Misconceptions and Challenges When Talking About Sustainability

Sustainability is commonly thought about with the environment in mind. Yes, the environment plays an important role when it comes to sustainability. But, the reality is that sustainability is more holistic. There are three common misconceptions when it comes to sustainable development, which I’ve seen play out across various industries:

Sustainability is about the environment

Although incredibly important, the environment is only one part of the bigger picture. There are, in fact, six other stakeholders that we need to consider when carving out our strategy for sustainability.

Profit is a bad word

Profit, in and of itself, is not bad. In fact, the only way to be truly sustainable as a business is to ensure that the business is profitable.

We work with sustainability based on assumed aspirations

Real needs from stakeholders can be very different from what we assume them to be. The lack of buy-in that leaders face usually stem from one key issue: lack of dialogue. Involving stakeholders intimately is what makes sustainable development possible.

With those in mind, let’s dive deeper into how those misconceptions can be addressed.

Every organization is constantly interacting with four broad groups of stakeholders:

• Those that depend on the organization
• That that the organization depends on
• Those that are shareholders or owners
• Those that are part of society or environment

And these stakeholder groups can then be further broken down into seven stakeholders:

1. Employees
2. Society
3. Nature or environment
4. Partners or vendors
5. Customers
6. Shareholders
7. The organization itself

All the aspirations of these seven stakeholders must be met, but they can’t just be met sequentially. You can’t simply neglect everyone else while only focusing on profit for shareholders. They must be met simultaneously.

As a society, we tend to be so busy trying to maximize profit that the other six stakeholders are often ignored. This is primarily why we are in a mess with the climate crisis, facing wealth gaps, and other societal disparities.

However, that’s not to say that profit is bad, just that it shouldn’t be the sole driver for organizations. Profit is good, as long as it’s reasonable, beyond which it turns into greed.

At what point does profit turn into greed? Start by reviewing the industry average for profitability. As an example, if the industry averages 8% in profit, then it’s reasonable for you to want to achieve 9-10% in profit. However, when the goal is to hit 15-16% in profit, that’s where it turns into greed. To achieve these levels of profit, you’re most probably having to cut corners somewhere or do certain things differently, which end up affecting your stakeholders. That could be in the form of squeezing partners for cost, lowering product quality for customers, having unfair employment practices for employees, or even mining excess resources from the environment.

Therefore, being somewhere around the industrial average aids sustainability. Let’s take a retail store that only wants to focus on their shareholders and maximize profits. They can choose to hike up their prices to a point of being too high. But, the market has a way of bringing it down simply by customers choosing not to buy. And automatically, the retail store now has to reduce prices because it was losing market share. Ultimately, the market has a way of controlling and bringing down unsustainable practices to a more sustainable form in the long run. You cannot be an outlier in terms of extreme profitability for too long as you will be forced to think of the other stakeholders.

The key principle for receiving buy-in from stakeholders

That brings us to the next point on actually getting buy-in from stakeholders. As leaders, it’s natural to want buy-in from your stakeholders when rolling out a sustainability initiative. But a lack of engaged buy-in is a common challenge that leaders face. How do we get an engaged buy-in from all our stakeholders?

Start by being open, transparent, and making your motives clear. Let your stakeholders know what your end goal is. Rolling out programs without active dialogue and clear communication will only lead to mismatched expectations and distrust.

A tested way to fix that is to commit to things in writing. Make it clear to everyone that it’s not about you or them, but it’s about the policy, initiative, or program, and its associated outcomes. Remember, everyone must buy into the sustainability agenda that the organization wants to form. Ensure that each stakeholder understands the goals of the program clearly, and you’re well on your way to getting engaged buy-in from them.

Let’s take the COVID-19 situation for example. For 2 years or so, we’ve all been working from home. And during this period, if the timelines and profitability hadn’t been affected, why do employees need to come back to the office? ‘I want to see the people working under me’ is not entirely a good reason, and in fact quite colonial. So, just because the boss likes working from the office, it doesn’t mean that working from the office is best for the organization.

Have you asked what your employees’ goals or aspirations are? In 2 years, there might have been a change in the employees’ family structures, such as a loss or a new member with new commitments, which might make it challenging for them to be physically present for the whole week. Without talking to your employees, you can’t make that decision. Of course, in sectors like manufacturing, there is a need to be physically present. But there are many other sectors without that need.

So, the key here is to work based on actual realities instead of pre-conceived notions or assumptions. Transparent dialogue is the only way to get over this hurdle and make decisions that are sustainable in the long term.

The flaw in ESG

The sustainability conversation wouldn’t be complete without talking about ESG. ESG was formulated with noble goals - to take care of the business impact on the environment, social factors, and good governance. Over the years, ESG has, unfortunately, devolved into a risk-mitigating tool and is no longer a sustainability one. In fact, it’s become a finance tool used to assess the risk involved in investing in a certain company.

ESG also looks at only how external factors affect a business, and not how the business affects the external factors. It doesn’t have a threshold and instead focuses only on very broad areas like gender diversity, fair pay, recycling, and so on.

To illustrate this, imagine a company involved in using plastic bottles for their products. If they have one ton of plastic leaving their gates, then one ton must come back to the company as waste, directly or indirectly through agents who collect and recycle the plastic. But that’s not what happens in reality.

Although the company might put a sticker on the bottle to state that the bottle is recyclable, that effort doesn’t entice consumers to recycle. If it did, we wouldn’t have 90% of the plastic materials ending up in the oceans or landfills with only 10% recycled. Instead, saying that you’ll get 5% off your next purchase if you bring the bottle to a designated recycler will generate initiative and is more likely to produce actual results.

Additionally, because companies involved in ESG practices do not measure levels of compliance and incentivize stakeholders effectively, ESG is not a good measure of sustainability. I’ve found that ESG can also be used to camouflage parts of their business. For example, if ESG practices were actually effective, the average tenure of women CEOs wouldn't be only 3 years as compared to 5-6 years for men.

What is the solution? Can the existing frameworks solve the problem? No, because there’s no standardization with the 23-25 frameworks available. Companies can simply choose a framework that suits them so as to ‘tick the boxes’. The way forward then, is for frameworks to come together, integrate, and build standardization, similar to the ISO standards as an example. This is what will plug a big hole in the ESG space and practices.

01 Adopt a holistic mindset for sustainability

Realize that the environment is only one part of the full set of stakeholders that organizations interact with on a daily basis. Be clear on where the line of profit ends and greed begins, and use that to navigate sustainable development.

02 Remove assumptions and initiate dialogue

As leaders initiating sustainability programs, connect with your stakeholders over open and honest dialogue. Let your goals be known. Put things in writing and keep the focus on the policies and not on personal/individual needs.

03 Standardize frameworks

Acknowledge that ESG practices are still lacking in efficacy. Look at how your business is affecting the external stakeholders. And, use ESG frameworks that are more integrated and standardized, preferably with thresholds in them, so that it reflects the actual activities of the firm. A threshold-based framework is more indicative of compliance and will ensure that the numbers reported are easily verifiable and will further bolster the sustainability credentials of the organization.