“We could cut down all the forests on this planet in the next three to four years,” says Christian Berg, an unexpected statement from the Chief Sustainability Architect at SAP. “Technologically speaking, it would be possible. And we would probably be able to live for five to ten years without seeing any big changes,” Berg continues. “But once those changes do materialize, it is too late. We are already past the point of no return.”
This is a consequence of the complex, networked world we live in (and have, to some degree, ourselves created), as well as ever more powerful technology. The same networks and technology that allow businesses to virtualize and speed up many of their processes also make it difficult to foresee the far-reaching impact of our actions.
“Rapid changes are dangerous in such an interrelated environment if they’re not well thought out,” warns Berg, who holds advanced degrees in physics, theology, philosophy, and engineering. “I have always been driven by the question of how we ought to deal with the environment and creation – and where technology fits into that.”
Kyoto, carbon, and corporate interest
It’s a question that more businesses should be asking themselves, he thinks. Since the Kyoto Protocol established a global agreement in 1997 to reduce greenhouse gas emissions, companies have faced increased pressure to operate more sustainably.
In many countries, as well as the European Union, that has taken the form of an emissions trading system, in which power plants, airlines, and companies in energy-intensive industries must buy or receive emission allowances that they can then trade with one another as needed. China implemented a similar system as a pilot project in 2012. And Australia introduced a carbon tax on selected fossil fuels in 2012.
“You can be sure that energy and resources will get more expensive and legislation on carbon emissions will become more severe,” predicts Berg. But that’s not the only reason companies must consider the cost of ignoring environmental concerns. According to the World Values Survey, a global research project that has explored the values and beliefs of people in nearly 100 countries since 1981, the majority of people on this planet (60%) consider climate change to be a very serious issue; and 89% consider it at least somewhat serious.
These people aren’t just concerned citizens: they’re consumers who may or may not buy your product, and they’re investors in your company. Berg recalls a conversation he had with Michael Inacker, at that time the Chief Sustainability Officer of METRO Group, Germany’s largest retailer: “He told me about a letter they had received from an investor who was asking about social accountability along the supply chain. Were there any cases of child labor or health problems occurring at companies METRO procured from? It was a request from a single stakeholder, but they absolutely could not ignore it.”
Social risk is not to be underestimated, as METRO acknowledged in its handling of the investor’s letter. In today’s competitive business environment, a public outcry over an environmental or social offense could be devastating. Still, is the social factor a strong enough incentive to convince companies to operate more sustainably?
The bottom line
“The ultimate purpose of business is and always has been to make a profit. But you cannot be profitable in the long run if you only focus on the financial aspects,” asserts Berg. “Today, only twenty percent of a company’s value is reflected in physical and financial assets. The vast majority of its value lies in intangible factors, like the market expectation of its future potential.”
A tipping point will soon come, when sustainable business practices are no longer optional. And those companies that are already using renewable energies, have already reduced their dependency on fossil fuels, and have already considered new, sustainable business models will be best positioned to succeed.
1. Reduce energy consumption. “This is a no-brainer,” says Berg, “and a good investment for companies in every industry.”
2. Increase transparency in the supply chain. “More and more consumers want to know about the environmental footprint of a product before they buy it. For many retailers, a big chunk of that comes from their supply chain. Walmart, for example, only has control over 8% of its carbon footprint. So the first thing is to ensure that you’re procuring from sustainable sources. Second, you have to make this information available to customers. Transparency requires aligned systems and processes all throughout the supply chain,” explains Berg.
3. Consider local sourcing of products. “Consumers are also becoming more interested in the mileage behind the products they buy, whether it’s food or other goods. They’re aware of the advantages that local sourcing offers and often factor this into their buying decision,” says Berg.
4. Think about how the challenges of sustainability may affect your business model, and adapt accordingly. “Patagonia is a great example of this. Their ‘Common Threads Partnership’ aims to reduce the company’s environmental footprint and even urges customers to NOT buy their products,” says Berg. Instead, Patagonia offers services to repair broken gear, find new owners for used stuff, and recycle old, worn-out products. “It may seem counter-intuitive at first, but I think we’ll see more of this kind of thinking to come.”
5. Increase transparency in your own operations. “Companies need to communicate more openly with stakeholders about their outlook and expectations in their yearly reporting. One possibility is to adopt ‘integrated reporting’, which combines financial reports and sustainability reports into one,” advises Berg.