Transforming Sustainable Business. How next practices in sustainability can unlock opportunity. Climate change, unfair labor practices, corruption and other sustainability issues have become daily fixtures in newspaper headlines—and are rapidly taking their place alongside financial targets as top CEO priorities.
Yet, the more that leaders work toward their early sustainability commitments, the more they discover how much further they need to go to prepare for a future where competitiveness and sustainability are inseparable. As sustainability best practices become more widely adopted, pioneering firms are taking a giant leap. They are pursuing the next practices that will allow them to achieve step changes in their business while helping to deliver a truly sustainable next economy. We believe that those who move first will unlock significant business benefits.
A truly sustainable economy will look different depending on your industry.
In agriculture, it will mean poverty elimination in smallholder farmer communities, increased productivity to keep up with a growing population and environmentally restorative practices.
For automotive companies, it will likely mean full adoption of autonomous vehicles fueled by clean energy, with a sharing model allowing high vehicle utilization.
In finance, the investor community will fully integrate environmental, social and governance (ESG) considerations into its investing approach.
There is no question that sustainability is moving up on the corporate agenda.
When Bain & Company surveyed 297 global companies, 81% said sustainability is more important to their business today than it was five years ago, and 85% believe that it will be even more important in five years. The evidence is everywhere. Sustainability is now incorporated into two-thirds of companies’ core missions. Signatories of the UN’s Principles for Responsible Investment now represent over half of the world’s institutional assets, and major investors like BlackRock are calling for companies to serve a social purpose.
Yet even as awareness grows and industries respond, companies realize that their efforts to date are just a drop in the bucket compared with what is required and the potential value at stake.
Among companies surveyed, 99% believe we need to either maintain a fast pace of progress or increase the pace of progress. These companies recognize that our current trajectory will have immense human and financial costs. Consider that recent reports predict a paltry 5% chance of meeting the Paris Agreement targets for emissions reduction.
Or that by 2025, two-thirds of the global population could be living under water-stressed conditions, and that 700 million people may be displaced due to water scarcity by 2030. Further, the aging workforce combined with the oncoming automation wave will create challenging labor markets and rising income inequality in future decades, according to recent Bain research (see “Labor 2030: The Collision of Demographics, Automation and Inequality”).
On the other hand, these daunting forecasts also contain huge opportunities for companies that pursue solutions. For example, the Business & Sustainable Development Commission estimates that meeting the UN’s Sustainable Development Goals could generate $12 trillion in business savings and revenue, and create 380 million jobs, by 2030.
How will businesses respond?
Some companies are less advanced on this journey, still focusing on the basics of their sustainability strategies and the early stages of implementation. Based on our research and work with clients, however, sustainability leaders1—as well as followers looking to leapfrog to the top—will increasingly adopt six “next practices” to turbocharge both sustainability and business success.
Using “future back” thinking to create transformative ambitions.
Setting targets from a baseline is an important part of making progress, and many companies with unambitious goals could benefit from stretching them. But instead of making incremental improvements, leaders will take a more transformational approach by thinking from the future back.
What do we mean by that? They will create a vision of what their future will look like in a truly sustainable economy and then craft an objective to fit that vision. In fact, the share of companies that have adopted a truly transformative sustainability aspiration will nearly triple over the next five years, from 9% to 26%, according to our survey. These companies will follow the lead of trailblazers like Tesla, which envisioned a long-term global need for sustainable vehicles and energy, adopted a mission to “accelerate the world’s transition to sustainable energy” and built a business model to meet that aspiration. Interface, the world’s largest modular carpet manufacturer, set an ambition in 1994 to turn a petroleum-intensive business into the first environmentally sustainable, and ultimately restorative, company. It has since been exploring radical product innovations and business model changes to help it achieve its “Mission Zero” by 2020.
Making “sustainable” irresistible for customers.
Over the next five years, customer loyalty and revenue generation will replace public reputation and cost savings as the primary drivers for sustainability action among leaders, according to our survey. Today, the most commonly cited barrier to success is low customer willingness to pay for sustainable goods. But forward-thinking companies aren’t deterred by this obstacle. They are expanding their reach beyond a niche group of customers by making sustainability part of a holistic value proposition, using innovation to create attractive product attributes, such as price savings, customer service or performance, that are complemented by sustainability.