The Opportunity in Sustainable Business
The Opportunity in Sustainable Business
Anna Lindstedt, founding partner and senior advisor at Ethos Evaluate and founding partner and Board member at Ethos International, recently talked to Alumni about the growing pressure on boards to take the risks and rewards around sustainability seriously.
Anna Lindstedt, founder Ethos International.
A slow start
Anna founded her company, Ethos International, thirteen years ago at a time when boardrooms were still in the dark about how sustainability might be a key component to their business strategy. “I would approach organisations with my message around the importance of their corporate responsibilities and they would raise their eyebrows and think I was a strange tree-hugging evangelist with no relevance to their company.” laughed Anna, “They take me a lot more seriously today!” During the first five years of building the advisory firm, Anna would be lucky to schedule a meeting with the lowest authority individuals within her target market, five years later and she was talking to executive leaders and for the past three years she talks directly to board members.
Growing awareness
This absolutely correlates with the findings of Alumni’s latest International Board Survey. Three years ago, more than half of our board level respondents never discussed climate change in the boardroom, this year only a quarter are leaving it out of their discussions, and the amount of board members spending more than 9 hours discussing it over the past 12 months has trebled.
How much time has your board spent discussing climate-related risks, its impacts and disclosure in the last 12 months? 2018,2019,2021
At first, sustainability was broadly lumped into the CSR agenda and many companies paid lip service to it, states Anna, “Box-ticking exercises were common, organisations might make a significant donation to the charity Save the Children and consider their corporate/social responsibilities met, never mind that they were selling T-shirts made by the very children they wanted to be seen to save.”
Happily, today those responsibilities are increasingly treated with the level of respect that they deserve and there is a growing awareness of not only the risks involved through not running a sustainable business but also the rewards and competitive advantages that can be gained through doing so. “There is definitely a growing understanding at board level that they need competency around sustainability in order to be able to challenge leadership and satisfy investors. For me as an advisor this is great for business, but I expect that nominating committees will be looking increasingly at expertise within the board to support a strategic direction of travel on sustainability.”
Alumni is familiar with this shift as it is apparent from their day-to-day work with nomination committees, and through reviewing and changing board composition. Sustainability is clearly on the agenda. However, boards are not seeking pure sustainability expertise in non-executives but asking for potential board members with the usual broad strategy and execution expertise, who are also aware of the risks and opportunities involved with sustainability. The goal for them is that in-depth expertise is held within the organisation but is also augmented by external advisors to the board.
“As more and more investors choose to tilt their investments towards sustainability-focused companies, the tectonic shift we are seeing will accelerate further. And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company’s stock.”
EU is a driving force behind a wider remit
The European Union has been a driving force in forcing matters of sustainability onto the boardroom agenda with its ever-increasing levels of reporting directives and legislation. For several decades, multinational companies were encouraged to take responsibility for their supply chains on a voluntary basis. It was hoped that the voluntary approach, guided by several international frameworks, would suffice. The evidence available from academic research to commissioned studies, has made it clear that the voluntary approach is not enough.
The EU continues to push today as the European Commission’s 2021 work programme includes a proposal for a directive on sustainable corporate governance that would also cover human rights and environmental due diligence. In addition, the initiative EU Taxonomy is a leading science-based classification system expected to become the global standard for determining whether an economic activity can be considered environmentally sustainable.
“Of course, this not only a European matter” states Anna, “it affects every organisation that does business with Europe. The ripple effect of legislation that has started will cause much larger waves. Not even the less democratic nations will be able to ignore sustainability if they want to do business and be competitive.”
Ethical supply chains to sustainable value chains.
“The remit for organisations today is not just to stop using fossil fuels and lower C02 emissions in organisations linked to production, extraction and energy sectors” explains Anna, “It is a far broader remit affecting businesses of all sizes and shapes. The time is coming soon when all companies, large and small, will be held responsible for the impact that they have on their entire value chain. This responsibility will be for the value chain (upstream and downstream) and the implications are enormous. Businesses will not only have to demonstrate that they are aware of the risks but show that they are mitigating those risks and, where they fall through, they will have to make reparations. If that isn’t enough to get sustainability matters onto the boardroom agenda – I don’t know what is?” warns Anna.
“Fifteen years ago, boards were uncomfortable talking about their financial risks,” continues Anna, “Now it is normal. Boards must get comfortable talking about their sustainability risks and adopt a transparent and balanced approach to what is ultimately inevitable.”
“If there is one area where the world needs our leadership, it is on protecting our climate. This is an existential issue for Europe – and for the world. We do not have a moment to waste on fighting climate change. The faster Europe moves, the greater the advantage will be for our citizens, our competitiveness and our prosperity.
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More carrot and less stick
“I am often called in when an organisation first becomes aware of a direct risk associated with sustainability” says Anna, “But I truly wish that I was called in when organisations first became aware of the opportunities that come with following best-practice, responsible policies. Being ethical and sustainable can really impact growth in a positive way. Early adoption of doing business the right way gets your organisation ahead of the curve, it is a significant differentiator for both customers and suppliers who want to keep their own value chain sustainable. It also costs significantly less than being forced into being reactive and playing catch-up.” Anna cites the cases of the Swedish burger chain Max and the coffee brand Arvid Nordquist who were both early adopters of sustainable practices and who now stand above their bigger but slower moving peers for profitability and popularity in Sweden.
“*A few years ago we embarked on a journey with a goal to enable fossil-free living in one generation. This is not our sustainability strategy. It is our business strategy – and it is sustainable.”
“Sustainability in business is a movement that can’t and won’t be stopped.” states Anna, “It is better that boards take a proactive stance today and welcome the opportunities that it presents than simply be dragged into a future they can’t control.” Anna concludes.
*https://www.youtube.com/watch?v=lSeA4kjb39Y
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