I recently read, with great satisfaction, The Conference Board’s May 2012 report titled, “Linking Executive Performance to Sustainability Performance.” The report highlights the efforts of businesses such as Intel, Xcel Energy, Alcoa, ING, National Grid, Shell, and Suncor Energy in tying executive pay to sustainability performance. This, more than any mitigation goal or renewable energy installation, signals that these businesses are elevating the focus on sustainability to its appropriate organizational home – the realm of the executive. It is here where all other activities associated with developing and executing long-term strategies for success in a rapidly changing world already reside.
When I talk about Ecova with friends, I’m often asked why big companies invest in sustainability. A variant of this question I hear repeated in business settings is: what amount of resources do we really need to allocate for our sustainability programs?
I link these questions because they point to a troubling ambiguity concerning the drivers for corporate sustainability efforts.
To unpack the answer to both questions, let’s ground ourselves on terra firma. Businesses do not operate in a stock exchange. Their employees are not numbers on a spreadsheet. Corporate enterprises operate in the living, breathing, physical world that is undergoing unprecedented and rapid transformation.
Raw material costs are increasing, energy volatility continues to mount, and significant water stress is making its way into board room banter. Our human infrastructure is being stressed by everything from changing precipitation patterns to the degradation of ecological systems on which we depend for food, water, and shelter.
Simultaneous with major changes to our physical environment, our mental and social environment is radically transforming as well - with younger generations accustomed to unprecedented access to information. These Millennials and Gen X’ers are breaking down traditional hierarchies and demanding that businesses align private profit with societal need.
If corporate sustainability programs are primarily focused on helping organizations attend to the environmental and social aspects of the world in which they operate, then never before has sustainability been more central to corporate strategies for long-term economic and competitive success. When energy was plentiful and waste went “away;” when information took days - not milliseconds, to travel the world; and when we could honestly claim ignorance of the effects industrialization has on global ecological processes, then sustainability efforts could rightfully be perceived as just window dressing, and separate from Milton Friedman’s famous singular corporate prerogative: to increase profit.
Today, profit maximization is neither at odds with, nor indifferent to, environmental and social concerns. They are aligned. Why, really, do companies invest in sustainability? Insofar as they are able to see the world and its marketplaces not as they were, but as they will be, they know they must. And how much, really, should they be investing? More than they can likely afford given that the threat of insufficient action is a threat to long-term competitiveness, profitability, and in some cases, existence.
For companies wishing to pursue anything greater than short-term profit, executive compensation must be tethered to sustainability metrics. In addition to the obvious need for such alignment when it comes to developing strategies for success in dynamic times, I would go so far as to suggest such executive oversight and alignment of sustainability efforts are critical to maintaining societal trust in businesses’ ability to play a leadership role in creating a more environmentally and socially vibrant future.