Change vital in achieving sustainability

Dr Wayne VisserRonald Chawatama from the Animus Sustainability Portal for Africa conducted an interview with Dr Wayne Visser (pictured) who is Chair in Sustainable Business at the Gordon Institute of Business Science, Senior Associate at Cambridge University’s Institute for Sustainability Leadership and Vice President of Sustainability Services at Omnex Inc. Dr Visser has been recognised as a top 100 thought-leader in trustworthy business and received the Global CSR Excellence & Leadership Award. He founded CSR International, after obtaining a PhD in corporate social responsibility. Below are the excepts from the interview.\r\n\r\nRC: You have been engaged in the sustainability journey as an academic, researcher, business advisor and auditor and have just launched the new book, Sustainable Frontiers. In your experience, how can we best answer the question we are all seized with: Does society expect profit making businesses to behave in a socially responsible and moral way, beyond the requirement of the law, only as it is the right thing to do or are they bound to benefit?\r\n\r\nWV: I think today that distinction is getting less and less easy to make. If you look at the scale of the challenges we face today, businesses probably will not be in operation much longer if they don’t respond directly to the challenges in a social and ethical manner.\r\n\r\nSo if we look to quantify the question, the World Economic Forum, which represents global business and other leaders, are very clear on the most pressing issues on the table in 2015.\r\n\r\nMost of the issues we are experiencing are what we call social responsibility issues, including issues of inequality, climate change, water stress, and so on.\r\n\r\nI think that, today, business responding to social and environmental issues has become a competitiveness agenda and increasingly will become a survival agenda.\r\n\r\nWhether the market sufficiently rewards companies that are responsible and punishes those that are not is still an open question. Unfortunately, at the moment we don’t yet properly internalise the external costs that businesses and the economy places on the society.\r\n\r\nWe don’t have proper carbon pricing and proper pricing for water for example. Until we get that pricing right, it won’t be as clear economically as it should be. In fact, one study of the top 3 000 companies in the world, found that, if they were to pay for their social and environmental costs, it would take away about a third of their profits.\r\n\r\nSo my perspective on this is that we are now in the process of the second industrial revolution and we have to get to a low carbon economy. There is no way without radical, dramatic change that we can achieve this and there will certainly be winners and losers. Companies that are progressive on social and environmental issues will thrive and companies that are reactive laggards will struggle to survive.\r\n\r\nRC: You mention in the book Sustainable Frontiers that there is a business case for CSR. What is that supposed to mean and are the gains short term or long term?\r\n\r\nWC: Well, I think the business case is getting stronger and stronger. Certainly, it is stronger today than it was 20 years ago – and we understand the key elements very well: reduced risks and liabilities, lower costs due to resource efficiency, improving access to markets, growing new markets, better employee satisfaction, better reputation, which also leads to less transactional costs, and so on. There are also benefits that vary by country and by context. Each country would have its own strong drivers. Government policy or customer demand could be a strong driver in one country, while NGOs or access to markets could be the dominant drivers in another country.\r\n\r\nThe difficulty is that, while some of these benefits are short term (like cutting costs through eco-efficiency), many are only felt in the medium to long term. In fact, sustainability often requires short term investments (e.g. in cleaner technology, or improved working conditions) for longer term returns (e.g. less climate disruption, or better employee loyalty). At the same time, the economic losses from corporate irresponsibility are often only measurable after they happen (e.g. after a pollution accident, or an NGO campaign, or an employee lawsuit).\r\n\r\nThis is why governments have a key role to play in strengthening the business case. Public policy must create the incentives in the market to ensure that sustainable and responsible companies are rewarded economically and unsustainable and irresponsible companies are punished. Instead, today we see many governments subsidising the “bads” (e.g. fossil fuels) and taxing the “goods” (e.g. productive labour). And besides government, civil society can help to reinforce the business case, by positively or negatively impacting the brand or reputation of companies.\r\n\r\nRC: If change is the premise for achieving sustainability today and in the future, should we, and can we (to borrow a question you pose in Sustainable Frontiers) reform the business institution itself? Or is this sector specific. Do we treat carbon intensive industries differently, for example?\r\n\r\nWV: You are right that the golden thread running through the book is unlocking change – and examining why we have been unsuccessful up until today. It is because change is difficult. We are talking about systemic change, changing the whole basis of our economy, changing the way we do industrialisation, even the way we model capitalism.\r\n\r\nWhat we see happening on one end of the spectrum is actual changes in the structures of business, with new forms like Community Interest Companies, For Benefit Corporations (BCorps), Low-profit Limited Liability Companies (L3C), and Social Purpose companies. These are all legal frameworks that are fairly new and which some companies are adopting.\r\n\r\nWe also see the cooperative movement continuing to grow. This is not a new movement, as it dates back to the 1600s and 1700s. But today, there more than 250 million people that are employed through cooperatives. Some of the cooperatives are substantial. For example, Mondragon, which started out in Spain, has more than 74 000 employees today.\r\n\r\nThere is also progress by traditional companies, even in sectors like oil and gas. There is a shift in what is believed to be the role of businesses in society. We sometimes think that business leaders are still stuck with the idea that companies are all about profits and shareholder returns.