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Don Reed

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Course Correction

Posted: 09/16/2012 11:08 pm

Climate Week NYC 2012 will gather business, government and civil society leaders to appeal for a better, smarter and more prosperous America. Thus far, leading institutions have set the wheels in motion on sustainability, focusing on internal shifts to capture value, capitalize on innovation, and mitigate risk. For leaders to navigate this road toward a brighter future, we must embark on a new direction -- or course correction.

In June, when Björn Stigson held up a copy of Changing Course at a reception of corporate sustainability types at Rio+20 and said that the content was still hugely relevant today 20 years after its publication, we knew what was coming. With a smile, he then asked whether it was because the content was so far ahead of its time or that we've made so little progress on the agenda.

Corporate sustainability has made huge strides against a backdrop of a system that does not reward business for improving environmental and social conditions. That is, unless they simultaneously improve financial performance by conventional measures. Yet the outcomes of corporate sustainability pale in comparison to the scale of social, economic and environmental woes evident today.

Björn Stigson, the long-time president of the World Business Council for Sustainable Development (WBCSD), is as associated with corporate sustainability as anyone. And Changing Course (Stephan Schmidheiny, WBCSD, 1992), which lays out the analysis and much content for corporate sustainability, was one of the most influential documents in setting the broad agenda for corporate sustainability.

It's time for a breakthrough. All the ingredients of that breakthrough exist and in fact glimpses of what would "unlock" the dynamism and efficient capital formation that characterizes the vision of corporate sustainability if not the day-to-day reality.

Was this vision of corporate sustainability so far ahead of its time or has progress been incredibly modest? If our past predicts our future, the answer is "yes" to both realities.

It's all about the impacts, specifically those social, economic and environmental impacts that don't get folded into the prices and markets as a result of public policy choices. If these impacts aren't priced and thus incorporated in market prices, they are outside the consideration of investors and corporate managers. Thus, these "externalities" are "hidden truths." Sensitive populations experience real harm with economic consequences from air pollution even within legal limits, but they are not compensated and the polluters aren't assessed a fee. Likewise, a company entering a new geographic market may create real benefits in the local economy when it trains local workers some of whom will leave the company and apply the education to their own business increasing productivity, employment and household mobility.

While there is a steady progress towards policies that incorporate these positive and negative externalities, corporate sustainability over its first 20 years has focused on externalities narrowly and in spasms.

Now, a handful of companies have begun efforts to understand, measure and manage these external impacts. Dow has a partnership with the Nature Conservancy to analyze how Dow's operations rely on and affect nature; PPR Group, the holding company that owns PUMA identified the most significant environmental impacts throughout its supply chain and is hard at work understanding the same about its social and economic impacts.

These efforts and the concept of companies analyzing and reporting their externalities continue to create a lot of buzz in corporate sustainability circles. But it's only the beginning. By the sheer number of initiatives in this arena and the degree to which other efforts are trying to hitch their wagon to the trend, it is clear that something important is afoot. Will merely knowing more about these impacts necessarily lead to dramatically better sustainability outcomes? No, but the first step towards those better results is a sober focus on the actual outcomes across value chains and product lifecycles.

 
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