16May2023
It all began decades ago when the word mysteriously started finding its way to annual reports. Little by little, “sustainability” gained popularity, becoming somewhat of a fashion word those wanting to be perceived as trendy frontrunners liked to furtively drop into presentations and press releases.
In the course of years, sustainability has become so much a norm even in the corporate world it is almost trendier to not bring it up – action at least should speak louder than words. This new setup takes many companies back to the same fundamental question they faced twentysomething years ago when the communications department first brought up the suggestion to start talking about sustainability.
What’s in it for us?
As much as sustainability has established itself in corporate value propositions and AGM speeches, its actual role in corporate strategy remains largely unclear – even for those leaders praising the commitment of the entire organization in making sustainability an integral element of daily life at work. When sustainability is still perceived an unavoidable expense, a ticket to the game, its massive potential to actually change that game and put the company right up to the pole position can never be realized.
ESGs, GSDRs, CSRDs and all other acronyms created mainly by bureaucrats do not help. While the good intent is to simplify responsibilities so that every company would know what is precisely expected of them, the emerged jungle of duties does not encourage leaders to start actively investing. Sustainability issues become as interesting as visits to the dentist: something that must be done annually, and something you do very reluctantly – if not downright paralyzed by fear. And the very best possible outcome is… that nothing has to be corrected.
Greenwash by compensation
Purchasing carbon offsets to for example compensate for flights is one way to take sustainability into business framework, and to apply metrics to determine how well the organization succeeds in reaching the set targets. As overall development can’t take place without a certain footprint to the nature, compensating this footprint should offset the loss to the biodiversity and make us even with the environment.
While scientists have developed accurate methods to both calculate the footprint and determine ways to compensate it, the outcome is often utilized in a wrong way. Using ecological compensation as merchandise too often leads companies to make exaggerated promises, under which real sustainability problems are convenient to hide. The difficulties of both buyers and sellers in understanding the dynamics of the trade and the multidimensional nature of emission rights themselves is making the life of companies dealing exclusively with compensation issues extremely complicated at the moment.
Compensation is a step to the right direction, but companies need to go a few steps further and start actively making sustainable decisions that are good for both the business and the environment.
Saving the planet in a profitable way
Talking to Nordic Business Report a good year ago about how businesses can be sustainable and profitable at the same time, former Unilever CEO Paul Polman mentioned that the key is creating the right environment to drive long-term behavior, in the face of pressures from the market – and quite often from the board.
It all begins with how sustainability issues are perceived by the organization. An unavoidable task – or an opportunity to take the business forward?
Instead of making idle talk about sustainability, the time has come to actively fulfil ambitions. Sustainability must be given the kind of strategic position it deserves. Whether sustainability means choosing environmental materials in the manufacturing process, optimizing the supply chain in an attempt to minimize emissions, relying more on renewable energy sources to produce power, sponsoring local communities in their quest to improve educational opportunities, or totally something else, its role in business goals must be made evident and measurable.
Obviously, sustainability does not guarantee positive results, but neither is it any kiss of death to companies aiming to pay a little more attention to the environment. It is one success factor among others – albeit quite powerful – that must be considered, planned, executed, and monitored closely to make sure it has what it takes to support the overall business strategy the best possible way.
In spite of all the complexity, some positive signs are already out there, even in these uncertain times. According to a recent report by Morningstar, a collection of 50 U.S. large-cap stocks with the best sustainability scores beat the market by a landslide during the first quarter of 2023. And, while you really can’t draw any long-term conclusions, some of the largest technology companies that also have some of the strongest scores on environmental, social, and governance criteria, made some of the biggest gains. At the same time, sustainable strategies were broadly able to dodge the hit taken by stocks in the energy sector as oil prices lost ground.
The opportunity to make sustainability a significant driver of success is definitely out there. It all begins with the same principles as with any other strategic element in an organization: recognizing the strengths, defining the role, outlining responsibilities, and committing to make it the best it can possibly be.
