This past August, U.S. military and intelligence analysts announced that the changing global climate now poses a threat to national security. The officials expressed their alarm about rising sea levels and melting ice. They described how some key military bases might go underwater, and how other bases are now jeopardized by increasingly extreme storms. They expect the Arctic to have sea lanes to protect where, previously, there had been no lanes.
More threatening, spokespeople said, would be climate change’s second-order effects: water problems, drought, food shortages, mass migrations, pandemics, civil unrest, political instability and relief emergencies. Any of these threats could demand humanitarian responses or even military intervention, a National Intelligence Council report concluded. And such measures would tax U.S. military resources and “result in a strained readiness posture.”
The announcement received wide attention, prompting discussion centered on military concerns and public policy. But it should interest business executives and company leaders as well. This information, describing real-world consequences, argues that sustainability challenges will alter the world -- not just environmentally, but socially, politically and economically, too.
Researchers at MIT interviewed numerous CEOs and management thought leaders who are also aware of sustainability, not just as a theoretical issue but as a force that will change the practice of management. Below are four major trends these thought leaders discussed.
First, there’s planning. Interviewees believe that businesses will keep “bumping into” sustainability -- and be forced to change as a result. Pressures vary: there are public accusations of unethical labor practices; government regulators; NGOs that interrupt business practices or threaten brand perception; unexpected resource shortages; failures of communities to produce labor; customers who want sustainability-friendly business; competitors who engage in sustainability practices that alter industry conditions; investors.
“When I travel to conferences around the globe I’m often asked about our programs to preserve fisheries,” said the CEO of a company whose goods include fish products. “They say, ‘You do this because you have a corporate commitment to sustainability. Don’t you have any business drivers?’ Of course we do. The first driver was actually a business problem. It’s not a PR trick that we work on fish sustainability. We see a raw materials problem coming at us. We can’t run out of fish.”
These bumps can be painful, but also can lead to gains. The smartest companies are anticipating problems before they arise, because they believe the effects of sustainability are more pervasive than typical market forces. Being ahead, they reason, matters even more.
Second, there’s productivity. Executives cited bottom-line benefits from energy savings and resource-use efficiencies, but the biggest payoff comes from increased labor productivity. Studies and anecdotal evidence point to improved employee engagement and effectiveness when companies pursue sustainability strategies. Several thought leaders also pointed out that workplaces designed efficiently, using principles of sustainability, yield better employee performance.
Rocky Mountain Institute’s Amory Lovins says: “Efficient buildings in which you have better thermal, visual and acoustic comforts -- where you can see what you’re doing, hear yourself think, feel more comfortable and enjoy clean air -- will typically yield [up to] 16% higher labor productivity in offices.
“There are one to one-and-a-half orders of magnitude greater bottom-line benefits from labor productivity than from the energy savings themselves.”
Third, practicing sustainability strategies improves reputation -- among other companies. Global Business Network chairman Peter Schwartz noted businesses increasingly size up their peers according to how they perform on sustainability measures. “It is clearly the case,” he said, “that a company that is both rigorous and thoughtful about what it does, and then actually manifests those practices about sustainability, is likely to be rigorous and thoughtful about things like finance and markets and the technical quality of products, and probably everything else.” And while it’s hard to assess a business’s ability to manage itself, “sustainability performance turns out to be a very good proxy for it.”
“We used to think of safety performance like this,” said an executive at a leading minerals-based manufacturer. “If a company had a track record of reducing lost workdays and reportable accidents, you could probably guess that their balance sheet was in order, the morale was high and their customers were being served on time with quality products. Sustainability is becoming the new measure.”
Fourth, there’s coordination. Sustainability problems are complex and require collaboration across many boundaries. Work must be coordinated within companies, and across industry sectors and geographic regions. Businesses have to work with governments, NGOs, communities and competitors. Those interviewed believe companies that grow adept at such work will gain huge functional advantages not just in sustainability but in all aspects of business.
“We’ve seen enormous gains in integration and communication across silos,” said an officer at a multinational information business. “Sustainability work forced us to learn a different way of working. And now we know how to do it.”
This article is adapted from “8 Reasons Sustainability Will Change Management (That You Never Thought of),” by Michael S. Hopkins, which appeared in the Fall 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.