Sustainability Emerges as Central to Global Corporate and Social Innovation

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Proactive global companies are moving the concept of sustainability beyond an intangible vision and aspirational goals in support of concrete actions, visible metrics and public reporting and disclosure. These companies value innovation, conscious capitalism, and a new model for business that is more accountable to a global citizenry than to crony capitalism or PAC activism. They also realize they must offer a responsibility-based “service” to others for their products and services to differentiate themselves and compete successfully in a dysfunctional society with consumer options too numerous to count. Economic performance still must be achieved, but more C-suite executives are balancing their bottom line with a more sophisticated complexity grounded in scientific, systems-based thinking.

Companies and global enterprises cannot succeed nor profit in a society that is failing with little regard for the integrity of workers, consumers, natural resource use or environmental resilience. Ignoring the trend towards sustainability principles will leave the laggards at a perilous high risk of failure because of exposure to the creative destruction of capitalism in normal business cycles.  Here are the top ten reasons not to ignore this trend:

  1. Companies with sustainable business models have lower costs of capital, better capital expenditure levels in their industry peer groups, and enjoy quality training for their workforce, better management, succession strategies and industry respect.
  2. Commitments to sustainability and their implementation appeal to millennial human capital with relevant skill sets encouraging this market transformation and values-based capitalism. Companies in heavy metals, minerals extraction, utilities and energy-intensive manufacturing are realizing that with senior staff retirements they face a “brain drain” and human capital shortfall.
  3. Sustainability-minded companies enjoy wider networks of stakeholder support and respect—especially from millennials—which are reinforced and validated through social media efforts, thereby providing communications, marketing, sales and public affairs benefits on proactive and defensive corporate issues. A company must always manage with trust as we saw recently with Volkswagen’s emissions scandal.
  4. A company’s leadership on sustainability thrives through its supply chain by fostering quality communications, productivity, modernization and execution support for sustainable results through thoughtful partnering and not rote supplier mandates.
  5. Sustainability becomes the centerpiece of innovation, encouraging improvements in the R&D process and methods, and quality and productivity metrics, throughout the company’s supply chain. Improvements to existing products, methods or processes already in the mix are more likely to appear than just sole reliance on new products.
  6. Resource, materials, energy and water impacts are accounted for, with decreases in waste materials and negative community and ecosystem impacts. Stakeholders’ concerns are better managed and enhanced corporate-community partnering can be sustained with improved risk management and more economical results.
  7. Financial and non-financial compliance and goal-oriented outcomes are fostered with increased levels of cross-team respect, allowing teaming and innovative solutions to be undertaken with less confrontation or adversarial hurdles within companies, and across stakeholders and their external markets.
  8. Product development, design and process improvements occur that are focused on durability, efficiency, minimal waste creation and maximum resource recovery and reuse. Life-cycle cost analyses for products improve, contributing to positive company and socioeconomic outcomes beginning at product inception instead of at product disposal.
  9. Product branding, loyalty and cost benefits accrue to support better teaming with customers and the media for future market share retention and growth. Sales and marketing initiatives can become more effective and productive—the gains of which can be reinvested into customer service, O&M support, social media, revenue sourcing and feedback for new product development.
  10. Improved performance within peer industry groups of sustainable companies promotes better economic outcomes for products and motivation for senior management to achieve performance incentives that benefit the customers served. As noted above, companies who differentiate themselves on sustainability principles are also able to attract relevant millennial talent that is drawn to a comprehensive value stream that is not merely financial, but reflective of wider values, integrity and character.

Historical growth with its cyclical patterns and consequences has fostered a false sense of consumer capitalism security, marked with concentrations of capital and power. Yet status quo capitalism without sustainability-focused improvements does not support the global capacity to bear a doubling of the Western-lifestyle expectant population in 15 years as related propaganda might purport. At this current resource consumption trajectory, what level of growth can really be achieved? Capital availability, mergers and acquisitions and technological innovation create complexity in this growth thesis. These growth tensions were already appearing in global markets as of 2014 and are spreading.

