In the singular pursuit of profit, companies will strive, uncompromisingly, to reduce their cost base. It has been cheap to use raw materials and discard waste. It is less of a burden on capex to emit pollution rather than capture and treat it. If companies are not stakeholders in society then it is easy for companies to avoid responsibility for social decay, and commitment to community schemes costs money. Capitalism has consumed people, raw materials and the environment around it, without being held to account.
2019 is the reckoning day for consumption capitalism.
In 2019, civil society is demanding that companies make sustainable choices. Social media shouts this. Investors act on this. Perhaps, most tellingly, consumers decide what to buy based on this. "This" is ESG – Environmental, Social and Governance criteria – the yardstick for sustainable and responsible business; business that has a purpose, an environmental and social purpose, alongside profit generation.
This is a life threatening moment for many companies and too few see the risks. The speed of change will eclipse many industries before they have realised the imperative to change, with society removing their 'social licence' to operate. They will need to proactively: decarbonise, depollute, circularise their materials and products, ensure sustainable sourcing, become truly energy and water efficient, manage human rights in the supply chain, protect biodiversity and embed themselves in the community respecting workers' rights. If this is the winter of consumption capitalism, many companies will not wake up from their sleep. The thawing snows will reveal an industrial wasteland.
There will, however, be green shoots in the spring, in an economy where the purpose and profits of a company go hand in hand. On this side of the process, how can we spot the survivors? Or, perhaps, more importantly, what can we do to ensure a company prepares itself for winter and is shaped to sprout new revenue streams in the spring?
The starting point should be a review of the business objectives. Can the business become a purpose driven company? If so, what environmental and social purpose will fit the nature of the business?
Once a company has begun to address this question, it can then reset objectives and develop a strategy and tactics to deliver the new objectives. Undoubtedly, the company will include this new purpose in its brand; after all, it is the consumers choosing between brands, based on ESG credentials, who are the target of the strategy. Also, as regulatory regimes catch up with societal sentiment, companies will, in any event, be required to report on these factors.
Unfortunately though, this company is still a long way from green shoots.
Intent is a long way from implementation. Companies that promise sustainable futures and fail to deliver will be the first to have their social licence revoked. Social media will vilify them. Investors will move their money. Consumers will drop them. So, as soon as a company commits, implementation is critical.
Implementation will likely require dedication to culture change and an acceptance of a period of lower profitability as the business is transitioned to (currently) more expensive sustainable practices and processes. Civil society is not to going to wait for the transition to be cost effective because the planet cannot wait. The speed of disruption will mean a different profit horizon for a number of years for transitioning companies.
- Consider products that have become socially unacceptable. Migrating away from these in a production process may require a review and revision of operational permits and procedures.
- Consider energy and water efficient practices that involve processes that pre-date modernisation of permitting regimes. Delivering business change will require close collaboration with the regulators to ensure they agree to desist from enforcement action from sustainable but unlawful activities.
- Consider supply chains that include parties that cannot demonstrate adherence to your ESG standards. Reviewing and re-negotiating existing contracts may be the only way to ensure that you avoid being considered "guilty by association" by consumers.
- Consider your asset valuations. Whether real estate or business units, those that score poorly on an ESG analysis will rapidly depreciate. How can these be packaged for sale before value is lost.
- Consider your design processes. With many countries implementing "enhanced producer responsibility" regimes, are you aware of upcoming regulatory requirements and the costs these will impose on historic practices?
- Consider being innovative around recovering discarded items that contained or packaged your products. Do you understand the waste law obligations of transporting and re-using discarded items?
Companies building these considerations into their business strategy today are adding to the cost line in the short term. But, these are the ones that are preparing. These are the ones investing in the future. When you apply an ESG rating criteria to these companies, they will score well. These are the green shoots.
For the others, their social licence to operate is vulnerable. They risk being part of consumption capitalism: history.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.