Say the word ‘sustainability’ to someone, and their immediate thoughts may gravitate towards initiatives around the environment. This connection is hardly surprising considering the increased awareness among consumers to do more for the planet. In fact, 68% of highly empowered consumers plan to up their efforts to identify brands that reduce environmental impact, with this trend partly driven by the greater discussion of the issue of climate change in the media and the acceptance that something needs to be done to tackle it. In the case of retail, 57% of UK online shoppers believe that the rise of online shopping during the Covid-19 pandemic is an issue for the environment.
Business practices which play a part in protecting the natural environment are therefore understandably high on the agenda for retailers and businesses in a wider sense, but in reality, the concept of sustainability is about so much more.
The five capitals of sustainability
Traditionally, sustainability was perceived as effective management of finances, resources and land, but considering them only in isolation has often led to misuses of natural resources and the neglecting of key stakeholders. With a spotlight shone on dependencies on the natural environment for raw materials and on societal structures for human resources, for organisations to truly understand and appreciate the elements that make up sustainability and a successful business strategy, the five capitals model describes the key aspects that businesses should incorporate.
Natural Capital: This covers the world’s natural assets such as air, water, geology and life on Earth, and the corresponding derived human ecosystems. As most businesses consume energy and generate large amounts of waste, a particular challenge facing many types of retailers, organisations must ensure that in any sustainability strategy that they consider the impact that they make on these resources and how best to mitigate them.
Human Capital: What many organisations may not be aware of is the human element of sustainability. A modern and sustainable approach to workforce management should encapsulate the health, well-being, skills and career progression of employees. With retail employees becoming key workers during the pandemic, this consideration is more important than ever before, with emphasis on creating a strong company culture coming into play.
Social Capital: Organisations need to be aware that they have the capability to be impacted and to make an impact on wider society. Social capital covers the value that employees can add to their organisation via partnerships, stakeholder and customer relationships, which are all key aspects for retailers.
Manufactured Capital: While it’s the case that organisations can only produce products and services with the right equipment in place, the tools and infrastructure required vary by sector. Expenditure and resources needed are likely to drastically differ between a marketing agency and national supermarket for example, with premises, supply chain and stock making up part of a retailer’s manufactured capital.
Financial Capital: This refers to the financial resources that organisations need to utilise to begin and maintain their operations. The challenge for businesses in this area however is determining the value of financial capital, as this is usually determined by other forms of capital. For retailers, consumer demand is likely to dictate the value of goods and services.
With the five capitals determined, the relationship and dependence on each other is just as important for retailers to truly understand sustainability. At the core of business operations, manufactured and financial capital is key, but they rely on human and social capital to be produced. Further complexity comes from the fact that human and social capital rely on natural capital, meaning that manufactured and financial capital are therefore ultimately dependent on natural capital. Furthermore, complexity is very much reliant on context, with different capitals having greater or less significance across different industries.
Viewing sustainability through a new lens
It’s clear that navigating the five capitals and ensuring they’re prioritised is a complex minefield to navigate, but it’s increasingly important for businesses to comprehend due to the mass consumption of natural capital at a rate that’s much faster than it is being reproduced, an issue that applies to retailers, brands and manufacturers alike. The human element is also particularly pertinent now, as we face what looks to be an industry-wide labour shortage compounded by the impacts of both the pandemic and Brexit.
The starting point for retailers is to ensure that the executive team is well versed in the five capitals and how it relates to their own organisation’s challenges and goals. For leaders, the responsibility sits with them to be honest about their organisation’s attitude towards sustainability and this starts with examining closely which areas of the five capitals have not been addressed to their full potential. I encourage retailers to first consider the sustainability of their supply chain, workforce management and customer experience operations and am here to help.
It’s clear that true sustainability relies upon collaboration, with organisations needing to look to partners, experts and competitors within their industries to progress initiatives for the benefit of all.