productor service from a distrusted company.9 Maintaining a strongbrand and reputation based on trust is therefore a keysource of competitive advantage.

Businesses are now developing more sophisticatedapproaches to measuring and quantifying the impact of trust

across their organization, and to more accurately identifyingthose levers that can affect levels of trust.

As they develop new metrics, CEOs are beginning to identifytrust as a key element in building future value. For example,global health care company GlaxoSmithKline (GSK) hasa vision of a different pharmaceutical industry with amuch greater emphasis on building trust and tackling bigquestions for the sector such as access and affordabilityof medicines. As CEO Andrew Witty told us, To be asuccessful and sustainable business, we must fulfil our socialresponsibilities and build trust with our stakeholders. AtGSK, this has meant fundamentally rethinking the approachto intellectual property and pooling patents for neglectedtropical diseases, as well as GSKs pricing strategy fordrugs in emerging and least-developed countries, whichaims to drive better access to and affordability of criticalmedicines. For example, in the Philippines, a 60 percentprice cut in cancer vaccine Cervarix increased sales byaround 600 percent.10 This focus on building trust isalso being integrated into GSKs core business strategyand the roles and responsibilities of managers acrossthe organization. For example, a Regional and GeneralManager Trust Framework is being rolled out across thebusiness to support leaders in finding win-win solutions

that benefit the business, stakeholders and patients.


Which factors have driven you, as a CEO, to take action onsustainability issues?

Respondents identifying each factor in their top three choices

12%

24%

29%

31%

39%

42%

44%

72%

Pressure from investors/shareholders

Governmental/regulatoryenvironment

Impact of developmentgaps on business

Employee engagementand recruitment

Consumer/customerdemand

Personal motivation

Brand, trust and reputation

Potential for revenuegrowth/cost reduction

Figure 1-3: CEOs cite brand, trust and reputation as the

primary motivation in taking action on sustainabilityissues


23/59

21

Our survey data suggests that CEOs, at anindividual level, may not fully grasp the extentof the trust challenge (see Figure 1-4). Globally,73 percent of CEOs believe that their industry istrusted by the public and other stakeholders, but

79 percent believe the same of their own company.Apart from those in Latin America, CEOs across theglobe appear to believe that their companies aremore trusted than their industries.

For example, in North America 62 percent of CEOsbelieve that their industry is trusted by the publicand other stakeholders, but fully 87 percent believethat their company is trusted. At the industrylevel, the story is perhaps more predictable. Themetals and mining sector and the banking industryaccounted for the lowest proportion of CEOs whobelieved their industry was trusted (55 percent and66 percent, respectively).

It is not yet clear, however, to what extent businessleaders see their own role in rebuilding a moretrusted position for business in societyor whetherthey feel that individual action can address aglobal environment that sees some stakeholders askserious questions about the purpose of business.

Building trust is asignificant challenge forcorporations

Figure 1-4: CEOs in most regions believe that theircompanies are more trusted than their industries

My industry/company is trusted by public and stakeholders

Respondents answering Agree or Strongly Agree

62%

65%

69%

71%

77%

89%

87%

78%

77%

91%

91%

70%Latin America

Asia

Africa

Europe

Middle East &North Africa

North America

Industry vs.Company

-19%


Industry

Company

14%

20%

8%

13%

25%


24/59

22

As they move beyond the constraints of focusing solely onfinancial performance, CEOs envisage a future in whichbuilding stakeholder trust will sit at the heart of theircompanies' strategic agenda, and will be driven by specific,measurable activities and objectives.

Sustainability issues are changing:

Education and climate change aretop-of-mindIt is clear from our conversations with CEOs that they areunited in their belief in the importance of sustainability, anddetermined to be part of the solutionbut what do theymean by sustainability, and which issues are uppermost intheir minds? The breadth and complexity of sustainabilityissues are increasing and they are increasingly tied tofuture business success. As Gerard J. Kleisterlee, Presidentand CEO of multinational Royal Philips Electronics, told us,Whichever angle you come from, you try to meet a needof a community or an economy, both from an economicperspective and from a development angle.

