Companies around the world are acting on the new reality that ESG – environmental, social and governance – has become the next horizon for business leadership. From going ‘all in’ on a particular social mission, to systematically integrating sustainability and social responsibility into their operations, organizations are taking action.  

While ESG was once about compliance and risk mitigation, we believe it is now a requirement for unlocking uncommon growth. And the companies having the greatest success with their ESG strategies are the ones who have created authentic changes in the culture of their full stakeholder ecosystem. 

At Prophet, we view all organizations as a macrocosm of the individual. Each one has a collective DNA, Mind, Body and Soul. To drive meaningful culture change, leaders need to think about every aspect of this system.  

Prophet’s Human-Centered Transformation Model serves as a framework for effectively driving ESG thinking (and doing) into a company’s organization and culture. Let’s take a look at how these four elements can be used to power an authentic ESG strategy and culture from the inside out. 

1. Code ESG Into Your DNA 

Like the DNA of an individual, the DNA of an organization comes to life across every aspect of the business, helping to direct and blueprint any transformation. For some organizations that have been founded with purposeful, inclusive and regenerative business models, that DNA has been ‘coded’ with ESG from the start. For others, it may require some ‘re-programming’:  

Set a powerful, actionable and clearly-defined ESG strategy—and build it pervasively into your company strategy 

The most mature sustainable and socially responsible businesses are incorporating ESG concepts into the core of their strategy. Some examples include equitable and inclusive design of products or circular and regenerative business models. A materiality assessment can help determine which areas of ESG are most relevant to your organization and its external stakeholders—not only from a risk mitigation perspective but shared value creation. How might ESG help fuel transformative and sustainable growth for your business while doing good at the same time? 

Embed ESG into other key organizational frameworks such as purpose, values and employee value proposition 

The more it can be reinforced as a ‘red thread’ woven throughout the company, the better. How might you visibly showcase your commitment to ESG to help attract, retain and engage your talent? 

Enlist leaders in championing ESG from the top 

Vocal support from across the leadership team is critical to signal ESG as a priority. How can you ensure leadership is not only bought in but actively role modeling sustainable and inclusive behaviors, multi-stakeholder collaboration, etc.? 

Some companies such as Allbirds have always had strong ESG DNA. It established itself as a benefit corporation, which shows a high degree of commitment to a strong ESG-centric operating model. Being a B Corp means a company is legally accountable to all its stakeholders – workers, communities, customers, suppliers and the environment – not just shareholders. And this status ensures that the organization will practice stakeholder governance even after capital raises and leadership changes.  

The ESG orientation that’s genetically programmed into its organization ensures Allbirds takes flight in a sustainable way with commitments to regenerative agriculture, renewable materials, carbon neutrality and more. 

2. Set Your MIND to ESG 

Once an organization sets its ESG strategy, it needs to develop the skills to enable the change. A company’s collective Mind is formed from the talent and skills of its people, so you need to train up (and hire up) in a way that supports the organization’s approach to ESG—especially if it requires more of a departure from ‘business as usual:’ 

Identify the specific skills, capabilities and roles needed to support your ESG priorities 

It is important to consider not only technical skills (e.g., climate scientists) but also critical ESG mindsets such as collaborative orientation and coalition-building. How can you upskill and equip your talent to activate your ESG strategy? Where might you need to hire external expertise? 

Align talent systems in service of the transformation 

How can you ensure your talent systems are designed to hire, measure, and manage employees toward activation of the ESG strategy? 

Unilever, for example, was a pioneer in bringing the thinking behind the UN’s Sustainable Development Goals into the multi-national FMCG space. And the company helped build its ‘mental architecture’ to deliver ESG by internally framing the ambition through concepts of more growth, less risk, lower costs, and more trust.  

As part of its internal education program, ‘bringing sustainability to life’ is a key business skill on the curriculum that needs to be mastered. Additionally, brand managers are taught how to think about the best way to get behind the corporate ESG agenda while delivering the distinctive values of their brand – so Ben & Jerry’s can be playful and provocative, while Knorr goes to market with more of an activist eater tonality. 

