As recent business trends go, among the steepest rates of adoption is the incorporation of sustainability practices in organizations. A survey of senior business executives by KMPG conducted several years ago found that 62% of the firms responding had a sustainability strategy in place, a 25% increase from 2 years earlier. A majority of these public and private companies had either already issued a public report or were planning to do so in the near future. Rationales cited by the executives participating in the survey included potential cost reductions as a key driver, with risk management, brand enhancement, and regulatory requirements as additional motivations.
A follow-up report stated, “CR reporting has become the de facto law for business” and that “of the 250 largest global companies, fully 95 percent now report on their CR activities”. Sustainability is no mere fad. Firms large and small have begun to recognize and address the rewards and the risks involved with sustainability issues. In late 2013 The New York Times reported that a number of large firms, including Disney, Delta Airlines, Google, Wells Fargo, GE, Chevron, and Hess, have begun to estimate the cost of carbon output into their long term financial plans.
Increasingly, action on and investment in sustainability drives innovation and enhances both company and national competitiveness, as a number of recent Harvard Business Review articles detail. The top ten countries in the social and environmental sustainability adjusted Global Competitiveness Index are all in the top 15 rankings for all countries in the overall Global Competitive Index. Of the top 20 countries in the adjusted index, 19 are in the top 25 of the overall index, showing that progressive environmental and social policy does not hurt economic competitiveness nationally.
On the scale of the firm, well crafted and executed strategies addressing environmental, social, and governance (ESG) issues that improve both ESG advisory and financial performance, and are rewarded by capital markets. Successful firms understand the risk, and take on major innovations in products, processes, and business models, focused on the most material issues and aimed at competitiveness in the long term.
For publicly held firms, the ground is shifting quickly. Stock exchanges around the world are beginning to recommend their listed companies report on select environmental and social indicators, or explain why they do not. The NASDAQ OMX and New York Stock Exchange are participating in the Investor Network om Climate Risk Sustainable Stock Exchanges Working Group, which is currently collaborating on a standards proposal for capturing and reporting on nonfinancial data.
Clearly, sustainability is an emerging megatrend similar to previous trends such as mass production, information technology, and globalization. These trends were, in their time, initially seen as questionable business imperatives, yet they forced fundamental and persistent shifts in how companies compete.
Environmental and social pressures impact firms’ ability to create value not only for all stakeholders, but for their shareholders as well. Management that views the integration of sustainability-oriented processes and systems as an opportunity for increased competitiveness and innovation are likely to reap the greatest reward. Businesses that approach it as a burden have weaker practices and increased risk. A mindset and organizational culture based on the current dominant paradigm will have difficulty identifying avenues for generative improvement whereas a systemic mindset surfaces such prospects with more frequency and ease.