Ask practically any sustainability professional and you’ll hear the same thing: “Things are different now”. The third decade of the 2nd millennium has already proven extraordinarily mercurial, from pandemics to political change. Sustainability is no different, with expectations, new legislation, new demands, and new driving forces means that the sustainability of 2020 is a very different beast compared to the sustainability of 2024.
Lincoln Watson, CEO of ESP, sits down to discuss just how different things are in today’s world, and how businesses can best adapt to what can often be seen as a fluctuating, risk-filled and confusing arena.
How has sustainability changed in just a few years?
3 – 5 years ago: Built around individual passion
Lincoln begins by offering a retrospective on what the world of sustainability used to look like.
“A few years ago, the sustainability landscape in business was markedly different,” he explains.
“There were some fantastic companies that had been doing a lot of great things in sustainability for a very long time – and still are. But the big difference is that, a number of years ago, you had to have an individual in the company who had the authority to drive [sustainability] forward,” he continues.
“If you didn’t have them, then it wasn’t going to happen.”
According to Lincoln, this era in sustainability was unfortunately characterised by a relative little top-down leadership from directors in many companies. Instead, passionate individuals within the organisations were the catalysts for change – typically directors or C-Suite executives, who had the passion and the authority to drive change.
You can see this trend reflected in surveys around attitudes towards sustainability from the time. Overall, it was positive, with one 2021 McKinsey Global Survey showing that 22% of companies reported that they were realising value from sustainability, with expectations of this number doubling in the following five years. Another Harvard study revealed that the majority of sustainability reports in 2021 included a dedicated letter from the CEO, demonstrating the growing attachment of the executive to sustainability.
However, this did not necessarily filter up to a board level. That same Harvard study found that less than 15% of companies included either a combined letter from the CEO and the Board, or a separate letter from the Board.
This indicates that while senior executives, particularly CEOs, were vocal about their sustainability strategies, direct communication from board members was less common, suggesting a potential gap in how board-level prioritization of sustainability was externally communicated – or if it was prioritised at all.
“These days, Board involvement, support and education around sustainability is far more common. You’d be hard pressed to find a listed business that didn’t have sustainability mentioned and championed at the board level,” says Lincoln.
“A couple of years ago, companies weren’t willing to have that conversation.”
Why not? What was getting in the way? Lincoln points out that it was the same thing that was getting in the way of practically everything at the time:
COVID.
The Pandemic: Scaling back sustainability
“I don’t necessarily want to dwell on COVID too much, because it’s been talked about in huge detail in the last few years, but it’s crucial to note just how much of an impact it had on sustainability in business,” says Lincoln.
“The pandemic served as a monumental pause button, not just on everyday life but significantly on the progressive march towards sustainability that many companies had been embracing.”
Lincoln went on to paint a picture of COVID causing not a regression, but a stagnation in sustainability. Businesses didn’t ‘lose’ the progress that they had made over time. Rather, “it didn’t drop with COVID, though arguably it flatlined”, according to Lincoln.
Research from the 2021 Deloitte Climate Check report highlights this deceleration. According to their survey, over 80% of executives were expressing concern about climate change, but two-thirds of organisations were forced to scale back on their environmental sustainability efforts due to the pandemic and economic downturn. Not a good time for sustainability in business.
That said, Lincoln also pointed out that COVID also served as a surprisingly powerful point of proof for how sustainability gains can be made possible through significant operational change.
“Things like the mandatory switching to remote work meant that emissions from employee commuting and business travel was eliminated practically overnight. Many businesses, including here at ESP, kept going with that workplace flexibility, and it has massively reduced carbon footprints across the board.”
“It was a difficult transition for many, but it showed that, given the right level of systemic operational change, businesses of all sizes can slash their emissions. And for those businesses that cared less about emissions and more about costs, many of the changes forced by the pandemic also resulted in significant reductions in operational spend – such as no longer requiring satellite offices.”
It comes back to needing that driving force to make sustainability happen in business. Once, it was the individual, normally an executive. Then it became economic conditions, because of the pandemic, where businesses were forced to adapt and realised benefits along the way.
Now, says Lincoln, the landscape has changed once again. This time, the driving force is increasingly strict and mandatory emissions reporting.
Now: Mandatory reporting as the new normal
“We’ve seen a global uptake of mandated emissions reporting. Here in Aotearoa New Zealand, we have mandatory climate related disclosures, which requires our largest businesses to report on their sustainability every year, accurately, meaningfully, and ambitiously,” describes Lincoln.
“New Zealand moved early, but it’s not just us here. There are many other countries are doing the same or similar, all over the world.”
“It’d be great if we didn’t need the ‘legislative stick’ to get people to take sustainability seriously, but you must admit that it’s been effective.”
Mandatory climate-related financial disclosures in New Zealand, which went into effect in 2023, has really lit a fire under Kiwi big business – but they aren’t the only ones feeling the heat. Due to the fact that mandatory reporters must include Scope 3 in their reports, all the suppliers of those enterprise-level businesses will also need to track and report their emissions. Not to regulators, but to the larger businesses they supply.
“You can see the impact of this overseas. Take a look at Tesco in the UK. They’ve mandated that their suppliers must not only provide their emissions data in the near future, but also must have their carbon accounting and reports audited by a certain deadline,” says Lincoln.
“Can you imagine being a supplier to Tesco today? You’d want to keep that contract!”
The ‘hard’ power exerted by Governments will force big business to take action on sustainability, which then flows down to smaller businesses. Meanwhile, the ‘soft’ power of market demands – such as consumers preferring sustainable businesses – only solidifies the imperative to ‘do sustainability’, regardless of the type of business involved.
“It’s a massive signal … this just got serious,” concludes Lincoln.
Summary
- Just a few years ago, sustainability efforts were largely dependent on passionate individuals within companies. This period saw a positive attitude towards sustainability, with a notable percentage of companies recognizing its value. However, the involvement of board-level leadership was limited.
- The COVID-19 pandemic then caused a significant pause in sustainability progress, with businesses experiencing a stagnation rather than regression in their efforts. The pandemic also underscored the potential for sustainability gains through operational changes, such as remote work leading to reduced emissions.
- Currently, the landscape has shifted towards mandatory emissions reporting, driven by government mandates worldwide. This has created a ripple effect, compelling not only large businesses but also their suppliers to focus on sustainability.
The current landscape is significantly different from just a few years ago. With continuing pressure and demands from all corners on sustainability in business, it’s likely that in just a few more years, the landscape will have changed once again.
The key to success for businesses in this arena? Lincoln says:
“The best way for businesses to succeed here - and yes it's self serving - but it’s to measure their emissions, work out where they can best focus their time and attention, because you can be really busy all the time focusing on the wrong thing,” he says.
“The second thing is to realise that not every business is the same shade of green. Don’t compare yourself to other companies in other industries, thinking that you need to do huge projects or get absolutely perfect data from the start. You have to be ambitious, and you have to be accurate, but you also must avoid being intimidated by just getting started.”
“Get the tools, get the talent. There’s more of both than ever in today’s world. And get the right advice – from us, from your community, from industry, or from within your own business.”
