KEYNOTE ADDRESS: CHALLENGES AND OPPORTUNITIES OF RUNNING SUSTAINABLE BUSINESSES IN EMERGING MARKETS – DAVID GRAYSON, DIRECTOR OF THE DOUGHTY CENTRE FOR CORPORATE RESPONSIBILITY It is a pleasure and a privilege to return to Nigeria after an eight year absence. It is a particular honour to be invited to speak at this sustainability conference organised by the Lagos Business School. Lagos Business School -­‐ like my own institution, Cranfield School of Management -­‐ is a pioneer signatory of the UN Principles of Responsible Management -­‐ and is seeking to identify and promote responsible business practices, through its research teaching, advisory services -­‐ and in its own behaviour as a responsible organisation. I would like to congratulate LBS on putting together such a high profile conference on what is a business-­‐critical issue. I also commend our sponsor, First Bank of Nigeria for their insight and leadership in making this event possible. It is a particularly important time to be here in West Africa. The Ebola Crisis has put the region in the global spotlight. One positive element in this ghastly epidemic is that it seems that decisive action and leadership has contained the Ebola outbreak here in Nigeria. You have shown a very positive side of Nigeria. Perhaps this is an opportunity to learn from and to build upon? DEFINING OUR TERMS Our theme today is sustainable business. I like to show my students these reports from six major energy companies: the Shell Sustainability Report, the Chevron Corporate Responsibility Report, the Vattenfall Corporate Social Responsibility Report, the ExxonMobil Corporate Citizenship Report, the Total Society and Environment Report, and the Statoil integrated Annual and Sustainability Report (combining both its financial and sustainability performance). Despite the different terms used, a close analysis of each report shows that the main headings of the content inside the report are almost identical: same industry, same global trends, similar strategy and operating challenges, similar social, economic, environmental and governance risks and challenges, and similar opportunities to harness core capabilities, science and technologies to find solutions to these challenges. A similar exercise could be carried out with corporate reports of leading companies in almost any industry sector. Whilst recognising that many people and many companies use terms such as ”Corporate (Social) Responsibility,” ”C(S)R,” “Corporate Citizenship” and ”Corporate Sustainability” interchangeably, I wish they would not do so. It causes confusion and can slow progress. I use the EU Commission definition of Corporate Responsibility as the responsibility a business takes for social, economic, and environmental impacts1. I am increasingly of the view that Corporate Sustainability, is a higher stage of Corporate Responsibility. EU Commission Communication on CSR Oct 2011
http://ec.europa.eu/enterprise/policies/sustainable-business/files/csr/newcsr/act_en.pdf
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I have refined and expanded the PWC/SAM Yearbook definition of Corporate Sustainability. My additional words are italics: I defined corporate sustainability as “a business commitment to sustainable development, and an approach that creates long-­‐term shareholder and societal value by embracing the opportunities and managing the risks associated with social, environmental and economic developments.”2 As an organisation that has to make profits to survive, a company can logically only embrace sustainability if it can do so profitably – hence the need to find business opportunities from sustainability. Equally the commitment to sustainable development is needed to create the trust levels necessary in order to create business opportunities systematically. GREATER INTERNATIONAL INTEREST IN SUSTAINABLE BUSINESS PwC’s latest Global CEO Survey (‘Fit for the future -­‐ Capitalising on global trends’): Most CEOs surveyed agree that business has social as well as financial responsibilities. 80% say it is important for their business to measure and reduce its environment footprint. Over three-­‐quarters think that satisfying wider societal needs and protecting the interests of future generations is important to their business. 74% agree that measuring and reporting non-­‐financial impacts contributes to their business’ long-­‐
term success. 69% say that the purpose of business is to balance the interests of all stakeholders3. In addition, McKinsey & Co's ‘Global Sustainability Survey 2014’ also shows an increasing proportion of CEOs identifying sustainability either as top priority or a top three priority for them (up from 3% and 31% respectively in 2010, to 13% and 36% respectively in 2014)4. SUSTAINABLE BUSINESS IN EMERGING MARKETS My allotted topic however is not business sustainability globally but Challenges and Opportunities of Running Sustainable Businesses in Emerging Markets. Some argue that taking responsibility for social, environmental and economic impacts is an agenda for industrialised nations; that it is not relevant for businesses in emerging markets. I think that would be a myopic and very short-­‐sighted perspective. Your presence here today suggests that you are, at least, open to debate and persuasion on the question. 2 Expanded from PWC - SAM - The Sustainability Yearbook 2008
Fit for the future - Capitalising on global trends, PWC 2014 http://www.pwc.com/gx/en/ceo-survey/2014/keyfindings/purpose.jhtml
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Sustainability’s strategic worth 2014 – McKinsey & Co www.mckinsey.com/in
