In Reflets #151, Cédric Baecher (E00), partner and co-leader of sustainability practice at Wavestone, and Karine Hillaireau, vice-president CSR at Stellantis and president of the MEDEF working group for sustainable finance & ESG performance, take a fresh look at the notion of performance in a changing world. Here is a free online translation of the article… subscribe to get the next issues (in French)!

Representing sustainable development

The links between the environmental consequences of economic growth, the limitation of natural resources and demographic change have fuelled public debate for decades. Published in 1972, the Meadows Report¹ opened up a primarily theoretical field of study and investigation, the concrete repercussions of which are now gaining radical ground (disruption to supply chains affecting many countries, difficulties in insuring risks that have become systemic, etc.).

The 1992 Earth Summit in Rio de Janeiro, organised by the United Nations, officialised the notion of sustainable development with its three intrinsic and now widely familiar aspects (economic, environmental and social). Over the following two decades, the graphical illustration of this new concept naturally emerged as three interconnected circles of identical size, each one representing a founding aspect, with an intersecting area symbolising sustainable development.

In fact, given the insights and experience acquired since the Earth Summit, a more appropriate illustration may be that of three concentric circles of different sizes, overlapping from the smallest (the economic aspect in the centre) to the largest (the environmental aspect, encapsulating the other two circles), with an intermediary circle at their interface symbolising the social aspect of sustainable development.

Far from a mere exercise in style, this shift from the standard representation of sustainable development may have several educational virtues. Firstly, it acts as a reminder that the ultimate ‘limit’ imposed on all our human activities is truly that of our environment’s ability to absorb them sustainably. Secondly, it acknowledges that economic constraints lie at the heart of the way our societies function. Thirdly, it recognises the utmost importance of the social aspect, the only way to interconnect and reconcile the other two aspects.

A multitude of present-day examples provide vivid proof that the environmental impacts of human activities lead to situations of major social and political instability, which in turn have immediate impacts on businesses and the economy. The onus is now on us to gain better control over the negative effects our activities may have on the environment, specifically by revisiting the economic models and linear growth patterns which have largely fuelled and accelerated economic growth in the last 50 years.  

Is the notion of performance also changing?

In this context, as we come up against the ‘wall’ of planetary limits and realise that extending growth curves indefinitely is no longer an option, how should we perceive and define sustainable performance in a finite world? How do we rethink the very notion of performance in a changing world?

Several lines of thought can be explored.

To begin with, sustainable performance implies ‘openness’. A company can no longer see itself as a lone operator; it must be aware of the fact that its forms part of a broader ecosystem, within which it can only perform well if it finds its place and develops a network of new partners and forms of cooperation. In particular, this implies abandoning the simplistic relational patterns of the past which opposed the dominant and the dominated. In a changing world, intrinsically more complicated but also richer and more interesting, stakeholder (or ‘interested party’) is a key concept, indissociable from that of sustainable performance. Today, even a player who initially appears far removed from a company’s ‘core activity’ may become an essential partner in helping to secure a part of that company’s sustainable performance.

Secondly, sustainable performance implies ‘adaptation’. Over the past century, economic agents (both individual and collective) grew more accustomed to solving problems through inherently ‘addictive’ behaviour (e.g. printing money to address inflation). In reality, this lever tackles the consequence rather than the cause, and provides only temporary solutions, more often than not triggering other problems which worsen the initial situation. We must replace these practices by adaptation processes, based notably on circular models taking into account the planetary limits we now know and understand better. We have entered the era of the ‘living’ company, forced to adapt and with a greater need than ever to call on collective intelligence, imagination and cooperation.

Lastly, sustainable performance implies ‘balance’. Transition is often perceived and presented as a simple ‘step’ between two states or two periods of relative stability. Yet we have already changed the world, and lastingly so! Awareness of planetary limits as well as their subsequent climatic and geopolitical upheavals invite us to consider instead that we are now operating in a world of long-term uncertainty. In this context, achieving ‘sustainable performance’ will largely depend on the ability to find and maintain a dynamic balance between several apparently opposing forces, and before knowing if we can ever regain a ‘cruising speed’ similar to that experienced since the Trente Glorieuses (1945-1975).

