Businesses must embrace sustainability or be left behind

Mass migration to online commerce is one of the most obvious impacts of Covid-19. Less obvious, but having an equally forceful impact behind the scenes, is the growing shift towards corporate sustainability.

Sustainability is now being described as “the new digital” and the stark message from those monitoring the trend is that businesses that don’t heed the sustainability concerns of staff, customers and investors will get left behind. They add that during the last big commercial “revolution” (digitalisation) companies slow to respond suffered the same fate.

Sceptics doubting the relevance of the sustainability agenda need only follow the money. Investments in ESG stocks are booming. Inflows into sustainable exchange traded funds (EFTs) overtook all other ETFs for the first time in Europe in the first quarter of this year

In a paper published by the World Economic Forum in January, consulting firm Bain flagged that Covid-19 has created a real sense of urgency for businesses to improve their sustainability credentials.

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“Even in a year dominated by a global pandemic, the sustainability revolution has accelerated faster than expected, while also expanding to include a wider range of environmental and social issues,” the commentary says.

“With consumers and investors demanding significant change, profit pools shifting away from incumbents to insurgents, and even the most carbon-heavy companies making net-zero pledges, executives ignore this revolution at their peril. And make no mistake: this is a real revolution. With every industry – nearly every product and most of our habits under scrutiny – it would be downplaying it to call it anything else.”

Going digital was a seismic shift for business. So too is sustainability because it has the potential to disrupt just about everything about how companies operate today. Even what executives drive will come under scrutiny as companies are expected to walk the walk as well as talk the talk.

Greenwashing, where organisations do things that make them look good, may have worked in the past. But customers, consumers and investors are now way too savvy to be so easily duped.

Tackling sustainability starts with those plotting the strategic direction of a business and it must be at the core of what companies do in the future not an add-on according to the World Economic Forum. In its 2021, Global Risks Report, the WEF says a move to greener production and consumption cannot wait and that businesses of all sizes in all sectors must put sustainability at the heart of their post-Covid recovery.

Making this happen is going to demand big changes. Procurement decisions may change, marketing and PR departments may have to ramp up their efforts to communicate their compliance with ESG to stakeholders.

Boards, keeping a beady eye on investor decisions, will become more vigilant about the sustainability agenda and last but not least, domestic, EU and international legislation looks set to keep moving the goal posts. For example, the UK is facing a plastics packaging tax from 2022 that will levy £200 per tonne on packaging made with less than 30 per cent recycled plastic – a change with big implications for the whole supply chain.

The jury is still out on an agreed definition of corporate sustainability but, in broad terms, it means committing to environmental, social and economic goals that will have a positive impact on society while still allowing commerce to thrive. The environmental pillar is currently the most active with the European Union earmarking €550 billion for green projects over the next seven years and US president Joe Biden allocating $2 trillion to tackle climate change.

"In many ways, corporate sustainability is the more developed successor to CSR [corporate social responsibility] but there is still a lot of ambiguity around the terminology and the concept," Frederik Dahlmann, associate professor of strategy and sustainability at Warwick Business School told The Irish Times. "CSR was mostly about doing good on the side. Corporate sustainability is much more strategic, holistic and integrated. It is about looking at the risks, issues and challenges and also assessing if there is opportunity within them."

Warwick is one of the UK’s top ranking business schools and it puts a big emphasis on sustainability teaching and research.

“Students always ask ‘so what do we need to do?’ But rather than trying to answer this, we try to open their eyes to the broader picture,” Dahlmann says. “It’s about innovation and changing the way an organisation thinks and really trying to engage with the issues as a means for transformation and business change.”

One company that grasped the transformation opportunity with gusto is the Danish energy company Ørsted. A decade ago it was one of the most carbon intensive companies in Europe. Today, it is a global leader in green power and among the most valuable energy companies in the world.

“Climate change is the most pressing consideration but sustainability is a very big discussion with many things at play from diversity and wellbeing in the workplace to how companies manage themselves, their facilities and their impact on the outside world,” says Dahlmann.

“The most significant thing is that sustainability is no longer on the side lines. It is becoming central to business. Big companies, large corporates and publicly owned companies are under the most pressure. However, once they’re in the spotlight they start passing it up and down their supply chain.

“So, even if you’re an SME, if you’re supplying them then sooner or later you will be drawn into the discussion.”