Date: 2024-04-28 Page is: DBtxt003.php txt00005723
Management
Sustainability leadership
If boards don't see the real case for sustainability, we'll get nowhere ... Continuous pursuit of growth is not possible with our limited resources. Boards must start engaging with the truth
Burgess COMMENTARY
Peter Burgess
GSB: Leadership hub If boards don't see the real case for sustainability, we'll get nowhere Continuous pursuit of growth is not possible with our limited resources. Boards must start engaging with the truth Michael Townsend Guardian Professional, Wednesday 21 August 2013 02.00 EDT Jump to comments (6) HORSE CART IN BULGARIA 'It is time to put the horse well and truly back in front of the cart. First, do the right thing, then quantify the benefit.' Photograph: Vassil Donev/EPA Ray Anderson – the founder of Interface Inc and one of our most sustainable and inspirational business leaders to date – famously declared that he had 'never seen the business case for unsustainable'. While this may seem self-evident, we often allow ourselves to get drawn into justifying the sustainability business case, within the conventional expectations of a business-as-usual mindset. Sustainability is either desired or tolerated, based on how it may support the conventional aims of the business – enhancing reputation, supporting growth, or improving the bottom line. Mostly, this means a focus on eco-efficiency savings, so long as any modest levels of investment meet the usual criteria for return-on-investment and payback. Some may view this as good business discipline, but is it? Are we really serving our stakeholders well if we don't help them see the bigger picture and we end up doing the wrong things, albeit a little more efficiently? Or, is it time to turn this challenge on its head, and help the board to discover the real business case for sustainability? Balancing strategic risk and opportunity The problem is that the fundamental implications of the sustainability agenda tend to challenge our conventional approaches in business. Deep down we know that in a world of real physical limits, the continuous pursuit of growth and consumption will not be possible, let alone desirable; that some of our products and activities are inherently unsustainable, no matter how efficient we may get. We know there is a real danger that we could become a stranded asset tending towards zero value, and that our obsession with short-term results is driving the wrong behaviours and ill-informed decisions. And while our focus on short-term savings may be well intended, and may help to build confidence, it is not a long-term strategy that can work. We simply do not have long enough for eco-efficiency to get us out of trouble. Most organisations will experience diminishing returns and getting to zero harm, or net positive, may take several hundred years. We need to view the business case from a strategic, rather than a tactical or incremental perspective. And this needs to be based on a deep consideration of the challenges, risks, and opportunities facing the business. We need to ask how long we can continue to deliver acceptable returns, on our current strategic course. How long will we stay in business? What is the shelf life of our business? Are we building up large liabilities that will one day render our business model un-profitable? And when are we likely to reach this tipping point? Inconvenient truths? There is little to be gained in focusing on a 3.8% annualised saving in energy costs if we could go out of business within five years. And this could be a real possibility, looking at the emerging work of the Global Sustainability Institute; these issues could start to bite sooner than we may think. Not many boards are open to such inconvenient truths, as the 2008 financial crisis has shown. According to McKinsey, only around 30% of executives say their companies actively seek opportunities to invest in sustainability, or embed it in their business practices. And how may of these are really engaging with the strategic issues? While nobody likes bad news, forewarned is forearmed. The impact will be far less severe if we can start to engage with the real issues before they really start to bite. Of course it's not all about downside risk; we may also have a sense of the real opportunities available for the business, by making a genuine transformation – to be a resilient and well-functioning part of a sustainable economy. Empowered to act? But perhaps, like the actuaries in the recent Global Sustainability Institute Report, we may feel powerless to take real action? Or perhaps it is fear, that is holding us back? We need to avoid the trap of just perpetuating incremental change, at a time when it's not fit for purpose. Should we not help the board, therefore, to aspire to be more? Sure, we can give them some eco-efficiency in meaningful areas, but we should also put this in perspective. Big change is coming, whether we wish it or not. If we know this, we have to act. This requires us to bring the board to greater awareness, to articulate the challenge, and also to share a vision what the business could become. Turning the tables We can make conscious choices. We don't have to allow ourselves to be diverted into the conventional business case trap. And we need to stop thinking that short-term financial performance trumps all – it doesn't; without a sustainable planet and economy, there is no business. The real magic comes in being able to put the risky stuff in run-off and ramp up the more sustainable approaches. This is not an impossible task. Dong Energy, one of Europe's leading energy groups, is managing its transition away from fossil fuels, towards 85% renewables by 2040. And if a fossil fuel company can do it, anyone can. Perhaps we should take real ownership of the problem; find our inner strength and turn this challenge back to the board Reframe the game It is time for all businesses – large and small – to re-evaluate their strategies, and consider the real business case by focusing on what the business needs to survive and genuinely prosper. The challenge is not with the CSO to justify his or her position, but with the board to justify its stance to shareholders and all other stakeholders. And this is a shared challenge, for the whole board. It is perhaps time to reframe the role of the CSO too. How much time is spent on data collection, reporting, communications and compliance? And how much of it is spent on the strategic challenges, making the board and senior managers more aware and supporting them in developing resilient business strategies? It is time to put the horse well and truly back in front of the cart. First, do the right thing, then quantify the benefit. Michael Townsend is founder and CEO of Earthshine Solutions This content is brought to you by Guardian Professional. Become GSB member to get more stories like this direct to your inbox
6 comments. Showing conversations, threads , sorted
johnypaty 21 August 2013 2:49pm 0 I liked this very clear forward thinking readable article; spelling it out to get the horse placed in front of the cart for the business directors ......................& also for me, the city & financial services as well: whose only real motto is 'profit, profit, profit at all costs'. After decades of ignorance & neglect we are now all paying the full environmental [& economic] price.
moneyallgone 21 August 2013 3:16pm 0 But they will struggle to attract investors if there is no prospect of capital growth.
