09 Oct 2019
What lies ahead for the sustainable business movement?
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Jim Thompson, Odgers Berndtson Partner in Houston, on why organizations, and their leaders, must step up their efforts on society-sized problems like climate change.
The sustainable business movement was first embraced by a few altruistic individuals, then grew to have some marginal marketing or brand benefits, and now offers its practitioners measurable financial benefits.
Perhaps this is why the world’s largest and most influential companies have become increasingly vocal about their environmental and social commitments. They’re cutting their carbon footprints. They’re focusing on operational waste reduction. They’re investing in new green technologies. They’re using their clout to promote social agendas on both local and national scale. All while maintaining their fiscal commitment to good governance.
Making environmental commitments
Microsoft, carbon-neutral since 2012, has pledged to reduce its total operational carbon emissions by 75 percent by 2030. And Apple, which powers all of its global facilities with 100% renewable energy, is pushing its environmental commitments down its supply chain.
Companies are investing huge amounts of time, money and energy in order to align themselves with their increasingly values-conscious customers.
One of the best examples of this new consciousness comes from the diamond industry. It has spent enormous sums implementing mine-to-consumer blockchain technologies to demonstrate to morally scrupulous consumers the authentic and nonviolent provenance of their gems. Why? Because a company’s environmental and social policies are now, more than ever, closely informing the bottom-line.
Changing the structure of the sustainability function
As sustainability initiatives shift from basic environmental compliance and corporate responsibility to core and remunerative aspects of doing business, the structure of the sustainability function is changing.
Sustainability teams, which often used to be subsidiaries of marketing departments, are now becoming distinct departments of their own.
Some companies are even elevating sustainability officers to the C-level. Chief Sustainability Officers are getting a direct reporting relationship to the CEO and board, a greater role in strategy development, and more latitude in governing the firm’s stance (both internally and externally) on sustainability.
Sustainability benefits everyone
Despite the up-front costs, corporate sustainability actively benefits both the company and its various stakeholders (shareholders, employees, customers, local and global communities).
As former New York City Mayor and sustainability advocate Michael Bloomberg put it when talking about cities: “Parks and trees make cities more beautiful, and they also suck carbon and soot out of the air. Energy efficiency reduces emissions while cleaning the air and saving money. Bike lanes and mass transit make it easier to get around town while also shrinking city carbon footprints.” And all of this helps “cities attract new residents and businesses”.
Businesses, like cities, can now accrue significant financial and brand benefits by offering others the benefits of sustainability initiatives.
Companies that institute rigorous corporate sustainability goals can do a number of things that can produce multiple linked benefits.
Proclaim themselves as forward-thinking and social-minded, which makes people feel good about buying their products or services. This then makes its employees feel like they’re accomplishing more than simply lining the company’s coffers. This, in turn, increases their engagement at work and their loyalty to the company. All of which accomplishes the stated goal of offsetting the negative environmental costs of doing business.
Better for bottom lines
Between 2005 and 2018, the world’s 100 most sustainable companies – as listed by Forbes – significantly outperformed their less green competitors. Top of the 2018 list was Dassault Systemes, a French firm that designs engineering software to assist organizations in waste reduction.
I don’t want to understate how important this sustainability shift is, for the planet, for branding, for employee engagement, and for talent attraction. The younger third of the US workforce, for instance, is demonstrably values-driven. Despite widespread student debt, the rising cost of living, and the fact that they possess on average 40% less wealth than their parents did at their age, a significant majority of Americans under the age of 40 will still (a) leave a job for a lesser-paying one that more perfectly aligns with their values, and (b) pay more for a product that is environmentally sustainable.
This is important because, in order to attract millennial customers and millennial talent, companies have to pursue the kinds of social and environmental initiatives that this generation cares about.
This generally means doing real good for the environment and for the human stakeholders (both in the US and abroad) who are affected by the act of doing business.
Still a long way to go
The bad news is that our current sustainability efforts fall far short of the systemic environmental changes now required of us. Even while companies like Toyota, Apple, Microsoft, Neste, Merck, Delta Air Lines, Shinhan Financial Group, and thousands of others, take what seems like drastic environmental steps, atmospheric C02 levels continue their meteoric rise.
The numbers are truly terrifying. In 2013, atmospheric CO2 levels punched above 400 parts per million for the first time in three million years. In 2019, we hit 413 ppm.
To put this in perspective, back in 1970, atmospheric CO2 was at 323 ppm and from the last ice age to the mid 18th century, when large scale industrialization kicked off, C02 levels more or less flat-lined around 280 ppm. If still more drastic measures are not taken by everyone, global temperatures, already at least 1 degree Celsius above pre-industrial times, are expected to increase by 1.5 degrees Celsius between 2030 and 2052, a process which will radically transform the world as we know it.
How can companies take more active measures?
The corporate world has never yet faced a problem on the scale of climate change. The corporate model seems poorly suited to finding a solution. The costs of inaction are at once difficult to measure or predict and will be doled out with relative equanimity across the corporate spectrum. So, though there are competitive advantages to be gained by engaging in operational greening initiatives, there is little obvious advantage to taking more severe measures. Nor is it clear how such measures might align with that third pillar of corporate sustainability and responsibility: economics (i.e. profits for shareholders).
Given the fact that corporations, like their human leaders, are programmed to focus their energies on tangible short- and middle-range goals rather than vague shapes in the far distance, how should businesses take the next step to act on what the numbers seem to require?
I do not, of course, have all of the answers, but I have hopes.
I hope that corporate boards, tasked with overseeing their organizations’ medium and long term viability, can intensify their efforts to combat society-sized problems like climate change.
I hope that those companies with board-level sustainability expertise, board-led committees devoted to sustainability and corporate responsibility, and actively enabled Chief Sustainability Officers will serve as examples for others.
I hope that executives, consumers, and employees will continue to act on their values, putting competitive pressure on businesses to increase their environmental and social commitments and therefore generating market-based solutions to climate change.
I hope that businesses will find it in their interest to pressure governments around the world to implement sweeping environmental policies. To do, in other words, what the international business community has done quite successfully with issues like equality, civil rights, voting rights, poverty, and ozone depletion over the last century.
Lastly, I hope that by taking a leadership role in addressing environmental demands, businesses around the world can help restore some of the public’s faith in corporate values, reigniting the old notion that businesses are agents of progress and vessels of societal good, not simply manufacturers of undispersed profit.