As an idea and practice, sustainability has undergone an incredibly rapid evolution. What began as compliance-driven activity to meet the demands of specific environmental regulation has expanded to encompass working practices, finance and entire ways of doing business.
However, this evolution is far from finished. In fact, it is only set to have an even deeper impact. At least one fifth (21%) of the world’s 2,000 largest public companies have committed to meet net zero targets. These companies together represent sales of nearly $14trn.
To understand this influence, we must first look at how sustainability itself has grown, before assessing how it is about to change the lens through which business is seen.
A brief history of sustainability
For most enterprises, the initial forays into sustainability focused on the need to comply with a range of new legislation such as the Environmental Protection Act in 1990, The Waste Electrical and Electronic Equipment Regulations 2013 and the European REACH regulation from 2006.
One of the early catalysts was then the legislation that caused companies to track and record energy use and the associated carbon expenditure. The Companies Act 2006 mandated quoted companies to report their annual emissions in their Directors’ Report. The 2018 update added disclosure for large unquoted companies and limited liability partnerships to disclose their annual
energy use and greenhouse gas emissions, and related information.
This necessary step woke companies up to the fact that better environmental and energy practices could provide substantial improvements to operations, reducing costs and increasing profitability.
Technologies such as telematics revealed wasted journeys out on the road, whilst asset monitoring exposed plants and machinery that were consuming far too much energy due to poor maintenance. Elsewhere, the goal of a paperless office was revisited, and lean principles were reinvestigated as a way of reducing expensive, bloated spending.
These early wins then accelerated the Industrial Internet of Things. Companies sought to improve the feed of data into control systems that track energy use, and then move one step further by inputting that data into management systems that suggest potential improvements.
Technology, such as Salesforce Net Zero Cloud, has shown how important and sophisticated this reporting has become, enabling accurate and automated tracking of direct and indirect carbon emissions as per the Greenhouse Gas (GHG) protocols of Scope 1 to 3.
Beyond this lies the realm of automation based on accurate tracking of demand that can dynamically alter production planning. This helps companies ensure that they are only drawing on the materials, resources and energy needed to serve customers and remain profitable.
Sustainability evolves
But sustainability has developed beyond these initial environmental considerations. It has been absorbed into a larger mandate of ethical business, covering not only how a business interacts with staff – including HR practices, recruitment, and career development – but also the central idea of developing long-term, sustainable business. This may be as simple as sustainability being raised in the course of interviews for new members of staff.
Elsewhere, the COVID-19 pandemic has made working practices the central preoccupation of thousands of businesses. It has become evident that businesses do not need the large offices they own or lease, with this arrangement promoting excessive travel to and from those offices. Web-based, Software as a Service (SaaS) collaborative tools, coupled with elimination of paper-based, manual processes, have negated the need for most administrative buildings and opened the idea of sustainable working from anywhere.
Research such as the ‘Embedding new ways of working’ report, funded by the Department for Energy, Business and Industrial Strategy and based on a YouGov poll of more than 1,000 employers conducted in June 2020, revealed 61 per cent of employers said employees reported an improved work-life balance as a result of home working.
Elsewhere, IFC, a member of the World Bank Group, has partnered with various global brands such as Puma and Levi’s to provide financing to suppliers in emerging markets. This program offers financial incentives for suppliers to improve environmental, health and safety and social standards.
These examples demonstrate that any business will be evaluated as a potential partner based on its sustainability performance. Deals will be won – or lost – based on how sustainable a business is.
The impact of sustainability-led thinking
This new climate for business will have a series of profound impacts.
Firstly, the definition of what it means to be sustainable will undergo an aggressive leap forward in the short-term. Backing up a claim to be sustainable will become far more demanding.
Carbon offsetting and the associated credits will likely be an early casualty. Whilst it remains vital that we continue planting huge forests and restoring land, wherever possible, the fact is that businesses can no longer buy sustainability credentials. They will have to undertake profound operational change if they wish to remain commercially relevant. A great example would be Nokia and its shift from paper mill operations, to cable, paper products, rubber boots, tires, televisions and mobile phones. This is how much businesses will have to change.
Secondly, the data around sustainability performance is going to become paramount. Data on carbon expenditure and energy use, resource consumption, employee wellness and satisfaction, diversity and labour history, waste, pollution, and even executive pay will now be at the forefront of decisions. It will become just as important as details on profit and loss.
At its most extreme, this poses an existential question for some businesses. In a sustainability-first climate, some businesses may simply become unfeasible. They will be irredeemable. On the assumption that these businesses do not make the same mistake as Kodak or Xerox and assume they are unassailable, they will be forced to pivot into new industries and explore completely new areas of activity.
If this seems to be the statement of an alarmist, consider that it has been businesses that have created the need for environmental and sustainability legislation in the first place. The concentration of carbon dioxide in the atmosphere has risen 50% since pre-industrial times, from around 280 parts per million (ppm) to almost 420 ppm.
Simply put, the demands of business got us into this mess, and it will be businesses that get us out of it.
We have already seen a few indicators of this; a huge increase in R&D at manufacturing and energy businesses, as well as partnerships with universities and incubation hubs. It has driven a lot of acquisition activity as businesses look to buy a doorway to a more sustainable future.
This has unleashed some truly incredible innovation. From the likes of Solar Foods – a Finnish startup that is creating food out of carbon dioxide – to Mocean Energy’s work to scale up the Blue Star wave energy device to the Blue Horizon, capable of delivering grid-scale electricity, sustainability has caused businesses to create entirely new paradigms.
Elsewhere, there has been huge interest in developing alternatives to traditional ways of doing business. For example, Saint-Gobain has invested CAD$90 million in its plasterboard plant close to Montréal, Canada, to transform it into the first carbon-neutral plasterboard plant in North America. The investment consists of the electrification of the production process which currently uses natural gas. On completion, the plant will be solely powered by green electricity.
The casualties of sustainability
Not all businesses will be able to avail themselves of these transformation strategies so easily. Mid-size manufacturers involved in carbon-intensive manufacturing present an especially tricky situation – they are usually very heavy on the legacy thinking and have processes that have not been modernised.
As a result, they can be inefficient and – combined with the inevitable environmental impact of their activities – sustainability presents far more than a challenge. It presents a curtain call.
Mid-size manufacturers may also be hit hard by Scope 3 that includes emissions generated across the value chain. Scope 3 emissions can account for 80 percent of the total carbon footprint for many companies. For retailers in certain sectors, this increases to more than 95%. There is also massive change imminent for food and beverage manufacturers. Almost a quarter of consumers under 25 are vegan or vegetarian – suggesting that a tipping point is about to be reached that will alter the face of the industry forever.
Throughout these industries – and others – casualties will be inevitable.
However, regardless of industry and company size, sustainability must now take a lead over concerns of profitability, shifting from shareholder serving to stakeholder impact. It is entirely possible that profitability will become the last phase in strategic thinking, whereby a business begins with sustainability, addresses this with clear, rich data and then guides the consequent actions with concerns of profit.
This new order of business will present a profound challenge to many organisations, but the tides of change have already reached the shore and made their impact felt It is now a race to see who can make the necessary change and adapt to these new conditions, and who will be left behind.