The scope of sustainability varies significantly byindustry, often driven by those environmental, socialand governance issues on which the industry hasgreatest impact. While health may be top-of-mindfor executives in the pharmaceutical industry, humanrights is a particular concern for CEOs in the metals andmining industries, not least due to some of the marketsin which they have to operate. For example, Norwegianaluminum and renewable energy company Norsk Hydroensures that, when operating in countries where the

right to form trade unions is restricted (such as Chinaand Qatar), alternative forums are found to upholdemployees rights and influence their work situation.11

At an aggregate level, CEOs see education and climatechange as the issues most critical to the future successof their businesses (see Figure 1-5). As the CEOs fromour survey look to the future, the global developmentchallenge they see as most critical to their future successis the education of citizens in sufficient numbers and withhigh enough quality for three purposes in particular. First,to ensure sustained economic development; second, tocreate a steady supply of talent to renew their workforce

capabilities; and third, to equip current and future leadersand employeesand those from other sectors such asgovernment and civil societywith the ability to managesustainability issues as part of core business.

To meet this challenge requires a broad range of responses,from early-intervention programs in schools and betteremployee re-skilling programs, to new partnerships withgovernments, universities and business schools. For example,when UK telecommunications company BT Group partneredwith UNICEF to launch the initiative Inspiring Young Minds,it was responding to the need to educate and develop skills

of the next generation in key markets that would sustainthe companys future success. The program has so far

invested 1.5 million (US$2.2 million) globally with the goalof bringing education, technology and communication skillsto children from disadvantaged backgrounds in three keygrowth markets for BT: Brazil, China and South Africa.12

The second development issue identified as most criticalto future business success by CEOs is climate change.Increasingly, responding to climate change is seen not only

as a means of managing risk but also an opportunity forgrowth, capitalizing on the growing demand for productsand services that address environmental concerns. Forexample, when Eskom Holdings Ltd., the South Africanutilities company, decided to shift its energy generation mixtoward renewable energy, it was responding to the pressuresbrought about by climate change and the future resourceconstraints that threaten its long-term growth. It also wasacknowledging, at the same time, a significant opportunityto lead in a growth market. Traditionally a coal-dominatedutility, Eskom is now shifting its strategy toward renewableswith the aim of reducing the amount of coal in its generation

mix from the current 88 percent to 70 percent by 2025.

13

Inparticular, it is investing heavily in concentrated solar powerand wind farms with the help of a recent US$750 millionloan from the World Bank, allocated for renewable andenergy efficiency projects.14

Health and resource scarcity are on the

horizonLooking ahead, the future issues that CEOs highlightedin our conversations as starting to appear on the horizonwere health and resource scarcity, with water in particularemerging as a concern. This broader understanding ofsustainability issues will provide new battlegrounds in areas

such as ecosystem servicesfor example, creating marketsfor the preservation of jointly shared global resources.

Which of the following global development issues are the most criticalto address fo r the future success of your business?



6%

6%

22%

26%

32%

51%

66%

72%

Poverty

Diversity and genderequality

Access to clean waterand sanitation

Climate change

Education

Child mortality and

maternal health

HIV/AIDS and otherdiseases

Food security and hunger

Figure 1-5: CEOs see education as the global developmentchallenge most critical to the future success of theirbusiness


25/59

23

Already we are starting to see a growing awareness amongCEOs of the global value of environmental assets andecosystems. Jorge Samek, Director General of Brazilianhydroelectricity company Itaipu Binacional, told us: Somecountries have already driven high levels of consumptionthrough a banquet of their resources. We have to finda balance that preserves resources as well as economicdevelopment. And in the words of Helmy Abouleish,

Chairman of North African agricultural company the SEKEMGroup, which promotes organic farming practices andcarbon emission reduction projects: The only long-termsustainable way of development is in harmony with theenvironment and with a high level of social responsibility.There is a growing sense among CEOs that the transition toa new era of sustainability will go far beyond carbon andclimate change as an environmental issue, spanning water,waste, biodiversity and ecosystems services. Their viewsare corroborated by independent analysis. The Economicsof Ecosystems and Biodiversity (TEEB) study, which willbe published shortly, has already concluded that business

as usual is not an option if we are to safeguard naturalresources: By 2050, 7.5 million square kilometers of naturalareas (11 percent of the total area in 2000) are expected tobe lost as a result of conversion to agricultural land as wellas the expansion of infrastructure and by climate change.15

The way businesses address sustainability

issues is also changingWhile sustainability issues have perhaps rarely been moreimportant, an additional challenge for CEOs is in the waybusinesses need to address sustainability issues. This

changing landscape presents increased opportunities forbusinesses but also further challenges that they mustunderstand and master.

