Moving towards the tipping point of change

Martin Chilcott, ceo, 2Degrees, says that after celebrating best practice, organizations of all sizes need to see these case studies as a clarion call for more - and faster - action

I was recently asked at a Net Impact event what I thought was the most significant change in my industry. I answered that I believe we are witnessing a change in zeitgeist, as an increasing number of large corporations and cities are making real efforts to become truly sustainable. They have a long way to go and those pioneers are the ‘exception’, but they are the catalysts that will move us to the tipping point of change as they re-shape their value-chains and out-compete the laggards.

Some of those companies’ case studies are captured in this publication. Their progress and successes should rightly be celebrated, but rather than be a cause for complacency they need to be a clarion call for more and faster action.

I say this because it is increasingly clear from a number of studies (such as the MIT Sloane BCG Report: ‘Sustainability - the Embracers seize the Advantage’) and indices of public corporation performance such as the Dow Jones Sustainability Index, that companies on the sustainable business journey out-perform their less sustainable peers. They:

·        collaborate better,
·        manage their costs and risks better,
·        innovate and motivate staff better; and
·        they are constantly driving towards greater efficiency using sustainability as a powerful lens to identify new opportunities.

That seems to me to be a pretty compelling set of reasons why all companies should be getting on the journey. But there are other reasons that, illuminated by particular data, are even more compelling. We are running out of time: the natural capital that all economic activity depends upon is perilously close to exhaustion; and if corporations do not recognize this and start to act accordingly they will be punished.

Let’s start with the latter: reputation. In 1975 approximately 80% of the value of the S&P 500 was based on tangible assets. By 2012 that had fallen to about 20%.  In other words, 80% of the value of today’s S&P 500 are things like brand reputation, loyalty etc. assets that can be destroyed overnight by failures in the supply-chain, exposes of child-labour and factory fires.

As consumer awareness of sustainability issues widens, through digital media, so too does the perceived responsibility of brands. Brands are more than ever seen as accountable for the actions of their supply-chains; and as extreme weather events become increasingly connected to man made climate change (e.g. typhoon Haiyan in the Philipines) so they will be held increasingly responsible for these events too.

And if it is not the new generation of consumers who will punish brands, it will almost certainly be regulators. Brand reputation management and maintaining a licence to operate is reason on its own to accelerate the sustainability journey.

Let’s take a second set of data from the food industry. As the world’s population grows to over 9bn and the new emerging middle classes of the BRIC economies increase their per capita consumption levels then global food production is going to have to grow dramatically. By 2050 it will need to be 60% higher than it was in 2005. (I have seen some calculations that estimate that we are going to have to produce more food in the next 40 years than we have in the last 8,000 years combined!)

This is “one heck of an ask”, made even more difficult by the fact global fresh water usage will have to get significantly more efficient if we are to achieve this. At present, on average, 1 litre of water is used to produce 1 calorie. Fresh water is a scarce commodity and so that needs to fall to within a range of 1 litre per 2-4 calories if we are to increase food production as required. One last bit of data: at a global level, we currently waste 1 in 3 of every food calorie we produce.

For those food companies that can slash the waste in their value-chains, and cut the water and energy needed to produce calories, this is a huge opportunity. For those food companies that don’t and therefore don’t become more sustainable, their brands will be damaged and their rising costs will put them at a significant competitive disadvantage.

We are entering an unprecedented era of soaring demand, resource scarcity; price shocks as the new norm across every conceivable commodity; consumers more aware and demanding than ever; and governments and regulators increasingly active.

As we accelerate into this new world, there will be no such thing as the exceptional ‘sustainable business’. All businesses will be sustainable, or not in business at all. So if we want to survive and thrive, we had better get going.