The May 2010 Harvard Business Review has a great new article called “The Sustainability Imperative” which backs up the basis of sustainable investing. The authors assert that sustainability is the next transformational business trend just as business has previously experienced through mass production, manufacturing quality movement, IT revolution and globalization…. and as an investor, I would add, the development and growth of China and emerging markets.
The principle behind this is that business megatrends force fundamental and persistent shifts in how companies compete… there will be winners and there will be losers. With such, the authors suggest that companies seeking to get ahead in this megatrend need to: 1) get the right vision and 2) get the execution right.
Getting the vision right means knowing what to do. Simplifying things, the assertion is that companies can start by focusing on risk and cost reductions and over time develop strategies for increasing value creation, ultimately including intangibles such as brand and culture.
Getting the execution right means knowing now to do it. Companies can focus in five critical areas such as leadership, methods, strategy, management and reporting. During the IT megatrend, we began to see the Chief Information Officer and we are now beginning to see the leadership within forward thinking organizations with new positions as Chief Sustainability Officer. Notable companies with CSO include AT&T (U.S), SAP (Germany) and LoyaltyOne (Canada) plus others.
While there are a lot of great examples in the article, the key for we investment folks is that getting the vision right and getting execution right can help companies compete through this new megatrend and come out as winners. Failure to react or simply ignoring sustainability could impact a company’s ability to compete as we see in examples given in the article like GM and Kodak. These are business issues that will impact the bottom line!
The questions for corporations are:
- Have you heard of sustainability?
- Do you understand what it is?
- Do you realize how it differentiates from corporate social responsibility reporting?
- Do you realize it’s a business issue?
- Do you have a vision and are your ready to speak to your stakeholders about your vision?
The questions for investors are:
- Do you understand what sustainability is?
- Do you consider sustainability to be the same as corporate social responsibility or socially responsible investing? Do you know the difference?
- Should you look at this as a business issue and not as a nice to have?
- What are the questions you should be asking of a the organizations in whom you invest?
- What are the risks to assets of corporations that you don’t understand?
- Can sustainability help you see potential risks in the future?
- Is your own organization ready to compete?
The full article is available (subscription may be required) at: http://hbr.org/2010/05/the-sustainability-imperative/ar/1
From my perspective, this is a great introductory article to anyone new to the concept of sustainability. As investors, I agree with the authors that this too is a megatrend not to be dismissed and my assertion is that it is as big as China’s recent growth.
Are you ready or will you too be left behind?