In the recent 2010 Pricewaterhouse Coopers Global CEO Survey, covering 1,198 corporate leaders, 64% of Asian companies' leaders indicated that reputational advantage was the leading driver of their responses to climate change initiative 2.
Management of sustainability in the past may have been driven by priorities in health and safety, quality, compliance, brand reputation, philanthropy and other areas. In today's business, it encompasses the growing expectations of society for businesses to do their part in addressing higher expectations of environment, social and corporate governance (ESG) initiatives. ESG issues need to be included in strategy discussions, risk management and decisionmaking to signal their importance and to align effective management incentives with financial and ESG performance. It is a natural evolution for existing good business practice and with growing environmental and social pressures, it is becoming a key strategic issue.
Good sustainability performance is linked to long-term returns and a lower risk profile. For example, companies with sustainable practices see an increase in customer loyalty and trust. Conversely, investors that support a company that focuses on short-term profitability by taking "shortcuts" could have lower returns in the long-term horizon.
Sustainability is increasingly being used as a framework by businesses to help manage change related to environment and social issues. These include new technology, government policies and consumer demand. Sustainability influences decisions that balance economic, social and environmental impacts.
The figure illustrated shows how a company's value can be significantly driven by intangible value. An example would be trust and social & environmental performance. Strategically, being sustainable helps protect a company's value, and this will appear more attractive to the company's stakeholders and Socially Responsible Investors.
Sustainability in a Strategic Context2
Companies that fail to engage their stakeholders can adversely impact their ability to protect existing revenues or expose themselves to unnecessary costs.
Publicised cases have demonstrated that a company's failure to manage any of these areas well, will likely result in an adverse impact to market value and repercussions could be long lasting. Sustainability dictates the need for a shift in shareholder mindset to a stakeholder mindset.
In its 2010 Trust Barometer survey findings, Edelman reported that more than half of its 4,875 respondents concluded that all stakeholders are equally important and should be considered when a company CEO makes a key business decision. Only 14% opined that shareholders of the company were the most important, with the rest indicating all other stakeholders had an equally, if not more important say than the shareholders3.
From a global survey of over 700 respondents, the top influencers for an organisation's environmental behaviour are compliance with legislation/ regulation, managing corporate reputation and cost savings.
Top influencers for environmental behaviour4
2 PricewaterhouseCoopers, "13th Annual Global CEO Survey", 2010
3 Edelman, "Edelman Trust Barometer", 2010
4 PricewaterhouseCoopers, "Appetite for Change", 2010