Jam today or jam tomorrow: managing the trade-offs between corporate growth and corporate sustainability
Businesses are told that they must invest in a growing number of sustainability initiatives, which may impair short-term financial performance while improving long-term business resilience. For business leaders, whose performance is largely measured on the organisation’s financial health, this is often a hard sell. In this month’s column, AICPA & CIMA’s Associate Technical Director Peter Spence looks at how companies can successfully navigate this challenge, balancing immediate financial pressures with the need for sustainable growth.
Consistent and profitable corporate growth has been elusive over the past 15 years, with the world’s largest companies only growing at half the rate they did before 2008. Executives had to prioritise financial performance and growth in their mindsets, ways of working, and business strategies. But emerging pressures are rapidly changing the way business leaders need to think about managing performance within their organisations.
There is now a growing expectation for companies to integrate both financial and non-financial performance into their business strategies. This includes setting net-zero ambitions and demonstrating progress towards being nature positive, as well as other ESG objectives, and meeting new regulatory and reporting requirements. In addition, consumers are increasingly aware of sustainability and ESG issues and want to interact with companies that share their values and concerns. We are also seeing shareholders becoming more sensitised to these factors, and they now expect companies to make an effective, economic, and sustainable use and production of non-financial capital to ensure both long-term profitability and business resilience.
Jam today or jam tomorrow. The reality of modern business is not as straightforward.
For a large majority of business leaders, building long-term business sustainability and integrating more responsible practices into their operations will negatively impact short-term business profitability. The message for today’s business leaders is clear: invest in sustainability initiatives and expect lower short-term profitability, but tomorrow’s business leaders will reap the benefits of the resilient, sustainable business you built.
Consider this, various net zero targets abound, 2030, 2035 and, of course, the one we all know – 2050. It is unlikely that many serving business leaders will still be in place by 2050. And if their performance is judged largely on the company’s profits, revenue growth, and shareholder value, one can wonder if rather than investing now in more sustainability initiatives, perhaps a future executive can shoulder that burden? It could be tempting to kick the can down the road.
Looking around the business world, I would say that many companies, boards, and executives are confident that they have great, winning business strategies, which increasingly incorporate sustainability goals. A growing number of executive remuneration packages now also include meeting sustainability performance targets. Their biggest challenge though is not laying out the plan but implementing it and meeting the delivery targets. Even the most talented executive teams cannot think of everything that a company needs to do to succeed. There is always more to be done and more complexity to deal with than the available attention of executive teams. They highly depend on their workforce to make good decisions for strategic success.
However, I should also highlight that employees need strategic clarity for good decision-making.
In our volatile, uncertain, complex, and ambiguous (VUCA) business ecosystems, having conversations that tackle both potential conflicts and trade-offs are essential to make good decisions. It is all about seeing the bigger picture.
For example, we know that for many companies, boards, and executive teams, there are trade-offs between meeting their sustainability ambitions and financial performance. Incumbent executives may feel that they are being held hostage for future executives’ success, rather than focusing on their own performance as business leaders.
So, how can this be addressed?
Despite what it appears on the surface, the relationship between sustainability and profitability, or short-term and long-term success is way more nuanced than a simple binary choice. This is jam today and jam tomorrow strategy development, refinement, and execution. In this situation, company success does not only lie with the executive team, but with the company’s wider workforce. This is integrated performance management, it can make or break organisational success.