Sustainability as a Core Business Principle – How Leaders Can Adapt
As the world starts to cautiously recover from the COVID-19 pandemic, there is a pressing case to address the environmental crisis in the context of the global reconstruction effort. Awareness is increasingly growing around the urgency to slow the destruction of the environment, and it is becoming clear that two major crises – climate change and biodiversity loss – are inextricably linked and compounding. Around the world, private sector commitment to climate action is gaining momentum, with businesses adopting strategies to reach net zero emissions and some pledging to invest in protection of the natural environment. Based on current net-zero commitments from more than 700 of the world’s largest companies, there have already been commitments of carbon credits of around 0.2 gigatons of Co2 by 2030 (World Economic Forum, 2021).
The landscape is not changing only on global scale. There is a definitive transformation agenda on national level as well. The National Coordination Council for Sustainable Development of the Republic of Azerbaijan, which was established in 2016 and has been instrumental in driving the sustainability agenda forward and aligning it with the national strategic priorities – organized a large-scale event “Financing Sustainable Development: Sustainable and Green Recovery from COVID-19 Pandemic” on October 6, 2021. During the event Minister of Economy of the Republic of Azerbaijan, Mr Mikayil Jabbarov, announced that a new “Social and Economic Development Strategy 2021-2025” is underway. The strategy is going to focus on four priority areas – increasing the bottom line of national companies, ensuring transparency of public sector and private sector organizations, safeguarding the efficient distribution of state funds, and advancing debt sustainability of the state.
As legislative and societal norms evolve to adapt to meet sustainability challenges, businesses will have to evolve to compete in a changing environment and those that do not make this initial investment could cost themselves out of business in the long term. The conversion to a low-carbon economy will require up-front investment, and latecomers will only be penalized more heavily. A recent study by Deloitte has confirmed that if the EU’s energy and infrastructure transition had begun in 2010 in full, costs would be around €65 billion a year by 2035; by comparison, a ten-year delay in the process increases the price to €90 billion a year by 2035 (Deloitte, 2020).
Global recovery from the pandemic is currently putting pressure on all businesses. This means urgent action is needed to be able to deal with longer-term disruptive change. This uncertainty causes complicated risks, but it also creates opportunities for innovation and growth. Organizations that can adapt faster and execute more efficiently than their competitors are set to reap benefits in both the short and long terms. When it comes to sustainability, opting for inaction today may translate into a bigger loss in the long-term. Executives are becoming increasingly aware of the need to transition towards sustainable business practices and circular economy in particular. It is a significant area for growth considering the renewable energy market is expected to be $2.15 trillion by 2025 (Statista, 2020).
Despite what some may believe, sustainability in business is not altruistic at all. It is impossible to do good if you are not doing well financially. On top of driving social and environmental transformation, sustainability can contribute to the overall success. Although spending more money on sustainable business practices may seem counterintuitive, it can give the company’s top line a boost. Studies show that the most sustainable companies are also the most profitable.
There is also a changing trend among consumers toward supporting sustainability, and it is only getting stronger as the number of millennials and Gen Z increases. Nielsen studies show that 66% of consumers would spend more for a product if it came from a sustainable brand, and 81% of global consumers feel strongly that companies should help improve the environment (Nielsen, 2020). These figures are accurately aligned with 62% of executives considering a sustainability strategy necessary to be competitive today, and another 22% thinking it will be in the future.
Below are several ways in which business leaders may steer their organizations in the right direction to facilitate sustainable transformation.
Align strategy and sustainability. Leaders should prioritize sustainability targets by taking into account which will have the biggest impact in terms of risk or opportunity, and which the company has the ability to contribute to. In some cases, the company may be willing to contribute to a number of sustainability targets, however it is important to start with those which create the most significant impact when allocating resources and defining the timeline.
Not only compliance, but competitive advantage. A new archetype is required from the organizations to find new innovative strategies so that they can ensure both their economic sustainability and corporate responsibility. Businesses have the opportunity to take the lead in creating shared value beyond the compliance agenda. Value beyond compliance is about the fundamental synergy between economic performance and social progress and creating shared value.
Proactive, not reactive. Business leaders, along with the key stakeholders bear the responsibility to drive a corporate sustainability narrative to inspire and nurture a proactive culture. Internal stakeholders that can actually observe top level executives endorsing this culture by encouraging and maintaining solid sustainability practices within the business are much more likely to follow suit.
Engage the entire ecosystem (not just the board). Sustainability creates a common ground that brings people together and establishes connections, which is especially important for an organization that has stakeholders across the globe. It boosts innovation and stakeholder engagement. Employees that are proud of their company are more productive and engaged. A result of engaged employees is creativity which continues to benefit sustainability.
According to the latest studies, five years from now half of global revenues will be generated from products, services, or businesses that do not yet exist. Many of these revenue streams will be in compliance with sustainability goals and technological innovation. The changes that we need are of such magnitude that not only commitment from business leaders themselves but also broader, more transformational partnerships are required to face the future challenges. Sustainability is ceasing to be a choice for businesses. It is becoming a mandate.