World Economic Forum Explodes The Profits vs. Sustainability Myth
The prevailing view among many business leaders is that they would love to save the Earth from overheating, but not if it means lower profits. The World Economic Forum — the fun folks who organize those events for global economic leaders on the top of a mountain in Davos, Switzerland — has teamed up with Accenture, a global consulting firm, to examine the issue. Their latest report strongly suggests the conventional wisdom is wrong. The pathway to future profits begins by embracing the transition to a sustainable economy. Adhering to the old way of thinking is the real road to negative economic consequences. Here are the key findings from the World Economic Forum report:
- 98% of CEOs believe it is their job to make business more sustainable, but many are concerned that it could hurt their bottom line.
- A new report by Accenture and the World Economic Forum tackles that myth, with surprising findings.
- Pivoting away from “business as usual” is increasingly viewed as a way to unlock more value.
The report begins with a few questions. “What if your most profitable business line was also your most polluting? Or if your top supplier raised prices to meet their emissions targets? What if your employees asked you to cancel a lucrative contract with an organization that clashed with their values? How would your company respond?
“As sustainability creeps inexorably up both corporate and board agendas — driven by sharper stakeholder demands, stiffer regulations and value shifts to new sustainable markets — these are the types of tricky questions organizations are grappling with. Answering them requires both ambition and action.
“Ambition is not a problem: 98% of CEOs believe it is their role to make their businesses more sustainable, up from 83% in 2013. Tangible action, however, is somewhat lacking. Too often, companies still see sustainability locked in a perceived trade-off with profitability. This reinforces the traditional tight focus on short term financial results, making it hard to justify integrating environmental and social impact into decision making. The pollution is ignored. The supplier is dropped and the contract maintained.”
The Economics Of Pollution
CleanTechnica readers, being the progressive thinkers that they are, fully understand that waste products are part of any human activity and any system that ignores their economic impact is fatally flawed. We invent all sorts of reasons why we should ignore the cost of disposing of waste products in a responsible manner — there’s a war going on, we need to out-produce other nations, jobs are at stake, etc. — but by doing so, the community must bear the costs of those waste products, which include air, water, and soil pollution. That means the people and businesses responsible for them are getting a subsidy that they don’t deserve. Some refer to this as privatizing profits while socializing costs.
The Accenture study focused on 280 business leaders, who advocated for three updates to the traditional business case to give them and their peers the licenze to accelerate sustainable transformation:
- Pervasive Purpose: focus on solving a specific human challenge, then determine how to do so profitably.
- Extended Horizons: consider the viability of the business over the long-term, and allow new sustainable initiatives time to scale.
- 360° Value: broaden how you define business success beyond financial performance and partner with stakeholders to drive change.
The 280 international business executives mostly agreed. 70% said it is important to change the rules of the game to successfully develop and adopt new sustainable business models. At the same time, 67% cautioned that traditional decision making norms, like minimizing costs and delivering strong quarterly returns, remain critical.
The results suggest that organizations looking to unlock sustainable value at scale should not tear up the traditional business case. Instead, they should enhance it to meet today’s challenges. One of the business leaders, John R. Tyson, CFO of Tyson Foods, noted, “Companies need to develop a much more sophisticated business case that brings environmental and social elements in alongside more familiar financial metrics.”
One of the most surprising findings from the World Economic Forum survey of business leaders was that while many view sustainability as a hindrance to profits, in fact the business as usual approach actually comes with more complexity and higher costs. This, the WEF suggests, means adopting sustainability strategies is actually the best way to unlock higher profitability in the future. This concept is illustrated in the graphic above.
The World Economic Forum Guide To Sustainable Business
Fusing new criteria into the traditional business case is a balancing act that requires new technology and human capabilities. Companies should start by building a strong digital core, the World Economic Forum report suggests. That will require a continuous process that leverages the cloud to incorporate new technologies across three interoperable layers: infrastructure and security, data and AI, and applications and platforms.
“When combined with a robust talent strategy, this digital core can unleash a new set of tech-powered capabilities. From a more precise understanding of challenges and bringing diverse voices together at scale, to faster, more immersive prototyping, such capabilities can reduce the fear of failure and shorten ‘time to value’.
“So, is the perceived sustainability vs. profitability trade off myth or material? Accenture and the Forum’s research suggests that, with an updated business case in place, organizations can deliver on environmental, social and financial goals in tandem. Indeed, as the tailwinds to sustainable transformation strengthen, companies that stick to business as usual will likely struggle for profitability.
“As financial viability becomes ever more contingent on delivering positive social and environmental impact, the onus, therefore, falls on responsible leaders to shake up the status quo. Seizing new sustainable value means dispelling the myths that hinder change, rewriting the business case to tap sustainable markets and unlocking the power of technology with comprehensive data and people strategies.”
The Takeaway
People are programmed to focus on today, tomorrow, and perhaps the end of next week. We seem incapable of long-term planning or recognizing dangers that accumulate slowly over time. We are very much like the proverbial frog in a pot of water that is being slowly heated. We rationalize and make excuses for the minute changes we observe — the ocean doesn’t seem quite as cold when we go to the beach as we remember when we were younger, that rhododendron outside your door blooms three weeks earlier than it used to, there is less snow at your favorite ski area than there should be.
It is so easy to confuse climate with weather and to find convenient excuses for why the summer is a little hotter or the winter is a little drier than we remember. Yet, all the time, the alterations humans have created to the environment are building toward a tomorrow that is not far off when conditions on Earth are simply unable to sustain life for many. George Monbiot addresses that very topic in a recent editorial for The Guardian.
Business leaders who wish to incorporate more sustainability goals into their business planning must now also face growing political pressures designed to enforce the status quo. Recently, 23 Republican attorneys general notified economic leaders they may be guilty of antitrust violations if they insist on making ESG policies part of their business decisions. Inquiring minds may wonder why such concerted action is not racketeering, and yet there has been no discernible pushback from the federal government.
We ignore long-term trends at our peril. That’s the real bottom line.
Featured image courtesy of Accenture.
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