New Metrics

Leaders as diverse as product designers GE, Eaton Industries, Apple and Ford Motor Co. to leaders in cities, counties and local governments are demonstrating how to create a new structural framework for growth that is sustainable. In places across the U.S. from Seattle to New York and Austin, Texas to Arlington County, Virginia, locally-led initiatives center on buildings, “Smart Cities” growth, efficiencies in energy, water, solid wastes, transport, and more.

These trends may focus less on economic growth measured by GDP, and more on human health, well-being and quality of life outcomes. Broader views and definitions of capital will arise, with new sources and metrics of value. The current monetary system and model for capital delivery must improve and extend the reach of public funding with more public-private partnering and matching funding to decrease a reliance on grants. Sustainability measures advance collaboration which is in turn replacing mindless competition. The subsequent financial overhaul of businesses and industries will likely be less Darwinian and more strategically service-oriented. In the short term, bubble speculation must be terminated in deference to investments that create a lasting multiplier benefit to stakeholders. Accountability, responsibility, long-term durability, innovation and stewardship are the real values created by corporate sustainability.

A greater incorporation of system-focused management principles will create a closed loop system where traditional law of commons thinking erodes in favor of longitudinal externality accounting. Shared ownership models like those already seen in hotels, ride sharing and health care will further expand with a heightened focus on product resilience and durability in new ownership and delivery models. The entrepreneurial, startup companies entering the market with this new business model are likely to model sustainable practices as well because of their relatively high investment in capital equipment (compared with mature companies) and because of their unique managerial incentives.

The past decade has set the table and transformed companies, industries and global markets. The process has been marked with confusion, setbacks, and achievements by corporate shareholders, NGOs and stakeholder leadership. Consequently, the Congressional Budget Office now forecasts a reduction in U.S. economic growth by 1% to 2025, compared with the 1980-2007 period. The results of structural, corporate dysfunction are validated by senior executive, boards, market, and customer action and impact growth priorities, competitiveness, and income equality in U.S. society. The trends can no longer be ignored because of the governance, market and financial operating risks that are created.  Moreover, Pope Francis has encouraged renewed moral and ethical dimensions to business practices and societal growth decisions which would apply equally to sovereign governments, companies and NGOs together.

Thinking Long with Durability in Mind

Until recently, markets generally were built on voluntary outcomes for capital investment, loans, product selection, and consumer choice. Yet markets are human enterprises formed by business, political and cultural choices. A corporate failure to address more sustainable outcomes in the upcoming decade could place at risk whether 50-70% of current companies listed in the Dow Jones will survive or not in the listing index over the next decade. For these companies to survive, they must ensure they are participating and contributing to thriving societies and global markets, and not just to their boards and shareholders. The affected communities, skilled employees and stakeholders already realize that their public success and well-being are on the line.

This awareness on both sides will be the center of a new value proposition that offers genuine value that is affordable and sustainable for people, communities, businesses and societies. That new value cannot be measured solely by GDP. Government spending must generate better returns beyond entitlements spending focused on physical and social infrastructure, R&D, innovation, entrepreneurial startups and healthcare and defense efficiencies through informed information technology. Technology solutions focused on processes, without asking why and what for, are only half truths. Companies must focus on doing no harm as they pursue their strategic business objectives; their raison d’etre will be held accountable, feet to the fire, through social media and global communications in our on-demand world. Case in point again, Volkswagen. That leadership will come from the engineering, communications, scientific and IT systems and functions with less reliance on the corporate, legal and financial functionaries of the past.

The evolution has begun, but at what pace, which industries and for how long? Who will lead and how? How should progress and outcomes be measured? And is there a moral and ethical obligation to do no harm as we consider our collective future imperatives? You, the leaders of tomorrow, will be answering those difficult questions to advance the transformation towards a sustainable future marked by success and measured to foster new and wider outcomes than mere profit ahead.

CE3 Blog by Michael J. Zimmer, Executive in Residence & Senior Fellow, Ohio University; Edited by Elissa E. Welch, Project Manager, CE3; Originally published Feb. 2015, Revised Feb. 2016.

 

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