Building a Strategy for Sustainability

The Age of Turbulence - New face of the normal
Collapsing economies, burgeoning unemployment, tainted products, scarce resources, failing companies, fading species, ferocity of hurricanes, frequency of earthquakes, melting glaciers, shrinking bio-diversity, sinking oceans and scarcity of wetlands, are but a few reminders of some of the intractable problems that businesses are facing in today’s world. The scary news is that it is not going to get any better. As per Philip Kotler, co-author of Chaotics , this is the new face of the normal.

The challenge of sustainability
The UN Millennium Development Report has pointed out that, “Nevertheless, we must face up to an inescapable reality: The challenges of sustainability simply overwhelm the adequacy of our responses. With some honourable exceptions, our responses are too few, too little and too late.”

Solving problems after they occurred is lot more expensive than preventing them altogether. Instead of looking at ways to minimize the pain after the bubble has burst our effort should be on building a bubble proof economy.

Climate Science on Trial
Climate science itself is on trial. Its own credibility is under scanner. Because of errors which the IPCC has admitted in its predictions, fewer people believe in the cataclysmic nature of climate change. While few doubt the reality of climate change and its association with extreme events there are public differences among the scientists about the nature and degree of climate change and its impact on environment.

Primeval contract with the unborn
200 year ago Edmund Burke, an eminent political-theorist of conservative philosophy of the 18th century said “Society becomes a partnership not only between those who are living but between those who are living, those who are dead and those to be born. Each contract of each particular state is but a clause in the great primeval contract of an eternal society”. The movement of sustainable development stems from this profound thought. We have to recognize we all share the same planet. This is our only home and it is not getting any bigger. In fact as human numbers expand the natural environment is shrinking. Natural species and forests are disappearing, oceans are drying, glaciers are melting and land is getting more and more parched. We are in the danger of leaving a very dull, desolate and dreary world for our children.

Banning short termism
Short term thinking is not peculiar to business , it is endemic to human nature. The flagrant disregard of nature’s laws has led to hurricanes, earthquakes and tsunamis such as Katrina’s disaster, Haiti earthquake and Chilean Tsunami. Again it is the short term goals that triggered the economic meltdown and the comical spectacle of heads of three automotive corporations – Alan Mulally of Ford Motors, Richard Wagoner of General Motors and Robert Nardelli of Chrysler- flying separately on their private jets from Detroit to Washington and begging, as if in high hat and tuxedo, American tax payer to bail them out. In their quest for short term profitability all three had ignored the writing on the wall and were oblivious to the changes in the world around them.

Turning green strategy into a strategy for sustainability
There are lessons to be learned from the automotive saga. It is not that these companies have simply been sitting on their hands. They simply have not been able to take in a holistic and integrated view of market requirements. The case of Bill Ford’s efforts to turn the company green is a classic example of why the compartmentalized efforts do not pay. The man took over the top job from Jacques Nasser and vowed to turn the company completely green and finally spent 2 billion dollars converting company’s River Rouge assembly plant into one of the industry’s greenest manufacturing facility, failed to turn the company around because the environmental goals were peripheral to its core business strategy. Even though Bill Ford’s family owns 40 percent of the company he was unable to translate the green strategy into a strategy for sustainability. The company was profiting on high margin trucks and SUVs and there was little buy in for the sustainability efforts.

Transparency crucial for sustainability
Having faced trillions of dollars of losses and destruction of their pensions and savings the investing public now demands a much higher level of accountability and transparency so that they can witness any changes on real time basis. On December 26, 2004, the Great Tsunami of the Indian Ocean that violently shook the waters of Indian Ocean, wrought havoc in Asia but its reverberations were felt all over the world. In 1972, Edwards Lawrence, father of chaos theory, asked ‘Does the flap of the butterfly wings set up a tornado in Texas’. The phrase ‘butterfly effect’ reflects the idea that the butterfly wings create tiny changes in the atmosphere that ultimately alter a path of the storm system like a tornado and save or hit human lives far away. In this world where actions on one end can have serious repercussions on the lives of people polls apart transparency of information is the only key to survival.

