Over the last years there has been a lot of talk about the importance of sustainability and sustainable business. We here at Seventy have had many fruitful discussions with clients on how sustainability can be more than just a tool to create brand equity but instead – using smart brand and business design – have a real and positive impact on revenues and at the same time help companies define and differentiate themselves.
However, with the Corona crisis heavily affecting the economy we see a lot of companies and governments facing what seems like a dilemma: sustainability or bottom line – what should be in focus, both in terms of attention and, more importantly, investments, during and after the crisis?
Continuing our series of COVID-19-related thought pieces, in this article we will focus on the long-term effect that the crisis might have on the issue of sustainability and the question of whether we will – or should – see a shift in attention towards economic security & stability over sustainability & long-term efforts to reduce the impacts of climate change.
Effects far beyond stock prices and unemployment rates
It is important to recognize that the COVID-19 crisis has had a significant impact on more than just the economy. Let’s look at concrete examples of the effects of the pandemic that have been widely reported and talked about in the last couple of weeks.
While figures differ from study to study, the overall trend is clear – the vast majority of the global population (some estimates are as high as 90%) breathes dangerously polluted air and the WHO estimates that 4.2 million die every year as a result of exposure to ambient (outdoor) air pollution. In India, which regularly tops the annual list of cities with the worst air quality in the world (21 of the world's 30 cities with the worst air pollution are in India), pollution is estimated to cause more than 2 million deaths a year.
So how has this changed in the months since the Corona outbreak? Some reports state that major cities that suffer from the world's worst air pollution have, during a three-week lockdown period, seen reductions of deadly particulate matter by up to 60% from the previous year. This trend can not just be observed in numbers but first-hand – many before-and-after photos show the dramatic effect lockdowns are having on pollution around the world. In the aforementioned India, we can find reports of people seeing far away mountain tops from their bedroom windows for the first time in more than 30 years, previously obscured by heavy pollution.
At the same time, while people across the world remain indoors to slow the spread of the coronavirus, Coyotes are taking back San Francisco and the clarity of the water in the canals of Venice is improving dramatically. And even though there have, of course, been a lot of false reportings on wildlife triumphs, it is clear that while society as a whole suffers heavily from the pandemic, nature is finally getting a break and a chance to recover due to haltered industrial production (in early March, most of the automotive industry suspended European production) or radically changed travel patterns (commercial flights are down 73,7% in April, compared to 2019).
With these developments one would expect this to be universally seen as a confirmation that we need to support sustainable business and jump on the sustainability train right now – reducing carbon emissions, shifting to sustainable production and so forth. However, reality needs to be taken into consideration when looking into this issue, namely the fact that many companies face a balancing act between wanting to do good on the one hand (i.e. investing in clean production), and fighting to survive on the other (i.e. saving money to compensate for crumbling revenues).
Hitting pause on sustainability?
Some surveys on the topic show that the Coronavirus is clearly stifling sustainability progress with organisations having to postpone sustainability-related announcements in light of the impacts of the pandemic, for example. Additionally, investments in sustainability and energy projects seem to have been paused by many companies. While the underlying data for these numbers can be challenged (with low numbers of respondents), they are in line with what we can observe in the market. For a more tangible – and sad – example we can turn to The New York Times who reported that the plastic bag industry, battered by a wave of bans nationwide, is using the coronavirus crisis to try to block laws prohibiting single-use plastic.
So how do we at Seventy think that companies should view this balancing act? Is there such a thing as meaningful growth as some sort of middle-ground? Should business models include sustainability as we move into a new era?
What’s the deal with sustainability, really?
Let’s take a step back and look at this question without a Corona-lens for a second. What is the relationship between sustainability and the bottom line? As mentioned above, one of the main questions is if sustainability can be more than just a tool to create brand equity.
Already back in 2011, McKinsey reported that more and more companies are managing sustainability to improve processes, pursue growth, and add value rather than focusing on reputation alone – some companies are creating significant value by actively and systematically pursuing the opportunities that sustainability offers. More concretely, executives, according to the study, believe that sustainability programs make a positive contribution to both their companies’ short- and long-term value.
Similarly, Harvard Business Review, in a 2016 thought piece, stated that “embedded sustainability efforts clearly result in a positive impact on business performance.” Two concrete examples that are mentioned are the possibility of sustainability efforts to drive innovation (redesigning products to meet environmental standards or social needs offers new business opportunities, for example) as well as significant reductions in cost (as a result from improving operational efficiency through better management of natural resources like water and energy, as well as minimizing waste, for example). In summary, they mention that “companies that proactively make sustainability core to business strategy will drive innovation and engender enthusiasm and loyalty from employees, customers, suppliers, communities and investors”.
