In recent years a growing bag of issues has dumped sustainability directly onto boardroom tables all over the world, eliciting some interesting and brilliant responses. Climate change; EU Directives; resource scarcity; public procurement rules; building regulations; energy prices; and changing consumer demand have all contributed to make every business think of it in some shape or form.
The key question appears to go like this:
This sustainability agenda has landed on us, we never asked for it, now is it a problem for us to grapple with or is it an opportunity to exploit for growing our business?
“This agenda of sustainability and corporate responsibility is not only central to business strategy but will increasingly become a critical driver of business growth….I believe that how well and how quickly businesses respond to this agenda will determine which companies succeed and which will fail.” Patrick Cescau, CEO of Unilever
The response generally falls into two camps – one is to be tactical and defensive – a bit of recycling, environmental management or whatever will make it look like we’re right on it and the other is more thoughtful and brave – which involves taking it on board strategically, making it a transforming process for the company and its operations.
A compelling and increasing body of evidence is emerging that demonstrates those taking the strategic approach, the slow burn, are the ones reaping the rewards. This is seen to be true in practically every sector from insurance and finances to construction and food production.
“As we look at how we design and develop products and run our global business, it’s not enough to be solving the challenges of today. We are designing for the sustainable economy of tomorrow, and for us that means using fewer resources, more sustainable materials and renewable energy to produce new products.” Mark Parker, CEO Nike Inc
A recent report, “Green Winners” by the global consulting company AT Kearney highlights the evidence; over a six month period from May to November 2008 in the midst of the economic storm, those companies featuring on the Dow Jones Sustainability Index outperformed their sector by an average of 15% and sometimes as high as 33%. The best performing sectors include insurance, energy, transport, food, industrial services, financial services and chemicals.
The report goes on to point out four key characteristics all those companies share in common.
1. A focus on long-term health over short term gain. Five year planning is a necessity, allowing time for return on investments.
2. Strong Corporate Governance. Companies that see commitments through win. Good corporate governance means you have the tools needed to carry people with you but it also means being transparent and reporting progress.
3. Sound Risk Management Practices. Ten-year risk management windows are needed. You need to be thinking on those timescales to leave room to steer your way around trouble. Think climate change, legislation, market trends, investor policy, energy security.
4. A History of Investing in Green Innovations. Most companies start out on this route: by undertaking eco-efficiency measures like energy efficiency, recycling, process efficiency and environmental management systems. These are important starting points to build on.
Other studies stack up the evidence. Bob Willard*, author of numerous books on sustainability and a leading expert on thebusiness value of corporate sustainability strategies demonstrates that businesses stand to realise a whopping 66% gain in profits from a sustainability focused business model, something he calls the Sustainability Advantage. The gain comes in several parts including cost reductions through eco-efficiency; increased staff productivity; an ability to reach new markets; reduced staff attrition; as well reduced insurance and financing costs.
The goal outlined by Willard is to move the company from mere compliance focus to “beyond compliance”, where the company is so future proofed from legislation that it doesn’t need to focus on this as an issue, leaving it free to innovate. Companies who are already “beyond compliance” seek to move to become “integrated” where sustainability is genuinely the core method for attaining the company’s business goals.
As well as the characteristics outlined in the Kearney report, these people know what they are talking about when they say sustainability. Gaining an in-depth understanding of what it’s all about sets the direction and the pace, without it you are fairly much guessing. These companies gained their insights from a process called The Natural Step Framework, a process that sets out the current reality and its implications using scientific principles to describe how the world works. On that platform companies will agree a vision of success and a strategy for getting there, with some guiding criteria built in along the way, to ensure that each decision is profitable and flexible.
“Survival is the issue, not just for our business, but the entire planet,” Sir Terry Leahy, CEO Tesco
“When most of the raw materials are natural, you cannot put nature at risk without endangering your own resources.” Frank Ribound, CEO Danone
All the evidence indicates that the process has landed the holy grail of demonstrating how cost saving, saving the planet, and considering human needs actually go hand in hand, rather than the common perception that investing in sustainability is a luxury afforded to those who can afford to pay.
As Ray Anderson, CEO of Interface puts it: “As we climb mount Sustainability, with the four TNS system conditions at the top, we are doing better than ever on bottom line business. This is not at the cost of social or ecological systems, but at the cost of our competitors who still haven’t got it”.
Michael is a Director of RealEyes Sustainability. His company brings organisations from where they are towards sustainability using tools such as the Framework for Strategic Sustainable Development outlined in the article.