The middle of a global pandemic may seem like a reasonable time for a company to pull back from efforts to become more sustainable.
But the benefits of a more strategic approach to sustainability are greater than ever and, perhaps surprisingly, COVID-19 may have made the necessary changes easier than they would otherwise be.
The disruption of COVID-19 opens a window for firms to jump-start their sustainability efforts. Picture: Getty Images
The most prominent issue in the news is, of course, climate change.
Companies aren’t only under pressure to reduce their contribution to climate change by reducing emissions of greenhouse gases, but to also demonstrate that their business models are robust enough to cope with the changes that may flow from climate change.
However, businesses face a much broader set of sustainability related challenges.
Threats to endangered species like Australia’s koala have raised the profile of biodiversity.
Air and water pollution directly impact public health, as well as business performance. The increasing difficulty of exporting materials for recycling has made waste reduction more urgent.
And the list goes on.
Why does sustainability matter to Australian business?
Sustainability matters to business because it matters to stakeholders – employees, customers, lenders, regulators and others.
The benefits of a more strategic approach to sustainability are greater than ever. Picture: Shutterstock
Many employees, particularly those just entering the job market, want to work for a company with a positive approach to sustainability, so it also affects recruitment and retention.
While many companies are finding that their customers – whether individuals, governments or other companies – want more sustainable products, industries perceived as unsustainable are finding it harder to attract financing.
Highly visible events like last summer’s Australian bushfires have only increased public sensitivity to issues of sustainability.
Shareholders are also raising their expectations.
Last month, the Climate Initiative 100+ – an international initiative of more than 500 institutional investors that collectively manage over US$47 trillion – sent 161 large emitters of greenhouse gases a set of 30 climate targets against which they will be measured from next year.
All of these factors mean that sustainability affects revenue, cost and risk – the ultimate drivers of a firm’s performance.
Companies that respond well can improve their outcomes across all three drivers. Those that don’t, risk falling behind with poorer selling products, higher costs or greater risks.
The biggest financial payoff comes when sustainability grows beyond discrete efforts in functional areas. Picture: Getty Images
What is Australian business doing?
Most Australian companies, like those around the world, have responded by starting with the functions where the chance to reduce risk or cost is most obvious.
These steps are welcome and have generated meaningful environmental and financial payoffs.
But, a review of over fifty research articles in top academic journals makes it clear that the biggest financial payoff comes when sustainability grows beyond discrete efforts in functional areas – like procurement – and becomes embedded in the firm’s strategy.
Fewer companies, both globally and here in Australia, have made that leap.
Why is the sustainability of business so important?
While there is clearly a role for government, research and the for-purpose sector – a sustainable society requires business engagement and leadership.
Only business has the collective technological, organisational and financial capital needed. But the actions of individual businesses matter, too.
Every time a company commits to reducing landfill waste or greenhouse gas emissions, it raises the bar for their industry and reverberates throughout their supply chain.
Industries perceived as unsustainable are finding it harder to attract financing. Picture: Getty Images
What are the barriers to becoming more sustainable?
My research suggests that the main barrier isn’t around values, but rather value.
The leaders I work with want to contribute positively to their communities and live in a more sustainable world. However, they equally value their careers, their ability to create jobs for employees and their commitment to their shareholders.
To move forward, they need to understand the value that being more sustainable can generate for their firm.
And they also need to be confident in their ability to successfully generate that value. Neither is trivial.
Stories of successful sustainability journeys often lack the specificity and detail needed to address manager’s questions about advancing sustainability in their setting. Managers need access to a combination of highly credible global best practices and locally relevant insights.
The greatest challenge, however, is the range of skills required.
Making a business case for greater sustainability and then executing on it requires integrating sustainability knowledge — often highly technical — with hard and soft business skills including finance, change management, leadership, strategy and innovation.
Managers need access to a combination of highly credible global best practices and locally relevant insights. Picture: Getty Images
Because these fields have developed in isolation from – and sometimes in opposition to – each other, too few individuals or organisations can bring together all the necessary expertise.
The new Centre for Sustainability and Business at Melbourne Business School aims to bridge this gap by working in the space between business and environmental sustainability.
Through research, teaching and extensive ties with business, the Centre aims to generate and disseminate leading-edge knowledge that’s evidence based and locally relevant.
What opportunities does COVID-19 give us to change?
In addition to the challenges above, firms have faced another barrier – the same inertia that makes any large-scale organisational change difficult.
Counter-intuitively, the disruption of COVID-19 opens a window for firms to jump-start their sustainability efforts.
A key observation of the organisational change literature is the importance of “unfreezing” current practices before trying to transition to new practices. Most sustainability efforts effectively start at the second stage, trying to transition to new practices while the old practices are still frozen in place.
Sustainability matters to business because it matters to stakeholders. Picture: Shutterstock
But now, for reasons unrelated to sustainability, the system has been unfrozen, with old ways of working and planning thoroughly disrupted.
That creates an unexpected opening for companies to adopt more sustainable practices.
If we combine these large-scale initiatives with elevating the practice of sustainability across industries, we have the opportunity to improve the financial and social performance of Australian business for everyone’s benefit.
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