Sustainability - business success beyond the short term

Sustainability: Business success beyond the short term
17th Annual Global CEO Survey

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We live in a world with a growing population, seeking a better lifestyle, to be delivered from a planet with finite resources, many of which are now rapidly running out. But are the business models of today equipped to deal with this? Sustainability is no longer a philanthropic afterthought or about installing low energy light-bulbs, but an approach to embed more forward thinking and responsible business practice into how a business produces and delivers its goods and services. It’s about being ‘able to sustain’ your business responsibly, with one eye on ‘new’ external risks and the other on future consequences of your decisions.

In PwC’s 17th Annual Global CEO Survey, 75% of CEOs agree with this saying that satisfying societal needs (beyond those of investors, customers and employees) and protecting the interests of future generations is important. This is reinforced by consumers – in the Edelman Trust Barometer 2014, 84% of respondents believe that business can pursue its self-interest while doing good work for society. It’s a green light to embed sustainability into everyday strategy.

For many CEOs, major 'new' external risks are on their agenda. Resource scarcity and climate change, urbanisation and demographic changes consistently feature in the top three megatrends set to transform business. Coupled with increasing confidence in the global economy, will these opportunities translate not only into growth opportunities, but sustainable business and good growth?

Resource scarcity and climate change set to transform business

We’re living on a planet with finite resources and a growing population. Resource scarcity is fast becoming a priority on both the political and business agenda as demand for food, water, energy, goods and services increases. There are clear industries and countries on the biting end of this...

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Population growth and the speed of rising consumption in developing economies are intensifying the issue and driving demand.

Exploration for new extraction sites is costly. Overlay increasing expectations from Governments when granting a licence to operate, protectionist behaviours and the fact that many sites are in or near confict zones, and price increases, supply disruption and perhaps quality issues feel inevitable.

Even basic commodities such as water are now in increasingly short supply both for human consumption and to support industry, energy and food production. In fact, water has emerged as one of the most critical resources, creating friction between communities, business and governments.

The result is higher prices, market volatility and a changing supply landscape. But CEOs have sustainability issues on their agenda and some see innovation as a solution.

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Business is right to identify resource scarcity and climate change as a business transforming trend. Because global markets must now compete for resources -- like oil, water, land and agricultural commodities -- there are new cost  worries and concerns about achieving the desired outcome, competition for talent and changing business models to consider. To reduce or remove the risk, new approaches are required to build in resilience. To get a handle on how scarcity will affect them now and in the future, businesses must build resilience into their supply chains. How? Through innovative new products and more efficient use of resources. They’ll also have to collaborate and build stronger relationships with their suppliers.

Demographic shifts and urbanisation - opportunities and challenges

60% CEOs put demographic shifts in their top three megatrends that will transform their business in the next 5 years

The global population is growing, its profile is changing, and it’s moving to cities. By 2025, it will hit 8 billion. But this growth won’t be uniform. By 2020, the median age in Europe will be 43, 38 in China and just 20 in Africa, and over the next four decades the number of city dwellers is projected to rise by 72%. The working-age population is undergoing major geographic shifts too. It’s still growing rapidly in countries like India. But it’s already peaked in China and South Korea, and has been falling for more than a decade in Germany.

40% CEOs ranked urbanisation in their top three global trends that will transform business in the next 5 years – this shoots up to 61% for South Africa CEOs.

Sustainability extends to people too. Without a healthy workforce with the right skills and good working environment, optimal production isn’t achieved and reputational risks are exposed. Quality suffers. Turnover, absenteeism and recruitment costs soar, and workers health and safety is jeopardised. Business will need to factor people-related issues into its strategic thinking to reduce the risk implications. This could, for example, mean updating training practices, implementing health and safety programmes, meeting new or emerging market expectations or regulatory requirements. Factor in, as well, the implications of a multi-lingual workforce, the impact of immigration on the local community, and the need to review alternative site locations and distribution.

