[COLUMNIST] How to begin sustainability journey without risking current business?

A common question posed to me by companies wanting to embark on the sustainability journey is: How can we begin without risking the current business? This is a valid and real concern as the sustainability agenda entails a total transformation from the status quo.

This includes marketing without greenwashing, loans from financiers operating under restrictive sustainability criteria, labour management according to global best practices, new integrated reporting standards, and ensuring the supply chain meets GHG emission standards and even phasing out ‘hero’ products that are harmful to the environment.

My answer is always the same; Take a deep calming breath and think along these 4 areas:

1. Sustainability is not rocket science. It is a realisation that you are still doing the existing business but just in a better way. The critical mindset error is viewing sustainability as something alien to the business; a ‘nice to have’ only when there is extra time or resources. The long term rewards from a successful transformation will garner the happy result of lower costs (e.g. massive reduction of wastages) and higher revenues (e.g. new customer segments and increased loyalty). Isn’t that what all businesses want at the end of the day?

2. Like any other transformation, sustainability requires businesses to have a hard and critical look into its entire value chain and processes. Management must objectively identify inefficiencies or areas of opportunity to then Replace, Reduce and / or Reuse it.

3. Unfortunately, the business cannot stop while the transformation is happening; it is akin to undertaking a complete overhaul of the plane while it is in the air. Implementation will then need to be done practically with the best talents and resources the enterprise can spare. The timing is also good as the government is strongly supporting the transformation and providing different forms of incentives and assistance the business can avail itself to.

4. Capture and report all activities linked to the transformation. As sustainability is still in the early stages, this is one area where you can be rewarded for your effort and not merely on the outcomes.

These 4 areas are elaborated further and should be able to get you started on your exciting and rewarding sustainability journey. Don’t be afraid, and don’t delay as now is the best time to undertake this courageous move towards making your business - and the world - much better and more resilient for the future.

Now you’re convinced that sustainability is the way of the future (but you’re not quite sure on how to implement it), the following steps can help start you off on a solid footing:

1. Making Money From Doing Good Is OK

A good sustainability model requires businesses to stay true to their ultimate purpose of creating value for their shareholders and key stakeholders and evolve beyond the traditional short-term financial profit to include making positive impacts on the environment and society the business operates in. Some managements and boards balk at sustainability as they mistakenly view it as non-business linked activities (e.g. CSR or charity giving) that incur costs and can only be done after profit is generated.

Sustainability requires businesses to factor it as part of doing business. It is a vital component of profit generation through strict costs controls (eg reduction of energy usage and materials wastage) and / or increasing sales and revenues (eg filling in the huge demand of supplying sustainable raw products to larger commercial clients).

The fact of life is that the rise of the sustainable economy is akin to the seismic move from the traditional brick and mortar model to the digital economy; learn from the lessons of those who transformed successfully or risk becoming a cautionary example like Netflix burying Blockbusters Videos.

2. Re-Engineer The Value Chain

A fundamental belief for boards and management is this is a need (rather than a nice) to do; therefore companies must identify areas in which the polluting value chain components could be Replaced, Reduced, or Reused:

· Replace: As an example, the usage of raw materials that have a lower carbon footprint that delivers the same outcome. Subject to costs and quality requirements, garment manufacturers could explore replacing cotton with hemp that needs no chemical pesticides, takes 5 months faster to grow, requires 540 gallons less water per shirt and yields 166kg more fiber per acre.

· Reduce: Lowering electricity utilization can result in significant benefits; for every 1 kWh reduced a company can realise savings of 39 sens but also reduce 0.94kg of CO2 emissions. The Coca Cola company looked at its upstream supply chain and employs suppliers using less water to produce ingredients in their products like beet sugar and orange fruits. Efforts have borne fruit resulting in reduced water usage footprint to produce a 1 liter of product by 29.3% since 2004 which would also see monetary benefits.

