The Future of Corporate Sustainability: McKinsey, PwC

According to the findings in the 2011 McKinsey survey “The Business of Sustainability” (PDF), businesses are moving from merely managing reputations to recording and reporting impact and finally to action and engagement. In this article, I will first divide corporate sustainability initiatives into three versions, based on maturity. Then I will present the key challenges for the future of corporate sustainability.

Sustainability version 1.0

Building a responsible corporate image was one of the first business cases for sustainability initiatives. Managing reputation of a company amongst customers and other stakeholders was the mandate of Sustainability 1.0.

Often labelled as green washing, many corporations portrayed themselves as environmentally responsible without much evidence and by masking environmental wrongdoings. The focus was to create a perception and legitimacy that the business is performing activities in line with societal and environmental values.

The “Sustainability Leadership Report—Measuring Perception vs. Reality” (PDF) released by Brandlogic and CRD Analytics shows how some corporations focus more on building green reputations than on their green performance.

Sustainability version 2.0

Sustainability 2.0 focuses on non-financial performance (sustainability) reporting. Organizations like GRI and CDP have established global standards for quantifying and reporting requirements. I would call the increasing corporate focus on reporting sustainability performance data as Sustainability 2.0.

The 2010 accountability statement (PDF) of Vancity, Canada’s largest credit union, is a great example of leadership in integrated reporting (financial and non-financial data) across the globe.

Sustainability version 3.0

So, what is Sustainability 3.0? It is a state in which employees in an organization realize the importance of sustainable business practices and make decisions while coordinating with relevant stakeholders.

The key challenge for Sustainability 3.0 is engagement. Realization of top level strategies comes when every employee is engaged in the journey. The engagement of stakeholders will allow strategy implementation to be more effective. Engagement is the key to Sustainability 3.0.

That’s the corporate sustainability initiatives in 3 versions, based on maturity. In addition to the above mentioned reports by McKinsey, Brandlogic, and CRD Analytics, another major report released recently is the “14th Annual Global CEO Survey” by PricewaterhouseCoopers. As I read these reports, I see three key challenges emerge for sustainability 3.0 that will be faced by corporations in the coming years.

Key Challenge 1: Creating change leaders for total engagement

The McKinsey study states that 94% of the respondents say their companies have integrated sustainability into strategic planning. The next stage—Sustainability 3.0—is to catalyze key employees to translate C-suite strategic commitment into organization-wide action. How do we create change leaders, or tribal leaders, who will enable such a transformation within their organizations? Building an enduring corporate culture of sustainability in the business organization where all employees are highly engaged in the formulation and implementation of sustainability initiatives is a key challenge for sustainability in businesses.

Challenge: How can we create change leaders or influencers at all levels of organization to promote sustainability?

Key Challenge 2: Communicating the value proposition

The PricewaterhouseCoopers study suggests that companies could save costs by minimizing business risks, improving operational efficiencies, and improving employee retention, morale and productivity. CEOs across the globe also believe that there are business opportunities arising by creating sustainable innovative products and services. Despite strong business cases, the C-suite still hesitates in accepting sustainability as a business value proposition. Probably the same kind of resistance existed when new concepts such as “Quality” was introduced, which eventually led to widespread adoption of “Total Quality Management (TQM)”.

Challenge: How can the value proposition of sustainability be communicated so that it becomes a cultural norm or policy within businesses?

Key Challenge 3: Co-creating policies for growth

Any provincial or federal election adds uncertainty towards sustainability initiatives in businesses. Public consultations to formulate policies to mitigate recession and climate change risks can be more effective by having a shared agenda across the public, private and NGO sectors.

Even though governments across the globe are coming up with regulatory policies, the private sector will have to work closely with the public sector, NGOs, and other stakeholders to arrive at common shared agendas. Half of the CEOs surveyed by PwC are optimistic that a shared agenda would be more effective than it has been in the past.

Challenge: How can businesses, governments, and other stakeholders co-create policies that promote socially responsible growth?

What’s your view on the future of sustainability: Sustainability 3.0? What other challenges do you foresee in businesses for the implementation of sustainability initiatives in the future? Share your comments below.