Sustainability is often defined as managing the triple bottom line — organizing financial, social and environmental responsibilities. But aligning people, profits and planet is hard to achieve in practice.
With economies poised to adopt the United Nations’ post-2015 Sustainable Development Goals, and a new global climate agreement to be signed in Paris this year, businesses have good reason to be assessing their sustainability practises.
Yet while in recent years companies have made strides in adopting sustainable business models, there remains much work to do to curb greenhouse gas emissions and adopt clean technologies.
The case for environmentally sustainable business operations has become more of a focus and while approaches are often shaped at the executive level, practitioners do not necessarily have the skills and knowledge needed to drive sustainable development.
A grassroots path to a greener global economy must be embraced. “Business schools are educating tomorrow’s business leaders, and sustainability must be part of that future,” says Tima Bansal, Canada research chair in business sustainability at Ivey Business School, a leader in the field.
She says research is essential to show how businesses can be both profitable and also contribute to the greater good. There used to be a time that companies cared about whether it paid to be green or good. No longer. “Companies are increasingly realizing that sustainability must be a central part of business.”
Companies that are sustainable have been shown to experience less financial and reputation risk while becoming more innovative and adaptive to their environments. They are also able to attract and retain employees more easily, especially when recruiting younger executives.
Business students are demanding an education in sustainability. Jennifer Griffin, professor in the Public Policy Department at GWU School of Business, says: “Graduates are looking for meaningful careers — not just jobs in which they merely get a paycheck.”
Sustainability has not always been so widely popular but business schools recognize the need to provide specialist programs.
“For the current generation of MBA students, the focus is not first and foremost on making money for themselves, but rather on developing a strategy which sets companies and themselves up for long-term success,” says Poul Hedegaard, MBA director at Copenhagen Business School.
Copenhagen and others like Cornell, Mendoza, and Carnegie Mellon are pioneering the approach. Michigan Ross’ Erb Institute for Global Sustainable Enterprise, for example, offers MBA students courses such as sustainable finance and green real estate.
Corporations that have honed these practises are leading the way in creating net positive value while mitigating harm. Unilever and Phillips are among those ahead of the curve.
There is often a hefty price tag for those who get it wrong. BP’s oil spill in the Gulf of Mexico five years ago could cost the energy major a maximum penalty of $13.7 billion. “Who would have thought that shrimpers, fisheries, tourist agencies and local communities up and down the Gulf of Mexico were key constituencies for BP?” says Jennifer at GWU.
Nevertheless, companies are continuing to seize opportunities offered by new technologies and cross-sector collaborations to have an impact in areas like water recycling and the sourcing of commodities such as beef.
There has been a flurry of activity among big corporations in the lead-up to the UN climate meeting in Paris in December. Insurance group AXA said recently it would triple its green investments to €3 billion by 2020. Bank of America has tripled from 2013 the volume of so-called “green bonds” it sold last year to nearly $37 billion.
At least 150 companies already use an internal carbon price to guide their decision-making, including Google, Microsoft and ExxonMobil. More than 1,000 firms have also called for a carbon tax, including BlackRock, BHP Billiton and British Airways.
“Certain social and environmental initiatives pay off financially,” says Frank Wijen, academic coordinator of Sustainable RSM, the sustainability initiative at Rotterdam School of Management. These include energy efficiency measures, which save resources and finances.
But monetizing sustainability is a challenge. “Not everything that can be counted really counts and not everything that counts can be counted,” says Frank.
Luk Van Wassenhove, director of the Humanitarian Research Group at global business school INSEAD, says sustainability efforts tend to pay off initially. But eventually, greater investment with uncertain returns may be necessary. “This is where companies hesitate, especially if legislation is uncertain,” he says.
Future leaders will need to collaborate to achieve their sustainability goals. A recent study by research consultancy GlobeScan and SustainAbility, the think-tank, reveals that companies are becoming increasingly comfortable in partnering with others to solve environmental problems.
“Sustainability is changing the notions of collaboration in ways that we would not have imagined a decade ago,” says Ivey’s Tima, who hosts some of Canada’s largest businesses through the Network for Business Sustainability. The discussion has evolved from a focus on stakeholder management, she says, to collaborating with NGOs and direct competitors.
One example is the partnership between rival beverage corporations Coca-Cola and PepsiCo, and consumer goods groups Procter & Gamble and Unilever, to develop more sustainable refrigeration.
One career opportunity to emerge from sustainability is in the clean energy industry.
There will be an increased emphasis on renewables and clean tech in the next five years, according to energy companies surveyed in PwC’s recent global power and utilities survey. “It’s…Creating a transformation in how we think about, produce and use electricity,” says Norbert Schwieters, global power and utilities leader at PwC.
The drop in particular in the price of oil, and gas, which is used to produce electricity, has had an effect on renewables. Renewables are now cost competitive with hydrocarbon fuels, says David Elmes, head of the Global Energy MBA at Warwick Business School. “We are starting to get a level playing field in terms of competition between fossil fuel and renewable energy prices.”
Investment in renewables is also on the rise. But the often highly regulated and fragmented energy sector presents challenges for clean energy companies. “Investors are less familiar with renewable energy and the influence of government policy is still being shaped,” says David.
Pressure is increasing on companies to be able to trace their agricultural commodities’ sources and to prove that they have been produced under socially and environmentally-sustainable conditions.
Given the complexity of supply chains and food supply chains in particular, companies are expanding their supply chain management teams.
Kevin Lyons, associate professor for the Department of Supply Chain Management at Rutgers Business School, says: “Sustainability is now becoming part of an effective business strategy that can reduce risk, improve and enhance innovation, resilience, as well as the financial bottom line.”
Yet sustainability may require changes to the way companies operate and that is difficult to implement in many sectors because of internal and external hurdles.
But perhaps the greatest pressure business leaders are under is from shareholders, who maintain that sustainability initiatives require long-term investment, but do not necessarily deliver shareholder returns.
As Ivey’s Tima says: “The biggest challenge firms have in aligning sustainability goals is balancing short-term returns with long-term investments.”