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Smart rules will spur business action, by Paul Hohnen

paul hohnen_DSC9163hr[Originally published on Ethical Corporation]

The 2013 UN Global Compact/Accenture CEOs survey finds that while 93% of business leaders see sustainability as a real challenge to the future of business and 78% see it as a route to business growth and innovation, more than two-thirds think that business is not doing enough to address global sustainability challenges.

The explanation for this contradiction is the lack of a business case. Only a third of the 1,000 respondents believe that they have found a business case for sustainability. A large majority of CEOs (83%) are of the view that more effort is required by regulators to provide the necessary enabling environment. Clearer policy and market signals to support green growth were demanded by 85%.

According to the Sloan MIT 2013 Management Review, published in December 2013, business faces problems at several levels. These include a worrying gap between perception of the sustainability challenges and business’s response or preparedness.

Take climate change, for example. At a personal level, 88% of respondents believe climate change is real and 79% judge it to be a risk to political and social stability. Turning to the business implications, well over half believe that climate change is a risk to their business. Only a third, however, believe that their company is prepared for climate change risk.

Looking at the social, environmental and economic pillars of sustainable development as a whole, a similar pattern emerges: 70% of executives think that sustainability issues were either “significant” or “very significant” but only half of respondents assessed that their firms were “largely” or “fully” addressing these issues.

On the question of whether their company has developed a “clear business case” or “proven value proposition” for its approach to sustainability, nearly two-thirds of respondents in the Sloan/MIT study replied in the negative.

Based on annual findings since 2009, the Sloan/MIT data suggests that only a third of companies (37% in 2013) believe they have identified a business case – a figure similar to that found by Accenture.

Tipping point 

Both studies support the conclusion that while some companies have been able to harvest the low-hanging fruit, it appears that (as the Sloan/MIT report puts it) a “crucial inflection point” has been reached, where companies are unable to move to the next level without help.

The Sloan/MIT report recommends more industry-led measures. These include greater use of standards and initiatives (such as the UN Global Compact), more emphasis on identifying material sustainability issues and increased use of partnerships.

All the evidence, however, suggests that we have long since reached the limits of what voluntary action alone can achieve. The limited business-wide uptake and impact of most voluntary standards speaks for itself.

We will not have a business case for sustainability unless it is hardwired into the regulatory landscape. At the macro-level, two main changes are required across the board.

Firstly, there now needs to be a more open, sustained and positive debate in support of regulation. Here, the need to align short-term human behaviour with long-term human interests must be paramount.

Business and media share a responsibility for helping design a mix of carrot and stick regulations based on measurable positive sustainability impacts, and for taking the case to the public of the need for sometimes tough and expensive measures to safeguard our common future.

The narrative that “we can’t afford it” is a nonsense that must be challenged, including by the financial sector. With all the evidence suggesting that it will cost us more to adapt to collapsing and changing natural systems than to avert those disasters, it is time for business (and not just the insurance industry) to give a value to the assets at risk and to define how the business case for a green and sustainable economy can be made.

Secondly, reporting of environmental, social and governance performance needs to be made the norm and expectation, not the exception. Sustainability won’t be mainstreamed until it is made a conscious part of the business, whether as an incentive or an obligation. Recent progress on this by the EU is encouraging.

This means that all large organisations must be required to measure, assess and disclose their sustainability policies and impacts, and how they plan to respond to emerging sustainability challenges. Equally, institutional investors and ratings agencies should be required to take this information into account.

And in all these matters, it is in business’s interests to lead rather than be forced to follow.

Paul Hohnen is Senior International Associate with ACCSR, Associate Fellow of Chatham House, and a member of the Ethical Corporation advisory board. Paul has been a diplomat, director of Greenpeace International and a director of the Global Reporting Initiative.

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