Economic Sustainability & the Environment

This is the fifth and final post in our series on stakeholders’ value creation in volatile times. It deals with the threats and opportunities the environment poses to economic sustainability.

The Threat: Innovation, technology and resource conservation are core sustainability issues to business performance in the 21st century. The economy is increasingly removed from nature and natural processes. Our natural resources are being consumed at an unsustainable rate. The effects of climate change on lives and property is devastating. Many indicators suggest that we are experiencing increasing “loss of natural diversity, changing and expanding disease vectors and the spreading of an unsustainable growth and consumption model” across the globe. (P. G. Brown and P. Timmerman, Ecological Economics for the Anthropocene, Columbia University Press, 2015). The strains between economic winners and losers are worsening. Despite gains in the past decades, nearly a billion people are still living in poverty. (World Bank, 2015) Social and political unrest is stirring in many countries. The world may not be able to feed itself by 2050 if we don’t increase food productivity. The Earth’s ecosystems can’t survive relentless growth in economic production and consumption. (A. Korngold, “Board Governance for a Better World”, The Hand Book of Corporate Governance, Wiley, 2016)

Taking stock: A number of companies and their boards of directors recognize that responsible environmental stewardship is vital for long term corporate sustainability, and that the development needs of the present must not compromise those of future generations. These companies monitor carefully their ability to operate profitably over time in the face of changing economic, social and environmental conditions. Such conditions impact their operations and affect their value creation activities and sustainability. Many companies now report on their performance on these issues so that shareholders (and other stakeholders) can determine where value is being created within the organization. For example, what is a company’s use of non-renewable resources and its impact on the environment? And, how does a company integrate environmental and social factors into its value creation process in product innovation, design and disposal? (D.Y. Park, “The Board’s Role in Sustainability Governance”, The Hand Book of Corporate Governance, Wiley, 2016)

The Opportunity: A number of corporations recognize that they can create sustainable long-term value by decoupling resource use from growth. Some, like Intel, are developing innovative and compelling solutions to conserve energy to reduce the most serious effects of climate change, which they then sell to other companies. Ericsson is developing and marketing smart city technology to help reduce carbon emissions. This is especially important since 70% of the world’s population is expected to live in cities by 2050. Ecolab is a global leader in water, hygiene and energy technologies and services. It helps major companies in over 40 industries to “operate more efficiently, expand their operations responsibly in resource-scarce regions, and adapt to meet changing conditions and expectations.” (Korngold, “Board Governance for a Better World”)

Environmentally and socially responsible corporations understand the stark threat of the irretrievable depletion of our natural resources. They also recognize the very real prospects for sustainable growth by developing innovative and technologically compelling solutions to reduce ecosystems loss. These companies are ensuring the long-term value creation for their shareholders and for all their stakeholders. Innovation, technology, social responsibility and the environment are the pillars of the economic sustainability in the 21st century. Successful companies understand that the threat to the environment is dire, but they also see the opportunity to reinvent a greener and more sustainable economy for the generations to come. The most forward-looking companies are already doing so. For them, the environment is a major stakeholder, as important, if not more so, than the others…

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