7 minute read

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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Sustainable 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?

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 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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3. HOW DO YOU INCORPORATE SUSTAINABILITY INTO YOUR STRATEGY?

Taking action is important, but there still needs to be a business case for the specific moves you make toward your goals. To develop a strategy that aligns with overall business goals, consider the following options to identify a value proposition. • Make your operations more sustainable. All companies can work to manage the impact of their factories, offices, and logistics, often finding financial benefits in doing so. Much of the focus here is on reduced emissions – can you use a low-carbon fuel, can you electrify, can you use less material to reduce energy needs? Global delivery service company, UPS recently announced plans to invest $450-million in deploying 6 000 natural gas vehicles (NGVs), reducing its carbon footprint through an economically viable approach. The business value proposition here is in cutting the operational cost associated with energy usage (and potentially saving on a carbon tax bill). • Help your customers become more sustainable. Another strategy is less in operations and more in product development – more sustainable solutions for customers that allow them to improve their operations and products (for businesses) or reduce their own personal impact (for consumers). Examples include offering bio-based and recycled materials or selling consumer products in reusable packaging. The value proposition here is to protect or grow market share – or even gain first-mover advantage – as downstream demand shifts to prioritise sustainability.

• Tap into new business opportunities created by the sustainability

trend. Apart from improving existing products for existing customers, there are opportunities to develop products for new markets that are emerging due to the sustainability trend. These targets can range from new battery materials for energy storage to alternative proteins that offer a lower environmental footprint than meat.

Why address sustainability?

Appeasing investors

Serving consumers

Attracting and retaining employees

What sustainability goals?

Using fewer resources

Reducing emissions

Minimising

waste Which sustainability strategies?

Improving operations

Helping customers

Finding new business targets

For this strategy, the value proposition is in the new top-line growth opportunities it can generate. All told, this three-step process of assessing the drivers of sustainability, selecting the relevant goals, and aligning to business strategy provides a roadmap for companies looking to get their heads around what sustainability means for their business – and focusing on the substance of what it means for strategy.

The exact answers will be different for each organisation but asking the right questions and taking a structured approach can place your team on a solid path.

Source: Lux Executive Summit Global 2019 S&P 500’s growth from 2014 to 2019.

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This article is an excerpt from MAKING SENSE OF “SUSTAINABILITY” Report by Lux Research

Lux Research uniquely combines technical expertise and business insights with a proprietary platform, using advanced analytics and data science to surface true leading indicators.

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greeneconomy/the upshot

CORPORATE GOVERNANCE, INTEGRATED REPORTING AND ENVIRONMENTAL DISCLOSURE: Evidence from the South African

Context | a Sustainability article by MDPI [June 2020]

This research aims to investigate the influence of sustainability-related issues of a sample of South African listed companies on the JSE regarding environmental disclosure, after the mandatory preparation of integrated reporting.

Integrated reporting (IR) can be identified as an innovative form of corporate reporting that seeks to combine financial, social, and environmental information. The movement of IR is strongly linked to sustainability issues, as it can represent how an organisation creates and sustains value and to bring together economic, social, and environmental factors in response to the recent needs related to the global financial downturn, environmental goals, and the call for greater transparency of corporate reporting.

In addition to sustainability reporting, IR promises to radically change the management approach to business strategy and value creation.

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