Climate change, unfair labour practices, corruption and other sustainability issues are moving up the corporate agenda. Bain & Company recently surveyed 297 global companies, and 81% said that sustainability is more important to their business today than it was five years ago; 85% believe that it will be even more important five years from now.
Yet even as awareness grows, companies realise that efforts to date are just a drop in the bucket compared with what's required. Among the companies surveyed, 99% believe that we need to maintain a fast pace of progress or increase it. Undoubtedly, huge opportunities exist for companies that pursue solutions. For example, the Business & Sustainable Development Commission estimates that meeting the UN's Sustainable Development Goals could generate US$12 trillion in business savings and revenue and create 380 million jobs by 2030.
We believe that sustainability leaders will increasingly adopt six "next practices" to turbocharge both sustainability and business success.
Using "future back" thinking to create transformative ambitions. Instead of making incremental improvements, leaders will take a transformational approach by creating a vision of what their future will look like in a truly sustainable economy and then developing a change programme to bring them toward that vision. The share of companies adopting a truly transformative sustainability aspiration will nearly triple over the next five years, from 9% to 26%, according to our survey. These companies will follow the lead of trailblazers such as Interface, the world's largest modular carpet manufacturer, which set an ambition in 1994 to turn a petroleum-intensive business into the first environmentally sustainable, and ultimately restorative, company.
Making "sustainable" irresistible for customers. Over the next five years, customer loyalty and revenue generation will replace public reputation and cost savings as the primary drivers for sustainable action, according to our survey. Forward-thinking companies make sustainability part of a holistic customer value proposition. Procter & Gamble was one of the first companies to market cold-water detergent, allowing consumers to save on energy and increase clothing longevity. Bulb, a UK-based renewable energy supplier start-up, signed up 2% of the UK market in just three years. Adidas sold more than one million pairs of shoes made with ocean plastic in 2017. Each of these companies has integrated sustainability seamlessly into a superior or less expensive product or service, rather than simply counting on sustainability to be inherently attractive or command a premium.
Achieving systems change with partnerships that focus on meaningful action at scale. System thinking starts with considering all the participants in an unsustainable ecosystem and considering their incentives--everything from government policy structures to labour incentives for suppliers. Often, solutions to make the chain more sustainable require innovative collaboration. For example, Nespresso and its non-profit development partner TechnoServe are working with USAID to rebuild the coffee industry in South Sudan after it was stifled by the country's civil war. The project seeks to train 1,500 South Sudanese farmers by 2019, while winning government support and harnessing non-governmental organisations, in an effort to increase farmer wages and exports.
Using advanced technologies to create a step change within the industry. Leaders will use advanced technology to intensify their sustainability efforts. When Google applied artificial intelligence to optimise data-centre energy efficiency, it reduced the amount of energy used for cooling by 40%. Walmart, IBM and others formed the Blockchain Food Safety Alliance to improve supply chain traceability in China. Companies cannot sit back, however, and expect technology to solve global problems. They must instead take a proactive approach. If every company waits for others to demonstrate the potential benefits of new technologies, no progress will be achieved.
Redefining what value creation means for the enterprise. Leaders acknowledge that a truly sustainable economy requires expanding a company's view of value creation beyond financial profit to consider society and the planet as a whole. Some are adopting these concepts at scale. For example, ING and others supplied a €1 billion loan to Philips with an interest rate that varies based on changes in the company's environmental, social and governance (ESG) performance. A growing body of evidence supports the correlation, and even causation, between ESG performance and returns. The shift is not a financial trade-off.
Reinventing the core business (if necessary). When companies look into the future, many will see that their only option for becoming sustainable is to make a drastic directional shift. Our survey found that 90% of companies feel that they need to change their core business model at least somewhat in order to operate in a truly sustainable economy, and 38% of companies feel that their core business model will need to change radically.
Business reinvention is not without risk, as many companies' early entries into solar demonstrate. Yet others show how reinvention can succeed. The Danish utility Orsted (formerly named Dong Energy) made great strides in its conversion from fossil fuels to wind power. It reduced its coal consumption by 82%, with the goal to reach a 96% reduction in carbon emissions by 2023. After more than 150 years of operating a business focused on cigarettes, Philip Morris International is reinventing itself for a "smoke-free future" by pursuing reduced-risk products.
Companies that move the needle will need to pursue two tracks: simultaneously improving, and starting to reinvent their core business. The balance between the two depends on the room for improvement in the core business and on whether there is a fundamental problem with the sustainability of the business model.
Whatever strategy a company chooses, making it happen will not be easy. Only 4% of our survey respondents say that their companies are achieving or exceeding their sustainability goals. Nearly half of all sustainability programmes are considered failures by the companies that deploy them--and the failure rate has doubled over the past two years. Indeed, true sustainability may seem daunting, but it is necessary and inevitable. Companies that take the leap to next practice will lead the shift to a sustainable world--and gain a competitive advantage in doing so.
Jenny Davis-Peccoud is the global practice leader of Bain & Company's Sustainability & Corporate Responsibility practice. She is based in Amsterdam. Sharad Apte is a Bain partner based in Bangkok.
