Corporate Sustainability in Practice: A Guide for Strategy Development and Implementation

By Paolo Taticchi

Building better organisations, with a clear sense of purpose, is a common challenge faced by many entrepreneurs and executives in industry. A fully integrated corporate sustainability strategy can help organisations to better manage risks, to win business opportunities and to ultimately strengthen reputation. Building on the experience of renowned strategists, sustainability, finance and academic experts, this book offers practical tools and approaches that can be used to develop and implement fully integrated corporate sustainability strategies.

• Language: English
• Publisher: Springer
• Release date: Nov 24, 2020
• ISBN: 9783030563448

Book preview

Part ICorporate Sustainability: The Big Picture

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021

P. Taticchi, M. Demartini (eds.)Corporate Sustainability in PracticeManagement for Professionalshttps://doi.org/10.1007/978-3-030-56344-8_1

1. How Environmental and Social Issues Affect Business Strategy

Melissa Demartini¹, ²   and Paolo Taticchi³  

(1)

Adjunct Professor of Operations Management and Sustainability, University of Genoa, Via all’Opera Pia 15, 16145 Genoa, Italy

(2)

SDU Centre for Sustainable Supply Chain Engineering, Dept. of Technology and Innovation, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

(3)

UCL School of Management, University College London, Level 38 One Canada Square, Canary Wharf, London, E14 5AA, UK

Melissa Demartini (Corresponding author)

Email: [e-mail]

Email: [e-mail]

Paolo Taticchi

Email: [e-mail]

Abstract

This chapter reviews the drivers of the sustainability debate by offering the ‘bigger picture’ of economic, environmental and social problems. Greater emphasis is given to three phenomena (climate change, population growth and wealth disparity) that are particularly relevant for both business and society and offer interesting insights into understanding the link between sustainable development at large, the sustainability challenges faced by business and the implications for business strategy. The aforementioned challenges, which are already complex when analysed individually, become increasingly more complex when analysed together.

Keywords

Sustainability driversSustainable developmentClimate changeWorld population growthWealth disparity

Melissa Demartini

is an Adjunct Professor of Operations Management and Sustainability at the University of Genoa and Visiting researcher at Imperial College Business School. Her research interests are mainly in the areas of corporate sustainability, operations management, and modelling. She has co-authored nearly 20 papers published in international indexed journals. She currently teaches undergraduate, graduate, and MBA students, with teaching activity covering general management, operations management, and sustainability. So far, she has taught in universities in Italy and the UK. She has worked as a project manager for the EU’s Advanced Manufacturing in Central Europe (AMiCE) project since 2017. She is also industrial sustainability coordinator for the Intelligent Factory Cluster’s Roadmap Project – an Italian government initiative which aims to develop a national strategy to improve the international competitiveness of manufacturing companies. Outside of the academy, Melissa has significant consultancy experience, she is a consultant for Ansaldo Energia’s ‘Lighthouse Plant’ project. She has also worked as a consultant for Siemens, gaining experience in strategy, operations, internationalization, and business planning.

Paolo Taticchi

(Editor and Author) is Professor (Education) in Strategy and Sustainability & Deputy Director (MBA and International at UCL School of Management. He teaches modules on sustainability and competitive advantage, strategy, consulting, and the future of cities. Before UCL, Paolo spent six years at Imperial College London where he led top-ranked programmes such as the MSc Management and the Global Online MBA. Alongside his work at UCL, Paolo is regularly invited to teach on international MBA and EMBA programs in Europe, Africa, Asia, and the Americas. In the recent years he has visited and hold teaching appointments in top universities like EADA, ESAN, and NYU. Paolo’s research on performance measurement and management, business networks, and corporate sustainability is internationally recognised. He has authored over 50 published academic journal articles, and edited and co-authored three books. Outside of the academy, Paolo has significant consultancy experience in the fields of strategy, operations, and sustainability and today he serves in the advisory board of influential organisations in the UK, US, Canada, Italy and India. Paolo is also active in the entrepreneurial space, co-founding three firms in the fields of engineering and consultancy. His projects, quotes and opinions have been featured over 200 times in media outlets like The Financial Times, Forbes, The Telegraph, Semana Sostenible, La Republica, Inspire, Sole 24 Ore, La Nazione, Corriere della Sera, La Stampa, RAI, Sky News, Sky News Radio, Mediaset, and CNN. In 2018, Paolo was chosen as one of Poets & Quants’ top 40 business school professors under the age of 40. In the same year, Paolo received the title of Knight of the Order of Merit of the Italian Republic. In 2019, Paolo received the Talented Young Italian Award from the Italian Chamber of Commerce and Industry in the UK.

