One of the most important matters that businesses are dealing with today is sustainability. This is nothing new; many companies have taken sustainability into account for decades now, including close partners of The Erb Institute like Ford Motor and Dow Chemical.
Companies have improved their operations, they’ve cleaned up their supply chains and reduced waste. They’ve also offered greener products that people want to buy and are willing to pay more for. There has been a lot of progress at the individual company level.
The hot sustainability trend today is one of companies promising to achieve net-zero carbon emissions. That’s a really positive development.
Of course, there are a lot of concerns about exactly how it will happen, how credible the commitments are, how quickly they will be implemented, what the strategy is, and so forth. Nevertheless, the fact that companies feel motivated to make those commitments is a very positive change.
At the same time, many companies are bumping into the limits of what they can do individually and internally without changes in the economic incentives they face. When sustainability leaders have to compete with laggards who drag their feet and continue to externalise their environmental footprint, the laggards gain an unfair cost advantage.
Until we change the rules of the price system itself to fully incorporate environmental damages, we will not be able to solve our biggest sustainability problems, such as climate change, ocean plastics, deforestation and toxic chemical pollution.
So what are the steps in the next phase of business sustainability? As I mentioned before, it is essential that all companies compete on a level playing field, e.g. with regard to a price on carbon. With climate change, everyone who’s remotely credible on this issue agrees on the need for a price on carbon. We need collective action to create an overwhelming demand for this policy change.
Businesses have an important role to play in coming together to use their voice – which is powerful – to demand that we price environmental damages fairly. This is a role to which many businesses are not accustomed.
They are used to treating “government relations” as a transactional affair, in a hermetically-sealed silo that does not interact with sustainability and diversity management, and that takes action only to beat off the threat of increased taxes or regulations.
A new era of business sustainability
This old school view of government relations has outlived its usefulness, and companies are grappling with how to adapt to the new school.
For many companies, the force that is dragging them into the present day is the voice of their own employees. Tech companies are the bellwether here since they rely on attracting and retaining talent, and need to be responsive to what their employees care about.
You might say one employee can’t change anything, but when many employees are working together, they have a collective voice that matters to top management. When this happens across multiple companies, it becomes possible for them to band together to support precompetitive changes that strengthen the systems on which we all depend.
For Millennials and for Generation Z, what companies do in the political domain matters, and it shapes for whom they are willing to work and from whom they are willing to buy. They see Corporate Political Responsibility (CSR) as an essential part of the new model of capitalism, one that complements and expands upon the CSR with which we are all familiar.
Whether or not they like it, managers who want to succeed in this new era of business sustainability need to embrace their political role and use it to drive positive change.
Professor Thomas Lyon, University of Michigan Ross School of Business.
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