\r\n\r\nThere was some research done by Cranfield University last year that shows that around 90 percent of both current and future leaders believe that business does have a social purpose, in addition to its economic function. Where the difference lies is that 90 percent of present leaders already believe they are fulfilling that social purpose, while only 20 percent of future leaders believe that business is stepping up to the mark. So societal expectations are changing.\r\n\r\nThe bar is being raised. And as a result, business is changing in different ways, from signing up to new standards and adapting to stakeholder demands, to coming up with innovative new products with reduced social and environmental impacts.\r\n\r\nIf you look at a company like Philips that has operated for more than 120 years, most of its current innovation is now around health and low carbon products. If you look at a company like General Electric, they are betting the future of the company on clean technology and health technology. So this is the kind of change that you see. It is a strategic change, a change in the purpose of business.\r\n\r\nRC: We also have conflict industries, e.g. fast foods, sugary beverages, alcohol drinks, the tobacco industry, and so on. Is there a change in awareness around the responsible use of products? What measures can we place on these sectors to shift them towards sustainability? Would we expect wholesome changes, as we have seen in other companies?\r\n\r\nWV: There are these industries where there is clear tension, a conflict between public interest and private interest and freedom of choice. Tobacco and unhealthy foods are two classic examples.\r\n\r\nI am a strong believer that there is a need for regulation of industries, to make sure that they internalise their externalities. In other words, that they should pay for any social or environmental costs that they cause.\r\n\r\nThere should be regulation for high fat and high sugar foods and drinks. In the case of tobacco, the health costs for individuals and society are very clear. And I don’t believe that currently the industry is paying adequately for these costs. I think those industries will only go so far voluntarily and whatever they do is great.\r\n\r\nThey shouldn’t be discouraged. For example, the way that the cola companies have diversified their products. These companies now have a smaller percentage of high sugar products in their portfolio and they are offering zero calorie alternatives. Wherever we can encourage that voluntary behaviour, that is excellent.\r\n\r\nBut I believe we will require more government regulation in the public interest. That, after all, is the role of Government. Unfortunately, as individual consumers, we don’t always act in our own or the society’s best interest. Unless regulated, these industries will continue to have excessive negative impacts on the society.\r\n\r\nFor me, it is about whether companies have created net positive value. And wherever we can see that companies are extracting or destroying value, they either pay for that or are forced to change their activities to reduce those impacts.\r\n\r\nRC: It seems corporate governance is still a challenge, even for companies in the West, with some managers serving prison sentences for bribes. How can we change this behaviour?\r\n\r\nWC: Indeed. One of the quotes in my first book Beyond Reasonable Greed says sometimes corporate governance is not worth the shredded paper that it is written on. That’s a specific reference back to the Enron scandal. My message is that there are many transactional or administrative or technical aspects to governance, such as the structure of the board, compensation committees and so on.\r\n\r\nBut unless we capture the spirit of corporate governance, and unless we have the hearts of executives in the right place, corporate governance won’t have the effect we want it to have, which is to improve transparency, ethical conduct and good leadership. This should be the essence of good corporate governance. One of the ways of doing this is to take a leaf from best practices coming out of Africa, in this case South Africa’s adoption of The King Report of Corporate Governance.\r\n\r\nThe Western corporate government codes and regulations – from the Cadbury Code in the UK to Sarbanes Oxley in the US – focus almost exclusively on accountability to shareholders, whereas the King Code very early on introduced the idea of accountability to stakeholders and integrating sustainability into the corporate governance framework.\r\n\r\nIt is not a coincidence that Judge Mervyn King ended up chairing Global Reporting Initiative and also setting up the International Integrated Reporting Council. Corporate governance must be about going beyond a tick box exercise to something that enshrines the spirit of corporate governance, namely those principles of transparency, ethics and leadership.\r\n\r\nRC: How can we measure best practice given there are so many different standards with as many different rating agencies? Couldn’t we borrow from other industry practices that have uniform and consistent standards across the globe, such as the accounting standards?\r\n\r\nWV: The proliferation of standards has been a real challenge for business and even for consumers and other stakeholders.\r\n\r\nThis has happened because it is early on in the evolution of these standards. We are starting to see that sector-based standards are consolidating, and overall we are starting to understand what these standards have in common.\r\n\r\nThis completely speaks to this issue because if you are a company, you will be overwhelmed by all these standards. The last time I counted they were more than 450 sustainability standards around the world.\r\n\r\nCompanies have to take an integrated approach and lay out what that means methodologically. You will have to be integrating all your stakeholder assessments, your leadership goals, your risk assessments, your opportunity or breakthrough analyses, and ultimately your processes and management systems.\r\n\r\nIf you do that, the common principles that are in most standards and the issues that stakeholders have prioritised for you are subject to the Pareto effect, i.e. you achieve 80 percent of all the standards’ requirements if you do certain things and then you select standards relevant to your industry, company and country and do the extra 20 percent for those.\r\n\r\nThat is why integrated reporting is starting to be practised and going beyond sustainability reporting. Otherwise, if companies have to meet so many different requirements from the different standards, they would go out of business.