The ever increasing levels of turbulence lead to further demands for transparency
The fact is we are entering a new age of turbulence even more heightened turbulence than the one described in the ‘The Age of Turbulence’, 2007, written by much reviled Alan Greenspan in his diverse experience as the Federal Reserve Chairman and one of the most powerful man in the world. Greenspan was confronted with a variety of challenges and shocks such as burgeoning trade deficit, astronomical rise in credit default swaps leading to bankruptcies and foreclosures. The challenges faced by Bernanke, his successor, are much more pronounced and intractable. The perpetual nature of this turbulence demands a lot more transparency from those who are in power.

Only the truly transparent will survive
The National Intelligence Counsel of US released a 2008 report entitled global trends 2025: a transformed world. Its purpose was to stimulate a strategic thinking about the future by identifying key trends, the factors that drive them where they seem to be headed and how they may interact. It used a number of scenarios such as demographics, globalization, emergence of new powers, the decay of international institutions, climate change and geopolitics of energy. It provides a description of the storms that we are likely to face in the immediate future that could exceed the shock that the world felt on 9/11 when the terrorists brought down the Twin Towers or the three terrifying days in late November 2008 when armed Islamist terrorists mounted a multipronged staggering attack on Mumbai and its Taj Hotel. We have to recognize the harsh reality that whenever an event like this occurs, you have little more than a fig leaf to hide behind. In this hour of crisis you need to elicit commitment from everyone who can help. It is not going to be possible if you do not share all the information including the one that shows your own failure. A frank admission is going to be your best armour. Even better have the courage to say: “I am sorry . It was all my fault . We misread the signals”. Only the truly transparent will have a chance to survive.

Resource crunch - Natural debt is graver than national debt
Whilst we may have overcome the financial meltdown the crisis resulting from the environmental meltdown is going to be most intractable. In doing that we have to recognize the power of the markets and put its transformative powers to its effect. According to Munich Re, the German Insurer, the economic losses from natural disasters increased 8 folds from the sixties to nineties and about 80% of this stemmed from extreme weather. Munich Re now predicts that by 2065 claims for damages will outstrip global assets as accounted in traditional accounting terms. Insurers of UNEP believe worldwide losses relating directly to climate change will reach an annual figure of £184 billion in 50 years. So not only are we depriving out children from what we have we are also making them liable for our debts several times over.

Challenges of global health

According to a World Bank concept note published in August 2009, environment strategy will need to take a hard look at trade-offs between short-term development concerns and longer term environmental sustainability. There are multiple linkages between different MDGs and environmental sustainability. For example, half of malnutrition is due to poor sanitation and hygiene. The burden of disease due to environmental factors is 15 times higher in developing countries compared to developed countries. About 40 percent of this burden falls on children under the age of 5, who only account for 10 percent of the world?s population. Climate change further complicates this picture. In the face of current global conditions, development has become a deeper struggle in many WBG client countries.

Lethal effects of chemicals
Climate change effects are not only restricted to the loss of species. Our human assault on environment is having numerous other side effects. Most of it is being revisited on human themselves by the multitude of new diseases and rising trends in cancer, asthma and allergies roughly 400 million tons of chemicals are produced in tens of thousands of varieties every year. Most have never been tested for their effects on health and environment. According to Vyvyan Howard, a senior lecturer at the University of Liverpool, there are currently 100,000 man-made chemicals in use with another 1,000 added each year. The majority have been foisted without any test or regulation. The aberrations caused by these chemicals are going unnoticed.

