A few years ago, sustainability was considered a trend that businesses were undertaking to combat the effects of the environmental and social impact caused by the previous decades of heavy industrialization. Today, sustainability is a standard and framework that every business must consider or risk failure. Paying attention to environmental, social, and governance (ESG) related challenges has become extremely critical for all organisations across all industries.
According to a McKinsey Global Survey, 83% of C-suite executives and investment professionals believe that ESG programmes will generate more shareholder value in five years’ time than they do today. This thought process directly reflects corporate actions toward sustainability in recent years.
Most of the world’s largest companies now issue a sustainability report and set goals; about 33% of Europe’s largest public companies have pledged to reach net zero by 2050, and more than 2,000 companies have set a science-based carbon target. Corporate leaders are becoming aware of the need to reuse and recycle, as well as steadily moving toward the circular economy. It is a huge area for growth, with the renewable energy market expected to be worth $2.15 trillion by 2025.
On the social side, organisations have been expanding diversity and inclusion efforts, committing funds to fight racial inequity, and speaking out on societal issues that were previously swept under the rug.
To understand this strategic and philosophical shift, It is important to understand what sustainability is, beyond its use as a buzzword. Sustainability is simply how a given organisation approaches the creation of long-term value by taking into consideration how it operates its ecological, social, and economic conditions. Sustainability is predicated on the assumption that developing such strategies cultivate organisational longevity.
The current wave of sustainable practices can be directly attributed to the global shift towards environmental friendliness, transparency, and social equity. As information becomes more easily accessible and consumers/investors become more aware of their surroundings and the internals of previously obscured organisations, there is now an increased call for companies to take increased responsibility in their social, political, economic, and environmental activities. When an organisation properly creates and executes a sustainable strategy, it opens itself up to a plethora of positive impact.
Brand value is greatly increased as the dominant generation is highly keen on sustainable companies and products, and this also translates into investor demand (Gartner research finds that 85% of investors considered ESG factors in their investments in 2020). It also helps ensure regulatory compliance as global initiatives such as The Paris Climate Agreement forces countries to implement rules that benefit and foster sustainable action. A proper approach towards sustainability also attracts employees and increases productivity.
With these benefits, it is clear to see why some of the world’s biggest organisations have taken steps toward sustainable production, helping to reduce environmental stress and climate change: Nike has committed to using 100% renewable energy in its factories by 2025, large scale manufacturers such as Unilever and Nestlé have both taken on major commitments; Unilever is targeting net-zero emissions by 2039 and a deforestation-free supply chain by 2023. Nestlé has also committed to achieving net-zero greenhouse gas emissions by 2050 and having 100% recyclable or reusable packaging by 2025.
In spite of the obvious actions taken by market and industry leaders, the average corporate executive is unlikely to be interested in sustainable action. According to a study by MIT/BCG, 90% of executives acknowledge the importance of sustainability, but only 60% incorporate it into their strategies, and barely 25% include it in their business models. This study is a bit dated, so chances are the numbers have gone up as sustainability has moved firmly into the mainstream.
However, it is important to point out the troubling increase in “Greenwashing,” which is basically providing unsubstantiated claims to deceive consumers/investors into believing that a company’s products or operations are environmentally friendly or have a greater positive environmental impact than what is true. One can understand the allure of “greenwashing.” All the benefits are reaped with any work done, and as the idea of sustainability is still evolving, getting caught is rather difficult unless you choose to be overly egregious like Volkswagen in 2015.
Regardless of this, it is important that organisations properly incorporate and implement sustainability in their strategies, if not for all the benefits I mentioned earlier, then for the sake of the planet and humanity. The world is in dire straits, and inaction will take us down a dark and painful path. You’d be hard-pressed to enjoy profits and bonuses if the world wasn’t working as intended. (Read Why Is Sustainability Important In Business? To see what a possible timeline could befall us if we don’t do better.)
As sustainability continues to evolve, there are some practical steps an organisation can take to keep up with the changing landscape:
- Aligning strategy with sustainability: Executives need to ensure that the strategy of an organisation and its sustainability efforts are properly aligned. There is usually some disparity, especially during the earlier stages. As time goes on and the organisation iterates, both strategy and sustainability efforts would be better optimised for execution.
- Moving from compliance to competitive advantage: Organisations must address compliance, which often involves regulations in waste management, pollution, and energy efficiency as well as human rights and labour responsibility. Proper compliance also concerns investors. Investment is all about managing and mitigating risk. None is riskier than a non-compliant organisation. However, compliance is not enough as it is the bare minimum. Organisations must be willing to come up with sustainable actions and strategies to stay relevant in the global economy. According to the 2021 EY Global Institutional Investor Survey, 74% of institutional investors said they were more likely to divest from companies with poor sustainability performance, while 90% said they would now pay more attention to a company’s sustainability performance when making investment decisions.
- Be proactive and not reactive: A good number of the leading brands I mentioned earlier are only currently waving the current sustainability flag because they had to resolve an earlier crisis. With the current love for “cancel culture”, your organisation may not get a second chance if it finds itself in a crisis. An analysis of the entire organisation could provide insight into sustainability gaps that would require action.
- Transparency as a value: To evaluate and improve your sustainability practices, you must be transparent. Transparency functions because the more open an organisation is in its environment and with the community, the more opportunities for performance to improve. The only way for organisations to accomplish transparency is through open communications with all key stakeholders built on high levels of information disclosure, clarity, and accuracy, as well as an openness to recognizing faults and improving practices.
- Board Engagement: For the type of organisational change a sustainability strategy can create, the board of directors must be fully involved to generate substantial results. Directors have the ability to restructure aspects of the organisation to better complement the needs of a sustainable strategy.
- Ecosystem Engagement: Sustainability is not a ‘one organisation’s game’. Your organisation must be willing to collaborate with external stakeholders to ensure that its sustainability practices are efficient and well executed for success.
Sustainability continues to prove a challenge for organisations all over the world, and as more companies continue to adapt in a post-sustainability world, the idea remains ever-evolving. It is necessary that one understands that no matter how much the idea of sustainability changes, as long as one sticks to the core principles that uphold it, one will always be able to stay relevant.
As we all continue to understand and implement sustainability as a brand strategy and approach to business, professional communications and good intentions are no longer enough.
Responsible leadership must ensure that they approach sustainability not just from a standpoint of compliance and competition but by aligning strategy with sustainability: creating long-term value by the way it functions across ESG considerations.
About The Society for Corporate Governance Nigeria
SCGN is a registered not-for-profit organisation committed to the development of corporate governance best practices in Nigeria. Today, the Society is the foremost institution committed to the development and promotion of corporate governance best practices in Nigeria.