Three recent developments provide executives with the justification needed to absorb short-term pain and commit to long-term sustainability.
From its inception, sustainability as a business strategy has been about creating value over the long-term. The most accepted definition of sustainability – established in the 1987 “Brundtland Report” – is inherently long-term in nature.Sustainability is an approach “that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Volumes of published academic research and inspiring case studies from practitioners in support of sustainable business practices paint a compelling picture of the benefits achieved from both sustainable business practices and by bringing to market products deemed to be sustainable. Embracing sustainability allows companies to attract new customers, increase shareholder value, improve risk management, and strengthen their brand and reputation.
The Reality of the Short-Term
However, the promise of future benefits overlooks a stark reality: sustainability often comes with a short-term cost.Legacy companies cannot become sustainable or start making sustainable products on a moment’s notice because of a market opportunity or investor decree.
Sustainability often requires fundamental changes throughout an organization. None of which is easy, immediate, or cost-free.
Product offerings change, employees must be retrained, supply chains are impacted, and investors need to be convinced that the sustainable practices are a worthwhile investment.
Through it all, executives face a conflicting set of expectations: plan for the long-term but make sure the next quarterly profit report beats market expectations.
The Window of Opportunity is Now Open
Despite these very real challenges, three recent developments provide executives with the justification needed to absorb short-term pain and commit to long-term sustainability.
Development #1: Permission Has Been Granted
We are staring into the abyss of our future and it is not pretty. The wildfires in Australia, the coronavirus pandemic, and mass migrations of disaffected populations are a preview of what the future holds if we do not dramatically reimagine how we function as a society.
In the face of that reality executives and investors are shifting their focus from the immediacy of the short-term to the imperative of the long-term.
In August 2019 the Business Roundtable, a Washington,DC-based association of CEOs from some of the world’s largest companies, issued its “Statement on the Purpose of a Corporation.” Seen as a new definition of the purpose of a company in society, the statement asserted that shareholder primary is no longer the overriding focus of corporations. Executives must take a broader approach to value creation by investing in employees, ethically managing supply chains, and supporting the communities in which companies operate.
Larry Fink ofBlackRock echoed this approach in his January 2020 letter to CEOs, “As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders.”
With one of the most influential business organizations in the world and the CEO of the world’s largest money-management firm telling executives to move beyond a myopic focus of creating shareholder value to creating societal value, permission to fully integrate sustainability into business models has been granted.
Development #2:Market Opportunity
According to the Business and Sustainable Development Commission, $12 trillion in market opportunities await companies across four sectors of the global economy: food and agriculture, cities, energy and materials, and health and well-being. However, to fully achieve those market opportunities “businesses need to pursue social and environmental sustainability as avidly as they pursue market share and shareholder value.”
More broadly, consumer sentiment – and the trillions of dollars of buying power behind it –is undergoing a significant change. Research by John Zealley and his colleagues at Accenture found that materialistic incentives – such as discounts and rebates – no longer drive consumer purchasing decisions. Instead, consumers want to buy from companies that share their values – which increasingly embody the definition of sustainability.
Development #3:The Innovators Are Changing the Game
The newest generation of innovators is integrating sustainability into their business models, products, and consumer engagement strategies from the moment of inception. Unlike products of the past, sustainable products coming into the market today do not sacrifice quality and cost. Elon Musk and Tesla have figured it out and are disrupting the auto industry.
So has Robert Luo of Mi Terro – a company making stylish, moisture-wicking t-shirts from recycled milk. As a further departure from traditional business practices, Luo got his startup capital in less than 2 hours from a Kickstarter campaign, and not from a VC or an IPO. Luo is not beholden to shareholders. He is accountable to the stakeholders behind his Kickstarter campaign.
The Risk of Inaction
None of this is to suggest becoming more sustainable is easy or without cost. However, the world is changing, and with that change comes opportunity. A failure by businesses to seize that opportunity risks obsolescence and irrelevance.