Why unsustainable businesses are doomed

No corner of our world is immune to the climate crises, especially not the business world. Just being profitable is far from enough. Being sustainable in the long run is crucial if a business is to survive. We hear from two experts from Monash Business School about sustainability being the fifth industrial revolution.

”Companies who are not up to speed on sustainability will be left behind. I like to compare it to the digital revolution, or Industry 4.0. Companies who aren’t quick enough to adapt to the advancing digital revolution are falling rapidly behind. The same goes for sustainability. It’s the fifth industrial revolution,” says Dr Annemarie Conrath-Hargreaves from the Department of Accounting.

The three pillars of sustainability – economic, environmental and social are equally important. Most people take economic sustainability for granted. If your business is not profitable, it won’t survive. Increasingly, companies who don’t consider their social sustainability, such as their workers’ rights and fair wages, come under fire from the public and their market value is threatened. The same goes for the environmental pillar which includes everything from production to supply chains, energy use, packaging, delivery and waste.

“You can do well by doing good and be rewarded every step of the way. The bottom line isn’t just one number that shows how much money you made but social impact will affect your bottom line in terms of goodwill and reputation. The same goes for environmental impact. There are actually three bottom lines. Companies need to have a holistic approach,” says Associate Professor Andrew Moshirnia from the Department of Business Law and Taxation.

Throughout history there are numerous examples of scandals and system failures. Associate Professor Moshirnia believes there is a lot to be learned from these, which is how  we develop new solutions to old problems. The climate crisis and sustainability are no different.

"There’s a lot of pressure on companies to change and improve. But change is necessary and for companies willing and able to adapt, the opportunities to grow and do good are endless."

“When there’s a crisis, there’s an opportunity for holistic reform and you can scrap problematic structures. For example, more fuel efficient vehicles were born after a fuel crisis. And in the social sphere companies need to be responsive to consumer and workers’ complaints or there will be social unrest,” he says.

Dr Annemarie Conrath-Hargreaves agrees. Ever increasing, unjustified wealth gaps between management and workers are neither socially, nor economically sustainable. “Many companies are taking more responsibility when it comes to structuring executive pay. They’re  realising they have to do something to achieve diversity. The American coffee chain Starbucks is just one of the latest examples of this, having tied executive compensation in part to diversity metrics,” she says.

But how do you know and measure if your actions have any impact? This is where accounting is an extremely relevant tool.

Sustainability accounting is there to measure and compare how sustainable and ethical an organisation is year on year in terms of their social, environmental and economic performance. Once impact is measured, improvements can be made. Communicating that impact and any improvements to stakeholders - including shareholders, consumers and the public in general - is the next step. This in turn will have consequences for the value of the company and their market share.

“It’s  really about the difference accounting can make by measuring an organisation’s sustainability. Research shows companies that pay attention to environmental aspects like  emissions and social aspects such as diversity, do better than other businesses in terms of profit and employee retention,“ says Dr Conrath-Hargreaves.

So, three pillars of sustainability, three bottom lines have to be taken into account. There’s a lot of pressure on companies to change and improve. But change is necessary and for companies willing and able to adapt, the opportunities to grow and do good are endless.

“This is where innovation comes in. The sustainable focus marries naturally to innovation. When you have a constraint of resources, that's when you start innovating in order to use something more efficiently. The idea that there is an inherent innovation to the sustainability approach is very positive and full of opportunity,” says Associate Professor Moshirnia.

If you want to lead the change in business sustainability, Monash Business School offers a range of business sustainability units across our master’s programs including in the Master of Regulation and Compliance, Master of Management, Master of Advanced Finance and Master of Business.