The power of organisational culture to navigate climate change

Marisa Hall argues that incorporating purpose and culture into business strategy makes an organisation more sustainable and resilient, and also equips it to deal with the complex challenges of climate change.

It is received wisdom that an organisations’ greatest asset is its people, but it is less well understood how this asset can be applied to addressing our industry’s greatest challenge: sustainability and particularly climate change. But this is changing as investment leaders, particularly in asset management, increasingly recognise the transformational role a strong culture can play in executing business strategies that have ambitious climate-related targets embedded, notably those with net-zero ambitions.

As a result, investment organisations are setting their business strategies with greater reference to cultures that are highly principled and have higher levels of personal responsibility. At the same time recognising that green business strategies, set in isolation, will not work if the organisational culture does not support or motivate their implementation.

But this shift is not easy and doesn’t come naturally. An organisation’s cultural journey is typically one of self-discovery, which can be uncomfortable at times, but if done well is effective at identifying weaknesses, which would undermine the best-laid strategies, and allow strengths to be reinforced. Some of the typical weaknesses are a culture that shies away from innovation; this often results in people, and their skill sets, becoming siloed and ineffectively used.

As a consequence, opportunities for breakthroughs and the transfer of learning and skills are missed and organisational inertia is perpetuated.

Also, data and other knowledge sources are left unharnessed, meaning solutions fall short and are not as informed as they should be.

Other areas of development, that have shown up in our power of culture research, are the under-appreciated cultural edges that can truly differentiate organisations, such as thoughtful diversity, equity and inclusion strategies, having openness and transparency as norms and having a clearly articulated purpose that unlocks a multi-stakeholder organisational mindset. The latter has already become more important in influencing investment organisations’ climate-change strategies.

But what exactly is organisational culture and can you measure it?

While there are many definitions, we have come to see it as the collective influence of shared values and beliefs on an organisation and how it thinks and behaves, which is influenced by leadership actions at all levels in the organisation.

Culture can determine how a group collectively understands a problem, how they work together to create solutions, and respond to change over time. Which is precisely why a strong and clearly narrated culture is probably the most effective organisational tool for leadership to rely on when attempting to soak sustainability through every aspect of the company. And yes, it can and absolutely should be measured, on the basis that measurement gives a subject respect and management without measurement is weak.

Back to the centrality of purpose and the imperative for it to reflect an organisation’s culture. This is based on the simple premise that when a mission is clearly defined, the type of approach and tone of response is set.

Added to which is how culture and purpose can be mutually reinforcing whereby the establishment of a strong people and teamwork ethos not only underpins an organisation’s purpose but also promotes collective responsibility for it and belonging to it. Another cultural attribute that purposeful organisations will aspire to is transparency, which opens up opportunities for learning from stakeholders, while helping to align saying and doing.

A focus on transparency naturally leads to an emphasis on integrity and authenticity, which when coupled with high ethical standards builds trust and avoids the temptation to overclaim or greenwash.

As an aside the whole area of climate change is awash with organisations using it to gain a competitive advantage. It is our contention that organisations that truly understand this area, in all its complexity, will develop a humbler culture and be reflected in their reporting.

This is not to diminish the link between strong culture and competitive edge. Indeed our research points to a strong emphasis on culture, when synchronised with purpose, being a prerequisite for organisational success.

With many investment organisations acknowledging its key role in enhancing differentiation, especially around sustainability and resilience. we have identified several structural blockages preventing progress toward true sustainability, specifically:

• Skills gaps. With long time horizons, uncertainties, and inherent interconnectivity, any effective response to the climate change challenge will require multiple insights. Therefore, building teams that are capable of delivering exceptional results – or super teams – has become more critical than ever. Led to success through combining diverse and exceptional talent, these teams’ collective intelligence is fully leveraged by great culture and governance. This collaborative culture may require staff to gain new skills, or have dormant skills put to work.
• Just as sourcing skills is important for addressing climate change, so is collaboration, both between and within organisations. Many organisations admit to operating in silos across regions which stifles innovation and prevents a more joined-up, holistic, and teamwork-oriented approach to sustainability. Progressive boards are therefore looking for how collaboration can produce better outcomes and reduce gaps in their thinking and how a culture of teamwork and transparency can identify the correct problems and facilitate spaces for collaboration. At a systems level, large asset owners – such as the Government Pension Investment Fund of Japan – are increasingly looking to build strategic partnerships with organisations that share their culture, so as to collaborate better across the industry.
• Investors are increasingly paying more attention to the types of incentives they offer. If structured appropriately, incentives can increase firm value, refocus efforts away from short-term targets, and create better accountability on performance too. Similarly, we are seeing how investors are setting out clear expectations using stewardship policies, with these expectations becoming increasingly specific in regard to climate-change action. In addition, organisations with effective cultures will more easily identify and put in place the right incentives to motivate and sustain such action.

In conclusion, it seems fitting to return to purpose. Investment leaders are being truly challenged by inexorable forces to become more sustainable and impactful. They are having to incorporate sustainability into their existing capabilities and collaborate to build strategic partnerships to fill gaps. All the while having to set the tone for a workforce which is increasingly drawn to greater social responsibility.

It is our contention therefore that organisations with well-considered and well-articulated purposes, which act as a catalyst for a strong and well-maintained culture, are much more likely to be the truly sustainable investment organisations of tomorrow.

So it is time for more investment leaders to recognise that incorporating purpose and culture into business strategy not only makes their organisation more sustainable and resilient, but also equips it to deal with the complex challenges of climate change. And what’s more, in doing so together, they will provide the collective action required to solve our generation’s greatest commons problem.

Marisa Hall is the co-head of the Thinking Ahead Group, an independent research team at Willis Towers Watson and executive to the Thinking Ahead Institute.