Big Business and Sustainability: The Missing Links
Submitted by Janet Ranganathan on January 11, 2013
More executives need to connect the dots between environmental risks--like water scarcity--to business risks. Photo credit: Flickr/Akshay DavisThis piece originally appeared on The Guardian’s Sustainable Business website.
As another year begins, big business will continue falling well short of taking the leadership role on the sustainability the world urgently needs. While many chief executives now publicly identify sustainability as a key issue for their companies, walking the talk is proving more elusive.
Successful bosses do not procrastinate. So why are boardrooms dragging their feet as sustainability challenges that have an impact on the private sector mount? As an observer of business trends for two decades, I see two interlinked problems hindering progress: first, corporate failure to embed sustainability into core business strategy, treating it instead as a standalone issue. And second, the lack of tools that allow corporations to make this leap in their day-to-day operations.
Consider the slow pace of business progress on two of the most talked about global sustainability challenges: climate change and water scarcity. A Ceres-Sustainalytics evaluation of 600 large, US companies earlier this year found that only one third had set time-bound greenhouse gas reduction targets. Water fared even worse. Among four water-intensive sectors analysed, only a quarter of companies had assessed water-related risks to their operations, let alone set targets for managing water risk.
The S-Word As Core Business
To make sustainability a central business issue, more chief executives and finance bosses need to connect the dots between “environmental trends” and business risks – and then act on their findings.
By 2025, for example, roughly one in four of the world’s population will live in areas where water scarcity is endemic. Yet industry continues to build industrial and power plants in vulnerable regions. More than half of the existing and planned power plants across the global manufacturing hub of south and south-east Asia are in areas that suffer from scarce or stressed water supplies. Such plants require large amounts of water for cooling and generation, presenting a significant operating risk, with knock-on implications for global supply chains.
At the same time, company leaders must recognise that business risks and opportunities presented by sustainability trends are too big to be addressed by a single business function, or even inside the company gates. Responding effectively in ways that protect their businesses requires collaboration with stakeholders, including customers, suppliers, communities, and local and national government policymakers.
A New Generation of Business-Friendly Tools
This may all sound like a tall order. But business-friendly tools are emerging that can help managers incorporate sustainability issues into their core strategies.
In November 2012, the International Integrated Reporting Council published a prototype reporting framework aimed at helping companies create a clear narrative of how they create value over time. The creation of an integrated report will force compilers of financial reports to communicate the full range of factors that materially affect six types of capitals: financial, but also manufactured, human, intellectual, natural, and social.
Towards the end of 2012, the World Resources Institute released a sustainability Swot (a strengths/weaknesses/opportunities/threats framework). Putting a new spin on the familiar, it helps managers link specific environmental challenges for their business with broader mega-trends, such as demographic and social shifts, changing political and regulatory priorities, and technological advances. It also facilitates collaboration with colleagues, customers, and even competitors to manage the risks and opportunities that emerge.
A dozen companies – including Staples, Delphi, Danone Brasil, and Target – have already road-tested the institute’s Swot. Target, a leading U.S. retailer, used the framework to look at specific product areas where environmental challenges could create risks to its reputation, or have an economic or health impact on their guests, or disrupt their supply of raw materials.
And these guides aren’t alone. Other emerging tools include greenhouse gas accounting frameworks and geographic water-risk evaluation databases, that enable companies to improve efficiencies, reduce operational risks, and boost their bottom lines.
Moving Forward with Sustainability
Increasingly, chief executives and finance chiefs recognise the need to walk their talk and embed sustainability more deeply into their business models. In a Deloitte survey earlier this year, an impressive 49 percent of 250 chief finance officers from 14 countries said they saw a significant link between sustainability performance and financial performance.
The real test for 2013 and beyond is whether companies can lift sustainability out of its silo and drive a new generation of business strategies capable of addressing global sustainability challenges while delivering profits and fueling growth.
2 Comments
"Successful bosses do not
"Successful bosses do not procrastinate. So why are boardrooms dragging their feet as sustainability challenges that have an impact on the private sector mount?"
Perhaps one answer to this question lies in the special status of industrial projects, especially in the developing world. When resource scarcity bites, the biggest projects are often artifically shielded by governments, and 'the bite' instead bites elsewhere (domestic water users, for instance, or downstream ecosystems). Such sheltering can occur through both price protections and high security allocations.
To the extent that this analysis holds true, a clear - if difficult - solution presents itself: governments and citizens need to convey the diminishing acceptability of this protection, in turn leveraging the risk fully on to the companies and projects themselves. It's time for a bigger stick.
Alongside and interlinked
Alongside and interlinked with climate change and water scarcity issues is the problem of resource scarcity. It seems that businesses don't want to face that fact that their production materials are finite and further view consumerism and resource sustainability as two unreconcilable opposites. Of course, most of us wants the newest technological gadgets, however, these are based on the use of and mining for finite raw materials. Extractive industries are further connected with mentioned water scarcity affecting the most vulnerable regions.
Some measures that scientists and engineers have identified to mitigate these problems are "mining" waste water for mineral residue and another concept called "urban mining". The latter, however, is still rather energy and cost intensive. Cost and energy reductions could be achieved, if businesses found a way and means to design their products in a way that their materials can be more easily recovered and reused. Some call this approach "circular economy" other call it "cradle-2-cradle". If we were to look at this still rather vague concept in more depth and develop business tools for design, manufacturing processes and established cost-profit margins, then consumerism would not constitute as big a problem as it currently does, and it would be possible to establish a productive link between sustainability and consumerism, and thus close the cycle. However, there is still a lot of work to be done a) in convincing businesses and policy makers that "circular economy" is not just a crazy idea and b) in the research and development of tools.
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