Many people think that corporate sustainability is about tiering or protecting reputations. But that's wrong, it goes much deeper. It's about corporate survival. Is the organization ready for the transitions that are happening right now? That's a strategic question. A strategy is the plan to achieve a future state, the desired future state. A strategy is about the goals of the firm. What plans do you make for the company to thrive in future? Of course, that backs the question of what that future will look like, which is where sustainability comes in. For example, what happens to an airlines or a car makers business model and profitability if a serious carbon tax is introduced? What can they do to deal with such scenarios? This is not trivial. The numbers are so big that such companies can easily go bankrupt. This doesn't apply only to such heavily pollute of industries. No sustainability can affect business models and strategy for any company in any industry. So if your strategy does not include sustainability, you're basically saying that sustainability does not matter, that it doesn't affect you, and that would be a serious mistake. Just look at the stock prices of banks hit by money-laundering scandals, or those of tobacco companies hit by divestments. So you might ask, why is this so much more relevant now than it was in the past? Well, there are a couple of reasons for that. First, there's a growing societal pressure to get rid of so-called negative externalities. Negative externalities are the costs created by companies but borne by society. Think of pollution or the health costs of tobacco. A society is increasingly putting limits on such behavior by means of regulation or taxation. That process is called the internalization of externalities. The second reason for the ground strategic relevance of sustainability is rapid technological change, which speeds up internalization processes. Just think of what Tesla did to the car industry. By getting battery cost down, it effectively forced the rest of the car industry to start building electric vehicles as well. A third and related reason is rise of intangibles. Intangibles are non-physical resources like innovation, human capital, brands, and data. Just 40 years ago, intangibles made of less than 20 percent of stock market's value, as most value was in property, plants, and equipment. But nowadays, intangibles make up about 90 percent of value and that is an issue, as intangibles are much harder to manage and control than physical assets. They're more susceptible to sustainability issues and especially social issues. These processes reinforce each other and they make the management of sustainability issues all the more pressing. So how can companies adapt and prepare for the transitions that are happening? You need to go back to the basics of the company. What's a company's purpose? How does it provide value to society? How does it make money? Who are the main stakeholders? Are there serious frictions between their needs? What kind of externalities does the company generate? What are materials sustainability issues at the company? Which of those does the company have a competitive advantage or disadvantage? What long-term trends might affect a company? Etc, lots of questions. Company management needs to ask and answer such questions to get to the core to determine how future fit its business model really is. If it's not future fit enough, it needs to change its business model and strategy accordingly. For example, an equipment maker might find out that it is essentially selling service rather than the machines it is making. Then it might make sense to no longer sell the machines, but rather the service by means of a lease model. A coffee company might find out that its current model is extremely wasteful and that it could create bunch more societal and financial value by not merely buying beans, but the complete stream of materials that coffee farmers produce. My call to action is this. Companies need to get rid of their continuous drive for efficiency. Too much time is spent on small tweaks to current process. Please think big. Ask the above questions. Not asking them is an enormous waste of opportunities to create much more value for societies and shareholders alike. Please ask.
