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Sustainability has become a key issue for organizations throughout the world. In our latest Executive Horizons survey, respondents gave their current companies an average rating of 4 out of 5 for their commitment to sustainable development. But what are the key challenges and benefits for companies that integrate sustainability into their corporate strategy?
Over 76% of respondents in our Executive Horizons survey affirmed that integrating sustainability into corporate strategy and business models can pose significant challenges. Companies need to figure out how to build sustainability into their corporate DNA, and strike the right balance between being profitable and having a positive social and environmental impact.
Adhering to regulations can also raise all kinds of issues. Regulations and legislation can vary dramatically from one country to another. Internationally they often take the form of guidelines, which are not always clear-cut. This means that in many cases companies tend to self-regulate. When they get it right, however, businesses that embrace their social and environmental responsibility can reap significant benefits. Not only does sustainability drive innovation, it also has a positive impact on a company’s reputation, reduces waste and costs, and can ultimately ensure their long-term survival.
Companies need to think creatively if they want to meet their customers' needs. Such out-of-the-box thinking can lead to more sustainable and less costly practices. Take General Electric, for example. After failing to sell its U.S. designed electrocardiogram device, they created a low-cost, portable product for its customers in India. This version was a hit. Recognizing its potential at accident sites and in poorer rural clinics, General Electric then began selling the device in the U.S. This phenomenon is known as reverse innovation. Businesses are often reluctant to undermine their premium products in this way, but an increasing number now realize that it makes more sense to compete with themselves than with other companies.
The proliferation of media outlets and the power of social media means that companies are increasingly subject to public scrutiny. There is no longer anywhere to hide. Corporate entities are now under constant pressure to project a positive image of their environmental, social, and ethical responsibility. Moreover, when their reputation is compromised, they must act quickly. In 2003, Californian activist Marc Kasky sued Nike, claiming the company falsely denied the use of sweatshop labor. The lawsuit was settled with a $1.5 million payment to labor organizations that monitor global factory conditions. Since then, Nike has tightened its regulations and its monitoring of factory conditions. Adopting sustainable and ethical practices can therefore play a crucial role in avoiding reputational risks.
Many companies are now moving toward replacing the forward supply chain with a circular economy that conserves, reuses and recycles resources. Such closed-loop supply chains are environmentally efficient and can boost economic returns. The automotive industry, for instance, has successfully implemented systems that are cost effective and have significant environmental benefits. A striking example is ATP Industries, which supplies original equipment manufacturers (OEMs) with remanufactured products that emit 30% less CO2, require 25% less energy, and are 20-40% cheaper to produce than new products. Improved sustainability therefore goes hand in hand with cost savings and operational efficiency.
In our Executive Horizon survey, 73.8% of respondents affirmed that sustainability plays a key role in ensuring a company's long-term survival. For organizations throughout the world, integrating sustainable innovation, inclusive growth, as well as social and environmental impact into their corporate strategy, now makes real business sense.
Companies that successfully meet the challenges of sustainability create value and generate competitive advantage. They will not only survive, but will ultimately thrive.