Building an effective culture to support sustainability-related objectives

At a glance

• As companies think about how to transition to a more sustainable economy and begin to develop and implement transition plans, they will need to consider their culture. Unless a company’s culture supports its strategy, commitments, and objectives it will not achieve them. 

• In an article written by Deloitte and published in a recent Discussion Paper (DP) by the Financial Conduct Authority (FCA), we identify seven key areas that companies across industries should use to develop a culture that supports their climate and sustainability-related objectives. While the FCA DP is aimed at the financial services industry, the suggested actions and conclusions are applicable to a broader audience.

• To build an effective culture that supports their sustainability-related objectives, we believe that companies will need to dedicate sustained effort across the themes outlined. Companies need to understand their market and what clients want, as well as what their workforce and other stakeholders think, rather than make assumptions.

• It is important for companies to “join the dots” within their organisations, so that teams work together. They should also measure, as best they can, the effectiveness of what they do. This will help companies overcome the significant and new challenges posed by climate and sustainability, as well as realise the benefits they want to achieve for their stakeholders, society, and the environment.  

Relavent to:

CEOs, Board Members, COOs, Chief Sustainability Officers, Chief Strategy Officers

On 10 February, the Financial Conduct Authority (FCA) published a Discussion Paper (DP) on Finance for Positive Sustainable Change: Governance, incentives and competence in regulated firms. The DP includes contributions from financial services firms, academics, and other organisations and explores how financial services firms can make changes to their governance and culture to lead and support the transition to a more sustainable economy.  

Deloitte was delighted to be invited to contribute an article to the DP. Our article focuses on the actions a firm needs to take to build a culture that supports its climate- and sustainability-related objectives. We highlight several actions that firms may consider across seven key areas: purpose, tone from the top, expertise, challenge and diversity of thought, governance, remuneration and incentives, and feedback and review.

While the FCA DP is aimed at the financial services industry, we think that the suggested actions and conclusions outlined in our article are applicable to a broader audience. 

Many companies across the UK economy are making commitments to support the transition to a more sustainable economy. As part of this, they are beginning to develop and implement transition strategies, objectives, and plans. Unless a company’s culture supports its strategy, commitments, and objectives it will not achieve them. This is because culture is about a company’s values, attitudes, and behaviours – what people say and do. 

We believe that the importance that regulators and other standard-setters place on culture will increase. In addition to the FCA’s DP, the UK Transition Plan Taskforce (TPT) recommended in its November 2022 consultation that entities disclose the steps they are taking to create a culture that supports the successful implementation of their climate transition plan. Depending on how the proposed framework is taken forward across sectors and industries, this would place increased emphasis on entities to review, for example, their leadership, company values, systems, processes, communications, policies, procedures, and training programmes. At the same time EU legislation, such as the Corporate Sustainability Due Diligence Directive (CSDDD), illustrates how EU policymakers expect companies to look more holistically at human rights, worker rights and other social and cultural issues embedded in an organisation.

While climate and sustainability may pose significant and new opportunities and challenges, companies can draw on previous experiences of large-scale culture transformation (e.g., to support digital innovation, or how they treat their customers). They should also review lessons learned and identify where they need to improve their approach. 

There is no silver bullet that can transform a company’s culture. Boards will need to make a sustained push on a number of fronts. 

This blog provides an overview of the key themes in our article and a summary of actions for companies across industries to consider. You can read the full article in the FCA DP here. 

1. Purpose

We define purpose as a company’s explicit drive to create value beyond profit, specifically for people and the planet. A company’s purpose helps to shape culture, while at the same time, culture is essential to embed purpose. However, a company’s purpose is only authentic and delivers value when it is embedded within the business and is visible and understood externally. 

In terms of actions to consider, Boards will need to define their company’s purpose, ideally via a consultative approach. They will need to ensure that their company’s values, strategy and business model are aligned with the purpose and that the purpose is embedded across the organisation. Boards should also ideally receive management information (MI) on the extent to which the purpose is understood and has been embedded and take follow-up actions where necessary. 

2. “Tone from the top” 

Culture is shaped by what leaders say and do - and by what they don’t say and do. Boards and executives need to be role models for the behaviours that exemplify the culture they want to create. For example, where business priorities emerge, Boards should consider how these align to their sustainability-related objectives and drive discussion where profit is seen to conflict with people and planet.

Companies should consider communicating their purpose and values frequently and convey how they relate to sustainability objectives. Messaging must be consistent and is more effective when it can tap into people’s emotions, values and ambitions. Positive user stories providing practical examples also work well. 

3. Expertise

To drive the culture a company wants to achieve, the Board, senior executives, and workforce will need to understand the company’s purpose and climate and sustainability-related objectives, and how they relate to their day-to-day roles. This will require a step change in Board and workforce expertise, where individuals can continue to evolve their knowledge, skills and experience.  

Companies should therefore consider identifying and addressing knowledge, skills and experience gaps in the Board and across the workforce.

4. Challenge and diversity of thought 

Companies need a culture which encourages challenge and diversity of thought. An informed and engaged workforce is more likely to identify opportunities which support a company’s sustainability- related objectives, or identify potential instances of greenwashing or misconduct. 

Companies should therefore consider opening escalation channels and hotlines for staff to provide feedback. They could look to facilitate workshops where staff can raise specific opportunities or challenges, and consider appointing culture champions. Diversity and inclusion should also be included in recruitment, retention, and succession planning. 

5. Governance – roles and responsibilities 

To create a culture where individuals are personally incentivised to act in the way Boards and senior executives want, it will be important for companies to ensure that roles and responsibilities are clear and there is individual accountability. 

Companies also need to encourage teams to work together, not in silos. This is likely to uncover new opportunities as teams share ideas.

As companies look to translate climate and sustainability-related objectives into specific and credible plans, they should consider updating roles and allocating responsibilities across the business, risk and compliance, and internal audit functions. The Board, Board Committee and Executive Committee mandates, roles, terms of reference and reporting packs would likely need to be updated. 

6. Remuneration and incentives 

If culture is to thrive, remuneration, incentives, and performance management all need to be aligned to promote behaviours consistent with it and, in this case, with achieving sustainability-related objectives and the company’s purpose.  

Companies should therefore consider updating their performance criteria and remuneration policies throughout the organisation to ensure they are aligned with their climate and sustainability-related objectives. Any measures would need to be meaningful, stretching and transparent, and companies would need to collect the necessary MI to demonstrate individual contributions.

7. Feedback and review 

Companies may have set sustainability goals but not assessed what their staff and other stakeholders think about them. It is important that they find out. Boards and senior management will also need to assess the company’s culture on a regular and consistent basis, and strive to measure and track the effectiveness of their interventions to improve culture.  

Companies should determine the MI that the Board and senior management need. HR could broaden staff engagement surveys and companies can undertake pulse surveys, dedicated leader surveys, leader interviews, workshops and focus groups. Boards can also consider requesting deep dive assessments on sustainability culture. 

Conclusion 

To build an effective culture that supports their sustainability-related objectives, we believe that companies will need to dedicate sustained effort across the themes outlined in this blog. They need to understand their market and what clients want, as well as what their workforce and other stakeholders think, rather than make assumptions. They should also “join the dots” within their organisations, so that teams work together.  

To shape their culture, companies can leverage existing approaches, innovating where necessary. They should also measure, as best they can, the effectiveness of what they do. This will help them overcome the significant and new challenges posed by climate and sustainability, as well as realise the benefits they want to achieve for their stakeholders, society, and the environment.  

Please read our full article here. 

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