“Everyone thinks of changing the world, but no one thinks of changing himself,” mused Russian author Leo Tolstoy in 1900. Bar the possible addition of “or herself”, the adage stands the test of time.

Change is again in the air. The world faces multiple pending crises, from an irreversible climate catastrophe and a biodiversity implosion through to growing inequality and a pandemic-crippled economy.

Future resilience

As the principal engine of private enterprise and employment, business finds itself locked into the global debate about how to put the world back onto a more even keel. Enter the term “sustainability”. First popularised in development circles in the 1980s, it has been widely adopted by the private sector over the last decade in response to demand for action.

The promise of sustainable business is twofold. First, is risk mitigation. By reducing their impact on society and the environment, companies can hedge against the negative operational and regulatory costs attached to pending crises.

Burying your head in the sand is no longer an option, warns Peter Bakker, chief executive of the prominent corporate membership group, the World Business Council for Sustainable Development (WBCSD).

In a major new report by the council, Vision 2050: Time to Transform, focusing on the need to reform capitalism, Bakker warns that even a single threat like climate change or the loss of nature could wipe out companies’ future “licence to operate”. He adds: “And if there is one thing that we have all learnt from the COVID pandemic, it is how interconnected these challenges are.”

The wake-up call that COVID-19 has delivered to business is echoed in recent research. In a survey by software firm Dassault Systèmes, two in three (65 per cent) Dutch and UK business leaders in the life sciences and energy sectors see the pandemic as an opportunity to “reshape” their companies on more sustainable grounds.

Long-term success

Sustainability’s second promise centres on opportunity. Get your environmental, social and governance, or ESG, systems straight and you’ll gain an edge on competitors. On paper, it looks convincing. Smart people want to work for ethically managed, purpose-driven companies, just as consumers want to buy from them and investors want to invest in them.

Economists are a little more sanguine. The most comprehensive recent analysis comes from the NYU Stern Center for Sustainable Business report ESG and financial performance: Uncovering the relationship by aggregating evidence from 1,000-plus studies published between 2015 and 2020. The report assessed 246 academic papers on ESG’s link to financial performance. More than half (57 per cent) showed a positive correlation, the meta-analysis finds.

Note, such studies only look at immediate financial returns. Sustainability’s biggest wins, advocates insist, accrue in the long term.

Hence, Larry Fink, chief executive of BlackRock, the largest asset management firm in the world, talks of climate change not only as a threat, but as a “historic investment opportunity”, in a letter to investors. Why? Because a combination of regulation, technology and consumer demand is pushing the economy to decarbonise. Companies at the forefront of eco-innovations today, Fink’s logic runs, will be the firms out in front tomorrow.

As with any major change process, a cabal of naysayers and laggards still exist. With titans of economic orthodoxy, like the US organisation Business Roundtable, now explicitly endorsing stakeholder, rather than shareholder, capitalism, such stragglers are a shrinking minority.

Strategy design

Instead, for most business leaders, the key question is not why to adopt a long-term sustainable business strategy but how.

Lindsay Hooper, executive director at the Cambridge Institute for Sustainability Leadership, has two main pieces of advice: one, be crystal clear on your company’s purpose; two, set firm objectives that are both ambitious and verifiable.

Don’t think you can improvise on the hop, she adds: “Making only reactive decisions or chasing trends are unlikely to result in a robust strategy that can optimise performance and impact in the long term.”

Treating sustainability as an optional add-on won’t cut it either. Reducing the subject to emissions, charity or any other single business issue, however important, is a recipe for failure, says Trevor Hutchings, director of strategy at UK professional services firm Gemserv.

As with any major change process, a cabal of naysayers and laggards still exist

With sustainability, it’s all or nothing, he argues: “Sustainability needs to be hard-wired into the company purpose, strategy and commercial model so it’s treated as an integral part of running a business.”

When it comes to the nuts and bolts of designing a robust sustainability strategy, the WBCSD’s report offers as good a guide as any. One of the report’s essential insights is the systemic nature of current major challenges and thus the need for business leaders to work together in pursuit of change. As the report makes clear: “The transformation of systems does not take place in silos, it is the result of actions taken across multiple industries and throughout societies.”

