Ethical Corporation polishes its crystal ball, and the view’s on the gloomy side

Corporate sustainability will evolve in 2013 in the context of three overarching themes: the search for a way past the environmental impasse, the unresolved need to redefine business in times of austerity, and the continuing development of technology.

So say the members of Ethical Corporation’s editorial panel. And getting into the specifics, the picture doesn’t really get much brighter.

Climate change will remain the biggest, ugliest challenge. Economic growth in 2013 will continue to be at the expense of the environment. In Europe, aided by corporate efforts, greenhouse gas emissions are declining, though not enough. In North America, the switch of energy sources from coal to shale gas has also meant significant emissions cuts. But in the emerging world, massive environmental damage will continue to be incurred in 2013.

Evidence of the risks to business of global warming will continue to accumulate in 2013. There will probably be a continuation of the extreme weather that was seen in 2012; ice cover in the Arctic may plunge to a new summer low, breaking 2012’s grim record. As the evidence mounts, calls for action will grow stronger, though 2013 is unlikely to see a major breakthrough in terms of an international strategy to tackle climate change.

Rory Sullivan, senior research fellow at the Centre for Climate Change Economics and Policy, Leeds University, says extreme weather, especially in the aftermath of superstorm Sandy, will provoke serious discussion about climate risk in the US, which may influence action on a global level. US president Barack Obama has been “given space to do work on climate change and energy, but is he willing to step up and accept that?” Sullivan asks.

The focus may be on energy efficiency, energy security and climate adaptation rather than any serious effort to cut emissions, Sullivan says. The US is likely to spend to shore up its defences, including restoration of natural storm and flood barriers such as sand banks and wetlands.

Sullivan argues that this will reorient thinking towards longer-term investment, because climate adaptation and energy efficiency will require acceptance of long payback periods. This could provide opportunities for business. There will be “incentives for capital investment”, he says.

Other factors will promote business thinking on environmental sustainability. Companies are incrementally being made to obey ever-tighter environmental rules. In the UK, for example, mandatory carbon reporting rules will apply to the largest companies from April 2013.

Cap-and-trade bonanza

The need for companies to take account of their emissions will also be shown by the proliferation of cap-and-trade systems in 2013. California – trailing only a little behind the UK in terms of the size of its economy – will start its emissions trading scheme at the start of 2013. Australia’s scheme will continue to roll out. Other moves on emissions trading will be made in China, Korea, Mexico, Quebec, and even Kazakhstan, where about 180 companies will start to participate in the KazakhCarbon scheme.

In social terms, the fallout from the economic crisis will continue to be felt in 2013. Unemployment will remain high in European countries such as Greece and Spain. Ongoing austerity and long-term trends, such as rising energy and food prices, will mean that consumers everywhere will continue to feel the pinch.

They will consequently demand answers from companies. Penny Shepherd, chief executive of the UK Sustainable Investment and Finance Association, says there will be a demand in 2013 for “better management of companies in a context of environmental limits and social change”. Companies must “look seriously at the business model, not just tweak things at the margin”.

Leeora Black, managing director of the Australian Centre for Corporate Social Responsibility, says challenges will come in 2013 from the “changing nature of the social contract”. This will be especially evident as developed-world companies do more business in the emerging world. “Human rights, environmental protection and fighting corruption will all become even more prominent issues as our interconnections with these countries increase,” Black says. “Business no sooner begins to understand and respond to increased societal expectations than the goal posts shift again.”

Penny Shepherd says companies should look in 2013 to respond to new consumer trends that arise because of austerity. There will be an increase in the “take-back mentality”, she says, with greater demand for recycling and re-use of goods. There could be developments that dovetail with new technological platforms, such as crowdsourcing and crowdfunding of goods and services. Crowdfunding to cover medical bills in the US, for example, is an increasing trend.

Austerity means a “shift to the collective” and a focus on resilience, Shepherd says. Companies must be seen to do their part and “disclose meaningful metrics and operate within appropriate policy frameworks”. Continuing pressure points will be tax and executive pay: in both cases, companies will risk opprobrium of they do not pay rates that are seen to be fair.

