Sustainability as a Compass in an Unstable World
The world in which companies operate is fundamentally changing. Between roughly 1990 and 2015, companies were able to benefit from growing markets, technological advances and – partly due to the 'end' of the Cold War – relative geopolitical calm and consistent visions of the future. However, this stable world is rapidly disappearing as we face converging geopolitical, ecological, and social challenges. It is unlikely to return anytime soon, especially with the shift from globalization to islandization. In the research report ‘From Globalization to Islandization,’ Kearney describes this as a phenomenon whereby nationalism is gaining a larger foothold in major economies worldwide, leading to drastic protectionist measures and reduced global economic flows. Consider the mutual import tariffs between China and the United States, or the Joe Biden administration’s subsidies for green industries and energy production and the European Green Deal response to it. Amid increasing geopolitical tensions and economic uncertainty, many governments are no longer focused on the benefits of global cooperation, was the conclusion also of the Munich Security Report 2024. This report, following the Munich Security Conference, an annual international summit on security, reports that governments mostly want to avoid being ‘worse off’ than others.
Thinking in scenarios
Against this background, executives can no longer afford to wait and see how global developments impact their business operations. To avoid becoming passive players in a diffuse, unstable world, it is crucial for executives to adopt a proactive, visionary role. Where and what will you invest in? With whom will you cooperate and with whom not? Executives must recognize that every decision is inherently political, as these islands have the potential to be interpreted as political statements. This marks a significant shift from 15 or 20 years ago when CEOs could navigate according to a more universally shared capitalist worldview.
Today, thinking in terms of scenarios has become essential; considering questions such as what room for maneuver would be available should the supply chain be disrupted by a coup (or climate change) or what role would a specific outcome of the United States election play in the decision to build a new factory there. Could a President Trump administration limit migration while those migrants will be needed as the potential work force? Political developments will inevitably have a greater impact on how executives manage their organizations. Developing playbooks for different scenarios will afford executives business advantages as well as personal reassurance, especially in these uncertain times.
A clear compass
Besides thinking in scenarios, executives now more than ever need a clear compass on what they stand for as a company and what they want to achieve. The authors believe this compass should be directed by a sustainable vision and ambitions, as what is clear and constant in this diffuse world is that we have a considerable journey ahead in the field of sustainability. Not only is this a scientific fact; it has been proven that sustainable investments offer greater economic benefits to society than inaction, while inaction also carries significant risks. In a world characterized by islandization, a focus on sustainability can provide a stable, long-term business trajectory.
The growing opportunities in sustainability are highlighted in Kearney’s FDI Confidence Index 2024. The report indicates that foreign and domestic investment in sustainable and resilient infrastructure, renewable energy and technologies that reverse environmental degradation are priorities for many governments. This creates a solid foundation for fruitful public-private partnerships, as companies and governments need each other to drive sustainability. While not all governments are prepared to be involved in making the difficult decisions, it is crucial for executives to proactively seek out partners such as other businesses and supportive governments. Together, they can for instance commit to the rapid development of new technologies in a specific sector. Thus executives, each guided by their own compass, together can guide the local, national or even international compass. Government can aid this process by offering investment incentives—such as tax breaks, subsidies, or special economic zones—or simply through coordinating collaboration among multiple companies in the sector.
In the spotlight
Many executives have always, behind the scenes, conducted informal business with governments. This approach is, given the public debate on the role of companies, no longer appropriate or self-evident. Executives are increasingly in the spotlight, often without choosing to be so. By being prepared and having a positive narrative, this visibility can be turned to their advantage. Sustainable investments present immense opportunities to bridge the gap between businesses and both society and politics. Bridging this gap is essential. It is what is expected of today's leaders. The good news is that there is no need to reinvent the wheel. Numerous examples of public-private partnerships already exist; in the Netherlands initiatives such as Invest.NL and science parks such as the High-Tech Campus Eindhoven, the Delft Technology Park, the Leiden Bio Science Park, or the innovation communities around the universities of Twente and Wageningen. The recent announcement by the Dutch pension funds to increase investment in the energy transition offers new opportunities too. Executives can tap into these initiatives, provided they step out of their ivory towers and engage with their local environments. What initiatives are already in place? Who are the peers you can collaborate with to actualize a tipping point? Who should you be talking to in the government? It is no longer sufficient to send a small internal team to establish contacts. Executives themselves need to be present in more places and political arenas. They must consciously dedicate time and attention to building relationships with other companies and politicians at all levels—international, European, regional, and local.
Winning asset
It is important to clarify that the authors are not advocating for the use of (even more) lobbyists. Instead, we call on executives to personally engage with and in the various communities where their companies operate. It is not enough to simply join the local Rotary Club or sit on the board of a regional museum or soccer club. We call for taking leadership in public business (again) and returning, as it were, to the role that businesses used to play in the public domain. Over the past 20 years, companies have effectively been riding on the coattails of governments. Now, with governments becoming a less stable factor, executives must be ready to take the wheel themselves. The ability to lead holistically is likely to become a winning asset. The better a company plays this public role, the more talent it will attract, the better its access to resources, and so on.
A prime example is the memorandum of understanding between ASML and the city of Eindhoven to explore whether the tech giant can accommodate its expected expansion around the Dutch town of Veldhoven. In the meantime, ASML is already taking responsibility by helping developers build affordable housing in the Eindhoven region to compensate for the housing occupied by its international staff. Another example of the leadership needed is the Antwerp Declaration for a European Industrial Deal. In this declaration, 73 industry leaders from nearly 20 sectors advocate for a clear and predictable European industrial policy, emphasizing competitiveness, resilience, and sustainability. They argue that such a policy is essential for a region to hold its own in the global playing field with the development from globalization to islandization. Their ambition is to make Europe a globally competitive energy provider with, among other things, initiatives like a Clean Tech Deployment Fund. These leaders recognize that making the necessary strides in sustainability is not only essential for society but also a prerequisite for long-term business success.