Chemical induced puberty
Zac Goldsmith describes a telling example in his book “The Constant Economy” of chemical induced puberty. Dr Marcia Herman-Giddens is a long standing professor of child health at the University of North Carolina School of Public Health. In the years leading up to 1997, she began to notice a change I her young patients. ‘I was seeing a lot of young girls coming in with pubic hair and breast development’, she said, ‘ it seemed like there were too many, too young.’ So she embarked on what is still the largest every study of sexual development in American children to date, in which 225 physicians examined more than 17,000 young girls. The results, published in the academic journal Pediatrics, were shocking even to the report’s authors. At the time, the standard medical line was that signs of puberty, including breast development and pubic hair, could be seen in 1 per cent of girls under the age of 8. By the end of the survey, that figure had risen to an astonishing 27.2 per cent for black girls and 6.7 per cent for white girls. Worse, the doctors reported that 1 per cent of the 3-year-old girls they examined, had swollen breasts or pubic hair.

Scarcity amidst plenty
80% of the cost of healthcare in the US comes from 5 major diseases, heart, diabetes, asthma, cancer and obesity, all of which can be moderated or prevented through behavioral changes and yet people refuse to change. We live in a world of sharpening contrasts and contradictions - a world of scarcity and abundance living side by side. The worst paradox is that more people are dying from over eating than under eating. As many as 1.6 bn people are suffering from the effect s of having too much to eat. Twice as many people on the planet are dealing with problems of too much food as are dealing with the problems of too little. Food waste is posing tremendous challenges to some of the civic authorities in the western world.

Environmental concerns stall Millennium Development Goals
Revised projections of the World Bank Group estimate that as a result of lower economic growth because of the crisis, in 2009, 53 million people would not be removed from living in extreme poverty and an additional 200,000 to 400,000 infants will die. The food crisis, resulting in high and volatile prices, is also closely linked with the long-term agenda embodied in the MDGs. More than 900 million people were hungry even before the current “crisis;” the number has now increased to 963 million. All of these development deficits have an uncomfortable underlay in environmental shortfalls. Given that the demand for food will increase by 50%, for fresh water by 30% and the planet?s population will reach 8.3 billion by 2030, lack of attention to environmental concerns poses risks to achieving the MDGs.

Prospering from failures
Wear your failure as a badge of honour
Corporations have been going through turbulences all the time. As soon as we hear that Miami has built more condominiums than buyer are buying, the speculators short the market, the banks freeze the loans, cancel mortgages and call for foreclosures. This worsens the situation and the prices fall even further creating further hardship and misery all around. But such turbulences have temporary effect as compared to natural turbulences that have a more devastating impacts. Indeed companies go through periods of turbulence all the time. Andy Grove in his well known book ‘Only The Paranoid Survive’ describes the conditions of turbulence that his own company has gone through and survived. In this companies learn from their own experience. Indeed they wear their failures as “badges of honour” so not only your own staff but others can learn from them.

Resilience is the heart of sustainability
It is not that our environment, the political institutions and global economy are undergoing rapid, structural changes, what is most disconcerting is that even the nature of change is changing rapidly. Our customers, suppliers, government, civil society and stakeholders are becoming increasingly outrageous. Strategies of sustainability need a constant analyses of changes in society, technology and resources to determine the how these impact on overarching organizational goals. But we need a much faster reflect time to respond to change in a manner that conforms to the need for transparency, engagement and accountability. This utterly demanding nature of business requires resilience. In this fast paced, multi reality world the real skill you need is your ability to bounce back whatever life throws at you.

Sustainability goes beyond saving the planet
Leaders have to move beyond the relentless pursuit of short term prosperity towards long term sustainability. This does not mean just becoming green. The notion of sustainability goes way beyond saving the planet and combating climate change. We need to add the issue of how do we go about doing our business in the new social, environmental and cultural context much more holistically than ever before. New challenges demand business strategies which are resilient enough to respond to any change in the shortest possible time. The resilience is going to be the key word for dealing with the upcoming age of turbulence. It describes the process by which objects revert to their original shape after being bent or stretched. In medicine it refers to the ability of individual patients to recover from injury or illness. Businesses would need to mimic the human body while responding to changes.

