Stuart McLachlan and Dean Sanders discuss their book: The Adventure of Sustainable Performance: Beyond ESG Compliance to Leadership in the New Era.
In a time of widespread global disruption and environmental breakdown, many sustainability professionals are feeling despondent and in need of inspiration.
Thankfully, a book published earlier this year, The Adventure of Sustainable Performance: Beyond ESG Compliance to Leadership in the New Era, is reinvigorating readers with renewed purpose, helping them deliver positive impacts and meaningful change.
What was your inspiration for the book?
We recognise the significance of this moment in time and the need for leaders who can navigate the transition as we pass from one era to the next. In our journey supporting organisations find value in this space, we have been inspired by enterprising pioneers who are leading the way towards new ways of doing business. Leaders who illuminate the potential blueprint for a new era of living within planetary boundaries. We wanted to give a glimpse of a future that delivers the hope and excitement of the adventure in transformational change.
Describe what you mean by 'total 'value', and how can we get business leaders to embrace this concept?
We use Total Value System as a more accurate way of describing the value creation processes of businesses. Business leaders are already moving towards the demand from investors for stronger ESG performance that in turn requires a longer-term view of their role as stewards of assets for multiple forms of value creation – financial and non-financial. The advance of double-materiality reporting and stakeholder capitalism adds further impetus to new ways of thinking about total value systems by business leaders.
How do we better communicate stories of climate change and the opportunities to the corporate world?
In The Adventure of Sustainable Performance, we present many stories of business leaders and entrepreneurs who are engaging wisely with regional and local society and exploring ways by which a company demonstrates how it addresses systemic social and economic injustices within its business model. We are still at the relative beginning of this, but are convinced that business leaders will become not only navigators and explorers but also diplomats and experts in identifying the right combination of resources to address and capitalise on opportunities. We live in a time of increasing transparency when any attempt to greenwash is being called out. But ESG is increasingly politicised, some say weaponised, and the environment into which genuine claims of progress are being communicated, is still a place of potential jeopardy. This demonstrates the need for scientific robustness, stakeholder engagement and professional communication if this agenda to be rooted in truthful aspirations and practical realism.
Is greater regulation the answer to tackling climate change?
Regulation is vital to tackling climate change. New regulation will represent a compliance stick forcing organisations out of their status-quo models into the transition zone. This is not regulation that delivers incremental nudges in improvement within the existing models and where you can cut a cheque for the cost of compliance and go back to business as usual. This will force leaders to embark upon a journey and for some every compliance step will represent an opportunity for value creation.
Sustainable performance models of the future will only happen if we can make the shift back to operating within planetary boundaries. For us to do this we need to coalesce our supply chain around our global net-zero targets. We need less transactional and more longer-term relationships with our clients. We need to get our product back at the end of its life, retrieve it, and recycle/reuse its materials.
A shift like this will disrupt the supply chains as we start to source our raw material from customers. Transparency across the system will mean that brands become much more vulnerable in parts of the value chain where they currently have little visibility. Businesses will need to be highly adaptable to keep up with customers who typically adapt their buying choices faster than corporations can respond. Disruption as described is something that businesses typically don’t go looking for. Sometimes it needs to be imposed upon them.
How big a problem are corporate lobbyists when it comes to delaying climate action?
Corporate lobbyists may have delayed climate action in certain industries but that is changing very rapidly as we see the implementation of legally enforced regulation on pollution, emissions and waste. Corporate lobbyists are also losing out to the growth in ESG profiled investments which incentivise companies to take action and benefit from lower weighted average cost of capital.
Ultimately, we recognise that many leaders have benefitted from corporate lobbyists to create fantasy zones into which they can move the narratives and the assets of their business. This will have bought some time to shore up the broken models and systems of the old era. But regulation will now reduce the potential help that lobbyists can give those organisations who would prefer to turn their backs on the reality of now.
How can we hold companies responsible for the damage they cause?
National and transnational regulations now threaten companies that are deemed irresponsible in their environmental and social impacts with severe financial and legal penalties. This in turn will make them a riskier investment and they will struggle to survive if they do not enact social and environmental responsibilities. Organisations operating in Total Value System models will recognise the value of all their stakeholders as members of the overall ecosystem that is driving value. In addition to the financial cost of carbon, we will see that nature’s ecosystem services will no longer be offered for free. Suppliers, employees and customers will vote with their feet and investors will deploy capital in line with ESG performance. This agenda has moved from the periphery to the mainstream and will be central in reporting and the governance of organisations.
What are the main characteristics of business leaders in the new ESG era?
Courageous, humble, heroic, and adventurous
Is corporate leadership fit to tackle the climate crisis, and are they more effective than political leaders?
The leaders we feature in our book all demonstrate they are fit to tackle the climate crisis. Yes, we believe that corporate leadership has the potential to play a key role in taking action not only on decarbonising their operations but on all aspects that concern us for the sustainable future of our planet. Perhaps business will prove that it is the only institution powerful and agile enough to be able to take the action required at this moment in time. Political leaders have a different role in regulating negative impacts but encouraging an environment of innovation and opportunity for companies to flourish sustainably. It’s time for us all to become unstuck. Unstuck from any of the business, political, societal systems, and models that have trapped us in an increasingly destructive way of living.
What are the main changes in the economy that corporations should be mindful of when building an ESG framework?
Klaus Schwab has said: “Our global economic system is broken. But we can replace the current picture of global upheaval, unsustainability, and uncertainty with one of an economy that works for all people, and the planet.” The new economy shifts the weight of control from a shareholder-focused system to a stakeholder model of capitalism. The quicker that corporations can activate ESG from a tick-box exercise to a source of insight into their impact on key stakeholders the better placed they are to survive the economic transformation that has begun.
Is it possible that climate change will break capitalism as we know it?
We see capitalism as an economic model that will transcend eras. At its core, capitalism is a model that relies on market forces rather than control by a central government. Capitalism is an exchange mechanism for bartering goods and services in an open market of buyers and sellers. A system that is agile, innovative, and entrepreneurial, and a system that, in our opinion, is more likely to bring about the innovation and the leadership that will act as essential hinges to us if we are to navigate to stakeholder capitalism. The concept of stakeholder capitalism is straightforward. Companies should make money and use this wealth creation to generate returns for shareholders alongside just reward for other stakeholders. They should also tackle inequality, and regenerate and protect our natural assets. They do this by engaging the stakeholders in the value chain to generate value and then to distribute this value across all the stakeholder groups that are relevant to the entire value chain of the business.
Stuart McLachlan is founder and CEO of sustainability consultancy, Anthesis Group
Dean Sanders is chief enterprise officer at Anthesis Group