How Should a Business Leader Understand Sustainability?
Interview: Lucy Marcus, TV host of “In the Boardroom with Lucy Marcus,” board director, and columnist, by Timothy Nixon, Managing Editor, Thomson Reuters Sustainability
Nixon: How should a business leader understand the over-used term sustainability? What is it? What isn’t it in a business context?
Marcus: There was a time when “sustainability” was looked upon as a greenwashing exercise for corporate marketers. It has evolved significantly to denote things that are fundamental to how successful businesses function. Environmental, social and governance issues are critical to the long-term value of a business. For example, there was a recent article about Coca-Cola and how it has evolved its thinking about climate change and global warming, realizing that it dramatically affects their business, particularly water risk. No matter what kind of business you are in, any sector in any part of the world, you have to think about sustainability and the environment in which you are operating, and the environment you are creating through your operations – that is quite a real business issue. It’s not a superficial “feel good” issue. It’s a dollars and cents, yen, pound and euro issue.
Nixon: So are we really talking about a shift in emphasis? Businesses have always had to worry about the environment, and governance and social issues. So is sustainability really about just more focus in those directions?
Marcus: Businesses are being held much more to account on those issues. There was a time in the not so distant past when oil spills, chemical spills, or other manufacturing disasters where covered up and underreported. Transparency, social media, active investigations, and more vigilant governments, mean that businesses can no longer operate in that manner and must be transparent. They really have no choice.
Moreover, it’s in everyone’s best interest for businesses to operate in a transparent and sustainable way. What’s more, investors care. Many investors, and not just those classed as “activist investors,” but any investor cares about how you are running your business on a day-to-day basis. If you are doing things which are detrimental to the health and wellbeing of your workers and to your community, that impacts your business. It’s bad for reputation and it’s bad for your business as a whole, and your investors care. When we look at news about labor practices as in the stories about Apple and Foxconn, or in the retail sector with fires in garment factories in Bangladesh, these highlight fundamental business issues of corporate responsibility and sustainability issues. Moreover, they fall under the risk agenda for the board.
As a board member, I’m asking questions such as: How are we building things? What materials are we using? How much energy are we using to build them? Will it work better in the future? How is it impacting our workforce? How long will it last? What impact is it having on the community? And that is just the start.
In the past, businesses were left to get on with things on their own, but now there is an entire ecosystem of stakeholders who care. Governments care. Investors care. Employees care. The entire ecosystem of stakeholders cares about how we conduct business. There is no hiding from that, nor should anyone running a business want to, because in the end, if we are doing business well, in a way which benefits everyone, then it also benefits the business as whole.
Nixon: So, sustainability is without doubt a much bigger issue now. What are the repercussions of not taking it seriously and acting on it?
Marcus: Sustainability has become more important because it is all about future proofing the business so it really lasts. It is not about having a marketing strategy to make sure that everyone knows you are doing the right thing, but rather actually doing the right thing. Importantly, if you do not behave in a responsible and sustainable fashion, the repercussions are large. From violating government regulations to breaching the trust of workers and your community, the business’s reputation will be tarnished and you risk losing a lot, including a negative response from the investor community. The issues around behaving as a responsible and contributing member of the community are important, and we are living in a much more transparent world where information is more readily available. So rather than trying to hide from it or find ways around it, the best companies are rising to meet the challenge, meaning that even if it is more of an up-front investment to do businesses properly, they know that it will pay off down the line. Doing the right thing has never had so much benefit for the bottom line . . . . read more here.
This interview originally appeared on Thomson Reuters Sustainability.