Wednesday 28 September 2016

Sustainability in business goes beyond the environment

We must build a resilient firm that's in it for the long haul in order to sustain business, writes Mark Kennedy of Mazars

Mark Kennedy

Published 12/04/2015 | 02:30

Mark Kennedy of Mazars
Mark Kennedy of Mazars

The word "sustainable" has been so misused in economic, environmental and business circles, as to have become almost meaningless.

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An awful lot of rhetoric and resource is spent on allegedly sustainable practices which don't add much to the likelihood of any business lasting longer. And yet, if asked, most of us would agree that there is something to be said for an argument that businesses should be sustainable.

If we have learned anything over the past five years, it is that unsustainable models cost. And these costs are often borne not only by investors, but by a wider community - employees, customers, sometimes even society as a whole.

Increasingly, many prefer to focus on the term 'resilient', denoting a model which can both thrive in a normal range of circumstances and survive and recover in stressed scenarios.

As the economy enters a phase of recovery, there are also changes pending which will support businesses that seek a more sustainable model - the move internationally towards conscious capitalism, which asks businesses to focus on the totality of their activities and the impact of those activities.

Sustainability in a business context isn't just about doing things which have a positive impact on the environment. In business, it extends to building a resilient business, with a positive impact on all stakeholders. It's about better decisions, resource efficiency, cost reduction, improving productivity, becoming truly innovative, taking longer-term decisions and protecting reputation.

What does this mean in practice?

Purpose

A business which creates value in the short, medium and long term for all of its stakeholder groups is ultimately more sustainable than one which is focused entirely on short-term financial profit.

Stakeholder groups include not just investors but also customers, employees, suppliers, business partners, society at large. A genuine, sustainable business mission will have value at its core and will seek to enhance value for all groups.

Planning

Planning is the essence of the successful business. More effort expended in designing the steps required to render the business both successful and capable of surviving an economic shock is rewarded. Creating time and space to plan in the short to medium term is the challenge.

Structure

A sustainable business or organisation structure is flexible and adaptable to changing business needs and to a fast-changing external environment.

Historically, organisation structures tended to be rigid - but sustainable business needs greater flexibility in order to respond and adapt to changes.

This capacity of the business to adapt and respond quickly to changes is what determines its long-term viability.

Governance

Those charged with governance are responsible for creating an appropriate oversight structure to support the ability of the organisation to create value.

At board level, long-term resilience can be overlooked due to understandable pressure to focus on short-term profits. What gets more notice at board meetings - quarterly results or longer-term forecasts?

If sustainability is considered and viewed through the lens of risk to business continuity, the focus of those charged with steering the organisation would be sharpened in favour of the sustainability agenda.

Resource use

A key challenge for any business is the management of and allocation of resources.

In the next five years we see particular challenges around the development and protection of people, in nurturing appropriate management skills as being key competitive differentiators - as well as contributors to resilient businesses.

Our research in the SME sector shows the application of relatively rare management skills as the key differentiator between successful, sustainable businesses and others.

Supply chain

Building sustainability and resilience into an organisation's supply chain is a challenge which cannot be underestimated. Multi-layered subcontracting is just one of the supply chain challenges to sustainability.

A comprehensive review and analysis of the supply chain through each of the 'stages' (sourcing, manufacturing, distribution, consumption - and post-consumption recycling/re-use) and across resources like human and financial capital will highlight the weak points.

These weak points will generally fall into two broad types in terms of potential impact-cost/margin erosion and reputational damage.

Reporting

There is a significant reputational aspect to becoming more sustainable. In Ireland, with the exception of those reporting to international audiences, we have yet to take any significant steps in how corporates, the public sector or not-for-profits report outside of the traditional annual report.

Internationally, however, other forms of non-financial reporting have been becoming more mainstream as the constraints of traditional corporate reporting are recognised. These new forms support the goal of developing sustainable businesses.

Sustainability reporting, integrated reporting and CSR reporting, are some of the frameworks which are either still evolving or which have been operational in some jurisdictions for some time now. It is only a matter of time before there is a significant shake up and streamlining of mandatory reporting requirements.

Of course, growth, profit and cashflow all remain essential. However, there is an opportunity now to lay down foundations to ensure long-term success.

Sustainability has been conflated with a type of environmental and CSR concerns. It encompasses these concepts, but goes further. The development of your business for the long term is a key priority, and should drive the agenda of your business in a tangible way.

Mark Kennedy is a partner at Mazars, the accounting and business advisory firm

Sunday Indo Business

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