A post by Maximilian Bruder, PhD fellow at UNU-MERIT
The private sector therefore has a crucial role to play in attaining the SDGs, by providing a way of doing business that is not only focused on profit maximization but creates shared value for other stakeholders as well. Furthermore, the private sector can provide funding and expertise in addition to that which is provided by governments and civil society.
In today’s rapidly changing world, businesses need to become more sustainable. This entails:
🟢 Going for triple-bottom line outcomes (people, planet, profit)
🟢 Long-term orientation
🟢 Innovation: products, services and business models that can disrupt the status quo.
While there are examples of businesses striving for sustainability, on the whole, current efforts to promote sustainable business practices – both voluntary and mandated – are falling short. Many businesses still prioritize short-term profits over long-term sustainability. This is because pursuing sustainable practices is often considered to be a cost driver only, which needs to be balanced against any company’s aim of profitability.
However, these two elements need not be trade-offs but can have synergetic effects if implemented well. For this, sustainability needs to be integrated into companies’ core business models, e.g. for manufacturing businesses, this can be done by using sustainable materials, maximizing renewable energy use and circular production processes and value chains.
This can have direct positive financial impacts, by reducing the cost of materials and energy, and improving efficiency. Such practices can furthermore create a strong brand identity and reputation, which can inspire customer loyalty.
Unfortunately, many businesses lack the knowledge, resources and incentives to integrate sustainability into their operations.
Key steps needed to create sustainable business models:
💡 Take a long-term perspective
- Sustainable practices often require an initial investment, which can be challenging for companies that are focused on short-term profitability.
- Can be overcome by considering the long-term benefits of sustainable practices, such as cost savings from energy efficiency, increased customer loyalty, and reduced environmental and social risks.
💡 Stakeholder engagement
- It can be challenging for businesses to effectively engage multiple stakeholders and align their interests.
- This can be overcome by developing clear communication strategies, engaging stakeholders early and often, and creating opportunities for collaboration and dialogue.
💡 Measurement and reporting
- Companies should develop metrics and indicators that are aligned with their sustainability goals and priorities. These metrics should be specific, measurable and time-bound, and should be regularly tracked and reported.
- While measurement and reporting frameworks exist (e.g. ESG – environmental, social and corporate governance), these often only provide a superficial picture of companies’ sustainability activities. Greenwashing has become a prominent issue, which uses weak metrics to veil unsustainable practices; actual impact needs to be measured.
💡 Consider supply chain complexities
Modern supply chains are complex and global. Often it is difficult to monitor all suppliers’ activities. This can result in businesses falsely claiming sustainability, even if their suppliers follow unsustainable practices. It is imperative to consider activities all throughout the value chain and companies should work to ensure that their suppliers also adhere to sustainable business practices.
💡 Partner up
- Leverage complementarities by partnering with other companies, organizations and governments to address sustainability challenges.
- Form ecosystems, i.e. the interconnected network of stakeholders and resources that are involved in sustainability efforts, which can be used to share knowledge, pool resources, take collective action etc.
- Partnering with NGOs or other local actors in novel contexts can create legitimacy for business endeavours.
⚠️ These steps need to be pursued not sequentially, but simultaneously, as they are complementary.
The situation in developing countries
Challenges for businesses to overcome on their path to sustainability are even more severe in developing countries, especially in poverty contexts (the “base of the pyramid”). A narrative has formed over the last decades that the private sector can aid economic development by providing beneficial goods and services that people previously had no access to. However, there, customers do not have the financial capability to choose to pay a premium for more sustainable solutions. The solutions must be in line with their purchasing power and be sustainable. For companies aiming to enter such markets, this usually requires an even more radical overhaul of existing ways of doing business and significant capacity to innovate products, services, and business models.
The role of policymakers
Government policies and regulations can encourage the adoption of sustainable business practices by providing restrictions on the one hand and incentives and support on the other. Furthermore, public policy should create a level playing field – thus promoting innovation – and send signals to the market about the importance of sustainability.
The role of civil society
Civil society can also play a crucial role in promoting sustainability in the private sector, through advocacy, engagement and monitoring. Civil society (including potential customers) can vote with their wallets, no longer purchasing products and services that are not proving sustainable.
The role of academia
Academia can play an important role in promoting sustainability in the private sector, through research (thereby also informing policy), education (shaping entrepreneurs and business leaders of the future), innovation (R&D, new products, services, business models, which strategies can work in which contexts etc.), and engagement.
UNU-MERIT has multiple researchers working on topics related to sustainable business – for example:
- Innovation and entrepreneurship; private sector strategies for sustainable development in the Global South through inclusive innovation (Prof. Shyama Ramani and myself)
- Societal innovation and multiple value creation (Prof. Rene Kemp, Dr Serdar Turkeli)
- Social enterprises and public policy (Dr Serdar Turkeli)
- Circular economy and sustainability transition management (Maria Tomai)
The opinions expressed here do not necessarily reflect the views of UNU.