February 21st, 2008
McKinsey and PwC On How Companies Think About Sustainability Management: All Hat, No Cattle
Two separate reports show a massive disconnect on sustainability between C-level strategic intent and real world performance. In the report Confronting Corruption, PWC surveyed executives and whilst 80% reported their companies had an anti corruption management programme, only 22% were confident such programmes were effective. On climate change, the McKinsey report, How Companies Think About Climate Change, similarly records more than 60% of executives think climate change is strategically important but less than a third are doing anything substantive about it.
So what is the explanation? Simple enough, executives are still just awakening to reality of managing sustainability within the context of global business operations.
Others are just waking up to the risk, often because high profile enforcement penalties have caught their attention or because they are seeking opportunities in unfamiliar markets.
The struggle against corruption is fundamental to sustainable development. Corruption undermines the development of a functioning market, its governing institutions and traps the poor in poverty. But the poor aren’t the only victims, last month Stanford Graduate School of Management professor Ernesto Dal Bo released a paper showing corruption not only damages the community but it also damages the firm itself through eroded efficiency. Indeed corruption has the potential to undermine progress on the climate change challenge. Last month an influential member of the ethical investment community in London shared her concerns with me that corruption associated with a future carbon certification process could undermine the emergence of a robust market for global emissions trading.
But in the case of both climate change and corruption is regulation the answer? More than 80% of the respondents to the McKinsey survey accept the inevitability of climate change related regulation within 5 years and most expect this to have a negative effect on profitability. Yet, if managed well, 61% of executives think climate change has the potential to have a positive impact on profitability.
When it comes to corruption Wayne Murdy, Chair of Newmont Mining expresses similar sentiment about the role of regulatory versus voluntary action:
You need governments on one side because they provide the teeth. But to me it’s very important that the private sector drive the initiatives because they know their business. They know the hot buttons or the risky areas or issues. So they can focus on those.
No small task alas. Jermyn Brooks, head of private sector engagement at Transparency International says:
You have to look at all the internal systems to make sure that they’re not countering your anti corruption policy. And that’s a big job.
And that is the crux of the matter. Business leaders want to do the right thing, see the strategic value but the current business models, like super tankers, are going to take some time to turn around.
(Disclosure: SAP supports the work of Transparency International and I sit on the steering group of the Transparency International Business Principles)
James has more than 15 years of experience working on corporate sustainability issues from both the corporate and NGO campaigning perspective. Follow James on twitter. See his full profile and disclosure of his industry affiliations.
Subscribe to On Sustainability via Email alerts or RSS.
| 02/25/08
