The Imperative Business Evolution

In a volatile and ever-disruptive world, companies are aware that they must reinvent themselves and do more than adapt. Corporate Sustainability represents the best strategy for this reinvention as it is the ideal compass to build the companies the world needs. However, this is only valid if we break the still dominant paradigms that view Sustainability as a mere compliance issue, an ancillary strategy, or just another function within an organization.

In this article, I argue for an approach to Sustainability as a Business Strategy and explore some paths to navigate the complexity of the imperative Business Evolution.

From Reactive to Proactive

The usual path companies follow when embarking on their Sustainability journey is reactive. That is, they feel incentivized to do so for a series of external reasons:

• Pressures from global clients to meet Sustainability standards
• Increasingly strict regulations
• Demands from financial institutions for the adoption of ESG (Environmental, Social, and Governance) criteria
• Growing expectations from talent who chooses where to work based on the employer's commitment to a purpose beyond financial results
• Consumer behavior that rewards or punishes good corporate citizenship and sustainable practices

Don't get me wrong; moving towards Corporate Sustainability for these reasons makes perfect sense. Therefore, I compliment all the companies that have done so. But to these and those who have yet to start, I invite you to look even further ahead by proactively generating value.

Beyond Linear Growth

Being proactive means breaking the scarcity paradigm and embracing the abundance one. That is, transcend linear mindset and trigger exponential growth.

This shift in focus begins by recognizing the seven ways in which Sustainability creates value:

• Better Financial Performance: companies with sustainable practices outperform the average financial performance with a better return on invested capital.
• Access to Capital: sustainable projects obtain better rates and financing conditions, reducing the cost of investment.
• Higher Market Value: companies with sustainability standards are valued with better multiples on EBITDA or sales.
• Net Income Growth: the top line grows thanks to new sources of income, such as innovative responses to customers' expectations or premium prices charged to capitalize on the sustainable attributes of existing offerings.
• Cost Reduction and Operational Efficiencies: optimizing resources (energy, water, waste) results in efficiencies and increases in productivity.
• Enhanced Reputation and Brand Value: Sustainability improves the attraction and retention of customers and talent, as well as strengthens the license to operate.
• Greater Resilience to Risks: solid sustainable practices allow the anticipation of risks and regulations and improve the ability to manage crises, reducing volatility and associated costs.

Each of these seven ways has enough merit to demonstrate that Sustainability is good business. However, the combination of all of them exponentially multiplies value creation.

The Sustainability Market

Since the concept of "Stakeholder Capitalism" gained momentum five years ago, everything has been accelerating. For many, the CEOs of the largest corporations in the United States' statements at the 2019 Business Roundtable that companies should create value not only for their shareholders but also for all their stakeholders were seen as a passing fad.

However, just a year later, in 2020, a report from consulting firm McKinsey & Company indicated that 83% of C-suite leaders expected ESG issues to add more value to shareholders. In 2021, Bloomberg forecasted that by 2025, global ESG assets would exceed US$53 Trillion (representing more than a third of the total projected assets under management). A year later, in 2022, a report by PwC titled "Asset and Wealth Management Revolution" projected that institutional investment focused on ESG issues would skyrocket by 61% by 2026.

It is not a passing trend. We are facing a significant market.

However, translating theoretical opportunities into real profitable growth is still a nebula for most companies. What they need is a structured process to guide their evolution.

Towards Sustainable Business Evolution

Think of evolution in nature. Forms such as galaxies, cyclones, seashells, or some plants follow the logarithmic spiral pattern: a spiral that expands with each new curve. Under that same concept, Sustainable Business Evolution can be described as continuous growth in which each cycle builds upon the previous one, creating expansive value.

After several evolutionary cycles, the way of doing business and managing companies is at a new inflection point—a point of value expansion for companies, society, and the planet.

Indeed, whether to ensure the durability of businesses in a volatile and ever-disruptive world or to stay relevant in an environment with growing social and environmental expectations from stakeholders, a new business evolution is inevitable. It is imperative. And to evolve, companies must know how to reinvent themselves.

But it's not just about any reinvention; it's about one that creates definitive differentiation in the market, sustains business wealth, and strengthens reputation, brand value, and organizational culture.

Merely catching up on the latest trends and standards in Corporate Sustainability (the reactive approach) will not lead to evolution. Only by seeking traditional avenues of linear growth and financial value creation will not suffice either.

Reinvention for true Sustainable Business Evolution requires a systemic approach to the multiple corporate and environmental dimensions to combine the seven ways Sustainability creates exponential value.

Internally, companies should address this multidimensionality with a holistic vision integrating corporate governance, organizational culture, strategy, finance, operations, marketing, public affairs, corporate communication, innovation, talent management, and organizational development.

Externally, they should address the multiple dimensions with a strategic approach that allows them to identify opportunities amid apparent chaos of social expectations, climate crises, political polarization, and technological revolutions.

Business Evolution will be Sustainable, or it will not be. Those companies that integrate Corporate Sustainability into their strategic thinking as the compass to create actual blue oceans[i] will prevail and show the way to lasting success in which all stakeholders will feel like winners. Thus, a lasting success for the planet and society as well.

[i] concept coined by W. Chan Kim and Renée Mauborgne in the book "Blue Ocean Strategy" (2005), which refers to a new market space where competition is irrelevant.