Capitalism’s scope is becoming wider and now entails not just the interest of shareholders but also those of their internal and external communities. To that end, sustainability is a critical component of many corporate missions.
Companies that focus on the so-called triple bottom line — economics, environment and social — are the ones that consistently do well by all standards. Those using such guideposts are outperforming other broader indices and they are also demonstrating that they are living their missions and ingraining their brands among their customers.
“I don’t see any way for this to go backwards,” says Maureen Kline with Pirelli, an Italian tire company, a conference sponsored by Environmental Leader. “If all the regulations were rolled back, they would still be asking us to become more sustainable. Now it is going down the supply chain and throughout the investor community,” which are led by 401k pension funds and institutional investors, as well as the big banks like Goldman Sachs and Morgan Stanley.
In fact, PriceWaterHouseCoopers says that 71 percent of businesses say they are planning for sustainable development goals. Meantime, the Global Reporting Initiative says that 82 percent of the 250 largest companies are doing sustainability reporting. There is $22.89 trillion under management in the global sustainable investment market, adds the Global Sustainable Investment Association.
Sustainability is now integrated into business operations, notes Kline — an effort that creates a healthy competition among companies to outdo each other. Businesses will band together to solve large scale problems, in fact, to address such things as deforestation and climate change.
The business case is strong too. It is improving financial performance, driving a competitive advantage, fostering innovation, building customer loyalty, improving risk management and attracting employees, she says. A failure to be sustainable could impact the brand.
So, how do you quantify success? The United Nations Global Compact has developed a simple value driver that looks at new revenue from sustainable products as well as greater productivity from energy efficiency, Kline says, who notes that a preponderance of the studies performed show a positive correlation between sustainability efforts and shareholder value.
To be sure, a well-respected school of thought remains that companies must first serve their shareholders: By maximizing the returns of investors, corporations do more good for their broader societies. In other words, profitable companies spend money throughout their supply chains, which improves the lives and livelihoods of everyone they touch. Such a fine focus would make them better able to buy modern technologies and to build the most innovative power plants.
But as long as the investment managers are meeting the standards that their governors have set forth, then they are within their right to pursue societal objectives. Fund managers, of course, optimize their twin desires to maximize returns while also improving the environment.
Corporate missions now, actually, have a more extensive scope. That evolution is occurring because activists, regulators and investors have united to make companies live up to higher standards. By creating goodwill among all of their stakeholders, those companies are building a “brand” — an image of who they are and how they will be viewed.
“In the 70s, a company’s valuation was based on brick and mortar followed by intangible assets,” says Kline. “But over time, it has become more about intangible assets: patents, know-how, brands and reputation,” and the cause of sustainability is directly linked to that.