Sustainable Leadership in Professional Services: A Strategic Growth Engine

Sustainable Leadership in Professional Services: A Strategic Growth Engine

Sustainability (also referred to as ESG, or environmental, social and governance) is the understanding that all companies (clients and professional services firms alike) have a crucial role to play in contributing to the United Nations’ 17 Sustainable Development Goals, which include topics such as climate change as well as gender, demographic and economic equality.1,2 Professional services firms and their clients are increasingly held to account by their stakeholders including shareholders, employees, customers, suppliers and regulators. Sustainability has become equally a matter of ethical importance and a tremendous business opportunity for the professional services industry.

Sustainability is gaining momentum at an accelerating pace, despite the pandemic. Professional services firms face an urgent need to develop and acquire new expertise to help their clients navigate strategic challenges. To learn more, Russell Reynolds Associates spoke with 20 business leaders around the world from professional services organizations in strategy consulting, IT services, accountancy, law, and engineering, all of whom are heavily involved with client-facing sustainability efforts.4 From these conversations, we heard that sustainability is influencing professional services firms in six important ways.

Sustainability is:

A strategic priority

ESG is no longer a compliance-related topic; it has been elevated to the board level and provides a business opportunity to help clients with fundamental, long-term strategic challenges.

At the center of ambitious growth

Professional services companies aim to increase their sustainability business by 10 to 20X in the next few years.

Integrated across service lines

Most firms start with a specific sustainability service line, but many emphasize that sustainability is expected to permeate all service offerings and will increasingly require an integrated portfolio approach.

An opportunity for new partnerships

A holistic approach is required to tackle the broad topic of sustainability. Professional services companies are increasingly forging partnerships and ecosystems with other companies, academic institutions, and NGOs to create the breadth and depth of skills needed to support client demand.

Creating an increasing talent flow with appealing value propositions

Sustainability expertise is in high demand. Akin to digital talent, sustainability leaders are likely to flow from the client side to professional services firms and vice versa. Appealing, yet realistic, value propositions are key to attract, retain and develop top-tier sustainable leaders.

Demonstrating a mindset shift

A sustainable mindset must become a selection criterion for all senior leaders.

In this paper, we explore the implications of these themes; both how professional services companies can best position themselves to capitalize on the opportunities that sustainability presents, and the implications for their own leadership decisions.

Strategic priority

Sustainability has become a strategic board issue for clients.

The expert consensus is unanimous: Just as digital transformation was a strategic business imperative five years ago, sustainability is the next critical wave, transforming rapidly from a set of ‘nice-to-have’ peripheral activities to ‘must-have’ value creation for ensuring strategic advantages. For professional services companies, it is not just about creating a stand-alone sustainability practice; it is ultimately about embedding a sustainability perspective into every existing practice, business model, and offering. This is true not only for providing services to clients, but also in applying sustainable leadership as one of the criteria for selecting senior leaders of the professional services firms themselves.

“ESG is the new digital. You cannot appoint leaders nowadays who don’t get sustainability. It will become essential, similarly to diversity and inclusion. There is a lot of inertia in the private sector in general and in boards, but change has to take place.” - Board director and former managing director at a technology services firm

Sustainability has been promoted to the board level of companies across all industries, as directors grapple with increasing expectations from an ever-widening circle of stakeholders, including employees, customers, current and potential investors, activist investors, suppliers, regulators, and society at large.

“ESG is not just a compliance-related topic; it has been elevated to the board level. Boards are getting more sophisticated, and they can probe. The questions around stewardship have become prominent at all levels of an organization. We regularly poll our partners who are responsible for delivering our firm’s services to our largest clients around the world; ESG has become a top-three subject in terms of importance to our clients across industries.” - Global sustainability business leader in a major accounting firm

Ambitious growth

Professional services firms aim to increase their sustainability business by 10 to 20X.

To navigate these increasing expectations from stakeholders, clients are looking for professional services partners who can help them transform their companies into more sustainable businesses with respect to strategy, operations, supply chain, M&A, finance, organization, risk, compliance, talent acquisition and development, technology, innovation, and brand positioning. Professional services firms need to have a thorough understanding of sustainability and help shape their clients’ strategic agendas so they can customize their service offerings accordingly.

“Any company with asset management must have ESG at the forefront of conversations. Sustainability will become a major issue for anybody as soon as carbon prices get to the $70-$80/ton level – this will make it a survival issue. Clients are coping with incredible confusion and they need help developing an action plan, such as how much money to invest in programs, which programs to prioritize and how to change incentive systems.” - Financial services partner in Latin America in a management consulting firm

“Our firm now has a group of partners dedicated to ESG issues that are spending anywhere from 50% to 100% of their time solving ESG issues for different practices. It is very advanced for any industry that has a naturally heavy carbon footprint. We are well ahead with clients in the financial services and consumer products industries. Regionally, there is now a group of people who are part of the ESG Global Practice where 400-500 consultants are able to aggregate relevant ESG findings.”

