Sustainability: Will business deliver?

By Jonathon Hanks (12 September 2012)

EarthFollowing the capitulation at Copenhagen in December 2009, the disappointment of Durban in 2011, and the risible outcome of last year’s Rio summit on sustainable development, it is clear that inter-governmental processes are failing to deliver the solutions needed for today’s challenges.  With each successive gathering of national representatives we seem simply to lower our expectations; ‘disappointment has become the new norm’.[i]

Whatever the reasons for this failure of political leadership – be it the short-term interests of national governments, the obsolescence of traditional global negotiating groups, the inherent conservatism of diplomacy, or a general lack of courage and vision within government – it is apparent that we need to look elsewhere for inspiration and innovation. This then begs the question: if national governments are so clearly failing to address global challenges, can business deliver? Is it the case, as Director of the IISD Mark Halle suggests, that ‘for all the problems still associated with corporate activity, there is more advanced strategic thinking, more deep analysis of problems, more attachment to innovation in the corporate sector than is evident in inter-governmental dialogue’? If so, is this ‘deeper analysis’ and ‘more strategic thinking’ of itself sufficiently transformative and widespread within business to help us make the shift to a regenerative economy, an economy that promotes social justice while decoupling economic development from resource use? And how does the South African business response stack up against that of its international peers?

The need for transformative thinking

Answering these questions depends of course on one’s understanding of the nature, severity and underlying cause of current societal challenges. Despite the seemingly robust evidence, the sound science and the impeccable reasoning, there is far from sufficient agreement or understanding that current economic activity ‘is on a fundamentally unsustainable course, and that the window for action is closing.’[ii]  Listening to most mainstream investment commentators, economists and business journalists one might get the sense that much of what we are currently witnessing in global markets is simply a temporary – albeit rather persistent – economic downturn before we revert to business (and growth) as usual.

For other observers (this author amongst them), the current volatility is not simply symptomatic of a recession, but signals something far more profound: the beginning of an era of creative destruction. On a finite planet, an economic system that seeks unlimited growth based primarily on extractive resources and funded by debt cannot be sustained indefinitely. Given the fact that this same economic system perpetuates inequality and undermines social mobility in a global society that is already profoundly unequal, and it is not surprising that prescient investment strategist, Jeremy Grantham, suggests we’re approaching ‘the Great Paradigm Shift’[iii]. Award-winning author Richard Heinberg similarly maintains that we are currently facing the ‘fifth great turning in human history… from a fossil fueled, debt- and growth-based industrial civilization, toward a sustainable, renewable, steady-state society.’[iv]

Being prepared for this transition to a resource-constrained future, in which the needs of nine-billion people are more equitably met, will require fundamentally different mindsets and capabilities within business to those that were developed in a world of abundance.

Looking for the Steve Jobs of Sustainability

Commenting on the recent Rio Summit and lamenting the lack of transformative vision amongst most of the participating CEOs, the acting president of the World Resources Institute (WRI) Manish Bapna questions ‘Where is the Steve Jobs of sustainability, the business leader with the big, disruptive ideas—and the force of will—to achieve for sustainable production and consumption what Apple’s visionary chief did for global technology and information?”[v]

Ask most sustainability practitioners to name their ‘Steve Jobs of sustainability”, and the following are likely to be mentioned: Paul Polman (CEO of Unilever), the late Ray Anderson (Interface), Yvon Chouinard (Patagonia), Lee Scott (Wal-Mart), and Jack Immelt (GE).[vi]  These are executives who have gone beyond framing the business response to societal issues through the blinkered lens of compliance or philanthropy, who have moved on from seeing sustainability as being solely about managing risks, and who have recognised the significant strategic opportunities in finding innovative solutions to some of the world’s social and environmental challenges. For the most part these are the business leaders who are no longer asking ‘what should our sustainability strategy be in the light of our business?’, but rather ‘what should our business strategy be in the light of sustainability?’ As Immelt maintains: ‘sustainability is our business strategy; it’s our roadmap for how we operate and how we innovate.’

