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Sustainability: Is It a Reachable Business Model?

Posted by Felix Assivo on
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Business
Sustainability: Is It a Reachable Business Model?

This week’s article is an excerpt from “Stewards of the Future – A Guide for Competent Boards”, by Helle Bank Jorgensen, CEO of Competent Boards, which offers the global online ESG Competent Boards Certificate Program.  It is a companion to her interview on Innovating Leadership, Co-creating Our Future titled Stewards of the Future: A Guide for Competent Boards that aired on Tuesday, January 18th, 2022.

“Stakeholder concerns are shareholder concerns. The increasing focus by investors, consumers, and other stakeholders on sustainability is directly influencing value creation.” — Jane Diplock, chair, Abu Dhabi Global Market Regulatory Committee; director, Value Reporting Foundation

Case study – Ørsted

One company that has successfully managed the transition from passive to active engagement is Ørsted, Denmark’s largest energy utility. Ørsted has undergone a dramatic transformation since its inception in 1972 as Dansk Naturgas, and later as Dansk Olie og Naturgas. For the first thirty years of its existence, its business centered on coal-fired power plants in Denmark, and offshore oil and gas drilling rigs in various other parts of Europe. In 2006, however, it decided to shift its focus to green energy, closing its coal-fired plants and putting its resources instead into offshore wind farms. As of 2020, the Danish company was the world’s leader in offshore wind power, with a 30 percent market share; it forecast that it would produce enough power for more than 30 million people by 2025.

Stakeholder engagement has been a key pillar of the transition strategy. In 2007, for example, the company began fostering a dialogue with activist groups such as Greenpeace, the World Wildlife Fund and the Danish Society for Nature Conservation. Rob Morris, a senior editor at the London Business School, noted in an article that Ørsted “had to convince people that the future business could be as successful as the old one.” One example was a lengthy op-ed piece in Denmark’s Politiken newspaper written by then-CEO Anders Eldrup in which he stressed that transformation would not be an overnight miracle. Eldrup publicly debated the company’s climate action strategy with Greenpeace’s then-executive director Mads Flarup Christensen at a 2009 meeting hosted by the Copenhagen Business School.

While the Danish government still owns 50.1 percent of Ørsted shares, the company has been listed on the Copenhagen stock exchange since 2016.  The following year, it opened another useful avenue to tell its story to international investors by launching its first green bond.

“A lot of it starts with a company needing to be clear about what its purpose and its real priorities are, and that can be quite difficult to formulate,” says Ørsted’s current board chair Thomas Thune Andersen. “We have a wide debate about strategy that covers everything from the annual strategy plan to the long-term strategy, to our strategic priorities. If you’re able to really explain what your strategic priorities are, you’re able to get the shareholders and others to buy in.”

Ørsted now conducts a thorough materiality assessment each year, which involves identifying its most material stakeholders as well as assessing shareholder priorities and how these priorities intersect with society’s overall challenges. It has identified five key stakeholder groups: political stakeholders and authorities, local communities, employees, investors and shareholders, and NGOs/multiple stakeholder networks. The company has a specific interest in each group. Political stakeholders are vital allies in its plans to develop green energy. Local communities and employees provide valuable input on skills, talent retention, education, and local environmental initiatives. Investors expect strong financial returns as well as robust performance on environmental, social, and governance issues. Finally, the company engages NGOs and multi-stakeholder networks on topics such as biomass sustainability and human rights. It has worked to strengthen implementation of the UN Guiding Principles on Business and Human Rights and has identified minerals and metals in its supply chain where environmental and human rights risks are greatest. The Danish company also has no problem collaborating with other utilities to develop wind farm projects. For example, in March 2020, it joined forces with Japan’s Tokyo Electric Power Company Holdings to bid for an offshore wind power project in Chiba prefecture, near Tokyo. The two companies have several other joint projects.

Ørsted has set a target of net-zero carbon emissions by 2025 and no carbon emissions at all by 2040. Corporate Knights magazine named it the world’s most sustainable energy company for three years in a row, from 2019 to 2021, and ranked it number two across all sectors in 2021. But sustainability has not come at the expense of financial performance. Ørsted’s market value has more than doubled since its listing in 2016, surpassing rivals such as BP with a far greater dependence on fossil fuels. It achieved a 10 percent return on capital and a 4 percent advance in operating profit in 2020. As of mid-2021, its share price had almost quadrupled since the 2016 initial public offering.

Taken from “Stewards of the Future – A Guide for Competent Boards”, by Helle Bank Jorgensen, now available in hardcover and ebook.

To become a more innovative leader, you can begin by taking our free leadership assessments and then enrolling in our online leadership development program.

