Sustainable Business Week: Vital contributions to society require change in thinking

By Nick Main, Jackie Robertson

There needs to be an understanding that caring about society and the environment will lead to a more enduring, resilient and profitable company. Photo / Thinkstock
There needs to be an understanding that caring about society and the environment will lead to a more enduring, resilient and profitable company. Photo / Thinkstock

In this series of articles we look at the evolving role of business and of its growing involvement in helping solve some of the most pressing issues that face society. We have also looked at developments in the measurement of success at a country level.

So what steps should a company take to participate in this new direction? What signs would you expect to see as a shareholder, employee or other stakeholder to show a business is on the path?

In this final article we set out some of the activities leading organisations have undertaken and some of the processes to underpin what can be a significant organisational change.

While they are presented in a linear manner they are mutually reinforcing. They will not be achieved with perfection the first time. Even for the most sophisticated business this is a developmental journey.

Start with strategy - To be effective a business must be clear about its purpose, its responsibilities and its values. An awareness and commitment to a broader role in society should permeate the firm as part of its culture. There needs to be alignment between what the company believes, what it says and what it does.

For this to succeed, there needs to be an understanding that caring about society and the environment will lead to a more enduring, resilient and profitable company.

Just as the purpose of engaging with sustainability as a society is to ensure our long-term survival and prosperity on the planet, the purpose of incorporating social and environmental responsibility into business is to ensure the longevity of business and the society upon which it depends. In the words of Peter Bakker, head of the World Business Council for Sustainable Development, "businesses cannot succeed in societies that fail".

As with many fundamental strategy-setting processes, complexity needs to be reduced into a simple, easily grasped statement of intent that includes what makes the business different and what gives it a competitive advantage. Detail can be built back in later.

A framework is needed as a basis for thinking about what the social and environmental benefits of the organisation might be. A common framework is to look at the areas of marketplace, workplace, community and environment. An emerging framework is to assess the flows across six "capitals" as defined by the International Integrated Reporting Council (IIRC) - these broaden the current focus on financial and manufactured capital to include intellectual, human, social and relationship capital (all linked to human activity), and natural capital.

Typically this is a broad engagement within the management team and other interested groups. Those who are closest to customers will have a strong voice and so will those closest to employees.

Engage with a broader group of stakeholders - Leading firms have formal and informal ongoing engagement with a broad group of stakeholders. Often this includes advisory panels, which can not only provide input into the strategy process but also comment on outcomes.

Most businesses understand the need to engage with customers and employees, but increasingly non-governmental organisations (NGOs) can play an effective role on advisory panels. It is now widely accepted that helping businesses in this way is a legitimate role for NGOs and need not cause any loss of independence.

Change reporting and performance measurement - Nothing underpins strategic change and operational performance like reporting. Setting targets and reporting against them is a key feature of all high-performance firms. It is no different for a business which embraces its broader role in society.

The measures are of course different. As mentioned above, one of the most influential frameworks for thinking about broader reporting is the Integrated Reporting Framework being developed by the IIRC.

The breadth of this approach can be seen in the concept of the six "capitals" and the need for firms to discuss their business models in terms of how they enhance or limit these capitals to create value.

Feedback from users of the draft has been that it enforces a focus on wider issues of strategy and risk, and for that alone it is a valuable tool.

Think long-term - Underlying this approach is the need to think long-term. For public companies this is a particular challenge with a requirement for frequent updates on results. Some have changed their constitution to make it explicit they are a long-term investment, while others have refused to update forecasts with its quarterly financial results reporting.

Some have made their position clear through statements from their chief executive to gain market understanding of their approach.

Embrace transparency - Finally, an underlying component of the broader approach is transparency between the organisation and its wider stakeholder group.

These days if a company is not transparent voluntarily, social media and their customers will take care of this for them. This includes transparency along supply chains, where a business accepts responsibility for what has happened in the supply chain that feeds it raw materials and other inputs.

To recap this series - business is changing. Partly because it can, but also out of a sense of responsibility for past financial crises and because the environmental and social issues the world faces are huge and potentially destabilising to business.

Leading practitioners are recasting strategy in terms of the wider benefit their company brings to society and the environment. Sustainability issues are no longer just add-ons but are aligned to basic business strategy.

How companies and countries report success is evolving, as is the debate about what success means.

In NZ the debate does not seem to be at the level it should be. This is a wasted opportunity and also a risk. Leading businesses are engaged but typically not in a public way. We need to be at the front of the debate. Many of these issues align with how we view ourselves, our culture and how we act. Get involved.

Nick Main is a former chief executive and chairman of Deloitte NZ, a past chairman of the NZ Business Council for Sustainable Development and has recently completed three years as the head of Deloitte's Global Sustainability practice.
Jackie Robertson is an assurance partner at Deloitte New Zealand who specialises in sustainability and corporate responsibility reporting, governance and strategy.

- NZ Herald

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