A Sustainable Path Forward: Rethinking Business Models for Tomorrow
- Ankur Gautam
- Dec 3, 2024
- 5 min read
In today's article, corporate sustainability consultant and PwC India Climate and Sustainability Manager Ankur Gautum reviews the evolution of business sustainability practices - and plots a path forward.
Sustainability in the business context has evolved over several decades, moving from a fringe concern to a mainstream imperative. Perhaps one of the first popular instances of businesses and how they impact environment could be attributed to the publication of Rachel Carson’s Silent Spring in 1962 which highlighted the dangers of pesticides to environmental ecosystems. Following this, the 1970s marked the beginning of the discourse on Corporate Social Responsibility (CSR) with Milton Friedman arguing that businesses' primary responsibility was to increase profits for their shareholders, dismissing social responsibilities as a corporate duty. In the next decade, it was the Brundtland Commission’s 1987 report titled Our Common Future that brought the term "sustainability" into wider use.
Over the last few decades since then, sustainability is now a vital aspect of modern business, driven by climate change, resource depletion, and societal pressure. Businesses increasingly see sustainability as essential for long-term profitability, with many large companies setting bold sustainability goals. BlackRock, the world's largest asset manager, began prioritizing ESG criteria in its investment decisions in 2018, signalling that sustainability was critical for investors as well as for companies. Integrating sustainability into business models is no longer a choice but a strategic necessity to build resilience, improve reputation, and ensure long-term success.
Year | Milestone |
1970 | Publication of Milton Friedman’s work on profit maximization, arguing against social responsibility for businesses, though leading to the later evolution of Corporate Social Responsibility (CSR). |
1987 | The Brundtland Commission report popularized the term "sustainable development." |
1992 | The Earth Summit in Rio de Janeiro, which focused on sustainability. |
1997 | Launch of the Global Reporting Initiative (GRI) for corporate sustainability reporting. |
2000 | Launch of the UN Global Compact, calling for businesses to align with global sustainability principles. |
2015 | Paris Agreement on Climate Change and the UN Sustainable Development Goals (SDGs) set a global framework for businesses to follow. |
2018 | BlackRock publishes ESG Integration Statement. |
Key Milestones and Events Influencing Business Sustainability
The Driving Forces
Several factors today have made sustainability crucial for business success. Broadly these are:
Consumer demand: A growing segment of consumers prefers brands that align with sustainable values, willing to pay a premium for sustainable products (e.g., organic, fair trade).
Investor interest: There is an increasing focus on Environmental, Social, and Governance (ESG) criteria in investment decisions, with funds increasingly directed toward companies that have strong sustainability practices.
Risk mitigation: Businesses that fail to address environmental and social issues may face reputational damage, regulatory penalties, and supply chain disruptions.
Long-term profitability: Sustainable business models are seen as a pathway to long-term profitability and risk management, as they align with the future direction of the global economy.
Integrating Sustainability into Business Models
As a first step to embracing sustainability, a company must identify material concerns for the business through a materiality assessment informed by stakeholder consultations. Once the material topics are identified and prioritized, businesses can look at integrating sustainability into their business models through the following four facets:
Sustainability in Processes and Operations
Sustainability in Products and Services
Sustainability in Supply Chain
Sustainability in Finances
Sustainability in processes and operations involves identifying, measuring, and evaluating environmental and social impacts such as resource consumption, carbon footprint, and health & safety of workers and employees. Once these are tracked and evaluated, the next step is to adopt more efficient technologies that minimize the negative impacts. Sustainability in operations also means using sustainable material. IKEA, for instance, has committed to using only renewable or recycled materials by 2030.
Responding to the customer demand for sustainable products and services, businesses can adopt circular economy principles, creating products that are recyclable, use renewable energy in production, or implement product design thinking that emphasizes eco-efficiency. Apple unveiled its first carbon neutral products in September 2023.
There is an increasing expectation that businesses extend their responsibility beyond their processes and products to their value chains. Integrating sustainability into the supply chain involves working closely with suppliers who prioritize ethical practices and sourcing raw materials in a way that minimizes environmental harm. Companies like Unilever and Patagonia are recognized for their sustainable supply chain practices.
Lastly, green financing is becoming increasingly popular. Companies can issue green bonds to raise capital for sustainability initiatives, integrate ESG metrics into financial reporting, and ensure that their investments align with sustainable development goals (SDGs). Green bonds have grown phenomenally over the last decade. As per the Climate Bonds Initiative, green bond issuance has surged from just $40 billion in 2015 to over $500 billion annually, reaching a cumulative total of $1.5 trillion by the end of 2023.
Challenges to Integrating Sustainability
While integrating sustainability can be a value driver for businesses, there are challenges to its adoption. For businesses that are starting out with considering sustainability in their decision-making over the more conventional financial considerations, the following may prove to be significant challenges:
Costs: Implementing sustainable practices can involve high upfront costs – adopting new technologies for process efficiency, getting a third party independent evaluation, consultancy fees in establishing new processes, etc.
Resistance to Change: Decisions that influence sustainability, for example a decarbonisation strategy, sometimes may bear fruit over a long time horizon while financial planning usually takes one to two years. Businesses that are not accustomed to sustainability may face internal resistance from employees or stakeholders who are skeptical about the long-term benefits.
Profitability vs. Sustainability: Some businesses might struggle to balance profit-making with sustainable practices, as green initiatives may be perceived as less profitable in the short term.
To overcome these challenges, businesses can start with small, scalable initiatives, leverage government incentives, collaborate with other businesses, and ensure that sustainability goals are part of their core business strategy. A successful integration of sustainability strategy is one that is driven by leadership and has buy-in from the employees and business partners.
Conclusion
Integrating sustainability into business models is essential for the long-term success and survival of businesses in the modern, eco-conscious market. The trend toward sustainability is not just a passing phase but a critical aspect of business evolution that will continue to shape corporate practices and strategies. With the right approach, businesses can not only achieve economic success but also contribute positively to the planet and society.
Ankur is a corporate sustainability consultant and currently works as a Manager at PwC India's Climate and Sustainability Strategy practice. He leads engagements with a range of companies at various stages of their sustainability journeys, advising them on matters related to sustainability strategy, reporting, and compliance. His work experience spans over 10 years in consulting and research. Any views and opinions expressed in the article are solely of the author and do not reflect the views of the firm.