The following remarks were made by HRH The Prince of Wales at an event on 28th May 2015 hosted by London Business School. The meeting was convened by The Prince’s Accounting for Sustainability Project (A4S) and The University of Cambridge Institute for Sustainability Leadership (CISL) to bring together senior editors and academics from the finance and accounting faculties of business schools around the world to explore steps to increase the integration of sustainability issues into finance and accounting teaching and research.
"… I understand that 50 years ago, London Business School was established based on the notion that management needed to be professionalized, in the same way as law and accountancy, in order to improve Britain’s economic performance. With over 150,000 students passing through its doors since then, it is clear that the London Business School and other business schools have played an important role in shaping global economic success.
Anniversaries are a time not just to look back, but also, perhaps to look ahead and consider what the future may bring. It is therefore perhaps fitting that we are here in L.B.S.'s 50th anniversary year as we look ahead towards what the next 50 years will bring, and the kind of knowledge, understanding and skills that leaders are likely to need in order to anticipate and respond effectively to the challenges ahead.
In 50 years' time, our children and grandchildren will be facing a radically different world. The warning signs are already here for all to see. Whilst we live in a time of great wealth and opportunity for many, it is also a time dogged by increasing turbulence and a rather terrifying combination of risks – persistent poverty and a population of seven billion that is still rising unsustainably fast; the depletion and over-consumption of finite natural resources; and the very real and accumulating risk of catastrophic climate change.
The recent 2014 report from the Intergovernmental Panel on Climate Change makes clear that the 'severe' – as they put it – 'pervasive and irreversible consequences' of climate change, if left unchecked, could be beyond our capacity to rectify. Those consequences include more of what we are already seeing in the form of extreme weather events that damage our infrastructure and disruptive weather patterns that undermine our ability to feed a growing population.
Now, Ladies and Gentlemen, I know only too well that there are siren voices on all sides telling us that this is all total rubbish, dreamt up by half-baked environmentalists bent on destroying capitalism as we know it, but it must surely be the case that, in the future, successful organizations will actually be those which, according to best risk-management practice, have redefined their business models to try and adapt to this very different world. It seems clear to me that those who find ways to use natural resources in a sustainable, and "circular" way, with nothing going to waste, will find themselves uncovering new sources of innovation, reducing their risks and increasing their competitive advantage. Even more, success will be defined by those who have shown real leadership in helping us to change trajectory and avoid the worst outcomes that, at present, seem so likely.
And funnily enough, thinking about the circular economy I was looking at just one or two examples from companies that have started to move in this direction. One of which is Royal Dutch State Mines, and I met the C.E.O. a few of years ago called Feike Sijbesma, a remarkable man, who I think Polly introduced me to. And it is an intriguing example that he was courageous and robust enough to move his company out of a profitable fossil fuel based petrochemical business into biotechnology and life science and animal nutrition products.
But to do all this, the company had to escape from the conventional straitjacket of short-termism and close the door on those investors who refused at the time, to take the long term view. And now, at the end of the day, Royal D.S.M. is delivering some of the highest yields the company has ever seen to those investors prepared to look towards the long term.
And one other brief example is Philips. For instance it is very interesting what they are doing now with their lighting systems, you know probably better than I.
Philips says they can reach more customers if they retain ownership of the lighting equipment as customers don’t have to pay high upfront costs and Philips ensures the sound environmental management of end-of-life lighting equipment. So, basically it is a new way for customers to achieve their sustainability goals: high lighting performance, high energy efficiency, and a low materials footprint.
Over the three years leading up to 2012, Philips’ growth in products with a strong sustainability focus was 8.7 times faster than the average growth of the company. Just two examples, always a good thing to give examples I think.
But, Ladies and Gentlemen, after the financial crash in 2008 there were many to be heard saying it was increasingly clear that business as usual was simply not an option. However, old habits tend to die very hard and now we need to innovate like never before, and to accelerate the pace of learning and change if we are to have a chance of a future we might want. But today's financial system does not actively reward long-term thinking, as we have been hearing, nor does it recognize the dependency of our economic success on the health and stability of our communities and of the natural environment, all too often regarded as an irrelevant distraction.
Now, I suspect it is only too obvious that I am not any sort of financial or business expert, but it occurred to me some 15 years ago that many of the traditional tools and techniques for finance and accounting – particularly for sustainability – that word which is much used – were no longer fit for purpose. This leads to sub-optimal decision-making by companies, governments and investors.
That is why, after an initial conversation with the then Comptroller and Auditor-General of the National Audit Office, I set up my Accounting for Sustainability Project over ten years ago, with its C.F.O. and Accounting Bodies Leadership Networks, and why, Ladies and Gentlemen, through the Cambridge Institute for Sustainability Leadership, I launched ClimateWise for the insurance sector, the Banking Environment Initiative and the Investment Leaders Group – all designed to work with the research, finance and accounting community to support a fundamental shift towards business models that drive a sustainable economy.
