Most businesses hope to become sustainable, but for many, reaching that goal is problematic. The road to the finish is filled with obstacles such as inadequate, ad hoc public policy and burdensome reporting. This article lists and describes the ten initiatives that company leaders believe will enable them to shape a future that is more sustainable.
Every year, the Network for Business Sustainability (NBS) convenes Canadian companies that are leaders in sustainable business practice. Representing Canada’s diverse business landscape – from forestry and extraction to retail and banking – senior leaders gather at a one-day roundtable to discuss sustainability. They share their accomplishments and the challenges they confront in making their companies environmentally and socially responsible. That discussion reveals to business leaders, policy makers and academic researchers the factors that will shape a more sustainable future.
What is Business Sustainability?
Business sustainability refers to business models and managerial decisions grounded in financial, environmental and social concerns. Sustainable companies:
- Create long-term financial value.
- Know how their actions affect the environment and actively work to reduce their impacts.
- Care about their employees, customers and communities and work to make positive social change.
- Understand these three elements are intimately connected to each other.
Compared to companies that focus on short-term profits and make decisions based solely on the bottom line, sustainable companies think long-term. They forge strong relationships with employees and members of the community. They find ways to reduce the amount of natural resources they consume and the amount of waste and pollution they produce. As a result, sustainable companies thrive, surviving shocks like global recessions, worker strikes, executive scandals and boycotts by environmental activists.
Past discussions have focused on the issues classically associated with sustainable business. These include engaging employees in sustainability while boosting morale, and innovating green products that reduce environmental impacts while growing the top line. This year’s discussion, however, focused on activities that extend beyond the firm. For these leaders, the future of sustainable business lies in long-term collaborations that redefine companies’ relationships with competitors, environmental activists, citizens and suppliers.
The sustainability leaders presented the following list of 10 initiatives that will help companies become more sustainable, in order of importance:
The Process for compiling the List
Ivey’s Network for Business Sustainability (NBS) convened representatives of leading organizations for a one-day roundtable in Toronto to identify the top 10 sustainability challenges facing Canadian business in 2013. The Leadership Council, which meets annually to set research priorities for NBS, represents major sectors of the Canadian economy. In 2013, the Council included: BC Hydro, Canadian Pacific, Environment Canada, Holcim (Canada) Inc., Industry Canada, LANXESS Inc., LoyaltyOne, Pembina Institute, Research In Motion, SAP Canada, Suncor Energy, TD Bank Group, TELUS Corporation, Teck, Tembec, The Home Depot, Tim Hortons Inc. and Unilever Canada.
These firms identified global priorities from the Canadian perspective. To do so, the business leaders engaged in a 3-stage process:
- Identifying their own individual issues;
- Aggregating and refining the issues into meaningful categories; and,
- Ranking priorities by importance.
This process yields a set of issues that is representative, prioritized and agreed-upon. View past and current research priorities for the Network for Business Sustainability.
- Create smart, integrated public policy.
- Engage value chain members, including industry and NGO partners.
- Build a national dialogue on responsible consumption.
- Create organizational structures that support sustainability.
- Embed sustainability in corporate culture.
- Provide clear and equitable directives regarding Aboriginal rights and entitlements.
- Create conditions that support sustainability-related innovation.
- Incorporate a social license to operate into business strategy.
- Prepare organizations and society to mitigate and adapt to climate change.
- Lessen the burden of sustainability reporting.
1. Create smart, integrated public policy.
Building sound public policy on environmental issues is undeniably complex. But the uncertainty created by governments’ failure to act compounds companies’ existing planning challenges. “It’s not an issue of how companies should deal with climate change,” said one business leader. “It’s about how to deal with governments not sending clear signals on climate change policy.”
Companies need clear, steady direction from governments regarding issues like carbon pricing, national cap-and-trade systems for greenhouse gas emissions or feed-in tariffs for new energy-generation sources. They also need clarity around the intersection of environmental, energy, economic and social policies – many of which are often conflicting. In one example from the United States, electricity utility GenON Energy Management was forced to choose between violating its state’s Clean Water Act and violating its mandate to deliver a certain amount of electricity . Environmental regulations required the utility to replace equipment, thereby reducing the water pollution associated with power generation. The equipment change, however, would lower their production capacity and jeopardize their ability to deliver the obligatory amount of electricity mandated through an ISO commitment.
Only with clear, consistent and integrated policies can companies confidently invest in new technologies, new standards and staff training for sustainability.
2. Engage value chain members, including industry and NGO partners.
Effective collaboration is the key to accelerating sustainability across a value chain or an industry. Companies can do everything possible to improve their environmental and social impacts within their own operations, but the big advances are made when companies align the actions of suppliers, distributors and all other members of their value chains.
“Big brands need to share best practices and solve mutual sustainability problems,” said one professional. “If other organizations see no value in collaborating – and they’re buying from the same suppliers as us – how can we advance the sustainability agenda?”
