Five forces driving corporate sustainability management

With a nod to McKinsey's research on how global forces will drive business strategy over the next five years, this article explores five forces which will shape the management of corporate sustainability in all businesses by 2015.

There is now a choice facing businesses: they can try to understand what these forces mean for their organisation, or try and fight these market changes that we are already experiencing.

1. Brand competition

As we emerge from one of the deepest recessions of the last 60 years, sustainable development remains an important trend for both business and society. To remain relevant in the 21st century business environment, many organisations are competing against each other, using sustainable development principles to differentiate their brands and related product marketing.

You can see from the web sites and business practices of several major corporations, like Unilever and Marks & Spencer, how important sustainability is for their businesses. Sustainable development is no longer considered a marketing fad by these organisations, they see it as integral to their business strategy and are reacting accordingly.

They are putting in place the governance and management systems to ensure that sustainability issues relevant to their business are addressed comprehensively, and with little room for criticism of performance that could impact on brand reputation.

Over the last decade there has been a race to be "carbon neutral", involving many companies, such as BSkyB, HSBC and Dell. This year the trend experienced a shift in scope, with the world’s largest companies looking to share the responsibility for managing carbon reductions with the supply chain, shown by Wal-Mart's sustainability checklist.

Running in parallel with this growth in green marketing has been a growth in independent analysis and verification of companies' sustainability performance. There are obviously the high-profile schemes like the Carbon Disclosure Project (CDP) and the Global Reporting Initiatives (GRI), but behind these global schemes there are important critical appraisals being undertaken, like SAM for the Dow Jones Sustainability Index.

Such analysis helps ensure that corporate communications on sustainable development remain credible and assists customers as they try to make informed decisions that contribute to sustainable development.

With more information about corporate performance being made available more quickly through the internet, it is vital that the business response is credible and can be evidenced.

2. Risk disclosure

Until very recently, the risks associated with environmental sustainability have only been considered material to high-impact businesses like mining and the oil sector. This is changing as a result of the ever-increasing body of scientific evidence to support the fact of climate change, and the growth in environmental regulations.

The last decade has seen the principle of internalising externalities put into practice by regulators and not-for-profit organisations, which are successfully putting a price on environmental impacts, including waste production, greenhouse gas emissions and deforestation. During this period we have also seen increased price volatility in natural resources which has encouraged a broader response to these environmental risks.

Earlier in the year the US Securities and Exchange Commission published guidance on the disclosure of climate change risks to investors, something investors' group CERES had been requesting for a number of years. There are already national regulations in Europe that require disclosure of environmental and social risks and appropriate governance.

Companies in the Fortune and FTSE 500 lists are expected to report on non-financial risks and the majority of them now publish sustainability or corporate responsibility reports. A smaller number produce "integrated reports" , containing financial information alongside environmental and social performance metrics. As I have mentioned previously, these reports are already being evaluated by third-party investment analysts as well as other interest groups.