1. Developing new products and services: Theconsumer is (or will be) king

Consumers are important drivers of the corporatesustainability agenda. Fifty-eight percent of the CEOs in oursurvey identify the consumer as one of the most importantstakeholders influencing how companies will managesocietal expectations over the next five years, compared to50 percent in 2007 (see Figure 1-6). Of those who responded

in the other category, the option of customers was byfar the most common choice, reflecting the importance ofbusiness-to-business customers and governments as wellas consumers. As one business leader from a consumer-goods multinational explained, There is a growing sensethat people expect more than just a high-quality productat a good price. As consumer awareness of sustainabilityissues increases, companies are being held to a higherstandard, and being asked to demonstrate the wider impactof their operations. As Sung-joo Kim, Chairperson and CEOof South Korean fashion and luxury goods retailer SungjooGroup, said, drawing on her knowledge of consumers inboth emerging and developed economies, Sustainability

started as a moral obligation, but has now become a keydifferentiator for consumers.

Growth in consumer demand for sustainable brands,products and services is spurring innovation in new-productdevelopment to meet changing consumer requirements. Asthe CEO of a major European electronics company told us,Our angle on sustainability is in what our products can dofor our customers to reduce their environmental impact.Indeed, many businesses are beginning to see significantnew sources of growth in green products and services:As growth slows in traditional markets, CEOs are turningtheir attention toward new propositions that tap into newwaves of demand. As one business leader from the consumerelectronics industry told us, We have clearly identifiedthe mega-trends that will shape the next decade, and wewant to make sure our customers can address these issues.

Another leading executive from the telecommunicationssector told us, Weve been shifting our product mix towardsproducts and services that allow our customers to addresssustainability outcomes.

CEOs can already point to success stories. For example, dueto the increase in demand for energy-efficient productsand services, Royal Philips Electronics has been growing itsportfolio of green products with specific targets througha comprehensive companywide initiative called EcoVision.The company is adapting its current products and servicesto be more environmentally friendly, while introducing new

green product lines to address growing demand. In 2006,Philips set a target to generate 30 percent of total revenuefrom green products by 2012, compared with 15 percent in2006. It has already surpassed this target, hitting 31 percent

Source: United Nations Global Compact CEO Survey 2010 (based on 766 completedresponses). 2007 data from McKinsey UN Global Compact survey.

Over the next five years, which stakeholder groups do you believe willhave the greatest impact on the way you manage societal expectations?


7%

14%

15%

15%

22%

25%

26%

28%

39%

45%

58%

16%

19%

7%

24%

5%

29%

25%

27%

32%

39%

50%Consumers

Employees

Governments

Communities

Regulators

Media

Investmentcommunity

Suppliers

NGOs

Boards

Organizedlabor

6%4%

Other2010

2007

Figure 1-6: Consumers are increasingly drivingbusinesses approach to sustainability


26/59

24

in 2009 with revenues of nearly 7.2 billion (US$8.7 billion),and expects this to rise to 50 percent by 2015. Philips alsoplans to double its investment in green innovation to acumulative 1 billion (US$1.2 billion) by 2012, and aims by2015 to improve the energy efficiency of its entire productportfolio by 50 percent compared to 2009.16

However, as opportunities for new products emerge, so

do new challenges. For many consumers, sustainabilityis no longer just nice to have but is instead a criticaldifferentiator. That means companies face the risk offalling demand if products and services are perceived asdamaging to sustainability objectives. CEOs also recognizethat soon they may no longer be able to charge a premiumfor sustainable products and services. One recent Accentureresearch study, based on surveys of more than 9,000consumers in the energy sector, highlighted that althoughthe vast majority of consumers would be prepared to switchenergy providers if they offered products and services thathelped to reduce carbon emissions, most would also demand

savings on their bills.

