Companies around the world are making real progress on sustainability as they recognise that success is about more than just profit.
When Noble laureate Milton Friedman wrote in 1970 that “there is one, and only one, social responsibility of business – to use its resources and engage in activities designed to increase its profits”, he reflected the views of not just most businesses, but most people. The idea of firms promoting environmental and social responsibility was anathema just a generation ago.
No-one thinks like that now. Instead, companies compete to trumpet their commitment to ethical supply chains, gender equality and carbon neutrality.
Almost 10,000 companies in 161 countries have signed up to the United Nations (UN) Global Compact to align strategies and operations with universal principles on human rights, labour, environment and anti-corruption, and take actions that advance societal goals in support of achieving the UN’s Sustainable Development Goals by 2030. KPMG’s 2017 Survey of Corporate Responsibility (CR) Reporting shows that 93% of the world’s 250 largest companies by revenue produce CR reports.
To be sure, sustainability – considering economic, environmental, and social performance in an integrated way – still faces some challenges. Despite progress, many investors continue to ignore the benefits of a focus on sustainability on corporate performance (see buy-side article). Meanwhile, the withdrawal of the US from the Paris Agreement on climate change has removed a powerful impetus for some companies to take action.
And, of course, not all sustainability talk is heartfelt: an industry has sprung up to help companies massage their sustainability credentials through ‘greenwashing’. Moreover, there have been plenty of ethics scandals in the past decade to remind us that sustainability has yet to permeate all boardrooms.
Nevertheless, the scale of change is heartening for those who believe sustainability is both good for the world and for business. Indeed, the extent to which companies have assimilated the concept of sustainability is reflected by growing support among US corporates even as their government has turned against it.
Evolution not revolution
Sustainability is a broad and still evolving concept. Consequently, there are numerous overlapping (and sometimes contradictory) sustainability reporting tools, frameworks and standards – unlike financial reporting, for example.
This can make it hard for corporates to report sustainability efforts in a way that makes comparison with peer companies – or past performance – straightforward. “There is a risk that sustainability becomes just a story and that the facts disappear,” explains Fran Leedham, head of environment and sustainability at car maker Jaguar Land Rover (JLR). “We’ve had fact-based reports in the past that are impossible to absorb.”
But a lack of clarity over standards shouldn’t stop companies demonstrating their commitment to sustainability. Transparency, measurement and evaluation are valuable in themselves and should be at the heart of efforts to improve sustainability. Differing standards and reporting practices simply place greater importance on how information is communicated; JLR, for example, now more clearly defines the audience for its sustainability information so that it can be tailored accordingly. Investors get analytics and data while consumers are targeted with high-level stories, according to Leedham.
This flexibility enables companies to create their own sustainability narrative. One company that has done this exceptionally well is French cosmetics and skincare giant L’Oréal, the world’s largest beauty company. Its most recent sustainability goals – to reduce its environmental footprint by 60% and source 100% of its raw materials from renewable sources – have credibility because of its track record. The company has “a responsibility to lead” given the scale of the challenges facing the world, according to Alexandra Palt, chief sustainability officer.
As early as 1995, L’Oréal created an eco-toxicology laboratory to measure and model the impact of products on ecosystems and on biodiversity; and in 2003, L’Oréal became a signatory to the UN Global Compact. Efforts to meet its 2020 targets have been rigorously tracked. By 2016, water use at plants and distribution centres was down 48%, carbon dioxide emissions were 67% lower, and waste had fallen 35%. Additionally, 54% of products – incorporating more than 1,500 raw materials from 100 countries – are now sourced renewably.
Counteract the negatives
One effective strategy when communicating sustainability is to focus on issues that resonate with customers or have even been perceived as negatives in the past. For example, Swedish retail company H&M places great emphasis on working conditions and a fair living wage, which some might think at odds with its emphasis on fast and cheap fashion. "To secure future business it is essential and natural for us to address sustainability proactively [by being] being a fair and equal company,” says CEO Karl-Johan Persson.
H&M’s approach works because it involves a commitment that clearly reflects a deeply held world view: it recognises that success is about much more than just profitability. H&M fosters improved workplace dialogue and industrial relations – where freedom of association is respected, workers’ representatives have a voice and trade unions can negotiate and bargain collectively.
The company goes well beyond what might be expected: it engages in dialogue with local governments to develop legal frameworks for improved industrial relations and with factory owners to implement well-functioning wage management systems. Perhaps most impressively, the company trains workers about their rights and facilitates the democratic election of employee representatives through trade unions or worker committees.
In an industry where exploitation and unsafe conditions are rife: H&M has the statistics to back up its claims to sustainability. In 2017, 100% of the garment manufacturer units in Bangladesh producing for H&M conducted democratic worker representatives elections; 2,882 people – 40% of which were women – were elected.
Celebrate the advances
Sustainability is a marathon, not a sprint: it’s not possible to change the business models of millions of companies overnight, nor change established patterns of distribution and consumption. Many of the world’s largest companies are now doing much more than just paying lip service to sustainability, however. As they reap the financial and reputational benefits of their actions, they are likely to become more ambitious and accelerate programmes that promote sustainability.
That doesn’t mean that the world should be content with the progress being made. As well as making incremental progress through improved water and energy use or improving conditions for labour in developing countries, the world needs innovative thinking if human beings are to prosper beyond this century.
Precision-targeted pesticides delivered by robots might sound like science fiction but could dramatically reduce harm to the environment. And smart thinking, such as the MIWA app in the Czech Republic that lets shoppers order the exact quantities of the groceries they need and have them delivered in reusable packaging to their closest store or their home, could change our domestic habits. Ultimately, companies will need to move to circular business models (see article and Q&A) if true sustainability is to be achieved.
Responsibility does not rest solely with corporates either. Governments have a major role to play, both in informing the public and creating a framework for discussion and improvement. With luck, we’ll soon see more far-sighted measures like Sweden’s 50% tax cut for repairs to items like clothes, shoes and bicycles to encourage more sustainable consumption. Moreover, if real change is going to occur, we all need to understand the impact we have on the world – and ensure our consumer choices reflect that knowledge. As the recent outcry over marine plastic pollution demonstrates, individuals, companies and governments can react swiftly when presented with compelling evidence. For the wellbeing of the world, we must be similarly far-sighted and proactive in relation to the myriad other sustainability challenges facing the world.