To extend their sustainability mandate in 2013, business leaders see the need to collaborate with industry peers, suppliers and even environmental organizations to reduce their negative impacts and potentially innovate new products and processes.
3. Build a national dialogue on responsible consumption.
Companies can only do so much without the support of their customers. If consumers are unwilling to buy or pay more for environmentally responsible or fair-trade products, the sustainability movement will stagnate. As one business leader put it: “Most people buy products based on price and features – not on whether the materials were sourced sustainably or the product can be recycled after use.”
Businesses need consumers to engage in national dialogues about sustainability so they can make informed decisions about sustainable living and responsible consumption. “Canada succeeded in making recycling an accepted norm in the home in the late 1990’s,” observed one senior leader. “What are the tools we can use and the leaders we can engage to ignite people’s commitment to cycling, carpooling or responsible consumption?”
4. Communicate sustainability goals throughout the organization.
Building sustainability into an organization is no easy task. Sustainability or Corporate Social Responsibility (CSR) remains largely siloed in many companies, the responsibility of a single department or even a single employee. Even when sustainability is more widely integrated into companies’ business units, communication remains a challenge: “One of our key challenges is to effectively communicate the company’s vision of sustainability,” said one executive, “such that everyone, regardless of their role, understands and embraces that vision.”
As another business leader put it: “How do you reach the factory workers, sales people and marketing people in a 100,000-person organization? It’s an impressive logistical challenge.”
5. Embed Sustainability in Corporate Culture
CEOs are rotating through their jobs quickly. In 2007, the average tenure of CEOs for large U.S. companies was less than six years.[i] This relatively short tenure represents a challenge for a sound sustainability strategy, which requires long-term investments.
New leaders may perceive CSR departments or senior sustainability jobs as cost centres and eliminate or significantly reduce them. With these CEOs, sustainability champions find themselves having to make the business case over and over again to every new leader. Businesses need to embed sustainability into their culture, so that sustainability strategies do not lose momentum with a new CEO.
“In our consulting role, we often see companies that get new leadership,” said a representative from an environmental non-profit consultancy. “As a result, existing executives have to make the business case for sustainability all over again to the new CEO.”
The NBS conducted a comprehensive study on Embedding Sustainability in Organizational Culture in 2010. The research was well received and many Canadian organizations, large and small, have begun applying the findings to their own corporate structures. The process of building sustainable business practice into corporate culture, however, does not happen overnight.
6. Provide clear and equitable directives regarding Aboriginal rights and entitlements.
Engagement between Aboriginal communities and resource development companies is crucial as expectations evolve and the number of development projects increases. But the differing perspectives of companies and communities can pose a challenge for constructive interactions. Companies and Aboriginal communities can differ in the way they see, for example, each party’s responsibilities and the desired outcomes of the process.
Many business leaders recognize the value of working with – rather than against – aboriginal groups: “Forestry is an applied science – you have to make decisions in the absence of full knowledge,” said one executive. “Working with First Nations and Métis communities that possess generations of wisdom about local ecosystems, we learn new things about forest stewardship we wouldn’t otherwise know.” Some organizations have started participating in initiatives such as the Progressive Aboriginal Relations program – a voluntary assessment and certification program that helps Canadian businesses build relationships with First Nations and Aboriginal businesses, communities and people.
While legal precedents are being set in court challenges, many companies in the forestry, extraction and oil and gas sectors await clear public policy regarding their roles in aboriginal rights and entitlements. Once companies and Aboriginal groups have clarity regarding contractual obligations, they can focus on building mutually beneficial, long-term relationships.
7. Create conditions that support sustainability-related innovations.
As long ago as 2009, the Harvard Business Review proclaimed that, because growing the top and bottom lines are the goals of corporate innovation, “smart companies … treat sustainability as innovation’s new frontier.”[ii] Despite that perspective, many business leaders still see sustainability-related innovation as risky. Large companies have investors that demand rising, quarterly earnings as well as big brands that represent massive investments of time and resources. Small companies, too, have little organizational slack. In an era of razor-thin margins and just-in-time manufacturing, many business leaders struggle to justify investments in creative pursuits and long-term projects that have unguaranteed returns.
NBS’s 2013 report, Innovating for Sustainability, revealed ways companies can reduce their impact on the environment, create positive social change that benefits business, and re-imagine their business models. Three things business leaders could start doing today to drive innovation: look for trends in emerging economies or unrelated industries; initiate partnerships with universities and colleges to fill internal knowledge gaps; and institute incentive programs that reward employees for suggesting ideas that save energy, reduce material use and improve products.
8. Incorporate a social license to operate into business strategy.
Social license to operate refers to community members’ tacit willingness to let a company operate in their region. While the term originated with the mining sector, social license represents a critical factor for nearly all businesses today. Maintaining social license is a strategic imperative, so sustainability managers wonder how they can frame sustainability as a way to manage risk and create efficiencies.
