SDIS21: Better Business - What are the challenges in making business more sustainable?

“We owe most of the social progress of the past to entrepreneurship and to the capacity to create wealth by taking risks and pursuing innovative new business models,” World Economic Forum Founder and Executive Chairman Klaus Schwab wrote during the height of the pandemic. “But we must rethink what we mean by ‘capital’ in its many iterations, whether financial, environmental, social, or human.”

It's one of just many lessons we've learned over the last year and a half.

In the midst of a global pandemic, a global economic crisis, a global nature crisis, a global movement to end systemic racism and a lot of extreme weather, stakeholder capitalism – and the role of business in achieving a more sustainable and inclusive world – is more important than ever. These will be a key topic at the Forum's virtual Sustainable Development Impact Summit 2021 on 20-23 September.

This is especially true when it comes to the climate crisis, “the greatest global challenge we face in the coming years,” according to the co-chairs of the Alliance of CEO Climate Leaders, and a challenge that will impact our ability to meet all 17 Sustainable Development Goals (SDGs).

“We need to see commitments increase as part of the global Race to Zero Campaign as we move towards COP26 negotiations in November,” they wrote. “It is vital that the business community takes a clear leadership role, by establishing high ambition in its own areas shaping the practicalities of implementation and advocating for the policies supporting the required transformation of the global economy.”

Still, all stakeholders, including corporations, are taking this on with renewed vigor – and the fact that so many companies stepped up to respond to the pandemic is a sign that we can achieve these goals, Schwab wrote in June.

“Clearly, the will to build a better society does exist,” he continued. “And it will demand private-sector engagement every step of the way.”

While corporations committed to stakeholder capitalism should pay attention to all 17 SDGs, meeting the targets of two in particular will help make business better:

SDG 9: Industry, Innovation and Infrastructure. Targets include promoting inclusive and sustainable industrialization and, by 2030, significantly raising industry’s share of employment and GDP and doubling its share in LDCs. Others include increasing access to financial services for small enterprises, upgrading infrastructure and retrofitting industries to make them sustainable.

SDG 12: Responsible Consumption and Production. Targets include achieving sustainable management and efficient use of natural resources and reducing waste generation and achieving environmentally sound management of chemicals and reducing their release. The goal also encourages companies (especially large ones) to adopt sustainable practices and integrate sustainability information into reporting cycles.

We’ve known companies have been making progress on critical environmental, social and governance (ESG) challenges – and the quality and quantity of ESG reports have doubled since 2017, according to last year’s SDG progress report. However, since the idea of stakeholder capitalism was born in Davos in 1973, “we have lacked the ability to measure” progress across industries, wrote Brian T. Moynihan, Chairman and CEO of Bank of America, for the Forum.

Now, with support from 120 companies, "Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation" was published by the Forum in collaboration with Deloitte, EY, KPMG and PwC.

These core ESG metrics and disclosures help companies improve the ways in which they measure and demonstrate their contribution to a more prosperous and fulfilled society and a more sustainable relationship with our planet.

These metrics are not only good for stakeholders, but also shareholders: “Beyond the crisis horizon, more evidence is emerging that companies that follow more narrowly defined ESG standards, on average, outperform the market,” argued the authors.

COVID-19 pummeled many sectors. “The pandemic hit the manufacturing sector harder than during the 2007-2009 global financial crisis, resulting in a drop in production of 6.8% in 2020,” says the UN Sustainable Development Goals Report 2021. It was “catastrophic” for air travel in particular, with a drop from 4.5 billion passengers globally in 2019 to 1.8 billion in 2020.

But through it all, business has continued to step up – not only helping their employees and communities weather COVID-19, but also taking action on critical issues like systemic racism.

Now, business must take the lessons learned from COVID-19 to address other pressing challenges, especially the climate crisis.

“If economic recovery defaults to a reboot of pre-COVID-19 activities, societies will have missed an important window of opportunity to transition to a more inclusive and greener growth path,” said chief economists surveyed by the Forum last year.