3. Build Your BODY for ESG 

In addition to upskilling talent for ESG priorities, it is essential to ‘hardwire’ these priorities into the Body of the organization – in a way that creates transparency and accountability. This includes evolutions in the operating model, org structure, processes and tools that are required to actually direct culture change and get the full power of the organization behind a unified approach to achieving specific ESG initiatives: 

Determine the optimal model for ESG governance and goal-setting  

Some organizations deploy a ‘teams of teams’ in a more holacratic fashion to tackle ESG priorities, while others take a more top-down approach, designating a chief sustainability officer (or similar title) to drive the ambition. In either case, a comprehensive measurement system to share, track and report progress toward goals is key. Which model best fits your organization?  

Align incentives to drive cross-functional (and cross-stakeholder) work  

Often, ESG work requires not only cooperation but collaboration between business units, regions, suppliers and even competitors. How might you empower greater collaboration across stakeholders (both inside and outside the company) to ensure the success of ESG initiatives?  

Build inclusivity into your operating model and organization design  

Given that DEI (diversity, equity, and inclusion) is often a top priority in the “S” of ESG, it is critical that your company is hardwired to practice what it likely preaches. How might you intentionally design (or redesign) aspects of your operating model to elevate underrepresented voices and bring more diverse perspectives to the table? 

Johnson & Johnson is a healthy example of a strong ESG coordination model, with clear top-down direction, and a well-defined operating model for execution. It has clearly prioritized ESG topic areas, revisited annually, that provide a unifying framework for ESG initiatives and teams across the company.  

J&J breaks down its “health for humanity” strategy into key strategic pillars, with metrics and initiatives mapped to each (and executive compensation linked to goal achievement). As for governance, there are focus area leadership roles (e.g., chief sustainability officer, chief DEI officer, etc.), but also a dedicated PMO for coordination across the entire enterprise to ensure a high degree of collaboration. 

4. Inspire socially responsible SOULs 

Finally, winning over the Soul for ESG is all about motivating transformation through shifts in emotions, mindsets, beliefs and behaviors. When it comes to ESG especially, there is an opportunity to truly inspire current and potential employees around an organization’s focus areas, from the environment to inclusivity: 

Consider how you’re engaging your employees in ESG  

While many organizations focus heavily on ESG areas tied most directly to their business model, it is also critical to assess areas that current and prospective talent care deeply about—and would expect their employer to take action against. How might you identify causes that are most inspiring and intrinsically motivating for your talent base? 

Create rituals, symbols and awards that authentically showcase commitment to ESG 

How might you motivate employee behaviors that deliver on your ESG strategy? (e.g., ethics, DEI, sustainability) 

Rapidly share success stories and celebrate progress along the way (not just outcomes) 

Often, ESG commitments such as Net Zero may take multiple years to achieve. How can you inspire belief in your ESG journey along the way? 

Anglo American is creating kindred ESG souls within its organization through a collection of initiatives that inspire employees to feel passion for ‘re-imagining mining to improve people’s lives. Anglo American thoughtfully curates an ongoing feed of well-told verbal and visual success stories about what the organization is doing both within the company itself and within the communities where it operates. Additionally, the organization creates aspiration and symbology for ESG through an annual awards ceremony where employees are recognized for their specific ESG achievements in business and society.  

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In response to the rising demands of stakeholders, companies are racing to put out sustainability commitments, with 92% of the S&P 500 now publishing these reports.  

It’s an important shift. Companies with established environmental, social, governance structures have integrated ESG thinking into every aspect of their business – increasing transparency, rethinking environmental impact and improving how they treat employees and other stakeholders. Job seekers, particularly the newest entrants to the workforce, will disproportionately want to work for organizations with an established ESG strategy over others. New hires are also more likely to stay if the intensity of the business’ actions matches the commitments. Lastly, ESG matters more to investors, with 85% of investors now mulling a company’s ESG status before buying shares. 

Many companies, though, are struggling to connect their commitments to action. They set ambitious targets–and that’s a good start. But once it comes to integrating ESG across the business, change leaders often don’t know how to navigate the path from ambition to demonstrable impact. It can be hard to build positive business cases for ESG initiatives. This is because there often isn’t a clear operating model for driving durable change and an ESG strategy requires collaboration across all parts of the business.  

We think another major problem is that many companies still see ESG primarily as a compliance and risk mitigation tool, almost exclusively. 

But we recognize it as a bigger opportunity, offering the potential for shared value creation. And there are many reasons to believe that ESG will be the next big driver of growth and transformation in the coming decade.  