· Reuse: Making the change from single to multiple use products in areas such as transport packaging, or transforming waste from end of life cycle back into raw materials for new items. Examples include Jaguar’s RealCar project to recover aluminum from scrap to Mattel’s PlayBack program (accept and provide free shipping for old toys for raw material recycling.)

Going downstream, manufacturers could even offer products as a service that can boost profitability, improve customer engagement and launch new lines of business. This is where the manufacturers still own the product but offer a ‘lease’ to customers on its’ usage. For example, jet engines by GE and Rolls-Royce are charged by ‘hours of thrust’ rather than requiring the airline to own the engine.

3. Implement Practically

Related to the mindset shift, areas identified above can be translated into a larger transformation agenda with proper implementation disciplines. Treat it as a speedy phased evolution rather than an immediate wholesale revolution to minimise risks and ensure current business remains uninterrupted. The resources for the different components of the evolution must also be treated as ‘investments’ (with real returns and success KPIs) rather than as costs (which would be sunk) to enable proper evaluations during the various approval processes. Explore grants and incentives given by Governments in support of the transition

Dedicated teams must also be resourced with the best talents to ensure successful implementation of the transition. Ensure all activities can be clearly identified and ear-marked as transition projects towards the sustainable economy (especially in addressing climate change) to enable easy access to government grants and / or lower financing costs from financiers desperate to improve their ESG portfolio. Explore grants and incentives given by Governments in support of the transition. The Malaysian Government has announced the following incentives which could be used in ESG initiatives:

· Safe@Work: Companies (especially those in the manufacturing industry) will be granted RM500,000 as additional tax deductions on the rental expenses of their premises and workers’ dormitories. This addresses the S element in ESG and can also increase worker loyalty and productivity

· Sustainable Development Goals (SDGs) Financing Scheme: Funding will be provided to eligible businesses whose operations contribute positively to 1 of the 17 SDGs including developing affordable and clean energy, gender equality in the workplace and promoting sustainable industrialization

· SME Digitisation Grant: A grant of up to RM5,000 will be provided for SMEs that qualify for a subscription to digitisation services in order to enhance the business’s competitiveness

· RM2 billion to be allocated to Green Technology Financing Scheme 3.0 for 2 years up to 2022

Lastly, make sure there is strong stakeholders buy-in (investors, shareholders and employees) who know this requires patience with potentially huge benefits in the mid to long term.

4. Capture Initiatives And Report Credibly

At this early stage and the lack of any one globally accepted standard, the good news is that less than perfect reporting is forgivable. Just be sure that some of the the areas of Environment, Social and Governance (ESG) are meaningfully addressed. At the international level, keep an eye out on further developments following the formation of the International Sustainability Standards Board (ISSB), announced during COP26 at end 2021. It is very likely the outcome from this will be the introduction of globally consistent standards and presenting opportunities for more harmonised sustainability reporting.

In addition, using the Integrated Reporting (IR) framework issued by the International Integrated Reporting Council can help an organisation craft a credible sustainability ‘story’. This is because the IR framework provides a more balanced approach that looks at the company’s holistic long term strategy towards value creation and prioritises things that are important to key stakeholders. Companies can then use IR as an overarching framework to dive deeper by using other guides relevant to the business / sector such as the Task Force on Climate-Related Financial Disclosures (TCFD) to provide more disclosures on climate-related risks, the Global Reporting Initiative (GRI) to expand on ESG matters, or linking strategy with the United Nations’ Sustainable Development Goals (SDGs).

Whichever methodology is used, it is critical to avoid reporting on things that have no real basis or is simply circumstantial as it could have the effect of ‘Greenwashing’ and critically damage the reputation and brand towards regulators and unforgiving customers.

Though this guide is short and by no means exhaustive, these first core few steps are critical towards fundamental changes in your organisation - no matter how big or small.

The window of opportunity is still available but will close soon - possibly within the next 5 years.

Those who don’t start the journey now, will be doomed to be relegated to the footnotes of historical failures.

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* Tunku Alizakri Raja Muhammad Alias is Chairman of the Board Malaysia Venture Capital Management Berhad (MAVCAP)

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.