In their quest to pursue growth and profits, many companies focus on reputation management alone while ignoring sustainable practices, which, according to a new report, is one of the most vital aspects of surviving in a crowded marketplace and should find its place among the core competitive strategies of a company.
The most significant sustainability issues revolve primarily around three areas -- social, environmental and economic -- that cover issues ranging from climate change to health care programs for employees. And, according to a new global research report by MIT Sloan Management Review and The Boston Consulting Group, while many companies “walk the talk” in addressing major sustainability concerns, there is a chasm separating thought and actual action.
“Walkers focus heavily on five business fronts: sustainability strategy, business case, measurement, business model innovation and leadership commitment,” the report said. “'Talkers,’ on the other hand, are equally concerned about the most significant sustainability issues, but address those issues to a far lesser degree.”
Profits Over Longevity
A suitable definition for business sustainability is that it represents resiliency over time and helps businesses survive shocks because they are closely connected to healthy economic, social and environmental systems. However, the new report, based on data from the past five years, says that many organizations continue to struggle with embracing sustainability issues, and choosing longevity over maximizing profits.
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According to the research, the percentage of companies that have successfully established sustainable business practices has only grown from 30 percent to 37 percent over the past five years. In comparison, the percentage of companies that have tried but failed to build a workable sustainable business model has increased from 8 percent to 20 percent in the same period.
Worse, more than 50 percent of the report's respondents had not even tried to develop such a model.
Problems Of Perception
Asked how significant social, environmental and economic sustainability issues are to their organizations, nearly 80 percent of the respondents rated economic issues as significant or very significant. While 70 percent of them rated environmental issues similarly, 66 percent gave the same rating to social issues.
The research also identified some important social and environmental concerns, which deserve attention from companies, but are not receiving enough of it. For example, only 13 percent of respondents from the IT and telecommunications sector considered pollution as one of their top three significant sustainability issues, compared with 18 percent across all industries.
For industrial development to be sustainable, it must address important issues at the global level, which includes climate change -- one of the most pressing long-term issues -- but, according to the research, is not receiving what is arguably its due.
Earlier this year, the Intergovernmental Panel on Climate Change warned against the dire effects of human influence on global warming. However, despite the scientific attention the issue has garnered, climate change continued to be low on respondents’ lists of significant sustainability issues, the study found.
According to the report, while two-thirds of the respondents agreed that climate change is real, only 11 percent ranked it as a very significant environmental issue. The study also exposed the lack of preparedness, with only 9 percent of respondents being in strong agreement that their companies were prepared to deal with climate change risks.
The report recommended taking a cue from companies in reinsurance and banking, which depend on mitigating financial risk and were found to be seriously considering longer-term issues such as climate change.
In addition to climate change, the research also raised concerns about the fact that other crucial sustainability issues, which are less tangible or less industry-specific, barely registered on the corporate radar. For example, issues such as human rights, loss of biodiversity, soil erosion and desertification were found at the bottom of the list of social sustainability concerns.
Walkers Over Talkers
The report said that “Walkers” are the companies that are closing the gap between thought and action by creating comprehensive, dedicated sustainability efforts. More than 90 percent of the Walkers had developed a strategy, compared to only 46 percent of Talkers.
Walkers also beat Talkers in terms of making sustainability a top management agenda item as 70 percent of the former had it as a permanent item on their company’s senior management to-do list, compared to only 24 percent of the latter.
According to a report from Bloomberg, a sustainable business model pays off and a perfect example of this can be seen in corporate America, where sustainability is steadily becoming part of the mainstream, helping companies produce “cost savings, revenue growth, and competitive advantage, along with environmental benefits.”
“Some companies succeed by targeting sophisticated consumers who prefer to pay more for a product that is organic, healthier, produced in [a] cleaner or safer way,” David Brodwin, co-founder of the American Sustainable Business Council, said earlier this year. “Still other companies succeed because the pursuit of sustainability leads to a higher quality product, with fewer defects and rejects.”