Innovation in products and processes characterizes the response of each of these companies. GE’s Ecomagination initiative, for example, has seen billions of dollars invested in the company’s quest to ‘build innovative solutions to the world’s toughest challenges’ through new products in renewable energy and energy efficiency, water supply and purification, and healthcare. Interface, the global carpet company, has long been the poster-child in the corporate sustainability field, focusing on significant process and product innovation in seeking to reach their Mission Zero® goals. Walmart, Patagonia and Unilever have all similarly adopted ambitious targets aimed at minimising their impacts, as well as identifying innovative opportunities for competitive advantage in responding to and addressing the anticipated societal turbulence.

While these initiatives are commendable, achieving sustainability will require a lot more than bold targets and innovation in products and processes alone, particularly when this may be limited to some of the larger companies. A shift to a regenerative economy will require businesses to use their leverage to push for broader reform by engaging with governments to shift policy, with consumers to inform their purchasing decisions, with suppliers and businesses to change their products and processes, and with investors and financiers to promote more responsible investment practices. As Unilever’s Polman puts it, ‘sustainability will require completely new business models, a much more collaborative form of capitalism, and… a move away from short-termism”.

In a recent interview in the Harvard Business Review[vii], Polman is quoted as having done away with earnings guidance and quarterly reporting, as well as telling hedge funds they are no longer welcome as investors. Patagonia similarly provides some interesting examples of a business that challenges conventional business models, takes a collaborative approach to finding solutions, and adopts an overtly activist mantle. Their Don’t Buy this Jacket campaign and Common Threads Initiative both seek to reduce excess consumption (flying in the face of most business assumptions), while their Our Common Waters initiative encourages consumers to join their environmental activism on freshwater issues.

The limits to boldness

Expecting businesses to promote new business models, to foster genuine collaboration, or to undertake lobbying that seeks to address some of the underlying systemic flaws (many of which have benefited businesses) is a tall order, and will require uncommon levels of leadership. The extent of the challenge is evident amongst some of the (arguably) more innovative companies – such as GE, Alstrom and Siemens – that have seemingly begun to transition away from their supportive role in the ‘old’ fossil-fuel based economy through their investments in new green technologies. Nick Mabey, director of environmental group E3G, argues for example that in the run-up to the Copenhagen climate summit the conservative forces within these companies trumped any potential advocates for a more transformative approach to collaboration. He suggests that instead of pushing for technology sharing agreements or bilateral deals to promote green technologies – key demands from developing countries – ‘the only dedicated public affairs work they did at Copenhagen was on protecting their legacy intellectual property.’[viii]

With some notable exceptions, progressive companies seem to be reluctant to lobby aggressively for the policy changes that would support a regenerative economy. By failing to critically interrogate or speak out against some of the systemic flaws that underpin the current unsustainable economy, these companies might be seen as complicit in hindering the necessary transition. As management thinker and author Umair Haque recently argued in a Harvard Business Review blog, there is much that ‘is left stammeringly unspoken by the finely-suited pundits and so-called “leaders” too cowering and afraid, too tempted and silenced, too timid and too petrified to challenge the primacy of a system that’s leaving millions to choke on the fumes of the collapse of their own futures.’ [ix]

While this sentiment might be a little unfair of some of the more progressive companies – and perhaps does not allow for the very real dangers in being vocal on difficult issues (Nedbank’s Chairman Reuel Khoza can testify to this)[x] – Haque’s observation highlights the extent of the challenge we face. When it comes to the business response to sustainability, it would seem then that we need more business leaders with the vision, the big disruptive ideas, and the force of will that Steve Jobs apparently demonstrated. So how do South African business leaders fare?

