Global problems that squeeze businesses’ ability to operate are accelerating, but so too are some companies’ readiness to make transformational change
Looking back, pundits might frame sustainable business in North America in 2014 as “the best of times, the worst of times”.
On the side of doom and gloom we have planetary conditions; if the globe were an automobile, nearly every warning light would be flashing. And thus far, neither scientific forecasts of our predicament nor actual extreme events – from droughts to storms – have prompted powerful action by either the US or Canadian governments or companies.
Instead, according to the just-released State of Green Biz 2014 report by Green Biz executive editor Joel Makower, North American business has continued to “tinker” with “incremental changes to their products and operations”. Makower doesn’t pin all the blame on corporations – political leaders haven’t measured up, and neither have consumers, who collectively seem to demonstrate little concern over the fate of the planet’s environment, or its ongoing social ills.
Two recent petitions are telling. When Canadian pop star Justin Bieber was arrested for reckless driving, 200,000 Americans signed a petition demanding the US president, Barack Obama, deport Bieber. At the exact same time a petition to investigate how a company released toxic chemicals into the state of West Virginia’s water supply couldn’t get far past 500 signatures.
Environmental and social progress by companies could be classified as “stalled” right now, Makower says. It’s the twin demons of short-termism – that addiction to short-term profit and return for shareholders that infuses public companies from top to bottom – and lack of a widely accepted alternative vision for how business can be as good for people and the planet as it is economically successful.
Bad news first
Short-termism has led top North American companies to maximise profits before anything else, and very successfully. US companies, for example, are right now sitting on a record $1.7tn in cash. The 2013 Climate Counts study of 100 top companies’ climate commitments found that less than half were setting goals deemed adequate to limit climate change effects to even “tolerable” levels.
Nowhere is this tension between short-term profit and long-term outcomes more deeply felt than in the traditional Canadian industries of energy and mining, with tar sand exploitation the current hot issue for how to damage environment, increase carbon emissions, and not win public trust, while simultaneously generating new and needed economic windfall.
Water is another area where companies get an “F” for failure. Multinational leader Coca-Cola has seen the wisdom of water-conservation and resilience around water, and behemoth retailer Wal-Mart views water management as a coming issue of focus. But overall, US companies’ water efforts are a trickle rather than a flood.
Water use is coming to the public’s attention, albeit slowly. In the US, there has been a recent media spotlight on water use in the fast-growing business of fracking – hydraulic fracturing to extract oil and natural gas. Increased transparency around water is necessary, experts say. The need is not just for disclosure of North American companies’ water use but also transparency about the ways companies make deals with water suppliers, in order to avoid the label of “policy capture”, or muscling in on water policy.
Energy is a slightly brighter spot. There is a growing list of US and Canadian companies, big and small, using 100% green energy for their operations. Oregon-based Intel uses 3bn kilowatt-hours of green power annually. Likewise, tiny Copper Door Coffee Roasters in Colorado gets all of its yearly 1,000kWh from wind power.
In addition, energy efficiency and management – making existing resources go further – is the most-productive method of satisfying future energy needs, says the Natural Resource Defence Council. It’s also an extremely popular area of sustainability initiatives – in 2014, for example, the US financial services sector will allot 71% of its sustainability spending – $1.3bn – to energy management initiatives.
Another good sign is investment banking firm Goldman Sachs describing renewable energy as having a “transformational moment” and continuing its $40bn of planned investments in the sector.
That’s not enough, however. If US department of energy calculations showing fossil fuel use projections are true, the US and Canada are losing the race to convert to low carbon economies in time to keep global warming below the Intergovernmental Panel on Climate Change’s 2C limit. The headlong development of natural gas and oil in North America must take a big helping of blame. As Michael Klare, a professor of peace and world security studies at Hampshire College, argues: “The gravitational pull of carbon is immensely powerful.”
Large investors are growing wary of the continued rush to develop fossil reserves, which is bringing the issue of stranded assets to the fore. In preparation for 2014’s round of shareholder resolutions, Exxon-Mobil and Chevron are among the oil companies that have investors asking for a lot more detail on their thinking around fossil development and climate change.
If the world moves steadily to tax or put a price on carbon, how many of these companies’ fossil assets will lose value and be stranded? Conversely, if the world doesn’t move and we face the worst warming scenarios, investors want details on how companies plan to adapt and at what price.
Ryan Salmon, senior manager of the oil and gas programme at Boston-based Ceres, sums up the debate: “Is it more resilient and economically feasible to develop the assets and adapt to climate disruptions over the longer term? Fossil fuel companies have their own views of the future based on their forecasts for supply and demand. But I don’t think anybody is saying these issues are not legitimate.” Salmon adds that Exxon has already responded to investors with “constructive” discussions.
Chasing ‘big pivot’
Pessimists in the sustainability world have the sinking sensation that corporate efforts are too little and possibly too late to deal with the globe’s pressing and acute climate and resource problems. The optimists, however, point to the many large and small companies in the US and Canada that are aware of and working on the big problems.
“The best businesses understand that the world is changing rapidly and they need to get ahead of that change,” says Aron Cramer, chief executive of the non-profit Business for Social Responsibility. “At the same time the scale is so big and so broad, they need to collaborate with other companies, work with stakeholders, engage with experts, find solutions, and achieve systemic change – and the challenges are so huge.”
Huge challenges need not be overwhelming. Many would say it’s about setting good goals and moving relentlessly toward them.
But sustainability expert and author Andrew Winston has a different take. Incrementalism, he says, has not taken us far enough fast enough, and the whole idea of sustainability has become siloed inside companies. This necessitates what Winston calls the “big pivot” (which is also the title of his forthcoming book).
