Navigating Tomorrow
There is much talk of climate change and the need to adapt at all levels.
At the global level, the Conference of Parties (better known as COP) is a great example. And yet it is often derided as a meeting to talk, but little action.
At the business level sustainability has usually meant “Economic Sustainability” - working to keep it running as a profitable entity for the long term. It is now being adapted to include:
Social Sustainability; ethical and social aspects such as diversity and inclusion
Environmental Sustainability: minimising the environmental impact of business operations
And when we look at data of the various business sectors around the world, we might (surprisingly) find there is evidence of little change in reducing environmental impact! For example, S&P Global published findings from a survey of 2,800 companies world wide, which demonstrated that despite commitments, on average across all sectors, emissions have been rising by an annualised rate of +1% vs a target reduction of -6.4% per annum.
So why should a CEO care? Why should your business take a new path, and adapt for a sustainable future?
Why It Is Important
Just as the scope of “Sustainable’ has grown, the reasons to change are stacking up too, with factors to consider including:
Regulatory requirements
Client needs and expectations
Operations costs
Employee engagement and effectiveness
So what do they really mean, and what are the implications of insufficiently considering them?
Regulatory Imperatives:
Governments globally are tightening regulations on carbon emissions and environmental practices. The European Supervisory Authorities (ESAs) extending and simplifying the EU’s Sustainable Finance Disclosure Regulation (SFDR) and International Financial Reporting Standards (IFRS) Foundation released international standard IFRS S2 Climate-related Disclosures in mid 2023.
Although this is in Europe, it will impact businesses around the world in a similar manner to GPRD drove businesses around the world which trade in Europe to adapt. Similarly it influenced governments to take the lesson on board and update their own regulations to bring them roughly in line.
From an Australian perspective, the Australian Accounting Standards Board (AASB) has indicated the Australian version of IFRS S2 came into effect on 1 January 2024.
The (unfortunately complex) regulations are all starting to dig deeper and are gradually spreading into include Scope 3 (which includes business travel, employee commuting, and the entire life cycle of products and services).
Adopting sustainable practices is not just about compliance; it's a strategic move to proactively align with evolving regulations.
Beginning to adapt earlier makes it easier and smoother to change processes, tools and even people’s habits.
Client Expectations:
Clients aren't just customers; they're partners in values. Many are prioritising environmentally responsible businesses - for a variety of reasons.
You may feel that B2B focused businesses don’t need to adapt due to the environment. After all the profit is all that matters. Although that may be true, their clients may be shifting.
Embracing sustainability is not only a moral choice but a smart business decision that needs to align your brand with changing client expectations.
Managing Uncertainty?
The impact of not doing so can be surprisingly big with rapid consequences; as the world moved from stores to online orders and consumption, Blockbusters failed to watch, and went from profit to collapse in just 2 years!
Current Risk
And even in the present, not considering the environmental impact of your business may hold your business back from opportunities in other markets. There are cases of large software proposals to European governments being massive drivers of extremely rapid (and tough) adaptation, to fulfil their environmental impact planning requirements.
Business Costs
Talk of sustainability related action often leads to a mental image of increasing costs. This may be true for some changes (at least in the short term), but there are many opportunities to reduce costs too.
Interest Rates
We currently have relatively high interest rates, and business costs are of course impacted by that.
Wouldn’t it be great to acquire lower cost loans? Sustainability Linked Loans (SLLs) offer the opportunity (see Macquarie University article below).
Power and Waste
Reducing the power usage and waste production in a business are relative simple changes, and can produce surprisingly large savings, for relatively little effort.
Engaging employees across the board helps achieve these savings, whether they are in procurement or using the printer paper and leaving systems on when not being used!
Insurance Cost Increase
Already there are growing numbers of properties that are uninsurable, and even if your property is not in a high risk area, the payouts need to be financed from somewhere - your premiums. So insurance costs will continue to increase.
By your company contributing to climate and sustainability related goals (which include carbon and waste reduction as well as adaptations for resilience), you will be contributing towards keeping your future business costs down.
Employee Engagement and Retention:
Since the pandemic, there have been significant shifts in workplace dynamics. We have also seen much evidence of growing needs and expectations in the workforce for greater purpose; primarily centred around the environment and diversity and inclusion.
A Deloitte survey identified that 42% of millennials have done, or would, switch jobs over climate concerns.
Staff turnover is a massive cost to a business, and engaging the workforce is a way to not keep them and help them be even more effective.
Engaged employees are the backbone of any successful business. They play a pivotal role—they contribute to Scope 3 emissions. Engaging them in sustainability initiatives transforms them from contributors to advocates for change, while offering a sense of purpose and job satisfaction..
Through all of that, embracing sustainability helps your business stand out as an attractive employer, providing an opportunity to reduce hiring costs, as people start to knock on the business’s door.
Why Focus is Critical
As touched on above, businesses have come and gone throughout history. The ones that have survived have successfully adapted.
Nokia (having previously produce rubber boots, paper products and, tyres) achieved great success as a mobile phone company in the 2000s, yet without keeping their finger on the pulse, collapsed in 2013 ("It is truly amazing how a company can appear so solid and competitive and then fall apart within only a couple of years.")
Why CEOs Worldwide Are Shifting
In a recent survey, run by Griffith Business School, of 1,000 top CEOs across six countries (UK, USA, France, Germany, India, Australia), a commitment to sustainability emerged as a global trend.
They found CEOs focused more than ever on the company's purpose, more than the simple fiscal return and similar. They are more conscious of the ESG domain and being sustainable businesses.
However they found that Australian CEOs are behind; the exception to the global trend, being much less interested in the climate, DEI and even creating a sustainable business!
They also found that even Chinese CEOs are far more sustainability focused than here in Australia.
Here is an opportunity to play catch-up!
Opportunities
There are many businesses around the world making hay while the new opportunities are presenting themselves. Some companies have been actively saving money while also differentiating themselves, such as Interface Carpets and more famous ones like Patagonia.
Some have embraced sustainability for environmental and financial purposes, such as MacQuarie University, which embedded sustainability in their operations and utilised SSLs.
Download the full research report which includes key challenges, opportunities, strategies and more details of real-life examples.
How to Make the Shift
It starts at the top, and only works when there is genuine intent.
When top level leaders are genuinely bought into the meaning and purpose, they become instrumental in supporting the shift at all levels.
All too often organisation transformation grinds to a halt when the message is shared from the top, the people at the bottom try to take it on board, but there has been insufficient support for the people in the middle.
To get the best of the transformation, the change needs to include more than the processes and tool changes. Including an emphatic shift to whole of mind thinking for people at all levels will create opportunities for acceptance, support, fresh ideas and actual action.
Research such as the research program mentioned in this article, which was led by Dr Jonathan Rhodes, and co-ran by Alan Taylor, Jaime Blakely-Glover and Andy Miller) demonstrates the power of learning focused on Meaning and Purpose, over traditional learning methods.
With such a fresh mindset, adaptation becomes easier, innovation becomes possible, action becomes quicker and the business can grow better.
CEOs seeking such change will benefit by incorporating concepts such as the Inner Development Goals (IDGs) to navigate conflicting priorities and foster a culture where sustainability is ingrained.
Where Next
In the business landscape, sustainability isn't an afterthought; it needs to be on the roadmap forward.
It's a journey rooted in understanding the reasons behind the shift.
Are you prepared for a sustainable future? The stage is set, and the choice is yours.
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