17

As one consumer goods executivetold us, Consumers are never going to accept a higher priceor lower quality.

2. Employing new technologies: Challenge andopportunity abound

New technologies will play a vital role in embedding andenabling sustainability. Ninety-one percent of CEOs believethat over the next five years, employing new technologies(e.g., renewable energy; energy efficiency; and informationand communication technologies) will form part of theirstrategy to address sustainability issues.

The growth in information and communication technologiescontinues to provide opportunities for businesses to driveefficiencies through reduced energy consumption. Accordingto some estimates, information and communicationtechnologies (ICT) could deliver up to a 15 percent reductionof carbon emissions by business in 2020, representing avalue of US$872.3 billion in energy and fuel saved.18

Perhaps one of the most challenging aspects of thedevelopment of new technologies relates to the impact ofnetworking technologies and social media on businesses

relationship with consumers and wider stakeholders.First, there has been a proliferation of channels by whichbusinesses are expected to communicate. As one emergingmarket CEO told us, As we move to the era of Web 2.0,where many stakeholders voice their concerns and unite,we need to engage with them. No longer is a one-wayprojection of a corporate brand sufficient. Businesses arenow expected to interact, personally and directly, with thepublic across multiple social media platforms. As TensieWhelan, Executive Director of the Rainforest Alliance, toldus: Social media is exciting. It enables a more nuancedconversation about sustainabilityits hard to boil themessage down to a sound bite.

Second, the speed and ease of information sharing byconsumers across social networking platforms has raisedthe transparency of business operations. More than ever,businesses see the urgency of truly living the brand,extending their brand values throughout their operations.Paul Bulcke, CEO of Nestl S.A., told us, Consumers areasking who is behind the brand, so we have to make itvisible. Nestl is tackling this issue head-on by using social

media channels to inform and engage its stakeholders onenvironmental and social activitiesfor example throughbroadcasting their Creating Shared Value forums viaFacebook, enabling followers to actively participate byexpressing their views and asking questions to panelists.

Many other leading companies are also responding to thesocial media phenomenon. BT Group is seeking to use Twitterand other social networking platforms to engage directlywith consumers. This is enabling a two-way communicationthat can keep consumers informed about product and servicedevelopments, while also generating real-time feedback on

how BT can best meet its customers changing needs.

For businesses, social media increases the opportunityto strengthen the relationship with the consumer todrive revenues. However, it also opens businesses up toincreased scrutiny that requires a deeper approach tobrand management and provides more comprehensivedata and information on corporate performance. Formany, this dynamic will represent a fundamental shiftaway from viewing brand as purely a logo or a sloganto a more detailed and critical appreciation of thevalues a company stands forand how those valuesare integrated into core business operations.

3. Partnering and collaborating: Managingcomplexity through broader networks

The CEOs we spoke with consistently referred to theimportance of partnerships with NGOs and governmentsin how they address sustainability challenges.

CEOs believe that the societal problems facing the planetare too big and complex for any sector or organization to goit alone. Higher public deficits and reduced public spendingover the next decade (particularly in developed economies)mean that governments will increasingly look to businesses

and the nonprofit sector to work together to delivereconomic, environmental and societal objectives. Within thatcontext, key stakeholders are shaping how businesses willrespond and succeed. As Mavi S. Isibor, CEO of Poise Nigeria,told us, Our enablers are our stakeholders. They ensure oursurvivability and sustainability.

The changing role of NGOs: From agenda-setter todelivery partner?

Nevertheless, despite this focus on collaboration, one of themost surprising findings from the CEO survey data is that, inthe eyes of executives, NGOs may have fallen in significance

as a stakeholder since 2007 in terms of driving businessactivity on sustainability.


27/59

25

In 2010, just 15 percent of CEOs identified NGOs as oneof the key stakeholders influencing their approach tosustainability, compared to 27 percent in 2007. This mightsuggest that NGOs are no longer setting the agenda in termsof policy and issues or that the degree of pressure they areexerting on business is waning.

