Sustainable Survival

Future-proofing your firm

Academics and far-sighted business leaders can go blue in the face calling for modifications to the capitalist model that has prevailed over the last 30 years and left too many behind. It takes riots in Chile, votes for populist authoritarians like Donald Trump and the emergence of a proto-fascist party in Spain for reality to hit home.

The decimation of the middle class through stagnant wages and job insecurity and the increasingly visible inequality of wealth were missed amidst the congratulatory backslapping of Davos Man, more focused on the huge growth in spending power in large emerging markets.

Those companies that want to survive and thrive within a world of constant upheaval must concentrate on transforming themselves. Sitting back comfortably and assuming politicians will bear the brunt of the anger is not an option.

Douglas Lamont, the CEO of Innocent drinks, a healthy beverage company which is working on becoming a Certified B Corp, summarised it neatly in the FT when asked whether he aimed to persuade acquirer Coca-Cola to follow their example. They’ve potentially learned from us “that if you’re ahead of the issues, when they land you’re a little more protected from the consumer backlash because people know that you’ve been trying.” 

Whether a business decides to go for B Corp status, equivalent to the highest standards of environmental and social governance, or a bank decides to sign up to the UN Principles for Responsible Banking, is irrelevant. There are different models out there and lessons can be learned from all of them on what will undoubtedly be a long journey. The benefits are manifold, while the downsides of not acting now can threaten existence.

Consumer goods giant Unilever was far ahead of the pack under CEO Paul Polman. His decade-long tenure resulted in a company that, amidst a war for global talent, is inundated with CVs from the best and the brightest. Of note is its simple statement of intent. “At Unilever, our purpose is to make sustainable living commonplace. We are working to build a better business and a better world.“

This is not the only way it appeals to the different aims of younger generations. It highlights active (ie. flexible) working, mental and physical health support, and learning opportunities. Millennials — social media natives who have never lived separate lives at work and at home — don’t look for work-life balance, but rather work-life alignment, where they can be the same person, with the same values, at home and in the office, notes the Harvard Business Review.

Nor is the journey a simple one. Unilever, for instance, wrestles with conundrums like what to do with its skin-whitening product, a bestseller in Asia. The message that white is better than brown is anathema to the company. The obvious choice of closing it down would result in thousands of staff being left jobless while brands which are much less safe would take over the market. 

The tone from the top is crucial in setting the right attitude to disruptive change. Take gender balance.

Companies can look at the quotas for female non-executives and senior management prevalent in some countries as a time-wasting, regulatory imposition. Or they can see this is an opportunity to lower risk by changing culture, as well as increasing profits. According to a recent Wall Street Journal report, the 20 most diverse companies had an average annual stock return of 10% over five years, versus 4.2% for the 20 least-diverse companies. This is but one of the many studies undertaken by reputable bodies like McKinsey or the London School of Economics.

The transformation into an ethical entity is most complex for oil and gas and mining companies. However crucial to humanity’s current existence, they are becoming pariahs.

The cash-strapped Royal Shakespeare Company was forced to sever ties with BP and its generous subsidy of ticket prices for the young because of, ironically, the “strength of young feeling”. Institutional disinvestment in the sector continues apace, even though reallocating capital to renewables doesn’t work because it is still much too small and, being capital-hungry, cannot deliver the generous dividend streams.

Meanwhile, stranded assets (oil wells or mines that will become worthless due to environmental legislation) are a major worry. US coal companies have lost 90% of their value, notes Bank of England Governor Mark Carney. However, the newly appointed UN Special Envoy on Climate Change and Finance says: “It may make sense to invest in a company that is pretty brown today but intends to become beige, at least, if not green over the next five to seven years.”

A hefty $15.5 trillion of assets are now invested via the Transitions Pathways Initiative, set up by the LSE’s Grantham Research Institute and the Church of England to analyse a company’s carbon management quality and performance within a selected sector. Although vocal protesters do not yet distinguish between Exxon and Shell, the American and Anglo-Dutch oil companies, sensible investors do.

In fact, fossil fuel and mining companies have both the funds and the expertise – talented engineers – to redirect more of their investment towards sustainable opportunities as the state sector becomes more involved. Governments, however frozen in the headlights of public protests and divided nations, will be forced to invest substantial amounts in clean energy and related opportunities. Established companies are best set to take advantage.

To be a winner amidst the upheaval of the 21st century, firms need to be ahead of developments. Could this mean walking away from profitable endeavours which will be environmentally dubious a decade away? Putting a worker representative on the Board? Caps on the pay gap between the lowest paid worker and the highest paid directors? Knowingly choosing to lower margins in order to make the company more sustainable over the coming decades?

These measures will stick in the gullet of many CEOS and Chairmen. But exploring the unthinkable is surely the mark of a visionary leader. As is communicating the transformation forcefully, despite living in a black and white world lacking in nuance. At a time when politicians seem incapable of addressing the needs of deeply divided societies, business must take the lead. It already creates the jobs and makes the profits that support everything from hospitals to schools. Future-proofing the company is the next step: sustainability is profitable.