Principles versus Pragmatism: Business case for Sustainability

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

The UN global compact came up with ten principles to create a present and future where business could be a force for good. It redefined the way a corporate strategy and values need to be defined and aligned with their responsible action to be grouped under the 'responsible business' category. The ten principles come under compliance and support for human rights, upholding good labour practices and eliminating discriminatory and forced labour, taking up proactive environmental stewardship, and fighting against corruption. Several institutions across the planet joined the UN global compact, including private companies, large corporations, universities, and think tanks amongst other actors. These steps started to inform corporate, business, and operational level actions and strategies where the principles are considered at every stage and new improved/ responsible practices are introduced.

Broadly, responsible businesses that embed sustainable practices take several different initiatives but they could be classified under firstly, actions that do not harm people or the planet while making a profit; secondly, focus on their ESG (environmental, social, governance) investments in areas and consequently make a larger social or environmental impact. Over the years, companies that have been active with their corporate social responsibility (CSR) initiatives are not considered within this group anymore.

To make a larger impact on society and the environment, businesses can work on improving the lives of the people they impact. e.g., creating green services, and making value chains more sustainable and inclusive. It could be also via making investments that go a long way to promote and support social sustainability. Also, firms in any given sector may consider choosing to work with 'responsible businesses' who are their partners, investors, and suppliers to leave a positive impact in the end. So, in the end, it is not only about the firm in question but also its partners and wider associates who share similar values and goals.

Be good, and be followed

It pays to be good! A study on 30k people in 60 countries conducted by Neilson explores what factors influence and shapes consumer perception towards brands. One of the key findings of this work was that about two-thirds of the respondents would be willing to pay for sustainable products. Particularly, the millennial groups are willing to pay between 10-25% more for sustainable products and be grouped under 'responsible consumers. However, the results were not consistent in developed countries where some of the major social ills are not heavily prominent, such as income inequality, limited job opportunities, and lack of safety in the workplace.

Shared Value Creation

Good business practice builds a competitive advantage for firms. Selected large corporations address inter-connected global goals and improve their ways of doing things, some being more innovative and cost-efficient than others. This is also reflected in their share price growth over the years. The investment magazine Barron regularly publishes this information. The competitive advantage sources not only from how businesses are conducting their operations more responsibly but also due to their increased stakeholder engagement. Sustainable businesses, who tend to normally fall within the 'responsible business' category anyway create value for all stakeholders, including employees, supply chain partners and wider associates, civil society, and the environment [planet, broadly speaking]. Harvard Professor and Strategy guru, Michael Porter and together with Mark Kramer proposed the now popular 'shared value creation' theory that argued exactly the above, i.e., a business can be a force for good and can generate economic value by identifying and addressing social problems which intersect with their business. The struggle is often, however, to experience the trade-off which makes a few stakeholders better off at the cost of a few others feeling worse off. There is rarely a pure 'win-win' scenario. Regular dialogue with stakeholders [could lead to reduced conflicts and increased cooperation] and revising business practices and running new iterations gradually helps a company to be better positioned and maintain its niche competitive advantage with the core sustainability agenda. Finally, another critical advantage of working closely with wider stakeholders on ESG issues helps build critical support mass over the long term and helps businesses deal with external forces that can affect firms thereby creating longer-term capacity building and risk management strategies.

Sustainability push from the consumers

Besides the focus on the planet, while also safeguarding and feeding the bottom line (keeping shareholders content), consumer interest in sustainable products is another significant dimension. Consumers today expect to see transparency, fairness, and the global impact of brands that they want to associate themselves with. This has become a matter of perception more than anything else really, in the sense that there is no real scorecard that is used to measure these impacts quantitatively. However, the evidence of footprints of large corporations in particular is easy to track today than it was a generation ago. Several studies by Deloitte and Global Economic Forum are evidence that consumers are more loyal to brands that have a positive ESG image. Another study shows that about two-thirds of consumers studied in six countries believe they "have a responsibility to purchase products that are good for the environment and society" — 82% in emerging markets and 42% in developed markets.

A strong ESG and sustainability scorecard is yet to come

Going forward with such strategies is a given, it is not going to phase out anytime soon – with the increasing focus on SDGs, ESG, triple bottom line, and the UN Global Impact – organizations are creating newer forms of partnerships, alliances with other actors such as government, local agencies, communities to work together and contribute towards larger objectives. However, companies shouldn't go on overpromising on these wider societal goals [people, planet, profit] and instead should be focusing on a small number of more actionable goals that leave the highest impact. This is largely also because the resources for any organization will continue to remain limited and therefore investing selected key resources for a few high-impact goals will also make the financial sustainability goals look healthier and more feasible.

Proactively leading sustainability initiatives that bring together the entire ecosystem is the most resource-expensive measure that 'responsible businesses' can do. Sustainability, being the unifying agenda, creates a common ground that establishes connections between stakeholders and their goals, even more so when a company is global. Reframing sustainability strategy in the current global economic situation where the dynamism and complexity of change are increasingly becoming more overwhelming. What is still missing, however, are stronger scorecards while 'things to do are plenty and so are 'how to do strategies that convince stakeholders well enough in board rooms and beyond. There is still a long way to go before organisations can sharpen their strategic perspectives, build effective management structures, and control systems to streamline corporate sustainability commitment into clear metrics, and measurable performance. We still have to put a lot of pieces together to be able to comment on and capture a firm's ESG profile and the essence of its 'responsible business' identity.