1.1 Introduction

The topic of corporate sustainability, which is central in today’s agenda for corporate executives around the world, is of course linked to the wider topic of sustainable development and the role played by business in society.

The most frequently quoted definition of sustainable development is from the United Nations’ ‘Our Common Future’ report 1982 (Imperatives 1987), also known as the Brundtland Report: ‘Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs’.

The entire issue of sustainable development centres around inter- and intragenerational equity anchored essentially on three-dimensionally distinct but interconnected pillars, namely the environment, economy and society. Decision-makers need to be constantly mindful of the relationships, complementarities and trade-offs among these pillars and ensure responsible human behaviour and actions at the international, national, community and individual levels in order to uphold and promote the tenets of this paradigm in the interest of human development (Mensah and Casadevall 2019).

The big challenges faced by society are indeed summarised by the Sustainable Development Goals (United Nation 2015) set by United Nations which are presented, and critically discussed, in the next chapter.

Interestingly, and relevant to corporations, is the work of the World Economic Forum which annually publishes the ‘Global risks report’. The report relies on a global survey in which nearly 1,000 decision-makers from the public sector, private sector, academia and civil society assess the risks facing the world. The risks are categorised in the following categories: economic, environmental, geopolitical, societal and technological. The key findings of the Global risks report 2019 are presented in Fig. 1.1.

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Fig. 1.1

Global risks

(Source World Economic Forum, Global Risk Report 2019)

The risks identified by the World Economic Forum, which are already complex when analysed individually, become increasingly more complex when analysed together as presented in Fig. 1.2. Hence, the importance of a system thinking approach in the effort of addressing these challenges as highlighted in the third chapter of this book.

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Fig. 1.2

The Risks-Trends Interconnections Map

(Source World Economic Forum, Global Risk Report 2019)

A number of ‘mega forces’ will be key drivers for business change to 2035 and beyond (KPMG International 2012). These include climate change, population growth, energy and fuel, material resource scarcity, water scarcity, urbanisation, wealth, food security, ecosystem decline and deforestation. Each of these individually is predicted to have a significant impact on the way we do and can-do business, but it is critical to understand that the drivers are irreducibly inter-related (Tennant 2013).

In this chapter, we review three phenomena that are particularly relevant for business and society with the goal of explaining the link to corporate sustainability and impact on business strategies.

1.1.1 The Impact of a Changing Climate on Business

Climate change is considered by many the greatest challenge faced by modern society. Indeed, this is confirmed by the unremitting attention of media and governments.

Extreme weather events are nowadays more frequent and more devastating. Examples of major disasters that took place in 2019 include (Masters 2020)

the 3.4 million people who were evacuated from their homes in India and Bangladesh before Cyclone Fani barrelled over the Bay of Bengal;

the high-water levels seen 5 times in a week in Venice, recording the highest tide ever, flooding its historic basilica and leaving many of its squares and alleyways deep under water;

the second strongest Atlantic hurricane on record (Dorian) that hit the Bahamas with winds of 185 mph, causing $150 million in damage;

tropical cyclone Idai (it affects Africa and the Southern Hemisphere) which left thousands of people stranded on rooftops in an ‘inland ocean’ up to 30 miles wide and killed 964 people;

the record heat and drought in Australia that produced some of the most apocalyptic fire activity ever witnessed in the country, with at least 21 people killed, 15 million acres burned and 3500 structures destroyed.

typhoon Hagibis that unleashed unprecedented rains and catastrophic flooding across much of Japan, killing 98 and causing over $15 billion in damage, making it Earth’s most expensive weather-related disaster of 2019.

