The warning came from an unexpected source. Winfried Mathes, a senior representative of fund manager Deka, said RWE should show “prudence and vision” in the standoff over what’s left of the Hambach Forest, half of which the power company wants to raze to expand its lignite mining operations. Deka fears that RWE risks its reputation and its future by allowing the protests to escalate.
The criticism was surprising not for its substance but because of who voiced it. No longer content to gauge companies solely in terms of financial data, institutional investors like Deka are questioning their strategy from an environmental standpoint with a view to social and political issues.
In many cases, financial professionals are pinpointing shortcomings by questioning how serious firms are about their stated commitments to sustainability. A sober look at many companies shows that while they’re printing mountains of colorful brochures to highlight their environmental credentials, they’re putting their public credibility at stake by getting bogged down in business models that are incompatible with serious sustainability.
A dirty, cheating auto industry
Germany’s most important industry provided the best example of this. In coming days, the auto industry and government representatives will find a way to retrofit old diesel vehicles to end the wrangling over how to solve the diesel pollution problem.
But regardless of the deal reached, the emissions scandal seriously damaged the sector’s reputation, and subsequent disagreements about how to repair the damage has made things even worse. The consequences of the emissions scandal will be sustained longer than the supposedly sustainable business practices that car companies are pledging. It seems impossible they can regain credibility here.
An unrelenting power company
Power company RWE maneuvered itself into a similar situation. Its tough stance in the upcoming clearing of Hambach Forest may be economically necessary and legally watertight. But ugly scenes of police removing protesters will hurt RWE’s reputation as will public criticism of the company sacrificing ancient woodland for the most environmentally-damaging form of electricity generation. That version of history will stick, and people will dismiss RWE’s commitment to sustainability.
It must be said that no company should be denied the opportunity to exercise its rights and fight for its business. But what is happening in Germany’s automotive and the energy industries highlights a deep-seated problem that is becoming apparent in other sectors.
Talking about sustainability and being sustainable are two different things. Executives are too attached to old business models and they use their power to defend it, even when it’s clear that its foundation is starting to crack.
The inevitable transition
In the auto industry, the initial diesel success story morphed into a risk so great that some manufacturers thought they could only way to gain control was by resorting to deception. They should have grasped the force of the climate debate much earlier and responded by investing in electric mobility. It’s been evident for some time that battery-powered vehicles will make a breakthrough sooner or later, fueled by public consensus, governments and by successful competitors who had the foresight to make the transition long ago. The German auto industry could have put itself at the forefront of this trend, underlining its commitment to sustainability.
RWE, meanwhile, is struggling with the green energy revolution, even though it should have learned its lesson when it began to phase out nuclear power years ago. Since then, the public desire for safe and clean electricity has only increased. True sustainability would have meant tackling the company’s second critical issue – the continued use of lignite to generate electricity – at an early stage. Now RWE seems surprised by the controversy. It is hard to believe how it could have been.
Sustainability doesn’t end with the carefully-chosen words printed in annual reports and prospectuses. If companies are serious about sustainability, they anchor it into their business model and prove it every day in the way they do business. That is the only way for them to win the trust of their customers, society and investors. And the only way for them to be successful in the long term.
Bert Fröndhoff heads Handelsblatt’s chemicals, pharma and services reporting team. To contact the author: email@example.com