Introduction
Several reasons underscore the crucial importance of businesses prioritizing sustainability. One significant factor is the growing recognition of the pivotal role organizations' often play in shaping societal values and addressing global challenges. Companies are increasingly acknowledging the necessity of integrating sustainability into their operations deviating from the traditional ideal which was entirely centered on profit making. For example, recently, the Lagos and Abia State Governments banned the sale and distribution of single use styrofoam packs within their States, and almost in lock step, the House of Representatives have called on the Federal Government to enact similar bans across the country.1 This signifies the emergence of stricter regulations aimed at fostering a culture of environmental sustainability at the state and national levels. In the same manner, TotalEnergies, a prominent Nigerian energy giant, has announced its intention to divest its minority shares in Shell Petroleum Development Company (SPDC) in alignment with its policies on health, security, and environmental sustainability .2 This strategic divestment will enable the company to realign its portfolio with a focus on developing low-cost and low-emission projects, further emphasizing the imperative for businesses to embrace sustainability initiatives.3
Why Sustainability
The term sustainability is understood as the capability to meet present needs without compromising the ability of future generations to meet their own needs4. As an all-encompassing concept, proponents of sustainable development place emphasis on environmental stewardship, resource conservation, climate change mitigation, social equity, economic resilience, health and well-being, consumer preferences, and long-term viability, including innovation and competitiveness. Inevitably, regulatory bodies have turned their attention to companies, enacting policy guidelines that seek to entrench the theme of sustainability in running or managing the affairs of a company. As Peter Drucker opines in his book 'The Practice of Management', "what is most important is that management realizes that the impact of every business policy and business action upon society must be considered".5 He writes that if "worker and work are mismanaged", it is "actually destructive of capital". Accordingly, Drucker advocates for companies to constantly pursue innovation, not solely for revenue growth, but in service of their fundamental function as society's "specific organ of growth, expansion, and change".
The environmental, social, and economic dimensions of sustainability
The social dimension of sustainability looks at how a company tries to make a positive difference in society. It involves concepts such as fairness in interacting with people, both internally and externally; getting actively involved in the community and community projects; the physical and mental wellbeing of employees; and ethical business practices. Thus, the theme of social sustainability is being people-centric and emphasizes the importance of considering and benefiting the people within and outside an organization6. The environmental dimension of sustainability focuses on an organization's impact on the environment. It involves practices and initiatives aimed at reducing, mitigating, or eliminating environmental harm, promoting resource efficiency, and addressing environmental issues such as climate change, pollution, and the loss of biodiversity. .This aspect emphasizes Earth as humanity's residence, underscoring our shared duty to conscientiously manage its resources and safeguard its ecosystems, promoting responsible utilization.7
The economic dimension of sustainability relates to financial aspects of an organization's operations. It involves making sure the business is profitable and creates economic value for various stakeholders, including shareholders. This dimension is often represented by the term profit, indicating the importance of generating financial returns while ensuring long-term economic sustainability8. So, in the 21st Century, a holistic approach to sustainability involves a balancing act – ensuring the profitability of the business while adopting strategies that benefit the environment and society at large.9
Embracing Sustainability in Business
The fundamental principles of business ethics and integrity are key to establishing a sustainable business, as both principles play crucial roles in shaping a responsible and forward-thinking organization. Within a corporate organisation, upholding ethical standards and demonstrating integrity are not just moral imperatives, they are also legal obligations. For example, in Nigeria, corporate organizations are bound by anti-corruption laws and corporate governance regulations, which mandate transparency, accountability, and responsible business practices. So, in recent times, corporate failures – and forced restructuring by regulatory bodies10 – tend to be the result of a failure to abide by laid down corporate governance regulations, which have the unintended consequence of engendering mistrust in the investing public. Good examples are the Enron bankruptcy11 and the Cadbury (Nig) Plc scandal,12 both of which involved highly rated companies that became embroiled in financial malpractice, including the presentation of bloated financial statements, misrepresentation of sales figures, and the hiding of troubled assets.
The Role of Boards in Business Sustainability
In every organization, the board of directors shoulder the primary responsibility of overseeing the organization's sustainability and environmental, social, and governance (ESG) matters. As the primary decision-making organ of the company, the board is ultimately held accountable for the long-term success of the organization. Therefore, is it exceedingly important that in developing and actualizing the company's business and growth strategies, the board must pay attention to sustainability and ESG requirements. To achieve this, the board must be knowledgeable as regards the relevant statutory and non-statutory framework, ensuring that relevant matters bothering on sustainability and ESG are incorporated into the company's purpose,13 decision-making, governance, risk management and accounting.14
Challenges in Entrenching Sustainability
Entrenching sustainability within an organization might present significant challenges, ranging from internal cultural shifts to external market pressures. One significant obstacle is the resistance to change within entrenched organizational cultures. Companies may face resistance from employees, particularly if sustainability initiatives disrupt established workflows or requires additional resources. Moreover, there may be a lack of awareness or understanding about the importance of sustainability among employees, investors, and consumers.
In 2020, the McKinsey quarterly publication raised some thought-provoking questions that tend to arise when an organization seeks to entrench sustainability requirements: "But where do we go from here? How do we deliver a sense of purpose across a wide range of environmental, social, and governance (ESG) priorities? Doing so means moving from business as usual to a less travelled path that may feel like "painting outside the lines." Are we going too far beyond our core mandate? Does it mean we'll lose focus on bottom-line results? Will transparency expose painful tensions better left unexamined? Will our boards, management teams, employees, and stakeholders want to follow us, or will they think we have lost the plot?" The McKinsey publication noted that there are no easy answers to these questions, because corporate engagement is messy, with the inevitable pitfalls and criticism from skeptical stakeholders.15
These inquiries show the difficulty that may be experienced in the attempt to develop a holistically sustainable business model. Financial considerations, regulatory ambiguities, and lack of clarity in measuring and reporting sustainability performance are other challenges organisations may face in transitioning. Nevertheless, corporations can make an outstanding impact when they become purposeful about incorporating sustainability requirements with benefits to the society. This was evident in the fight against Covid-19, as companies leveraged their resources and capabilities, going beyond their traditional mandates, to contribute to the global fight against the pandemic.16
Conclusion
Considering the pivotal role corporations play in shaping societal values and addressing global challenges, prioritising sustainability is an important business decision. Recent regulatory pronouncements and business innovation decisions undertaken by key players in the Nigerian business space demonstrate the increasing need to entrench sustainability initiatives, raise awareness, and create a balance between profitability and responsibility. Moreover, the role of the board in providing the required direction, including providing adequate support for other stakeholders to entrenchment sustainability initiatives, cannot be over-emphasised. It is apparent that overcoming the challenges posed by the process of transition will require the effort of all stakeholders, all of whom would have to keep their eye on the benefits of a sustainable business model, which includes long-term success, resilience, and a positive impact on society and the environment.
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Originally published March 25, 2024
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