Some commentators have been quick to talk down corporate responsibility and sustainable business as fads that have no place in the economic downturn. The suggestion is that business should focus on what really matters, and these nice-to-haves can wait until companies get themselves back on track.
In some ways, they’re right. This is the end of the CR movement as we know it. But not because it is a passing fad. Instead, it is the end of the beginning of CR, and the time is right to scale up and put sustainability at the heart of the business model. I offer two simple reasons why sustainability is good for business right now, even in the recession.
Do better in established markets
Which companies are best able to ride out turbulent times? In established markets going through low growth or even contraction, businesses will thrive if they can operate efficiently while building trust. Consumers want to feel safe buying from organisations and to feel their commitment through transaction won’t lead to problems for them or to someone else’s lot being adversely affected.
The EU and UK financial services sector includes some interesting cases. While some of the main banks have rewarded failure, drained the taxpayer and indebted future generations, others have continued to enjoy relative success. There have been good profits and considerable inflows of capital and business to a number of cooperatives, mutuals and for-profit social banks.
Peter Blom, CEO of Triodos Bank, Europe’s largest social bank, points to the solvency, liquidity and quality of assets that have set the bank apart from others. Transparency, taking a long-term view, and operating in the ‘real economy’ where high debt levels and complex financial instruments are avoided, are the cornerstones of its success.
Triodos is tiny in comparison to the big high street names, but even here there are some success stories. In the UK, Nationwide Building Society, in its September 2008 interim accounts, suggested they had seen ‘a flight to safety’, with £2.6bn of net savings receipts representing an estimated 34 per cent of the market. As a mutual, owned by the members it serves, Nationwide prides itself on taking a fair position in the market, providing transparent information about products and services, and operating a less risky profile leading to less exposure to bad loans.
Meanwhile, The Co-operative Bank, with its ethical policy guiding its approach, is also doing very well. With its lending funded by its deposits, it has continued to grow its profits without being overly exposed to problems borrowing from wider financial markets.
The underlying message is that consumers and business customers give business to those they trust. Pressures on companies to be accountable and transparent will continue to grow. As access to technology continues to broaden, the risks of poor social, environmental and ethical performance will become more apparent and lead to a trust drain for those unable to substantiate how they are meeting these challenges.
Create future markets
There is a certain predetermination about the future business landscape. Significant poverty, environmental limits and social justice will demand increasing attention as population rises, our environment changes and reasonable standards of living are sought by all. Competition will grow as the global economy develops.
So how do companies future-proof themselves, or at least anticipate and plan for future success?
Taking a backwards view can be a good way to consider the future. Consider the US car majors. Slow to respond to growing concerns about climate change and its strategic significance, production of lower-emission vehicles was significantly behind leaner European and Asian competitors. In 2004, Ford bought technology rights from Toyota to enable it to get a hybrid car to market.
Looking ahead, the Obama administration is changing the US political landscape. Lowering emissions is a priority. The US, having joined the consensus that we are making the climate change, is linking environmental protection to economic regeneration. The US car industry is about to reinvent itself.
Servicing the markets of the future in the same way as existing markets are being serviced just isn’t going to work. The advantage-hunters are looking at new partnerships, realigning services to needs, reducing the resource intensity of products while raising service levels. Being ahead of the curve through operating fairly, in a way that builds trust, creating shared ways to deliver services and being accountable will provide better risk awareness, stimulate opportunities for innovation and reframe what it means to be successful.
The Kenyan mobile phone banking service M-PESA provides new access to financial services for significant parts of Kenya’s rural population. Branchless banking is set to grow throughout areas of low income. Vodafone, a significant stakeholder in the enterprise, have seen this business model thrive and are looking at how it could translate to other similar markets that would benefit from low-cost routes to financial inclusion.
Working with the majority of the world’s economically active people – the ‘bottom of the pyramid’ – requires new perspectives on business. The rewards may be broader with profits made up of higher volumes of smaller revenue streams. Partnerships, and delivering a social as well as a commercial return, will unlock new markets.
As companies retrench, responsible corporations will make sustainable business a strategic priority. The result? More robust companies better able to contribute to real economic gain.
Tags: dave knight, recession, strategy