Check out the companion interview and past episodes of Innovating Leadership, Co-creating Our Future, via iTunes, TuneIn, Stitcher, Spotify, Amazon Music, Audible,  iHeartRADIO, and NPR One.  Stay up-to-date on new shows airing by following the Innovative Leadership Institute LinkedIn.

 

About the Author

Helle Bank Jorgensen is the CEO of Competent Boards, which offers the global online ESG Competent Boards Certificate Program with a faculty of over 95 renowned international board members executives and experts. A business lawyer and state-authorized public accountant by training, Helle helps global companies and investors turn sustainability into strong financial results. She was the creator of the world’s first Green Account based on lifecycle assessment, as well as the world’s first Integrated Report and the first holistic responsible supply chain program. Helle has written numerous thought leader pieces, is a keynote speaker, and is interviewed by global media outlets.

Photo by Damir Kopezhanov on Unsplash

Leadership Black Holes and Taboos By Maureen Metcalf

Posted by Editor on
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Business
Leadership Black Holes and Taboos By Maureen Metcalf

This blog is a companion to the May 9, 2017, interview with Gary W. Patterson, CEO of the Fiscal Doctor on VoiceAmerica “Innovative Leaders Driving Thriving Organizations” on Board Black Holes and Taboos. This blog is based on an article by Gary W. Patterson published in Financier World Wide, Boardroom Intelligence. Gary and Maureen are collaborating to refresh the data and identify the most recent issues.

We invite you to take the new survey (5 minute investment) and help us update the results for 2017.

Carla was on the board of a high-profile company. Like many others, their industry was facing dramatic change because of the pressure retailers were experiencing. Her primary distributor was facing economic challenges and she wanted to diversify to manage the potential risk. At the same time, she wanted the company to pay attention to the speed with which competitors were developing new products and evaluate how her organization should pace new products to stay current and manage profitability.

Boards continue to govern in an increasingly complex business environment. Participants at the National Association of Corporate Directors (NACD) Annual Board Leadership Conference SUCCESS identified a list of twenty uncomfortable topics that board directors and CEOs sometimes gloss over. We believe all directors should be considering how they are performing against these criteria. We created an updated survey for you to evaluate your risk and encourage you to evaluate how you score on this 10-question board health check-up and identify where you might be experiencing your highest risk.

According to Gary Patterson, “Pressed by hard financial realities, leaders say they made it through the recession by hunkering down through the mean times and getting lean. They were forced to cut fat, then muscle, and finally bone.” They are so busy delivering the current products and services and focusing on meeting current objectives that they often don’t have the capacity to do as thorough an evaluation to identify future risks, as they would prefer. We live in a world where there is not enough money, people and time to fix all problems and pursue all opportunities. If leaders don’t think through the taboo topics, they can make suboptimal choices.

Gary grouped the top issues into five key categories:
1. True customer and service profitability: Organizations need to understand their business and how they compare to their competitors against current performance and against projected trends so they can proactively manage the opportunities and threats we will face.
2. Ability to handle change: Organizations are not putting enough focus on strategically identifying possible changes and conducting experiments that will give them data they can use to navigate new or different territory. This includes leveraging their best people and proactively performing succession planning and developing future and emerging leaders across the enterprise.
3. Overly optimistic financials and procedures: Organizations need to continually invest in innovation, including addressing structural barriers such as incentive plans and risk profiles to ensure they are positioned to stay relevant while not being overly leveraged because they tried to innovate too quickly or placed too many or too high-risk bets for their financial situation.
4. Opportunity cost: Organizations often play it safe a bit too long and hesitate to terminate products and services that are no longer supporting long-term profitability and may be draining resources. This happens for many reasons ranging from lack of sufficient data to thinking too conservatively about innovation and risk.
5. Situational blindness: Unwillingness to see and consistently address the “brutal facts” when they are presented including the regulatory concerns about executive compensation.

As executives and board members, it is critical to take the time to periodically evaluate these risks and mitigate them. Perhaps now is the time to get your organizational house in a little better order: to know, prioritize, and fix those high-impact issues that will not go away. With that process, you will better understand your risk profile and be more comfortable that the right big bets are being made on your business. Then, you can worry less about your million-dollar blind spot finding you before you find it.

About the Author
Maureen Metcalf, CEO and Founder of Metcalf & Associates, is a renowned executive advisor, author, speaker, and coach whose 30 years of business experience provides high-impact, practical solutions that support her clients’ leadership development and organizational transformations. Maureen is recognized as an innovative, principled thought leader who combines intellectual rigor and discipline with an ability to translate theory into practice. Her operational skills are coupled with a strategic ability to analyze, develop, and implement successful strategies for profitability, growth, and sustainability.

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