However, our conversations with CEOs tell a different

story. Indeed, they indicated that, although NGOs mayhave shifted their tone and strategy over recent years, theyremain an important and influential player. Daniel Vasella,M.D., Chairman of pharmaceutical multinational NovartisAG, explained: Our relationship with NGOs has becomemuch more productive as they have seen more activity andcommitment from the industry. Another European businessleader told us, NGOs are no less influential todaybutthey have become much more sophisticated and subtlein how they rally support. Social media such as blogs arefast, effective ways of raising awareness. Mary Robinson,former President of Ireland and Founder of Realizing Rights,

The Ethical Globalization Initiative, confirmed: NGOs areincreasingly committed to direct dialogue and engagementwith companies, but they expect transparency andaccountability in return," alluding to the new and perhapsmore subtle ways in which NGOs now influence businesses.These perspectives may help explain the apparentcontradiction between our survey data and the stated beliefof CEOs in the importance of NGOs as partners.

Through our discussions, we have seen examples of NGOsbroadening their approach from solely lobbying businesson high-profile issues to partnering and collaboratingwith business to achieve specific, local development

objectives. As one European consumer goods executivetold us, We see a real willingness by NGOs to worktogether: They are so disillusioned with governmentsthat a better way of achieving their goals is throughthe private sector. NGOs and businesses are morefrequently seeing the advantages of collaboration toaddress development issues. As one business leader fromthe telecommunications industry told us, Companiesand NGOs have the same objectives its a question ofdivision of labor and creating the right incentives.

One example of business-NGO cooperation comes from

Liptonconsumer product company Unilevers biggest teabrandwhich has partnered with the Rainforest Allianceto drive sustainable production throughout the companyssupply chain for black tea. Unilever is the biggest buyer ofblack tea in the world, accounting for about 12 percent ofthe entire market. The Rainforest Alliance is a pioneer insetting standards and certifying sustainable agriculturemethods. Such expertise has prompted Unilever to engagewith the NGO to actively respond to consumer and customerconcerns and drive sustainable agriculture through itssupply chain. The tea market has been experiencingdecreasing prices, with negative consequences for low-income farmers. Consequently, the partnership has

benefited both parties. Certified farmers manage their teacrop better, reducing farming intensity as well as givingthem higher returnscertified tea has a 10 to 15 percentprice premium compared to average tea prices, which

Lipton passes directly onto its suppliers. Lipton estimatesthat farmers globally will receive substantially higheradditional revenues by 2015. For Lipton, the partnershiphas helped increase sales in highly competitive marketssuch as the United Kingdom, where sales increased by5.6 percent in 2008 following an advertising campaignannouncing the partnership. In key growth markets, double-digit returns were seen in 2008, with sales increasing

by 10 percent in Italy and 12 percent in Australia.19

Engaging with regulators

Particularly in the wake of the economic downturn, CEOsface an intensified need to communicate with publicauthorities and position themselves as part of the solutionto the issues with which governments are grappling. As oneEuropean CEO in the banking sector told us: The crisis hasput public policy issues and the industrys relationship withauthorities on the frontline. This was not the case threeyears ago...then the issues were growth and expansion."

For many industries, though, collaboration with regulatorshas been common practice for some time. For example,in recent years the alcohol industry has been proactive inbuilding relationships and partnering with governments toreduce the negative social impacts associated with excessivealcohol consumption. The industry has developed tailoredprograms with the International Centre for Alcohol Policiesthat promote responsible drinking and help prevent alcoholabuse in many markets. In the United Kingdom, for example,Heineken, Diageo plc and 45 other companies have partneredwith Drinkaware to launch a 100 million (US$144.8 million)marketing campaign aimed at curbing binge drinking andpromoting the benefits of responsible enjoyment.20

From periphery to coreThe widespread perception of the increased importance ofsustainability may reflect a new appreciation of the scaleand complexity of global challenges facing business today.As issues of climate change and the natural environment,social development and global corporate governance becomeever more pressing, CEOs are acutely conscious of thechallenges ahead. These challenges have a direct impacton companies operations, but also demonstrate the rolebusiness must play in addressing the demands of the new

century. As one emerging market CEO told us, Sustainabledevelopment will be a basic guarantee for our companyssurvival and growth. It appears that action on sustainabilityissues has shifted from being a discretionary choice to acorporate priority.