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Amongst the organisations that have looked at business sustainability in emerging markets, is the World Economic Forum (WEF). In partnership with the Boston Consulting Group, WEF set out to identify companies originating in the emerging markets for the purpose of researching and understanding the most effective innovative practices for driving sustainable growth. Sixteen proactive innovators were selected from an initial pool of more than 1,000 companies based on the criteria of sustainability, innovation and scalability: WEF and BCG say these companies clearly stand out as what they call, “the New Sustainability Champions.”5 The New Sustainability Champions are not confined to one region or continent. They are are located across the globe and in a wide range of industries. They tend to grow faster and have higher-­‐than average margins for their industries. Not only do they have a business impact – doing well by conventional financial measures – but they also have a positive effect on society around them. WEF and BCG argue these New Sustainability Champions exhibit three broad sets of characteristics. They: 1. Proactively turn constraints into opportunities through innovation 2. Embed sustainability in their company culture 3. Actively shape their business environments. From Constraint to Opportunity New Sustainability Champions proactively turn constraints into opportunities through innovation. Their approach involves pragmatic adaptation of existing technologies and delivery mechanisms. They eschew expensive research into new technologies to make current products cheaper, more widely available or better suited to local production processes. The Champions stand out for their ability to turn constraints in delivery channels into opportunities. For instance, they may identify alternative production methods to get products to market more directly. To innovate effectively, New Sustainability Champions focus attention on these key points: • They address lack of resources. One response to a current or future shortage of a particular resource is to find ways to reduce the amount used. While this often makes sense from an efficiency viewpoint, it also increases the longevity of the business by preserving a critical resource. Importantly, Champions recognize that the reductions need not be limited to their operations but can, and should, apply to their suppliers and users. Two noteworthy examples of Champions successfully addressing resource shortages are Shree Cement, an Indian cement producer, and Manila Water, a water utility in the Philippines. Faced with limited access to low-­‐cost energy, Shree Cement developed the world’s most energy-­‐
efficient process for making its products. The company has become the global benchmark: leading cement companies from around the world visit Shree to learn from its innovations. For its part, Manila Water drove 5
World Economic Forum / BCG New Sustainability Champions 2011
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down its levels of non-­‐revenue water (NRW – water that does not reach the customer due to leaks or illegal tapping) from 63% in 1997 to 12% at the end of 2010. This was achieved partly by providing affordable supply to low-­‐income areas, which turned probable NRW perpetrators into partners who now help prevent illegal tapping. Shortly before he died, the great Peter Drucker whose writings on management remain amongst the best fifty or more years later, commented that “every single social and global issue, of our day is a business opportunity in disguise.” Sustainability champions have instinctively learnt this and are appying the logic of Drucker’s analysis. Another way in which New Sustainability Champions turn resource constraints into opportunities is by exploiting the by-­‐products of other companies’ outputs or processes. -­‐ They educate their customers. A new product or service, no matter how well conceived, cannot succeed unless consumers are convinced of its benefits for them. Lack of knowledge and limited awareness constitute barriers to adoption that the New Sustainability Champions must work hard to circumvent, often in creative ways. For example, Jain Irrigation in India uses dance and song to explain the benefits of drip irrigation to local communities. With this innovative way of marketing, the company can convince and educate potential customers about its products. Not only does this approach help Jain to sell successfully, but it helps the company work collaboratively with local communities to improve its services and products. • They provide customers with appropriate financing . Another major constraint is a lack of financial assets with which to make necessary capital investments, even when positive returns are expected in the long run. This is particularly true of the rural poor in emerging economies, where banks have limited presence. Kenya’s Equity Bank uses mobile phone technology to enable it to reach small farmers in rural Kenya, something that branch-­‐based banking cannot do economically. Equity Bank partnered with Safaricom, leveraging the Kenyan mobile services provider’s M-­‐Pesa financial services platform to launch and provide financial services to its customers. Frugal innovation One of the key factors behind this growth is a different mindset when it comes to innovation, explains business strategist and author Navi Radjou. He believes western companies have been guilty of “industrialising the creative process”, introducing resource-­‐intensive procedures that chug along to the tune of “more with more” but are no longer sustainable in a resource-­‐
constrained world. “There is a growing awareness that there needs to be a new model for both producing and consuming that focuses on doing better with less,” he explains. It’s an idea epitomised by the concept of frugal innovation, an attitude often born of necessity, where entrepreneurs view the lack of water, or a limited electricity supply, not as a constraint but as a creative opportunity. In India, it’s called the “jugaad”, a Hindi word that roughly translates as “innovative fix” or “improvised solution”. 4
