By Abha Malpani
The business case for adopting sustainability goals into a company’s strategy is still under debate. It faces resistance as organizations find it more aspirational than practical, and struggle to put a dollar value on return on investment.
A report released at the World Economic Forum by the Global Business and Sustainable Development Commission aims to change this mindset by mapping a US$12 trillion economic prize for businesses that develop responsible models as part of their core strategy, using the U.N. Sustainable Development Goals (SDGs) as a framework.
…tapped into opportunities by addressing some of the world’s most pressing challenges…
The report cites over 25 case studies of giants such as Nissan, Unilever, Mahindra, Ericsson and Merck, as well as ‘disruptive innovators’ like Safaricom’s M-Pesa, TransferWise, Peek Vision, and Bla Bla Car — which have successfully tapped into opportunities by addressing some of the world’s most pressing challenges such as climate change, economic inequality, and the gender gap.
Compelling cases are of those working to increase financial inclusion of adults without bank accounts. Financial inclusion, although not an explicitly defined SDG, is an enabler of development and therefore key to achieving SDGs.
According to the World Bank, 2 billion adults are still unbanked — the majority being the poor and women without equal opportunity. Help them be included in the financial system and you have access to a huge market of opportunities, one of which is remittances. In 2015, global remittances totaled US$581.6 billion of which $431.6 billion were to developing countries.
Companies like M-Pesa and Transferwise have profited by enabling peer-to-peer transactions at a much lower cost than banks.
Companies like M-Pesa and Transferwise have profited from this market by enabling remittances via peer-to-peer transactions at a much lower cost than banks. The report cites that in Kenya for example, 43 percent of GDP in 2013 flowed through M-Pesa — supporting over 237 million peer-to-peer transactions, more than any other such system in the world. According to Bloomberg, in 2015-2016 M-Pesa had transactions worth $52.6 billion, equivalent to 85 percent of the total national economic output.
Sustainable business is the cash cow of the future
The report argues that the world’s current economic model is flawed because it fails the Brundtland test. In other words, the economic and social gains over the last 30 years have compromised the ability of future generations to meet their own needs. This is because current growth drivers, such as the use of fossil fuels and rapid urbanization, are no longer sustainable.
The report also proposes an action plan for companies to adopt new business models that will not only be responsible, but will deliver a return on capital.
What goals are the most lucrative?
According to the report, 50 percent of the “prize money” can be found in developing countries in Asia, Africa, Latin America and Eastern Europe. It maps 60 market opportunities worth a total of $12 trillion for companies that develop business models addressing challenges in: food and agriculture ($2.3 trillion); urbanization ($3.7 trillion); energy and materials ($4.3 trillion); and health and wellbeing ($1.8 trillion), in today’s prices.
In addition, the report estimates that achieving SDGs in these sectors by 2030 could create 380 million jobs, mostly in developing nations.
Sustainable development ‘unicorn’ business models
The report identifies a wave of more than 30 new businesses with market valuations over $1 billion that are capitalizing on these opportunities by adopting five new business models: sharing, circular, lean service, big data and social enterprise.
Examples include: Didi Chuxing, a Chinese ride-sharing company, estimates it cut 13.5 million tons of carbon emissions per day in 2015. And GuaHao, a Chinese mobile medical consultation platform that connects patients and doctors via the internet is dramatically improving access to healthcare in China and is now valued at $1.5 billion.
The report also predicts that sustainability will lead disruption over the next 15 years and converge with digital technologies, a route inevitable for businesses looking tap long-term opportunities.
Too good to be true? Not if we think long-term
In today’s volatile world, faster results, short-term gains and easy liquidity drive business decisions. The increasing destructive impact this is having on the environment and social equality is not sustainable, nor is the rising cost of inaction. For example, the cost of environment damage alone could reach up to 18 percent of global economic output by 2050, up from around 3.1 percent (or US$2 trillion) in 2008.
Needless to say, capital investment is required to modify the profit-led business path to include sustainability. The report estimates that cost to achieve the SDGs stands at $2.4 trillion annually, less than one percent of increasing global financial assets that exceed $290 trillion today.
Jump onto the bandwagon or miss out
The report highlights an increasing amount of evidence demonstrating the positive correlation between sustainability and financial performance. Highlighted studies by Oxford University, PwC and Unilever demonstrate that high environmental, social and governance standards reduce cost of capital and increase customer trust — reflecting positively on share prices.
Further testament to the economic and social value of sustainability is that over 9,000 companies have committed to the U.N. Global Compact principles. Their responsible business models allow them to efficiently tap into new opportunities, drive innovation and strengthen their reputation.
All in all, it’s a comprehensive report that serves as an inspiration and invaluable guide to aligning your business goals with goals for a better world. Worth a read.
This article first appeared on Triple Pundit
Abha Malpani is a writer and communications professional who works towards helping businesses grow in Dubai. She is a strong believer in the triple bottom line and keen to make a difference. In her endeavor to start something of her own, she co-founded Start with Something, a website highlighting stories of people and organizations that are changing the world. You can find her on Twitter @abhamalpani.