It’s getting harder and harder to be a significant business with a viable future these days. On top of the usual success factors of competitiveness, customer loyalty, process efficiency, access to capital, and talent, among others, there is this new idea out there called “sustainability.” At its essence, sustainability is about embracing a multidimensional basis for running a business—with environmental and social outcomes given more equal significance to financial ones. This radical idea is muscling its way onto mainstream business agendas worldwide and causing companies to rethink their futures at a root level. This global sustainability movement is telling companies that business as usual—b.a.u.—will not suffice. Yesterday’s message was “just do it”; today, it’s “just do it differently.” And that imperative is coming at businesses from all sectors of society.
Knowing what that difference is—and how to make a business out of it—is core to the magnitude of the sustainability challenges and opportunities for companies. The Newsweek Green Rankings reflect one among several efforts to better describe and assess that difference, and to drive companies to do better. These efforts are a response to significant business and social trends, including a recognition that shifting societal expectations have created market demand for environmental and social—and not merely financial—business performance as indicators of corporate success and social need. Moreover, these efforts reflect a belief that sustainability-based approaches offer a promising solution to many global problems that are often related to market failures, when business is unable to respond to an actual social need with a commercial market solution.
The sustainability difference affects all key areas of business activity, and it promises to remake the landscape of business winners who respond and adapt to it—and losers who do not. It includes differences in how production, consumption, the timeline for achievement, the scope of accountability, the definition of success, the measure of success, and the role of business in society are viewed. Some examples of what this difference means include:
From a “more” paradigm to a “less” paradigm: In the modern era since the Industrial Revolution, there has been a simple formula for doing things: add “more.” More energy, more knowledge, more labor, and more investment will predictably yield more outputs. This generates more sales to a growing world population, more revenues, and more profits. The cycle resumes as profits are reinvested in new ventures, shared with private or public owners, or held in reserve for future opportunities. But in the emerging era of sustainability, this “more” formula is being turned on its head to become a “less” formula. The reason? The proliferation of more stuff is generating so much waste that our systems for handling it are running short of capacity. Plus, the consumption of resources to produce things is depleting Earth’s ability to replenish itself. Using design, construction, smart metering and other techniques, companies are seeking to reverse the drive to “more” and to operate with less energy, to reduce or entirely eliminate waste, and to prevent further deterioration of ecosystems whose health is no longer taken for granted. Collaborative monitoring activities such as the Carbon Disclosure Project and the Water Disclosure Project are other means to instill this “less” paradigm. For example, the British-Dutch consumer giant Unilever is taking the idea of less a bit further. It has a Five Levers of Change and Sustainable Living plan, with the goal of helping more than a billion people take action to improve their health and halve the environmental footprint of their products. At the same time, the company has an ambitious plan to source 100% of its agricultural raw materials sustainably.
From shareholder to stakeholder accountability: In dealing with the wider demands of the citizenship and sustainability agenda, companies are going beyond their usual boundaries of legal shareholder accountability to seek nonlegal but common-sense insights and input from stakeholders. Stakeholders don’t have to be owners to be heard, and are often those who have an influence over the company’s reputation with consumers. Often, this outreach to stakeholders leads to collaborations in product development, design, and marketing, with varying degrees of success. Clorox and the Sierra Club, GE and the World Resources Institute, and Nike and the International Youth Foundation are some of the better known company-civil society organization collaborations of recent years.
On a cross-company plane, partnerships have been expressly established to promote innovation for sustainability by the sharing of intellectual property rights as part of an innovation commons. This is the idea behind the Eco-Patent Commons that companies like Xerox, IBM, Nokia, and Ricoh started in collaboration with the World Business Council on Sustainable Development, to make patents that produce environmental benefits available to a broader public. Increased company responsiveness to stakeholders is also the driving force behind the production of the tens of thousands of corporate citizenship and sustainability reports now available for review by investors and the public in many parts of the world. A website in Britain that tracks these reports, CorporateRegister.com, currently lists 43,668 of them issued by 9,402 companies. At the leading edge, a handful of companies are moving ahead with integrating their legally required financial statements with their sustainability ones into a single comprehensive report.
The proliferation of more stuff is generating so much waste that our systems for handling it are running short of capacity. Plus, the consumption of resources to produce things is depleting Earth’s ability to replenish itself.
From performance vs. peers to performance vis-à-vis systems: This is the biggest question of all and the most difficult one for companies to address. How can the health of the Earth system be ensured by publicly interested business and civilian actions? Is it possible for markets alone to cure what Sir Nicholas Stern termed the greatest market failure in history, in a reference to climate change? Can business rise to the challenge of innovating remedies for this failure? And how, exactly, can free markets and private enterprise coexist in a mutually interdependent relationship with the ecology of Earth?
For companies, this will mean more than simply running an excellent supply chain. It will also mean more work designed to be performed for systemic impact. This awareness of systemic impact and codependence is behind the efforts of the Swiss food giant Nestlé to support small farmers. They form the backbone of the world’s agricultural system on which the company depends. It also informs the partnership between Coca-Cola and the World Wildlife Fund to help preserve seven of the world’s freshwater river basins.
From living with externalities that are absorbed by society at large, a continuation of the privatization of gain and the socialization of risk that was exemplified in the 2008 financial crisis, companies will need to learn to live with externalities that will become expenses fully reflected in their bottom lines. And that is a difference that has barely begun.