Brazilians call it jeitinho, the Chinese zizhu chuangxin, the Kenyans jua kai. Tellingly, there’s no such word in English. The closest we get is “make do and mend”, which doesn’t quite have the same kick. “Can we be frugal and innovative? Can we do better with less? This is an area where emerging market companies have an advantage because, by default, they have to deal with less -­‐ they don’t have the money or resources,” says Radjou. “Scarcity is what drives this frugal mindset – and the world is waking up to it with economic recession in the west,” he adds6. Tata has also become involved through the Tata Center for Technology & Design, which it has established at the Massachusetts Institute of Technology (MIT) to help businesses in India develop and scale up sustainable solutions in areas like energy, transportation, and healthcare. The centre matches up students with specific projects; these currently include redesigning a handmade prosthetic called the Jaipur Foot to make it suitable for mass manufacture; creating low-­‐pressure, off-­‐grid irrigation systems for small-­‐scale farmers; and developing new strategies to deal with recycling and pollution in industrial areas. Sustainable innovation clearly acts as a two-­‐way street. Large companies in industrialised economies can certainly offer invaluable advice and resources to their business partners in the developing world. But the savviest companies are those that also look to emerging market firms for insights and inspiration. 2. Embedded Sustainability The second key set of behaviours of New Sustainability Champions according to WEF and BCG is that emerging market sustainability champions embed sustainability in their company culture. They are aware that deep and sustained impact requires demonstrable commitment from the entire organization – not only from the top management team and certainly not solely from the chief executive. The best intentions can flounder, or be subverted, if they are implemented by a sceptical or indifferent team. Conversely, an engaged and proactive staff can be a constant source of new ideas for products, services, delivery mechanisms, talent development, supply sources and more. I would add to the WEF/BCG analysis that tone from the top crucially must include the board of the company. My centre at Cranfield University School of Management has looked at the role of boards in embedding sustainability. Together with my colleague Prof Andrew Kakabadse, I looked at the one hundred largest companies listed on the London Stock Exchange -­‐ the FTSE -­‐ and how Can business take sustainability cues from the emerging markets?
www.theguardian.com/sustainable-business/2014/oct/13/businesssustainability-emerging-markets
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their boards organised their oversight and governance of sustainability7. We found a variety of models in use. This is mirrored in the variety of models used amongst the Dow Jones Sustainability Index global leaders. Our hypothesis is that more important than any particular model, is whether the board individually and collectively has a board mindset for sustainability. We defined this as “A collectively held view that long-­‐term value-­‐creation requires the company to embrace the risks and opportunities of sustainable development; and that the board are simultaneously mentors and monitors, stewards and auditors of the management in their commitment to corporate responsibility and sustainability.” According to WEF and BCG, New Sustainability Champions put in place the mechanisms that make sustainability an integral part of their business fabric. In particular: • They define a bold sustainability vision. Champions stand out for the ways in which they define clear aspirations and goals for sustainability, and use them to galvanize the entire organization. They move beyond incremental change to create a vision capable of inspiring their staff – and external stakeholders. Sekem, an Egyptian organic food producer, took a holistic view of environmental and social development. The company wanted to use organic farming as a way to reclaim desert land, producing food for the local market and reinvesting the profits in the community. Sekem also has a highly unusual business model. While it is a profit-­‐making enterprise, its aim is not profit maximization. Through a profit-­‐sharing methodology, it shares its prosperity with the smallholder farmers in its network. In 2008, at the height of the global financial crisis, the chief executive of Florida Ice & Farm in Costa Rica announced a dramatic change in business strategy to make the food and beverage company more sustainable. The company has set the goals of becoming water neutral by 2012, achieving carbon neutrality by 2017 (a target even more ambitious than Costa Rica’s national goal of carbon neutrality by 2021) and becoming a “zero solid waste” company by 2012. • They integrate sustainability into operations . At the same time, pragmatic business leaders recognize that inspiration alone is rarely enough to produce the desired outcomes, so they develop the appropriate incentives and metrics. Florida Ice & Farm exemplifies this approach. The company spent four years developing a balanced scorecard which measures non-­‐financials such as the number of community service hours that employees spend on watershed-­‐related activities. Remuneration is linked to such performance indicators. For example, 60% of the CEO’s salary is linked to the triple bottom line of “people, planet, profit”. Masisa, a wood products manufacturer in Chile, developed a balanced scorecard on sustainability that measures performance in all dimensions, including non-­‐financial indicators. The scorecard’s inputs and outputs cascade down to each worker and are tracked over time. /www.som.cranfield.ac.uk/som/dinamic-content/media/Boards_Research__Cranfield_290113_Final.pdf