- Strategy consulting partner for the financial services industry

Demand for sustainability advisory services will soon outweigh supply, creating urgency for professional services firms to grow and expand their offerings. Longer term, they will need to transform every facet of their organizations to succeed.

“Over the next two-plus years, sustainability will have a genuinely material impact on the shape of the professional services industry. We anticipate that 20% to 30% of professional services revenues will be sustainability-related by mid-decade. It will be integrated into everything we do.” Global sustainability practice leader in a technology services firm

“Many aspects of ESG will require industry coalition. Take, for instance, the issue of plastic waste produced by consumer and industrial companies. It is very difficult to have a company-wide solution, no matter how big the company. It is much better to build a system-wide solution. We can get movers and shakers to elevate the solution from a company-wide solution to system-wide solutions.” - Managing partner in APAC at a management consulting firm

Integrated across service lines

Most firms start with a specific sustainability service line, but sustainability is expected to permeate all service offerings.

It is evident that sustainability is not a stand-alone practice; it needs to be embedded within all service offerings and integrated throughout the entire organization. Firms are working with clients in incumbent services such as auditing, strategy, and organization structure, as well as new areas such as digitalization, big data and analytics, performance-based outcome programs and AI-driven optimization.

The immediate challenge for professional services firms is to build compelling new commercial offerings that generate both positive financial, social and environmental outcomes, while embedding sustainability into existing offerings. Many are building sustainability centers of excellence for horizontal collaboration on cross-services and cross-industry work. Additionally, to maintain reputations, many firms must become sustainable leaders themselves, committing to act materially on environmental and social issues and appointing executives with the relevant competencies.

“Every serious professional service firm needs to be a top performer with respect to sustainability, otherwise you have no credibility. You need to build sensible commercial offerings, which can create true impact and generate good commercial outcomes. You will have to 1) be an ESG leader yourself, 2) embed ESG into your critical service offerings, 3) have unique ESG service offerings, 4) have good social impact.” - Regional strategy consulting partner in Asia

Many professional services firms are also building capabilities in sustainability-related technologies, leveraging their expertise in big data and analytics, artificial intelligence/machine learning (AI/ML), digital transformation, cloud, blockchain, and Internet of Things (IoT) to better advise their clients

New partnership opportunity

Professional services firms are increasingly forging partnerships and ecosystems with other companies, academic institutions, and NGOs to create the breadth and depth of skills needed to support client demand.

To further accelerate growth, many firms are leveraging strategic partnerships, developing ecosystems, and utilizing mergers and acquisitions to allow them to move faster and enhance their business propositions. For example, McKinsey & Company has acquired sustainability consultancy Vivid Economics, and Planetrics, a climate analytics suite, to further its service offerings.6 Accenture and SAP are partnering to unlock new value through the joint development of new client-focused transformation solutions.7 EY is collaborating with Wolters Kluwer’s Enablon on an end-to-end ESG management and reporting platform.8 These joint ventures, announced in 2021, are the tip of the iceberg; more M&A combinations are expected in the coming years.

“The consulting agenda with climate change contexts has been increasing due to recent policy directions. This is seen especially for Circular Economy consulting engagements, which are very often generated purely in strategy contexts (e.g., sharing, as-a-service, Supply Chain Management transformation). Therefore, we see more collaboration between sustainability teams, functional and industry leaders.” - Industrial and manufacturing vertical leader in a strategy consulting firm

Creating an increasing talent flow with appealing value propositions

Sustainable leadership is in high demand. Akin to digital talent, sustainability leaders are likely to flow from the client side to professional services firms and vice versa, driven by appealing value propositions.

Given the recent increase in focus on sustainability, few people will have more than five years of business experience in this space. Nevertheless, leaders with sustainable mindsets are required to drive business growth. Senior leaders must be able to advise boards with a combined view on financial, social and sustainability performance; they also need an abundance of more junior and technical talent to push the organization to create new offerings.

As a result, many firms are considering creative sources of talent, such as NGOs, governments, regulators, social enterprises, or academia. Candidates from these backgrounds will have instant credibility and core expertise and pairing them with tenured employees can help overcome some experience gaps, such as business development skills.

“A shortage of talent is the main barrier. There is not enough talent in the market to meet our company’s needs. We need more people than available in the whole professional services industry, including experts, those who can drill down from sustainability to renewable energy to solar energy to distributed solar energy. We will need to reskill and retrain our current people. We need sustainability people everywhere.” - Global sustainability business leader in a technology consulting firm

Given the increasing gap between supply and demand of sustainability leaders, compensation levels will likely increase. Realistic value propositions are key to attract and retain sustainable leaders. Critically, professional services firms need to internalize their sustainability strategies to enhance both hiring and retention efforts. A commitment to sustainability as well as the associated issues of diversity, equity and inclusion will be increasingly necessary for professional services firms to attract the next generation of talent. In addition, research indicates that purpose-driven firms achieve higher employee satisfaction and retention, along with faster growth than competitors, increasing market share and improving customer satisfaction.5

“Sustainability is and will continue to be a very important topic in attracting talent. There is no other way to attract other people, especially millennials who have sustainability on their minds. We need to be sensitive to this. You need to have practices and demonstrate that you are truly committed, otherwise you will face frustration.” - Digital transformation leader based in a technology consultancy

Sustainability is intrinsically intertwined with other initiatives, including diversity, equity and inclusion, digital enablement, and innovation. Senior leaders of professional services companies will have to possess varied competencies, including business building, vision, empathy, and commercial acumen, as well as the ability to create outsized impact in order to recruit top-tier individuals in the competition for talent.

