GENEVA: A new United Nations/Harvard Business School report says Sustainability should be at the heart of future corporate governance and strategic planning.
Produced by the UN Environment Programme Finance Initiative (UNEP FI), which represents corporate assets of US$10 trillion, the report says current governance is inadequate and suggests companies should integrate their corporate governance and Sustainability.
"The world's largest 1,000 publicly listed companies represent more than 50 percent of the world total market capitalization. There is an increasing concentration of economic activity in a relatively small number of corporations and the growing impact on the environment and society of these entities is now substantial," says Charles Anderson, UNEP FI director.
The report says adopting an integrated governance model will enable the formulation of sustainable strategies to ensure long-term beneficial results for all stakeholders.
UNEP FI suggests a three-step approach to integrated governance: Phase one involves understanding the value of creating a sustainable strategy and its link to financial performance. Phase 2 takes place when sustainability issues are included in the board's agenda and a sustainability committee is in place and KPIs are established to measure progress against sustainability initiatives. Companies move to phase 3 by having the Board take responsibility for ensuring that the company has a sustainable strategy and a dedicated "sustainability committee" is no longer needed.
To support its argument, the report highlights the growth of power, money and social influence by the world's 1,000 largest corporations in the past three decades: In 1980, the largest companies made US$2.64 trillion in revenues or US$7.0 trillion in 2012 dollars (adjusted using the consumer price index). By 2012 this number had risen to US$34 trillion in revenue.
In 1980, the global 1,000 directly employed 21 million people; by 2012 this total had risen to 73 million.
Finally, in 1982 these companies had a market capitalisation of US$900 billion (US$2.4 trillion in 2012 dollars), or 33 percent of the world total. By 2012 this number had risen to US$28 trillion – or 50 percent of the total.
UNEP FI says that given the size of these companies, the impact they have on society is becoming apparent: Out of 206 countries recognized by the UN in 2011, only 26 had a higher GDP than the sales of Royal Dutch Shell and Wal-Mart (right) - U$454 billion and U$447billion respectively.
"We look to invest in companies that integrate corporate sustainability issues into long term business strategy as we think this pays dividends to shareholders as well as society, says Steve Waygood, chief responsible investment officer, Aviva Investors. "Unfortunately, governments have largely overlooked this important area, and are lagging a long way behind the corporate best practices outlined in this report."