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-­‐ They engage the workforce in sustainability. Aside from setting out a bold vision and integrating sustainability into everyday operations, it is necessary to fully engage the workforce. Natura, a Brazilian cosmetics company, invests heavily in training its managers to identify socio-­‐
environmental challenges and turn them into business opportunities. Natura’s staff is also motivated by bonuses based on environmental and social performance as well as on economic measures. And Woolworths, a South Africa-­‐based retailer, works to boost employees’ pride in their jobs, ensuring they are rewarded for contributing ideas that improve the business. The success of this approach can be seen in the fact that many of its best new initiatives do not come from senior management. -­‐ I would add that one of the most exciting new developments internationally is the emrgence of so-­‐called social intrapreneurs -­‐ A person within a large corporation who takes direct initiative for innovation(s) which addresses social or environmental challenges profitably. -­‐ I have recently published a book on the subject including examples from Natura and Danone Brazil and from Unilever Ghana. If you can encourage your best and brightest to develop and champion ideas for products and services or new ways of doing business that will add-­‐value to your business and improve sustainable development, you will be on the journey to sustainable business. 3 Shaping Business Environments The third cluster of behaviours that WEF and BCG describe in New Sustainability Champions is that emerging market sustainability champions actively shape their own business environment. They recognize that maximum impact cannot be achieved solelywithin the boundaries of their own organizations. They understand that engagement with the wider business ecosystem of regulators, competitors, suppliers, customers and other stakeholders is required. They actively engage with these entities to shape the outcomes they envision for themselves. • They influence policies and standards. Companies operating in weak regulatory regimes have the opportunity – and, arguably, the obligation – to define the standards to which the industry should aspire. While it is true that such companies benefit directly from the policies, they are also effectively using policy as a multiplier to augment the impact of higher standards across their industries. This can be achieved through direct discussions with policy-­‐makers, or through associations and trade bodies. One strong proponent of this approach is Brazilian organic sugar producer Grupo Balbo. The company aims to help turn the entire sugar industry into an organic sector. It is now collaborating on the creation of Brazil’s first national organic certification system. Balbo is in discussions with environmentally-­‐minded politicians in Germany and Brazil to promote incentives such as tax breaks for organic production. The company has partnered with a governmental environmental research department to conduct more than 1,600 biodiversity field studies. In India, Suzlon, a wind power producer, uses its knowledge and experience to educate citizens and policy-­‐makers. The company faces the challenge of getting the right policies in place to foster 7
the development of renewable power, particularly in the United States. Internationally, Suzlon helps shape the debate on sustainability and renewable power through organizations such as the European Union Commission, the World Economic Forum and the United Nations, as well as through an active outreach programme to the media. This is consistent the UN Global Compact/Accenture CEOs Sustainability Survey 20138. In that study, 83% of CEOs see an increase in efforts by governments and policymakers to provide an enabling environment for the private sector as integral to advancing sustainability. 81% of executives emphasize the need for governments to set a policy framework for “economic development within the planetary boundaries of environmental and resource constraints” for the global economy. Business leaders believe that only with greater government intervention—at global, national and local levels—can sustainability move from sporadic incremental advances to a collective and transformative impact. As the report authors conclude: “This unequivocal call for greater government intervention in the market, from 1,000 CEOs in the largest study of its kind ever conducted, may mark a watershed in the progression of corporate sustainability....we see a strong recognition that market rules need to be shaped to create a level playing field and a race to the top that rewards sustainability performance.” • They partner to achieve mutual goals. Partnerships with organizations that share similar goals can potentially generate far greater impact than if each were to work in isolation. For example, depending on their mandate and focus, NGOs could be potential allies with which for-­‐profit businesses could collaborate. Kenya’s Equity Bank has adopted this strategy. The bank has a host of partnerships that range from links to agrochemical manufacturer such as Agmark and trade bodies such as the Eastern Africa Grain Council to not-­‐for-­‐profit organizations such as Millennium Promise, aid agencies such as the German government’s GTZ (now GiZ) and the United Nations World Food Programme. Equity Bank also has strategic partnerships with organizations such as the Alliance for a Green Revolution in Africa and The International Fund for Agricultural Development, a United Nations agency that provides cash guarantees that reduce the bank’s risk when lending to smallholder farmers who have little or no collateral. New Britain Palm Oil, operating in Papua New Guinea, worked closely with local NGOs to engage with local communities. The connections helped to smooth negotiations involving land rights – a critical issue since conflicts with suppliers and landowners are the largest barriers to palm oil operations in the region. • They build awareness of the importance of sustainability. Customers are among the key stakeholders who should be engaged to maximize the impact of sustainability initiatives. By educating customers about issues such as pollution, depletion of water or climate change, companies can help put pressure on industry to improve sustainability practices and on government to improve standards and enforcement. 8
