BCG Henderson Institute

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Corporations are making significant progress in addressing sustainability. Most large companies now have a statement of social purpose, many are signatories to the UN Global Compact and support the Sustainable Development Goals, many report progress against material quantitative metrics, and some have joined collaborative efforts to tackle existential environmental or societal issues. Davos 2020 further added to the momentum on stakeholder capitalism, disclosure of progress on environmental, social, and governance (ESG) metrics, and climate response.

These actions are encouraging. We have argued that corporations should Optimize for Both Social and Business Value, using their core businesses to deliver the financial returns expected by their owners and, in tandem, to help society meet its most significant challenges. To do so, we suggest that leaders reimagine corporate strategy by creating new modes of differentiation, embedding societal value into products and services, reimagining business models for sustainability, managing to new measures of performance, and reshaping business ecosystems to support these initiatives. While this is a tall order for any management team, the future of the company, our environment, and society depends on doing so.

Limitations of Current Mainstream Approaches

In spite of this progress, few companies have tried to systematically understand the sustainability limits, vulnerabilities, and potential of their current business models and ecosystems. As a result, they risk diminishing their future competitiveness, license to operate, and shareholder returns. This oversight is not entirely surprising. Over the last few decades, managers have relaxed their ambitions regarding sustainable competitive advantage and have focused instead on shareholder returns. The result has been a greater reliance on financial strategies and M&A and a relentless optimization of processes and organization for efficiencies. While such priorities can create shareholder value in the near term, they can also hide weaknesses in the business model and work against the building of sustainable advantage. And when it comes to issues of sustainability and societal challenges, managers have often treated these separately from core business operations.

We have a long way to go before the two main uses of the S-word in business— sustainability and sustainable competitive advantage—fuse coherently in a way that can guide management thinking and corporate action in the decade ahead. This disconnect is both a wasted opportunity and an urgent social priority. For all the effort to date, we are making little or even negative aggregate progress in essential areas like carbon emissions, even as the societal effects and business impacts are increasingly apparent.

Current approaches have three critical limits: an overemphasis on compliance and reporting, a bifurcation of intent, and a primary focus on the company level.


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