Updated: Jan 22
2020 was a decisive year for businesses as they faced worldwide lockdowns and restrictions on operations— countless businesses have not been able to withstand pressure from the pandemic.
Nevertheless, whenever there is a challenge, there is also an opportunity.
Government, consumers, and society as a whole have become more aware of sustainability issues, and this could be a critical turning point for businesses. Whether or not businesses could adapt themselves to this “New Normal” and stand up to ESG expectations from various stakeholders determines their position in the competitive market in the upcoming decade.
Businesses sit at the core of economic growth. Although consumer behavior is also a determining factor in pushing for sustainable development, the product that businesses are producing and the way they are producing them is still the fundamental drive of economic output, and inevitably, the largest source of unsustainable practices.
Aware of the key role that businesses play in sustainable development of the economy, consumers and regulators have been putting more and more pressure on businesses by pushing for a sustainable transformation of business practices.
So why and how should businesses approach sustainable transformation? Having the opportunity to attend the Sustainable Summit hosted by the Institute of international sustainable development exposed me to some unique perspectives in thinking about sustainable business transformation, and in this article I will share some of my insights.
Motivations for sustainable transformation
Society is going through a paradigm shift, where traditional standards and attitudes towards business operations have been changing. Nowadays, businesses have to be aware of both regulatory changes and consumers’ expectations when reflecting their production process. Businesses do not simply want to just build up a factory with huge chimneys on its rooftop just for the sake of lower costs, as they used to do.
Consumers are becoming more sensitive to sustainability related issues, and businesses have to react correspondingly in order to fulfill customer expectations.
Demand is no longer a quantitative measure, but a qualitative measure.
As a result, undergoing sustainable transformation is no longer a luxury for large corporations, but a necessary process for all businesses.
There are immense business opportunities that come with this challenge. Businesses that have been able to adapt to a green business model are seeing much more customer engagement, brand loyalty, and more flexibility in terms of adjusting to regulatory changes. Businesses focusing on green technologies and green manufacturing can now capitalize on their unique competitive advantage and establish better position in the market.
"Our consumers are very sensitive to social and environmental issues... we have actively engaged with them on these issues in the last ten years, and they have become very aware as consumers. They especially ask for information on environmental policies, workers' rights and product safety ."
-- Walter Dondi, Director of Co-op Adriatica (Italy's largest retailer)
However, it’s always easier said than done.
Despite the fact that more businesses have realized the urgency and the need for transformation. WWF Rainforest Action Network’s annual scorecard report on major companies’ performance in reducing deforestation evidently showed that only 15 out of 173 companies surveyed were performing well and “leading the way”. Companies cannot focus on their production process alone; there needs to be a full application of green technology, from material sourcing, to recycling, to recognizing changes in consumer behavior, pricing, marketing and much more. There is always somewhere to start from.
How should businesses rethink their sustainability commitment?
1. Rethink Risk Management Process
It is NOT essential for businesses to establish a brand new ESG department by outsourcing expert ESG consultants to start its transformation process. Instead, businesses could take a risk management perspective. When evaluating their production process, businesses should think about two questions:
Where do the social risks lie?
Where do the environmental risks lie?
Each question needs to be evaluated on different components of the production process. For instance, if one stage of your production process relies heavily on agriculture, then you should be alerted of the underlying environmental risk in that stage and therefore develop strategies in resolving such an issue specifically. A structured and focused approach ensures that all components are up to the standard and examined carefully.
2. Map your value chain
What is your value chain? The value chain shows how businesses add value to their product in each stage of production. When starting to evaluate your value chain, businesses need to be more aware of the parties that it works with at each stage. At each stage of the value chain, businesses should be able to identify different suppliers. It is crucial for businesses to look at the sustainability commitments of the suppliers. Businesses need to ask themselves if all of the suppliers align themselves with their own sustainability objectives and whether they are committed to pursuing sustainable goals.
3. Unlock the power of partnerships
Apart from being aware of controlling its internal risk management process, it is also extremely important for businesses to work with external partners. External partners could include the government, NGOs, local communities, pressure groups and the global community, depending on each businesses’ specific stage of growth and business model. Thus, each business needs to take a step back and utilize their knowledge about their own business, reflect on how they operate, and identify the external partners they need to interact with in each stage of operation. In my previous article “Key in Successful Business Sustainable Transformation — Engaging External Stakeholders” , I have elaborated more on how businesses should interact with each external stakeholder to ensure an efficient and successful sustainable transformation progress.
"In my view the successful companies of the future will be those that integrate business and employees' personal values. The best people want to do work that contributes to society with a company whose values they share, where their actions count and their views matter ."
Jeroen van der Veer, Committee of Managing Directors (Shell)
Stepping into a brand new era, value creation is no longer defined by the shareholders' value alone. Business value now lies in its impact on all of its stakeholders, including the environment and ecosystem. Questions arising from customers, regulators, and the community have pushed businesses to the edge of sustainability transformation, and I believe that sustainable transformation should not be taken solely as a challenge.
By auditing and tracking ESG performances, companies can identify specific actions to take to improve efficiency, stakeholder relations and manage their corporate risk from an innovative and effective approach.
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