New Musings on Business Sustainability from a Guru in the Field: Part 3

In this final blog in my series on Andy Hoffman's article “The Next Phase of Business Sustainability,” I examine the ways that companies operationalize sustainability and how the current political climate affects its progress.

Sustainability Possible with a Circular Economy

Hoffman describes four new ways for companies to conceive an approach to operations, partnerships, government engagement, and transparency to address sustainability. From an operational standpoint, companies are moving away from linear models, where items are created, used, and disposed of once they reach the end of their serviceable life. Instead, they are moving toward circular models where items are created, used, and then either restored or reprocessed to recover energy and materials that can be used again. One key to this new vision of a circular economy is that it is organized to make the highest use of materials and reduce or eliminate waste to the best extent possible.

Regarding transparency, companies are disclosing numerous sustainability indicators through established standards. Guidehouse recently supported McDonald’s in developing a corporate climate target, which was approved by the Science Based Targets initiative. But transparency goes further as companies face increasing demands for data—for both internal management and external validation.

Business Must Be Held to Higher Ethical Standards

The market transformation challenges traditional ways of conceiving business and it demands new conceptions of corporate purpose and business success. Hoffman says that the business world is starting to revisit Peter Drucker and to question the basic function of business. In early 2018, BlackRock CEO Larry Fink sent a letter to CEOs of public companies telling them that they have a responsibility not only to deliver profits, but also to make “a positive contribution to society.” He wrote that, “without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.” The business community has not caught up to the power that business managers have, and with that comes immense responsibility. Business management should be viewed as a calling with obligations. Society has expectations of lawyers and doctors for ethical standards, but no similar structure for business.

Hoffman concludes with a discussion of political context, particularly the current climate in the US. He compares the Trump administration's agenda of loosening the regulatory environment to Reagan’s time in the 1980s. While Trump’s approach to the environment bears similarities to Reagan’s attempts to roll back environmental regulations and likely faces a similar backlash, there are key differences. Unlike in the 1980s, this time some of the backlash will come from businesses that are leading on greenhouse gas reductions and not fighting government-led environmental policies. Recent surveys show that 85% of business executives believe that climate change is real (well above the national average of 64%), and many see the associated market risks and benefits.

With or Without the US, Market Transformation Is Underway

The bigger picture reveals that the market will shift with or without the US government, as other national governments and many US state and city governments continue to set policies. Many companies are part of global markets, and while they see the US withdrawal from the Paris Agreement as ceding US leadership, they do not see it stopping the market transformation that is under way.

The article ends on a positive tone about the future direction of the global business enterprise, a hallmark of Hoffman’s writing and teaching. He has been an inspiration to me and my career and hopefully will be the same for the current generation of business school students. No more Gordon Gekkos!