How does business need to adapt to provide sustainability leadership?
15 January 2018
Just because something is desirable, it doesn’t mean that it’s going to happen. As our political process has become more polarised and dysfunctional in the face of difficult embedded problems, so the need for businesses to step up and show leadership has become widely acknowledged and discussed. The businesses of yesterday were capable of only sporadic sustainability leadership, so how will the business of tomorrow need to adapt to do better?
The first question really is this - what is going to push businesses to adapt at all? Business has historically shown itself to be the best human institution at managing rapid change. But that change usually comes in reaction to something - a shift in the marketplace, or the operating environment, that forces innovation or process change in a survival-of-the-fittest race. Even then, plenty of businesses - led as they are by imperfect human beings - fail the test and get left behind. So what’s going to be the driving force that will make businesses fit to show sustainability leadership?
Two things seem likely to happen.
1. Businesses whose operations are being increasingly impacted by the effects of climate change, by controversies around slavery, by the pollution of the oceans - these businesses will make pragmatic assessments of what needs to happen to keep their operations stable and profitable. And, where required, they will seek to influence public policy to this end. This can be purely reactive, and widespread across a broad base of businesses.
2. Certain business leaders will step forward to show visionary leadership where they seek proactively to change the system of incentives for businesses to create the conditions more conducive for sustainability. These leaders will see that the goal of long-term value creation is dependent on two external contexts (healthy society, healthy environment) and will seek to change business culture accordingly. And they will also specifically rise to exploit commercial opportunities in being a first mover in that particular transition. This process cannot begin and end with Elon Musk. It must go wider.
Nothing is inevitable about any of this. As the collapse of Carillion in the UK reminds us, companies that have established a track record of taking sustainability seriously are not guaranteed to succeed in the marketplace. Short-term advantages can sometimes win over the long-term view, just as superior products have sometimes lost in the marketplace to inferior (but more effectively marketed) ones.
In other words, there is everything to play for.
For me, this is the implication for how businesses need to adapt. Senior business leaders who want to be part of the solution might look to something similar as their long-term playbook.
1. Sustainability has to be hard-coded in as a feature of the new tech market disruptors. Some of them get this already. Some really don’t.
2. The top business leaders need to cultivate a community at the top where commitment to sustainability is seen as a natural part of business leadership. Make it something that is seen as the badge of entry into the top networking club, and thereby make it aspirational for the hungry young turks with their eyes on rapid advancement. In the same way, a lot of the new entrepreneurs who don’t get it need to be challenged. Look across YouTube and other social media channels and you’ll see young people being encouraged to embrace entrepreneurialism via visions of owning a lamborghini and a big house. You can argue it’s a fringe thing, but such people can have millions of followers and their visions are what some young people are bringing into the business world.
3. Businesses should seek to retain their traditional position as being pragmatic in nature, and politically neutral even when that is a difficult thing to do. Support for sustainability has to become a consensus across the political divide. As soon as you become associated with one side, you lose your ability to influence the other. (The exception to this is if you strongly politically align with the side that currently is least convinced or committed, with a view towards matching and then leading them. There is something to be said for that from a political persuasion point of view, but few businesses would think it made commercial sense, unless their market is so strongly segmented in that way already). You can argue that political neutrality is not an evolution - but the objective of maintaining it in order to influence on the sustainability agenda (rather than simply their bottom line) certainly is.
4. This is the biggie - but the most difficult to achieve. Sooner or later, there has to be a shift in the system that generates the incentives for businesses. People follow incentives. A financial community that has demanded exception short-term returns has fed the problem of an unhealthy business dynamic. Changing that is the most difficult challenge of all, because ultimately money talks. But connecting long-term wealth generation to the context of a healthy society and healthy environment is the way this will be done. It will take senior business leaders becoming advocates, it will take business schools coming up with sustainable business models, and it will take individual businesses challenging the old ways and taking pole position in their marketplace as a result. In the mean time, the old ways, the old assumptions, the short-termists - they will be fighting back fiercely.
That is to be expected. But change the system of incentives, you will change the behaviours. How to do that is the exam question facing our business community over the coming decades.
At the edie sustainability leaders forum on its second day 25th January, the chief executive of E.ON UK, Michael Lewis, will be adding his own thoughts on this topic. It’s just one of the far-reaching conversations due to take place during the two days. See here for more on that. You can get a 15% discount as a reader of this blog by quoting the code MALLEN15
But now I put the question to you. What do you think? How does business need to adapt to be able to show sustainability leadership?