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Sustainability leaders demonstrate ambition - but is this enough to face tomorrow’s challenges?
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DNV GL's latest benchmark of global best practice in sustainability makes for interesting reading. So what are some of the key findings?
The latest benchmarking results show sustainability leaders demonstrating greater ambition than their peers.
Today DNV GL announced the results of our latest Tomorrows Value Rating (TVR), a benchmark of global best practice in sustainability. We evaluate how well companies understand their risks and opportunities - and how prepared they are to create future business value. The rating does this through the lens of five key measurement domains: strategy, engagement, governance, innovation and value chain. We comprehensively analyse company strategies, supporting structures in place, and we delve into how the companies actually performed on the most critical material issues.
This year we find clear sustainability leaders demonstrating greater ambition than their peers, identifying and responding to their key material issues and setting meaningful, long-term SMART targets. Whilst we are encouraged by some great examples of companies’ approaches and performance, there are still significant gaps that we believe businesses should now move to address.
'We need to see better measurement, targets and still more innovative ways to do business sustainably.'
It is becoming increasingly clear that, as a global society and economy, we are reaching the limits to traditional growth – just look at the work of the Stockholm Resilience Centre. Even amongst the leaders in the TVR 2014, the majority struggle to display the leadership required if we are to remain within our shared planetary boundaries. If we are to respond effectively, we need a paradigm shift in how we do business - the status quo emerging even amongst enlightened business will not be enough. The world’s top companies urgently need to establish new, science-based metrics for sustainability and develop a vision with firm commitments to achieve the necessary change to live within one planet.
Our TVR analysis shows that where SMART targets are being set, across many sustainability issues, these are either inconsistent or lacking in ambition. In many cases they are absent altogether. We need to see better measurement, targets and still more innovative ways to do business sustainably.
Who’s leading the way?
Turning to the specifics, the Food & Beverage sector is one that will be at the forefront of these pressures – as it is forced to work within planetary boundaries while at the same time feeding an ever growing global population. Through effective collaboration, we see leading players creating partnerships to respond and share their tools and experience with peers, scaling up their impact beyond their own organisation as they look beyond their own supply chain. We also see valuable progress downstream, through consumer education, responsible marketing and waste reduction initiatives.
Overall, only a handful of the leaders in the TVR 2014 such as Holcim, Unilever and Intel are beginning to make clear commitments that decouple economic growth from impacts such as carbon emissions, resource extraction and biodiversity loss. Unilever, the overall leading company in the TVR 2014 sets a brave and challenging target of halving their environmental impact of their products by 2020 while still maintaining economic growth. This is audacious stuff. But if you look across to another sector that also attracts a lot of sustainability attention, Oil and Gas, none of the companies we examined clearly demonstrate how their current investments in biofuels, renewables, and natural gas will change their business models and revenue streams; and how these changes impact on planetary boundaries and the 1.5°C limit.
'Human rights are one area of positive progress compared to previous years, as recent global events raise the stakes.'
So how can organisations effectively build a response to these risks into their core business decision making? It is encouraging to see some companies – such as Unilever and Diageo - recognise how global mega-trends and sustainability issues actually pose very significant risks to their future business viability. But this approach is by no means across the board in the companies we assessed in 2014. Our analysis shows a frequent disconnect between the risks identified in annual reports and those in the same company’s sustainability report.
What other trends are emerging?
What else did our research find and what trends can we see in this year’s rating? Human rights are one area of positive progress compared to previous years, as recent global events raise the stakes. The focus of attention being taken by many companies remains disproportionally on suppliers, at the exclusion of wider company initiatives. Most standalone human rights policies or codes of conduct remain purposefully high level without clear guidance to support organisational implementation or clear measurement. In our findings, Holcim demonstrates good practice by implementing a specialised Human Rights Management System. This prescribes a different impact assessment approach and corrective actions depending on country specific risks of violating human rights. The categorisation of the operating environment risk-level is based on the Freedom House Index and the UN Human Development Index.
Innovation remains a key theme in the TVR. We believe that companies should be integrating sustainability criteria into their innovation processes and core revenue streams, underpinning the development of new business models. Where this is done well, it should be driven by processes such as lifecycle assessment, cradle-to-grave footprint calculations or other sustainability related criteria to deliver products with tangible sustainability benefits. Statoil’s online Innovate platform requests stakeholder feedback on specific operational challenges, helping the company to involve a wide range of stakeholders in their innovation process.
In the Construction & Materials sector we see leaders demonstrating a strong link between innovation for sustainability and their bottom-line results. Their approach to innovation is based on active collaboration and integrates concerns of key stakeholder into the development of solutions. Leaders in innovation in the Food & Beverage sector - such as Danone and Nestlé - are investing in new product portfolios to address health and nutritional challenges. In the Technology sector, Intel and Samsung focus on reducing material use, enhancing recyclability and reducing energy demand at the use stage.
AkzoNobel has set a target of generating 20% of all revenue from their sustainable products range by 2020. Holcim has also recently set an ambitious target to increase its portfolio of sustainability enhanced solutions to one-third of revenues by 2030. It aims to improve the quality of life of 100 million people at the base of the pyramid through inclusive business solutions that support suppliers in making progress and share best case practices. This is the sort of business ambition and target setting that a company will need to embrace if it is to thrive in the long term.
'In the Construction & Materials sector we see leaders demonstrating a strong link between innovation for sustainability and their bottom-lines.'
Aligning sustainability innovation with ambitious business targets to fundamentally increase the proportion of sustainable goods and services companies offer is a behaviour we see in the leading companies in TVR 2014. Moving to truly ‘closed loop’ production systems - that completely decouple growth in sales from resource use - will take time and more investment into research and design. For now, the leaders need to embed science-based sustainability criteria, – alongside appropriate metrics –into their innovation processes to ensure they achieve this vision.
In summary, TVR 2014 shows us that most large companies have now embedded an approach to sustainability into their business strategy, although few are actively using that strategy to grow their business. We can see strong examples of leadership, with notable best practice examples, from which any company could learn. There are also many gaps and weaknesses in the approach of very large multinational companies. Most notably there is a lack of science-based metrics for measuring sustainability performance and a clear vision to achieve the changes needed.
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