A new report by Arthur D. Little reveals companies' responses to the challenge of sustainability lacks rigour. It takes a closer look at the reporting of sustainable performance in many companies and the corporate strategies supporting it. Corporate behaviour is superficially induced by demands of stakeholders and customers and to fulfil the basic requirements of legislative CSR reporting. Arthur D. Little's latest report, "
Sustainable Performance", argues that by continuing to focus on traditional business objectives and paying little more than lip service to environmental issues, many companies risk losing out on the opportunities presented by sustainability - not least the opportunity to run a more competitive business and attract the attention of investors who increasingly recognise environmental performance as an indicator of long-term success.
Research by Arthur D. Little shows, for example, that even Nordic-listed companies, generally perceived as having an excellent record on the environment, have failed to grasp the real opportunities presented by sustainability or to develop the strategies and reporting mechanisms needed to realise them.
According to the report, legislation, regulation and consumer demand have failed to influence corporate behaviour other than superficially. Legislation and regulations have been too laxly formulated to have the desired effect. Only where they have a direct effect on businesses' costs do they bring about change. Similarly, consumers, while having the potential to influence through purchasing behaviour, will not generally read CSR reports or follow the business activities of the companies they buy from. They are influenced, if at all, by media reports and remain, at present, a very weak force driving corporate sustainability. And, of course, companies do not have an adequate incentive to be good corporate citizens per se; their prime objective remains to satisfy the economic interests of shareholders.
"Our research has shown that there are clear signs that a powerful force that does have the ability to effect a rapid and deep-rooted change in corporate behaviour is emerging and the international investor community now recognises that those companies that are able to derive value from sustainability will outperform their peers financially in the long run," reflects Annette Malmberg, a Senior Manager in Arthur D. Little's Energy, Utilities, Strategy and Organisation Practice. "As a result, the economic interests of shareholders and the drivers of sustainable performance are becoming increasingly aligned. Also, sustainable performance and effective carbon management allow companies to create economic value by enabling them to demonstrate superior management skills and become more competitive by offering environmentally superior products and services."
There are now a number of indices building on the concepts of sustainability and carbon reduction potential, including ECPI's Carbon Winners Equity Index, FTSE4Good, the Dow Jones Sustainability Index and KLD's Global Sustainability Index. Most of them clearly show performance that outranks market indices. According to Arthur D. Little's study, companies, once included in the sustainability indices, are eager to remain part of them.  Businesses recognise that share-price growth is closely linked to their continued inclusion in such indices, as the large financial institutions broker the companies that appear in these indices to shareholders.
The report suggests that companies that are not currently included in the sustainability indices should make every effort to become part of them. Also, companies from any region that want to maintain their competitiveness need to act fast on sustainability issues. The competitive space in sustainability is filling up rapidly as companies rush to unlock its hidden values. Only those companies that manage to lead the way will be attractive to investors in the long run.
Any company that wants to realise the opportunities presented by sustainability needs to develop an effective strategy for sustainable business development and performance reporting. This includes companies that may be tempted to complacency by an existing reputation for good corporate citizenship.
The Sustainable Performance report is now available for download at:
www.adl.com/nordicsustainability