More businesses are embracing sustainability, but it’s not happening fast enough to ease environmental strain

First the good news. Companies took strides towards sustainability in 2012. Some of them even made money doing it. The Massachusetts Institute of Technology 2012 Sustainability and Innovation Global Executive Study, for example, found that more than half of companies that made a business case for sustainability said it had boosted their bottom line.

Now the bad news. Whatever companies did on sustainability in 2012, it was nowhere near enough. This was true of all the areas that fall into the environmental, social and corporate governance brackets, but it was in the battle for environmental sustainability that the disjunction was most evident.

It was on display in June 2012 at the Rio+20 conference. This was a showpiece event, the follow-up to the 1992 Rio Earth Summit, which created the United Nations Framework Convention on Climate Change, among other accords. Rio+20 was supposed to reinvigorate sustainable development and promise hope. It did neither.

Instead, decision makers dithered. They produced a document entitled The Future We Want, but this was a list of aspirations rather than commitments. Jonathan Wootliff, a sustainability consultant and former Greenpeace communications director, says: “I should have gone to Rio+20 with a more realistic outlook. I was naïve enough to believe that something concrete would be achieved. I was wrong.”

The inability of policymakers to do anything about environmental degradation was thrown into sharp relief by a series of natural disasters in 2012, culminating in “superstorm” Sandy, which hit New York in October after leaving a trail of devastation in the Caribbean. Sandy was both deadly and expensive. The cost to the state of New Jersey has been estimated at nearly $30bn; the cost to New York $19bn.

Sandy was far from the only climate-related disaster in 2012. Much of the US also suffered record-breaking drought in the summer. The World Bank calculated a 10% increase in global food prices as a consequence. In China, dozens died in floods that hit Beijing in July. Parts of Britain and Ireland also saw devastating flooding during 2012.

It was Sandy, however, that really focused attention on the mounting costs of climate change. The storm hit a few days before the end of a US presidential campaign during which global warming was barely mentioned, but New York’s influential mayor Michael Bloomberg, and New York state governor Andrew Cuomo were in no doubt. Cuomo said it was “denying reality” to say that weather patterns had not dramatically changed. Bloomberg was blunter still. His Businessweek magazine carried the stark headline: “It’s global warming, stupid.”

Impossible task

Coincidentally, a fortnight after Sandy hit, PricewaterhouseCoopers published its Low Carbon Economy Index. This pointed out that the amount of carbon dioxide produced per unit of gross domestic product in the world’s major economies will need to decrease by 5.1% annually until 2050 if global warming is to be kept within supposedly safe levels.

Global carbon intensity did decline in 2011, PwC says, but only by 0.8%. Reaching the target would seem “highly unrealistic”. In fact, according to PwC, the temperature rise by the end of the century could be up to 6C – which by all forecasts would signal disaster.

Politicians, in international negotiations, such as the United Nations climate change conference in Doha, Qatar, in late November and early December, continued to call for global warming to be limited to no more that 2C above pre-industrial levels. But for some the game is up. Penny Shepherd, chief executive of the UK Sustainable Investment and Finance Association (UKSIF), says 2012 should be regarded as the “year of ‘forget the 2 degrees rise’” when everyone engaged in the climate debate concluded that in practice the 2C target wasn’t going to be achievable.

The scale of the climate challenge had the unfortunate effect of making the efforts of companies to cut their emissions look puny. There were significant achievements in 2012. Marks & Spencer’s UK and Ireland operations became officially carbon neutral from the beginning of the year, while according to the Carbon Disclosure Project, the top firms that integrate climate change into their business strategies reduced their emissions by nearly 14% in 2012. But the global trend of rising emissions was not dented.

Mike Barry, Marks & Spencer’s head of sustainable business, says: “For now business and government are focused on making existing economic models less bad in the short term, but not on building a new model of sustainable economic and social activity.” Despite the build-up of evidence about disasters-in-waiting such as global warming, “nothing about our lives really changed – there were no tough choices”.

This continued in 2012 with a “cosy” relationship between business, government, consumers and even NGOs on environmental and social issues, Barry argues. “Business ‘sort of’ got better, government ‘sort of’ developed a policy framework, consumers ‘sort of’ bought into some more ethical consumption choices, NGOs ‘sort of’ targeted business practice. But the wider system that we all participate in is little changed and a growing global population means that to stand still is to actually go backwards.”

Social responsibility setbacks

The question of how much progress has really been made was also asked of corporations over social and governance issues in 2012. The year was punctuated by events that suggested that corporate responsibility often involves one step forward followed by two steps back.

Progress on working conditions and ethics in the supply chain was brought into question by terrible factory fires in Pakistan and Bangladesh. A fire in September in a garment factory in Karachi killed 249 workers; the same day a fire in Lahore killed at least 25. In November, a blaze in Dhaka, Bangladesh, at a factory producing clothes for, among others, C&A, killed more than 110.

In South Africa in August, meanwhile, police gunned down 34 striking miners protesting at a platinum mine run by London-based Lonmin. Miners’ strikes in South Africa took place in a context of unsafe working conditions in many mines, and low wages for unskilled miners, according to the International Labour Organisation.

Scandals over corporate behaviour and tax also continued in 2012. Manipulation of interbank lending rates led to multi-million-dollar fines for Barclays and the resignation of senior executives, including Barclays chief executive Bob Diamond. Later in 2012, attention focused on use by multinational companies of offshore structures to reduce their tax liabilities in Britain. Executives from Amazon and Starbucks were subjected to particularly uncomfortable grillings by parliament’s Public Accounts Committee. Starbucks in particular was subject to NGO activism, eventually offering to make UK corporation tax payments that strictly weren’t due. 