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In Brazil, sugar producer Grupo Balbo runs awareness-­‐building campaigns targeting grocery shoppers as well as students and local communities. The company publishes data, including its sustainability report, to increase transparency and establish confidence among stakeholders as well as to spread knowledge and understanding of the organic cultivation of sugar cane. In China, Broad Group has developed a miniaturized device for measuring air pollution that can fit inside a mobile phone. The device can help boost awareness of air pollution issues and even empower citizens by putting knowledge about air quality in the palms of their hands. I would emphasise -­‐ as the Schumpeter columnist of The Economist newspaper, Adrian Woolridge did when commenting on the WEF/BCG report: “Many critics of environmentalism argue that it is a rich-­‐world luxury: that the poor need adequate food before they need super-­‐clean air. Some even see greenery as a rich-­‐world conspiracy: the West grew rich by industrialising (and polluting), but now wants to stop the rest of the world from following suit. The WEF-­‐BCG report demonstrates that such fears are overblown. Emerging-­‐world companies can be just as green as their Western rivals. Many have found that, when natural resources are scarce and consumers are cash-­‐strapped, greenery can be a lucrative business strategy.” And as Jeremy Jurgens asenior director at the World Economic Forum and Knut Haanæs a partner at the Boston Consulting Group writing in The Guardian noted: “The achievements of companies like these are especially laudable because they (and their emerging-­‐nation peers) must continually contend with a host of problems — from substandard infrastructure and weak environmental regulatory regimes to acute talent shortages and poor governance practices.” THE ROLE OF LEADERS While the drivers of innovation may be distinct in emerging markets, the fundamentals are not. Strong leadership is essential, irrespective of geography. Across the eight innovation surveys we’ve done since 2005, the CEO has consistently been the most commonly cited force behind innovation. Effective leaders do several things to lay the groundwork for innovation. They actively encourage entrepreneurship. Forward-­‐looking companies continually reinvent their business models through experimentation and innovation. To let such a culture flourish, leaders have to be willing to share authority, challenge the status quo, encourage creativity and tolerate failure. They set clear priorities. As important as entrepreneurship is, a leader ultimately has to lead. The person at the top frequently and sometimes uniquely enjoys an ideal vantage point for choosing between the short and the long term, and among markets and sectors. But no matter how clear their vision, leaders can’t manage innovation on their own. Companies need rigorous processes for assessing which ideas should move into development and which should not. Being able to say no is an essential driver of innovation productivity. They strike a balance between efficiency and innovation. In many parts of the world, companies are still under pressure to cut costs and drive efficiencies. But the increasing pace of change 9
means they also need to emphasise innovation. Resolving this contradiction requires the ability to both explore new avenues and fully leverage existing ones. Rich Lesser is CEO and president of the Boston Consulting Group, http://innovastrat.com/2013/01/sustainable-­‐business-­‐strategies/ More broadly, the American-­‐headquartered business-­‐led corporate sustainability coalition Business for Social Responsibility -­‐ in partnership with one of the visiting fellows of my centre Anita Hoffman -­‐ looked at what would be the leadership competencies to lead for sustainability. Their report -­‐ published on the occasion of the twentieth anniversary of BSR in 2012 makes for important reading. They identified: 1. Living with uncertainty and complexity: According to interviewees, leading companies tend to have a more sophisticated appreciation of complexity developed through their interest in long-­‐
term mega-­‐trends and by engaging with a broad range of stakeholders. They make a greater effort to involve a range of perspectives in risk assessment and strategy making, including from those stakeholders representing a great diversity of different and even conflicting interests. 2. Valuing difference: Being able to listen to and truly hear “different voices” from inside and outside the company is a key feature for success in the future, according to the respondents. For leading companies, diversity has developed beyond the conventional agenda that tends to focus on gender, ethnicity, age, and so on, and into taking a considered interest in “cognitive diversity” by hiring and promoting executives offering different ways of thinking. 3. A relational enterprise: Leading companies are going beyond stakeholder consultations and surveys designed to underpin a CSR report, and into dialogue and collaboration. Stakeholder engagement in these companies therefore is about more than providing a greater awareness of emerging risks and a measure of stakeholder assurance for a firm’s activities—it also becomes a source of new ideas and innovation. 