Towards transformative business leadership in South Africa

For many South African executives the concept of sustainable development has traditionally carried a great deal of baggage, typically perceived as a soft issue of interest to ‘tree-hugging greenies’ and far removed from the real business of maximising shareholder value. For many it has been about ‘giving back’ through a corporate social investment (CSI) programme, encouraging marketing departments to embrace the new ‘green agenda’, or signing up to charters and initiatives that supposedly signify some form of higher moral compass. Arguably, the role of most corporate sustainability managers in South Africa is to produce an annual sustainability report, complete the company’s submissions for the JSE’s SRI index and Carbon Disclosure Project, or manage various philanthropic engagements.  In short, sustainability is framed in the context of legal compliance and moral responsibility, and not as an issue that guides the company’s core strategy and growth objectives, or that should inform its lobbying and engagement activities.

But this is beginning to change. South African businesses have arguably been at the forefront of developing corporate responses to societal challenges such as community health, HIV/Aids, adult basic literacy and skills development – and not always solely through their CSI initiatives. We are seeing a growing number of effective partnerships between businesses, government and civil society bodies, such as those between mining companies and local municipalities on water, between retail and fishing companies with NGOs on sustainable fishing, or between beverage companies and NGOs on water security and enterprise development. Across most sectors companies are identifying and implementing opportunities aimed at reducing energy, water and waste, as well as an increasing involvement in the uptake of renewable energy (with the Exxaro/Tata Cennergi initiative being a notable example). On governance issues, South African companies are amongst the leaders globally in the move to integrated reporting, and they continue to play an influential role in the development and implementation of a range of voluntary corporate sustainability initiatives.

As we saw earlier, however, while these various initiatives are commendable, they fall short of the transformative change that sustainability requires. For companies to be participants in this transition, they need to interrogate those existing business models that continue to externalise social costs, and they need to be more vocal advocates in readjusting the pricing of risks and resources. There are signs that these discussions are beginning to happen – albeit to a limited extent. Sanlam Chief Executive, Johan van Zyl, has argued for example that ‘the fact that the share price is published every day is misleading: it’s noise in the system when instead we should be interrogating the system as a whole.’[xi] Expressing concerns that we are undermining our future capacity to create value, van Zyl highlights the need to revisit the very high discount rate that informs long-term investment decisions, and to address the inappropriate value assigned to the resources that businesses depend on. Encouragingly this understanding is beginning to take traction more broadly, as evidenced by the recent Natural Capital Declaration[xii] that saw commitments from over 40 banks, insurers, and investors to support the proper valuation of natural assets. (At the time of writing, Nedbank was the only South African banking signatory).

Summing up the challenge with transformation, the sustainability architect William McDonaugh once wryly observed that if we are looking to change direction, going south more slowly will not take us north. Changing direction will need far-sighted, charismatic business leaders who are willing to challenge the very system that has made them successful. Unfortunately the evidence suggests that there are still very few such leaders in business, and that collectively we are continuing to ‘head south’, perhaps more slowly.



[i] International Institute for Sustainable Development (IISD) Life After Rio: A commentary by Mark Halle www.iisd.org/pdf/2012/com_life_after_rio.pdf

[iii] Jeremy Grantham Time to wake up: Days of abundant resources and falling prices are over forever published by the Oil Drum www.theoildrum.com/node/7853

[iv] Richard Heinberg The End of Growth: Adapting to our new economic reality The other turning points are: the harnessing of fire, the development of language, the agricultural revolution, and the industrial revolution.

[v] Manish Bapna (op cit)

[vi] These companies have been rated fairly consistently as amongst the top corporate sustainability leaders in the annual Globescan / SustainAbility Survey of sustainability leadership: www.sustainability.com/library/the-2012-sustainability-leaders

[vii] Adi Ignatius Captain Planet: An Interview with Paul Polman in Harvard Business Review (June 2012) http://hbr.org/2012/06/captain-planet/ar/1

[viii] Quoted in the Guardian’s Sustainable Business Blog (19 June 2012): http://www.guardian.co.uk/sustainable-business/blog/progressive-business-legislation-gsbq-june

[ix] Umair Haque The Libor Scandal and the Price of Prosperity (29 June 2012) http://blogs.hbr.org/haque/2012/06/the_libor_scandal_and_the_pric.html

Comments

Sustainability: Will business deliver? — 1 Comment

  1. Pingback: Sustainability: Will business show leadership? - Incite