You can think of sustainability as a feel-good issue that you can support when it’s convenient to do so. Or you can think of it as the emerging context in which businesses must operate.
You can think of sustainability as a feel-good issue that you can support when it’s convenient to do so.
Or you can think of it as the emerging context in which businesses must operate.
Sustainability, as a management concept, has different meanings to different people. From a business perspective, sustainability may generally be defined as the processes by which enterprises manage their economic, environmental, and social obligations and the opportunities to create long term competitive advantage and growth. These are also often referred to as people, planet, and profit in popular media.
As a business manager, one can think of sustainability as a feel-good issue to be supported when it’s convenient to do so. Alternatively, one can think of it as the emerging context in which businesses must operate. Evidence from leading companies shows that sustainability can reward both the top line and the bottom line when it is embedded into day to day business management and operational execution.
In PwC’s 2011 Annual Global CEO Survey that included business leaders here in Rwanda, CEOs indicated that they saw big opportunities in making their enterprises responsive to social expectations. Whether they primarily sell to businesses, government or consumers, most of the CEOs interviewed by PwC anticipated changes to their business strategies because customers are factoring environmental and social responsibility practices into purchasing decisions. Here in Rwanda, our business are interacting more and more with the outside world, either through seeking to attract strategic international investors, seeking overseas sources of finance or exports. Sustainability, as a management concept, is therefore very relevant to us.
How then do businesses make sustainability part and parcel of how they operate? Few people would argue against protecting the environment or responsible citizenship. But few businesses make decisions with environmental and social impact as a routine concern. To achieve an operations orientation, companies will move through a sustainability maturity path along a continuum from compliance to obligation to efficiency and finally to leadership. In the process, they will embed sustainability in operations. We will look at the first two stages in this article.
The first stage in the maturity path is compliance with regulations. Enterprises at this stage are concerned with embedding compliance mechanisms in their processes because they must do it. Compliance with government regulations is a key external driver and the legally required must-do task. Regulations, whether large and small or direct and indirect will constrain decisions and options. It can be difficult to assess the direct value for complying with regulations beyond avoiding civil penalties. But the economic and other impacts used to justify the regulations can be helpful in setting a common valuation for various sustainability activities, which then can create direct enterprise value. While compliance alone has been an adequate corporate response in the past, social attitudes toward sustainable practices will have more impact in the future. Just being compliant will not be enough, because regulations will be slow to catch up to market expectations and competitive reality.
Dealing with stakeholders’ perceptions of corporate obligation to act is the second stage of maturity. It is typically associated with the large-scale impacts of industry and what to do about them. Larger enterprises attract the highest expectations, or obligations, to act. Even if their practices are not much different from others or not under their direct control, industry leaders are expected to "do the right thing” or risk reputational damage and lost business if they don’t. Enterprises that have taken appropriate actions have benefited from bolstering their reputations. Meeting the obligation by promoting sustainable methods becomes a source of differentiation from competitors.
In meeting the obligations, companies can turn environmental and social challenges into new business opportunities. By seizing these opportunities, they shape the world and advance toward leadership.
We will examine the last two stages in this continuum on the next article.
Samuel Kariuki is a manager with PwC Rwanda