Blackrock, in a recent report looking into resilience amid the uncertainty posed by the COVID-19 crisis, came to the conclusion that companies with strong profiles on material sustainability issues have potential to outperform those with poor profiles. Moreover, companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions such as a pandemic while still benefiting from positive market environments.
Moving forward
It is impossible to ignore the harsh reality of the world during COVID-19, of course. Many companies are finding themselves in serious trouble and are struggling to survive – and the question of “how can we reduce production-related emissions” might not be top of mind for many. Nations are facing similar challenges with governments signing off on massive stimulus packages and direct aid for companies and individuals to keep the economy from collapsing. So how should current and future sustainability efforts be treated in those efforts? Should they be paused? Should they be treated as if nothing happened. Or should they even be increased?
Speaking at the Petersberg Climate Dialogue, a virtual meeting of more than 30 governments on the climate crisis, UN secretary general António Guterres said that “where taxpayers’ money is used to rescue businesses, it must be creating green jobs and sustainable and inclusive growth,” urging governments not to use taxpayer cash to rescue fossil fuel companies and carbon-intensive industries, for example. Similarly, German chancellor Angela Merkel stated that “there will be a difficult debate about the allocation of funds. But it is important that recovery programmes always keep an eye on the climate. We must not sideline climate, but invest in climate technologies.”
The International Institute for Sustainable Development even goes as far as saying that the current period of high unemployment and low interest rates is the right time for new low-carbon investments and infrastructure, including the kind required to support the transition to clean energy. They continue, similar to Guterres and Merkel, that “stimulus must be sustainable. Governments around the world are racing to implement economic stimulus and support packages to keep individuals, businesses, and economies afloat. While supporting their urgent implementation, we must ensure that these measures pave the way to a more sustainable economy and do not lock us further into a high-carbon future.”
So what do we have to say?
These findings are very much in line with our philosophy and how we see sustainability: we believe in long-term brand and business design. Based on our experience, sustainability can be an integral part of the business model that enables growth and innovation and improves the bottom line. So what are some concrete takeaways from this?
- Sustainability matters, now more than ever – we strongly believe that the issue of bottom-line vs. sustainability is not a “whether/or”-question. Rather, with all of society being shaken up, the current situation is a great opportunity for companies to (remain, or) shift focus towards sustainable efforts. Great progress has been made in the past decade and now – considering each individual company’s possibilities, of course – is not the time to go back to zero, but to double down instead.
- Beyond brand and reputation – while in the past, sustainability and terms like “CSR” for many have been synonymous with green washing and simple PR stunts, there is clear evidence that sustainability, if taken seriously and implemented as part of the business model has the potential to truly impact the bottom line, create value for companies and help companies steer through times of uncertainty.
- Sustainability as part of the business model – instead of being treated as just an additional function within the company, to be truly impactful, we believe that sustainability should be a central part of the business model. What exactly this means differs greatly from company to company but the key is always the same – sustainability as a way of working should be deeply rooted within the company.
- Finding your angle – even platitudes tend to hold some truth and... all companies are different. There is no one, universal way to create value from sustainability for everyone. Therefore, it is essential to examine your company and industry and find out where the biggest opportunities for value creation lie – be it growth (i.e. product innovation), risk management (i.e. mitigating operational risk related to climate change) or return on capital (i.e. reducing emissions from operations) (see here for more information).
In the end most of this boils down to an issue that we, unfortunately, still face on a regular basis when working with clients: short- vs. long-term and the question of sustainability being an investment vs. cost. We believe in the power of long-term brand and business design – many actions that clients take today might not look very attractive in the short-term but will most likely have a massive impact on long-term brand equity and, therefore, the bottom line. A great, and often cited, case of this is Elon Musk’s Tesla Motors – an extreme (because not everyone has an eccentric South African pumping money into the company at their disposal) but related (for many, Tesla nowadays is synonymous with sustainability-focused tech) example. From the start, the company had a heavy focus on long-term brand and business design – everything that is done now serves the greater, long-term goal, even if it might not have a clear effect on present-day shareholder value. This strategy was outlined by Musk in a blog post called “The Secret Tesla Motors Master Plan” as early as 2006 (!).
These and similar issues are something that we are currently discussing with many of our clients. If you would like to hear more of our thoughts or how we could help your brand steer through the crisis and come out on the other side stronger than before, feel free to get in touch with us at andy.kreidenweiss@svnty.com or bernhard.luthi@svnty.com.