Connectivity – key to sustainability
Everything in this world is interconnected. The global population will soon reach 9 billion people forcing major demographic shifts. More people live in cities than in rural areas. 19 cities will have over 20 million people in the 21st century. More so in major cities where a shock or an outbreak or any other aberration in one system will cause a ripple effect, rapidly reverberating through the global commerce and air travel. Governments are too local to solve these cross borders issues. It is here that corporations especially the multinational ones are uniquely qualified to protect the operating environment and therefore the public wishes these corporations to act as model corporate citizens and become liable for corrective actions. Any failures to do so could have serious repercussions on company’s brand. Both civil society and the investor groups are likely to punish the slackers heavily for any safety of environmental lapses which would be amplified several folds because of the power of communication technology.

Partnership In Action for Sustainability (PIAS)
Back in 2005 the World Environment Foundation, in response to its initiative called PIAS (Partnership In Action for Sustainability) developed a sustainability model called PROACTIVATE. The model called for Pricing natural capital, Radically increasing the efficiency of natural resources, Opting for minimalist lifestyle, Adopting zero waste and close loop systems, Combating CO2 by afforestation, Turning to renewables to meet all our energy meets, Innovating business models that encourage hiring instead of acquiring, Vigorous pursuit of market mechanisms to reward clean businesses and punish polluters, Actively involving people specially women and children in changing behavior, Training people on eco-innovation and setting Example by starting with yourself. The model reflects the social, cultural and economic context by factoring these issues in the model. The model has been tested and validated at various conferences. While climate change is the biggest catastrophe that has befallen this planet, it is also an opportunity of unprecedented proportions which has the potential to change “business as usual” in a way that would have been unimaginable earlier.

Sustainability is driven by setting example
The good news is that the businesses with long term profitability and growth are homing on to the concept of sustainability. The home for furnishing retailers Ikea has ‘air-hunters’ people who search for empty space to reduce the size of packaging and the merchandiser will stop giving out plastic bags and start selling solar panels and smart energy meters. Caterpillar is now remanufacturing old engines to save both raw material and money by recycling more than 2 million pounds of engines and transmissions into almost new components. Anheuser-Busch, the beer brewer, has committed to brewing 5 billion bottles of beers a year with renewable energy. The UK based food retailer J Sainsbury has printed double sided register receipts with the simultaneous thermal printer from NCR corporations cutting paper consumption by 40% leading to enormous saving in paper roll replacement. The global airlines network international air transport ( IATA)association has bit farewell to paper tickets saving $9 of cost per flight. Herman Miller the furniture maker in Michigan has reduced waste sent to landfill by 80%, hazardous waste by 91%, overall emissions by 87% and water usage by 67% while doubling sales to more than $2 billion.

Profiting from sustainability
Sustainability is not about putting your business to risk or compromising profitability. It is about making your business risk proof and continuing to ensure profitability despite turbulence in the market place. The case for sustainability has been strengthened more than ever by the value destruction caused to companies that focused on short term goal during the global meltdown. Sustainability is beyond green businesses, green jobs and combating climate change. Some of the top corporations such as Interface Corporation, the US carpet maker, Bridgestone , the Japanese tyre manufacturer, Frito-Lay, the US manufacturer of potato chips have already recognized this aspect. For instance Bridgestone no longer sells tyres in Europe. It hires them out. Clients pay on the usage. Frito-Lay has already moved away from potatoes to whole corn, sun flower oil, whole wheat, oat flour etc, which are far more healthier and nutritious and are beginning to manufacture them with solar energy. it is this image that has made Frito-Lay the fastest growing new brand in a decade. Sustainability endeavors offer exponential opportunity for building and enhancing brand value and goodwill has been demonstrated by following examples.

Procter and Gamble have used life cycle analyses, a tool for value-chain transparency to see that its greatest impact was in the hot water its customers were using to wash clothes. It is this insight that led them to create Tide Coldwater, Nike used transparency to help- its designers understand how they could use fewer materials to produce high performance shoes. The real advantage is that products perform better when they are built with the strategy for sustainability.

