If the world is to meet the UN Sustainable Development Goals (SDG13), which demands urgent action to tackle the climate crisis, companies in every sector must act. So-called ‘green business’ refers to a model in which companies have no negative impact on the environment, economy or community. However, is ‘green growth’ little more than a myth?
Consumer perception is shifting with a green goal in mind. Products, foods and lifestyles with a high carbon footprint are seeing a decline in popularity as consumer awareness of environmental issues increases. A study from PwC found that over 60% of consumers believe that climate-related issues are the most important issues facing the world, with 75% saying that they have changed their consumption patterns towards a more environmentally-friendly lifestyle.
With consumer demands changing, sustainability has become a buzz word for businesses. This is illustrated in a statement from the Governor of the Bank of England in early 2019, which says that companies that do not adjust to a net-zero world by 2050 ‘will fail to exist’.
The Importance of Sustainability in Business
Sustainable business must go beyond the typical corporate social responsibility agenda and step up as leaders of a green revolution instead of waiting for the government to deliver solutions. As pointed out by Olivia Sibony, CEO at SeedTribe, “businesses are uniquely positioned to find innovative solutions to address SDG13 in a way that is financially attractive.” Businesses must therefore prioritise the planet in their bottom lines, following a ‘triple bottom line’ model where people, planet and profit are given equal weighting.
Among the leaders of the rapidly-growing green growth push include The Global Investors for Sustainable Development (GISD), comprising of CEOs from 30 of the world’s biggest companies. The GISD includes global firms such as UBS, Santander and Aviva, who have promised to improve their investments in achieving the UN’s SDGs. They aim to do this through revisiting existing and new business models to align with the SDGs, creating portfolios for sustainable investments and addressing any obstacles to long-term investment in sustainable development. This is followed by the recent news that activist hedge fund TCI, which manages assets worth £22 billion, has pledged to target directors of large companies to disclose their carbon emissions. Sir Christopher Hohn, founder of TCI, says, “investing in a company that doesn’t disclose its pollution is like investing in a company that doesn’t disclose its balance sheet.”
The IMF’s October 2019 report states that environmental, social and governance (ESG) funds are small in quantity but fast growing, representing $850 billion in assets (less than 2% of the total global investment fund assets under management). The IMF also points out that a lack of consistent definitions over what constitutes ESG investments means that global asset size estimates range from $3 trillion (J.P. Morgan, 2019) to $31 trillion (Global Sustainable Investment Alliance 2019). However, climate-concerned investors are on the rise: with over 1,715 signatories representing $81.7 trillion in assets under management, the UN-backed Principles for Responsible Investment (PRI) is an obvious example. This initiative helps to accelerate the integration of ESG into decision-making through guidance and investment analysis. The PRI recently forecasted that tighter government climate regulations by 2025 could wipe up to $2.3 trillion in company valuations in industries ranging from fossil fuel producers to car producers. The pressure on companies to increase their transparency and accountability in the face of a climate emergency is a sure sign that the dominant model of business-as-usual is becoming irrelevant.
Green Growth or Greenwash?
This ‘green gold rush’ poses a fundamental question of whether companies are advocating for sustainability because they have a genuine intrinsic care for the environment or if they’re exploiting the discourse surrounding sustainability in order to grow their bottom line.
Debates and questions of such ‘greenwashing’ are increasingly rife. Greenwashing is the process of painting a false picture about the sustainability of a company’s products with an aim of capitalising on consumer trends. Common examples include oil companies featuring the importance of biodiversity on their websites whilst continuing to be the force behind its destruction. Futerra’s 2015 Selling Sustainability Report offers 10 basic rules for avoiding greenwashing, including being wary of ‘green’ products from a ‘dirty’ company, irrelevant claims, and ‘fluffy language’.
The Sustainable Business Model
Helping consumers to distinguish between ‘green’ and ‘greenwash’ is the growth of ‘B Corporations’. So-called B Corps must go through rigorous externally-led analysis that measures their environmental and social impact, from supply-chain to community engagement, to gain a B Corp certification. Accountability must be legally built into the sustainable business model, balancing people, planet and profits as part of the global movement calling for ’business to be a force for good’. The B Corp Directory helps consumers navigate over 3000 B Corps in 150 industries.
The corporate world is faced with increasing pressure to adapt to a more sustainable business landscape from both investors and consumers. With climate-consciousness and calls for corporate transparency on the rise, it won’t be long before businesses who have no regard for the environment will be left behind. Global Head of Sustainability at Capgemini, James Robey says, “We firmly believe that those organisations failing to grasp the sustainability agenda will cease to operate in the hard realities of the environment beyond 2030.”
The increasing divestment of large hedge funds and financiers away from companies that do not disclose their carbon emissions or adapt their business model makes this proposition even more of a reality.
Climate change presents an opportunity for transformational change in the business world; green growth can be a reality if greenwashing is left behind and transparency and real change are prioritised. Businesses must look to overcome the fundamental challenges of this transition and focus on balancing planet, people and profit.