Extreme hurricanes caused by warmer air and oceans, such as hurricane Dorian, will be more common: these phenomena used to occur once every 100 years, today the projections are that they will occur once every 16 years. In drier areas, droughts will be more enduring and severe, this can have a negative impact on the fire season which in turn will be more extreme, disruptive and costly.

According to scientists, these events will not only be more powerful and frequent but will also expose more people to sufferance and unsettling situations. In this context, some interesting scientific evidence is the positive correlation between climate change and migration of people (Fig. 1.3). Experts predict that by 2050 one in every 45 people in the world will be displaced by climate change (Brown 2008) and certain parts of the world will be much less viable places to live.

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Fig. 1.3

Climate change and migration of people

(Source Migration and Climate Change—IOM International Organization for Migration)

One of the main causes of climate change is global warming, which is a consequence of growing CO2 (carbon dioxide) emissions resulting in a rise in temperature.

Current economic and production systems are based on carbon and fossil fuel consumption which generate a huge amount of CO2 emissions driving the global warming problem (Fig. 1.4). In 2014, the Intergovernmental Panel on Climate Change (IPCC) which is the leading scientific body informing policymakers, published a ground-breaking report (IPCC 2014) that gave clarity to a number of issues that had caused debate in the scientific community for decades:

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Fig. 1.4

CO2 emissions trends

(Source IPCC 2014)

Human influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history. Recent climate changes have had widespread impact on human and natural systems;

Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems. Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate changerisks;

Adaptation and mitigation are complementary strategies for reducing and managing the risks of climate change. Substantial emissions reductions over the next few decades can reduce climate risks in the twenty-first century and beyond, increase prospects for effective adaptation, reduce the costs and challenges of mitigation in the longer term and contribute to climate-resilient pathways for sustainable development;

Many adaptation and mitigation options can help address climate change, but no single option is sufficient in itself. Effective implementation depends on policies and cooperation at all scales and can be enhanced through integrated responses that link adaptation and mitigation with other societal objectives.

In 2015 under the Paris Agreement, 197 countries committed to cut greenhouse gas emissions with the objective of limiting the global average temperature to below 2 ℃ above pre-industrial levels. The global temperature is currently rising by about 0.2 ℃ per decade and it achieved 1 ℃ above pre-industrial levels in 2017. Projections say that if warming continues to increase at this frequency, the 1.5 ℃ increase in temperature will be achieved by 2040 and potentially up to a 5 ℃ increase reached by the end of the century. This could be potentially disastrous. The increase in temperature would result in the melting of ice caps and glaciers and lead to a rise in sea level, damaging coastal communities and infrastructures. Entire island nations could face the possibility of submersion. Moreover, the population could be exposed to extreme heat, losing many ecosystems and species such as coral reefs and marine fisheries.

It is interesting to note that, what could be at first sight classified as an environmental problem, has in fact impacted on several other systems, including business and industry. Virtually, all industries may be affected by climate-change-related impacts with some being particularly vulnerable. Good examples include the wide concern in the insurance industry (which is expected to be one of the most affected, as companies in this industry pay for the damages caused by extreme weather events and the difficulties inflicted on business activities), disruption in the oil and gas sector (oil and gas are limited natural resources in any case, but the switch to alternative sources of energy is accelerated by climate action), transformation of the automotive industry (with electric mobility and business models based on sharing) and of course major impacts on the agriculture and food industry (as extreme weather events and global warming are impacting heavily on productivity and capacity).

The case of Illy

Hotter temperatures and droughts make coffee supplies less stable, leading to price spikes and shortages. In particular, the ‘Arabica’ variety, which is of superior quality and the most consumed, is particularly sensitive to climate changes. This situation affects the economy of entire countries in South and Central America (e.g. Brazil and Colombia), Africa (e.g. Ethiopia) and Asia (e.g. Vietnam). With coffee consumption increasing every year at a rate around 2.5%, this is a massive problem for coffee producers.

