Sustainability - The Next Big Challenge for Irish Business?

“Why would you invest in a company which is out of synch with the needs of society, that does not take its social compliance in its supply chain seriously, that does not think about the costs of externalities or of its negative impacts on society?” - Paul Polman, Unilever

 

The issue of sustainability is suddenly a key topic facing business leaders.  While sustainability issues have steadily gained currency in the world at large – the sense of impending climate crisis fed by scientific and government reports, and neatly summed up at the COP24 council by David Attenborough’s declaration that “climate change could lead to the collapse of civilisations” – it has remained peripheral to the business world.  This, however, is changing.  Sustainability has emerged as a predominant discussion point and concern for the largest companies in the world. The leaders of these companies have openly declared an intent to put sustainability projects at the heart of their strategies.  

 

What are we talking about, when we use the catch-all phrase  “sustainability”?  The phrase has become a badge for a broad range of issues, but tends to focus on environmental issues (for example climate change, pollution), and social issues (diversity and equality, human rights, education).  The UN Sustainable Development goals were created with the input of business leaders and summarise the many different types of issues in 17 tangible goals and provide a framework for companies to consider where they can and should make an impact.   To these goals, I would add an additional sustainability objective – to make the business itself sustainable; an engine for long term value creation which benefits the business, its shareholders and stakeholders and society in a broad sense.

 

While many business leaders are beginning to focus their energies on sustainability issues, three in particular are notable in 2018. Paul Polman, the outgoing CEO of Unilever, has produced market-beating results for over a decade, while consistently working to make its business and the environment more sustainable. He is amongst the most vocal of business leaders unambiguously calling for business leaders to take this mission on and to play their role in “saving humanity”, as he terms it. Similarly, Isabelle Kocher, CEO of Engie has placed sustainability at the centre of the Engie strategy, persuading investors to back a $15 billion strategy to reduce the size of the energy giant, disinvesting in unsustainable businesses and reversing a long standing negative trend in organic growth. Perhaps even more significantly, Laurence Fink, chairman and CEO of BlackRock, made investors everywhere sit up in early 2018 when he announced that his firm would be considering sustainability issues, and the ability of firms to manage them, as important criteria in evaluating investment opportunities.   All three are working both to support broader sustainability goals and to make their businesses more economically sustainable.

 

These CEO’s are not soft-hearted idealists. They are making very rational business decisions, recognising that the global challenges captured in the UN Sustainable Development Goals have significant economic consequences. This is not about CSR, it’s about the sustainability of our businesses, large and small, in the long run - and with that the sustainability of economic wellbeing in both this country and beyond. In the short term it is also about talent - the youngest entrants to the workforce are seized of these challenges. In a striking demonstration of where the trend is leading us, 26,000 French students from five top French schools recently signed a manifesto declaring that they would not work for employers who did not embed sustainability deeply in their activities.

 

Sustainability is also becoming part of our legislated reporting framework - the EU has recently enacted a directive which will require companies to report on their policies and performance in areas such as sustainability and diversity.   Over 1,500 companies worldwide have adopted Integrated Reporting voluntarily.   The UN continues to work on the codification and reporting structures that support better reporting in these areas.   All of this is providing a framework wherein companies are both comparable and scrutinised by peers, shareholders, government and other stakeholders. 

 

Sustainability is becoming a matter of strategic positioning and is increasingly a factor in how companies attract customers and investors.   The challenge for directors, and for all of us who work with and advise companies, is to position businesses that are “in synch with society” - that both contribute meaningfully to the sustainability of society and benefit from a strategic approach which creates long term value for the company.