Despite the worldwide economic troubles of the last few years, more corporations than ever are embracing sustainability – and for good reason. A report published in November by global consultancy McKinsey concluded that better resource productivity could yield global savings of up to $2.9 trillion.
You can find out just which companies are leading the pack in Corporate Knights 2012 Global 100 ranking of the world’s most sustainable corporations.
If you look closely, you’ll see that some countries are home to more clean capitalism leaders than others. In this year’s ranking, the countries with the most leaders include the United Kingdom, with 16; Japan, with 12; the U.S. and France, each with eight; and Australia and Canada, tied at six. And Scandinavian firms made up five of the top 10, including the No. 1 most sustainable corporation, Danish healthcare company Novo Nordisk.
Why do some countries do better? One of the most obvious answers is regulation. All of the Top 5 countries require large emitters (at least) to report their carbon emissions. In addition, the European Union has run a mandatory cap-and-trade program since 2005, and has committed to reducing carbon emissions 20 per cent below 1990 levels by 2020. Japan pledged to cut carbon 25 per cent below 1990 levels by 2020, although it’s reconsidering that commitment after the Fukushima nuclear disaster. In August, the Japanese parliament also passed renewable-energy incentives aimed at boosting its solar, wind and geothermal power. And Australia in November passed legislation that fixes a price for carbon emissions and sets up an emissions cap-and-trade program starting in 2015.
But regulation is hardly the whole story. After all, many countries with strict regulations got few companies on the Corporate Knights list. The U.S. has little in the way of mandatory regulation. And, amid economic concerns, governments in the U.S., Europe and Japan have lowered their sights on stronger climate-change regulation in the last few years, said Aron Cramer, chief executive officer of BSR, a corporate responsibility consulting firm based in San Francisco, California.
Instead of cutting back their sustainability efforts in response, Cramer has seen many businesses in these countries step up. “As governments have gotten more timid, companies have gotten more aggressive,” he said.
Companies take the driver’s seat
The trend surprised Nick Main, Deloitte’s global sustainability and climate change leader. When he started his job three years ago, he thought regulation would be the driving force behind corporate sustainability. Since then, he’s seen chief executives take the wheel in places where government policies remain weak. Innovative companies truly see sustainability as a competitive advantage, he said: “It’s a way that they can attract new customers and staff and drive new products, and they want to do this.”
A 2011 survey of 2,874 corporate managers and executives across 113 countries, conducted as part of a study for MIT Sloan Management Review and the Boston Consulting Group, found that two-thirds of respondents considered sustainability critical to remaining competitive in the marketplace. That’s up from 55 per cent in 2010.
Success stories – such as Marks & Spencer, which reaped £70 million from its sustainability program in the 2011 fiscal year – have helped drive home that point. Businesses know they can cut costs – and reduce the risk of supply disruptions – by using their resources more efficiently. Meanwhile, the concept of sustainability has become more popular among consumers, and companies have found that their sustainability policies can significantly help or hurt their brands, said BSR’s Cramer.
“It’s simply not an option any more for companies with a strong consumer-facing brand not to take sustainability seriously, because their customers expect it,” said Cramer. “This is what the public expects, what strengthens a company’s future, what helps a company innovate. Sustainability is no longer something a company does on the side, but is one of the main features of business success, when you look at the many changes to the way business is done around the world.”
If companies really see sustainability as a competitive tool, one might expect to see more of it in more competitive markets. That’s certainly what’s happening in the U.S., where Wal-Mart is requiring its suppliers to help it reduce greenhouse-gas emissions, said Deloitte’s Main.
Culture wars
Social culture plays a big role in determining where corporate sustainability takes hold, according to Peter Asmus, senior analyst with Pike Research. Efficiency has long been part of European culture, for example. “In Europe, I’m always struck by how small everything is,” he said. “They have small cars and small homes. They’re just used to doing more with less and being resource efficient. It’s just part of the culture.”
In some cases, the environment also helps define culture. In Australia, an intense drought shoved sustainability to the top of the public agenda a decade ago, Main said. In Scandinavian countries, the cold and harsh environment has historically encouraged efficiency, as well as a culture that’s more community-oriented than, say, the United States, Asmus said. “In Scandinavia, homeless people left on the street would freeze,” he said. “There tends to be more of a shared common purpose in their societal values.”
Meanwhile, Japan has few natural resources, and that vulnerability prompted it to become efficient, he said. The country was an early leader in the solar industry and the world’s largest solar market until 2004. “Japan is totally devoted to efficiency,” Asmus said. The attitude fits in with broader Asian corporate culture, which often favors a longer-term view of profit maximization, Main adds.
In both Scandinavia and in Japan, a relatively small and homogenous population also helps bring about community and stronger government mandates. “With more homogenous societies, it can be easier to get things done, and you can see more environmental values and more social care,” Asmus said. In contrast, the U.S.’s strength – and challenge – is that it’s so diverse, he said, which can make it more difficult to pass strong government mandates, but also may help it attract some of the best and brightest entrepreneurs in the world.
As Main puts it, “Many of the early adopters and thought leaders in sustainability are based in the U.S., even though you don’t have a big regulatory framework to help back it up there. The fact that [sustainability] is seen as an effective business strategy in a place where you don’t have regulation demonstrates the power of the idea.”
And, even though the thought of U.S. culture still is more apt to conjure excess than efficiency, U.S. corporations contend with a strong activist community at home. The power of protest has helped convince corporations such as Gap and Nike, which previously fell out of favor amid sweatshop allegations, to make sustainability a key piece of their brand identities, Asmus said.
Structured for sustainability
Some countries have more sustainable corporations than others because of company structures, which vary widely around the world. In the U.S. and Europe, for example, the large majority of big companies are publicly traded, making it easier to find sustainable corporations there, Cramer said. Big multinationals have to comply with overseas regulations in the markets where they operate. Because they have a broad range of laws to contend with, it pays for these companies to come up with a single policy that works around the globe, Cramer adds.
In contrast, in countries such as Brazil and India, many big companies are family owned, rather than publicly held, he said, reducing the pool of corporations to select from. (Three Brazilian companies and one Indian company made the Global 100 list.) And China’s biggest companies are government controlled, he said. This could help explain why the country – the second or third largest economy in the world, depending on whose numbers you believe – has not a single publicly traded company on the list.
Of course, China also has less corporate transparency, looser labor laws and higher corporate subsidies than higher-ranking countries on the list, as well as few pollution controls. “There’s a closed corporate culture there – it’s non-transparent – and in terms of how you treat your employees and communities, I would imagine the Chinese companies wouldn’t rate,” Asmus said. But as international pressure mounts, Chinese businesses are growing more sustainable, he said.
Main suggests China could show up in the rankings soon. “My guess is, if you looked at this in three years’ time, you’d find a lot of corporate-sustainability leaders in China,” Main said. Growing the economy and the gross domestic product may have been the main priority in the past, but all that growth has raised environmental concerns, he said, adding that he’s seen a “significant change” in Chinese corporations’ attitude toward sustainability in the last year.
Overall, corporations around the globe are becoming more sustainable, and not just those in the top countries, Cramer said. “It’s possible that some countries’ companies are outperforming others, but the corporate community as a whole is doing more than it was five years ago,” he said. “Performance levels are rising globally.”
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