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At the same time, one billion people are set to be better off and, with a steady rise in the middle classes, consumer spending is set to increase. For business, this creates opportunities in sectors within which richer consumers typically spend eg. culture, recreation, services and healthcare and will result in increased production, new products and services etc.

But what’s the ultimate cost? As demand for goods increases, so does the demand for raw materials, water, energy and carbon that are involved in their manufacture and distribution putting pressure on supply chains, communities, infrastructure and governments. Thinking about sustainability at the beginning of this growth phase will ensure an element of future proofing is built in and create competitive advantage.

Sustainability and climate change - the 'next big thing'

Only 5% CEOs say sustainability and climate change will be the next big thing to impact business – is everyone else’s eye off the ball?

There are a growing number of companies who are embedding Sustainability into their business models, seeing it as important not just to differentiate themselves or as a competitive advantage, but as a responsible way forward to achieve good growth. So what are they doing? And does this mean that everyone else is missing a trick?

For some, the starting point is more regulatory driven, complying with corporate reporting requirements and reducing carbon emissions. Others are looking to reduce their own footprint on the environment as well. Leading thinkers are embedding sustainability into their strategy (including their supply chain), managing, reducing and removing risks responsibly and investing to build in resilience, and finding ways to create quality products and service in a net zero impact way.

26% CEOs say they are addressing the risks of climate change and protecting diversity as a priority over the next 3 years

80% CEOs believe it’s important to measure and try and reduce their environmental footprint

91% agree that it’s important to them to ensure the integrity of their supply chain

In addition, some want to improve lives at the same time. This isn’t just about philanthropy, there is a business edge to it as well. Increase sanitation levels or reduce malaria and you have thriving customers or a healthy workforce. Sponsor children through university or build schools or improve girls education and you can extend your potential talent pool at the same time as lifting people out of poverty.

21% CEOs are focusing on reducing poverty and inequality as a priority over the next 3 years

Companies are looking at the impact their operations are having on the environment as well as the positive or negative impact on the communities in which they operate. Understanding these impacts can drive improvements in corporate strategy, day to day operations and ultimately in financial performance.

They’re moving away from sustainability as an afterthought or something that helps them put right a problem they’ve caused, to a way of doing business. They have a clear goal, thinking ahead to understand potential risks and identify solutions with longevity that better fit today’s world.

CEO interview quotes

“With the global middle class growing, we can all help to create solutions that use less water, less oil, less resources of all kinds… After all, our businesses can only be as strong and healthy as the communities that we proudly serve.”

Muhtar Kent
Chairman and Chief Executive Officer, The Coca-Cola Company

“[…]we are living in an environment where stakeholders are constantly enhancing their expectations of the organisation... organisations have to keep moving at that same fast pace in order to keep up with the rate of change.”

Chanda Kochhar
MD & CEO, ICICI Bank

“Business leaders today have to think more broadly and think beyond profits and the bottom line and move towards the triple bottom line thinking: how their business is affecting not just profits, but also the people (the social impact), and the planet. So, the three Ps as it were.”

Badr Jafar
Managing Director , Crescent Group

“I think the ‘social licence to operate’ is something that has become more prevalent in the past 12 or 18 months... A few years ago it probably focused more on the environment, but now I think it has become more pervading in terms of a ‘duty of care’ regarding how you operate..."

Nigel Morrison
CEO, SKYCITY Entertainment Group Limited

“It is very important to look at the stakeholder context when developing the business model and to see how we engage with government, with civil society, even at times with politics, but certainly with the business community as we expand our model going forward.”

Arif Naqvi
Founder and Group Chief Executive, The Abraaj Group

“[...]the purpose of the company isn't making money that is the outcome of what we do for our shareholders. The purpose of a company like us is remarkably simple. It's about freeing people from the fear of uncertainty. ”

Mark Wilson
Group CEO, Aviva