Additionally, market leaders are also offering development opportunities to internal talent to address the shortage. One firm has started an acceleration program encouraging consultants to be internal champions for its sustainability agenda, developing networks and thought leadership content. Another has started an education and upskilling program to educate and re-skill employees, including partners, equipping them to bring sustainability into every client conversation.

“To be an attractive employer to the next generation workforce and to attract the right quantity and quality of talent, it will be imperative to create a more diverse organization. We cannot be restrictive or narrow in our choice of geography, race or gender. True diversity is now a necessity and is becoming more of an aspect of how prospective talent evaluates and judges our firm.” - Senior leader in a top management consulting firm

Mindset set

A sustainable mindset must become a selection criterion for senior leaders.

If not already elevated, sustainability needs to be shifted to the center of both the CEO and board agenda of professional services companies. It will be essential for top leaders to clearly communicate, both internally and externally, that sustainability is a core business imperative.

“Today, sustainability is part of a company’s strategic agenda. There is a change in the strategic perception of the topic as the CEO and board now address it instead of someone in the company (e.g., chief sustainability officer). This is because of a shift in client expectations around how companies are going to deal with ESG. This expectation comes from clients but also from talent, shareholders, and society.” - Practice leader in a cloud and technology services firm

As such, for senior leaders – and the CEO in particular – specific functional or sustainability expertise is not required. To help organizations identify and develop sustainable leaders, Russell Reynolds Associates partnered with the UN Global Compact to interview 55 global executives across a wide range of industries who are recognized as sustainability pioneers and analyze the competencies and behaviors that distinguish them from their peers.

Sustainable leaders must possess a sustainable mindset, and demonstrate the intrinsic belief that profitable growth and sustainability go hand-in-hand. Sustainable leaders have four critical differentiators:9

Conclusion

Sustainability is the next wave of change, and professional services firms are on its cusp. There are massive opportunities for best-in-class professional services companies, with a singular market leader not yet in sight. It is evident that demand will exceed supply, as sustainability takes a prominent place on the firms’ agendas. Professional services firms and their senior leadership must be agile, innovative, disruptive, and decisive. CEOs and boards need to create bold goals in activating new leadership visions and developing depth and breadth of sustainability talent throughout the organization. Firms will have to build credibility with clients by highlighting their internal sustainability mission: recruiting and developing sustainable leaders, embedding sustainability into all aspects of the company, demonstrating their commitment to the cause, considering employees’ purposes and well-being, supporting complementary initiatives like diversity, equity and inclusion, and developing partnerships and piloting sustainable innovations.

Developing leaders with a sustainability mindset and competencies will become an increasingly significant competitive advantage. While professional services firms will inevitably need to recruit talent out of industry, there is an equal if not greater risk—as we saw in digital—for a migration of professional services talent into industry. Clients have already begun recruiting top sustainability consultants to lead their own, company-level sustainability agendas.

For executive candidates, there has never been a better time to embrace sustainable business practices. Increasingly, the competition will be fiercer, and the talent will be scarcer, but rewards will be richer in many ways. The time to act is now.

^{01 The Decade to Deliver: A Call to Business Action, United Nations Global Compact – Accenture Strategy CEO Study on Sustainability, 2019
02 Making Global Goals Local Business: Responsible Business in the Era of the Sustainable Development Goals, United Nations Global Compact, 2019
03 Leadership for the Decade of Action, United Nations Global Compact – Russell Reynolds Associates Study on the Characteristics of Sustainable Business Leaders, 2020
04 Leadership for the Decade of Action, United Nations Global Compact – Russell Reynolds Associates Study on the Characteristics of Sustainable Business Leaders, 2020
05 Purpose is Everything: How Brands that Authentically Lead with Purpose are Changing the Nature of Business Today, Deloitte Insights, 2019
06 McKinsey Acquires Vivid Economics and Planetrics to Help Clients Navigate Climate Change, McKinsey & Co,
07 Accenture and SAP Extend Partnership to help Companies Accelerate Sustainability Transformation, Drive New Sources of Value, and Lead in Circular Economy, Business Wire,
08 EY and Enablon Announce Environmental, Social and Governance Management and Reporting Solution, PR Newswire,
09 Leadership for the Decade of Action, United Nations Global Compact – Russell Reynolds Associates Study on the Characteristics of Sustainable Business Leaders, 2020}

Research Authors

Robert Alexander, Zheng Wei Lim