Sustainable business needs mind-shift

22 november 2012

That we need to make the transition to a more sustainable society and economy is a view shared by many. Which in turn means it’s also important for multinationals to embrace sustainability, and many multinationals claim to do just that. But without wanting to belittle the efforts of pioneers like Unilever or Vodafone, within many companies there has to date been little progress.

If multinationals are going to take this issue more seriously, it will require an end to one particular charade that’s actually doing more to block the move to a sustainable economy than it is to promote it. For round the whole sustainability agenda of multinationals there has developed a self-perpetuating 'ecosystem' primarily aimed at achieving high rankings on the various sustainability league tables and similar beauty contests.

League tables and rankings
Companies consider it important to score well on these tables because they are a first line of defense against any criticism in this area. And there are others, like the rating agencies, magazines (like Newsweek) or NGO’s who develop these tables, who benefit. 

The origins, or at least the acceleration, of this state of affairs can be traced back to the launch of the first Dow Jones Sustainability Index in 1999. The strength of the DJSI lay partly in the Dow Jones brand, which resonated with the business and financial sectors. It was an important indication that sustainability was now considered relevant to business and no longer the plaything of the woolly socks brigade. And because it’s a relative index (only the top 10% in each sector are included), you must keep doing better than the rest to stay on it. A place on the DJSI was seen as a quality mark or ‘hygiene factor’.

Paper exercises
Since then, more sustainability indices have been launched and the number of similar 'league tables' continues to mushroom, including government supported initiatives and various questionnaires from NGOs. Reporting guidelines (Global Reporting Initiative) are something rather different, but here again we see a tendency to include as many indicators as possible.

But what exactly do these league tables tell us? I believe there is a pretence of action created whereby CSR departments, auditors, consultants (including myself) and NGOs keep each other busy carrying out endless paper exercises. And for the company Board it’s all very convenient: it has a department that looks after sustainability issues and the Board can focus on the ‘more important’ business.

The outside world insists it know everything about companies, which means the agenda becomes led by those requesting this information and not by the strategy or character of the company itself. Businesses then respond to these requests, their answers go into the requester’s black box and out pops another league table. It all costs so much time and energy that many multinationals now employ teams of people whose sole task is to respond to these external requests for information.

Transparency and accountability are often given as arguments to justify this craving for information. But who really believes that more information necessarily leads to better understanding? More and more the focus is on how a company is performing on paper and for many—not least some of this system’s insiders—you get the impression that this is what it’s all about. But what does all this actually contribute to the transition to a more sustainable economy? In my opinion, not much anymore. We need a new approach.

Market opportunities
The fundamental change that needs to take place is for companies to make the switch to truly sustainable business. Instead of wasting energy filling out forms for marginal stakeholders, they should offer sustainable solutions to the markets where they operate. Sustainable business is not about meeting certain vague moral expectations, but seizing the opportunities that rapidly changing market circumstances offer. Something companies will only achieve when they put their business ambitions at the heart of their sustainability agenda.

Every company will then have to set its own priorities. As a rule of thumb, a company has on average three key sustainability ‘drivers’. Not off-the-peg factors that the outside world imposes on you, but things for which line management should feel responsible.

For a brewer one would imagine water efficiency, supply chain management (including the percentage of local procurement), and health would be critical issues. For a bank (risk)management of sustainability-sensitive customers, talent management and sustainable financing as a percentage of the total loan portfolio. In the chemicals industry, security, carbon reduction and innovation would be important priorities.

Companies can decide for themselves what the key points of focus are that can underpin their transition to sustainability. And by being transparent about these priorities, they let the outside world know where their commitments lie. The crux is that less attention be paid to public relations and league tables, and more to the really important activities that will deliver sustainable transformation and strengthen the company’s long-term right to exist. With all the positive consequences that will mean for society.

 Vested interests
Sustainability is 'hot'. It’s ubiquitous in the media. And yes, all sorts of initiatives, networks, start-ups and many others are actively grabbing the chance to contribute to the move towards a sustainable economy. So there’s reason enough for optimism.

But multinationals deserve special attention. It’s striking how even the pioneers amongst multinationals have trouble embedding sustainability throughout their organization. Employees, customers and shareholders struggle to identify with green ambitions, let alone relate them to operational activity. I believe this is because it’s not the market that’s being used to lead or leverage the transformation process but Head Office’s ambitions, which are often far removed from daily practices.

The real business doesn’t take place in head offices but in the market. This is particularly true of sustainable business. Off-the-record many share this view, but there is resistance to embrace it. Vested interests have much to gain from the status quo. Endless questionnaires have for many become a livelihood. And the hygiene factor, whether or not it is relevant, offers companies a real comfort zone.

Penny dropped?
In many boardrooms the penny has dropped that our future will see fundamental changes: within a few decades the world’s population will reach nine billion people; wealth and consumption are increasing; and there is increased pressure on ecosystems and social cohesion.

It is not just important, it’s crucial that companies anticipate these changes. But change takes time, and involves trial and error. I only hope that multinationals explicitly focus on the market opportunities offered by sustainable solutions. The transition to a sustainable economy is too important to be left to administrators.

 (A Dutch version of this essay by Wouter Scheepens has been published in Het Financieele Dagblad)

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