The Sustainability Transformation: Look Ahead, Look Inside, and Look Around SARAH KERRIGAN and DULEESHA KULASOORIYA
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COMPLIMENTARY ARTICLE REPRINT ISSUE 27, JULY 2020 The sustainability transformation: Look ahead, look inside, and look around SARAH KERRIGAN AND DULEESHA KULASOORIYA ILLUSTRATION BY LIVIA CIVES Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see http://www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see http://www.deloitte.com/ us/about for a detailed description of the legal structure of the US member firms of Deloitte Touche Tohmatsu Limited and their respective subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. For information on the Deloitte US Firms’ privacy practices, see the US Privacy Notice on Deloitte.com. Copyright © 2020. Deloitte Development LLC. All rights reserved. 126 RESPONSIBLE BUSINESS The sustainability transformation 127 RESPONSIBLE BUSINESS The sustainability transformation LOOK AHEAD, LOOK INSIDE, AND LOOK AROUND SARAH KERRIGAN AND DULEESHA KULASOORIYA ART BY LIVIA CIVES www.deloitte.com/deloitte-review 128 RESPONSIBLE BUSINESS limate change is a crisis of unprecedented magnitude that threatens to Cmultiply a broad range of sustainability risks. Organizations are under increasing pressure to respond. Many will need to sustainably transform their business models to find new opportunities and avenues for growth for their future business. In examining organizations that have started down “just” a sustainability plan. It was a business plan this path, we have identified three basic actions to grow Unilever’s sustainable brands, drive that have enabled them to turn sustainability from innovation, and attract and retain talent.1 During a risk into an opportunity. First, they look ahead to Polman’s 10-year tenure (2009–2019), the understand how they can capture new growth company delivered consistent top- and bottom-line opportunities from sustainability. Second, they growth. His commitment to sustainably transform look inside, within their business, to find ways to Unilever created excellent returns for its share- reconfigure their operations to help accelerate the holders, delivering a total shareholder return of transformation toward greater sustainability. 290 percent.2 Finally, they look around for opportunities to leverage their business ecosystem to help create Polman has long held the conviction that competitive advantage in a sustainability-focused expectations are changing, insisting that business world. In this article, we explore what each of these leaders need to take a more active role in tackling actions entails, drawing lessons from some the sustainability agenda to protect their future companies focused on sustainability. business.3 That sustainability agenda, as articu- lated by the 17 United Nations (UN) Sustainable Development Goals (SDGs), recognizes that Reaching the point businesses are an essential partner for addressing of no return the SDGs, from contributing finances to providing products and services that address sustainability The experience of Unilever over the last decade (figure 1).4 demonstrates that, despite financial headwinds, undertaking a sustainability transformation can The 17 UN SDGs are interdependent and create meaningful business value. interconnected. The climate crisis threatens to disrupt water supplies, food production, and When Paul Polman took the reins as Unilever CEO energy security, harming the livelihoods and during the global financial crisis, the firm was incomes of many.5 In late 2019, UN Secretary- undergoing one of the most tumultuous periods of General António Guterres warned that a “point of its 150-year history. In his first year, Polman no return” for climate change is “in sight and created the Unilever Sustainable Living Plan, a hurtling towards us.”6 decade-long scheme to double the company’s revenue while simultaneously reducing its Yet crises can also be profound catalysts for change, environmental footprint and increasing its social creating opportunities to gain new perspectives. impact. But the Sustainable Living Plan wasn’t Businesses that see climate change—and The sustainability transformation 129 The UNs SDGs are interdependent, with business playing a critical role in realiing them Business Economy Society Environment orce dted rom tocolm eiliece etre otritio to ed cceed ril . Deloitte Insights deloitte.com/insights sustainability—not only as a threat but as an New business pressures toward sustainability opportunity might be best placed to unlock new make this imperative critical. The combined innovations and ignite unexpected collaborations. actions of a range of