Interview Patrick Herhold: „It’s a journey we are all on together“
Patrick Herhold is Managing Director and Partner at Boston Consulting Group. He deals closely with the effects of climate change on the economy and helps businesses to handle them. In this interview, he talks about the importance of sustainability for businesses and what challenges it entails.
Young people are out on the streets demonstrating for better climate policy, while investors are demanding more and more sustainability. How important has the issue now become to businesses?
We are seeing sustainability becoming more and more relevant every year – not just in relation to climate, though. Sustainability is a much broader topic, essentially in line with Environment, Social, and Governance (ESG) criteria. This covers a whole range of topics. Social could mean that a sustainable business also has the long-term wellbeing of its staff in mind and doesn’t tolerate child labor under any circumstances. And one meaning of Governance is that measures to implement sustainability are firmly embedded at supervisory board level.
How do you explain the change of heart by businesses?
Overall, there’s been a real societal change in recent years. As a whole, both business and society are looking more and more closely at how their operations are impacting the future of the planet.
Sustainability has been on the wishlist for a long time, but now it has become a requirement even for economically stable businesses. And the pressure is also coming from investors. Asset management company BlackRock has published a list of companies where it has used its shareholder rights to push for more sustainability. That’s a very clear indication for the business world as a whole.
Have businesses overlooked these trends for too long?
Yes and no. Forward-looking businesses may have spotted the trend earlier on, but social awareness of sustainability has only developed recently. There’s an array of businesses who would like to see more active regulation of the issue. Let’s take decarbonization of supply chains as an example. Nowadays, if an automotive manufacturer decided to focus on only processing climate-neutral steel, it would be taking huge risks in terms of costs and suppliers. Changing products and supply chains takes time – and, in many cases, it clearly rests on other regulatory framework conditions as well.
How does sustainability benefit business success right now?
Commercially successful businesses are very often the ones that operate sustainably, something we see in a range of different industries. In a climate context, those businesses with the lowest emissions have a significantly higher corporate value. That correlation is very clear.
Currently, the economy seems to be more concerned with COVID-19 than sustainability. Has the virus put the brakes on businesses’ efforts to increase sustainability?
Some companies are focusing more on other issues at the moment than on embedding sustainability more deeply in their corporate strategy. On the other hand, we are currently witnessing a new wave of sustainability projects being launched. In addition, sustainability is also a risk for businesses – as growing awareness affects all areas – and there is a clear influence in procurement and production, in terms of attracting and retaining good staff.
If businesses want to become more sustainable, where should they start?
A sustainability strategy often begins with the business purpose and a sustainability mission to underpin it, which determines the next steps. Businesses must analyze the relevant areas where they see opportunities to increase sustainability and develop initiatives. There is no tried-and-tested method here; individual businesses have to define their own strategies and design an action plan to support them. An automotive manufacturer, for example, would take a completely different approach than a consumer goods producer.
And then it is time for implementation.
And that takes time. If we take decarbonizing as an example for a sustainability goal, achieving this often involves a complex implementation process that cannot be done in just a few months. Depending on the circumstances, it may involve finding alternative suppliers, and some serious overhauls may be required in the production processes. As this kind of project ultimately affects all
business areas, it’s important to embed the issue at management level. Implementing ESG aspects also involves setting long-term goals and tracking KPIs at all levels.
What do you see as the main problems?
The success of efforts to increase sustainability cannot be measured in the short term, like you can with a cost optimization, for example. That is why long-term incentives should be set by senior management through personal target agreements.
Is pursuing sustainability a tiresome task for businesses or a stimulating challenge?
I believe it’s the latter; the switch to greater sustainability in a company’s profile also gives them a competitive advantage. Awareness of the issue is already quite high in Europe, while it’s only just beginning to get off the ground in many other countries. I think that German businesses are acting as positive role models here and can set a benchmark. But it’s definitely a journey we are
all on together. The fact that rating agencies are now listing sustainability issues on a par with key financial figures is another major indication that developments are afoot here. This is reinforced
by customer requirements, which will also take sustainability aspects into consideration to a greater extent in future. This development makes it clear that sustainability is becoming a significant indicator for all businesses in future. It’s definitely not just a passing trend.
More topics in the magazine issue:
- Sustainable Packaging
- Regional Supply Chains
- Raw Materials Study
- Interview with Managing Director Philipp on future challenges
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