Corporate Sustainability - Time for a Radical Rethink.

Cockatoo Chronicles #55

It’s time for a radical rethink of corporate sustainability.

Most actions being taken by companies in the name of sustainability or ESG are, at best, irrelevant to the global challenges we face. At worst, they are counterproductive - derailing more substantive action by giving the illusion of progress. They are like personal consumer choices on sustainability - hard to argue against and make those participating feel they are contributing, while having virtually zero impact on the problems they claim to address.

This will be challenging for people in this field to accept. After 30 years arguing for such actions, I found it hard to accept as well.

Many will resist the conclusion and argue, “sure, we need go faster and do more, but a lot has happened, there are countless examples of progress and great things are happening”. I think this is self-justifying denial and just avoiding the uncomfortable truth.

I am not arguing a lack of genuine intentions nor of hard, dedicated work. For decades, millions of people, thousands of organisations and billions of dollars has been dedicated to the task of market driven change. We all genuinely believed it would work.

But look around, (remembering that the purpose of the corporate sustainability movement was to mobilise the market to drive transformational economic change to address sustainability. The idea was that the market would follow the leaders and build a process of self-reinforcing and accelerating change).

What do we see?

• The great bulk of market participants globally are not seriously engaging.

• The actions being taken are almost entirely at the margins of the core businesses of the companies taking them.

• Targets are set with performance tracked, disclosed and reported, leading to rankings that celebrate those harming the planet a bit less than their peers.

• Those seen as leaders are reneging on their sustainability ‘commitments’ under pressure from investors who correctly recognise that it is more profitable to harm the planet than help it.

Taken together, the combined impacts don’t even register on the global ecosystem.

We are barrelling towards catastrophic risk and we’re running out of time. Doing more of the same with increased urgency and intensity will not get us there.

The idea on which this movement was based has been proven wrong. We need a new approach, or else we need to abandon the idea of market driven change.

What went wrong?

Where it went wrong is clear in hindsight.

Sustainability was framed as “responsibility”, an add-on to core business, rather than a driver of value. The result was that business has only engaged at the margins of how they create value and, as a result, the actions taken were also at the margins of their businesses. It’s been ‘do a bit of sustainability while we make money’, rather than ‘make money by pursuing sustainability’.

In my recent paper with Lindsay Hooper, CEO of the University of Cambridge Institute for Sustainability Leadership (CISL), we argued the solution was a shift to “Competitive Sustainability” – integrating sustainability into business culture and systems with a primary focus on value creation and outperforming competitors.

This concept makes many people uncomfortable. For decades this movement has been about cooperation and building coalitions, about working together and about win-win thinking. This felt good and was an effective and non-threatening way to engage business leaders. But it hasn’t driven any serious change.

Our paper does not argue corporate sustainability is the wrong idea or can’t be a powerful lever for change. We argue the approach to it has been wrong and we need a new one based on ‘competitive sustainability’ and financial value - the mindset on which business and markets are based.

In summary we argued the corporate sustainability world needs to abandon the idea of trying to put sustainability thinking into business and instead put business thinking into sustainability. We need to mobilise the market - not impose a new philosophy on it.

This is not an argument against sustainability being a moral and ethical issue. It absolutely is – and perhaps the most powerful one in human history. But that argument is marginal to what drives business and, after 30 years of trying it, we conclude it is simply not working.

A better way – ‘Competitive Sustainability’

We argue there is a higher likelihood of success if we work with what markets value - financial performance over time - deciding actions based on where value is at risk and where it is on offer, then acting to pursue or protect that value.  

The context for that assessment of value is the inevitability of the transition. We must remember the basic fact that when things are unsustainable they stop. When we overfish the oceans, fish stocks collapse. When demand for water exceeds supply, we get water stress and food crises. Climate change and biodiversity loss are physics, chemistry and biology imposing practical and non-negotiable limits on business as usual. The laws of nature will demonstrate the economic limits of unsustainable business practices and these limits will translate into economic loss. We will change not because it’s the right thing to do, but because if we don’t the economy will grind to a halt and be overwhelmed by chaos.

Lindsay Hooper and CISL are now working on the “how” of Competitive Sustainability and what companies need to do to apply it, including strong policy advocacy. But in summary, actions taken need to create financial value for the leaders who take them. Today most action by individual companies is based on perceptions of what the world needs, rather than a business value analysis for that company. This imposes extra costs on the leaders, leads to wasted effort and time on hero projects, disclosures, reporting and coalition building, and fails to reduce the risks or create opportunities for the companies involved. The result is it punishes leaders and rewards laggards.

The shift we propose will be a cultural challenge for the corporate sustainability movement. For decades it has argued this is a collective problem and we need to work together for collective solutions. This feels good but it is naïve about how markets work and distracting from what sustainability means in economic terms. In times of great change, those who are bold and lead win, those who fail to adapt lose. And those who resist change threaten those who embrace it.

What is coming is a business vs business competitive battle to survive what could well be the greatest economic transformation in modern history. Many companies will not make it. Those who will need to start behaving like they plan to. They need to think ‘competitive sustainability’.