parties—including Businesses may need to transform themselves to communities, consumers, employees, regulators, thrive in an era where tackling sustainability is corporations, and, recently, financial institutions— becoming an imperative. suggest that the momentum toward sustainability is reaching a tipping point (figure 2). www.deloitte.com/deloitte-review 130 RESPONSIBLE BUSINESS The momentum behind sustainability is accelerating Customers Corporations and civil society and employees The global financial crisis from 2008–2010 2013 Collapse of the Rana Plaza apparel factory in 2017 More than 100 companies with a combined resulted in calls for increased transparency Dhaka, Bangladesh kills 1,132 workers and market cap of more than US$3.5 trillion and and responsibility in financial and investment awakes the world to poor labor conditions in financial institutions responsible for assets of 2008–2010 decisions by regulators. the global apparel supply chain. more than US$25 trillion publicly commit support for the Task Force on Climate-Related 2014 Exposé of debt bondage, trafficking, and abuse Financial Disclosures (TCFD). of migrant workers in the Thai fishing industry 20 implicates global supermarket retailers in 2018 Patagonia CEO Yves Chouinard announces in modern slavery. November 2018 that he would channel US$10 million the company received through 2015 World leaders adopt the 2030 Agenda for corporate tax cuts to protecting air, land, and Sustainable Development calling for urgent water and finding solutions to the climate crisis. 200 205 collective action to address the United Nations' 17 SDGs. 2019 The Business Roundtable updates its decades-old definition of the purpose of a 2018 Greta Thunberg stages a protest in August 2018 corporation; nearly 200 CEOs agree to eliminate outside the Swedish Riksdag (parliament), its bedrock principle that shareholder interests holding a sign that read "Skolstrejk för klimatet" must be placed above all else. ("School strike for climate”), sparking a global Amazon CEO Jeff Bezos commits US$10 billion movement in youth climate activism. 2020 to address climate change through the establishment of the Bezos Earth Fund. Governments and supranationals 2020 Corporate leaders of major international brands take a stand on racial injustice by speaking out in 20 New legislation, including the UK Modern support of Black Lives Matter, a political and social Financial institutions 2015– 2020 Slavery Act (2015), French Duty of Vigilance Law movement that campaigns against violence and systemic racism toward Black people. Corporations and employees (2017), Australian Modern Slavery Law (2019), and Dutch Child Labor Due Diligence Law Governments and supranationals (2020), call on companies to tackle social and Financial environmental harms in their extended supply institutions Customers and civil society chains. World’s largest pension funds and insurance Countries adopt the Paris Agreement at the 2019 2015 companies representing US$2.4 trillion in AUM COP21 in Paris, committing to limit global commit to transition their portfolios to become temperature rise to below 2 degrees Celsius carbon-neutral by 2050. and striving for 1.5 degrees Celsius. 2020 20 Goldman Sachs pledges US$750 billion across Launch of Network of Central Banks and 2019 2017 investing, financing, and advisory activities by Supervisors for Greening the Financial System 2030 to accelerate the climate transition and (NGFS), with the aim of mobilizing mainstream advance inclusive growth. finance to support the sustainability transition. Principles for Responsible Investment (PRI), 20 The European Banking Authority (EBA) launches 2020 2019 an international network of responsible The COVID-19 pandemic affects its Sustainable Finance Action Plan, which sets investors, hits 500th asset owner signatory millions of people worldwide, out its approach to integrate environmental, milestone. PRI signatories, now representing impacting lives and livelihoods and social, and governance (ESG) considerations over US$90 trillion in AUM, commit to 2020 disrupting the global economy. into its risk management policies. mainstream sustainable finance. 2020 BlackRock CEO Larry Fink publishes letter to CEOs signaling the fundamental reshaping of finance. orce rio lic orce. Deloitte Insights deloitte.com/insights The sustainability transformation 131 The momentum behind sustainability is accelerating Customers Corporations and civil society and employees The global financial crisis from 2008–2010 2013 Collapse of the Rana Plaza apparel factory in 2017 More than 100 companies with a combined resulted in calls for increased transparency Dhaka, Bangladesh kills 1,132 workers and market