By Dr Matt Guthridge, Head of Energy and Natural Resources, ANZ, Russell Reynolds Associates
Organisations that deliver on their sustainability ambitions will create value for their stakeholders, customers, employees, investors and the communities they serve.
Employing over a quarter of a million people and contributing to nearly 15 per cent of gross domestic product and more than two-thirds of total exports, the mining sector is central to Australia’s economy. The nation’s resource and energy export earnings are set to achieve a record $459 billion in the 2022–23 financial year. Ensuring the sustainable performance of this vital sector of the economy is a top priority.
The pressure on mining companies to tackle sustainability – the management of environmental, social, and governance (ESG) issues – continues to mount. A broad set of stakeholders, including customers, employees, investors and suppliers, are increasingly challenging mining companies to respond to concerns about climate change and environmental disruption, threats to indigenous ways of life, changing societal values, and economic and political instability.
The most progressive mining companies will have a corporate strategy and operational practices with sustainability at their core.
Russell Reynolds Associates, the Melbourne Business School, and Kearney recently surveyed more than 50 nonexecutive directors (NEDs) covering more than 60 companies and representing roughly 50 per cent of the ASX100 by market capitalisation.
Of the respondents, it was encouraging to see that 70 per cent believed their companies are sustainability leaders or are rapidly adopting best practices to become leaders within their industries. However, only 16 per cent of NED respondents indicated that the necessary execution success factors were in place to improve sustainability outcomes in the companies they represented.
Another recent survey highlighted the divergence in views on sustainability progress between employees and the C-suite in a sample of Australian companies. According to the survey, 84 per cent of C-suite leaders believed their organisations were doing all they could to reduce their impact on climate change, but only 49 per cent of their employees agreed.
When it comes to industry standards, 86 per cent of C-suite leaders believed their organisation’s environmental commitments were in line with best practice, compared with just 53 per cent of employees.
Taken together, these surveys demonstrate that a company’s sustainability ambition may not translate into positive outcomes because progress is hampered by challenges in execution.
Why Australian companies aren’t achieving their sustainability ambitions
One potential reason so many companies aren’t progressing more strongly towards their sustainability goals is that there is no common understanding of what sustainability really means.
Only a third of the NED respondents defined sustainability in terms of sustainable, profitable growth that considers ESG practices. Almost half of the respondents defined sustainability ambiguously or in purely economic terms. Anecdotally, we often see discussions on sustainability in the mining sector limited to a focus on carbon reduction rather than the more holistic definition of the concept.
In companies reporting slower progress on sustainability, only 38 per cent of respondents believed that sustainability trends were well understood by the board and executive teams.
Interestingly, the survey also highlighted a gender gap in the perception of sustainability. While, almost 80 per cent of male NEDs believed that sustainability trends were well understood and advocated by their boards, more than half of female NEDs were sceptical about this.
A second reason why companies aren’t realising their sustainability ambitions is that the link to purpose and corporate strategy is often unclear. For companies making good progress on sustainability, 95 per cent of respondents agreed that sustainability considerations have a significant impact on corporate strategy. In contrast, just 62 per cent of companies reporting slow progress indicated that sustainability was embedded in their corporate strategies.
Finally, there continues to be a lack of organisational alignment and focus on sustainability in many Australian companies. As they rush to formalise accountability for sustainability outcomes, many organisations have adopted a ‘tick-the-box’ approach without a sufficient organisation commitment to pursuing sustainability goals.
Of the companies in our survey reporting good progress on sustainability, only 40 per cent of them have appointed a chief sustainability officer (CSO) to lead their sustainability efforts, and only 50 per cent have sustainability incorporated into both short and long-term senior executive KPIs.
An effective CSO can navigate the logic and complex reporting requirements of sustainability, while helping to embed sustainability goals into a company’s strategy and operational practices. In their haste to appease stakeholders, however, many organisations have resorted to ‘double hatting’ the CSO role with other executive roles and business functions. Without an investment in genuine sustainability expertise, organisations will make slower progress and potentially expose themselves to accusations of ‘greenwashing.’
Interestingly, the overall governance of sustainability at the board level was not defined for a quarter of the companies that reported good progress on sustainability outcomes. Sustainability Committees, if they exist on the board, are often combined with Audit and Risk or Health and Safety Committees, and there is a dearth of NEDs with genuine sustainability expertise on today’s ASX boards.
The case for sustainable leadership
So how can mining companies build the necessary organisational commitment and capability to make progress against their sustainability ambitions? There is an urgent need for a new type of business leader – one who can deliver financial success while also making the long-term sustainability and resilience of our world a top priority. We call these people sustainable leaders.
Russell Reynolds Associates partnered with the United Nations Global Compact (UNGC) to study a group of pioneering CEOs and board members who have effectively integrated sustainability into business strategy. Our research identified the differentiating characteristics of sustainable leaders and provides a playbook for how mining companies can make sustainable leadership central to their capabilities.
Sustainable leaders have four things in common:
Systems thinking
Sustainable leaders recognise that their business is part of an interconnected ecosystem. When it comes to natural resources, leaders who utilise systems thinking acknowledge their relationship with other businesses, civil organisations, governments and academia.
Through making sense of this complex landscape, these leaders are able to manage risk while spotting long-term growth opportunities, which they are able to synthesise into competitive advantage.
Stakeholder inclusion
Rather than simply managing stakeholders, sustainable leaders consciously include them, actively seeking a range of viewpoints to inform decision-making. From employees to customers, Traditional Owners to investors, mining organisations have a broad range of stakeholders with opinions that can often be diametrically opposed.
Leaders require empathy and authenticity to be able to understand all stakeholders’ experiences, motivations and needs, utilising this knowledge to make a positive impact.
Long-term activation
Enacting meaningful change requires setting audacious goals for the long term, and rigorously pursuing them, despite challenging circumstances and setbacks. Sustainable leaders will use this long-range perspective to develop staff talent, drive technological advancement and create operational efficiencies to accomplish this.
Disruptive innovation
By being comfortable with questioning traditional approaches and willing to disrupt their business and industry, sustainable leaders are able to inspire innovation that sees beyond the either/or quandary of profitability and sustainability. Newer technologies, such as remote operating centres and unmanned vehicles, have already revolutionised safety and productivity.
To chart a sustainable course for mining, leaders require an unwavering belief in the end goal, conscientiously seeking out the latest scientific and operational evolutions while embracing uncertainty.
Looking ahead
Our recent survey results highlight the gap between sustainability ambition and execution in many of Australia’s largest companies. Our experience also suggests that many mining companies are struggling to make progress against their sustainability goals, which are influenced by the high expectations of their stakeholders.
To make progress against their ambitions, we believe mining companies need sustainable leaders at every level, including the Board. To set up for success, organisations should:
- Apply sustainability leadership potential and expertise as key selection criteria when appointing managers, executives and NEDs, and when making succession planning decisions
- Reward the prioritisation and progress against sustainable goals by integrating them into the objectives and incentives of board members, CEOs and executives
- Continually build sustainability leadership within the Executive and Board by making it a key focus of leadership development plans
- Appoint a handful of leaders with proven sustainability expertise to the senior leadership team and the Board
By taking concerted steps to embed sustainability into how leaders are selected, promoted, rewarded and developed, mining companies will remove potential barriers to execution and make stronger progress against their sustainability ambitions.