4. Stepping outside the system: Interviewees report that leading companies are not content to simply respond to a shifting landscape. They are unusually active in shaping their social, political, and policy environments by securing the “social permission” to participate in the broad debate about the future of their industry. They also experiment with new ways of working, including by using technologies and developing products that have the potential to transform markets through the power of example. 5. Leaders developing leaders: Leading companies report an ongoing reassessment of what individual achievement in organizational life really means, and the emergence of a less directive, less hierarchical approach to leadership. Instead of largely being the preserve of the C-­‐suite, strategy-­‐making has become a more participative process where more of those who will ultimately determine its success are involved. BSR and Anita Hoffman concluded: External Awareness and Appreciation of Trends (New) Scans the horizon far beyond his/her own company and industry to understand what is happening in business and society at large. Able to interpret “weak signals” from many sources even when the impact of them might not be immediately obvious. 10
Spends the majority of their time with people, both inside and outside the organization, gathering information from both formal and informal channels (including blogs and other social media), and from networks of “different-­‐thinking” people. Interprets trends and signals in such a way that colleagues, customers, and other stakeholders can see how this might create opportunities as well as risks. Explores “jarring notes’ (signals that are uncomfortable, fairly undefined at the start, but that could be very important) without shying away from thinking the unthinkable, even if the implications might be bleak. Visioning and Strategy Formulation (Redefined) Leads the development of and communicates a compelling future (vision) for the business reflecting its social responsibilities, creating value for the many, and recognizing the varying aspirations and expectations of stakeholders. Co-­‐creates a strategy with people across the company and is informed by those outside it, recognizing the value of a broad-­‐based, flexible, multi-­‐stranded approach. Leads the development of socially responsible products and services with a view to making a positive impact throughout the value chain. Risk Awareness, Assessment, and Management (Redefined) Identifies, assesses, and manages risks including as they relate to corporate reputation and to stakeholder relations. Assesses low probability/high impact risks that could jeopardize the company’s future while recognizing that risks are not independent, and leads the organization in assessing intertwined risks (so-­‐called “risk-­‐ropes”). Stakeholder Engagement (New) Demonstrates an interest in and knowledge of evolving stakeholder sentiment and expectations, and is able to respond astutely and respectfully to competing stakeholder interests. Listens to people who question or do not agree with his/her or the company’s direction, and is able to extract valuable insights from such dissent. Builds action-­‐oriented, mutually beneficial partnerships including those with unconventional stakeholders. Reads the political and opinion landscape, and represents the company’s interests to a broad range of stakeholders. Flexibility and Adaptability to Change (Redefined) Demonstrates the ability to lead the organization when there is considerable controversy and ambiguity concerning the best way forward. Creates step-­‐by-­‐step strategies and “good enough” decisions flexible enough to be modified in the light of changing circumstances. 11
Listens carefully and respectfully to voices inside and outside the company for new information that might require a change of direction and thinks creatively about possible new ways of doing things. I invite those of you who are leading companies, those who aspire one day to lead their company, and those of you here who are teaching current and future leaders to reflect on your own leadership competencies and how far your organisations are recruiting / teaching against these competencies. More immediately, I would suggest that for current business leaders, there are a series of critical conversations that you need to have with your C-­‐suite colleagues, board members and employees. With my senior management team: do we know our most material economic, social & environmental impacts (+/-­‐) overall, and in each key part of our business? How can we / do we explain this to our owners, employees, key business customers and suppliers? With HR and with my direct reports: is engaging our employees on sustainability / responsible business, an integral part of our overall sustainability strategy and also a key way in which we are engaging employees with the future success of the business overall? Do we have S.M.A.R.T. targets for minimising negative economic, environmental and social impacts and maximising positive impacts? With my board: when did we last have a serious discussion about how the global forces for change will affect our business in future? do we have effective governance and oversight of our commitments and strategy for minimising negative economic, environmental and social impacts and maximising positive impacts? GETTING STARTED Now I recognise that for some companies currently stuck in a mindset of corporate philanthropy and/or a few “CSR programmes and initiatives,” what I have set out this morning, may feel like a daunting agenda, or something which is simply not relevant to doing business here in Nigeria today. I have already tried to address the latter objection. Let me quickly reflect on how you might get started on a sustainability journey. Identify impacts I think it begins with having an accurate understanding of what are your significant social, environmental and economic impacts -­‐ both negative impacts and positive impacts. There are plenty of freely available resources to help you get started. My own centre has a freely 12
