What executives can learn from Schneider Electric’s sustainability drive 

Schneider Electric, a multinational provider of energy management and automation solutions, is a genuine sustainability leader. In 2021, media and research firm Corporate Knights ranked the business first worldwide for its sustainability performance. 

The award recognized the business’ 20-year journey, which includes the creation of new products and services that enable clients to address sustainability issues and bold internal sustainability commitments. Further details of the business’ sustainability credentials are outlined in this case. 

Sustainability delivers financial success 

Schneider Electric’s commitment to sustainability has paid off in three ways: 

1. Direct: rising sales, falling costs 

Sustainability helps win new contracts. The company estimates that “green revenues” represent 72% of total revenues today. That said, the criteria for what constitutes green revenues is broad. It is defined as revenue that brings energy, climate or resource efficiency to customers while inflicting no significant harm on the environment. In addition, its commitment to not send any waste to landfill generated savings of more than €1 million.  

2. Indirect: boosting motivation and reputation 

There are non-financial benefits, too. Workforce initiatives designed to promote women leaders, employee engagement or wellbeing at work, for example, increase employee motivation, reducing unwanted departures. External recognition of its sustainability credentials helps recruitment and puts upwards pressure on selling prices and share prices.  

3. Transformational: embedding agile 

Embracing sustainability requires agility. Schneider Electric needed to be alert to fresh sustainability-related opportunities and challenges, and pivot quickly and decisively when they arose. This agility, combined with the acceptance of the need for continuous change, prepares the business well for when future challenges arise.    

Schneider Sustainability Impact: a key ingredient for success 

To formalize its sustainability targets and measure progress, the business launched Schneider Sustainability Impact (SSI). The first SSI was formulated in 2005 for the 2005‒08 period, and five new SSIs have been defined since.  

The method for refreshing the SSI is as follows. Every three years, the firm defines a set of indicators based on a “materiality matrix” that encapsulates the ethical, social, environmental and business issues that could affect both Schneider Electric and its external stakeholders. Based on this assessment, KPIs are selected for each category. While category definitions changed over time, the number of KPIs kept increasing: the 2005 index had 10 KPIs and this number progressively reached 21 in the fifth index.  

From 2014, results for each KPI were published with the quarterly financial results. Importantly, external auditors systematically monitored the scoring. 

In 2011, the SSI was factored into the variable compensation of global functions and firm leaders, and this was subsequently extended to all 60,000 employees in the form of a bonus scheme. In 2019, the weight of the SSI was increased from 6% to 20% of the collective bonus to underline the importance of sustainability in Schneider Electric’s overall strategy.  

A new indicator was also created: the Schneider Sustainability External & Relative Index (SSERI). The SSERI uses four major sustainability indicators over three years to evaluate Schneider Electric’s performance vis-à-vis its competitors. This index composed 25% of the total long-term collective incentive plan for the top 3,000 managers. 

Every firm with a sustainability strategy has KPIs to measure success, although few are as comprehensive and wide-ranging as the SSI. Executives responsible for driving the sustainability agenda at their business should pay attention to its unique aspects:  

• Materiality mapping: this is crucial for businesses developing sustainability initiatives because it helps identify and prioritize the most impactful issues on the business, economy, society and environment.   
   
• Forward-looking: the SSI does not just measure progress over time; it is a system with a viewpoint, bringing together a perspective on what has happened before and top management’s vision for the future.  
   

• Three-year horizons: The series of three-year plans roughly match the time senior managers stay in their jobs. This creates accountability and pressure, while acknowledging that short-term results are probably difficult to obtain. Recent SSIs have a five-year timeframe to reflect 2025 and 2030 societal goals. 
    
• Quarterly results: The quarterly scoring process creates short-term pressure to act. They are announced by the CEO alongside quarterly financial results, demonstrating the business’ commitment to sustainability.  
   
• Flexibility: Objectives evolve from one SSI period to the next, providing flexibility. If objectives are reached sooner than expected, more stretching goals are established within any SSI period.  
   
• Incentives: Since 2011, the SSI has been tied with short- and long-term compensation for the business’ top 3,000 managers.  
   
• Assurance: To maintain credibility, SSI results are audited by external auditors (EY).

The SSI target-setting and measurement mechanism by itself would not have been enough to make Schneider Electric a sustainability leader. Three complementary initiatives helped:  

1. Fuse sustainability with strategy 

Making sustainability a key component of corporate strategy is key to success. For example, 90% of innovation projects are either strictly green (contributing to decarbonization) or are neutral (no harmful impact).  

The company’s CEO Jean-Pascal Tricoire summarized the importance of sustainability to corporate strategy when he said, “we now differentiate by our focus on sustainability”, and “sustainability is at the core of everything we do”. 

2. Align sustainability initiatives with corporate culture and organizational structure 

The SSI is created from the top down, with objectives set by senior executives. Only the most recent version has a specific mandate for local business units to develop their own initiatives. This aligns with Schneider’s overall structure, in which strategy is driven from the top, but a large degree of freedom is afforded to individual countries to determine their own commercial activities.  

Specific sustainability targets align with the business’ culture: pragmatic engineers much prefer hard targets than softer, less specific aspirations. 

3. Lead right from the top 

Schneider Electric was only able to reach its leading sustainability status because it was championed by successive CEOs. Tricoire was crucial in creating SSI. He spent part of his career in China, where he saw firsthand the downside of rapid economic development, and in South Africa where he witnessed inequality. As he says in the case study: “I am neither an optimist nor a pessimist, I am an activist.” 

Summary: what can executives learn from Schneider Electric?   

Every business is different. But some of Schneider Electric’s principles and initiatives can be applied in any business that wants to make sustainability a key differentiator: 

• Acknowledge that sustainability has multiple benefits: direct, indirect and transformational. 
   
• Create a formal and transparent framework that sets sustainability targets and measures progress.  
   
• Publish sustainability KPIs alongside financial results and have them audited by a third party. 
   

• Frequently review sustainability KPIs and tie performance to management compensation. 
   
• Cement sustainability within corporate strategy. It should be core to everything the business does. 

• Ensure that sustainability strategies align with the current corporate culture and structure. 

• Lead sustainability initiatives from the very top of the business, meaning the CEO.