“Our Common Future” is a term which has been coined for sustainability in the universe for decades. The conceptual design, financial implications, and tools for analysis, measurement, and validation of sustainability remain an enigma to the succeeding energy generation. The sustainability sector's perplexity is due to its evolution over the past, present, and future.
This article seeks to decipher the practical aspects of sustainability in a broad context.
The article is based on an interview with Lokendra Sharma, a senior consultant with Infosys’ sustainability and energy transformation group. His work includes technological assessment for business potential and a data-driven approach to solving business and technical complexities in the sustainability sector. Before his career transition to consultancy, he worked in the oil and gas industry for 7 years. He is a petroleum engineering graduate and holds an MBA from the Indian Institute of Management, Calcutta.
The term sustainability has evolved since the pre-Industrial Revolution era. It is normally understood that any sustainable development is a long-term vision that satisfies current needs without compromising the future. What can further help clarify this textbook definition of sustainability?
Sustainability concerns the industry, consumers, and citizens. Therefore, its notion often poses ambiguity in achieving consensus from the different domains of ethics, politics, and equity. Two aspects may be added to the definition of sustainability to bring the much-needed clarity. Firstly, the processes to make it happen for the society, government, and organizations. By this, I mean a standard procedure, guidelines, and regulations for implementing sustainability in all respective sectors. Setting a right process will automatically make the talk of sustainability take the front seat against the existing after-action approach. Secondly, sustainability should be redefined ‘as a way to profitability.’ Currently, ample examples in the market give the required substance to this redefinition that their sustainability approaches have resulted in more profits and more recognition in the market.
The relationship between sustainability and profitability is paradoxical. There are 17 Sustainable Development Goals (SDGs) defined by the United Nations (UN) to balance social (education, health, gender equality, and justice), economic (poverty, growth, industrialization, and partnership), and environmental (climate change, water, land, and sustainable cities) aspects for the nation’s development. How do you explain profitability when additional investment is required to achieve the SDGs?
This can be explained by the two thought processes called shareholder concept and stakeholder concept. Shareholders are the owners of the company, while the stakeholders are the enablers. Initially, profitability is concerned with the benefits achieved by only the company's shareholders. With the introduction of sustainability, profitability also considers the benefits achieved by stakeholders. This results in increasing the intrinsic values of the organization.
Let's take the example of a major chocolate manufacturer in Europe. This company discovered that their end-stakeholder cocoa farmers are living in hardship due to low incomes. They improved their living condition by investing in blockchain technology (a transactional network between stakeholders and shareholders). This resulted in an improved supply chain of raw materials, quality control, and a marketing strategy, resulting in higher profits, and achieving sustainable development goals.
As in the cocoa case, profitability using sustainable measures can be established in numbers, but in others, sustainability cause-effects are complex to put in balance sheets, yet there are significant indirect values in the cost-benefit analysis obtained from these sustainable practices.
In the past 2 decades, almost every brand (for examples: IKEA, Unilever, Seventh Generation, etc.) globally has realized the intrinsic financial and nonfinancial values brought in by sustainability; therefore, you see green backgrounds, positive societal taglines, and stakeholder-driven innovations everywhere. Some shareholders still have a mindset of the extra cost associated with sustainability, but ‘good things take time.’
Asking this from the perspective of an employee/company person, how do you carry out the process of sustainability analysis for your respective organization?
For a successful company, three main pillars—innovation, technology, and sustainability—have to work in tandem. Sustainability is analyzed and measured via ratings/indexes in the current market. Rating methodology relies on three major areas for indexing: financial analysis, carbon accounting, and societal parameters, keeping in mind the 17 UN SDGs.
The primary focus is environmental (carbon accounting), leading to social benefits, and the cumulative effect of both results in financial gains. For sustainability analysis of a company, the first step is to define the purpose/goals/mission/visions concerning the environment and social aspects specific to the location and the company's profile. Materiality assessment and mapping are used to rank the social and environmental goals against their impact, actions, and timelines.
The second step is the timeline of the targets. In a business-as-usual case, a quarterly financial report helps identify areas of investment and states results in net gains from investments in the past quarter. This nature of businesses may work on some short-term sustainable goals, but sustainability profits are beyond quarterly financial balances for longer-term goals. Financial scrutiny every quarter may not put the necessary focus on long-term, impactful, sustainable actions.
The third step is innovative thinking for sustainability, such that the company adapts to the industry's dynamic nature.
How are the sustainability ratings validated?
Sustainability ratings have been in public literature for the past decade, and I have also come across many such company reports, and most of them are rated highly in sustainability. Yet progress always seems lacking with respect to national goals.
Therefore, most research in developed countries focuses on measuring the actual groundwork done for sustainability. One of the research studies I was associated with analyzed cash flow in logistics and raw materials for sustainability validation. This involved the identification of key financial performance indicators in terms of company operations. For example, appropriate and timely payment to the stakeholders in society was one of the parameters. These indicators show the extent of the changes in the business operations in the sustainable direction. For carbon accounting, scope-wise emissions (scope 1—direct emissions, scopes 2 and 3—indirect emissions) are relatively evolved.
Proper carbon measurements are the first step in the direction of carbon auditing, regulation, and transition. Transparency is critical for any organization to establish itself in sustainability.
Any advice to young energy engineers for building skills in the sustainability sector?
Read, absorb, and adapt as the world constantly evolves; set proper goals; and take pride in adding value to the industry.
Sustainability is one of the most used and yet, in many ways, least understood terminology. It is not a destination but a path that needs to be set out by the organization. This path involves indexing the organization's cycle into the economic, social, and environmental aspects. This is followed by identifying short- and long-term avenues for improving the organization's sustainability. After that, it will loop into proper monitoring, regulation, and validation of sustainable actions. Ultimately, the process ripens to financial and nonfinancial benefits to the organization.
