After well over a decade of influencing sustainability and sustainability initiatives in the corporate world, I've arrived at the enlightened phase of the Dunning-Krueger curve in my career. For my first blog post as CGI's Head of Sustainability & ESG Strategy, I felt it opportune to share my knowledge on what C-Suite industry leaders should understand about game theoretic principle driven corporate sustainability & ESG strategy.
Sustainability is complex and obscure. The main issue is that indicators, initiatives, and ideologies are linked to cultural values and geographical locations. This is why there is no definitive definition of sustainability that can be agreed upon globally.
The pressure on businesses to make decisions on sustainable development that don't yield profit or GDP growth could eventually lead us to global economic catastrophe.
My biggest fear, and the core reason for writing this blog, stems from corporations and governments pouring money into sustainability & ESG and making big decisions based off of approximated, fractured, and unvalidated ESG data and bad advice. The pressure on businesses to make decisions on sustainable development that don't yield profit or GDP growth could eventually lead us to global economic catastrophe. Our youngest and eldest demographics depend on GDP growth, for example, most pensions are linked to growth on pension funds to sustain monthly income. Advising to slow profit could affect monthly income, leaving them unable to meet basic needs. Many large corporations are beset by suppliers, flourishing their revenue streams selling sustainable goods and services and basing their entire business models on the plight of our climate and social injustices. In reality, many of these suppliers are unchecked greenwashing machines.
Any rational economist would ask themselves if these types of sustainable suppliers have the focus to actually solve sustainability challenges, as solutions might spell an end-game to their revenue stream. I have doubts. "It is difficult to get a man to solve a problem, when his salary depends on not solving it", to paraphrase Upton Sinclair.
So what are leaders supposed to do? There are over 2,000 ESG indictors, 600+ ESG rating agencies, thousands of sustainability certifications, hundreds of sustainability frameworks, not to mention emerging legislation affecting local and multinational businesses.
Well respected academic institutions have for several years now been pounding the drum of using game theoretic principles to drive corporate sustainability & ESG strategies. What if I were to tell you that the key to entering the 4th Industrial Revolution of "doing good and doing well" for businesses could be understood through Nash equilibrium and Tragedy of Commons game theoretic principles?
What would be beneficial for everyone around the globe would be for businesses and individuals to simply make concessions, reductions, and trade-offs on global resources, GHG Emissions, and financial wealth – towards a more sustainable future. This is impossible from a game theoretic standpoint. We could never be certain of real intention or actual follow-through. All it takes is one bad actor to make the entire utopia crumble. The Nash equilibrium's Prisoner's dilemma illustrates the challenge quite well.
So what are leaders supposed to do? There are over 2,000 ESG indictors, 600+ ESG rating agencies, thousands of sustainability certifications, hundreds of sustainability frameworks, not to mention emerging legislation affecting local and multinational businesses. Throwing money at a problem this complex isn't a sound solution. Here are some tips based on game theoretic principle :
- Commit to NetZero Emissions. Even if it starts as intention, you're better off than you were the day before you committed, because you're on the path. Most large businesses have already done this and started to disclose their Scope 1 & 2 emissions. Not participating will make your business look suspect.
- Get your house in order. Invest in understanding and keeping inventory of your company's value chain activity. Intent to become sustainable is worthless unless it can be proven and validated, and I'm not talking about buying certifications for millions. I'm talking about transparency and digital traceability of your value chain . It's a long-term, challenging task, but it'll be a lot less expensive then sweeping dirty business practices under the rug.
- Improve operations to meet impending legislation. Transparency and traceability will bring to light areas of your business that require improvement. What type of energy is used, where energy or resources are wasted, the worst offending areas for carbon emissions, antiquated systems that need to be replaced, etc. Your business will actually cut costs during this process as it evolves into more lean operations (note: lean operations does not only equate to reducing head count – that's just lazy management).
- Avoid leaving the job of sustainability to marketing and communications like so many companies do. Activists are on to this tactic, and it screams of greenwashing – sustainability solely based on optics with no systemic internal change. While your company will need to communicate your journey, sustainability should come from the highest decision makers all the way down, rooted in legislation and tax penalties related to sustainability and ESG. Refer back to proving and validating; my colleague Robert Ylitalo illustrates how to avoiding greenwashing for the mining industry.
- Future-proof your company by finding new opportunities and business models linked to improving climate and social impacts that are related to core revenue. Do not take on ventures unrelated or irrelevant to the company's core revenue. That transition is expensive and statistically unfruitful (such as a fashion company deciding to make sustainable electric cars or building a sustainable social media app). Stick to doing what the company is best at.
Remember, doing the bare minimum to meet legislation is better than doing nothing at all- especially paying-out rising tax penalties year after year. Inaction most likely won't keep your company competitive in your market either.
If you successfully follow the above advice, growth and profit are ensured. And if you are faced with sustainability consultants who merely promise improved ROI based on reputation and attracting millennials, don't fall for it – unless they have clear empirical evidence linked to revenue.