With core integrated vision of economic growth, social development and environmental protection, sustainability is rapidly becoming a mainstream business issue today. Ignoring environmental footprints may increase financial risks for organizations in the long run. Moreover, a company might miss key business opportunities for creative innovation, brand enhancement, competitive advantage, and growth. On the other hand, it is also true that unless sustainability can really help companies achieve their business goals, more precisely profit, most of them would simply be unwilling to implement sustainability principles in their businesses and organizations.
Businesses, worldwide, often ignore their responsibility towards society and environment thinking that the social and environmental problems are for governments and not for corporations to solve. They are tempted to ignore issues such as waste management, pollution control, employee well-being, labor compensation and product toxicity in the name of making a sheer profit. Companies, delivering profits to shareholders while destroying value for society, might be incurring hidden liabilities which could be disastrous from the risk control standpoint.
Not too long ago, the diesel emission scandal shook Volkswagen (VW), one of the leading car manufacturers in the world, to its core. As it turned out, the German automaker company had been cheating on environmental emission tests, emitting 40 times the legally allowed pollution level, by installing illegal software inside its diesel cars sold in the US. Within days, the company not only lost its trust and reputation as one of the most reliable car makers in the world but also ended up paying US$ 25 billion and counting on various claims, regulatory fines, compensation, and lawsuits. This was a public relations disaster for VW which will certainly spend quite a while to win back its lost customer base and recover from the nightmare.
If we look globally, more often than not, companies are more likely to fall under the conventional category where they have to face environmental regulations, community protests, hostility, brand protection and legal compliance issues in a mature market. Then there are also companies which fall under the creative category and are willing to explore sustainable as well as competitive strategies aligned with value-added business practices. The latter understand that societal and environmental challenges faced by the companies can also prove to be of huge business opportunities for them to pursue. Today, many leading global companies are adding values and gaining competitive-advantage by including sustainability into their core organizational strategy.
DuPont is one of the leading American companies primarily engaged in biotechnology, chemical manufacturing, and pharmaceutical products. Over the past couple of decades, DuPont moved from lobbying government to slow down climate change regulations to encouraging such regulations. Top management support and the integration of sustainability into the performance metrics are considered to be its key success factors during the entire transformation period. Sustainable growth strategy also helped the company move beyond the phase of more cost avoidance, achieving basic regulatory compliance and mitigating short-term financial risks.
In today’s world, where over 70% of a company growth is based on intangible economics such as brand, goodwill, reputation and stakeholder relationships, companies around the globe are seeking ways to advance their business priorities, connect with people, portray expanded vision, drive innovation and achieve competitive advantage. Sustainable value is exactly what the businesses need to achieve these goals by carefully considering the social and environmental dimensions of their business activities.
Here, stakeholder relationship is probably the most important and it can be the key to unlocking the door to success. Profit is certainly for investors and shareholders but business value is created with the wellbeing of stakeholders and vice versa. Within an organization, management leaders should be able to view the business from the stakeholders’ perspective as well. Delivering value to shareholders while destroying value for stakeholders could fundamentally be a wrong business model. The sustainable value framework presents a win-win scenario for both shareholders as well as the stakeholders.
Even though they realize that stakeholders play a pivotal role in sustainable value creation, businesses today are largely struggling to provide strong leadership to discover, invent or manage such values and later align them with the organizational vision. More often than not this might be because of companies’ lack of awareness or information, unrealized CSR culture within the organization or short-sightedness of line managers who are trained to prefer quick money for shareholders over dire socio-economic issues of stakeholders. Top management leaders need to understand the fact that “Company versus Stakeholders” attitude does not fit in sustainability value chain and it should be replaced by “Company and Stakeholder” attitude.
Lafarge, a French global leader in building materials, sets quite an example in its thorough Corporate Social Responsibility (CSR) approach towards the environment as well as the community in which it operates. In the past decade, Lafarge implemented its CSR initiatives in countries like Bangladesh, Morocco and Zambia with impressive activities, such as relocating employee families, providing primary-school education, employment solution for laid-off employees, and HIV/Aids prevention activities for the community. As a result, the business of Lafarge widely benefitted from its strong partnership with the local government & authorities, loyal manpower, better labor union relationship, improved reputation and professional status. The company was able to demonstrate its alignment of CSR activities with the stakeholders’ value while also satisfying its shareholders.
To move ahead with sustainability discipline it is absolutely pertinent for businesses to discover value opportunities in society & environment as well as to create value for both shareholders & stakeholders.
Discovering value opportunities means understanding current social, economic and environmental issues along with one’s business value chain, and then identifying future business risks and opportunities associated with those issues. One great way of creating value for both stakeholders and shareholders is by strategically bringing three major entities of an organization together namely productivity, quality, and safety. Green product, lean manufacturing, and safe environment work for employers & employees as well as customers & communities.
Creating value implies mitigating the identified risks and taking advantage of the opportunities through innovation. From risk control standpoint, organizations should look at identifying, eliminating and reducing future losses while at the same time expanding the opportunities such as enhanced reputation, product differentiation, motivated employees and reduced cost. Ultimately, companies end up making a profit for shareholders and mitigating negative impacts on stakeholders.
One of the core challenges of 21st-century business leaders is to build an innovative and profitable business model while retaining sustainability as its driving strategy. Not many have pursued the vision and very few have succeeded. Tesla, Inc. is one such company which stands out in the crowd. Tesla is an American automaker, energy storage, and solar panel manufacturing company which considers sustainability as its key business strategy. In a very short span of time, the company is now eying to compete with the global market giants such as General Motors, Volkswagen, Toyota, and BMW.
At the turn of this century, when the top automaker companies were busy to increase energy efficiency, reduce environmental footprints and comply with pollution control regulations, Tesla, not happy with the “minimalistic” approach, decided to move beyond and focus on creating higher value for its customers, stakeholders and the global society as a whole. With a mission “to accelerate the world’s transition to sustainable energy”, Tesla’s innovative and competitive business strategy consists of two major approaches namely, transitioning to a carbon neutral economy and developing a sustainable transportation industry based on zero emissions. This shows the company’s perception of societal need and demand as well as its visionary sustainable business model conceived over a decade ago.
Although the roots of sustainability are embedded into the environmental issues, the concept of sustainability comes hand in hand with CSR activities which primarily target “Triple Bottom Line” of a business that is people, profit, and a planet. One needs to understand that environmental concerns can drive organizations towards business opportunities which then can be explored and eventually be used as a competitive advantage and value creation. This innovative mastery can thus help an organization broaden its visionary business horizon by including wellbeing of people as well as the planet rather than confining itself within profit strategy.