Illy is a global coffee brand that is sold in 140 + countries and employs 1200 + people globally. In 2018, the chairman of Illy, Andrea Illy, declared to journalists that climate change is the biggest risk to the business: availability of coffee and volatility of prices are major issues for the firm which has the ambition of growing steadily in international markets. Based on research carried out with the Earth Institute, Illy forecasts that only half of the current suitable land for coffee plantations will remain suitable by 2050.

In order to address the issue of supply chain vulnerability, Illy has decided to re-think the business strategy in light of sustainability needs. As part of this process, the supply chain management strategy was reviewed and strategic collaborative partnerships with suppliers established with the goal being better control of quality, quantity and price. New initiatives were launched as a consequence of this new strategy, including for example the ‘Ernesto Illy Quality Award for Espresso Coffee’ which aims to encouraging the sustainable production of quality coffee. The award has already bestowed more than $4 million to coffee growers in Brazil (Toni et al. 2012).

1.1.2 The Impact of a Growing Population on Business

A major phenomenon that has characterised the last two centuries is the growth and ageing of world population. Population grew close to eight times in the last two centuries (from 1 billion in 1800 to 7.7 billion in 2019). The world population could reach a peak of 10 billion people by the end of the century (Fig. 1.5).

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Fig. 1.5

Annual growth rate and world population

(Source Our world in data 2019)

A larger population means a larger virtual demand of everything: food, energy, cars, buildings, etc. Without a well-planned decarbonization of the economy and/or industrial activities, the sapient use of technology, and more efficient industrial systems, carbon emissions could boom and global warming and climate change accordingly. In this regard, in its ‘Landmark 2018 Report’, the IPCC specifically identified high population growth as a ‘key impediment’ to hitting the critical target of limiting global warming. The implications of a growing population have stimulated a lot of scientific research and books like ‘Limits to growth’ (Meadows et al. 1972) have a made a dent in the understanding of the consequences and contributed to the popularity of systems theory and system thinking (an overview is provided in Chap. 3).

The world population is growing, but there are clear differences between world regions and countries (Fig. 1.6).

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Fig. 1.6

Overview of the most populous countries by 2050

(Source Forbes)

Some countries like India, China and Nigeria are growing very fast while other countries will continue to see decreasing population rates. The world population depends on the balance between births and deaths; therefore, it is essential to analyse this data to understand what is happening. The improvement of life expectancy and the reduction of child mortality is without doubt a top priority of each country; however, it is also important to focus on the fertility rates of developed countries to understand why these populations are stagnant or falling. This is clarified by Fig. 1.7 where the fertility trend is depicted. Up to the 1960s, the average world fertility rate was 5 children per woman, while today it has dropped to around 2.3. The top 20 countries with the highest fertility rankings are all African. In the countries where the fertility rate is high, population growth is increasing, but it is important to note that there is also a positive correlation between high birth rate and increased child mortality (Fig. 1.8).

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Fig. 1.7

Evolution of the number of children per woman

(Source Our world in data)

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Fig. 1.8

Forecast of population growth in Europe and Africa

(Source Samir et al. 2010)

In light of the above, there will be a so-called ‘Africa boom’ phenomenon. As we can see from Picture 8, there is a huge difference between African and European population projections. The population of Europe is forecasted to remain static, while the population will explode in countries like Nigeria which will be ranked in the ten most populous countries by 2030.

With population growing, PwC’s report ‘The World in 2050’ (Hawksworth and Chan 2015) projected the world economy to grow at an average of just over 3% per annum in the period 2014–50, doubling in size by 2037 and nearly tripling by 2050. The global middle class is expected to grow and reach 5.5 billion by 2030. Some 87% of the additional middle-class population will be Asians. This is an unprecedented opportunity for business growth. However, it is unlikely that the planet can support the level of exploitation associated with a rising population consuming at the same level as occurs in post-industrialised countries today. Global manufacturers, and business in general, need to find ways of delivering the same products with vastly reduced impacts and also to shift to different modes of consumption, including selling performance and service provision instead of goods. Consumer behaviour change is a critical dimension in this debate and effective programmes for change will require that social scientists be given equal footing with scientists and engineers so that the issues can be tackled in an informed manner (Tennant 2013).

