Earlier this month Ernst & Young and GreenBiz Group released a new study, entitled ‘2013 Six Growing Trends in Corporate Sustainability.’ Based primarily on a survey of the GreenBiz Intelligence Panel of executives and thought leaders engaged in sustainability, this study reveals that “companies are increasingly connecting the dots between risk management and sustainability by making sustainability issues more prominent on corporate agendas.”
While the study shows companies in general move forward when it comes to sustainability, it seems that they still make progress incrementally rather than taking the fast lane. Nevertheless, it is still interesting to learn about the current trends in sustainable business and this report presents six of them that are shifting now the business landscape. Here they are:
1. The “tone from the top” is key to heightened awareness and preparedness for sustainability risks
This trend presents a shift in the corporate sustainability conversation, focusing now more on risk reduction and mitigation. The study explains that “companies that have a greater level of engagement from the CEO and the board have much closer alignment between what they voluntarily disclose (such as CDP and DJSI) and what they are mandated to disclose (such as 10-K filings).”
According to the study, 68 percent of the participants said, “my organization regularly discusses sustainability-related risks and opportunities with investors and other stakeholders.” The report offers this statistic as an indication of a growing involvement of the C-suite in sustainability issues. This data is interesting as it contradicts the anecdotal evidence we hear quite often about CEOs and CFOs talking with analysts and investors who never ask about sustainability.
In general this trend reflects a phenomenon we see in many companies – when the CEO is passionate about sustainability then the company takes this issue seriously. When the CEO doesn’t feel sustainability is that important the company usually lags behind.
2. Governments and multilateral institutions aren’t playing a key role in corporate sustainability agendas
The study asked “which groups have a positive impact on advancing sustainability on a global basis,” and the top five groups are shared, with government and other lumped together in last place after large corporations, consumers, non-governmental organizations and industry groups.
However, a recentMIT/BCG study explored similar issues but had somewhat different results. This group found that when participants were asked “which stakeholder groups are driving the sustainability agenda of your company today,” governments/policy makers/regulators showed up in the middle of the pack in terms of influencers.
So the word is still out on the strength of this trend. The higher rank of governments on the MIT/BCG study might reflect the fact that this is a global study while the E&Y/GreenBiz Group study was conducted mainly among American executives – it is quite possible that European and Asian executives view governments more favorably than their American counterparts.
3. Sustainability concerns now include increased risk and proximity of natural resource shortages
51 percent of the participants said they anticipate their company’s core business objectives to be affected by natural resource shortages such as water, energy, forest products and rare earth minerals and metals in the next three to five years. Not surprisingly, water (76 percent) was ranked by survey participants as the number-one cause for concern among resources “most at risk.”
There is no shortage in reports explaining the importance of deploying an effective water stewardship strategy or the need to manage the short- and long-term climate physical risks, but the question is to what degree companies really take it seriously. To use an expression from PwC, we’ll probably need more ‘postcards from the future’ (i.e. severe weather events and their economic impacts) to see these concerns evolve into action.
4. Corporate risk response is not well paired to the scale of sustainability challenges
The study notes that even though 79 percent of the participants said sustainability risks were incorporated into their enterprise risk framework, only three in 10 companies said they had run scenario analyses, and 36 percent said they had no plans to do so.
The dissonance between these findings could be explained in various ways, but my guess is that similar to the dissonance we see with consumers when asked about purchasing sustainable products, behavior (in this case conducting scenario analysis) provides a better indication of the way companies truly address sustainability risks than self reporting.
5. Integrated reporting is slow to take hold
Companies find the idea of integrated reporting compelling, according to the study, but for now, “its promise remains elusive as companies grapple with whether, when and how to develop such reports.”
The main drivers behind integrated reporting seem to be investors and customers – 63 percent of the survey participants said that increasing sustainability awareness within these groups is the reason for creating an integrated report even though it’s not mandatory now.
6. Inquiries from investors and shareholders are on the rise
Half of the participants reported that they are receiving an increase in the number of sustainability-related inquiries from investors and shareholders over the past 12 months. “That underscores growing interest, particularly by institutional investors, many of which now view corporate sustainability issues as material to shareholder value,” the study explains. As mentioned, this contradicts some anecdotal evidence indicating otherwise.
The growth of queries, according to the report, also mirrors the growth of shareholder proposals on social and environmental issues, as well as the support they receive. In another report this proxy season E&Y adds that a signiﬁcant number of these proposals are likely to be withdrawn as proponents and companies reach agreement.