Why We Need New Leadership Models For Sustainable Investments
CEOs are confronted with multiple challenges today: Disruptive economies, market transformations, digitalisation, rapidly changing technologies, and a world marked by volatility, uncertainty, complexity and ambiguity, the so-called VUCA world.
Global trends like climate change and migration contribute to the VUCA world, and CEOs need to increasingly use scenario techniques, set targets based on science, and internalize externalities to align short term economic objectives with long term collective goals such as decarbonisation, circular economy, high employment rates and the sustainable development goals.
Internally, on the other hand, companies have to prepare for the young employee generations, the digital native Millennials who demand to have a say in decisions, for technological revolutions, and for the constant change that companies have to comply with to keep up with external changes.
Leadership Models For Sustainable Investments
What does that mean in terms of leadership?
Leadership styles need to adapt in order to rise to the occasion. Successful CEO’s shift from top-down authoritative, transactional leadership to a participative, collaborative form of high impact leadership that is purpose driven and able to deal with the complexities of a changing environment.
They learn to assess challenges, to turn them into opportunities, and to proactively shape the markets of the future and drive the sustainable transformation.
In this process, aligning the financial allocations with long-term, sustainability criteria are a core concern – and an area that is underdeveloped in terms of sustainability performance.
The Cambridge Institute for Sustainability Leadership aims at closing the gaps between current leadership practices and leadership skills required to align commercial and sustainability performance in companies, to include sustainability into the very DNA of the company and to form financial experts in sustainability questions, for sustainability accounting and investments.
Leading to reallocate the misallocated stranded assets
At the GLOBE EU High-Level Conference “Missing Links in the Evolution of Sustainable Finance” in the European Parliament in November 2018, Nick Robbins, another thought leader and Professor in Sustainable Finance from the London School of Economics and Political Science, confirmed that there is no shortage of finance for a sustainable economy, but a misallocation of assets.
The 2° Investment Initiative tries to address this challenge: Started seven years ago with the aim to integrate sustainability into the finance sector decision-making tools and structures, their framework for sustainable finance regulations is now used by large banks and they are catalysing the redirection of investment flows from brown to green assets in the real economy.
According to Rhian-Mari Thomas, Chair of Green Banking Council of Barclays Bank, only 27% of investors consider Environmental, Social Governance (ESG) aspects relevant for investment decisions as opposed to over a third of investors for whom ESG have little or no influence on investments.
Her suggestion: regulatory interventions and training for company board members to become climate competent, in other words: increasing sustainability leadership skills.
Allianz Global Investors’ CEO Andreas Utermann shares the request for policymakers to set the right frameworks and proposes to tax externalities, in the case of carbon pricing to the degree that real CO2 costs are reflected in the costs.
His investment company mainstreamed ESG, resulting in proven added value in terms of risk reduction, better ROI, sustainability benefits and long-term stability.
Investors can shift the trillions from brown to green assets if policy makers provide the right framework regulations, as the EU sustainable finance strategy aims for, and if business leaders and board members become sustainability competent high impact leaders.
Yet, as Rhian-Mari Thomas stresses, “this does need to happen quickly if we’re going to meet climate change targets and avoid the worst impacts, but businesses and banks can only shift their business models by addressing risks and opportunities in a considered way”.
About the Author Katrin Heeren
A professional expert in sustainability, sustainable energy and climate change topics, with over 15 years of work experience in various projects on sustainability and policy related issues, Katrin holds a M.Sc. equivalent degree in geology and completed a post-graduate environmental sciences course in 2010. Katrin worked on national climate policy for the German Federal Environment Agency, on international climate policy and carbon finance as GIZ consultant to the German Federal Environment Ministry, and she was involved in the intergovernmental founding process of the International Renewable Energy Agency in 2008. She is experienced in communicating complex subjects to diverse target groups and especially interested in creative writing and storytelling.