“Sustainable Business! What do you mean by that?”
When I talk to people about “Sustainable” Business I come up against a common problem. People are not entirely sure what I mean.
The question below illustrates the problem:
I’m confused! You talk about “Sustainable Business” as if it’s a term I should understand. When I look at a dictionary definition of “Sustainability” I get two possible meanings;
- the ability to be maintained at a certain rate or level;
- avoidance of the depletion of natural resources.
Which one is it?
Well, as far as I’m concerned, the two go hand-in-hand. Let’s take a moment to explore each of these meanings and how they apply to business.
Meaning 1: “the ability to be maintained at a certain rate or level”
When business leaders say, “I need my business to be sustainable!” they generally mean that they want the current rate of sales, profit or growth to continue. They want to know that the business performance is protected for the future and that the current (presumably successful) business model will continue to be successful for them. This is a fundamental need of all business leaders, if business performance is not sustainable then, sooner or later, the business will fail.
This is a visceral problem, particularly for small and medium sized businesses where the person running the business may also be the owner, who is relying on the business to be their pension or who needs to pass it on in good health to the next generation.
The problem is that the world is constantly changing, at an ever-increasing rate. What was a perfectly viable business model 10 years ago can be rendered obsolete in a flash by the introduction of a new technology or new competitor. How can business leaders gain reassurance that their business performance will continue successfully into the future?
Meaning 2: “avoidance of the depletion of natural resources”
When environmentalists say, “Your business needs to be sustainable!” they generally have this meaning in mind. Why is this? Well, we have to look at the way our economy has been built. Since the start of the industrial revolution businesses have been incredibly successful at generating wealth and improving the standard of living of huge numbers of people. They have predominantly done this by taking resources from the earth, making them into something useful and selling them to consumers who then dispose of them when they are no longer useful or desirable.
For over 200 years this has been extremely successful, as the earth has a vast store of natural resources. However, in recent years it has become increasingly clear that this vast store is not actually limitless. Resources of many kinds have started to become scarcer. What’s my evidence for this? I’ll deal with that in more detail in a future article, but the best evidence comes from the commodity markets. Since the start of the 21st century the price of all kinds of commodities, from fuel to food to metals, have risen substantially (around 150% on average). Perhaps more importantly, they have become more volatile with wild fluctuations of as much as 350% or more. This is because natural resources of all kinds are becoming more difficult and costlier to extract whilst demand is ever-increasing. The pattern is consistent across all the major commodities and is indicative of an alarming truth, we are living in an age of increasing resource scarcity.
For environmentalists, and increasingly for a growing environmentally aware public, this truth alone is enough to demand action. As inhabitants of our planet we may understand this, but as business leaders we have the success of our business to worry about. So why should our businesses respond to this meaning of “sustainable”?
How do the two meanings of sustainability come together for business?
There is a very simple illustration that brings this together:
On the one hand we have the world’s natural resources (the blue line), which are finite and limited. This doesn’t change. Once a resource has been used up, we do not magically receive more.
On the other hand (the orange line) we have the population of the world (i.e. Consumers) growing at an exponential rate. This is multiplied by the rate of economic development since greater consumption goes hand-in-hand with greater wealth.
It’s straightforward to see that once the rate of consumption exceeds the available amount of a resource then businesses that use that resource are in trouble. Once this happens, the current economic model of Take-Make-Dispose just won’t work anymore.
Now, the impact of an age of increasing resource scarcity on business becomes immediately apparent…
- If we want our businesses to be sustainable (continue to perform and grow)...
- then we need to make our businesses sustainable (stop depleting the world’s resources).
This is no longer just a question of business ethics, it’s about business survival! To gain the reassurance for the future that they are looking for, business leaders need to continuously strive to make more effective use of the limited resources available.
So, when I talk about “Sustainable” Business I absolutely have both meanings of the word in mind. We are rapidly approaching the stage when, for businesses, one depends on the other.