The Case of Unilever

At the 2019 Deutsche Bank Global Consumer conference in Paris, Unilever’s CEO Alan Jope said ‘the combination of quite a big population, strong GDP growth and rapid consumption in the categories we sell means that countries like Vietnam, Pakistan, Bangladesh, Myanmar and even Ethiopia will be our growth stars over the next few years’.

Unilever, which makes household goods ranging from Dove soaps to Knorr packet soups, is indeed a great example of a company that fully understands the opportunities given by a growing and wealthier population in developing countries.

The company keeps growing in developing markets, where it already gets 58% of its sales (mainly from China, India and Brazil). To do so, they keep introducing innovative business practices that try to reduce the environmental impact of operations and amplify the positive impact on the local communities where they operate. Mahajan (2016) has closely analysed the modus operandi of Unilever and identified several of these practices, such as

The concept of training local women in India as rural sales agents who sell Unilever products door to door in their communities (70,000 sales agents serving 165,000 Indian villages when they started in 2015)

The use of large stores as sub-distributors in the Philippines which allowed Unilever to double its rural coverage whilst also reducing distribution costs

The use of low-cost, single-use packets to make its products affordable for lower income consumers who often shop daily for necessities.

Since the Unilever Sustainable Living Plan (USLP) launched in 2010, it has received great recognition in industry and academia for reflecting the firm’s ambitious vision to grow the business, whilst decoupling the environmental footprint from growth and increasing positive social impact. The three pillars of the plan include

By 2020 to help more than a billion people take action to improve their health and well-being

By 2030 to halve the environmental footprint of production and use of their products as they grow the business

By 2020 to enhance the livelihoods of millions of people while growing the business.

The USLP is allowing Unilever to address market opportunities in developing countries, to cut business costs, to reduce business risks and to generate long-term value for multiple stakeholders. Therefore, it is a great example of an approach to corporate sustainability which is fully integrated into business strategy.

1.1.3 The Impact of Wealth Disparity on Business

The objective of reducing inequality within and among countries is one of the modern challenges of today’s society (SDG number 10). The international community has made significant steps towards lifting people out of poverty, but disparity persists, and large differences remain regarding access to health, education services and quality of life in general. The United Nations (2020) estimates that 40% of the world’s population receives less than 25% of the overall income (bottom of the pyramid), while according to Credit Suisse (Shorrocks et al. 2019) the world’s richest 1% (top of the pyramid), those with more than $1 million, own 44% of the world’s wealth.

Indeed, it is important to note that addressing the poverty problem is not only about economic growth. In fact, following the principles of sustainable development, economic growth should not come at the cost of the economy or society. Unfortunately, this is easy to say but hard to put in practice.

An interesting country to study in this context is China, which has made fantastic progress in reducing poverty in the last decades. In fact, the World Bank estimates that more than 850 million Chinese people have been lifted out of extreme poverty (750 million since 1990). As presented in Fig. 1.9, China’s poverty rate fell from 66.2% in 1990 to 0.5% in 2016 (measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms).

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Fig. 1.9

Poverty trend in China

(Source Poverty & Equity Databank and PovcalNet)

China today is the world’s second-largest economy, but its per capita income is still only about a quarter of that of high-income countries, and about 373 million Chinese are living below the upper middle-income poverty line of US$5.50 a day (The World Bank 2019). Moreover, economic growth has led to social imbalance, as evident from an analysis of the GINI coefficient (the GINI coefficient measures inequality among values of a frequency distribution, e.g. levels of income; a GINI coefficient of zero expresses perfect equality, while a GINI coefficient of 100% expresses maximal inequality among values) (Fig. 1.10).

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Fig. 1.10

Inequality trend in China

(Source Poverty & Equity Databank and PovcalNet)

Similarly, an analysis of China’s carbon emissions