downloadable guide -­‐ written by another of our visiting fellows Mandy Cormack who for many years was a global Vice-­‐President of Unilever responsible for corporate reponsibility and reporting to the then CEO Niall Fitgerald who lay much of the groundwork for Unilever’s ground-­‐breaking Sustainale Living Plan today. Guidance on the most relevant issues for your sector can be found internationally either from trade associations or Corporate sustainability sectoral initiatives such as Responsible Care for chemicals, The Cement Sustainability Initiative or the Sustainable Shipping Initiative. There is also increasing guidance on material impacts sector by sector from the website of the Sustainable Standards Accounting Board. For many companies here today, one of the most valuable and win-­‐win areas then to focus on will be to strengthen your supply chains -­‐ and especially to help your sme suppliers achieve higher sustainability standards, Some companies have built Sustainability Knowledge Interchanges where their suppliers can learn from them and each other. Some companies run executive development programmes for key managers from sme suppliers. My own School currently runs an executive education programme with the retailer Marks & Spencer for their sme food suppliers. Working with others The other effective starting point is to join with others and collaborate on action-­‐learning and providing mutual support for each other’s endeavours. I was delighted to learn that in May this year, a group of 31 business leaders met here in Lagos to discuss business sustainability. The 31 business leaders agreed on the establishment of a common platform that will enable them to jointly promote sustainable development initiatives and programmes across the country. At the roundtable in Lagos, the CEOs decided to set up a council for sustainable development which will be affiliated to the Geneva-­‐based World Business Council for Sustainable Development (WBCSD). The proposed council will work to arouse the interest of the Nigerian business community towards taking collective action for a sustainable future for society. -­‐ See more at: http://www.vanguardngr.com/2014/05/nigeria-­‐business-­‐leaders-­‐set-­‐development-­‐
council/#sthash.ixSSGfSl.dpuf Together with my good friend and colleague, Jane Nelson, I have researched the way that business-­‐led corporate responsibility and sustainability coalitions like WBCSD have developed around the world, starting with the first known examples: Philippines Business for Social Progress and what is now the National Business Initiative in South Africa which began in the 1970s. During the 1980s, they were joined by coalitions in my country: Business in the Community and Scottish Business in the Community; in France; in Sweden and in Japan. •
1990–2000: the emergence and rapid growth in influence and reach of what we have termed the global field-­‐builders, initially focused on raising awareness of the business case 13
for corporate responsibility and helping companies to embed responsible business practices into their core business operations and value chains •
2001–2011: the rise of what we have termed the industry and issue specialists. Some of the more generalist business-­‐led coalitions started to focus more specifically on collective corporate action around particular industry sectors and issues. At the same time, we also saw the emergence of more business-­‐led coalitions and multi-­‐stakeholder initiatives that were fully dedicated to addressing a particular economic, environmental, social or governance issue or driving responsible business practices throughout a particular industry sector Jane and I looked at what these coalitions typically do. What is remarkable is the shift in focus. When the earliest coalitions began, the focus was on corporate philanthropy and community involvement. Today, the great majority of these coaltiions are focussed on core business behaviours. As part of the research for our book, we partnered with GlobeScan to survey the CEOs of the national and international coalitions across the world. One of the questions we asked the CEOs was about where amongst their peers, they looked to, for new insights and thought-­‐leadership. Overwhelmingly, the CEOs most popular peer group source was WBCSD. I believe, therefore, that Nigerian business leaders have made a wise choice in aligning with WBCSD. If your company has not yet joined the new Nigerian Business Council for Sustainable Development, I hope you will do so -­‐ and I hope members of the Nigerian Business Council for Sustainable Development will make full use of the expertise and relevant industry-­‐specific initiatives of WBCSD. I should perhaps explain that in writing Corporate Responsibility Coalitions, Jane Nelson and I were not writing as detached, independent academics. We were also writing as people who have been intimately involved in the formative years of the coalitions in senior leadership roles with some of the main ones. In Jane’s case, this was as part of the team that created WBCSD in the aftermath of the Rio Earth Summit of 1992 and then as Strategy director of the International Business Leaders Forum. In my case, as a managing-­‐director of Business in the Community, in which role, I was also closely involved in the establishment of the International Business Leaders Forum. We have both also worked closely with a number of the other coalitions such as CSR Europe and many of its national member coalitions from across the EU. It is as much from this practitioner perspective that I say, as someone who has seen first hand, the value of business-­‐to-­‐business collaboration on sustainability, done well, they can be enormously valuable to learn from each other, to explore common problems and test out workable solutions, and then to help other companies earlier in the sustainability journey. But I suspect tat you instinctively know that. After all, I believe there is an old African proverb that says: “if you want to travel fast, travel alone; but if you want to travel far, travel together.” 14
