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Posted by Andrew & Nada on 26th March 2020
Can corporations choose sustainability over environmental crisis?

Could big business help society become more sustainable? Most environmentally-minded individuals would like to say 'yes', but how realistic is this aspiration? Nada Kakabadse, Professor of Policy, Governance and Ethics, and Andrew Kakabadse, Professor of Governance and Leadership at Henley Business School, consider the challenges ahead.

The increasing exploitation of our natural resources is calling into question the contribution of governments and corporations, which frequently stand accused of not doing enough to champion sustainability for the wider population's social and economic benefit.

The reality at play is challenging. Many corporations and political leaders present themselves as champions of sustainability in their reports, manifestos and white papers. However, in-depth analysis of these very same documents often reveals them to be an exercise in protecting reputations, even when an organisation is caught acting in a decidedly unsustainable manner.

When corporations genuinely pursue such policies, they clearly specify what they mean by 'sustainability' and their levels of investment in the area. It's important to understand that sustainability is a broad term which requires definition and context.

It could, for example, mean minimising labour exploitation; addressing environmental concerns; reducing pollution, or even adopting a stakeholder mind-set to economic prosperity using the equitable distribution of wealth.

"We all have high values and great intentions, but when the budget is tight, we have to be realistic. Before you can bring sustainability initiatives to the board, you need to be sure that they are economically viable alternatives to the current business strategies. We need to cost a business case for everything that we do related to sustainability or not. You always need to bring reality to any initiative - I mean the financial viability. Talking just about the environmental or social level does not get you anywhere. The board needs to see how it relates to financial returns, rewards and incentives. Ultimately business cases are what drive investment decisions, and sustainability becomes the outcome of 'sound' business strategy that marries economic profits with Sustainability." (CEO, Professional Services)

The ultimate question for boards and leaders is - 'is sustainability an integral part of our strategy?'

Certain leaders live particular values and make sustainability an integral part of their organisation's culture. As an example, the senior management of Unilever championed sustainability as being central to the future of their corporation. However, such a commitment leads to a subsequent question - 'what happens when the socially or environmentally-conscientious CEO or chair leaves?'

In this sense, sustainability has a limited lifespan within a corporation due to its dependency on who champions it, and the degree to which sustainability considerations are integral to the firm's strategic direction.

To bed down a sustainability strategy, particular steps need to be taken. The first action is to stop talking about sustainability. Instead concentrate on the prime values which shape all the organisation's tasks and activities of the firm. The prime value of American corporate giant, Caterpillar, is quality. Since 1917, quality of product, service, experience and internal and external relationships has been paramount for the firm.

Quality seeps through every pore of Caterpillar, particularly in its pursuit of relationships. The now famous yellow overalls are worn by workforce and management alike. "Yellow, runs through all our veins" comments one senior Caterpillar manager. In this way differences in status do not impede quality of interaction, as the workforce and management are indistinguishable by their dress. The only relevant differentiator is quality of contribution.

In a similar manner, Anglo-American, Federal Express and the John Lewis Partnership ensure core value are put into everyday practice. This level of contextualisation builds a community which lives sustainably across all parts of the firm. Yet, these examples are few and far between. So many others just talk about sustainability while failing to take the painful steps needed to turn it into a pragmatic and operational reality.

'When I first joined the company in 2014, I came in with a much higher expectation of the role of the sustainability officer as part of business management. I expected the company to engage and do more in the field of sustainability. Two years before I joined, Sustainability was a strategic priority with a sustainability team in place. But then the team was laid off and their goal to publish the sustainability report was parked. The change in direction was primarily due to financial challenges brought on by the previous CEO, and the sustainability initiative was perceived as a means to build both company and personal brand without the associated returns. The previous CEO believed that sustainability creates market differentiation, but he then discovered this was not the case. Customers are not seeking it and are were not willing to pay a premium price for our services." (Sustainability Officer, Logistics)

Some believe that new organisational forms, such as those emerging from digitalisation, are naturally 'sustainable'. Real world consequences are never as clear. Instead new, small and agile entities, such as mutual, B-corps and cooperatives may drop the sustainability concept at the heart of their strategy as they grow larger and have to cover a wider and more expensive cost base.

For these adaptive newcomers the principle of establishing sustainability remains. The priority is to focus on the operationalisation of sustainability, rather than the rhetoric of strategy. The difference between the established and new firm is that the bedding down process is more horizontal. The top-down reality, even of the enlightened Caterpillar, is substituted by working across a series of flat interfaces where any entity can become client, consumer, supplier and controller of data.

The governance challenge is to provide oversight across a myriad of dynamic, smaller entities. 'Living' core values, whether they are service, quality or care across multiple, interrelated entities is no easy challenge. This digitally-determined future requires core values to be bound across a network of interests that require equal monitoring and mentoring. Only then can the resulting value have an impact on activities across entities where identity is in a state of continual change.

Further, the emerging circular and 'sharing' economy, and the rapidly-expanding 'gig' economy pose new challenges as many employees face insecure contracts and the automation of tasks. Even those organisations considered as sustainable may not practice such values across their entire portfolio. The most sustainable of companies have still often proved guilty of possessing unsustainable product lines and investments.

Ultimately sustainability means different things to different people. As a movement, it has not yet matured and lies somewhere between government's responsibility to promote smart regulation, and a corporation's desire to be seen as investing in a socially and environmentally-acceptable future that satisfies its stakeholders.

What may be lost in all of this is the consumer. Their rights to sustainable consumption are undermined because of financial short-termism and shareholder-focused mergers and acquisitions.

"Human problems like those posed by the transition to sustainability are not solvable by rational means alone. These problems are borne out of the tensions between competing business perspectives. But they can be transcended by a higher level of education and understanding of the imminent crisis. Ecosystem stability is important. We know that anthropogenic Greenhouse Gas (GHG) emissions such as CO2, N2O, and CH4 contribute to climate change. We should be calculating the cost of GHG emissions, net freshwater withdrawals, non-renewable energy usage and land use, and then costing our product and services accordingly. Pursuing this strategy would dramatically change our business model - I think we are not ready for this. We have all these assists and investments we need to utilise. We would be out of business. Even alternative organisational models are often themselves not sustainable in the light of dominant market forces.' (CEO, Utilities)

We are currently facing the worst period of land and habitat destruction in human history, as well as atmospheric pollution to near-unsustainable levels. All of this at a time when economic prosperity, limited to short-term gains for a few elites, is leaving large parts of the global population short of basic needs.

Urgent change is required. We do not know with certainty whether we have passed the point of no return on climate change or if the future of our civilisation is in imminent peril. What we do know is that unless a pragmatic application of sustainability is applied to tasks and activities, and is effectively governed, the unwelcome future we fear will become our reality.

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