It may seem a fanciful exercise to imagine what the corporation of the future will look like, but for businesses grappling with how to incorporate social and environmental goals into their business models, it is not.
More and more companies have come to the conclusion that in order to stick around, they must look beyond quarterly profits at how business may impact society in the long run. Such a paradigm change takes leaders who have a long-term mindset and support the mainstreaming of sustainable practices throughout the company.
One linchpin in changing the corporate mindset and the way a business operates is getting buy-in from the board of directors. These boards generally have a singular purpose: to protect shareholders’ interests.
The United Nations Global Compact’s board program, which was launched at an event held at the U.N. headquarters in New York last week, seeks to help companies work together to illustrate to their boards how sustainability and profits can go hand in hand.
The formula is not “one size fits all” — industry-specific challenges do exist, after all — but companies are proving they can grow business while focusing on sustainability.
Focus on the long term
The mismatch between short-term profits and sustainable growth makes embracing change difficult for companies and their boards. But some companies have found a way to embrace a sustainability strategy despite today’s financial reporting requirements and temptation to go for quick profits.
For Yara International, a fertilizer company, having the government of Norway as a major shareholder has been key to success, said Bente Slatten, Yara’s chief communications and brand officer, last week in New York.
But, Slatten said, even a corporation without a state presence can make the case to its board to have “patient money.” That is in part because despite the Norwegian government’s stewardship in sustainability, the company must continue to grow sales and make a business case for projects that may seem more development-oriented.
Sometimes that means reframing how particular programs are viewed, as Yara has done with its fertilizer sales in rural Ghana. There, the company has been educating farmers on the proper and controlled use of fertilizer. Corporate leaders framed what could be seen as a short-term cost as a form of market development and a way to build the brand’s reputation in places with tremendous growth potential.
Leading the way
Many of the companies that are in the process of incorporating environmental and social benefits into their business have one thing in common strong leadership.
Often, it starts with a chief executive or a group of executives that prioritize change. They also play a critical role in making the case not just to boards, but to employees.
Indra Nooyi, PepsiCo’s CEO, shared some of her thoughts on what is necessary to both create and incentivize stronger leadership on these issues earlier this month at BSR’s annual conference, also in New York.
She proposed rethinking executive compensation and linking benefits not only to immediate gains but to how executive decisions will impact the long-term health of a company, including how it performs on social and environmental goals.
Business schools, meanwhile, should change their Master of Business Administration curriculum so that students learn to look at business in the contest of the larger society and how to better work with multiple stakeholders, Nooyi said.
While Nooyi and other CEOs, like Unilever’s Paul Polman, have stepped up as leaders, a company’s sustainability or corporate social responsibility professionals also play a critical role.
Sustainability experts act almost like the “conscience” at Eskom, said Rochelle Chetty, a senior manager at the South African power company.
In the midst of financial discussions, one of these CSR professionals will caution: “Yes, we don’t have money. Yes, we don’t have capacity. But we cannot compromise environmental, social, and economic issues. We still have to think medium- to long-term, despite short-term priorities,” Chetty said.
The proliferation of CSR and sustainability officers at major companies around the world suggests that corporate leaders are starting to hear that message.
Integration is critical to success
While buy-in from corporate boards and top executives is important, it’s not enough to transform a company; integration throughout the business’ operations is key.
Unilever’s Sustainable Living Plan, for instance, looks across its business operations — from handwashing programs tied to its line of soaps at the end of the value chain to how it sources its materials at the beginning.
Other companies have integrated sustainable operations in a different way and will more likely serve as a template for companies without the types of products sold by Unilever, many of which are geared toward the developing world. Novo Nordisk is one example. The Danish health care company focuses on diabetes medication and as Susanne Stormer, the company’s vice president and chief sustainability officer told Devex, getting to be a company with full integration is “a journey.”
Novo Nordisk’s began 20 years ago when it introduced what Stromer called the “triple bottom line philosophy,” which 10 years ago was incorporated into the company’s articles of association. That integration into the bylaws meant that investors and employees were aware of the new focus.
The challenge is to “make sure it’s in every finger and fiber of the company,” Stromer said. But, the added, sustainable practices are easier to sell when they’re written in the bylaws.
Eskom’s principles are also codified, but not by the company itself. In South Africa, all companies are legally required to follow the code of corporate governance set out by the King III reports issued by the government. Chetty explained that the law requires companies to set up sub-committees of the board to monitor economic, social and environmental principles set out in the King reports.
The companies that will succeed in the future will be those that have a long-term strategy which puts sustainability into the context of profitability while creating a corporate culture of sustainable operations from sourcing to marketing, Slatten said.
Change may not be easy or swift, but LEAD symposium participants seemed excited about upcoming feasibility studies and other support programs to help companies on their path toward sustainability.
“There is no business but sustainable business going forward,” Slatten said.
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