Why business must be sustainable — or lose the license to operate

Why business must be sustainable — or lose the license to operate

Green paper cutout image by mark cinotti via Shutterstock.

As I've said before, it is time for an ambitious "fourth stage" of environmentalism.

This builds upon a 1986 Wall Street Journal op-ed by Fred Krupp of EDF, which advanced a "third stage" of environmentalism that challenged advocates to work cooperatively with business — instead of attacking — to answer environmental concerns and acknowledge the critical role business plays addressing legitimate social needs. Although criticized when they began in 1990 and, in fact, still questioned today, the resulting partnerships have improved environmental performance in many companies and have been widely adopted by nonprofits.

Unfortunately, partnerships haven't been enough, as Joel Makower concluded in this year's State of Green Business report: "The data show, corporate environmental progress seems to have stalled."  

Partnerships have demonstrated that businesses can make sustainability improvements when they choose to. In the fourth stage of environmentalism, we must insist on it. This isn't a choice but an obligation; society can revoke a business's social license to operate or grow for failure.

The fourth stage represents a new rule for how business is to be conducted. We've been through lots of rule changes — child labor, food safety, fair labor, smoking, bike helmets and automobile safety, just to name a few. New rules go through a long arc of adoption starting with ignorance of their import, exploration and demonstration of how they work, growing commitment by society (often reinforced by legislative action), and finally ending with acceptance. Like many in the past, this rule eventually will be internalized and sustainability will become the floor upon which businesses operate.

Worried business folks can take a deep breath because requiring sustainability won't be bad for business. First, the change won't happen immediately. We spent the last 25 years building "partnerships," just testing the waters. We can spend the next 20 years adjusting to this new reality. (But not much more — we are in a hurry.) We'll all have time to adapt. Sustainability will move from being a choice to becoming a standing challenge. Overcoming challenges is what business does best.

Second, at least for well-intentioned businesses (which is to say most businesses), this norm will make life easier — firms that insist on unsustainable practices will be punished instead of rewarded. To get a sense of what the change will be like, contrast today's shock at seeing a child in a car without a car seat with a few decades ago, when car seats were nonexistent. Society imposes a variety of pressures to get kids strapped in so that most people today wouldn't think of driving with a loose child in the car. Not only is it unsafe and illegal, it would be embarrassing and, were there an accident, horrific. The fourth stage will make not being sustainable at least as unthinkable as not wearing a seatbelt.

In practice, the rule will imply important changes in business mindsets. Sustainability, which has been an option, used selectively and usually to improve profitability, will become a standard cost of doing business. Businesses will need to internalize responsibility for sustainability. Its centrality to the survival of the business will mean it can't be off-loaded to government agencies, nonprofit advocates or sequestered in the "green ghetto" of a CSR office. If sustainability doesn't fit the business model, it is the business model that must change.

The sustainability expectation is congruent with and reinforced by a couple of other welcome, emerging mindset changes in business. Firms that compete well in the "we must be sustainable" world will tend to repudiate the idea that their objective is to maximize shareholder value, an idea that GE's Jack Welch called "the dumbest idea in the world." These firms understand that profits are necessary but not the point. A sustainability mandate will help reinforce a multi-stakeholder perspective on business performance.

Perhaps even more important is overcoming a focus on short-term profits, a position for which Unilever's Paul Polman has become the poster boy. One clear implication of longer-term planning horizons is the ability to increase investment in sustainable technologies by lowering internal hurdle rates. WWF and its partners have estimated American businesses could meet their 2020 carbon reduction targets and show a $190 billion profit, if only the investments were made.

Making sustainability just another cost of doing business will create a level playing field upon which businesses compete. Partnerships have demonstrated that sustainability can increase profits. However, the sustainability obligation will hold even when it costs money. After all, we don't accept unsafe pharmaceuticals because safe ones are more expensive. The pressure to lower the cost of sustainability will increase investment in shared infrastructure and continue to drive multi-firm and multi-sector collaborations. The beef industry's drive to define and produce sustainable beef is an example of the kind of collaborative effort that will benefit from this new focus and urgency.

I'm not arguing this will be a trivial transformation. That's why it will take a generation. Clearly the definition of sustainable will continue to be debated and will change as conditions change. Whether an individual business is meeting its obligations will also continue to be debated. To demonstrate their good faith and commitment, businesses will want to increase transparency around their sustainability efforts, including planning, learning, investments, initiatives and results.

Perhaps the best outcome, the fourth stage will eliminate a dissonance between our dependence upon business and our concern for society and future generations. Employees, customers, suppliers, investors and neighbors will be confident that the businesses they rely on aren't trying to steal from their futures. Employees, in particular, won't have to turn off their concern for the environment when they start their workday, nor will customers have to worry about threats to their children from the products they buy.

Green paper cutout image by mark cinotti via Shutterstock.