Effective implementation

Outward-looking as sustainability must be, it still requires comprehensive integration into companies’ internal policies and processes to be effective. Integration is hard work. To steal from Tolstoy again, genuine sustainability requires companies to “change themselves”. As personal experience teaches, transforming oneself is no easy task.

Success is only possible with leadership. Hundreds of perfectly conceived sustainability plans currently lie gathering dust on hard drives because employees knew their bosses’ hearts were never really in it.

“One of the biggest challenges leaders face when pursuing sustainable business strategies is authenticity: walking the talk,” says Jen Rice, executive coach and strategist. Leaders first need to ask themselves what values they really stand for and what positive contribution they want to make, she advises. Find this sense of “felt purpose” – Rice calls her business-leader clients “rebels with a cause” – and authenticity will follow.

Putting your money where your mouth is also helps. Hence, the habit of cutting-edge sustainable businesses to integrate “gritty” ESG targets into executive compensation packages.

As Peter Truesdale, a director at the specialist consultancy firm Corporate Citizenship, puts it: “Sustainable behaviour has to be rewarded.”

Engaging employees outside the boardroom is also critical. Finding ways to recognise and support workers’ private sustainability concerns can be a powerful way of bringing corporate commitments to life.

Take Unilever. Over the coming years, the Anglo-Dutch consumer goods giant is inviting all its 150,000-plus employees to define their own personal purpose and then draw up action plans to see these realised.

Organisational alignment

Full integration means achieving a similar level of alignment across all stakeholder groups, from consumers and local communities to business partners and, yes, even tax authorities.

Again, it’s no easy task. Just look at most companies’ procurement practices, says Alex Morgan, chief markets officer at the environment charity Rainforest Alliance.

All too often, corporate purchasing decisions are made “in a bit of a vacuum”, he argues, leading to “internal tension” and sub-par sustainability outcomes. Valid as the upsides of sustainable business certainly are, it requires conviction, patience and no small amount of elbow grease to achieve them.

Ultimately, however, it comes down to companies’ willingness to change themselves. Only then will long-term business benefits flow or our planet change meaningfully for the better.

Sustainability has become a key priority for businesses around the world, especially following the disruption of the global coronavirus pandemic. According to research with more than 1,000 business leaders in the UK and the Netherlands, by sustainable innovation company Dassault Systèmes, 65 per cent said the pandemic provided the catalyst to reshape their organisation in a more sustainable way, rethinking and prioritising resilience for the future.

But putting sustainability into practice often forces wholesale changes that are intimidating and potentially risky.

Enter virtual twins, which not only help mitigate risk when it comes to developing sustainable products and processes, but encourage businesses to act more sustainably. A virtual representation that serves as the real-time digital counterpart of a physical object or process, they are much more than a 3D model on a computer, says Alan Prior, vice president of industry consulting at Dassault Systèmes.  

“We describe the virtual twin as not only the representation of something physical but also the ideas that led to that product being created, the concepts explored, the decisions made, the requirements set out. And then how it gets produced, distributed and sold and its behaviours when it gets used, maybe even the feedback from the consumers,” he says. “So the virtual twin exists in parallel with the physical product. It’s so much richer than simply a digital copy because it has the life cycle, history and legacy.”

Why innovation is key to sustainability

A virtual twin can be used to explore everything from more sustainable products to creating new, more sustainable processes. The Dassault Systèmes report Leaders in Business Sustainability recognised while businesses struggle to prioritise some areas as they deal with post-pandemic disruption, they should be focusing on priorities that will allow them to survive its aftermath, including innovation, on which half of all companies said they were maintaining their focus and a quarter more said they were putting higher emphasis as a way of ensuring survival.

Virtual twins are the ideal way to explore innovation. “Businesses can explore design options, how the product behaves in different environments, usage, material options, different packaging, because it’s a safe environment in which to do those investigations,” says Prior. “The virtual twin opens up the possibility to do things we would not want to do physically or can’t afford to do. And it can be done very quickly at low cost.”