The recent example of US giant drugstore chain CVS suddenly announcing that it would stop selling tobacco products was a pivot, Winston says. The decision may prove to be detrimental in the short term to the company’s bottom line but allows the CVS brand to be in line with its ultimate mission of supporting consumers’ health. CVS’s stock rose on the news.
“It’s hard to make the case any longer that there are limitless materials for companies to draw on. Thus, the scarcity challenge is what companies are going to face most along their value chains,” Winston says. “There’s no single action that creates a big pivot. It’s the sum of the actions that will make your company resilient and able to cope with rising prices and weather extremes.”
Sustainable supply chains
Making supply chains more sustainable continues to be a big task at many North American companies. This work can be satisfying and fruitful, but is not without pitfalls. In January, Intel announced a milestone in releasing its first microprocessors free of conflict minerals. This move took millions of dollars and untold man-hours of investment, and helps the company in upcoming compliance in May 2014 with a section of the Dodd-Frank legislation on financial reform and consumer protection.
Intel got much positive press, because the mining of these minerals (especially tin) in African countries is a topic currently on the radar. But resource certification expert Bill Quam says the “bag and tag” certification process in Intel’s supply chain work on conflict minerals may have inherent weaknesses because it starts from the smelter and not from the mine. He argues that companies need to be careful when making statements about conflict minerals. Quam says the important thing for Intel and its competitors is to “keep putting pressure on the upstream to be more transparent”.
One thing that hasn’t changed in chasing sustainability, Andrew Winston says, is that the effort to pivot to transformative change has to start at the top.
Beyond that, Winston and Aron Cramer agree that, in addition to top leadership, it is partnerships that are driving big changes. If as a society we do switch towards a clean-energy-driven and sustainably-designed-products economy, Winston hopes we won’t even need the terms “corporate social responsibility” or “sustainability” any longer.
“Over time, I hope we get rid of all the buzzwords and merely call it good business. Managing our mega changes, whether you call it sustainability or not, will be core to the business – and [integrated] into how we design, make and sell products and services – not managed off in an organisational silo,” he says.
Of course, partnering for progress in the social and environmental aspects of sustainability isn’t new. Ceres, for example, now has 25 years of trying to integrate sustainability into capital markets and championing the Global Reporting Initiative to companies. Meanwhile, a partnership of a different kind, a memorandum of understanding signed in January 2014 between the Sustainability Accounting Standards Board and the International Integrated Reporting Council looks like it will cause some creative disruption to GRI’s stature with US companies this year.
One difference in recent partnerships is the unique solutions corporations are producing, and the all-inclusiveness they are aiming for. McDonald’s has made the bold goal of starting a switch to sustainable beef in 2016. Just defining sustainable beef is a challenge, let alone creating supplies of thousands of tonnes of hamburger meat. McDonald’s and its partners all along the beef value chain are now tasked first to craft a real definition of sustainability, working with the Global Roundtable on Sustainable Beef, and then to figure out how to take action.
Another important partnership is Canada’s Oil Sands Innovation Alliance, working to accelerate environmental improvement in Canada’s oil sands industry. Cosia’s chief executive Dan Wicklum says the alliance is a “fundamental redefinition” of collaboration because of the strong governance structure created and the scope of participating companies’ contributions. Cosia may not polish the oil sands industry’s image to all stakeholders, but already it is showing tangible environmental technology innovations.
During a recent Twitter chat between sustainability professionals and companies, some top new predictions included continuation of the expanding role of partnerships; growth in the number of companies integrating environmental and social goals into their strategic planning and budgeting; increasing pressure from social media on companies’ transparency; and competition between reporting standards and guidelines such as GRI, SASB and IIRC.
Only hinted at was how growing inequality in North American, and particularly US society, is a problem companies are seeing rise in importance. Inequality might be one of the “sneaker” issues going forward. The west coast city of San Francisco is an epicentre, as inequality widens between tech-sector millionaires and the rest of the local population left out of that boom. Big buses that freely shuttle Google employees from Silicon Valley up to the city every day have become a flashpoint for the tension.
In A Tale of Two Cities, as with all great literature, there’s a struggle between opposing forces. In the world of North American business sustainability, the struggle is between the capitalism of yesterday and that of tomorrow, with innovation as the ultimate plot-twisting device.
In spite of the challenges and setbacks, there’s a pervasive idea here that technology and innovation will save us, reforming capitalism sufficiently to usher in a kindler, gentler era.
Canada – fast facts
Area: 9.98m sq km
Population: 34.6m (2013)
GDP: $1.47tn (2012) $42,300 per capita
GDP composition: agriculture 1.7%; industry 28.5%; services 68.9%.
Export partners (2012): US 74.5%; China 4.3%; UK 4.1%.
Import partners (2012) US 50.6%; China 11%; Mexico 5.5%.
Electricity generation by source: fossil fuels: 31.8%; nuclear 9.2%; hydro 54.8%; other renewables 4.2%
United States – fast facts
Area: 9.93m sq km
Population: 316m (2013)
GDP: $16.2tn (2012) $51,700 per capita
GDP composition: agriculture 1.1%; industry 19.2%; services 79.7%.
Export partners (2012): Canada 18.9%; Mexico 14.0%; China 7.2%.
Import partners (2012): China 19.0%; Canada 14.1%; Mexico 12.0%.
Electricity generation by source: fossil fuels 75.3%; nuclear 9.7%; hydroelectric 7.6%; other renewables 5.3%.
April Streeter is an associate with One StoneCanada economy North America briefing transformation US