- Category:Thought Leadership
There is little debate that sustainability as a business focus has undergone a transformation over recent years.
With sustainability recently described by the World Economic Forum as ‘the next digital revolution’, we are at the beginning of a major paradigm shift that will transform our societies, economies, and yes – the way we do business. However, this is not where it started. This evolution of sustainability’s role and level of importance within businesses has been propelled by growing awareness of the scale and urgency of issues like climate change, biodiversity loss, and social inequalities – and demand for the private sector to help address them.
The good news is this evolution can serve as a catalyst for increasing profitability and maturity of organisations. In a world that is reorganising around sustainability, those at the forefront are looking to capitalise on the shift by generating the trust, loyalty, and resilience necessary to thrive in the long-term. Firstly, it is important to define what we mean by sustainability.
Often mistaken for ESG, sustainability in a business context refers to activities undertaken by a business to manage its environmental, social, and economic impacts and create long-term value. The world’s largest companies are making ambitious sustainability pledges (think Apple, Microsoft, Amazon) and it is widely acknowledged that it is now a Board and C-level concern.
Early drivers of the business case for sustainability
While there are organisations that have been pursuing sustainability for decades, it has traditionally been viewed as a peripheral activity, with a focus on Corporate Social Responsibility (CSR). Unlike sustainability, CSR tends to look backwards and focus on reputational activities such as volunteering and donation, rather than being embedded into the strategic heart of a business.
From this early focus on CSR, grew an awareness of the cost savings opportunities from prioritising sustainability. Instead of just improving the reputation of the firm, evidence began to mount for the business case of increasing efficiency and reducing resource consumption (i.e. energy, water, waste, etc.). No doubt, this cost-related business case will continue to strengthen as ‘externalities’ like carbon and nature become priced into markets and operations.
New drivers of the business case for sustainability
In recent years, significant pressure has been mounting from external stakeholders like customers, policymakers, and investors, with a steep rise in activism and capital flows to businesses taking clear action on sustainability issues. Environmental, Social, and Governance (ESG) frameworks have emerged as a way for investors to evaluate and compare how companies are addressing their impacts, and make investment decisions accordingly. It also helps organisations to benchmark their performance against peers, and ultimately manage their sustainability risk.
Beyond cost savings, investment, and risk management, there is growing awareness that prioritising sustainability can lead to top-line growth. More mature organisations view sustainability as more than a compliance requirement; instead, they see it as a source of long-term business performance.
They understand the growth opportunities from tapping into growing consumer sentiment around sustainability, and being an attractive provider for businesses looking to partner with sustainable companies, as many of the world’s largest corporates are. They are also aware of the enormous opportunity for sustainability programs to attract and retain talent.
This is where we saw the concept of ‘shared value’ emerge, as one way to think about creating and capturing value through sustainability. Shared value refers to addressing societal needs and challenges by embedding them within a business model, focusing on the connections between societal and economic progress. As companies are increasingly under pressure to shift toward a model of stakeholder capitalism (i.e.focusing on meeting the needs of wider stakeholders such as customers, employees, communities, and the environment – instead of just shareholders), shared value offers a way to deliver broader societal and stakeholder value through a business’s very products and services.
The next evolutionary and maturity stage
Going even further still, are the organisations seeking to have a ‘net positive‘ impact on the world. These organisations seek to drive impact at scale, placing sustainability at the heart of their company’s purpose and operations. They are often driving systems change and use a holistic, proactive engagement approach to create both societal value and competitive advantage. In doing so, they are not only reaping rewards in the hearts and minds of stakeholders, but they are also positioning themselves to stay ahead of an evolving regulatory landscape. In conclusion, sustainability continues to evolve in its level of importance and strategic value for businesses.
It is moved from a focus on compliance and CSR, to reducing costs and risk, to a source of value creation, competitive advantage, and impact at scale. The growing demand for business ambition, investment, and transparency around sustainability is, and will continue, to accelerate this, encouraging more organisations to integrate sustainability into their core strategy.
Are you looking to improve your organisation’s approach to sustainability? Contact our Sustainability and ESG experts today.