A Sustainable Business Future: The 7 Challenges

Mar 13, 2017 | Blogs

Now that we’ve entered 2017, the team at Corporate Citizenship have been busy thinking what sustainability challenges face business for the year ahead. We explored trends that might shape the sustainable future for business and have identified seven key challenges.

Loss of trust in the global corporation

The Edelman Trust Barometer, an annual survey recording levels of trust in primary institutions, released its 2017 results in January. It revealed trust in business had dropped in 18 out of 28 countries surveyed and only 52% of respondents trust business to do what is right. These statistics reflect a change toward how business is perceived, which has previously evaded public cynicism in comparison to other institutions, like the government and the media.

It is perhaps the frequency and scope of wrongdoings being reported that lies behind the declining trust in business. Corporate scandals across all sectors and regions continue to grab news headlines. From price-fixing and fraud to emissions cheating, bribery and dire worker conditions, it is no wonder public confidence in business to do good is waning.

If there is one silver lining, it is that such malpractice is making it to the public consciousness. The outrage that follows forces the behaviour change of companies. The challenge for business then is to address the widening trust deficit.

Transparency is the new norm

The problem of trust can be closely linked to the need for transparency. One result of the declining trust in business has been a growing pressure on companies to openly report on their activities. There are plenty of examples to choose from. The UK’s Modern Slavery Act and the recently passed Gender Pay Gap Regulations highlight the trend towards mandatory corporate disclosure on certain issues. There are now growing demands for compulsory transparency on other matters, such as tax.

The direction for business is clear. Transparent reporting is becoming not a nice-to-have, but an expectation. Whilst greater disclosure is likely to reveal failings and mistakes, this must be seen with a degree of positivity. It is better to openly communicate areas needing improvement than to be seen covering shortcomings.

Rapidly growing inequality

The 10th Sustainable Development Goal (SDG) is aimed at reducing inequality. However, according to Oxfam seven out of 10 people live in a country that has seen a rise in inequality in the last 30 years.

Growing inequality at levels not seen since the Industrial Revolution has resulted in increased public scrutiny of, and populist reactions against, globalisation. The tension between free trade, free movement, rates of employment and standard of living has been manifest in the recent political upsets to the status quo in the UK and US. For businesses, which for twenty years have been operating on a pro-global basis, this poses a major challenge.

Ironically, global businesses are possibly best placed to address the inequality that has fuelled such retaliation. For business, collaboration with NGOs, governments, social enterprises, peers and competitors can help to create viable and scalable solutions to inequality.

Increased hazards and risks to business

The issues facing society at times seem overwhelming. As we move into 2017, substantial progress is still needed to adequately deal with a number of problems, including climate change, resource insecurity, waste, diversity, corruption and much more. The implications for business are huge. As the problems persist, the standard channels of business risk are all greatly affected:

  • Strategic risk – On a fundamental level, contemporary societal challenges provide a strategic risk for companies operating on dated models. Resource depletion is the clearest example of how a business relying on intense consumption can come undone.
  • Operational risk – In an increasingly turbulent world, unexpected failures across supply chains will produce extreme operational risk.
  • Financial risks – As issues intensify, companies must be increasingly savvy to avoid major failings to financial returns. It has been estimated, for example, that there could be $US100 trillion worth of stranded assets in the fossil fuel industry as policies guide us towards a low carbon economy.
  • Compliance risk – Policies to tackle societal challenges will put pressure on companies to adhere to better standards of practice. Close attention will need to be paid to what is expected by law to not get caught out.
  • Reputational risks – The mounting responsibility on companies to take action on certain issues means there is greater risk to how businesses are perceived by the public. Malpractice or even Inaction will become ever more damaging to reputation.

A call for global system change

Society must change its ways. We know that. What perhaps has been lacking in the past is a rallying cry for all of us to do our part – governments, NGOs, individuals and businesses. With the advent of the SDGS we might now finally have that. Championing partnerships and collaboration, the SDGs have picked up the call for global behaviour change where the Millennium Development Goals left off. Now more than ever, businesses are being recognised as holding a strong position of influence to bring change for the better. The challenge is for business is to respond to this call and play a central role towards a sustainable future.

But how do you encourage system change? Karin Laljani, Managing Director of Corporate Citizenship believes there are three factors that drive behaviour change in any situation; the carrot, the stick and the baseball bat.

For sustainability, the “carrot” is the business-case. This is the cost savings, risk reduction, improved brand perception, employee engagement and sustainable growth that come with responsible behaviour change. The “stick” is the regulations and damning exposés that force responsible conduct. The “baseball bat” just might be the extreme events that force action – the more frequent and destructive natural disasters, widespread resource failure and violence.

Long-term thinking is critical

Humans are hard-wired to prioritise short-term concerns. It is our hunter-gatherer survivalist instinct. It means we are cripplingly poor at dealing with things that don’t seem immediate.

The challenge for companies is to move beyond this focus on the near-term. There must be one eye, if not both eyes, on the changes to come in the long-term. This will require CEOs to go against a core human and business inclination. Short-term profit maximisation must be sacrificed in favour of long-term value.

A new movement

All of these factors are set within the global context of a new movement consisting of three elements: The Great Migration, The Great Convergence and The Great Imitation:

  • ‘The Great Migration’ describes the global movement of people, jobs, labour and supply chains. It requires a new model of business which is flexible to these changes and to global trends.
  • ‘The Great Convergence’ will see business, governments, NGOs and individuals united in the global goal to address the challenges facing the world. With the launch of the SDGs, we are set on the path towards collaboration in finding solutions to our global challenges.
  • ‘The Great Imitation’ might be the negative indirect consequence of corporate responsibility being pushed into the mainstream. It is the risk of companies imitating a sustainable business without actually taking the action that backs it up.

These 7 trends will shape the future of business in the years to come. The companies that can survive the many risks will be resilient to these challenges. The companies that will garner value will see these challenges as opportunities.