The future is bright, the future is green


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London Business School alumni are championing sustainability across a range of different industries, arguing that it can not only make good financial sense for corporates but help them attract the best talent. This was first published on the Alumni News, Issue 130, July 2013. Read the full magazine here:

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The future is bright, the future is green

  1. 1. Q TheBigIssue/Capitalism for Social Change 32 AlumniNews London Business School
  2. 2. TERRYHAWES AlumniNews London Business School 31 IN APRIL,THEWORLD STOPPEDTO PAY its respects to former British Prime Minister MargaretThatcher, the high priestess of “red in tooth and claw” neoliberal capitalism. It is hard to imagine the Iron Lady discussing the interface between economics and sustainability with President Reagan,her 1980s ally across theAtlantic,and there’s a view that any corporate responsibility legacy she left behind was largely inadvertent. But in the 20 years since the late BaronessThatcher left office, sustainable investment has grown from a cottage industry to a multi-billion dollar business.Those at the cutting edge now argue that capitalism is not the enemy of the environment and fair trade. Instead, they say,it is only capitalism that can save the world. Professor Ioannis Ioannou of London Business School is a leading advocate of this view. “The world’s problems, such as social inequality and global warming, are becoming more pressing,” he says.“The question is what is the best avenue to resolve these issues? My view, which is learned from history, is that it is the model of economic corporations that has propelled us through the industrial revolution and into the world we see today. Of course, there are issues and problems with this that would need to be rectified for business to realise this broader role going forward. “Business corporations have the ability to problem solve. Can they leverage this to solve the world’s problems? Can they see them as profitable business opportunities?The scale of transformation required is so great it is hard to see another institution being able to do this.” Professor Ioannou’s research (co-authored with School alumni are championing sustainability across a range of different industries, arguing that it can not only make good financial sense for corporates but help them attract the best talent. HELEN POWER reports THE FUTURE’S BRIGHT, THE FUTURE’S GREEN Professors Robert Eccles and George Serafeim of Harvard Business School) shows that it pays to be sustainable. His survey of 180 US companies shows clearly that the 90 that operate sustainably have produced better returns for shareholders since the 1990s than those that have not. The reason for this, he argues, is that it is in a company’s own interests to act sustainably.“Even from a purely business perspective, you need to realise, as a business, if you are not able to tackle these big problems outside your front door – you are not going to be around in 20 years time,”he says. He points to Unilever, a company with a very strong track record in sustainability, as a prime example of a company that put sustainability at the core of its activities and profited from it.As part of gaining certification of the tea supply chain by the Rainforest Alliance, Unilever’s LiptonTea division found that when it gave tea-picking staff protective uniforms and taught them not to use excessive pesticides it saw an increase in yields and quality that far outweighed the cost of the initiatives. “Paul Polman [Unilever’s chief executive, who recently spoke at the School’s Global Leadership Summit] has been seeing off speculative hedge funds by courting long-term investment funds to buy the company’s shares,” says Professor Ioannou. “It’s about matching the right company to the right investor base.” For the professor, it is crucial that companies that want to benefit from this positive feedback loop really put sustainability at the heart of what they do, rather than just “green-washing” their corporate image. Ë
  3. 3. Q TheBigIssue/Capitalism for Social Change 32 AlumniNews London Business School make them available via royalty-free licences under theWIPO Re:Search programme. It has spearheaded a programme to fight malaria – a disease that is most life-threatening in sub- SaharanAfrican – with a new vaccine. “This doesn’t show up in the profit-and-loss column, but there are a number of direct benefits you could look at to GSK,” says Mike.“One is in terms of direct impact on staff morale. If you talk to many people they would feel proud of what we are doing.At a higher level there is a reputational benefit. GSK’s mission is: do more, feel better, live longer, and that’s not just for people who can afford it.” REBECA NAVARRO MBA2010,A SUPPLY Chain Manager at Unilever, agrees that real sustainability should permeate corporate culture. “What I’ve seen here is that we are very different from other companies for the simple reason that everyone cares about the environment and their impact on it,” she says.“What is good for the environment is many times also what is good for the business.If you look at saving energy,or making sure the product travels as little as possible, that applies to both. But it doesn’t just have to be about the bottom line.“The MBA at the School allowed me to find a job where I had a genuine influence [on sustainability and environmental issues].That was really important.” Jelte de Jongh MBA2012 exemplifies a new attitude towards career and meaning. Upon graduation he started, an award-winning for-profit startup that is committed to tackling dyslexia through technology. In parallel, Jelte works part- time as investment consultant to PutYour MoneyWhereYour Mouth Is Community (PYMWYMIC), a network of high net worth individuals investing in sustainable companies in Europe. Jelte thoroughly agrees that a proper CSR programme attracts the best employees. “Having a clear vision on how your company acts sustainably in relation to all its stakeholders, rather than just concentrating on financial returns for shareholders can generate real benefits for everyone including those shareholders,” he says. “The reason I think this is all the more true going forward is that having a company with a ALUMNI OF LBSWORKING IN BUSINESSES around the world are putting the principles espoused by Professor Ioannou and others into practice.They believe Professor Ioannou’s core theory – that business must walk the walk on sustainability, not just talk the talk – is key. For sustainability consultant Gustavo Romano MBA2003, businesses have wasted too much money on corporate social responsibility programmes that are little more than hot air.