How virtual twins are helping explore sustainable products and processes

That freedom to explore is already being used in various ways. Innovating packaging to make it more sustainable is one area Dassault Systèmes has been involved in. It may seem simple to reduce materials in packaging, but it still has to stand up to being filled or packed on a production line, transported and more. Virtual twins not only simulate changes in material thickness or type, but can be used to explore changing whole business models, such as switching to refillable containers.

It is so important companies embrace the technology available to them to meet the sustainability goals their consumers expect

Another use-case is the development of more efficient ship engines. Dassault Systèmes worked with Finnish ship builder Wärtsilä to create a virtual twin to explore the building of efficient propulsion units for shipping and ensure the engines maintain top performance, allowing experimentation with everything from fuel to engine design without building new, expensive prototypes.

Not just sustainable products, but sustainable processes

While virtual twins bring clear sustainability benefits in product development, this is not the only area where they can help businesses become more sustainable. In the sphere of drug manufacture, Dassault Systèmes helped develop a virtual twin to refine a process rather than a product, examining the effect of variables from production line speed to factory layout, individual processes and changes in temperature and altitude. 

“It’s about exploring all the options in a safe environment. If you’re going to make a significant investment, you want to mitigate risk before you start,” says Prior.

Mitigation is key in encouraging businesses to embrace sustainability. “By using more sustainable processes, the business itself becomes more sustainable; building fewer physical prototypes, using less material, and the end-product is more sustainable. It is a double win,” he says. “The business becomes more efficient and uses resources more efficiently. The business can be more robust, more resilient to the kinds of challenges we’ve seen over the last year.” 

With resilience a strategic priority for more than three quarters (77 per cent) of business leaders, according to Dassault Systèmes’ research, sustainability plays a key role. “It’s a competitive world and sustainability is a competitive advantage,” Prior adds. “Companies can go out of business when they don’t keep up with trends. It is so important companies embrace the technology available to them to meet the sustainability goals their consumers expect.”

The Leaders in Business Sustainability event takes place virtually on 8-10 June 2021.

The expectation that companies must do good beyond the bottom line is reflected in the shift from shareholder primacy to stakeholder capitalism, whereby customers, employees, suppliers, the local community and the environment influence business decision-making as much as profit. By failing to consider environmental, social and corporate governance (ESG) issues, organisations now risk being left behind by their competitors.

Deploying tech-based solutions to meet sustainability objectives has allowed businesses to reexamine the value of sustainability. For corporate leaders, ESG has become more integral to decision making, while in many industries tech has provided new opportunities to pursue a systems-based approach to sustainability.

For decision makers, the ESG agenda has transformed from niche conversations tucked away in large organisations to a mutually reliant relationship in which sustainability drives profitability.

The integration of sustainability processes has matured beyond infancy stages, as the business case for ESG has become clearer through real-life examples of the impact when getting it right or, indeed, getting it wrong. This is most evident in the surge of focus on social factors, which previously were eclipsed by the environmental and governance elements of ESG.

ESG-minded businesses use their influence to urge adoption of sustainable practices across the value chain, driving long-term business and stakeholder value 

“Businesses can no longer sustain profitability if they only serve their short-term shareholder needs,” says Elena Philipova, global head of ESG at Refinitiv, the data and training provider owned by London Stock Exchange Group. “The links between ESG and financial results are becoming clearer and more documented. Previously, tangibles made up 80 per cent of a business valuation. Now intangibles make up the 80 per cent. Companies have to transform.”

The costs of inaction are too high for companies to be drawn to the outdated perception that implementing sustainable practices is a costly exercise that presents little to no financial gain. Those ahead of the game testify to the opposite: a more sustainable business model can lower their cost of capital by attracting better talent, serving clients more effectively and being more resilient.

In a study by HSBC, 78 per cent of UK companies said they expect their greater focus on sustainability to result in increased sales over the next year. And according to McKinsey, the potential value unlocked by companies with a more long-term approach – consistent investment rates, quality earnings and sustainable margin growth – could reach $3 trillion by 2025.

Over the past five years, approaches to ESG and sustainability have evolved to become more systems based. When Thai Union, one of the world’s largest seafood companies, first launched its sustainability strategy in 2015, the focus was on a few high-profile issues. However, the more it worked on solutions, the more it uncovered about the systems driving those challenges.