In the face of extreme climate events, political ‘passions’ and technological disruption or even renunciation (due to a lack of natural resources for example), sustainable transformation will require a considerable effort in terms of creativity and increased decentralisation of governance and decision-making, if we are to adapt more effectively to the realities and needs of each region.

While in the more or less long term the most specialised technical profiles are at risk of being replaced by AI, our human skills of interactivity, empathy, creativity, holistic vision, or our ability to adapt to constant and radical environmental changes will remain essential (and not easily replaceable) qualities in ensuring the sustainable performance of organisations.

Measuring performance, without forgetting impact

Given these changes, is the current form of sustainable performance measurement in keeping with the challenges?

With the coming into effect of the CSRD² in Europe and studies led in parallel by the ISSB³ in the USA, the movement to standardise ESG reporting on an international scale is truly under way. The economic world, at least in its western hemisphere, has initiated a lengthy process to lay the foundations and milestones of a ‘new business grammar’, largely inspired by methods and ‘recipes’ which are well-known and thus reassuring (e.g. the monetisation of extra-financial indicators).

In the coming years, it will take considerable energy and resources on the part of companies to gradually come into compliance and roll out the (substantial, costly and rigid) measures required by the new rules of play, all the while bearing in mind that ‘anything they say can and will be used against them.’ Measuring sustainable performance will no longer be, and is no longer, a matter solely for CSR departments, but calls on the collective commitment of others (Finance, Risk and Human Resources, etc.) to apply theoretical progress trajectories, ‘set’ in time and space.

However, while this standardisation movement is essential for gradual wide-scale change, it alone will not be able to meet the broader societal expectations clearly expressed in the face of the major challenges raised by the transformation under way. Businesses must therefore preserve leeway to remain creative and pursue their continuous adaptation, beyond their immense efforts in terms of strictly regulatory reporting, perceived by many as ‘soulless’ and disconnected from their values.

In addition to being measured to accommodate investors’ needs, sustainable performance must continue to be inspired, translated and embodied in concrete actions and initiatives, so that its usefulness is constantly reiterated and demonstrated. All the more so given that (internal and external) stakeholders will increasingly look for meaning and real effects that can be seen on the ground.

In order to collectively continue inventing new tools to encourage and stimulate businesses’ creativity in terms of societal and environmental responsibility, it thus appears both essential and urgent to ‘pair’ performance measurement with impact measurement, a fundamental notion in our changing world. To be legitimately recognised as sustainable, a company must constantly prove its effective ability to provide concrete solutions to its stakeholders, and primarily its customers.

In conclusion, the ‘scaling-up’ of ESG reporting is useful but will not change the game alone. Beyond the words and figures, it is a company’s concrete actions and initiatives, founded on clear, solid and shared values, which will play the most decisive role in bringing credible responses to the expectations of younger generations keen to see real, obvious and measurable impacts.

Sustainable performance will be inherently linked to each company’s ability to constantly reset itself (adapting its scopes and trajectories to integrate the new constraints and opportunities of sustainable change) and to attract the most positive talents and energies enabling it to ‘build in a changing world’.

¹ ‘The Limits to Growth’, produced by researchers at the Massachusetts Institute of Technology (MIT), was commissioned in 1970 by the Club of Rome, a think tank based in Zurich, Switzerland. Also known as the ‘Club of Rome Report’, its main authors were the ecologists Donella and Dennis Meadows. The first edition was published in 1972, and updated versions appeared in 1992, 2004 and 2012.

² Corporate Sustainability Reporting Directive.

³ International Sustainability Standards Board.

Translation of an article published in Reflets Magazine #151. Special offer: read the issue (in French). 

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