I know that for many finance professionals, “sustainability” is a term that immediately suggests the kinds of measures that frustrate robust decision-making and the maximization of profits. Far too often sustainability is seen as a “nice-to-have”, with no requirement for a seat at the boardroom table. This really is I would have thought, a very short-sighted and outdated view! More and more leading businesses are recognizing that addressing environmental and social issues systematically is not only necessary, but delivers improved commercial returns. The bottom line is that sustainable business equals good business. Many of the companies that my initiatives work with – for instance, organizations such as Unilever, Adidas, Royal D.S.M. and the Crown Estate – are proving this everyday with projects that deliver strong commercial and sustainability returns, and with innovative tools and techniques used for decision-making, from capital expenditure appraisals to managing risk. And investors who are integrating environmental, social and governance issues into their decision-making are starting to see similar results.
Indeed, a literature review commissioned by Cambridge's Investment Leaders Group found a number of studies that deliver robust, causal evidence in favour of the case for responsible investment. It found that environmental and social factors appear to add value not just through lower firm-level risk, but also through lower cost of capital.
For what it is worth, I have long been convinced that business schools have a fundamentally important role to play in all of this, both through their research and their teaching, which is why I am so glad you are all here today. You, Ladies and Gentlemen are ideally placed to challenge established precepts and provide new thinking that will help organizations to improve their management of, and accounting for, social and environmental issues. But, above all, no-one is better placed to translate that thinking into the education you offer to the next generation of business leaders, equipping them with the understanding and skills they need for this uncertain future.
This is why, back in 2002, we arranged a gathering for Deans from leading business schools, together with some of the leading companies of the day, to explore just how much help the companies felt they were getting, and how well M.B.A. programmes were addressing some of these complex sustainability issues. Well, I’m afraid we didn’t get very far, as Polly Courtice will confirm! Frankly, it was all a bit embarrassing. The business schools said they were doing an excellent job, all things considered, but the companies disagreed. So we reached something of a stalemate at the end of the day! Fortunately, even then, there were some notable exceptions to the rule in the business school community, and my own Business & Sustainability Programme, which I established at Cambridge 21 years ago, has been on hand to give nearly 4,000 business leaders an intensive guide on how to find a convergence between profitability and sustainability.
It is your bad luck, Ladies and Gentlemen, that Jessica Fries and Polly have encouraged me to try again! So I was relieved to hear from you this afternoon that there has been at least some progress since then, often in the face of some quite formidable challenges! It is clear that new and important research is emerging from many quarters, including that relating directly to finance and accounting. And it is good to hear that the M.B.A. programme has developed considerably to meet the widening demands and requirements of future business leaders. A growing number of business schools are offering specialist modules on sustainability issues, although I gather these are more often than not offered as optional electives or are included as part of ethics teaching. Elsewhere there has been progress too. The work that A4S has conducted with the professional accounting bodies to integrate sustainability into the accounting syllabus, and the work that the C.F.A. Institute has started to do in relation to financial analysis, shows that real progress is possible.
But, Ladies and Gentlemen, is all this enough? And why on Earth is it taking so long to get the message through? As business schools, are you truly tapping into the brilliant intellects at your disposal, and developing the innovation, creativity and breadth of understanding that your M.B.A. students will need in order to be to be effective leaders in an already dangerous and uncertain world? Is the notion of environmental limits and the enhancement of community capital a recurring theme in your finance and accounting, marketing, corporate strategy and manufacturing modules? How often for instance do key words such as population, poverty, climate change, ecosystems and biodiversity, human rights, Africa, mega-cities, and the empowerment of women appear in your lectures or academic publications? Are your young, untenured academics promoted and rewarded for doing work that relates to sustainability, ethics or society? In short, are your business schools really in touch with the issues that will increasingly have an impact on the future viability of businesses, or should wise and forward-thinking companies be looking elsewhere to develop their executives for the future?
Ladies and Gentlemen, your business schools are rooted in both academia and industry and I believe you have a very special role to play. Society needs to be able to look to you with confidence for some of the best thinking and the most enlightened education, to secure the future for our children and our children’s children. So, if I may just add this in at the end, my challenge to all of you is to build on what you are doing already and find ever better ways to integrate sustainability into every aspect of your research and teaching. Of course I understand the attraction of tried and tested methods, but improving on ‘business as usual’ with conventional case studies and metrics is absolutely not going to be sufficient! So I hope you will have the courage to step out of the comfort zone of the current paradigm and ask the really difficult questions about what it will take to succeed in business in the next 50 years.
Why not think about how you might lead the way? Could you for instance, move ahead of the pack with courage and vision, radically transforming your curriculum and conducting new and interesting research in this field, despite all the countervailing pressures that reinforce business as usual? Just think for a minute, you could even work with some of my organizations like A4S, C.I.S.L. and my International Sustainability Unit in order to help you with this transformation!
And finally, to all current business school students – and to those who are deciding where to study – ask yourself, is your chosen business school really at the end of the day, going to equip you to be the kind of leader that is so badly needed for the next 50 years? Because nothing less, will do."
