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The Business Opportunities and Challenges of Sustainability 2.0

The global challenges posed by climate change, resource scarcity and social inequality are becoming increasingly urgent. With pressure growing from consumers, investors and governments to operate more sustainably, businesses must adapt to this new reality by changing their business models and value propositions – not only to remain competitive, but to ensure their own survival.

30 March 2023 • 4 min read

The world is grappling with the cascading social, environmental and economic challenges posed by climate change – and recent global events such as the pandemic, trade wars, political instability and Russia’s invasion of Ukraine have further exposed the deficiencies in our current economic systems. With the global population projected to reach 10.4 billion by the 2080s, it’s increasingly clear that it will not be possible to offer everyone in the world the same level of per-capita resource consumption enjoyed by those in developed economies.

Therefore, it’s crucial to think critically about how we can better manage scarce natural resources and collective human behavior. Against this backdrop, sustainability is no longer a peripheral topic but something that must be integrated into every aspect of an organization if it has ambitions to survive long term and remain competitive in an ever-changing business environment.

The ubiquitous instability and uncertainty of the last few years has exposed the fragility of global supply chains, more urgently highlighting the need for resilient and sustainable practices. This means finding ways to ‘decouple’ resource use from wealth creation by making more with less, shifting towards renewable energy sources, adopting circular economy practices and exploring alternative and more localized sourcing options.

Sustainability has become an increasingly vital, cross-sector issue for businesses of all sizes – not only because it aligns with ethical considerations, but because it makes commercial sense.

Sustainability has become an increasingly vital, cross-sector issue for businesses of all sizes – not only because it aligns with ethical considerations, but because it makes commercial sense. Studies have shown that companies committed to sustainability are more likely to be viewed positively by customers, employees and stakeholders – meaning that it is now an imperative factor in attracting and retaining  talent, revenue and continued investment. 

This external pressure, influenced by economic conditions, scientific discoveries, technological change, interest groups, NGOs, business lobbying and political activity, will likely only increase in the coming years.

Demonstrating product-market fit is crucial for businesses to survive, let alone thrive, going forward. As Gen Z and Millennials start to exert greater professional power and influence, we can expect to see more companies incorporating more comprehensive Corporate Social Responsibility (CSR) policies within their business models, updating their value propositions and proactively communicating how their products or services contribute to a more sustainable future.

Creative destruction

Despite the clear commercial and ethical imperative to prioritize sustainability over short-term profit, there may be lingering reluctance to fully commit to this from some quarters. Fossil fuel companies, for instance, will inevitably be more resistant to radical change given their heavy investment in maintaining the status quo of the past. Other organizations may want to avoid the cost of replacing outdated technology, while some business leaders will perhaps convince themselves that their sector is somehow different, or that their size will protect them.

But they can only delay for so long given the ongoing cycle of ‘creative destruction’ – a term coined by economist Joseph Schumpeter to describe the cycle whereby established industries are continually destroyed or reinvented by the arrival of new technologies and business models. 

Legislation is also  becoming a ‘destructive force’ as governments around the world recognize the need to protect the environment and impose increasingly robust regulations on companies to ensure they operate more sustainably. Internationally, new restrictions on greenhouse gas emissions, waste management and labor standards are being put in place, as well as incentives for businesses to adopt sustainable practices, such as tax breaks for investments in renewable energy or subsidies for sustainable technologies (major examples of such initiatives include the European Green Deal, and the newly-launched Industrial Demonstrations Program in the US). 

Threat or opportunity

As the new sustainability agenda threatens old ways of doing business, it also presents myriad opportunities to those willing to take them. Businesses can create value for their stakeholders by becoming involved in social innovation partnerships that address environmental and social challenges, while also promoting sustainable development.

Capital and financial markets are using ESG criteria to evaluate companies, rewarding those that pursue sustainable practices and penalizing those that fail to reflect the environmental damage they are doing.

Increasingly, capital and financial markets are using Environmental, Social and Governance (ESG) criteria to evaluate companies, rewarding those that pursue sustainable practices and penalizing those that fail to reflect the environmental damage they are doing in their prices.

And this is no ‘greenwash’ storm that will blow away. For instance, in his 2022 open letter to CEOs of public companies, Larry Fink, founder of BlackRock, wrote: ‘Most stakeholders – from shareholders to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.’

Paving the way to a better future

Climate change is getting worse and the window to act is closing. This has been made abundantly clear by the recently published Intergovernmental Panel on Climate Change Report.

As businesses begin to acknowledge this reality, they can take the opportunity to differentiate themselves from their competitors by embracing sustainable development in a meaningful, long-term way.

As businesses begin to acknowledge this reality, they can take the opportunity to differentiate themselves from their competitors by embracing sustainable development in a meaningful, long-term way. This can involve initiatives promoting innovation, adopting new technologies and reducing resource use in service of mitigating climate change.

By integrating sustainability principles into the fabric of their business models, companies can not only meet their ethical responsibilities but also benefit from the numerous opportunities that sustainable development presents. Companies that fail to acknowledge the importance of this moment may find themselves significantly disadvantaged at best, obsolete at worst. By contrast, those who are proactive, innovative and committed to sustainability will be the ones to thrive in the future.

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