RESPONSIBLE INVESTING
Making sense of
SUSTAINABILITY
The “sustainability” term remains amorphous, so even after agreeing to address it, innovative leaders still need to decide what it means and then set strategy for it. BY LUX RESEARCH
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ustainable development is growth that meets the needs of the present without compromising the ability of future generations to meet their own needs. To help make sense of what sustainability should mean in practice, we address three of the most common questions on the topic. Asking and answering these questions lays the groundwork for developing a sustainability strategy.
1. SHOULD YOU BOTHER WITH SUSTAINABILITY AT ALL?
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Some company leaders do still wonder if the term is more a marketing buzzword than a real strategic priority. The answer here is clear: Over the past few years, numerous stakeholders have begun to demand sustainability, showing that this trend will last and is not a passing fad. Investors have shown increased interest in environmental and social impact. In a presentation on quantifying megatrends, Director Cosmin Laslau notes that “climate and sustainability” has become arguably the most important trend for shareholders. Companies with the highest environmental, social, and governance (ESG) scores have seen aboveaverage growth over the previous five years. Even more telling was State Street Global Advisors calling out three companies for poor ESG performance. With shareholders making these moves, business leaders need to respond. Consumer preferences have shifted from wanting sustainability to demanding it, and these preferences have had major impacts on established businesses. Fast fashion brand Forever 21 filed for bankruptcy, in part due to its poor response to customers’ concerns about the waste produced from “fast fashion.” Entire products can be upended – plastic straws have been removed from many establishments after a video of a plastic straw stuck in a turtle’s nose went viral in 2018. These issues matter to consumers and are driving product choices, so many consumer-facing brands are committing to sustainability goals – and pushing their suppliers to do the same. Employees now strive to work for more environmentally friendly companies and are increasingly taking action to improve their workplaces – amicably or not. Failure to hold to important values can lead to significant backlash from employees – more than 300 Amazon employees protested
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Amazon’s climate and social practices, even with a warning that they could be fired for doing so. Attracting and retaining top talent requires taking values like impact and inclusion seriously.
2. HOW DO YOU SET THE RIGHT GOALS? Here, the answer is different for each organisation – ranging from the Ellen MacArthur Foundation’s New Plastic Economy to utilities striving to reduce methane emissions, to governments aiming to become leaders in Li-ion battery and EV manufacturing. To determine your targets, consider these key approaches: • Use fewer resources. Cutting down on resource inputs, from water to energy to raw materials, is a clear way to reduce impact. For instance, while companies are taking a myriad of approaches to achieve sustainable packaging goals, a simple strategy is to merely reduce packaging used. Unilever, for example, aims to reduce its virgin plastic packaging used by 50% by 2025, targeting multiuse packs and “no plastic” products. • Reduce emissions. Cutting back on releases of harmful by-products, most notably CO2 and other greenhouse gases, is another objective. Emission reduction can manifest in numerous ways: Light-weighting results in fewer emissions from transportation; switching to renewable sources makes energy use greener, and reusing materials or products curtails the impact of manufacturing. However, sometimes changing the process entirely moves the needle the most. Current ammonia production is as energy-efficient as possible, but there is significant interest in altering the traditional Haber-Bosch process, including adding carbon capture, using green hydrogen, or switching entirely to electrochemical synthesis, with big impacts on emissions. • Reduce waste. Even with a reduction in resources used, there will always be waste, which can have its own negative effects. Companies can focus on reducing waste and developing a “circular economy” – from increasing recycling rates for plastic packaging to using food waste as a feedstock for feed and fertilising. However, the efforts to develop a circular economy extend beyond consumer-produced waste like food and packaging to addressing end-of-life issues with energy technologies, such as lithium-ion batteries and wind turbine blades.
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