As companies use ESG strategies to find more purposeful, inclusive and regenerative business models, they create value in important ways: 

Attract Talent, Boost Retention and Increase Employee Well-Being

It’s hard to overstate how important positive environmental, social and governance practices are to the modern workforce. A recent study from Marsh & McLennan finds a strong correlation between high employee satisfaction and companies with the best ESG scores. These ESG outperformers are also especially attractive to students and young professionals, with 86% of employees preferring to work for companies that care about the same issues they do.  

Improve Customer Acquisition and Retention to Build Brand Strength

People care–and deeply–about how companies contribute to solving key issues in our culture and society today. Consumers and B2B buyers alike want to do business with organizations that are environmentally responsible and fair to employees. They want businesses to stand for something.  

Ipsos reports that 66% of U.S. adults say they prefer to buy brands that reflect their values, up from 50% in 2013. The global average is even higher, at 70% of respondents, with those in emerging markets especially likely to agree. 

Optimize Supply Chains, Drive Efficiencies and Create New Opportunities

While pandemic-era shortages may have vaulted supply-chain concerns to the popular consciousness, they’ve been growing in complexity for some time. They present dizzying ESG challenges, with the average company having 3,000 suppliers for every $1 billion it spends. Supply chains are fraught with risk, with the World Economic Forum estimating they account for about 90% of all emissions and widespread human-rights problems. 

Using ESG principles to optimize and build resilience into supply chains is a huge growth tool, as companies with advanced supplier collaboration and innovation outperformed their peers by 2x in growth. 

Power Innovation and Lead to New Business Models, Products and Services

As companies move through the early phases of ESG–from mitigating risks and achieving efficiencies–they reach the point where the assets and capabilities that power ESG performance can simultaneously become growth tools for competitive strategy and innovation. This requires deeper bridge-building across all parts of the organization. ESG may have first emanated from investor and regulatory pressures, but as it becomes more understood throughout organizations – including product, commercial, and go-to-market leaders. This should open up new pathways to business model innovation, new services and inspire new ways of working.  

Here again, bold and clear goals pay off. In a study of 1,000 companies with climate objectives, those with the most ambitious carbon targets invested the most and made significant operational changes. The result? They also drove the most innovation. 

We clearly see how the principles of sustainable and socially responsible business can unlock opportunities for new products and services. The circular economy offers a $4.5 trillion economic opportunity. New business models focused on reuse, recycle and regenerate are unlocking new opportunities for innovation. Additionally, inclusive design, which embraces a larger view of the human spectrum, has proven to drive innovation that leads to business advantage.  

Moving From Ambition to Impact

Companies must find new and better ways to close the gap between ambition and impact. This requires designing scalable ESG solutions, exploring requirements for change throughout the organization and developing plans that integrate ESG into companywide strategies and operations. 

We’re not suggesting a common path. It’s essential to address what’s material to your industry. For example, water usage and resource availability will be crucial to CPG companies but less to professional services firms. In an analysis of 2,000 U.S. companies, a Harvard Business School study found that companies that consistently addressed material issues in ESG strategies significantly outperformed competitors. Those that paid more attention to immaterial problems, however, significantly underperformed.  

Stakeholders and consumers know when companies are authentically supporting their stances with strategy and when they are greenwashing, rainbow washing and virtue signaling. 70% of Gen-Z and Millennials are skeptical of virtue signaling from organizations, and roughly 80% of companies are just going through the motions and not holding themselves accountable with measurable action, continuing to erode public trust.  

It’s also important to take the ESG maturity of the organization into account. Some have been establishing and finetuning policies and programs for decades, while others are just beginning. 

That said, there are five fundamental shifts common to every organization seeking to sharpen ESG strategies to create new value. 

Companies must move from… 

Embarking on Your ESG Journey

Moving from ambition to action is a complex journey. Targets fluctuate as external factors and pressures increase. And as test-and-learn efforts enrich the company’s knowledge, they become agile and confident enough to take on new endeavors. 

To drive meaningful change, leaders need to evangelize the ESG mindset. Acting on these new tenets of sustainable and responsible business, they need to build coalitions, think creatively, iterate continuously and take risks. It’s a unique skill set but essential if ESG is to come to life throughout the company.  

We’ve found meaningful analogies to these shifts in digital transformation. We’ve helped dozens of companies take the role of digital executives from a single department to an enterprise-wide commitment. Digital thinking now forms the backbone of a modern company’s culture, operations, go-to-market strategies and business models. In many ways, chief sustainability officers are already traveling the same path. They’re driving the ESG mindset and bringing it to life throughout the company.  

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