CSR is dead, part 3: Blazing a trail to business transformation
Leading businesses are leaving behind the partial, illusory and inadequate practice of CSR.
Instead, they are choosing necessary task of business transformation: Integrating sustainability principles into the heart of everything they do. We have explored the profound implications this shift has for each of our businesses. But the remaining question is, how will such a transformation actually come about?
To deliver big changes, we need equally big shifts in how we approach the challenge. Developing an integrated approach to sustainable business means that we have to operate in a fully integrated way, right through each of our organizations. At the heart of this challenge is how we organize ourselves for transformation.
Close down the CSR department
Functional silos don’t deliver on integration — they never have and never will. Integration will not occur if we create yet another professional ghetto. Look at our performance on the sustainability conference and event circuit, with the same crowd of sustainability people talking to each other. Outside of our cozy circles, who is listening?
We need to think through the best operating model for change. The best impact surely will be delivered through a devolved, decentralized approach to sustainable business, rather than a centralized CSR function.
There is nothing to fear for anyone currently involved in a CSR role. It is not a case of rendering one’s skills redundant, but rather in re-purposing how those skills are deployed.
Closing down the CSR department actually could be liberating, with less time spent on the endless treadmill of data collecting and reporting and more time on the life-affirming task of making things more sustainable.
Where would the CSR experts go?
There are more than enough challenges for all of us to work on, at least until 2050 — that far-off and almost mythical date when we have to be operating at zero carbon, or better. Between here and there, our time is much better deployed in enabling genuine transformation within each aspect of the business DNA.
In all cases, we shift the emphasis from number crunching and reporting to more strategic roles based on coaching, challenge, encouragement, demonstration, influence and knowledge transfer. In short, we need to become teachers par excellence.
Of course, reporting is still needed, but with the shift towards fully integrated business reporting, the compilation of this work should be left with those focused on the annual company report. All we need to do is feed through the right information, stories and data to the integrated reporting team.
Investing for change: You don’t get something for nothing
Lord Stern put forward the compelling economic case for climate change back in 2006. He since has upgraded his views, urging us to reinvest 2 percent of GDP each year if we are to deal with the worst impacts of climate change.
Translating this each business should be reinvesting at least 2 percent of annual sales revenue just on climate change strategies. For a medium-sized enterprise turning over $150 million in sales, that would mean reinvesting $3 million each year.
We know, from a 2014 survey conducted by 2degrees, that most organizations dedicate between $30,000-$74,000 of their operational budget to CSR reporting activity. This level of investment, of course, barely will scratch the surface in terms of sustainable business transformation.
We also know there are significant concerns over companies’ general long-term reinvestment plans. As Laurence Fink, CEO with BlackRock, the world’s largest asset manager, recently warned, “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks."
The business case for sustainability is proving to be, rather reassuringly, sustainable. Mounting evidence demonstrates that sustainability-focused companies significantly outperform conventional firms in both stock market and accounting performance. In addition to the 2011 Harvard Business School Study, we now see some important findings from Morgan Stanley’s Institute for Sustainable Investing. Following a review of 10,228 open-end mutual funds and 2,874 separately managed accounts, over the last seven years, sustainable investments were found to significantly outperform conventional investments.
Plenty of historical precedents show what happens to businesses that fail to reinvest adequately — and we only can start to imagine the commercial carnage for companies that fail to invest in a sustainable future.
All business leaders need to ask themselves, how serious are we about the required level of change, and are we prepared to reinvest adequately in meeting the business transformation agenda?
The buck stops in the board room
Ultimately, the buck stops in the board room. The serious discussions and decisions on how our businesses reinvest and move forward are made here.
Business transformation can come about only when the board genuinely opens up to debate the real issues at hand, and is fully prepared to explore and act on the insights and implications that will emerge from this authentic debate.
In fairness, this requires a more radical mindset for company directors, quite different from what was needed in the past. But our boards need to develop capability and insights at a faster rate than the pace of the emerging challenges they face. Credibility is at stake.
What will it take for our boards to act more mindfully? There are arguably two key enablers here.
There is a pressing need for a toolkit to help boards explore the full range of opportunities at strategic and as operational levels — and to explore the full range of implications and trade-offs that could occur, in a safe environment of simulation and experimentation. In so doing, they can develop a robust business case framework, quantifying and demonstrating the holistic range of sustainability business benefits available to the business, its customers and key suppliers. A new toolkit is already underway; I look forward to sharing more later this year.
Having a toolkit is one thing, but there has to be openness to explore. Could it be that for us to unlock transformational change in business, we must undergo individual transformation first? Could mindfulness help us overcome our deepest fears as we wrestle with the deep and fundamental changes required, if we are to truly transform to a sustainable future?
We have to overcome barriers and drive the right behaviors.
Boards will act — when they have to
If boards don’t voluntarily put sustainability at the real heart of the agenda, then perhaps we need to get more radical with business regulation.
Business law is not usually included in the discourse on how to achieve a sustainable future. Thankfully, Beate Sjafjell and her team at the University of Oslo are helping us to redress the balance. Sjafjell recognizes that neither the voluntary contribution of business nor the current regulatory framework is sufficient in driving the level of change that is needed.
She puts forward an elegant argument for reforming company law — what she refers to as the regulatory ecology of companies — leading us to solid proposals not just for regulation, but also practical actions that companies can adopt.
To encourage the shift away from business-as-usual, Sjafjell proposes that the duties of the board should encompass the drawing up of a long-term, life-cycle based business plan. This is at once radical, practical and good business sense.
Change we must
It is time to get past the debate on CSR. It is done.
We must go deeper, integrating sustainability in all its dimensions right through the enterprise. We need a complete redesign of business purpose and strategy to meet 21st century challenges and ensure our shared prosperity.
We need to adopt responsible growth strategies, based on a robust alignment and within planetary limits — and business models based on real purpose — adding real value to people, communities and planet.
Of course, developing an integrated approach to sustainable business means that we have to operate in a fully integrated way, right through our organizations.
We should close down our CSR departments and make sustainability part of everybody’s job. This will mean re-deploying our CSR people and sustainability skills on the real task in hand: Transformation.
But we need support and investment. We need an open and authentic boardroom dialogue and decision-making process — enabled with the right toolkits and mindful approaches, and supported by robust regulatory frameworks — including business plans based on the entire business lifecycle.
We know there is an issue with the scale and pace of change in the business world. The move towards integrated reporting is encouraging, but now we needs to follow through with integrated action.
This article first appeared at 2degrees.