Reasons Why Businesses Aren’t More Sustainable

Laughland and Bansal described “business sustainability” as follows:

”Business sustainability is often defined as managing the triple bottom line – a process by which firms manage their financial, social, and environmental risks, obligations and opportunities. We extend this definition to capture more than just accounting for environmental and social impacts. Sustainable businesses are resilient, and they create economic value, healthy ecosystems and strong communities. These businesses survive external shocks because they are intimately connected to healthy economic, social and environmental systems.”

They went on to argue that while they firms that invested in sustainability were no worse off financially than those that chose not to, many companies remained hesitant about joining the sustainability bandwagon.  Building on questionnaires from, and interviews with, 15 Canadian organizations that were on the leading edge of sustainability as of 2011, Laughland and Bansal identified and explained the following 10 top reasons why Canadian firms were reluctant to take action on social and environmental issues:

  • There are too many metrics that claim to measure sustainability—and they’re too confusing. Many suites of metrics and measurement systems—such as the Global Reporting Initiative, ecological footprint, and life-cycle assessment—currently exist to help managers measure their sustainability; however, the range of options often seems to create more problems than solutions.  Some metrics are relevant to particular sectors, such as manufacturing, while others focus on specific issues, products or organizations.  Businesses need more guidance on which metrics will help them benchmark, identify areas for improvement and signal their commitment to sustainability.
  • Government policies need to incent outcomes and be more clearly connected to sustainability.  Governments have several tools at their disposal, such as taxes, regulations, and markets, to encourage businesses to steward environmental resources; however, they are often applied in piecemeal fashion, poorly measured, or used ineffectively.  Businesses need to be more involved in the process so that governmental policies are effective, efficient and consistent.
  • Consumers do not consistently factor sustainability into their purchase decisions.  Clearly many decisions that consumers make—from what food to buy to how much energy to use—involve explicit or implicit sustainability-related tradeoffs.  In order for businesses to develop and implement smart strategies for sustainability while achieving their economic objectives, they need to understand how consumers value sustainability in the context of other product attributes.
  • Companies do not know how best to motivate employees to undertake sustainability initiatives. While surveys indicate that employees prefer working for sustainable firms, even foregoing higher salaries, companies need to have a better understanding of which employee incentive plans are most valued, and so likely to be effective.  Employees that buy-in to sustainability can assist companies in building the capacities necessary for pursuing sustainability goals of a long-term time horizon including recruiting other talented candidates to join the company.
  • Sustainability still does not fit neatly into the business case. Sustainability managers are often called upon to explain and defend sustainability activities, particularly since traditional methods of financial decision-making do not fully capture the value of sustainability-related investments that are often based on long-term and intangible rewards.  Sustainability managers need better tools for measuring and explaining returns on sustainability investments and demonstrating the value of sustainability within the decision-making language and framework of finance executives.
  • Companies have difficulty discriminating between the most important opportunities and threats on the horizon. Sustainability encompasses a wide range of threats and risks for businesses—financial crises, climate change, local land issues and health pandemics—and companies need help with deciding which risks warrant their attention and how to prioritize them for disclosure purposes and strategic planning.
  • Organizations have trouble communicating their good deeds credibly, and avoid being perceived as “greenwashing”. Claims made by some businesses and NGOs regarding sustainability are perceived to be credible, whereas others are met with skepticism or disbelief. The different reactions are likely related to attributes of the organization making the claims—its size, its structure, its actions, or its motivations—and sustainability managers need to have a better understanding of who best to communicate their message credibly and in a way in which the integrity of their efforts is clear.
  • Better guidelines are needed for engaging key stakeholders, such as aboriginal communities. For the Canadian companies included in the survey relations with aboriginal communities are an important consideration.  The experience of businesses have been both positive and negative and all businesses can benefit from developing a more robust understanding of the aboriginal perspective on sustainability in order to build a relationship between businesses and aboriginal community that is based on mutual respect and trust and leads to positive engagement.
  • There is no common set of rules for sourcing sustainably. While businesses want to purchase products and services that are environmentally and socially responsible, the process of identifying sustainable suppliers is not always straightforward and the means for comparing products is not always obvious. Sustainable sourcing decisions may also require industry-specific knowledge and practices, or data that just may not be available.  Organizations need a set of best practices for sustainable sourcing which provide organizations with targets for benchmarking as well as guidance on managing their supply chains.
  • Those companies that try leading the sustainability frontier often end up losing. While leadership in the sustainability field can be quite rewarding for organizations—new customers and loyalty from employees and community stakeholders—taking the steps needed for sustainability leadership can also be risky.  Organizations need to do their homework before introducing new sustainability targets and investing in technologies and ideas that may never yield the expected results and may be appropriated by a second-mover who builds on the leader’s ideas to leapfrog into the lead.  Leadership and innovation with respect to sustainability also carries the risk that early failures will cause internal stakeholders to become disenchanted and shift their priorities elsewhere.

Source: P. Laughland and T. Bansal, “The Top Ten Reasons Why Businesses Aren’t More Sustainable”, Ivey Business Journal (January/February 2011), http://iveybusinessjournal.com/publication/the-top-ten-reasons-why-businesses-arent-more-sustainable/ [accessed July 30, 2017].  The organizations included BC Hydro, Canadian Pacific, Environment Canada, Holcim Canada Ltd., the International Institute for Sustainable Development, Industry Canada, The Pembina Institute, Research In Motion Limited, SAP Canada Inc., Suncor Energy Inc., TD Bank Group, Teck, Telus, Tembec, and Unilever Canada Inc.

This post is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Entrepreneurship.

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