Corporate sustainability must reposition itself for the crucial decade ahead, argues Dr. Matthew J. Bell, EY Global Climate Change and Sustainability Services Leader.
The corporate world is by far the most economically powerful and environmentally impactful bloc on the planet. So, it’s good news that businesses are now expressing a real desire to rise to the challenge the climate and ecological crisis presents. Better still, they are increasingly willing to put their money where their mouths are, supported by investors who are demanding sustainability credentials as a prerequisite for funding.
To the purist, this may seem like a slightly strange state of affairs. After all, isn’t business the single biggest contributor to global warming?
But it’s also true that this mobilization of private capital probably represents the best lever for mass decarbonization. Many will remember that, at COP26 in Glasgow in November 2021, with political progress painfully slow, the main source of hope was the massive amount of investor commitment to sustainability.
One of the single biggest announcements at COP26 was that investors – representing US$130 trillion in assets, co-chaired by former New York Mayor Michael Bloomberg and former Bank of England head Mark Carney – were going to help businesses step up to the task of moving to a low-carbon future.
A brief history of green
While that was undoubtedly good news, it comes with a caveat. Do businesses and investors measure, manage and enact sustainability in ways that are correctly calibrated? In other words, are current efforts being directed to have the biggest possible impact on climate change? Answering that question requires a brief history lesson. As the American astronomer Carl Sagan famously put it, “You have to know the past to understand the present.”
Corporate sustainability is often framed as a new idea, but it’s actually more than a quarter of a century old, floated on the tide of optimism that came at the end of the Cold War. That positivity took a hefty knock following the 9/11 attacks and other global events, leaving sustainability fighting its corner.
The way forward has proved to be to reframe sustainability in terms of business optimization – as an area that helped make processes more efficient, improved trust with consumers and regulators and helped to manage risk. To this day, that remains a popular conception of corporate sustainability. While this has undoubtedly helped to introduce more sustainable practices, it also means that such programs must sell themselves to the broader business.
This proved tougher than ever following the global financial crisis of 2007-08, which reinforced the idea that business should cease all activities that were not immediately revenue-generating. For all the progress that sustainability has made in climbing back to the top of the corporate agenda over the last few years, that power dynamic remains fundamentally unchanged.
The devil is in the data
Given this framing, business data becomes all important. After all, at the individual company level, you can’t manage what you can’t measure. And at the industry level, you need standardized metrics to create consistent benchmarks. While this is important work, it does not solve the underlying problem on its own. Comparable data is useful to incentivize leading practices, but it doesn’t necessarily tell us if a company is sustainable in its own right, or in terms of its real impact on the environment. Nor does it tell us how it can reduce or repair any impacts while remaining viable as a business.
While the metrification of corporate sustainability, supported by an army of ratings agencies, has its advantages, the risk is that it merely results in more disclosure, rather than actual outcomes. It is one of the open secrets of corporate sustainability that the easiest way to demonstrate success against most benchmarks and indices is to disclose more, rather than actually do more. The danger here is of a closed loop system, where metrics can be satisfied without real world changes being made.
Keeping it real
So, having identified some potential weaknesses in the corporate world’s current approach to sustainability, while also acknowledging that business has stepped up to the plate in recent years, what needs to change? Put simply, businesses must consider more carefully their impact in real terms – and they must think about what they need to do to reduce and repair that impact.
For the individual business, this means knowing, with great accuracy, the environmental resources that it relies on across its value chain; the planetary limits within which these resources can be drawn down; and the operational parameters that need to be maintained to preserve this delicate balance.
But perhaps an even simpler way of looking at it is to see sustainability not as an activity, industry or theme, but as a specific point at which economic activity is maintained within sustainable limits. Staying within these limits may be a bigger challenge for a business than satisfying the current metrics, but then – and only then – will it be truly sustainable.
The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other member firms of the global EY organization.