Integration, Meet Transparency
When our recent report Changing Tack asked: “What will it take to accelerate and scale systems-level sustainability solutions?” the answer helped define what we believe leadership will need to look like. Changing Tack presents the six attributes of leadership as follows:
Each one of these attributes is complex, yet getting them all right is synonymous with achieving sustainability integration, a key to getting beyond incremental improvement to that step-change for which we are striving.
There is a particular relationship between integration and the “Transparency” attribute. We see this as extending far beyond sustainability reporting, which is where much of the transparency conversation hovers today. In Changing Tack we make three transparency-related calls to action:
- Improve the use of disclosure mechanisms
- Use technology to better signal to internal and external stakeholders
- Value externalities more fully/accurately
Do these three things well, and get the other five leadership elements right, and voilà, you’re integrated – by which we mean your sustainability and other business objectives are directly linked, if not in fact one and the same.
Integration is not the same as saying “Sustainability is in our DNA.” We see this claim a fair bit without any details of what else might be competing for prominence among the corporate chromosomes. Apparently many humans have Neanderthal in our DNA. Just because it’s in our DNA doesn’t mean it defines us.
Let’s face it: who checks whether a company who says it has sustainability in its DNA actually undermines as many needs as it serves? We need a proper litmus test for integration.
Enter, transparency—in particular, transparency that is designed to enable better decisions, where better means more likely to have net positive impacts on society and the environment while also serving the business’ financial needs.
At the moment, most stakeholders lack effectively transparent information. Whether grocery shopping and confronting limited information on ingredient sourcing, or buying electronics of indeterminate origin destined from design for obsolescence, consumers rarely find sufficient information to make better decisions. The same conundrum confronts other stakeholders from investors, who lack adequate information to truly understand a company’s potential to succeed in a sustainable future to policy makers tasked with shaping markets and social structures in an age of increasingly urgent social and environmental pressures.
This is why we see these three calls to action as key to achieving the kind of leadership required to make the change we seek. Here’s what they might look like in action:
- Improve disclosure mechanisms to better assess, describe and communicate past and anticipated impacts. While great gains have already been made, in no small part through the persistence and collaborative successes of the GRI, IIRC, SASB and others, there are ample opportunities for companies to improve. For example, are key decision-making points mapped in the supply chain? Are buyers and product designers informed of the impacts of different choices at these points? Are impacts tracked and communicated to those who make the decisions? These are just a few examples of how disclosure mechanisms need to be integrated across the business. We are seeing this already (e.g. retailers’ supplier indices, the apparel sector’s Zero Discharge Hazardous Chemicals (ZDHC). That’s the tiniest tip of the iceberg, albeit a good start.
- Leverage technology to collect, analyze and distribute information internally and externally. Whether it’s a massive database or a basic app, we have tools today that were unthinkable 20 years ago. Technology can better communicate with consumers, for example through interactive consumer websites such as this McDonald’s Canada site. It’s also changing the flow of information across, into and out of the business, whether by empowering factory workers to share labor standards data in real time, by using Big Data for operations managers to see opportunities and risks previously not visible, or by making ESG data available to investors as many of the agencies outlined in our Rate the Raters research do. Harnessing these technologies to ensure the best decisions possible are made will be a major leap towards integration.
- Understand how a business fits into a greater whole by being aware of—and ultimately accounting for—both social and environmental externalities. Unlike some of the more abstract financial exercises influencing markets today, externalities are based on reality. Recognizing this—painful and complex as reality can sometimes be—will be an important evolution for the 21st century business. In other words, the bees don’t care about a company’s stock price, but a company’s stock price may care about the bees. In which case, their buzz (or the risks if it is silenced) needs to be integrated into corporate strategy.
Doing all of the above—improving what, and to whom disclosures are communicated; leveraging technology to effectively signal to decision-makers; and taking into account the value of social and environmental capitals beyond a business’s four walls—comprise leadership in transparency, a fundamental attribute of overall leadership. Such integration has the potential to foster the systems-level adaptations businesses must undergo to thrive in a truly sustainable economy.
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