Tenets of Sustainability
Adam Werbach, CEO of Satchi and Satchi and one of world’s best known exponent of sustainability, describes following seven tenets of sustainability, in his book ‘Strategy for Sustainability’:

According to Michael Mauboussin, the gap between valuations and future cash flows is substantial. Focusing on earnings leads to unsustainable business because:

The focus on quarterly earnings is one major factor that led to 2008 market crash. While short term incentives kept increasing, the sustainability of the company continued to erode.

The new role of corporate governance – principles versus rules
The basic reason for failure of corporate governance regulation is that this was based on a box ticking approach of compliance. This encourages companies using their ingenuity in HNTGC – How Not To Get Caught. Human ingenuity is so powerful that we always find excuses to beat the system. In fact our manhood depends on our ability to defy rules. You become a master only by transcending rules which most read as transgressing rules. The basis reason is that rules are devised to meet a certain situation and not supposed to be permanent. Hence the tendency to interpret them to suit your own convenience. Principles on the other hand are North Star fixed for all times with no scope for ambivalence. A strategy for sustainability requires we apply a principle=based approach to corporate governance.

The basic purpose of corporate governance is to hold those in power to account. So accountability is the key to corporate governance. There are 6 principles that have to be satisfied to ensure accountability. These are 6 Ds – Diversity in composition of the board and differentiating the gene pool and gender; encouragement of Dialogue as opposed to monologue; valuing Dissent, Dispersion of authority (separation of chairman and CEO is one example), disruption of status quo (critical to counter cosiness) and fostering a culture of full disclosure to build trust.

Embedding sustainability by valuing 5 Ds
One wonders how companies like Enron and Satyam that had such outstanding boards with their audit committees chaired by men of such substance as the Dean of Stanford Business School in the case of Enron and Professor Krishna Palepu. Prof Palepu an independent director of Satyam taught corporate governance and fraud detection at the Harvard Business School Common. The answer lies in the book Groupthink by Irving Janis who showed how people coming from same background find it difficult to face change and fiercely defend the group. Embedding sustainability means recognition of 5Ds - diversity, dissent, dialogue , disclosure and disruption of status quo as value enhancers.

Groupthink in professions and bureaucratic maze protects its own “sons of bitches”
The bureaucratic systems have become so awesome and the groupthink so powerful that even regulators and courts protect their own “sons of bitches”. The abuse of system as seen in the financial, public services, legal and parliamentary systems cries out the need for creating diversity at all levels in the organisations and inculcating a culture where dissent and difference is valued. Most of our institutions have too much of monologue and too little of dialogue. The complex nature of problems of our times requires a lot more discussion, debate and dialogue to create wider understanding of the conundrums the modern society is facing . Disclosure and transparency are the key to these solutions not just because it creates trust but allows sharing of the problem to find appropriate solutions.

People can withstand poverty but will not put up with injustice
Dispersal of authority and disruption of status quo are important elements to counter the culture of conceit , concealment , cosiness and corruption. Complainants often have hard time in establishing their cases. The authorities complained against close ranks and gang up against the claimant making it impossible for complaints to be properly investigated. As a consequence public is so frustrated that there is a danger of their wrath falling upon wrong people. It must be recognized that while people may be able to withstand hardship and poverty they will not bear injustice in this day and age.

Common man fed up with reckless disregard to accountability by haloed institutions
Common man world over is feeling outraged by instances of lack of accountability. The involvement of two of City of London’s biggest names in helping the collapsing Lehman Brothers in concealing its debt of $50 billion is an example of how the system is abused in the quest for making money. A one year probe into the collapse of Lehman Brothers found that J P Morhan, Citigroup, Linklaters and Ernst & Young had contributed to Lehman’s slide into bankruptcy in Sept 2008. The report also reveals that Linklaters approved the Repo 105 transactions for Lehman, after the bank was unable to find any US lawyers willing to do so. The saga of British law makers abusing the system for their personal benefits went on unnoticed for a long time until The Telegraph found a source who leaked this information and the newspaper capitalized it to improve its sagging sales. Despite the wide publicity and public outcry following discovery of Joseph Fritz, the incestuous Austrian father, the case of Yorkshire man who continued to rape his two daughters and fathered 9 children was kept hush hush until an enquiry report revealed that social services were aware of the incest but took no action. A BBC film recently showed the plight of handicapped and disabled people living in London many of whom could not live a decent life not because of the disability but the way local youth terrorized them with impunity. David Askew, a 64 year old man with learning difficulties was tormented to death by local youth . The torment continued for years and police took no action.

