A General Electric gas turbine. The company's sustainability innovation is incorporated into its business model. Photograph: David and Judy Lomax/Rex Features
When it comes to sustainability, industrial firms are perhaps not the first that spring to mind. Their performance is patchy, to say the least. A recent study compared global leaders in the diversified industrial sector – that is to say engineering, construction and production companies, who manufacture a wide variety of products – with their counterparts in South Korea, a country widely respected for its industrial exports. Significant gaps are becoming evident between a small group of leaders, who continue to show groundbreaking innovation, and the rest of the pack.
The success – or not – of the diversified industrial sector is pivotal as it has an impact on the supply chain of so many other industries. Products either enable or hinder customers to manage their own sustainability impacts, while the sector's own business model is highly dependent on the ever increasing and fluctuating prices of raw materials and energy.
At Two Tomorrows we have just carried out a new piece of research for the Tomorrow's Value Rating in South Korea. This ranks the sustainability performance of 30 leading South Korean companies and shows which of them is likely to deliver long-term investment value thanks to sustainable practices. It also compares their sustainability performance with that of the 90 companies we rated in the global Tomorrow's Value Rating last year. The companies rated with investment grades are restricted to those that are already recognised as strong performers in sustainability,
Within this research, we decided to look carefully at the diversified industrial sector. We compared the five most sustainable South Korean engineering and construction companies, (GS E&C, Kogas, Daelim Corporate, Samsung Electro-mechanics and Hyundai Engineering and Diversified Industrial) with the five most sustainable diversified industrials (Hitachi, GE, Siemens, Johnson Controls and Vestas Wind Systems) from our global 2011 Tomorrow's Value Rating. This comparison has helped us to understand whether the South Korean sector, including companies with an engineering and construction focus, are leading the way when it comes to the management and innovation of their sustainability performance, or whether they are being left behind.
While those industrial companies topping the new table appear to have ticked all the right boxes, could their continued success be at risk? If their management systems are not robust enough, and their sustainability strategies are not sufficiently broad to cover all material issues, then this could increasingly jeopardise core business in the medium to longer term.
So what are the implications and how can they be addressed? And what best practice is emerging?
In essence, it's clear that our industrial leaders in South Korea have a good understanding of the key issues that affect them, but the business models they have to address them strategically are inconsistent.
In South Korea, companies such as GS E&C have focused on mitigating their environmental impacts by developing technologies that are energy efficient and that recycle resources. To be applauded, yes, but as part of an effective strategy, there is still much more to be done.
There is a sharp contrast with how a company such as GE demonstrates its strong, global sustainability leadership. GE has led on game-changing innovation to bring enhanced environmental benefits through the introduction of its ecomagination products. It uses life-cycle analysis to understand and create innovative products which use less energy and raw materials throughout their life. Importantly, this is incorporated into its business model. Furthermore, stakeholders are able to influence key decision making, reassuring them that the company's governance is transparent and open to new ideas.
GE's strategy to help its customers improve their environmental performance through their products helped them earn more than $18bn in revenue last year. This is what makes GE a sustainability leader. It is not only managing sustainability issues, but building a brand name and business model fit for the future, around innovation, sustainability, and its customers.
With their lack of broad sustainability strategies, South Korean firms, and indeed even a number of global leaders, would do well to take a leaf out of GE's book to link their eco-efficiency to their brand and customers, to make this leap into the realms of strong, innovative leadership.
Jason Perks is group director and Samantha Parsons is consultant at Two Tomorrows
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