Collaborative coalitions like the new Nigerian Business Council for Sustainable Development, can also provide safety in numbers, in talking to governments about what is needed to create an enabling environment for business sustainability. And that is a topic I would finally like to turn to. THE ROLE OF GOVERNMENTS If you are here from government, I believe you have a crucial role in helping to promote corporate sustainability in Nigeria. This includes through your role as the owner of state-­‐owned enterprises or as a co-­‐owner in joint-­‐ventures: specifying your expectations of how you expect businesses you own or part-­‐own, to be conducted. In many parts of the world, govermments as customers are now also exercising considerable influence on business behaviour. Governments can make satisfactory performance on environmental and social standards, a requirement for being included on public sector tendering lists. Governments also help to create the enabling -­‐ or conversely the disabling environment -­‐ for sustainable business. Here it gets particularly exciting. In the old days, there was a binary choice: regulations or markets. Today, smart governments have a much richer mix to choose from. Smart governments can mix and match between market-­‐forces, self-­‐
regulation through corporate responsibility, collective self-­‐regulation through business-­‐led CR coalitions, co-­‐regulation through multi-­‐stakeholder initiatives, co-­‐creation of regulation with business and Civil Society, and regulation. Prof Atle Midttun from the Oslo School of Management has written thoughtfully on this new mix. For political scientists amongst you Prof Midttun argues that we he calls collaborative governance draws on the ideas of classical political theorists such as Rousseau and Montesquieu and modern management thinkers such as Prof Ed Freeman. If you are from government or business people that want to influence government on the idea of the enabling environment for corporate sustainability, I recommend study of the EU Commission’s 2011 Communication on CSR which provided an action-­‐plan for the EU to help create an enabling environment for corporate sustainability. Earlier this year, they published a review of implementation of that 2011 communication and invited an EU-­‐wide consultation on both the review and on future priorities. The EU Commission Communication has been used by a number of countries -­‐ notably in South and Central America, as a guide to creating their own action plans for promoting more sustainable business. Eighty percent of Nigerian young people are not even close to earning a livable wage, and are not enrolled in any kind of formal education. A popular tattoo in Nigeria bears the phrase "born throwaway." http://wgbhnews.org/post/millennials-­‐generation-­‐determined CONCLUSION I am alive to the dangers of someone flying in from outside and appearing to tell you how to run your businesses. I hope that in both tone and content, I have avoided that failing this morning. Rather, what I have tried to do is to: -­‐ share with you some of the main insights and thinking internationally about the journey towards greater corporate sustainability; 15
-­‐ provided some examples of companies in other fast-­‐growing emerging markets that might stimulate your thinking about what you can do in your businesses; -­‐ and suggested some of the reasons why sustainability is relevant, the role of leaders and how you might get started. “The rise of emerging markets has been perhaps the defining feature of the global economy this century. In 2000, emerging markets as a whole accounted for just 37% of global GDP (in Purchasing Power Parity terms); in 2013 this figure is expected to reach 50%. Even as developed economies recover from the recession, and emerging markets enter a period of slower growth, global economic growth will continue to be strongly influenced by emerging markets.” This is just one of the key insights from a recent Euromonitor International report that predicts emerging market economies will grow almost three times faster than developed ones, accounting for an average of 65% of global economic growth through 2020. All of us, therefore, not just those from emerging markets, should be interested in and ready to learn from how emerging market businesses embrace sustainability. As I was finalising my remarks for this morning, last weekend, The Economist magazine produced a disturbing analysis of the problems confronting Nigeria. It is precisely because of these problems and because you may be facing a growth in population from 150 million to 450 million this century, that I believe sustainable development is so important for Nigeria. How will 150 million, let alone 450 million Nigerian live reasonably well within the constraints of One-­‐planet by mid-­‐
century? As Björn Stigson, the former president of the World Business Council for Sustainable Development, used to remind us: “Business cannot succeed in societies that fail. Likewise, where and when business is stifled, societies fail to thrive.” This will require change and change-­‐management on a huge scale. Yet as Pope Francis said a few days ago in a different context 'God is not afraid of new things'. I don’t therefore believe that we should be afraid of new things either. 16