As it turns out, it’s a lot harder for corporates to survive these days. One in every three companies won’t survive the next five years and corporate survival rates are falling: Companies that listed before 1970 had a 92% chance of surviving the following five years; after 2000 this fell to 63%.
The short explanation is that companies today are more likely to be disrupted. Natural, technological, social and economic systems are changing in ways that are making operating environments more complex and many businesses simply aren’t keeping up. Looking forward, the issues affecting companies are becoming exponentially more complex and systemic. Resource scarcities; geopolitical instability; increasingly connected and disgruntled global citizens; big data and transparency; radical innovations; exponential technologies… the list can go on.
In this context, corporate longevity belongs to those companies who are finding new ways of using natural, technological, and social resources to turn scarcities into abundance and risks into opportunities – with a growing focus on aligning outcomes to the Sustainable Development Goals.
Global capital is increasingly being directed to business models and technologies that are following this approach: Sustainable, responsible, and impact investments surged to $8.72 trillion at the start of 2016; China is investing $360 into renewable energy by 2020; and financial markets rewarding companies who voluntarily disclose their GHG emissions with lower interest rates. These trends will only intensify: millennials – the fastest growing group of investors – are twice as likely to invest in a stock if sustainability is a fundamental part of its business model.
In other words, we have entered a time where integrating sustainability considerations into business models has become a matter of corporate survival. But this doesn’t happen overnight. Here are our top 3 recommendations for becoming a resilient organisation.
1. Get visibility into your non-financial data
Financial data is the tip of the iceberg when evaluating risk and opportunity. More and more investors are integrating Environmental, Social, and Governance (ESG) factors into company valuations – precisely because this data gives invaluable insights into a company’s ability to continue creating value in the short, medium, and long term. What is the risk from a flood or drought disrupting the production of a critical supplier or causing sudden volatility in the cost or availability of a critical resource? How many units of energy, water, carbon, or waste are associated with one unit of production, and what would happen when the price or availability of these resources change? Are your competitors investing in solutions that that turn worlds vast (and free) waste resources into valuable product, and how might this affect your competitiveness or brand – or theirs?
Surprisingly few companies have accurate and reliable data on their material ESG issues. All too often we see frenzied sustainability managers rush to collate data from multiple sources before reporting deadlines – often with delays and inaccuracies.
As the pressure for data transparency increases and technology and sustainability merge at the core of corporate strategy, leading companies are investing in processes or IT solutions that allow them to collate data on an ongoing basis and to generate reports and dashboards on demand. Not only does investment in non-financial data systems make data collection more efficient, it also allows companies to use this data as a new source of business intelligence and decision making.
2. Decide which issues will materially affect your business
Not all economic, environmental, and social issues are equally important for all companies and industries. For those that haven’t already, 2017 should see companies formally assess which issues – from climate change to resource availability to health and safety of employees – which of these most affect the ability to create value?
Again, surprisingly few companies do this exercise thoroughly despite the critical importance of understanding material social and environmental risks and opportunities: how a company choses to respond to these will significantly affect profitability, the likelihood of being disrupted, and capacity for innovation.
Armed with the broader market intelligence of environmental, social, or economic risks and opportunities, companies are then able to fully integrate these into their strategic direction and decision making. This is wholly different from paying a consultant to develop a sustainability strategy that ends up in a drawer collecting dust (what we affectionately call the strategy graveyard).
A good strategy is one which:
- Sets meaningful targets that maximise opportunity and minimise risk
- Is supported by an actionable roadmap with short, medium, and long term milestones
- Is supported by clear KPIs for people and departments that are responsible for implementation
- Continually measures progress against milestones and targets
- Is agile enough to adapt to changing circumstances
- Cleary communicates this progress to investors and stakeholders
Companies that invest in these three things will be armed with visibility into their risks and opportunities, an understanding of what issues affect them, and the structures in place to respond to these. They will be more resilient; less likely to be disrupted
The drive for corporate longevity: our basis for optimism
That’s why we’re optimistic about 2017: the drive for corporate longevity will also see companies become more ethical, transparent and sustainable. Through a focus on innovation, resource efficiency, and good governance as a means of survival, resilient companies will create more value – not only for their shareholders but for all stakeholders and for future generations.