Today, private sector executives from across the globe find themselves using the same word to mean different things. “Sustainability” has become shorthand for mitigating and adapting to climate change. But for many, sustainability encompasses a much wider set of issues, certainly including climate change, but also incorporating additional trends like deglobalization, the rise of AI in business, or persistent threats of inflation or recession.
This distinction was centerstage at a conference in Tokyo hosted by Brunswick Group and archetype ventures called “Future Design Initiative through Science and Finance.” Those in the room took the broader view of sustainability. They are wise to do so.
Investment and corporate executives are better able to lead when they view sustainability through a wider lens. For them, behaving sustainably is when an enterprise invests in itself in the present in a way that makes its future more promising. By contrast, behaving unsustainably is when an enterprise takes from its future to pay for the present. This perspective is equal parts casual and literal – a choice is sustainable if it is viable over time.
Consuming carbon in excess of thresholds required to mitigate climate change is just one example of unsustainable behavior. Doing so is effectively building dependence on a resource that is going away. It is taking from its future to pay for its present.
The European and American viewpoints, in particular, are prone to considering sustainability and climate concerns as identical. And many of these executives can be quite strident about pressing these views when interacting with counterparts in other regions, Japan included. The real trend globally that matters in Japan and everywhere else is how executives approach sustainability decisions.
In effect, executives approach sustainability decisions in either of two ways. Some are “analytic,” and others are “catalytic.” Analysts think critically about the future and look for leading indicators of change. Catalysts know what it will take for them to succeed in the future and work to create those conditions. On the other hand, those that remain silent assume that the future will look like the past and that the trends mentioned above will not impact their businesses in the long run.
The key to being a catalyst is exercising influence. For example, an investor taking this approach may use active ownership practices in which it engages with portfolio business to innovate in ways needed for the future. Catalytic investors have to be ready for uncertain or even difficult circumstances in the course of such an effort.
The key for analysts is how they project trends. In this instance, the investor may reweight holdings of a company to be more or less prominent in the portfolio based on how it estimates the specific long-term prospects of that firm. Analytic investors may have a smoother experience but also a more modest long-term reward.
Examples help make these concepts practical. The “Constructive Capital” rubric used by Caisse de dépôt et placement du Québec, which finances Quebec’s pension fund, is one example of the catalytic approach. Meanwhile, New Zealand Super Fund explicitly uses “sustainability” to describe this approach.
Whether analytic or catalytic, several themes are common to sustainability for investors and companies.
Time is the most central theme. The best investors and companies worldwide evaluate their sustainability in terms of how well they can expect to perform over multiple time horizons, well into the future and beyond the short term. Sustainability is about uncertainty and adaptation. The world around us is changing, and private sector institutions must do the same in order to survive.
Sustainability is also about an enterprise’s mission and people. A sustainable institution does something special that is worth sustaining, something that addresses an important need of society in a differentiated way. These institutions practice a stakeholder model of capitalism that encompasses communities, customers, suppliers, employees, sponsors, governments, and savers. Sustainable institutions all have multiple stakeholders and adapt based on the varied responsibilities to them.
Perhaps a relatable example can illustrate how this has played out in the United States. Manufacturing historically employed a lot of people in the southeast, and public suspicion ran especially high in the 1980s as corporations based in Japan and other places began gaining market share from US firms. Toyota made the strategic decision to open a large manufacturing plant in Kentucky around that time, and crucially it signaled that this region was valued, not just as consumers but as employees and communities. No one can know how the future would have unfolded if Toyota had not done that, but it certainly allowed the company to operate more sustainably in this fast-growing part of the US. Fast-forward to today and you will find their community excited to welcome the new Toyota Battery Manufacturing facility by 2025. Sustainability is a cornerstone of trust, without which long-term relationships – and in turn opportunities for long-term growth – cannot meet their full potential.
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