By investing significantly in full traceability for its products, Thai Union has been able to verify its environmental and labour standards while collecting data, through monitoring and supply engagement, which enables consumers to track a can of tuna back to the vessel that caught it.

“The best way to maximise value is to invest long term in the ecosystems and communities essential to the business,” says Dr Darian McBain, global director for corporate affairs and sustainability at Thai Union. “ESG-minded businesses use their influence to urge adoption of sustainable practices across the value chain, driving long-term business and stakeholder value.”

Digital technologies, when adopted well, can empower sustainability practices. For Thai Union, this includes cameras and sensors on boats for additional monitoring and data collection to optimise fisheries management. These same technologies enabling seafood traceability have huge potential across industries, strengthening protections for workers and the environment. Meanwhile, blockchain technology is enabling Thai Union and others to connect supply chains.

But tech-driven sustainable change has also been motivated by global movements. According to the World Benchmarking Alliance, a non-profit organisation which benchmarks companies against the United Nations’ 17 Sustainable Development Goals, technology has a significant, though currently untapped, role to play in helping companies meet their sustainability objectives. The measurement frameworks that sit behind these digital technologies are equally important.

Global packaging and processing business Tetra Pak is on a journey towards carbon-neutral carton packages that are made fully from renewable or recycled materials, which requires significant breakthroughs in several technologies. As part of its sustainability strategy, the company is continuously developing new packaging solutions and upping its investments.

“We believe there are three key ingredients to realising ESG goals: the ability to set and demonstrate progress in line with science and societal expectations; a collaborative approach across the value chain; and a true innovation drive,” says Markus Pfanner, Tetra Pak’s vice president for sustainability.

“Digitalisation is improving collaboration within manufacturing firms, so sustainability goals can be communicated from the C-suite to the factory floor. Everyone knows their role in driving sustainability initiatives forward, as well as how these align with business objectives,” he adds.

Companies separating sustainability strategy from their core business growth and profitability strategy will find it costs more. By integrating ESG considerations into core decision-making – asking what needs to be done to ensure success over the coming decades – sustainability and profitability become mutually reinforcing. But first that means breaking ESG out of a siloed department to ensure long-term, sustainable thinking is truly ingrained in the business’s operations.

When most people hear the word “sustainability”, they think of the environment. And, absolutely, cleaning the oceans, decarbonising the air and cooling the planet are all incredibly important areas we need to be focusing on as a global society. 

But these are the symptoms, not the causes. If we’re going to reverse the damage we’ve done over the past few hundred years, we’re going to need people, lots and lots of people, to change how they live their lives, which means sustainability also has a social angle.

The simple truth is the biggest contributors to environmental damage are companies because historically it’s been more profitable to think and act short term, than to worry about whether the Earth will be habitable in 500 years.

While companies can be blamed for their role in creating our current situation, no other group is better placed to fix it. With their financial resources, quality of people and global reach, companies uniting together are our best chance of building the better world we all want.

There are two major motivators to making businesses want to get on board this movement. The first is that society is demanding change. Society wants to see companies acting more sustainably in how they package and ship goods, how they power their factories and hundreds of other areas. Those that are good for society and our world will be rewarded with custom, those that aren’t will wither and die.

The second reason is that it also makes good business sense from an operational point of view. In evolving to become more sustainable, companies will also become more resilient. More efficient. More cost effective. They will become better businesses, better suited to the changing world around us.

Whether stronger businesses are a by-product of creating a more sustainable world, or a more sustainable world is a by-product of creating stronger businesses, we all win.

Dassault Systèmes first saw these trends happening in 2019 and set up the Leaders in Business Sustainability event in response.

The goal was to educate, inspire and support companies in making this transformation through our three business sustainability pillars:

1. Sustainable business models and fostering agility

Understanding the inhibitors and enablers of delivering more sustainable business models.

2. Sustainable products and speed of innovation

Understanding how to deliver the next generation of tangible and intangible products and services, improving their flexibility and speed to market.

3. Sustainable people and workforce of the future

Understanding how to increase the know-how and skills of existing workforces and prepare them for the shifting work patterns of the future.

To attend the Leaders in Business Sustainability virtual event on 8-10 June 2021, please register now