28/59

26


29/59

27

"We need more from business than justprofit."Ben Verwaayen, Alcatel-Lucent

"I strongly believe that our

success depends on our

capability to provide long-

lasting benefits to the

communities which host us."Paolo Scaroni, Eni S.p.A.

"Sustainability now has tobe on everyones agenda,

and that represents afundamental change."Klaus Kleinfeld, Alcoa

"Prescriptive regulation without effective

collaboration could result in unintendedconsequences."Paul S. Walsh, Diageo plc

"Whichever angle you

come from, you try

to meet a need of

a community or an

economy, both from an

economic perspective

and from a developmentangle."Gerard J. Kleisterlee, Royal Philips

Electronics

"The concept of

sustainability as a new

mode of corporate

development will remain

unchanged but its

methods and means willbe constantly upgraded."Zhongshu Zhou,

China Minmetals Corporation

"The role of the UN Global Compact as a

peer learning and dialogue platform is

highly appreciated by our company: it hasan outstanding outreach and impact."Jrgen Hambrecht, BASF SE

"To be a successful and

sustainable business, we

must fulfil our social

responsibilities and

build trust with our

stakeholders."Andrew Witty, GlaxoSmithKline

"We need

partnerships,

both public-

private and also

between developed

and emergingeconomies."PM Telang, Tata Motors

"The financial community is increasingly

looking at companies and rewardingthose that think smartly about their use

of resources."Paul Polman, Unilever

CEOs on sustainability

"Training and developing a

new generation of managers

will be crucial in creating

sustainable growth."Ernst Brtschi, Sika Group


30/59

28

"Some countries have

already driven high levels

of consumption through a

banquet of their resources.

We have to find a balance

that preserves resources

as well as economic

development."Jorge Samek,

Itaipu Binacional

"The industry always

tends to overestimate

the short-term impacts

and underestimate the

long-term impact of new

technologies."Ren Obermann,

Deutsche Telekom AG

"Technology is the saviorfor sustainability issues."Amr Sheira, CompuMe

"Sustainability issues are criticallyimportant for our companys future."Hirokazu Hashimoto, Anritsu Corporation

"The risk of inaction is

the greatest risk facingbusiness."

Idar Kreutzer, Storebrand ASA

"During the first ten years

weve been discussingdirection. Now is the time

to implement that direction

into business and societal

mechanisms."Toshio Arima, Fuji Xerox Co., Ltd.

"The only long-term

sustainable way of

development is in harmony

with the environment

and a high level of social

responsibility."Helmy Abouleish, SEKEM Group

"Its now not whether youre going to do

anything on sustainability, its about how

much youre going to do."Rashid Toefy, Cape Town International Convention Centre

"Investment funds are starting to ask the

right questions."Barbara Krumsiek, Calvert Group Ltd.

"You cannot be a spike of prosperity in a sea

of poverty."Jamshed J. Irani, Tata Steel

"Sustainability started

as a moral obligation,

but has now become a

key differentiator for

consumers."Sung-joo Kim, Sungjoo Group

"It is important to identify

material issues which will

contribute to long-term

success."Tae-won Chey, SK

"There should be a focus

on integrated reporting of

CSR and financial results,

which could bring about an

alignment of sustainability

with economic performance."Fulvio Conti, Enel S.p.A.


31/59

29

"The Global Compact

should encourage better

collaboration among the

growing membership,

such that smaller

companies can learnfrom larger companies

and adopt best practice

strategies."Martha Tilaar, Martha Tilaar Group

"Future capabilities will be very different,

and will put a premium on lateral thinking

and cross-functional, collaborative problem

solving."Jeffrey Swartz,

The Timberland Company

"CEOs may complain that

investors do not value their

sustainability activities

properly, but they need to tell

investors what they are doing:If they dont communicate

regularly, investors cannot

incorporate these issues into

their models."Edemir Pinto, BM&FBOVESPA

"Regulators involvement will be absolutely

necessary to drive optimal markets forsustainability outcomes."Adam Crozier, Royal Mail

