As this year gets going, if one notion must come to the fore as a priority in all strategic discussions during board and executive committee meetings, it should be the Minimum Acceptable Sustainability Threshold (MAST).
Just what do we mean by this concept? In a world where geopolitical withdrawal is exacerbating environmental and social challenges, slogans like ‘Drill, baby, drill!’ are reappearing in the United States and resistance to ESG standards is emerging in Europe. Everywhere, the idea is taking hold that sustainability and competitiveness are mutually exclusive and that the former may have to play second fiddle to the latter in a tense economic context.
Yet, the facts are there: six of the nine planetary boundaries have been exceeded and, if we had any doubts, the floods in Valencia or the fires in Los Angeles remind us that climatic risks are real and are only going to intensify. Initial quantifications put the impact last year at almost one point of GDP. What’s more, a recent study by the World Economic Forum and BCG states that climate inaction could lead to a 22% fall in world GDP by 2100 and a 25% fall in corporate profits by 2050.
Every business is thus faced with a double bind: to meet their short-term economic needs but without sacrificing their long-term responsibilities. So, how can a company navigate these headwinds? By defining its Minimum Acceptable Sustainability Threshold, that is, the strategic breakeven point below which its practices irrevocably harm its sustainable impact, all whilst seeking to maintain its economic longevity and competitiveness in a restrictive context.
This first assumes taking an objective look at the risks and quantifying the investments necessary to cover them. Let’s consider the example of decarbonisation costs: when we compare the required investments with the forecast cost of unavoidable carbon emissions, the results are telling. In almost all cases, inaction is, in the medium term, a losing gamble, both economically and strategically. It simply costs more not to invest in the transition than to implement a significant ‘environmental’ capex plan. Explaining this to a company’s financial partners with the help of supporting figures would make it possible to finance its sustainability strategy.
In this context, innovation to create new value models is also a priority. The example of Nexans is particularly inspiring here. In 2018, the French electric cable company was in some difficulty and decided to transform its business model by incorporating ESG criteria in its strategy. The result? Nexans was able to quadruple its market capitalisation in five years, whilst achieving its ambitious decarbonisation objectives.
When it comes to ESG regulations and standards, there is an urgent need to take a step back from the ideology and tensions in order to adopt a pragmatic approach. We should appreciate their positive aspects and, above all, make a veritable strategic steering tool of them. Europe is putting forward a proposal to simplify sustainability standards, and it puts us on the right path: the one that incorporates ESG issues in strategic reflections, taking us from formal reporting to real transformation. Here, simplification is synonymous with ambition!
Of course, the Minimum Acceptable Sustainability Threshold will vary by sector. But it concerns them all. Remember, Patrick Pouyanné, CEO of Total Energies, emphasised on the eve of Donald Trump’s re-election that excessive deregulation ‘wouldn’t help the oil & gas industry’; on the contrary, it would ‘demonise’ it in the court of public opinion – as the ‘acceptable’ part of the Minimum Acceptable Sustainability Threshold is also measured against the sensitivity of various stakeholders. In other sectors, like health, the priority should be on human aspects before anything else. It would be absurd for hospitals, nursing homes or crèches to have to meet the same level of environmental commitments as energy providers, but it would be perfectly normal to require more of them on the social front. The Minimum Acceptable Sustainability Threshold is sometimes a maximum in an area with limited impact.
Practicality and innovation are not optional: they are the tools to progress in an increasingly uncertain world. Companies must determine their own Minimum Acceptable Sustainability Threshold, not only in answer to the current crises, but also to guarantee their longevity in a future where profitability and sustainability will be inextricably linked – or will quite simply not exist at all.
Building a sustainable strategy: now that’s a winning bet for the future.
Sophie Chassat – Partner – Accuracy
David Chollet – Partner – Accuracy