Innovation is key to sustainability
A strategy for sustainability is incomplete without embedding 5 Ds – diversity, dissent, dialogue, disclosure, disruption of status quo in the DNA of the organisation. The cornerstones of sustainability are innovation, engagement, transparency and accountability. Innovation needs clash of ideas and acceptance dissent as a value enhancer. If two persons think alike only one is needed. This requires a culture where people can freely discuss contrarian view points. It is only through diversity and difference that ideas are generated and innovation is stimulated. People cannot work together and create synergy if they are not open with each other. Disclosure is a prerequisite for trust and key to successful team work.

Resolving contradictions of a multi-reality world
Decades ago Adlai Stevenson, US Ambassador to the United Nations said, “We travel together, passengers on a little spaceship, dependent on its vulnerable reserves of air and soil; all committed, for our safety, to its security and peace; preserved from annihilation only by the care, the work and the love we give our fragile craft. We cannot maintain in half fortunate, half miserable, half confident, half despairing, half slave – to the ancient enemies of man – half free in a liberation of resources undreamed of until this day. No craft, no crew can travel safely with such vast contradictions. On their resolution depends the survival of us all.”

PROACTIVATE – a holistic model for sustainability
As has been emphasised earlier sustainability is much different from and much bigger than just greening. It takes into account not just the natural environment but also the social, economic and cultural context. Developing and executing a strategy for sustainability is critical for survival in a world where the very nature of change is changing by the hour. Quest for sustainability has led to the development of a model called PROACTIVATE, an eleven point programme that puts natural capital at the heart of value creation and uses market driven approaches that enhance the value of natural capital by challenging traditional assumptions and offering triple bottom line benefits.

We are approaching an environmental meltdown because businesses are not factoring the environmental costs of procurement, production, packaging, transportation , usage and disposal. Gross Domestic Product gives a grossly distorted picture of growth. Our wealth is growing at the expense of our natural treasure. None of what we are creating can be transferred to our children.

Leveraging change through innovation
There is no change in the problems that were envisaged by Adlai Stevenson despite lapse of so many years. The world is still afflicted by same problems – poverty, pollution and global conflict. They are as acute today, if not more, as before. But because of the aspirational nature of this interconnected world their impact can be far more lethal than ever before. The good news that never before in history there was a time when the distance between what is dreamt and what can be achieved was so little. Our businesses today possess a lot more technology and are far better organized to resolve the contradictions that Stevenson envisaged. Putting businesses to solve these problems provides them a means of improving their competitive edge and in turn an opportunity to make money for themselves . Sustainability differs from the corporate philanthropy and the public perception of CSR. This is because social and environmental problems including that of climate change which have tragic consequences for the planet and civil society provide an unparalleled and infinite opportunity for innovation. Innovation also helps in establishing a fairer and inclusive society as radical businesses eradicate incumbents. Contrary to dominant thinking, climate change is an unparalleled source of innovation. Strategies for combating climate change can be critical drivers of development of poor regions. Think what development of solar energy can do for regeneration of Africa?

Imperfectly seizing the future
Douglas Adams, author of the Hitchhiker’s Guide to the Galaxy series, once said, “If you try and take a cat apart to see how it works, the first thing you have on your hand is a non-working cat. Life is a level of complexity that almost lies outside our vision; it is so far beyond anything we have any means of understanding that we just think of it as a different class of object, a different class of matter; ‘life’ , something that had a mysterious essence about it …”. Says Adam Werbach, “when the situation seems too complicated to grasp , grasping it isn’t always entirely necessary, or even possible , so do what you can , when you can.”

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