How companies can improve their social impact, and why this is good for everyone.
Larry Fink, CEO of Blackrock, the world’s largest investment firm, made sustainability the leading theme of his annual letter, again. This time, he leaves no questions about his belief that sustainability is a driving force of corporate profitability. “We focus on sustainability not because we are environmentalists, but because we are capitalists and fiduciaries for our clients,” he said.
Across all industries, sustainability is no longer just a corporate social responsibility (CSR) issue—it’s a business imperative. According to the World Economic Forum’s 2022 Risk report, “climate action failure” was ranked as the number one long-term threat to the world and the risk with potentially the most severe impacts over the next decade, including increasing social inequality. Swiss Re, one of the world’s largest providers of insurance to other insurance companies, estimates the effects of climate change can be expected to shave 11 percent to 14 percent off global economic output by 2050 compared with growth levels without climate change, amounting to as much as $23 trillion in reduced annual global economic output worldwide. At the same time, income inequality even in the richest nations in the world, the OECD countries, is at its highest level for the past half-century. The average income of the richest 10 percent of the population is about nine times that of the poorest 10 percent across the OECD, up from seven times 25 years ago. Together, environmental, social and economic, or governance, issues form the three integrated pillars of sustainable development.
Governments, academics, and nonprofits are not the only ones concerned about sustainable development. Customers and employees have also become much more sustainability-conscious. A recent study by IBM found that nearly 80 percent of consumers indicate sustainability is important to them and 60 percent are willing to change their shopping habits to reduce environmental impact. Sustainability is shaping a new corporate agenda, with 62 percent of executives considering a sustainability strategy as essential in order to be competitive today. Another 22 percent think it will be a requirement in the future. In its 2022 CEO Survey, PWC found that highly trusted companies are more likely to have made net-zero commitments and to have tied their CEO’s compensation to non financial outcomes, such as employee engagement scores and gender diversity in the workforce. In PWC’s view, there is a correlation between trust and the ability to drive change. Similar to Larry Fink, PWC believes corporate competitiveness means moving beyond short-term thinking.
“Sustainability is a business approach to creating long-term value by taking into consideration how a given organization operates in the ecological, social and economic environment. Sustainability is built on the assumption that developing such strategies foster company longevity.” Knut Haanaes of IMD Business School
As expectations by investors, customers and employees rise for companies to take responsibility for their impact on the communities in which they operate and the world, demands for transparency are increasing. Great communications, visionary statements, and good intentions are no longer enough.
While some companies have started putting in place policies and practices to improve their impact on environmental, social and governance (ESG) externalities, others are just beginning to conduct sustainability impact assessments. According to Knut Haanaes of IMD Business School, far fewer have plans to provide social impact assessments, which measure the "net effect of an activity on a community and the well-being of individuals and families." Yet, measuring, reporting and managing a company’s sustainability performance is going to have a greater impact on corporate performance, reputation and risk.
What steps can companies take?
Companies can take diverse steps to manage and improve their sustainability. The following list is not exhaustive and aims to provide business leaders with options to kick-start or deepen their efforts.
In all cases, putting in place a system, however simple, to measure, monitor and report about activities and their impact on a company’s sustainability is rapidly becoming an imperative for businesses that want to differentiate themselves from the competition, create new market and product opportunities, manage and protect their reputations effectively, and be part of the solution.
Abide by the UN Global Compact principles: Review the 10 principles of the United Nations Global Compact and abide by them, whether or not the business becomes a signatory.
Purchase local and Fair Trade: Put in place a “shop local, shop fair trade” purchasing policy for your business.
Review company policies and practices regarding their environmental, social and governance impact: Many companies don’t fully understand the impact of their policies and practices on sustainability, including wage policies, employee satisfaction and environment.
Review the impact of your corporate philanthropy. Align corporate giving programs with your core business and the interests of your employees and clients to generate a shared value for the community and business. Take steps to measure the impact of your company’s giving on sustainable development. The real headlines are about the change your company’s giving is creating.
Review the impact of your supply chain: Understand the conditions under which the products and supplies you purchase were produced; work with suppliers to achieve transparency throughout the supply chain; check the websites of watchdog organizations (e.g., CorpWatch, Sweatshop Watch, International Labor Rights Forum) to find regions, companies and industries known for human rights abuses that could be occurring within your supply chain.
Develop a Theory of Change for your company’s sustainability impact - A theory of change (ToC) is a model of a change process. It describes a pathway including activities and assumptions to achieve a specified social impact. Sopact has built an excellent tool to support organizations develop a theory of change.
Develop a corporate sustainability plan to help your company achieve goals that create financial, societal and environmental sustainability (doing well by doing good).
Become a B-Corp - Certified B Corporations are leaders in the global movement for an inclusive, equitable, and regenerative economy.
Are you interested in learning how Kane can help improve your social impact? Schedule a consultation.
