Is the opportunity to use sustainability to drive competitive advantage over?

Companies have shown that the return on investment from focusing on sustainability can be impressive.  So why aren’t all companies following suit and reaping the same benefits?

Household names like M&S with its Plan A, Unilever with its Sustainable Living Plan and GE with Ecomagination have used sustainability to drive competitive advantage.  Schemes such as these go further than clever marketing and deliver real value to the business.  M&S’s Plan A delivered a net benefit to the bottom line of £70m in its last financial year and GE’s Ecomagination products generated $85billion from an investment of $1.8bn in R&D.

The question has led some quarters to consider increasing the pressure on businesses to act on sustainability.  This June world leaders, governments, the private sector, NGOs and other groups, will come together at Rio+20, the UN Conference on Sustainable Development , to shape how we create a sustainable future on an ever more crowded planet.  Paragraph 24 of the Rio+20 zero draft is getting a lot of attention at the moment.

It states:

“We call for a global policy framework requiring all listed and large private companies to consider sustainability issues and to integrate sustainability information within the reporting cycle.”

For some, this does not go far enough.  A group of institutional investors lead by Aviva with $2 trillion under management is calling for an international commitment from Rio+20 to develop national regulations which mandate the integration of material sustainability issues in the Annual Report & Accounts on a ‘comply or explain’ basis.  Also, the WBCSD (a CEO-led organisation of forward thinking companies) and the IUCN (the world’s oldest and largest global environmental organisation) have sent an open letter to the Heads of Delegations attending Rio+20 urging governments to strengthen paragraph 24 by including the explicit requirement for companies to adopt standardised, rules-based sustainability reporting.

If the UK Government’s consultation on mandating carbon reporting is anything to go by, it seems that business is not averse to a more prescriptive approach to reporting.  WWF-UK claims unreleased submissions to the government’s consultation, obtained through freedom of information requests, show that some 61 per cent of organisations are in favour of full mandatory carbon reporting for all large companies.

The delay announced recently by the UK Government to the decision on mandating carbon reporting may be more about its commitment to a ‘one in one out’ approach to business regulation and wanting to look at what to do with the Carbon Reduction Commitment and businesses desire for this policy to be simplified.  But if the benefits from sustainability reporting are so great, as evidenced by the GE and M&S stories, why has a more prescriptive approach to reporting not already happened?

One argument is that a prescriptive approach stifles innovation and moves everyone towards the lowest common denominator.  If we are to respond to the threats posed by sustainability then we need more innovation not less.

What is the best way forward? More companies doing a little, driven by ‘comply or explain’ type regulation?  Or is it a case of some businesses breaking new ground because they see the commercial benefits and, in the words of Richard Branson, “screw business as usual”?   The answer is not as straightforward as it might at first appear, but one thing seems clear – sustainability reporting is going to continue to rise up the political and business agenda.

Do please keep in touch - I really value your responses to this blog.

BFN

Charles

Comments

[Charles Bowman]

Thanks for your comments, I appreciate the feedback, and you raise some interesting points. Many companies are becoming increasing committed to developing strong relationships with the local communities in which they operate and this is key to the concept of 'creating shared value'. This can vary from enabling employees to volunteering in local schools all the way through to engaging in multi-stakeholder partnerships with large non-governmental organisations (for example, Coca-Cola and SABMiller's recent collaboration with Oxfam). Achieving the ideal of responsible capitalism requires more cooperation between businesses, charities and governments. I know such cross-sector partnerships come with their own challenges but these are usually far out-weighed by the benefits.

A good example of this is the Fire Station in Southwark where PwC is running its own social enterprise restaurant 'Brigade' employing and training local people in partnership with The Beyond Food Foundation , De Vere and the Home and Communities Agency.

[Levi Stewart]

Charles,

First thank you for your clear and concise discussion on the competitive advantages of sustainability. As an accounting student and CPA candidate, interested in and passionate about a career in sustainable reporting I am wondering if you may shed some light on how to best pursue such a career. I have interned for a large regional public accounting firm on the assurance side, and while I enjoy the audit approach I want to take this approach and assert it in a direction I am passionate about. I would greatly appreciate any advice you can shed such as additional education to pursue, if necessary, and companies in which such work can be found.

Beyond these professional inquiries I want to pose the theoretical question: do you believe that sustainable reporting will have the power or utility to shift incentives in the global marketplace towards sustainable development?

[Karen Blakeley]

Hi Charles, I have just come across your blog and really value your informed and unique perspective. I shall promote it to my students (both undergraduate and post-graduate) as a fresh take on the CR debate. I was wondering what you had to say about the role of business vis a vis the not-for-profit sector and in particular, those charities trying to support the most vulnerable people in society. These organisations are struggling to survive in the current climate and are desperately short of funding. My view is that leaders within MNCs and TNCs now belong to a new class of the proto global elite and, in their trips from New York to London to Shanghai, forget the importance of 'community' at a local level. All businesses need stable, flourishing, 'wealthy' (high levels of wellbeing to use your definition) communities within which to carry out business. Charitable organisations play an important role in that mix. I feel that businesses should be playing a far more proactive role in this area. Charities need stable, close, mutually supportive relationships with business and have a lot to offer business. I just wondered what you thought about this.

[Mike C]

My personal opinion is that Governments need to increase their spending on clean energy initiatives and work more closely with businesses to drive increased spending in the private sector. For example, the expiration of many of US's clean energy policies and programs will give the US government the opportunity to implement new reforms. These new reforms will hopefully encourage steady maturation of US clean energy sectors and not a 'boom and bust' type environment. Increased spending on the private sector can potentially create a more stable environment and overtime lessen the dependence on government subsidies.