Pressure for transparency

Companies will continue to grapple with technology in 2013. Proliferation of social media implies more NGO and consumer campaigning against corporate malpractice, and more pressure for corporate transparency.

This will combine with new reporting demands in 2013. The impact of measures such as the US rule on disclosure of conflict minerals will be tested. The US Securities and Exchange Commission passed a rule in 2012 imposing disclosure requirements on users of certain raw materials from the Democratic Republic of Congo and surrounding areas. In a backwards step for corporate responsibility, the US National Association of Manufacturers and others have filed a legal challenge against the rule.

Companies will also have to get to grips with new reporting guidelines. The final version of the Global Reporting Initiative’s so-called G4 revision is due to be published in 2013. The agreed reporting framework from the International Integrated Reporting Council should also be available by the end of the year.

The ever-growing volume of sustainability data, the pressure for disclosure and the availability of technology will also challenge companies on how they should communicate their performance. There is evidence of a shift to more dynamic, web-based sustainability reporting.

The company best managing this challenge is the British utility giant Centrica, according to the 2012 CSR Online Awards, published by communications consultancy Lundquist. Centrica’s online presentation includes carbon maps, which make it easier to understand how the business works and where emissions are generated, and sustainability progress indicators delivered via a data centre with interactive charts. The company promises to continue work in 2013 on the communication of its sustainability performance.

Show me the way

What business really needs in 2013, however, is a vision. Mike Barry, Marks & Spencer’s head of sustainable business, argues that, step by step, many companies have become more sustainable. But without a vision, more radical change cannot happen.

“We have yet to paint a compelling vision of a new future, one that people want and will strive for,” Barry says. “We will only get a better planet when people see the personal, community and organisational benefits of protecting it.”

A top-down vision may be lacking, but there is an expansion of concern about sustainability, and many bottom-up ideas. Chris Wille, chief of sustainable agriculture for the Rainforest Alliance, says this is a cause for hope in 2013.

“The wildlife and forests will continue to disappear, the climate will continue to warm, and a billion people will continue to struggle in poverty,” he says. “But if there are more troops marshalling – from grassroots activists and farmers and factory workers to politicians and captains of industry – then the world almost by definition will be a better place.”

It’s not all bad news…

The challenges ahead for business sustainability might seem immense: climate change, economic struggle, a growing world population threatened by poverty. But there will also be positives in 2013, according to the Ethical Corporation expert panel.

Kathee Rebernak of sustainability consultants Framework says that although there will be “continued lack of global will to move collectively on sustainability issues, chief among them climate change”, there is hope that the pressure for sustainability will focus minds on “ecosystem services, and will begin to drive innovation as more companies realise that unlimited growth in a resource-constrained world is impossible, and is indeed not even necessary for success”.

Chris Wille of the Rainforest Alliance says that “we can make more definitive progress in weaving together the political, economic and environmental agendas. We have seen the demise, for example, of the myth that economic and environmental goals are at odds”.

He adds that “companies that are already leading in this area should double down and bring more of the private sector into the action. NGOs, of course, have to ramp up their game. Governments are way behind the curve and must step up. Everybody is going to have to do more; that’s the point. Everybody can do something, and everyone shares in the responsibility.”

Rory Sullivan of Leeds University’s Centre for Climate Change Economics and Policy says that by making and keeping to commitments, while remaining profitable, companies such as Marks & Spencer and Unilever are demonstrating the benefits of sustainability. “A number of companies see this now as the way to do business. Corporate strategy and action has changed,” and this will be reinforced in 2013.

But perhaps the last word should be left to Mike Barry of Marks & Spencer. There will be progress in 2013, with growth of the “sharing economy” and companies calling for more government action to guide sustainability, he argues. Companies will also be challenged to show that they can be adaptable. “The one thing that business craves is certainty, yet now it must make investment decisions against a backdrop of massive uncertainty. It’s an imperfect future and you’d better get used to it!