Looking back just ten years, awareness of sustainability issues among top management was still fairly low. No-one questioned the importance of the topic but most had difficulties to see how it relates to their business.
Customers were not seen to be interested in eco-efficient product features, human rights or labor conditions in the supply chain.
Even members of WBCSD, companies seen as CR leaders, failed to see it is in their own interests to be proactive in determining how to drive more sustainable consumption patterns.
Today customers as well as most stakeholders including NGO´s, members of the media, employees, partners and regulators expect to see responsible business practices.
The financial community, however, is still lacking behind in understanding how sustainability affects business performance. Their focus is mainly on short term financial performance whereas many sustainability related investments need to be evaluated on longer term basis.
The question is this: how to combine the short-term thinking of our quarterly economy with long-term targets and financial returns.
The Board of Directors can play an important role here.
Several large companies have seen the benefit of incorporating ambitious sustainability targets in their strategy.
GE was one of the first to come out with a leading edge sustainability strategy 10 years ago. “Ecomagination” is GE’s growth strategy, enhancing resource productivity and reducing environmental impact globally by investing in cleaner technology and business innovation – in other words, investing in activities which make perfect business sense.
When Unilever came out with their “Sustainable living plan” five years ago, aiming to halve their environmental impact while doubling the company turnover by 2020, they were challenged by analysts and investors.
Unilever share price has since performed in line with competition.
The question remains how corporate level targets can be leveraged throughout the diverse Unilever brands.
Neste has created a new business and a leading position in renewable fuels which is an important part of the company´s financial performance.
These examples and many more prove that sustainability factors are an important part of sound decision making, not saving the world. This being said, M&S slogan captures the broader purpose well: “Plan A, because there is no Plan B”
As responsible business practices have become a license to operate, ignoring them can be a big risk.
The most recent example is VW scandal of trying to hide the true emissions of their fleet, which may turn out to be fatal for the company.
Telia-Sonera corruption charges in Central Asia led to the dismissal of several Board and top management members, and now also a decision to withdraw from those markets.
Stora-Enso child labor accusations last year led to some big institutional investors selling their S-E shares, and has kept the company in the headlines.
There are, however, still many who sign on to Milton Friedman´s principles “the business of business is to do business”.
Apple´s rise to become the world´s coolest brand has not in any way been affected by their lousy reputation in corporate responsibility – as even though many consumers say they make ethical choices, most of them do not walk the talk.
In other words strong sustainability credentials do not have a value per se, they need to be combined with superior product and service quality.
Examples above demonstrate the complexity of the issue and how difficult the impact is to quantify.
The financial community is gradually waking up and we are now seeing banks and investors discontinuing to finance high carbon intensive industries – Bank of America and Credit Acricole have pulled out from coal mining financing.
Now also investments based on CR performance formerly considered as “SRI-investments” are being replaced by factoring sustainability into mainstream financial research.
This makes sense as the level of corporate responsibility is seen indicate top management quality, and sustainability related trends will affect our short and long term business environment and opportunities.
Even if it difficult to measure, sustainability and CR performance do affect shareholder value and are thus an important topic to include in Board room agendas.