Headway even in a year of limited pocket money and absent parents

This piece first appeared as the forward to the ENDS Special Report Sustainable Business 2012.

There is progress during tough economic times, but businesses will need to take the initiative to protect long-term value and create a sustainable future, says David Bent, Forum for the Future’s Deputy Director of Sustainable Business.

 

Sustainable business has faced considerable headwinds in the last year. The UK economy has shrunk; business confidence is low and the Euro situation adds to the difficulty. Governments at the Rio+20 conference opted for woolly and watered down outputs. The UK government has not lived up to the promise of “the greenest government ever”, with consistent rumours the Chancellor blocks anything that might lead to green growth.

In the 2011 report I said that sustainable business was about to go through its teenage years. Well, this has been a year of limited pocket money and absent parents.

And yet nine of the 15 indicators are green. Things, it seems, could be worse. For instance, certification to environmental standards has gone up 11% and the number of people attaining a relevant qualification has gone up 16% in the year (the annual figure has almost double since 2001). Both these illustrate investing for specific benefits, whether that is cost savings, lighter touch regulation or career enhancement. It confirms recent research from London and Harvard Business Schools “high sustainability” firms have superior shareholder returns [1]. Sustainable business activity is practical and profitable.

Some of the most intriguing positives are in the responding to climate change indicators. Renewables now contribute almost 9% of UK electricity. I remember when people said it would never get over 5%. Energy intensity improved slightly this year, but has been flat since 2007. Most interestingly, UK industries covered by the EU emissions trading scheme actually emitted less than the carbon budget. The cynic in me wonders what that tells about the budget itself, and the lobbying that set it at the current level. My realist side knows that big contributors were warm weather and the recession itself, plus ‘outsourcing’ manufacturing to China. Somehow I still find it cheering.

In July the Climate Change Committee 2012 progress report said that the underlying rate of progress on emissions reductions is only a quarter of that needed to meet future carbon budgets. Their top priority was investing in low carbon assets. So, an increase in R&D spend, especially in energy-related sectors, is another chink of good news is.

Not good news at all – pay inequality reached a new high in 2011, with the top 10% earning over 8 times the bottom 10%. The news that FTSE 100 directors enjoyed an average 12% rise last year makes me worry this group is becoming more divorced from the rest of us.

And let’s be clear, these senior executives are crucial. Governments in general, and the UK government in particular, are not showing leadership. At the same time we are facing a decade of low growth in the UK. We need businesses to take the initiative, out of enlightened self-interest, if we are to create a sustainable future.

There are some prominent CEOs – Paul Polman of Unilever, Kingfisher’s Ian Cheshire – and others behind the scenes are driving sustainable business forward despite the headwinds. Leading companies are pursuing two reinforcing tracks: innovation and shaping the context.

On innovation, they are improving current products or services plus for breakthroughs that will shift markets. Externally, leading companies are trying to shape a more sustainable world where those innovations will succeed. That means they are influencing consumer behaviour, often using their brands. They are collaborating, along the value chain or across an industry, for instance with standards or joint solutions.

These leaders are the cool kids in the playground that everyone wants to copy. We hope. The sustainability challenge for UK plc is for other companies to adopt the best of what the leaders are doing and build on it – all without consistent government support and in a tepid economy.

No one said being a teenager was easy. UK business is doing well, considering, but we need to do better.

[1] The Impact of Corporate Culture of Sustainability on Corporate Behaviour and Performance, Eccles, Ionannou and Serafaim. http://hbswk.hbs.edu/item/6865.html

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