HWFSustain 21 August 2013 3:22pm 0 Thanks so much for this article. You have expressed so clearly what the sustainability agenda is trying to acheive. In particular, 'how long we can continue to deliver acceptable returns, on our current strategic course. How long will we stay in business? What is the shelf life of our business?' This really hits the nail on the head.
humphreyhumph 21 August 2013 5:58pm 0 As growth wanes whilst the world rebalances from its credit bubble companies will intuitively seek to bolster margins via efficiency gains accross all business activities. With lower growth in the short term but with populations growing and the inevitable economic rebalancing those companies who have been forced by economic fundamentals to address issues of efficiency will better placed to return capital growth in the long term, in the short to medium term in they are using less to create more they should have better margins and there be able to deliver better value to shareholders, - it all seems very logical. Companies who are more resource efficient have been proven to outperform the market - the MoRE World Index shows that as well as other numerour sustainability indicators - perhaps when companies can ultimately see the benefits and shareholders realise this too capital will flow more freely in the right direction
Guardian contributor mikeearthshine 28 August 2013 10:16am 0 Thank you all, for your useful comments and additional points. It is certainly time to face up to the 'total cost of ownership' of our businesses. Even with a singular focus on profit, all may not be as it once appeared. With all the factors at play, there are serious risks to the bottom line that can no longer be ignored. Eco-efficiency is an inevitable, and fairly straight-forward tactic, as we enter a time of change. It does make sense, in the short-term, but so long as it doesn't lure us into a false sense of security about the true long-term health of the business. And we need to be watchful that any apparent short-term financial gains are not wiped out by more strategic challenges. The point about capital is well made. And we do need to do more to raise awareness, here. After all, capital is only as 'smart' as the person holding it. We need to make sure all those investing are fully informed of the issues, risks, impacts, and the total costs of ownership - to enable conscious, holistic, and rational investment decisions. In the future capital growth can only be realised where real and sustainable outcomes are delivered. Anything else is just built on sand. We have a long way to go, but the mission is possible.
PeterBurgess 28 August 2013 4:26pm 0 Mike Townsend has written a very good article about the need for change, but like most articles on this subject, the problem is described, the need to do something is stated, but there is not much about how change can come about. I am a former CFO, and my claim to fame was being good at getting companies to improve their performance ... to change what they were doing. Most of what I did was done through accounting, and using data to incentivize behavior that would get the results we were looking for. 30 years later we are looking at a global economy and society that must change in order to have a future, and I see not only the dysfunction of the economy and society, but also the catastrophic misuse of data and the dominance of the wrong metrics. The wrong metrics that drive much of the conversation are the terrible trio of: (1) money profit for business; (2) stock prices for investors; and, (3) GDP growth for pundits and policy makers. These metrics drive everything towards an unsustainable future. I believe the fastest way to sustainability in the best sense of this term, is to reform the core metrics being used in business and society. This should be the job of the accountancy profession, but sadly this profession (of which I was / am a part) has completely dropped the ball going back at least 25 years. We need to have accounting for impact on people and planet as rigorously as we have accounting for profit. Most accounting takes place inside an organization, and the power of analytical accounting inside an organization is impressive. We need something with similar rigor and power operating in the broader society. The core of the economy is economic activity. The purpose of economic activity is to produce goods and services that people need. Over the past 250 years productivity has improved in an amazing way, and modern economic activity can produce everything people need and way more. This is good news. So how come several billion people still live in abject poverty, are hungry, unhealthy, not getting educated and essentially ignored by the organizations that make up the modern economy. Of course the answer is that there is no profit in doing what is needed to move this population out of poverty and into a better quality of life and more productive lives. There is, however, what I call valuadd. Valuadd is a measure of impact. It is like profit, but in the broader economy and society and about value, not money. Every economic activity has valuadd (or value destruction) as well as the money metrics of revenues, cost and profit. An economic activity is the responsibility of an organization and goes on in a place (community). Consolidating the economic activity one way gives the performance of the organization, and consolidating the same data in a different direction gives the performance of the place. Place is where organizations, people and planet come together. People live in a place, work in a place and recreate in a place. The various impacts on planet can be observed in a place ... the use of resources, the degradation of the land, the pollution of water and air, etc. There is another dimension that also needs to be taken into consideration. It is impact arising through the whole value chain of economic activity. This is captured by understanding product. A product travels through a supply chain, goes through a buy or not to buy decision, and then through use, and then post use and the waste chain. Organizations know everything about revenue, cost and profit for every product, customers are told how good the product is through advertising, but nobody knows what impact the product is having on people and planet through its life cycle. This information should be a click away. In order to have ubiquitous impact value accounting, there has to be an acceptable way to quantify value. This can be done using the concept of standard value, rather like the concept of standard costs in analytical accounting. A standard value is quantified, but this is not the same as equating value to money. It is not. When there is rigorous accounting around everything that has impact on people and planet, and there is widespread reporting from this accounting and the information is easily accessible, there will be massive change, and it will happen quickly. Best Peter Burgess TrueValueMetrics ;