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.
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.