Profit vs sustainability: Reconciling the sustainable transformation myth

What if your most profitable business line was also your most polluting? Or if your top supplier raised prices to meet their emissions targets? What if your employees asked you to cancel a lucrative contract with an organization that clashed with their values? How would your company respond?

As sustainability creeps inexorably up both corporate and board agendas — driven by sharper stakeholder demands, stiffer regulations and value shifts to new sustainable markets — these are the types of tricky questions organizations are grappling with. Answering them requires both ambition and action.

Ambition is not a problem: 98% of CEOs believe it is their role to make their businesses more sustainable, up from 83% in 2013. Tangible action, however, is somewhat lacking. Too often, companies still see sustainability locked in a perceived trade-off with profitability. This reinforces the traditional tight focus on short-term financial results, making it hard to justify integrating environmental and social impact into decision-making. The pollution is ignored. The supplier is dropped and the contract maintained.

A new report — Accelerating Sustainable Transformation: Dispelling old myths to seize new value — by Accenture and the World Economic Forum’s Young Global Leader (YGL) and Global Shaper Communities unpacks and dismantles the idea that companies must choose between profitability and sustainability.

The ‘next-gen leaders’ from the report identified five potential headwinds to fully committing to sustainable transformation: complexity, cost, practicality, reliability and speed. As Tom Szaky, CEO and founder of TerraCycle, and a YGL, explained: “Companies are often stuck in a groove of comfort and convenience. They talk about future sustainability commitments, multi-stakeholder partnerships and pilots, but remain focused on profits.”

Using cutting-edge neuroscience research techniques, the report found that a diverse group of 280 senior executives associate sustainable business with being slow and unreliable. However, sticking to ‘business as usual’ is viewed as more complex and more costly. The fact that cost and complexity emerge as tailwinds may surprise some; it is a challenge that car manufacturers understand well as they accelerate circularity and electric vehicle investments while struggling to drive revenue growth from current business models.

The report’s results highlight the conundrum executives are faced with: on one hand, they are finding it harder, and more expensive, to deliver value from ‘business as usual’. On the other hand, they are concerned that embedding sustainability will be slow to offer a return, if at all.

To address the challenge, the Forum’s next-gen leaders were presented with a series of profitability/sustainability trade-off scenarios. They advocated three updates to the traditional business case to give them and their operational and functional lead peers the licence to accelerate sustainable transformation:

María Agustina Ibañez, Co-Founder of Evaluados and a Global Shaper, explained how this approach works in practice: “We identified a challenge in education and created a business model around it,” she said. “Yes, we need to be profitable — but the way to do that is through more satisfied customers. So, we set our KPIs on customer and teacher satisfaction together with universities.”

The 280 international business executives surveyed mostly agreed: 70% said that it is important to change the rules of the game to successfully develop and adopt new sustainable business models. At the same time, 67% cautioned that traditional decision-making norms, like minimising costs and delivering strong quarterly returns, remain critical.

The results suggest that organizations looking to unlock sustainable value at scale should not tear up the traditional business case. Instead, they should enhance it to meet today’s challenges. As John R. Tyson, CFO of Tyson Foods, and a YGL, noted: “Companies need to develop a much more sophisticated business case that brings environmental and social elements in alongside more familiar financial metrics.”

Fusing new criteria into the traditional business case is a balancing act that requires new technology and human capabilities. Companies should start by building a strong digital core — a continuous process that leverages the cloud to incorporate new technologies across three interoperable layers: infrastructure and security, data and AI, and applications and platforms.

When combined with a robust talent strategy, this digital core can unleash a new set of tech-powered capabilities. From a more precise understanding of challenges and bringing diverse voices together at scale, to faster, more immersive prototyping, such capabilities can reduce the fear of failure and shorten “time to value”.

So, is the perceived sustainability-profitability trade-off myth or material? Accenture and the Forum’s research suggests that, with an updated business case in place, organizations can deliver on environmental, social and financial goals in tandem. Indeed, as the tailwinds to sustainable transformation strengthen, companies that stick to business as usual will likely struggle for profitability.

As financial viability becomes ever more contingent on delivering positive social and environmental impact, the onus, therefore, falls on responsible leaders to shake up the status quo. Seizing new sustainable value means dispelling the myths that hinder change, rewriting the business case to tap sustainable markets and unlocking the power of technology with comprehensive data and people strategies.

Read the full report here.