For many business leaders, social license to operate has changed in recent years: “Maintaining a company’s social license to operate used to mean engaging stakeholders and consulting them on projects that affected them,” said one leader. “Increasingly, however, it means generating shared benefits for both the company and its affected stakeholders.”
Regardless of what a social license looks like for a given organization or its stakeholders, business leaders have to find ways of systematically incorporating the community into all strategic decisions.
9. Mitigate and adapt to climate change.
Business adaptation to climate change was one of the first issues identified by these leaders. The physical impacts of climate change will redefine entire industries, such as agri-food, tourism and insurance – not to mention the industries that rely on them. What will climate change mean for companies and for society?
“Climate change – global warming caused by human-generated greenhouse gases – is not an isolated issue,” said one manager. “It is a recurrent theme in business conversations and is starting to overlap with other sustainability issues, such as carbon policy, water quality and sustainable supply chains.”
In 2009, NBS studied the sector-by-sector risks and opportunities associated with climate change (see NBS’s Climate Change report). But despite widespread acceptance of the reality of climate science, the broader public remains largely unengaged and apathetic about the issue.
10. Lessen the burden of sustainability reporting.
A plethora of reporting standards exists today to measure and award sustainable business practice. Some of the better-known global reporting measures include: the Global Reporting Initiative, ISO 14001, the Carbon Disclosure Project and the Dow Jones Sustainability Index. Add to this list industry-specific standards, investor questionnaires and voluntary award applications, and it becomes obvious companies spend a lot of time and resources reporting on their sustainability programs. “We’re maxed out, trying to report on everything we do – whether it’s required from a regulatory perspective or voluntary,” said one manager. “It requires a significant investment of human resources, and that time could be more effectively used implementing programs to reduce the impacts we do have.”
Companies are calling on investors and third party assessment organizations to create more streamlined reporting methods. Whether that means agreeing on a core set of universal sustainability metrics or reducing the number of items in a given questionnaire, companies are unanimous in their desire to spend more time doing and less time reporting when it comes to sustainable business practice.
How These Lists Have Evolved
We started formally tracking business leaders’ sustainability challenges in 2007. At the time, their concerns were primarily inward-focused. They needed tools to make the business case for sustainability to senior leaders and finance departments. They wanted insights into consumer buying habits so they could design products and marketing campaigns around environmental and socially responsibility. And they requested resources to engage employees across the organization in sustainability.
That inward focus has shifted beyond the walls of their organizations. This year’s challenges – especially the highest-priority ones – represent broad issues outside the firm involving multiple stakeholders. Issues like value chain collaboration and civic engagement represent complex projects with long timelines and unguaranteed paybacks. Although fraught with uncertainty and often requiring large leaps of faith, these multi-stakeholder, large-scale initiatives have the potential to revolutionize business practice. We propose two possible explanations for this shift from inward to outward looking.
1. The “Easy” Work Has Been Done
Many of the companies we work with have been tackling sustainability for years. They have reduced greenhouse gas emissions and gone paperless. They have shrunk packaging and eliminated hazardous substances from their products. They have dramatically reduced the amount of water and energy they consume and the amount of waste they produce. They have attracted highly engaged employees who are strongly invested in sustainability. They have written supplier Codes of Conduct and started monitoring supplier performance.
With many operational and technical improvements already accomplished, it’s hard to sustain improvements “We already have a business with a small environmental footprint, so it’s increasingly difficult to find ways to further reduce our impact,” said one executive. They recognize that further progress requires a big next step. While none of the accomplishments above are necessarily “easy,” there is a clear business case for each of them. For the more difficult actions – those on the horizon – the commitments are long term and the profits are uncertain.
2. It Doesn’t Pay to Do Sustainability Half-Way
A recent article in the Strategic Management Journal showed that companies that invest heavily in sustainability have higher return on assets (ROA) than firms that invest moderately. What’s more, companies that dabble in sustainability perform worse financially than companies that do nothing at all. The relationship between corporate social performance and corporate financial performance is U-shaped.[iii]
Perhaps experience has taught Canadian business leaders what research shows: that if you’re committed to sustainable business practice, it doesn’t pay to do things halfway.
This article is one in a series. It represents an update to the 2011 article “The Top 10 Reasons Why Companies Aren’t Sustainable.” (Ivey Business Journal, January-February, 2011).
[i] Kaplan, S. and Minton, B. “How Has CEO Turnover Changed?” International Review of Finance. March 2012. 12 (1), pg. 57-87
[ii] Nidumolu, R., Prahalad, C.K., & Rangaswami, M.R. 2009. Why sustainability is now a key driver of innovation. Harvard Business Review. 87(9): 57-64. -64.
[iii] Barnett, M.L. and Salomon, R.M. 2012. “Does it Pay to Be Really Good? Addressing the Shape of the Relationship between Social and Financial Performance.” Strategic Management Journal. 33: 1304-1320.