"A transparent approach

clearly oriented towards

values, human rights and

environmental objectives

is the only right approach

that will be appreciated in

the long-term."Wolfgang J. Ruttenstorfer,

OMV Aktiengesellschaft

"A transition phase will be

required in order to reacha tipping point where

business objectives are

aligned with sustainable

development."Svein Richard Brandtzg,

Norsk Hydro ASA

"Our enablers are our

stakeholders. They ensure

our survivability and

sustainability."Mavi S. Is ibor, Poise Nigeria Limited

"Our relationship with NGOs is much more

productive as they have seen more activity

and commitment from the industry."Daniel Vasella, M.D., Novartis AG

"Successful business is whatdrives sustainable growth."Gareth Penny, De Beers

"We do not just operatetoday without anythought for tomorrow."Sam I. Ohuabunwa, Neimeth International Pharmaceuticals Plc.

"Sustainability is a business

model that respects that

nothing is free."YS Chi, Reed Elsevier Group plc

"We believe that providing

frequent opportunities

for many determined

companies to engage in

mutual communications will

result in increased practice,

and the wider spread of the

UNGC."Yasuchika Hasegawa,

Takeda Pharmaceutical Company

"Sustainability is essential to

building our brand and our

trust with consumers."Didier Lombard, France Telecom


32/59

30

"By promoting and

embedding the principles

of the Global Compact,

business can help ensure

that markets advance in

ways that contribute to

a more sustainable and

inclusive global economy."H.E. Akbar Al Baker,

Qatar Airways

"Environmental, social and

governance issues are crucial

to our employee value

proposition."Luiz Ernesto Gemignani, Promon S.A.

"The CEO has to be the

role model."Prida Tiasuwan, Pranda Jewelry PCL

"To make the transition to a new era, we

need a lot of trust in the systemand were

not in that place right now."Steve Holliday, National Grid

"The Global Compact

gives us an anchor: over

the last ten years, its

had the same principles,

and it gives us a means

of benchmarking ourperformance and acts as

a mirror for us to see how

we perform."Steve Lennon, Eskom Holdings Ltd.

"We believe that it is

not only a companys

economic performance

that determines its

success, but rather

successfully combining

economic performance

with active management

of how the business

impacts on social and

environmental factors."Hans Vestberg, LM Ericsson

"A theme that will become increasingly

apparent in the coming years is the role

that emerging countries will play in shaping

sustainability."Carlos Ghosn,

Renault Nissan Alliance

"We have lost trust and

we need to regain it with

a culture of responsible

behavior."Kaspar Villiger, UBS AG

"Consumers are asking whois behind the brand, so we

have to make it visible."

Paul Bulcke, Nestl S.A .

"This crisis has been the perfect stormfor the industry."Alfredo Senz, Grupo Santander

"We want regulation to be stable andpredictable."Ignacio Galn, Iberdrola

"The Global Compact has aunique opportunity to act

as a platform for sharing

knowledge and best practice

on sustainability."Alessandro Profumo,

UniCredit S.p.A.


33/59

31


34/59

32

The majority of Global Compact CEOs

now believe that sustainability issuesshould be fully integrated into core

businessOur survey found resounding belief by CEOs in a new era ofbusiness where sustainability is more than an aspiration ora separate initiative, but something fully integrated into thestrategy and operations of a company. In the words of oneemerging-market CEO from the banking sector we spoke to,Currently, the burning issue is how to better incorporatesustainability into daily practice. According to Rashid Toefy,CEO of the Cape Town International Convention Centreone

of the UN Global Compact s growing number of small- andmedium-sized member companiesIts now not whetheryoure going to do anything on sustainability, its about howmuch youre going to do.

The past three years represent a significant mindset shiftin how UN Global Compact CEOs think about the role ofsustainability in strategy and operations. Ninety-six percentof CEOs, compared to just 72 percent in 2007, now believethat environmental, social and governance issues shouldbe fully integrated into the strategy and operations of acompany (see Figure 2-1).

Chapter 2Making progress: From strategy to

execution

24%

2010

2007

24%

26%

29%

22%

21%

Source: United Nations Global Compact CEO Survey 2010 (based on766 completed responses). 2007 data from McKinsey UN Global

Compact survey.

To what extent do you agree with each of the following statementsabout environmental, social and corporate governance i

new era sustainabiltiy accenture ungc study 2010

Documents