Sustainable business practices as a foundation for future-proof governance

Sustainable business practices are increasingly being understood as major drivers of resilience and value creation, instead of merely as an ethical imperative or a box-ticking exercise. They are based on the raising of awareness by the Global Risks Report as well as the requirements under the UN Sustainable Development Goals. In the case of important risks and strategies, these practices can help companies to remain competitive in a world that is characterised by ecological, political and social upheavals.
Challenges due to changes in the general conditions
In the context of modern corporate governance, the ability to strategically catalogue the socio-ecological landscape as well as to respect the Planetary and Social Boundaries is increasingly becoming the basis for economic success. The relevance is demonstrated, in particular, in the promotion of so-called situational awareness in management; this enables senior executives to accurately predict risks and opportunities in the environment around them and to embed the appropriate measures into strategy.
The shift in global risks towards ecological and societal issues clearly shows that companies can no longer remain focused on short-term earnings, but instead have to align their strategies with the needs of future generations. The World Economic Forum’s ‘Global Risks Report’ stresses that extreme weather events, critical change to Earth systems and biodiversity loss constitute the most severe global risks over a ten-year horizon.
These risks require individual companies and the financial and capital markets collectively to be aware of their roles as transformation drivers. This is where situational awareness comes into play. A company must be prepared for disruptive changes that will be brought about by, for example, stricter regulations or altered consumer needs. The capital market must understand which business models should be financed in the future. These transformations will require sustainability to be clearly integrated into the business and financing strategies.
However, the scientific facts about the Planetary and Social Boundaries care neither about policy trends nor short-term regulatory changes. The boundaries should in fact be considered as a fixed reality that companies need to take into account irrespective of any policy changes.
Embedding sustainability into strategy
From the perspective described above, sustainability is no longer regarded as a constraint, but in fact an integral part of future-oriented governance. A strategic focus on the principles of sustainability necessitates not only the embedding of environmental and social criteria into the core business, but also supporting the long-term viability and regeneration of ecological systems. In 2015, in the UN 2030 Agenda, a total of 17 Sustainable Development Goals (SDGs) were set for social, economic and environmentally sustainable development. The so-called SDG ‘Wedding Cake’ model depicts these 17 goals in an illustrated overview. Here, the four environmental goals - clean water and sanitation, climate action, life below water and life on land (UN SDG 6 and 13-15) - are considered to be the prerequisites for achieving all the other goals.
It is therefore not enough to view sustainability initiatives as a short-term boost to your company’s image. Instead, companies are called on to initiate a transformation that will reduce the environmental impact of their entire value chain and define their fields of action by means of stable long-term goals. The successful realisation of such a transformation will based on the company’s ability to perceive environmental and social challenges as competitive factors and to exploit them. Such an approach has the potential to create strategic advantages and to build a resilient business.
The SDG ‘Wedding Cake’ with its three levels:
Biosphere
Society
Economy
Future viability requires the willingness to transform
Integrating sustainability into strategy necessitates a profound understanding of the underlying global trends and their impacts on the business. Therefore, the key question that arises is: how can companies successfully design their future-proof business models within the Planetary and Social Boundaries and, at the same time, safeguard their competitiveness? This is the starting point for additional issues with specific approaches regarding the operational implementation of sustainability strategies, such as for example,
- ‘Green Growth’ - the EU’s intended growth path that decouples value creation from CO2 emissions, or else
- the effect of sustainability aspects on a company’s ‘bankability’, or in other words, the prospect of better financing conditions.