Monday, January 11, 2016

The Business of Sustainability Reaches a Turning Point

Sustainability is now a key component of a shrewd business strategy that mitigates risk and enhances competitiveness. Last year was the most important year ever for environmental action and leading actors in the business community were an integral part of that progress. The corporate world has been steadily increasing their efforts to be more sustainable and they are ready to play an even larger role now that a momentous deal was signed at COP21 in Paris.

Through thousands of rallies and marches business leaders see that there is broad and growing public support for social and environmental action. In advance of the next wave of policy shifts businesses have been reducing their footprints and incorporating sustainability into their long term strategies, many have even played an instrumental role in pushing for bold climate action in Paris.

The importance of the COP21 agreement for business cannot be overstated. The deal sends a clear message that signals an end to business as usual and the dawn of an international effort to invest in the low carbon economy.  Led by renewable energy and efficiency stocks, markets responded to the announcement of the Paris agreement by applying downward pressure on fossil fuels.

The writing is on the wall and in 2015 the business of developing climate solutions has come into sharp focus. National policies that have a direct impact on business will be put into place as governments work to find ways to meet their commitments to keep temperatures from rising more than 1.5 degrees Celsius above preindustrial norms. These policy shifts will revolutionize energy, transportation, and building systems and reverberate throughout all sectors of the economy. Businesses are responding ahead of anticipated new regulatory regimes and the unprecedented opportunity that the COP21 deal affords.

In the summer of 2015 Pope Francis set the moral tone for the year when he released his environmental encyclical, Laudito Si, which is a scathing indictment of traditional capitalism and a call for action to combat climate change as a moral imperative.

Long before the deal was reached in Paris companies set their own ambitious science based targets to reduce emissions and be better stewards of natural resources like water.  Some truly visionary companies have led the way towards a more sustainable future. This includes companies like Unilever who have been champions of sustainability for quite some time.

Just ahead of the start of COP21 more than 100 savvy businesses ran an ad in The Wall Street Journal in support of US emissions reduction pledges that achieve or exceed national commitments, "and increase ambition in the future." CEOs from some of the world’s largest companies (Bank of America, Citi, Goldman, JPMorgan, Morgan Stanley, Wells Fargo, Levi, Gap, Adidas, VF)  made statements in support of a positive outcome in Paris. The World Economic Forum brought together almost 80 CEOs to call for climate action.

Armed with the knowledge that 100 percent renewables is possible, the business community is increasingly questioning the future of fossil fuels and seeing the merits of renewable energy. .

Through what is known as the RE100 leading companies including Apple, HP, Kaiser Permanente, Google, Dow and Amazon have pledged to increase their use of renewables and others have pledged to go 100 percent renewable.

 Last summer the White House launched the American Businesses Act on Climate Pledge. Thus far it is has garnered the support of more than 150 companies who have committed themselves to reducing their emissions and investing in renewables.

In September the world endorsed the UN's ambitious Sustainable Development Goals (SDGs). The targets include ending poverty, forging equality and acting on climate change. Even before the SDGs’ were formally adopted, SABMiller created a sustainability development strategy called Prosper.

In 2015 we saw unprecedented growth in SRI and Impact Investing. The growing climate and environmental concerns of the investment community has encouraged greater involvement from the business community. Blackrock, for example, has leveraged its $4.7 trillion in assets, to encourage investment community to tackle climate change, they have also created an ESG-friendly mutual fund.

The business community has watched the fossil fuel divestment movement grow and they have been forced to recognize that this represents a shift in the popular consciousness ahead of an inevitable change in regulatory regimes. They have also watched as the demand for sustainable products and services has grown.

Powered by campaigns targeting consumers, the fashion industry has become increasingly focused on sustainability in recent years. While the trend has been steadily growing, 2015 was the best year yet for sustainability in the apparel industry.  

The demand for more sustainability does not only come from without it also comes from within. Economic efficiency and sustainable procurement been growing driven by the pursuit of profitability and other forms of sustainability, supply chain pressures and concerns about disruptions. The rising cost of doing business is also driving interest in the sustainable economy.  The 2015 Global Compact Report chronicles how collaboration and cooperation are additional factors contributing to the growth of sustainability.

Increasingly we are seeing cradle to cradle design and concerns about end-of-life for a wide range of products.

The backlash against Volkswagen and Exxon are cautionary tales with implications for the entire business community. The fraud and misrepresentation of these two companies convincingly make the case for reputable comportment and transparency which are central tenants of sustainability.

Driven by both bottom line and environmental concerns sustainable packaging is another trend that continues to grow in 2015. There is increasing evidence to suggest that sustainable packaging helps companies to foster growth and competitiveness.

The old cliche is true, necessity is the mother of invention.  The longstanding drought in California may be getting some relief from El Nino in 2016, but in recent years it was a high profile issue that prompted more responsible water stewardship from a number of companies. For example Miller Coors reduced its total water use by 26 percent over the past five years.

Innovation is one of the trends that has been building in recent years and it appears to have come to a head in 2015. Innovative approaches to sustainability are rapidly becoming the next frontier of corporate differentiation.

As a matter of necessity companies are acting locally while acknowledging the global trends. Ultimately the business world is coming to terms with the reality that sustainability is an unstoppable megatrend that has become a strategic imperative.  Whether to enhance competitiveness or to capitalize on a once in a lifetime opportunity, sustainability will climb to unprecedented heights going forward. 

Interest in sustainability has been steadily growing in recent years and in 2015 a critical mass is coalescing that represents a turning point.

No comments: