This is the first part in our 2degrees Book Club series. Author Nadya Zhexembayeva explains the introductory concepts of embedding vs. mere bolt-on sustainability.
Once upon a time, social and environmental performance of business was an optional, perhaps, morally nice thing to do when the times are good and the profits are high. While some managers continue to live in that long-gone fairytale, for the rest of us, sustainability is fast becoming an issue of direct impact on costs and revenues. Three big trends – declining resources, radical transparency, and increasing expectations – are redefining the way we do business. We are running out of resources (and the erratic prices for everything from oil to tomatoes are just a testament to that decline), we are facing new demands from customers, investors, and governments alike, and we have to figure it all out while being under the microscope of NGOs, media, and society at large.
With these new pressures on our hands, what is business to do?
In response to the mounting pressures, the overwhelming majority of managers continue with the familiar approaches to sustainability in business, treating the new social and environmental demands as annoying obligations to be addressed by a random corporate social responsibility program. As a cost, a CSR program of this kind can hardly excite a line manager, and the vague promise of reputational dividends often serves as insult to injury.
Then there are managers that now recognize social and environmental performance as business opportunity, but hardly beyond a small niche or a new “green” product in a conventional product line. In essence, what they do is simply “bolt on” social and environmental efforts to the existing strategy and operations, leaving it to hang there as a barely relevant appendix. Remember all those solar panels and two-sided copying promoted at the office headquarters of a dirty manufacturing business? Way too often we just keep bolting it on!
Only a handful are choosing to embed sustainability into the very DNA of what they do, incorporating environmental, health, and social value into core business activities with no trade-offs in price or quality. The Nissan Leaf, a 100% electric car named World Car of the Year 2011, offers features at a price found in most gasoline -powered cars. Combined with the emerging infrastructure to recharge electric cars, Nissan's multi-billion euro investment is driven by the quest for industry leadership and mainstream customer buy-in, not selling eco-cars to environmentalists.
Unlike the omnipresent bolt-on approaches, embedded sustainability requires a fundamental shift across every dimension of the business system (see figure on right hand side).
When this shift from bolt-on to embedded sustainability is made, social and environmental performance becomes a part of a new fairytale – a new kind of Cinderella story in the making. Leading companies such as Unilever, General Electric, Erste Bank, and many others are learning to leverage global challenges, such as climate stability, health, and poverty, for enduring profit and growth. The key to making it work is innovation – in product designs, processes, and business models – enabling these companies to create even more value for their customers and investors than they otherwise would.
Let me put it in a different way. We know how to meet the demands of shareholder value – years of managerial excellence testify to this achievement. We know how to create stakeholder value: traditional approaches such as CSR and philanthropy that predictably lead to added costs. We also have a growing number of bolt-on sustainability efforts producing fragmentary and symbolic wins at the fringes of the company.
What we are still discovering is how to meet both shareholder and stakeholder requirements at the same time and in the core business – without mediocrity and without compromise – creating value for the company that cannot be disentangled from the value it creates for society and the environment. When that is done, your company becomes untouchable – as such competitive advantage is nearly impossible to imitate. Embedded sustainability offers you a path towards this advantage, the one that will only grow as today’s global challenges continue to deepen. Once upon a time…
Want more? Read the introductory chapter "The Wasp and the Frog"
Dr. Nadya Zhexembayeva is the Coca-Cola Chair of Sustainable Development at IEDC-Bled School of Management, the European executive education business school based in Slovenia, where she teaches leadership and sustainability strategy. In 2011, together with Chris Laszlo, Nadya co-authored Embedded Sustainability: The Next Big Competitive Advantage, published by Stanford University Press in the US and Greenleaf Publishing in the UK.