For a while now, there have been studies looking at the impact of so-called ‘megaforces’. These include issues like climate change, population growth, water scarcity, deforestation and other huge long term shifts which challenge governments and businesses’ ability to prosper and thrive under changed conditions.
There has not been so much attention on how companies are responding to these forces. But for every challenge there is an opportunity – those companies which can show they are properly ‘internalising’ these issues and reflecting them in their strategies and risk scenarios are increasingly gaining competitive and reputational advantage.
A new study we have prepared in conjunction with the Global Reporting Initiative (GRI) and CPA Australia, From Tactical to Strategic: how Australian businesses create value from sustainability investigates how companies are recognising and responding to the ten global megaforces that are set to impact their businesses across the next 20 years.
The investigation reveals that while companies typically acknowledged that eight out of ten megaforces were material to them, their responses largely focused on compliance and efficiency oriented actions, rather than strategic activities. It also shows that almost half of all ASX50 companies failed to articulate the value that was being driven by active consideration of these global issues. Still less were businesses seriously addressing the effect on their business models.
This betrays a lack of understanding of what true sustainability is all about. It validates the hunch we had that actually mapping out what needs to change around the business model in the longer term is far harder than making micro tweaks. Few companies are thinking big, about tipping points and other step changes in the business environment that would make the current incremental responses inadequate.
But what about the investors? Despite companies typically articulating that they produce reports for the investor community, our experience is that that they fail consistently to identify the relationship between addressing sustainability and securing investment. Yet investors, through the ASX guiding principles and ASIC regulations, are increasingly calling upon businesses to be transparent and accountable on their sustainability risks and prospects.
Other stakeholders are even more vocal – NGOs are highlighting the impacts that companies are creating worldwide (as we see with the current tax avoidance debate), while governments respond with increased legislation.
Earlier this year, KPMG released a report which showed how the traditional disconnect between corporate value and societal value was slowly being dissolved – environmental and community impacts flowing from corporate activities will increasingly be priced in by investors.
Therefore, companies that understand these changing dynamics and who respond to megaforces strategically will prosper. Their success will come about because they are better able to communicate how they create and protect value for their stakeholders in the short, medium and long term.
Feature image:© malopes / 123RF Stock Photo