Sustaining business for the long termFollow @PwC_LLP
When talking about sustainability, you’ll often hear me say, “We live in a world with a growing population, seeking a better lifestyle, on a planet with finite resources - many of which are rapidly running out.” This clearly has huge implications for business as well as the rest of the planet. From a business perspective, understanding how these changes could lead to a fundamental shift in strategic direction is a real challenge– and one which I’m not convinced current business models are equipped to support.
In the 17th Annual Global CEO Survey, we asked CEOs to name the megatrends they thought would transform their business most in the next five years. 60% of CEOs cited demographic shifts in their top three, with resource scarcity and climate change (46%) and urbanisation (40%) also named. These major 'new' transformative trends are clearly on the CEO agenda – and rightly so. Supplies of gold and silver are predicted to run out within 11 years and the number of city dwellers is forecast to rise by 72% by the end of this century. And with the population due to hit eight billion by 2025, there’ll be a real difference in the median age - and therefore skills availability (both in quality and distribution) - around the world. It’ll be 43 in Europe, 38 in China and just 20 in Africa!
Today, business uses models and dashboards that are largely retrospective, with only the faintest nod to the future. Meanwhile, the megatrends playing out around us represent risks and challenges for business that aren’t necessarily actively discussed by the Board because they’re not quantified or monetised – or are just too unpredictable. Investing in them too early could be seen as a diversion of resources and a distraction from core business that stakeholders might not initially recognise as being key to long-term business success.
But, for a business to be sustainable in the longer term, challenges and risks like these need to be acknowledged, fully understood and factored into strategic thinking. This can be hard to do, when so many companies focus on backward looking financial performance metrics rather than taking a broader holistic view of their total impact. The rise of integrated reporting may help, adding non-financial metrics to performance. But, for many organisations, public reporting is often separate from decision making – and the non-financial metrics can be hard to come by when many companies don’t have the right skills in place to identify them. For example, in 2012/13, the UK’s 60,000 business graduates outnumbered biology graduates 3 to 1, and engineering and physical science graduates 2 to 1.
The reality is that, in a world that needs to redefine how it does business, we need fit for purpose business models, more specialists generating the right data, and a little less short termism.
You can read more about CEOs’ views on sustainability issues and challenges, the implications for business, and new approaches to dealing with them in Sustainability - business success beyond the short term.
Malcolm Preston is Global Sustainability Leader for PwC, and leads a team of some 700 sustainability and climate change experts. Malcolm has a view on all aspects of sustainability from climate change to reporting, to supply chains to international development, and specialises in Total Impact Measurement & Management.