A sustainable strategy requires courage and entrepreneurship in the boardroom

Sustainability requires that companies themselves improve on environmental, social and governance (ESG) to have an impact on the environment and society. Sustainability is not an additional achievement, but it takes fundamental attention and effort. Companies have to take the lead in this. They cannot wait for governments to impose regulation of taxes that indirectly steer motives.

As an executive, manager or director how does one lead sustainable entrepreneurship? How does one steer towards environmental and social value of the enterprise? Based on research, case studies, and contacts with senior management in a variety of industries, we have determined several mechanisms to solve this. To appreciate and implement these it is essential to have ‘moral courage’ in addition to business instinct and entrepreneurship.

Doing well can also be profitable

To determine the value of a company, also regarding sustainability, Schramade’s value matrix (2020) can be of use. In this approach, one looks beyond the financial value of a company; also the environmental (E) and Social (S) values matter and these together with the financial (F) value determine the broad enterprise value (V) of a company. As seen in the matrix below, it is  directly visible which variations are possible for companies that strive for a sustainability strategy. For a company to do well it should also be profitable. If a company is able to earn a good return and also add environmental and social value, a win-win situation can be obtained.

	E + S value destroying	E + S value creating
F value creating	Overexploitation	Win-win
F value destroying	Demise	Charity

 

The way of win-win as solution

How does one get to the win-win quadrant? Firstly, by initiating an internal transformation and by reprogramming existing patterns and routines. It helps to get surrounded by good partners that can contribute to the transition to sustainability. Many companies are able to achieve a win-win situation in the short run. A solution to reduce CO2 expulsion by using different materials or by reducing travelling can include measures to lower costs. Initiatives that are environmentally and socially stimulating appeal to the younger generations of employees, thereby contributing to the retention and attraction of good employees. Additionally, the first mover advantage can be reached by preparing for regulation and taxation that address the externalities and effects on the environment and society that a company causes.

However, a company often has to spend before it profits. To prevent sustainability initiatives from being rushed decisions, previous experiences have taught us that companies should describe and calculate the environmental and social investments in business terms, before taking actions. After that, companies can manage these investments as normal business activities based on interim results and risks.

Due to past expierences, we know that open communication with the various stakeholders can aid in decision making, but given the topic and differing interests, may also to be challenging.

For boards, it is a balancing act to stay in the win-win quadrant and be regarded as such. Research shows that companies that consult their management and employees before decision making, show the best results by achieving both balance and progress. They do this by being clear about their purpose and aspirations. This is an important task for the board: conveining the purpose of the company to all stakeholders and reinforce the urgency of the sustainability initiatives.

Four principles accompany sustainability

SMC discerns four principals that are important for the strategy execution of companies that want to make progress in sustainability [1]:

1. Take a long term perspective. In all you do as a company, look ahead many years regarding the consequences of actions both environmentally and socially.
2. Consider the scope of one’s actions and involve all stakeholders, including the future generations. This is the principle of broad value creation.
3. Show accountability, both internally and externally on applying these  principles and how they result for your company. This means that the company transparently reports about clear and measurable goals.
4. Go for a systematic approach: internalising sustainable behaviour into institutions. This way a company contributes to systemic changes.

Turn risks into opportunities

Transitioning to sustainability carries many risks. But what are these risks if a company does not pursue sustainability? Admittedly, if a company is ahead of the speed of an industry, additional start-up losses could be confronted. But these will be paid back later as our experiences suggest. On the contrary, if one lags, it may be difficult to catch up as it requires costs that do not lead to noticeable differentiating results.

To turn risks into opportunities, one has to know what to measure in a company’s industry. For instance, consider the ramifications of the textile industry and its chain. What are the social and environmental impacts of mining, generating the materials, and the processing of fibres and yarns? What requires the manufacturing and transport to wholesalers and retailers socially and environmentally. What is the damage to human beings and the environment?

When considering how damaging a company’s activities are for human beings and the environment, one can start to measure to what extent this is and search for better alternatives. Such as reductions of material, different usages, or simplification of the production chains. Going for sustainability means searching for opportunities. In this regard, consider addressing  consumers that previously were out of reach and attracting employees that seek purpose in their individual work. Furthermore, the company can become more attractive for governments and investors, who may prefer their  products or services over those of their competitors. Current trends demonstrate that investments by asset managers are ‘green,’ and this share is only increasing, thus sustainable business is becoming more and more state of the art.

A sustainable strategy is not for fearful entrepreneurs

In the transformation to a sustainable society, we should not depend on fearful entrepreneurs. On the contrary, it will be the courageous men and women who will be successful in the new capitalism (Henderson 2020) by systemic transformation. Transitioning to sustainability requires courage, tenacity,  and entrepreneurship. After all, to do more than the old paradigm  – of exclusively focussing on financial value creation – one must dare to lead the pack.

[1] We draw from various sources, among these Duurzaam kapitalisme. Een andere kijk op waarde by Willem Schramade (2020), Changing the Game. Sustainable market strategies to Understand and Tackle the Big and Complex Sustainability Challenges of Our Generation van Lucas Simons and André Nijhof (2021) and Reimaging Capitalism in a World on Fire by Rebecca Henderson (2020)