Why are companies scaling back on their impact goals?
2024 is a bad year for public sustainability pledges.
Unilever curtailed their pledges on plastic usage, food waste and diversity targets [1]
Nike cut its sustainability workforce [2]
Colgate Palmolive warned that they could miss their 2025 recyclability targets [3]
Coca Cola scaled back its plastic pledge [4]
In his book, Net Positive, Paul Polman, former CEO of Unilever (2009-2019) invited leaders to set ambitious aspirational sustainability goalls. During his mandate as CEO, they created the Unilever Sustainable Living Plan which set targets to halve the company’s environmental footprint and increase its positive social impact by 2020. Unilever gained competitive edge thanks to its sustainability strategy. Now, under the new leadership with Hein Schumacher as CEO , the company’s policy seems to be more driven by compliance requirements and the imperatives of the Stock Exchange. Interestingly, when the company announced that their Climate Transition Action Plan was evolving in their press publication, they did not acknowledge any scale back, they simply emphasized that the plan was approved by 97% of their shareholders.
Setting ambitious aspirational goals is a tricky but necessary game to build up motivation and stretch performance beyond what one people think is impossible. This concept is touted by the OKR guru, John Doerr. OKR stands for Objectives and Key Results. It is a methodology for goal setting that has been en vogue in big tech companies for years (Intel, Google, etc.). The mindset is “should for the moon, even if you miss, you’ll land among the stars” (quote from Norman Vincent Peale, author of the Power of Positive Thinking).
Why is it happening?
Alas, ambitious stretch goals cannot always be met, and this is where the shoe pinches, especially for publicly traded companies which have set their reputation around the halo of genuine commitment to sustainability.
Scaling back goals reveals 5 key things:
The Pareto principle: This principle implies that (1) 80% of the results will be generated by 20% of the effort, and (3) the last 20% of the outcome will require 80% of the effort. It means that I may be easy to make progress quickly at first, but it will take more time to get to the finish line. In other words ambitious goals assume linear progression, they are bound to fail. It complicates planning and projection efforts, for sure.
Evolving political context and leadership: Some companies’s sustainability efforts are only driven by compliance; the ones that try to get ahead have an opportunity to gain a competitive edge, but it can become more challenging when the political landscape is less favorable to sustainability practices, which can be complex under the current the Stock Exchange dogma. With changes of leadership, changes in Sustainability goals are bound to happen, with changes of political context, business are more likely to readjust their business priorities to rip the benefits of awards programs, subsidy schemes, etc.
Need for systemic collaboration: One one hand, one company can only do so much alone, even when they are large anchor companies capable of moving a large set of suppliers (upstream) and distributors (downstream). All of these actors need to change behaviors, policy, processes and systems, which is costly and time consuming, almost always more than we usually expect. On the other hand, sometimes, it is important to level the playing field by changing the practice of all competitors at the same time to achieve economies of scale instead of just trying of gaining competitive advantage by changing things on one’s own.
Market failure and Technological Unavailability. Sometimes, the technology is not there yet or the supply/demand market are not working. Part of the issue with plastic pledges is that the source for recycled and recyclable plastic is not available in sufficient quantity to fee the growth of the giants of the sector…
Failed strategic integration of sustainability goals. Sustainability efforts are often touted to be costly (high upfront investments, change of systems, need for collaboration across the supply chain), and it is perceived more so when sustainability is an after-thought, not an essential part of business strategy. Those who can figure out how to prove that their sustainability strategy makes business sense will get an edge, we all know that. And, yes, it is hard to push towards this integration when the Stock-Exchange capitalist dogma worships short term profits and when externalities are not taken into account in financial statements. Such a change is likely to happen when impact will start to be evaluated financially in the profit statements. The problem? It will take time until a new standard prevails, especially in political environments that are skeptical to sustainability targets. We need to look out at the initiatives of the Capitals Coalition [5], the concepts of Impact Weighted Financial Accounts [6] and the work of Valuing Impact (see the WASH Impact Valuation Framework) [6] that are moving the needle.
Little bonus for the road: The Harvard Business School also offers their recommendation on how to approach this new moving environment where pledges are watered down [8].
Sources:
[1] ESG Dive: April 22, 2024. Unilever to scale back ESG pledges focused on plastic usage and diversity
[2] ProPublica. July 11, 2024. Nike pledged to shrink its carbon footprint. It just slashed the staff charged with making that happen.
[3] Packaging Europe. May 8, 2024. Colgate-Palmolive doubts recyclability, reusability, or compostability for flexibles by 2025
[4]. CNN. Dec 4, 2024. Coca-Cola is dramatically scaling back its plastic promises
[5] Capitals Coalition. Redefining value to transform decision-making
[6] Impact Weighted Financial Accounts
[7] WASG Impact Valuation Framework by Valuing Impact
[8].Harvard Business Review. Companies are scaling back sustainability pledges. Here’s what they should to instead.
