In this article we look closer at:
- What the sustainability problem is,
- How does it impact your company,
- Two approaches to embrace the problem,
- 4 reasons why you should care,
- How sustainability efforts can benefit your organization.
The Sustainability Problem
The sustainability problem can be broken down into two branches: environmental and social sustainability:
Figure 1. Planetary boundaries
1. Environmental sustainability
Nine planetary boundaries have been identified by a group of 28 internationally renowned scientists from the Stockholm Resilience Centre in 2009, in which humanity can continue to develop and prosper for generations to come. All together they capture the planet’s carrying capacity (see Figure 1). The last assessment took place in April 2022 and researchers concluded that six out of nine planetary boundaries had been crossed. A very alarming observation.
2. Social sustainability
The societal boundaries are, on the contrary, much less tangible and therefore more difficult to address: the UN Sustainable Development Goals (SDGs) include social phenomena such as poverty, gender equality, diversity, health, social justice, social inclusion, and so on (see Figure 2).
However, there is a clear correlation between social and environmental problems and they may be mutually self-reinforcing. Environmental consequences of climate change are for instance disproportionately borne by the poorest people in the world. The benefit of this is that businesses may in fact solve environmental problems by solving social problems and vice versa.
Figure 2. Sustainable development goals from UN
Environmental and social sustainability are not only an issue for society but it is also an issue for companies because it affects the conditions for their economic activities.
An unsustainable society makes it harder and harder to run a business: for instance, when trust breaks down, when corruption exists, when there are no educational, political and legal institutions to operate the company’s operations and so on. Not only does the economic system exist within societal boundaries but both of these two systems are reliant on nature (see Figure 3).
Figure 3. Three systems
Figure 3 shows that the environment, society and businesses are interrelated and when we talk about sustainability problems, we refer to a discord between these three systems (Jørgensen, S. and Pedersen, L.J.T. 2018). The challenge therefore consists in finding an harmonious interplay between the three in order to reach sustainability.
Sustainability is a problem that companies should try to solve not only because it is an urgent problem for society and is becoming increasingly important for tomorrow’s consumers, but also because this is a problem that concerns them directly.
That being said, it is impossible to deny that companies have played and still play a major role in creating these sustainability problems. We can mention programmed obsolescence, carbon emissions, exploitation of workers, tax evasion, pollution, corruption, human rights’ abuses, harm on customers’ and employees’ health… All this can actually be referred to as the negative externalities of a company, i.e. the negative impact of a company’s activities on society and the environment that would not have existed without the company.
Sustainable innovative business models
The key here is to understand that, while sustainability problems can be a great concern for businesses, it can also be the source of many profitable business opportunities and sources of competitive advantages for companies that manage to embrace them.
Sustainability issues should be considered as drivers of innovation!
There are actually 2 approaches for companies to embrace sustainability problems (Jørgensen, S., & Pedersen, L. J. T. 2017) – See Figure 4:
- First way is to take responsibility for their environmental and social footprints and act to reduce their negative externalities.
- Second approach is to see it as an opportunity and address others’ negative externalities.
Figure 4. How to embrace the sustainability problem
Why should you care?
Figure 5. Four reasons to care about sustainability challenges
The way sustainability can be profitable
While sustainability efforts must help companies reduce their negative externalities toward zero footprint, they can also support the company’s financial performance directly or indirectly. Indeed, well-designed sustainability efforts can lead to profitability in 4 ways (Jørgensen, S. and Pedersen, L.J.T. 2018) – See Figure 6.
- By increasing revenues: If companies offer to customers enhanced value with respect to sustainability, it could lead them to choose their products or services over other brands.
- By reducing costs: Companies could reduce costs when they avoid paying to dispose of resources and use them instead. For instance, sell ugly vegetable instead of throwing them away
- By increasing access to intellectual resources or immaterial resources: If sustainability efforts can help improve corporate reputation and trust, companies could benefit from this if they attract resources such as new partners or new workforce, who would not have been interested without their sustainability efforts.
- By reducing risks: Companies’ risks could be reduced thanks to sustainability efforts, e.g. secure supply of resources through a circular model, and as a result attract new fundings or benefit from better financing conditions.
Figure 6. How can sustainability efforts benefit your SME?
References
- Jørgensen, S., & Pedersen, L. J. T. (2017). Designing sustainable business mod- els. In T. W. Andreassen, S. Clatworthy, M. Lüders, & T. Hillestad (Eds.), Innovating for trust. Cheltenham, UK: Edward Elgar Publishing.
- Jørgensen, S. and Pedersen, L.J.T. (2018). RESTART Sustainable Business Model Innovation. London: Palgrave Macmillan.
- Khan, Mozaffar and Khan, Mozaffar and Serafeim, George and Yoon, Aaron, Corporate Sustainability: First Evidence on Materiality (November 9, 2016). The Accounting Review, Vol. 91, No. 6, pp. 1697-1724., Available at SSRN: https://ssrn.com/abstract=2575912 or http://dx.doi.org/10.2139/ssrn.2575912
- Stockholm Resilience Centre (2015). What is resilience? An introduction to social-ecological research. Stockholm, Sweden: Stockholm Resilience Centre
You may be interested
