The year 2021 was when sustainability went from a “nice to have” for companies to becoming an essential part of how they do business. According to KPMG, a consultancy, in 2020 over 90% of the world’s 250 largest businesses now release a sustainability report. More than 2,000 businesses are working with Science Based Targets to reduce their harmful C02 emissions. What does corporate sustainability mean, and why is it important? Find out more in this article.
“Corporate sustainability” is a business strategy that balances the short-term need for financial gains with a longer-term awareness of a company’s impact on the world around it, including its workers and staff; community residents, and the natural environment. Companies that adopt corporate sustainability goals want to make sure they treat their staff and suppliers fairly, use natural resources responsibly without waste, and do not pollute the environment.
If this sounds familiar, it’s because corporate sustainability has its roots in sustainable development, which is an approach to how a society uses the resources we need to sustain us. The most commonly-accepted definition of sustainability was put forward in 1987 by the United Nations Brundtland Commission in a report called “Our Common Future,” also known as the Brundtland Report. It defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs." This definition contrasts with an unsustainable development model focused solely on short-term profit. Many governments and companies now align their environmental and social policies with the UN’s Sustainable Development Goals.
It’s important to understand the concept of “stakeholder model” when considering this aspect of corporate sustainability, or indeed sustainability in general. Firms have traditionally been managed for the benefit of their shareholders and investors. Starting in the 1980s, the idea gained traction that a company can create value from benefitting a broader group of stakeholders such as employees, creditors, customers and suppliers. These longer-term interests should be balanced by more immediate considerations of quarterly or annual profits.
Companies that adopt a corporate sustainability strategy must keep three main pillars of sustainability when they do business: environmental protection, economic viability and social equity. These pillars are interlocking.
Let’s start with environmental protection. The key concept here “regeneration,” or not to consume natural resources at a greater speed than that at which they are replaced by their organic processes. Reducing and treating waste, cutting harmful emissions, and implementing a circular economy are ways that companies can take the environment into account.
The economic viability pillar relates to balancing the needs of various stakeholders, and balancing the need for short term financial gain with any negative long-term impacts. This pillar is often called corporate governance, because in practice it is the responsibility of the board of directors to make sure shareholders’ interests are aligned with those of the community and customers at large.
The third pillar is social equity. Businesses can only be sustainable in the long term if they treat their workers, staff and the community they do business in fairly. This pillar in turn has three aspects. Employees can receive benefits and flexible schedules that improve their work-life balance. Communities can be engaged with through programs of sponsorship, fundraising and scholarship programs. Lastly, businesses must be aware of any unfair labor practices in their supply chains such as child labor.
Culture is sometimes called the “fourth pillar” of corporate sustainability.
Corporate sustainability is easy to confuse with Corporate Social Responsibility (CSR). Broadly speaking, a corporate sustainability strategy sets measurable environmental, social and governance (ESG) targets for the future to achieve concrete results like lower carbon emissions or a more diverse workforce. CSR is primarily a self-regulating code in the sphere of ethics that seeks to make a company socially accountable for its actions.
The role of corporate sustainability is important because the twin threats of social inequality and climate change can only be conquered if companies work alongside governments. This is because the world’s largest companies continue to grow larger and more important, both in terms of revenues and cultural reach. For example, the European Union’s plan to reduce greenhouse gas emissions by 55% by 2030 from 1990 levels. Clearly, this goal will not be achieved by governments alone.
Companies can benefit as well. Energy efficiency helps reduce costs; recruitment keeps them competitive in terms of talent, and they become more attractive to investors, which presumably helps stock price.