Many more companies becoming convinced that sustainable value chains make solid business sense
Hundreds of the world’s largest companies are striving to erase their carbon footprints, and have become fully cognizant of the rewards of sustainability
A struggle is taking place in the boardrooms of the world’s best-known companies.
The old preoccupation with delivering immediate financial returns – referred to as “short-termism” – is being challenged by a more forward-looking consensus.
It’s no longer just about making money: it’s about figuring out how to harness innovation and pragmatism while simultaneously incorporating conscientious business practices, particularly around environmental and social issues.
This is easier said than done. Short-termism, in its many permutations, has been hard-wired into the corporate mind-set, and turning high-minded talk into measurable action requires serious resolve.
Real benchmarks, however, are emerging. Collaboration with key stakeholders and the implementation of sustainable development goals (SDGs) are becoming increasingly central to the business planning process.
A pioneer in this area is Unilever, the Netherlands-based consumer goods giant, which has committed itself to becoming “carbon positive” by 2030. Not only does this mean that Unilever will obtain 100 per cent of its energy from renewable sources – it also plans to produce more renewable energy than it consumes.
By striving to erase its carbon footprint, Unilever has embarked on a mission to transform its entire value chain – from the way it designs new products, sources materials and fabricates, to how it distributes merchandise and services its customers.
With nearly $60 billion in turnover in 2015 and more than two billion people using its products every day, this is a milestone.
Historically, talk of “sustainable” value chains would have evoked an inevitable reaction from sceptics: “sustainability” was simply another word for “expensive.”
Today the opposite is true. Digitisation has increased transparency, traceability and data management throughout value chains, which, in turn, has enabled the successful implementation of SDGs.
Meanwhile, sustainability cynics have discovered that the unanticipated side effects of SDGs include the spotlighting of waste and mismanagement. It turns out that sustainability makes good business sense.
This was highlighted in a recent survey of multinational executives carried out by the MIT Sloan Management Review and the Boston Consulting Group.
Asked to name the benefits of implementing sustainable business practices, five out of the top six responses given were economic benefits:
• Better innovation of products and services
• Improved company management
• Increased competitive advantage
• Reduced energy costs
• Reduced material costs
Consider the case of Unilever. Since 2008, the company has reduced CO2 emissions by 39 per cent per tonne of production; water use by 37 per cent; and waste disposal by 97 per cent.
Unilever achieved all this while simultaneously increasing production volumes, product diversity and – most significantly – growing the bottom line.
The value shift in the corporate landscape can be attributed to the convergence of three main forces: the growth of global civil society, the rising influence of non-governmental organisations (NGOs), and the spread of digital technology.
Global civil society transcends national borders, cultural norms, and language barriers. Meanwhile increasingly sophisticated and well-funded NGOs – in the form of philanthropic foundations, universities and a range of other interest groups – have become major conduits for facilitating the agenda of global civil society.
Bringing these two forces together, the digital revolution has enabled NGOs to build collaborative networks, partnerships and data-sharing platforms. These allow unprecedented levels of transparency and connectivity in global value chains, accelerating the successful management of SDGs.
NGOs are coalescing with enablers, facilitators, governments and other interested parties to advance the case for sustainability.
One example is the carbon disclosure project (CDP), an NGO based in London that is working with Unilever to reduce its global carbon footprint. Through its climate change programme, the CDP provides thousands of companies with tools for collecting data, gauging results and benchmarking their carbon footprints.
To date, over 5,500 companies have been surveyed, with the resulting assessments made available to more than 800 of the world’s largest institutional investors, among them BlackRock, JPMorgan Chase and HSBC. These institutions then use the results to guide portfolio decisions, and a bad carbon score can result in an aborted investment or acquisition.
The CDP is just one of a growing number of NGO reporting frameworks, management tools and resources to quantify and manage global emissions at little or sometimes no cost.
These resources support firms not only in successfully implementing SDGs, but also in providing a benchmark for “calling out” cheaters that “greenwash” their products with false claims of sustainability.
The role of NGOs and civil society, then, is important in achieving sustainable growth. But there is some pushback in the form of a growing trend, particularly in Asia, for political elites to become distrustful of NGOs, viewing them as subversive and destabilising.
China, for example, has passed a law that comes into effect next year requiring all NGOs to register with state public security officials, giving the police unrestricted rights to monitor and control their activities.
How this plays out with foreign NGOs advocating environmental sustainability remains to be seen. Yet it is in China – soon to be the world’s largest economy – where a rapidly growing consumer class will drive record greenhouse gas emissions and escalate the need for smart SDGs.
Incredibly, only one Chinese company (Lenovo) made The 2016 Corporate Knights Global 100 List of the world’s most sustainable companies. A poor showing, but better than India, which did not place a single company on the list. Tiny Singapore, on the other hand, placed four companies.
Overall for Asia there is much work to be done: the region represents 4.3 billion inhabitants and 60 per cent of the world’s population, yet it managed to place just 12 companies on the list of 100. Yet despite the current landscape, there is reason to be optimistic that the sustainability narrative will continue to gain ground and push short-termism out of the boardroom.
The Unilever example is not an isolated case. Hundreds of the world’s largest companies are lining up to implement this new way of thinking and are fully cognizant of the rewards of sustainability: real economic gains and the spill over of innovation, lower costs and higher productivity; not to mention a clean, liveable environment and happier, healthier populations.
Far better to risk exposure to “external” influences and ideas through collaborative networks and reap the benefits, than to cave in to short-termism and face the inevitable negative consequences further down the line.
Alex Capri is visiting senior fellow with the department of decision sciences at NUS Business School