“If shareholders understood how badly their money has been spent in the name of good causes, they would be shocked,” he says.“Until now, most of us have been content with glossy reports full of photos and qualitative quotes because CSR has been seen as a side dish, as an expense and not as an investment. Incredibly, investors have been content with reports of how much was spent, not how much impact was generated. “I am not saying that CSR is not crucial or companies should not invest in it.What I’m saying is exactly the opposite: it is so crucial that it must be managed as seriously as any other key investment. Put your money where it will really have a meaningful impact.” Other alumni are working inside corporations to implement strong sustainability practices. One, Mike Strange JEMBA2003, is now Head of Operations at theTres Cantos Medicines Development Campus – a not-for-profit unit within GlaxoSmithKline (GSK) – which is focused on finding new medicines for diseases of the developing world. Tres Cantos is making Big Pharma more sustainable by making industry expertise open access.“In the past you might have seen cash donations – here what we are donating is our core expertise instead of money,” he says.“We’ve said we will open our labs to external researchers.We invite scientists from around the world who want to tap into our expertise and we help them to progress their projects.There are no strings attached for GSK.The researcher can walk away with their results but we expect them to make them available to the broader community.” Three years ago the company put a number of patents in the public domain and committed to Mike Strange JEMBA2003 is Head of Operations at the Tres Cantos Medicines Development Campus at GlaxoSmithKline “CSR should be managed as seriously as any other key investment. Put your money where it will really have a meaningful impact” “Having a clear vision on how your company acts sustainably can generate real benefits for everyone, including shareholders” GUSTAVO ROMANO MBA2003 JELTE DE JONGH MBA2012 Gustavo Romano MBA2003 is a sustainability consultant
  4. 4. AlumniNews London Business School 33 clear mission for employees is of great benefit and increasingly employees seek to work for those companies.” THE SCHOOL’S ALUMNI HAVE SEEN great changes in ethical investing and sustainability over the last decade.“The first wave of CSR was the awareness wave,” says Gustavo. “Companies realised that legality was not enough: morality was also important.The second wave, which happened over the last decade or so, was the action wave: we stopped talking and started doing something about it.The third wave will be accountability.Assessing the impact of CSR investment will be paramount in the next few years.” Jelte, who started his career working for Roland Berger Strategy Consultants, has seen interest – and returns – in sustainable investing soar.“Fifteen to 20 years ago, what my current company PYMWYMIC does was still very niche,” he says.“You had NGOs and philanthropists at one end of the sustainable investment spectrum and businesses at the other, with a big gap in between.What we have seen in the last 20 years, in the UK, in Sweden, in Germany and in the Netherlands is the sector maturing and both ends of the spectrum invest using sustainable models.” Jelte has seen returns for investors in ethical business grow from a nominal 2% to an industry average of 4-8%. He believes that the School has made a unique contribution to the growth of the industry:“London Business School – not only on the research, but also on the education side – is building a new generation of business leaders, finance leaders and investors who really understand sustainability principles.” But the rapid growth of sustainable investing has not been without its problems. Gustavo warns that some standard CSR fallbacks – such as donation to charities – are actually risky. Few companies do a proper risk analysis of their charitable donations or consider whether they are aligned with their corporate objectives. He points to a company which donates to a children’s charity which only passes on 10% of money raised to good causes.“This is shareholders’ money and it must be as properly managed and accounted for as any other investment,” he adds. “If the company cannot show that this money has a tangible impact, it is better to distribute it as dividend or keep it as retained profits.” The benefits of a sound approach to the issue, however, are legion and London Business School alumni working in this area are leading changes that will benefit business and society alike. A survey of 180US companies shows clearly that the 90 that operate sustainably have produced better returns for shareholders since the 1990s than those that have not Rebeca Navarro MBA2010 is a Supply Chain Manager at Unilever Jelte de Jongh MBA2012 is an investment consultant for a network of high net worth individuals AS A CEO, HOW IMPORTANT ARE SUSTAINABILITY ISSUES TO THE FUTURE SUCCESS OF YOUR BUSINESS? 54%Overall Very Important Important Latin America North America Europe Asia Pacific Africa Middle East & North Africa 39% 41% 19% 93% 93% 90% 98% 97% 97% 57% 78% 60% 48% 59% 22% 57% 79% 31% 45% 37% WHICH FACTORS HAVE DRIVEN YOU, AS A CEO, TO TAKE ACTION ON SUSTAINABILITY ISSUES? Respondents identifying each factor in their top three choices Brand, trust and reputation BY SECTOR Personal motivation Impact of development gaps on business Employee engagement and recruitment Potential for revenue growth/cost reduction Consumer/customer demand Governmental/ regulatory environment Pressure from investors/shareholders 72% 31% 29% 44% 42% 39% 24% 12% 54%Overall Very Important Important Consumer Goods Health & Life Energy Professional Services Communications Metals & Mining Media Automotive Utilities Banking Electronics 39% 38% 24% 36% 42% 93% 96% 84% 94% 81% 100% 92% 99% 92% 97% 99% 62% 68% 63% 50% 68% 31% 62% 67% 68% 22% 51% 42% 93% 26% 59% 34% 17% 29% 68% SOURCE: Accenture – UN Global Compact-Accenture CEO Study 2010 BY REGION