Acknowledgements: The authors would like to thank Nishant Mathur and Charles Hendren for their major contributions to this work.
Sustainability as Adaptability
Article first published online: 19 JUL 2012
Copyright © 2012 Morgan Stanley
Journal of Applied Corporate Finance
Volume 24, Issue 2, pages 14–22, Spring 2012
How to Cite
Reeves, M., Haanaes, K., Love, C. and Levin, S. (2012), Sustainability as Adaptability. Journal of Applied Corporate Finance, 24: 14–22. doi: 10.1111/j.1745-6622.2012.00373.x
- Issue published online: 19 JUL 2012
- Article first published online: 19 JUL 2012
Most corporations now view sustainability as a key requirement for competitive advantage, but few claim to have achieved it. One of the key obstacles separating intention from execution is that the sustainability frameworks employed by companies tend to be insufficiently clear, precise, or comprehensive to guide decision making. One of the most pressing challenges for corporate leaders today is, of course, to sustain the economic viability of the core businesses. But given the implicit “beyond business” focus of most sustainability efforts, corporate executives would be better served by a more integrated, holistic framework—one that enables them to make tradeoffs among the economic, social, and ecological aspects of business.
This article introduces such a framework—one that redefines sustainability as the ability of companies to adapt to change in three different spheres of operation—ecological, social, and economic—with a near-term as well as a longer-term planning horizon. Without such adaptation, business models become obsolete for reasons that can range from economic failure, to competitive inferiority, to social or ecological limits.
This ability to adapt can be measured and valued by using the BCG Adaptive Advantage Index, a composite measure of corporate performance during market downturns. The BCG analysis also shows that although the most adaptive companies tend to report lower profits and have lower values during periods of relative stability, such companies perform consistently better over full cycles.
Creating social and ecological value alone doesn't automatically confer economic rewards, but—with the right business model and capabilities—it can. The authors explore some of the business model archetypes that successfully achieve this “co-optimization.”