Strategy and Sustainability
Mike Rosenberg, author of Strategy and Sustainability, shows the direct correalation between the economy and its effects on the environment
Time for a new approach to the environment
Increasingly there are calls from religious leaders and civil society for business to do more on the environment. The nations of the world will gather in paris in December in order to agree on a comprehensive global framework to reduce green house emissions and whatever happens, pressure on the business community is likely to increase.
Most of the companies which have sustainability high on the agenda of Senior Management, however, are those businesses that are directly connected to some of the key issues involved, such as oil and gas, water management, electricity generation, and, in some cases, consumer products companies who are beginning to tap into an increasing interest on the part of consumers.
In other companies, Sr. Management seems a bit disengaged form the topic and has largely delegated the issue to the relevant department or departments.
Part of the problem is the way sustainability has been put forward to the business community and the difference between the way the men and women who run most business see the the world and the way activists, journalists, and legislators do. These differences have to do with their view of the role of business in society, managing risk, the time frame under consideration and the role of government. Taken together, these differences explain why so much of the history of business and the environment has been about surprise, crisis and catch up.
Strategy & Sustainability explores these differences and re-examines the issue based on an exploration of 5 strategic issues that can have a material impact on the medium and long term viability of the firm including:
- A firm's license to operate
- The possibility of catastrophic risks
- Consumer behavior
- Technological change
Sensibility and compliance
Every company is in a unique situation in terms of the business it is in, the markets it serves, and the make up of its shareholders, board, and management team. With this in mind, Strategy & Sustainability employs a concept called environmental sensibility.
Environmental Sensibility is the degree to which different stakeholders see a firm’s environmental impact. The level of sensibility depends on a number of factors including:
- The nature of the business and its regulatory burden
- The level of commitment of shareholders with the environment
- Outside pressure from interest groups, customers, consumers and regulators
- Internal interest on the part of the firm’s employees and managers
A second idea has to do with the level of legal compliance that a company chooses to pursue with respect to the myriad rules and regulations which affect its operations.
Putting these ideas together one can identify six generic strategic options which, are shown below and straight forward enough to engage Sr. Management: The option of deliberately choosing not to comply with some legal aspects is called Break the Law and is neither to recommended or endorsed. Aside from ethical considerations, the approach can risk the loss of the legal and social license to operate and can land executives in jail.
The basic idea of Take the Low Road is for a company to do the minimum required to comply with the law in each of the countries and territories in which it operates.
Wait & See goes a bit further and involves preparing the firm to do more if and when legislation changes, consumer behavior evolves or some other factors triggers a change in the strategy.
The idea behind Show & Tell is that many companies are progress on environmental issues and may choose to fully publicizing their activities. The difference between Show & Tell and Greenwashing is that Show & Tell is about honestly telling the company’s story while Greenwashing has more to do with using public relations and perhaps overstateing reality.
Pay for Principal is when the Board of a company makes a clear trade off between financial metrics and going beyond compliance due to the ethical viewpoint of key shareholders. In this case, the rationale is not a business case but a deep belief that reducing air and water pollution, protecting the natural landscape, or taking active steps to mitigate climate change should be part of the corporate agenda.
The final option is called Think Ahead and is about going beyond what is required today due to a conviction on the part of Sr. Management that the world is changing and that in order to build competitive advantage, hedge against future legislation or deal with other strategic issues it is better to act sooner rather than later. The argument for Think Ahead is that shifts in society’s attitudes can happen quickly and a business could be caught off guard if it does not act soon enough since changing culture or the operational footprint takes time.
What to do?
Since every firm is different, Strategy & Sustainability outlines a framework to determine the best approach. The Figure below shows the essential elements of the framework which involves looking at the past, present and future across the regions in which a firm is operating in; its industry, customers, and suppliers; the types of interest groups who are active on the issues arising from its activities and the firm itself.
The book illustrates this technique by looking at five industries, five regions of the world and exploring the different types of environmental inters groups that a firm will have to deal with.
Strategy & Sustainability also discusses two key issue ensure that whatever strategy to involve the CEO and the Board in developing the strategy and the other is to excel in the quality of the communications and training that managers, employees and other stakeholders receive.
Mike Rosenberg is an Assistant Professor at IESE Business School which has campuses in Barcelona, Madrid, New York, and Munich. Professor Rosenberg joined the faculty at IESE (Barcelona) after working for more than 15 years as a Management Consultant for companies such as Arthur D. Little, A.T. Kearney and Heidrich & Struggles. The bulk of Professor Rosenberg's consulting experience was in the Automotive Industry where he led project teams working in all aspects of the business in Europe, North America, and Asia.