UABS KNOWLEDGE

SUSTAINABILITY

Barry Coates on the drive for sustainability

6 March 2016

Barry Coates discusses why business is at a turning point on sustainability. Coates developed a sustainability programme at the University of Auckland Business School in 2015-16. He was previously CEO of Oxfam New Zealand and is now a Member of Parliament.

Video transcript

0:08

Business is at a real turning point on sustainability. Globally, the climate change talks in Paris, a new agreement on climate change, set a long-term direction. It has been made abundantly clear that there is a transition away from fossil fuels. The business agenda is really responding to this globally, and we have seen companies like Unilever and Nestlé and others really stepping up to this global agenda, plus newcomers like Tesla and others that are disrupting markets.

0:39

In New Zealand, I think we are seeing a renaissance on sustainability after it went frankly dormant for some time. And recently Air New Zealand announced its sustainability policy to an absolutely packed house in Shed 10 in Auckland with 450 business leaders. That really felt like a turning point for New Zealand business.

1:02

The logic for business on sustainability has often been presented as a moral argument – it is – that business needs to take its responsibilities toward others in society. But it is also an economic argument. If you look at the notions of a circular economy, of waste minimisation, businesses have some real advantage in terms of saving themselves money through energy efficiency and good practice in their business with regard to minimising waste. You have also got a logic to say that businesses will do well if they engage their customers about the practices of sustainability. So companies like Z Energy, for example, have a very strong message to their customers about the way they incorporate sustainability into their business. And, thirdly, it is important to investors and to the value of a company. Shareholder value is increasingly about corporate reputation, brand, and all of the other things that used to be called "goodwill" in an accounting sense. And that can account for over two-thirds of company value – often up to 90%. So companies need to manage their reputation well. To manage it badly, as many companies have found, is extremely dangerous and has led to precipitous declines in shareholder value.

2:34

One of the most important drivers is the perception and the practice of customers. Colmar Brunton, the polling agency, did research which said that 88% of consumers care about sustainability, and over half will pay more for sustainable practices. And companies that are positioning themselves in sustainability will do well because on the shelf they get the preference from consumers if they have a credible story. And that is important. The story has to be credible, and ideally it has to be backed up by independent and objective certification. But also, then, there is a certain group of customers that is prepared to pay higher prices for goods that are labelled sustainable. And you only have to look at organics and free range and other product categories to see that that plays out every day in retail stores.

3:41

There has been interesting research undertaken by Waikato Management School to look at tracking over time what happens in business perception on corporate social responsibility. And what is increasingly evident is that businesses are expecting the government to step up to the challenge of sustainability. We have come from a period where, frankly, the government has done little to set the parameters that would reward the good players on sustainability and provide penalties for those who are essentially polluting. According to the polluter-pays principle that all governments have signed up to you would expect that there would be a price on pollution, and New Zealand is, frankly, one of the laggards within the OECD in setting those environmental taxes and subsidies in order to change the price signals.

4:41

I think there is increasing pressure, firstly, on government to do more, from business. And it would be good if more businesses spoke up to say that. But also we see a lot of businesses that say we are not going to wait for government, we need to do this. Price signals will happen over time, particularly on issues like climate change, and we are going to go ahead and make the investments and change our practices in order to do that. Good for customers, good for business, and it will give us in many cases either a first-mover advantage or a way to comply with our supply-chain requirements, which are increasingly onerous around sustainability.

5:20

My role has been to establish a sustainability programme at the University of Auckland Business School. We have looked around at what other universities are doing internationally. And it is very interesting. The leading universities are a long way down the road on this and they have done some fabulous and exciting things. They are the usual cast of characters: Harvard, Yale, which is my alma mater, and Oxford, Cambridge. One of the ones I love is MIT. And MIT has not only an overall strategy for the university on sustainability, but the business school leads in terms of sustainability teaching and research. And they have a very close link with innovation and entrepreneurship and sustainability. So, this is an area where innovative practice in universities can really help provide the next generation of business leaders who are well versed in sustainability but also see a rapidly evolving future and are able to position the companies that they work for into that future.

6:36

The other interesting thing from looking across universities is a few of them are playing what I would call a "convening" role. So, they are bringing different stakeholders together around sustainability issues – often people who don't necessarily agree with each other or talk with each other. That is a really important role for universities and something certainly that we are looking at, here at the University of Auckland. We aim to be amongst the leading universities on the issues of sustainability.

7:07

One of the key lessons and ways forward for business is to look for the fundamentals of the business and in a way tie it in to business strategy. Many companies regard sustainability as a bit of an add on. It is something that we do in order to keep our customers happy. Actually, the most innovative approach that companies are using is to build it into their core strategy. And it is very much around the concept of shared value, where you look at the fundamentals of the business, the competitive drivers of the business, and you say how can we build in sustainability in a way that is central to our business. So, instead of using corporate social responsibility as a way, for example, to give a bit of money to charity, actually what you are trying to do is change your business strategy so that sustainability is at the heart. And that is the kind of approach which is driving the strategies of many companies internationally, and Unilever is a classic example. Food companies are really leading the charge on this in many ways, and it is also evident in sectors where there is disruptive technology that is opening up spaces for businesses to reshape their markets and reshape their purpose as companies. As the Silicon Valley entrepreneur Peter Thiel said: “the most successful companies never established to make money, they established to change the world. And when companies have a driver of sustainability, they find value in ways that they never expected.”

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