Keeping up with the sustainability shift

Due to the difficult challenges in water, climate, energy, and waste management that humanity is facing today, the traditional concept of corporate social responsibility (CSR) has evolved to embrace new concepts such as “Environmental Social and Governance (ESG) standards,” “People, Planet, Profit,” “Impact Investing,” and “Corporate Sustainability.” These terms continue to spread in private, public, and societal spheres to exert more pressure on companies to pursue a larger social and environmental purpose.

While the United Nations had already introduced the ground-breaking set of Sustainable Development Goals (SDGs) in 2015 as a “universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030,” these goals find more relevance today as we are hounded by a global crisis.

The 17 SDGs are as follows: No Poverty, Zero Hunger, Good Health and Well-being, Quality Education, Gender Equality, Clean Water and Sanitation, Affordable and Clean Energy, Decent Work and Economic Growth, Industry, Innovation and Infrastructure, Reduced Inequality, Sustainable Cities and Communities, Responsible Consumption and Production, Climate Action, Life Below Water, Life on Land, Peace and Justice Strong Institutions and Partnerships; recognizing that “ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.” More importantly, the SDGs assume the substantial role of business and its ability to make contributions towards these goals. In the coming years, substantial changes are needed in business behavior to achieve the ambitious vision of the 2030 Agenda for Sustainable Development.

EMBRACING THE CHANGE IN BUSINESS STRATEGIES
According to the United Nations Global Compact, corporate sustainability is a global imperative for businesses today. Companies should carefully take into consideration the social and environmental risks and threats to its long-term corporate existence in a world of poverty, climate change, and inequality.

Rather than pursuing the primary purpose of augmenting profit, companies are innovating and reinventing themselves to further address social and environmental impacts by reducing poverty, meeting basic human needs, and ensuring fair and equal opportunities, which are all in keeping with the UN SDGs.

The increasing commitment of businesses towards sustainability is validated in a research study conducted by Robert G. Eccles and Svetlana Klimenko, as published in the May–June issue of Harvard Business Review, wherein it was reported that ESG was a “top-of-mind” 70 senior executives at 43 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard, and State Street), giant asset owners such as the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the government pension funds of Japan, Sweden, and the Netherlands.

Similarly, in a report by the Stanford Social Innovation Review, more than 90% of CEOs state that sustainability is important to their company’s success, and companies develop sustainability strategies, market sustainable products and services, create positions such as chief sustainability officer, and publish sustainability reports for consumers, investors, activists, and the public at large.

REGION IN FOCUS: SOUTHEAST ASIA
The sustainability issue likewise gains more traction in the United States and other parts of the world — Southeast Asia included. According to an article by the Nikkei Asian Review, sustainability takes center stage in Southeast Asia as it grows to be a manufacturing hub and becomes a key link in global supply chains.

COUNTRY IN FOCUS: PHILIPPINES
Similarly, top executives of the Philippines recognize the concepts of sustainability in their businesses. In a report by PwC in collaboration with the Management Association of the Philippines (MAP) entitled “The Future of Business: Sustainability. Development. Impact” which discusses the results of the 2019 survey of 127 CEOs in the Philippines from a mix of large (50%), medium (27%), small (14%), and micro (9%) enterprises from various sectors, over 80% of CEOs expect to change their production or service model in the next three to five years to promote more sustainable practices.

Notably, in the past PwC surveys, CEOs were mostly concerned with issues related to policies and terrorism. This year, however, CEOs are acknowledging that climate change and environmental damage are serious problems that they need to face.

CLOSING THE SDG GAPS
In Southeast Asia, strengthening environmental protection and combating climate change are recognized as among the most important gaps which need to be closed by 2030.

In the 2019 Asia and the Pacific SDG Progress Report by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), environmental targets in the Asia Pacific Region would require a complete turnaround in order to meet the SDGs. Specifically, one quarter of targets in the Asia Pacific Region that have worsened are linked to natural resource management — including sustainable food production, populations suffering from water scarcity, renewable energy, management of chemicals and wastes, and the loss of biodiversity.

Another gap that needs to be closed is the financing aspect to achieve the SDGs. The UN estimates the financing gap to be at $2.5 trillion per year in developing countries alone. According to a report by the World Economic Forum, key to achieving the SDGs is “impelling public companies, especially the large firms that receive the majority of institutional investment, to account for environmental, social, and governance (ESG) criteria relevant to the SDGs in their decision-making.” By reviewing data on companies’ ESG performance, investors are now made aware if their funds are contributing to achieving the SDGs.

In the Philippines, the accountability of ESG-anchored investing is a new concept. Early this year, the Securities and Exchange Commission (SEC) issued the “Sustainability Reporting Guidelines for Publicly Listed Companies” through SEC Memorandum Circular No. 4, Series of 2019 which requires publicly listed companies (PLCs) to submit sustainability reports as part of assessing and managing the companies’ economic, environmental, and social impacts.

SUSTAINABILITY AS A CHALLENGE AND OPPORTUNITY
High transition costs, absence of adequate policy frameworks, inadequate technology and economic viability are some of the main factors which prevent businesses from fully adopting sustainable practices.

However, the rewards of the said shift far outweigh the challenges. Embedded sustainability efforts clearly result in a positive impact on business performance. In a report by the Harvard Business Review, businesses which “proactively make sustainability core to business strategy will drive innovation and engender enthusiasm and loyalty from employees, customers, suppliers, communities and investors.”

Due to the increasing awareness of benefits of companies to pursue a larger and societal purpose, it seems that sustainability is the new reality for businesses.

Hannah Viola is a Fellow at the Stratbase ADR Institute.