27 Mar. 2017 | Comments (0)
By Terry F. Yosie
A growing number of the world’s largest companies are turning to “sustainability” as a strategic lens to help anticipate and navigate the complexity of the international economy, meet the expanding expectations of a growing global middle class, and manage the heightened risks to their businesses from environmental and social disruptions.
As a result, sustainability has migrated from the periphery to the core of business strategy and planning. Boards and C-suite executives across multiple business sectors—chemicals, consumer products, information technology, transportation, and retail, to name a few—are on an accelerated course to understand the sustainability concept and its implications for their businesses.
Four major parameters define sustainability from a board and C-suite point of view:
- Decoupling the intensive use of natural resources and materials from growth strategies;
- Transitioning to a lower carbon economy;
- Collaborating with value chain partners, governments and citizens so that business products and solutions ameliorate larger-scale societal problems; and
- Ensuring the adaptability of a business to global megatrend challenges such as climate change, water resource scarcity, population growth and large scale urbanization.
Each of these parameters contains both risks and opportunities. As the language of sustainability has entered the business vocabulary it is important that companies use it to effectively communicate their business purpose to their employees and multiple external stakeholders (including business customers, consumers, and investors). This challenge is more manageable, and more credible, if a company’s business and sustainability strategies are integrated into one strategy rather than existing in parallel. The process of transforming sustainability’s four major parameters into business strategy rests upon five inter-related pathways. They include:
• Risk: Global companies now encounter newer sources of risk and disruption. These include: price volatility in energy and other commodities, extreme weather events, access to scare natural resources, employee exposure to exotic public health incidents, vulnerability of corporate brands to risks embedded in supply chain operations, and expanded regulation. Sustainability initiatives to improve energy efficiency, natural resource conservation, and understanding of global megatrends can yield smarter risk management systems that provide additional hedging potential against current and potential risks that can disrupt business continuity.
• Opportunity. Sustainability can drive capital productivity by reducing compliance and operating costs through improved operational efficiencies in buildings, data centers, manufacturing facilities and fleet operations. Greater tracking and tracing of materials and product use can also yield business process improvements, while companies participating in common value chains can educate their customers on the value of sustainability for their own businesses. At the same time, they can co-create new products and services to engineer sustainability benefits (reduced carbon emissions, toxicity and water consumption) as a restatement of a brand’s purpose.
• Innovation. A growing number of major companies are using sustainability as an innovation platform in rethinking and redesigning auto manufacturing, building materials, infrastructure and energy technologies. Such “hard” innovation is paralleled by “soft” advances in creating value chain collaboration strategies at market scale, developing commitments to further diversify management and the workforce (thereby expanding access to talent), and leveraging public and private sector resources to develop next generation information technologies, mobility platforms and other advances.
• Talent. Recruiting and retaining top talent has become a board and top tier C-suite objective to ensure the future of the company. At a time when the competition for talent is global in scale, sustainability has become a key differentiator for graduates of leading business and engineering schools. Increasingly, students interview companies not only in regard to the competitiveness of their compensation packages but also the compatibility of their values on such issues as sustainability.
• Excellence. Globalization, expanded trade flows and the diffusion of information technologies have intensified the need to maintain both individual enterprise and national competitiveness through a commitment to excellence. The options to practice excellence begin with a development of individual and team skills and experiences at factories and across the value chain. Sustainability provides a growing portfolio of concepts, metrics and examples—including goal setting and best practices—to solidify its role as an important business and societal barometer of excellence. Sustainability’s momentum is a reflection of its growing maturity in the marketplace.
At a time when public skepticism towards corporations is high, sustainability serves as a critical proof point for smart leadership, good governance and the authenticity of brands and business purpose. These attributes are especially important at a time of disruptive economic, political and social changes that are frequently connected to social media. Integrating sustainability into business strategy creates a core asset for addressing these concerns and preserving a company’s societal license to operate and grow.
The views presented on the Governance Center Blog are not the official views of The Conference Board or the Governance Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, or others associated with The Conference Board or the Governance Center.