UKSIF’s Penny Shepherd says companies were more likely in 2012 to find themselves in the spotlight over social and governance issues because of an ongoing crisis mentality and a “concern about fairness and decency”. In times of austerity, everyone must be seen to play their part.

It was not forgotten in 2012 that financial services were at the root of the crisis, Shepherd says. A key issue that will not go away is the “underlying general concern about financial services acting in the public interest rather than acting disproportionately in the interest of those that manage financial services”.

Pessimists v optimists

The growing realisation in 2012 of the ineffectiveness of corporate sustainability efforts in the face of overwhelming global environmental trends, and of the need to renew the struggle for social responsibility and the maintenance of corporate ethics, provoked sharply diverging responses.

Scott Poynton, executive director of campaign group the Tropical Forest Trust, is a pessimist. “I hope that people will start to deeply feel that the approach we’ve collectively taken over the past 10 to 15 years on ‘sustainability’ has been wrong-headed,” he says. “Most companies have some sort of programme these days – Plan A, Net-Positive, Creating Shared Value and so on. Yet the biosphere is still being hammered, our life support systems are constantly being beaten down, undermined, diminished.”

Poynton notes that there are “genuine leaders” among companies, including Marks & Spencer, “but even they are scratching at the surface. We’re screwed as a species and we’re screwing the planet for other species while we blissfully discuss how to be ‘more sustainable’.”

Charlotte Grezo, group director of corporate responsibility for energy giant Centrica, also finds it hard to muster enthusiasm. “Large companies, mainly but not solely from Europe and North America, are ever more aware of the damage done by ethical failures,” she says. “But it is not clear to me that there are any major changes in behaviour as a result. There is a definite shortage of enlightened CEOs to drive change.”

But there are also optimists. Rory Sullivan, senior research fellow at the Centre for Climate Change Economics and Policy, Leeds University, says one striking trend in 2012 was that “companies have been sustaining their investments in sustainability despite the economic downturn”.

Action inevitable

This is “not a headline story”, he says. Companies have been working on the assumption that in the long term there will eventually be action on climate change, and there is a need to plan for high energy prices. For now, economic hard times and political paralysis mean government in many countries is weak and there are few ground-breaking environmental initiatives. But companies are “grinding ahead and doing the right thing”.

Former Greenpeace communications director Jonathan Wootliff, despite his disappointment with Rio+20, is also in the positive camp. “While progress in advancing the sustainability agenda is arguably too slow, it is becoming more high profile than ever before,” he says. “Although there may be little tangible evidence that the world is better by this time next year, I am convinced that acknowledgement of the need for sustainable development will have become significantly more mainstream. In this sense, the world will be a better place.”

Person of the year?

In Ethical Corporation’s informal survey of our advisory panel’s sustainability highlights of 2012, one name kept coming up as a possible person of the year: Unilever’s chief executive, Paul Polman.

Chris Wille, chief of sustainable agriculture for the Rainforest Alliance, says: “There are now many corporate leaders driving the sustainability agenda, but Polman stands out for his vision, eloquence and personal commitment.” Kathee Rebernak, founder of sustainability consultants Framework, says Polman “seems to have succeeded the late Ray Anderson, CEO of Interface, as the CEO champion of sustainability as a business driver”.

Polman has forcefully made the case for sustainability. He has tried to encourage more long-term thinking about corporate value, and has called for “a new sustainable model of capitalism, one in which business hopefully sits as part of society, not separate from society”.

This, according to Polman, means rethinking a company’s relationship with its shareholders. He has argued that the orthodoxy of maximising returns to shareholders and an obsession with financial targets have encouraged corporate short-termism, which can run contrary to the practice of sustainability. Unilever has stopped quarterly reporting of full financial results, in order to undermine “quarterly capitalism”.

Under Polman’s watch, Unilever has also put in place its Sustainable Living Plan, one of the most ambitious corporate sustainability plans, and has pressed for action on climate change, which Dutchman Polman has said costs Unilever €200m a year.

Scott Poynton of the Tropical Forest Trust, however, questions the need for figureheads. “I am no great fan of the personality infatuation we appear to grasp for in our society,” he says. “I like to recognise the teams of people working out in the field doing the hard work to bring change. That’s where the hardest work is being done. No CEO spouting green rhetoric gets my vote.”

Ethical Corporation experts reflect on 2012

“Extreme weather is going from a theory to a new reality. Energy and commodity prices remain high and volatile at a time when we can least afford them. Emission reduction has to become real, not just a policy debate. Despite global economic slowdown, the number of middle class consumers will triple to three billion in the next 20 years with all the strains this puts on resources. The eastward shift of political and economic power is accelerating. The ‘cosy’ sustainability debate of a few years ago is fast being replaced by one of tough choices.”

Mike Barry, Marks & Spencer

“What’s hot and new? Social licence to operate – it used to be mining jargon for keeping communities calm and friendly. It is now developing into a management approach for community and stakeholder relations, not just in mining but in other industries as well, such as infrastructure and renewables.”

Leeora Black, Australian Centre for Corporate Social Responsibility

“Hurricane Sandy will force regulatory authorities in the US to consider extreme weather events. It will change the discourse around climate risk. There is now a space for more effective policy action, which will go with the grain of how business wants to think about climate change.”

Rory Sullivan, Leeds University

“I continue to be disappointed at how large NGOs like WWF and large companies like Unilever wed themselves to the failure that is roundtable certification. No roundtable certification scheme has led to a market transformation, and the continued drive to push people down the certification path hinders development of innovative thinking about how to go beyond certification.”

Scott Poynton, Tropical Forest Trust

Where will 2013’s challenges come from? “The four horsemen – apathy, ignorance, greed and tribalism.”

Chris Wille, Rainforest Alliance