Sustainable leadership
Corporate sustainability is ascribed to leading-edge companies.
Corporate sustainability is ascribed to leading-edge companies.
But the research of Kristiina Makipere and George S. Yip reveals why some companies are viewed as sustainable businesses while others are not. feeling pressure to make your business more sustainable? that’s the best place to start.
Corporate environmental and social scandals, government regulations and a greater consumer concern for ecological issues have heightened company and investor interest in the concept of corporate sustainability. These trends have made it more difficult for companies to overlook the necessity of achieving sustainable business operations. However, the variation in approaches that companies take to deal with sustainability issues has left many companies with more questions than answers. Is the pressure to achieve sustainability stronger for certain types of companies? Is the quest to boost corporate sustainability a source of competitive advantage for only a few organizations? Are there industry-specific factors that are advantageous to companies in that field?
Good questions – and ones that few corporate leaders can answer with confidence. In fact, despite the volumes of current research on sustainability, many questions remain unanswered. Why are some companies leaders and others laggards in corporate sustainability? To be sure, there are differences between industries. On the one hand, some industries (such as energy extraction) by the nature of their work face sustainability challenges. Which begs these questions: do these challenges make it more difficult for companies in them to operate with high levels of sustainability? Or do the challenges spur these companies to greater efforts? Other industries (such as telecommunications) may inherently enhance sustainability by, for example, reducing the need for commuting. Do companies in such industries find themselves more or less sustainable? Then, there are differences between companies within the same industry. Thus, does size matter? Do larger companies find it easier or harder to operate in a sustainable way?
While we can’t address all questions here, we believe our research has found the reason why some organizations are more advanced in corporate sustainability. It’s tied directly to the pressures they are facing to become sustainable and how they choose to respond.
Defining the challenge
Corporate sustainability – what does the term mean? We like the definition put forth by Dow Jones (www. sustainability-indexes.com): “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments”. To make this definition more operational, we sought to discover, first, which industries are taking the lead in corporate sustainability, and second, to discover how and why the best-practice sustainability industries have scored this achievement.
We have used the Dow Jones Sustainability Index (DJSI), launched in 1999, in this study for making comparisons between industries. The DJSI is based on a thorough sustainability assessment. Companies are assessed with regard to general as well as industry-specific sustainability criteria based on sustainability trends. The criteria cover economic, environmental and social issues with a clear focus on long-term shareholder value creation. Examples include criteria on corporate governance, knowledge management, environmental performance, human rights policies and other factors.
In total, the assessment comprises around 50 different criteria in each industry. The analysed companies are assigned a sustainability score and are ranked accordingly within their sector. Note that DJSI is only one way of measuring corporate sustainability; however, the scientific nature of the DJSI and the large samples involved mean that the DJSI results provided a good basis for our analysis.
Sustainability across industries
Sustainability success is very diverse across industries, and there is a great variance in the scores that the DJSI awards to different firms. The industry with the lowest level of sustainability, Real Estate, scored 39 percentage points lower against the DJSI objectives than the highest performing industry, Personal & Household, which was awarded 71 per cent. Conversely, the differences between the sector leaders were very small: the highest sustainability score went to the sustainability leader in the Chemicals industry, which was awarded only 10 percentage points more than the Utilities sector leader, which had the lowest score. From all our studies of the research, we concluded that there are minimal sector-specific issues preventing companies from achieving high sustainability. That is, we concluded that high levels of corporate sustainability can be achieved in any industry.
Yet, it’s important to note that sustainability is a term that can be measured in at least three ways:
- Economic A company that is sustainable economically is able to generate enough revenue not only to meet current expenses and provide profits but also to allocate funds to continue to maintain the expense of being sustainable in all other ways. Such companies have strong codes of conduct, willingly comply with government regulations, and set and keep management priorities that encourage not only sound corporate governance but also timely, effective risk and crisis management.
- Environmental A company that is environmentally sustainable is not only consuming resources in a responsible way (for example, avoiding pollution), but it also helps to renew resources. Such companies are deemed to be “eco-efficient”, and they excel at being aware of and reporting on their adherence to environmental standards.
- Social A company that is socially sustainable must perform a number of things well. First, it must be seen as a good corporate citizen, one that cares about the communities in which it operates and engages in a reasonable number of philanthropic causes. Moreover, it must respect sound labour practices and human capital development – such as in talent attraction and retention. Lastly, it must be willing to report on its behaviours in these regards.
