VIDEO
Sustainability explained through animation
Ecological Sustainability: Green Grass Recycling Symbol
Why is sustainability a strategic issue?
If you hadn’t heard much about sustainability until now, you may be wondering why it is drawing so much attention among such heavy-hitters. Why is sustainability suddenly on the radar screen? There are a host of reasons.
Transformative worldwide trends
There are major trends in the world that are forcing radical changes in business models. Some trends relate to energy sources. Climate change is finally on the front pages of every publication. Lesser known is peak oil, which up until recently has tended to be discounted. But General Motors has recently started using the term in public. Production of oil is peaking just as worldwide demand is exploding. Eventually we will shift to a different energy supply, but the transition is likely to be wrenching. Early in 2008, Rick Wagoner, the head of General Motors, conceded that the internal combustion engine’s days was numbered, transforming the auto industry. ‘We need to develop alternative sources of propulsion based on diverse sources of energy’, he said.9 It might be simpler if we only used oil for transportation, but it is also the feedstock for plastics, pharmaceuticals and a host of other products.
Natural gas production is tied to oil production and it too is waning.
Other trends are tied to natural resources. Many renewable resources are under severe pressure. Fisheries are collapsing, forests are over-logged, topsoil is being depleted, and desertification is expanding. Many regions have constrained water supplies. In addition, certain non-renewable materials are becoming more difficult or expensive to get, causing price rises and a burgeoning black market in metals recycling. Interwoven with this is the increasing knowledge about toxic chemicals, even in minute quantities, and their effect on ecosystems and human health.
Still other trends relate directly to human society: population growth exacerbates the problems above and is greatest in the developing and least-developed nations. As a backlash to colonialism and other forms of oppression as well as Westernization, certain ethnic and religious groups are reasserting cultural differences leading to conflicts around the globe.
The rapid development of gigantic nations, principally China and India, is driving markets for everything from concrete to wheat. All these trends have momentum. They can’t stop on a dime, so you can use them to forecast the future. Executives need to examine the trends, even those that at first may not appear to have relevance, and use this knowledge to direct a long-term strategy. This foresight enables you to position your organization or community to avoid the worst of the impacts and benefit most from the new industries and technologies that will emerge.
The Wal-Mart Effect
There is a fascinating gap right now in industry. The large companies understand the need to address this issue. As we mentioned earlier, almost 80 per cent of the Standard and Poor’s 100 produced some type of sustainability report in 2006. Some of the little guys have been doing sustainability out of a passion. But a number of the medium-sized enterprises have been oblivious. Now the big companies are putting pressure on their first-tier suppliers. Wal-Mart is a notable example. Everyone knows how they love to lean on their vendors. They were just going public with their efforts when our first edition came out. Now they have goals to reduce packaging, eliminate dumpsters/waste, reduce greenhouse gases, and improve the fuel efficiency of their fleet by 50 per cent. They are asking their suppliers for life cycle assessment data on their packaging. This has been, needless to say, a big wake-up call for mid-sized businesses.
About a year ago, the CFO of a food processing company was interested in sustainability but the owner had a short-timer attitude, planned to sell the company, and wasn’t much interested. When we discovered that Wal-Mart was a customer, we told them in effect that they could get their act together or wait for Wal-Mart to come knocking. Two weeks later they got their first letter from Wal-Mart. Now the company is eager to move forward. People at the top of the supply chain are rattling the links and the rest of the companies along the chain are trying not to get thrown off.
Wal-Mart is also cleaning up its own operations. As the largest employer in Canada, operating the largest trucking operation in North America, it has an enormous footprint.
But when it decides to change, the world just might get swept up in its wake. Wal-Mart has ambitious long-term goals to eliminate waste to landfills, increase the fuel efficiency of its fleet, and power its stores with all renewable energy.10
Sustainability is a natural extension of other organizational changes
Over the last century, society has increasingly raised its expectations of business. In the early 1900s, codes of ethics and government policies began to discourage monopolies, misleading product claims and underhand business dealings.
Then through to the 1970s employee rights showed up on the radar with the rise of organized labor and quality of work life programmes, all intended to combat unfair and inhumane labor practices. With the quality movement in the late 1970s and early 1980s, organizations adopted a focus on the needs of customers to stay competitive. In 1984, an accidental chemical release at a Union Carbide plant in Bhopal killed thousands in the community; then the Exxon Valdez ran aground in Alaska in 1989. Suddenly environmental practices were added to the list of expectations. More recently, the internet has increased corporate transparency with such sites as WalMartWatch.com and the WhirledBank.org often raising corporate social responsibility issues like international labor practices. And just in the last two to three years, shareholders have started using their proxies in an unprecedented way to oust corporate leaders and redirect policies when they feel corporations are not living up to their expectations on ethical, social, and environmental issues. As you can see, the expectations of business have grown step by step, adding new stakeholders along the way.
Today society wants it all. According to the Millennium Poll conducted in 1999, surveying 25,000 people in 23 countries on six continents, the majority of people expect companies to go far beyond just making a profit, obeying laws, paying taxes and providing jobs. Instead, they expect corporations to ‘exceed all laws, setting a higher ethical standard, and helping build a better society for all’.11 Employee health and safety, fair treatment of employees, elimination of corruption, protecting the environment and ending child labor practices are high on the priority list. All these issues fall under the economic-social-environmental framework of sustainability. Bob Willard encourages organizations to think of sustainability as an enabling strategy, not one more goal in a long list. Sustainability can unify and organize a wide spectrum of efforts, including such seemingly disparate programmes for lean manufacturing, corporate social responsibility, and zero waste. In a sense, sustainability is nothing new – it is simply providing some structure to a set of emerging societal expectations.
Natural resources are now a limiting factor
At the beginning of the industrial revolution we had a seemingly endless supply of natural resources and a dearth of skilled labor to work in our factories. Now the situation is reversed. The global population is over 6 billion, with many people under- or unemployed. According to the best estimates of the UN, we should expect our population to increase by another 3 billion by 2050. At the same time, many of our natural resources are dwindling. According to the UN Food and Agriculture Organization the world lost 94 million hectares of forestland in the 1990s alone – that’s about 64,000 acres a day. Eleven of the 15 major fishing grounds in the world are already at or exceeding the maximum sustainable yield and some are in complete collapse. Soil erosion, desertification, urban sprawl, salinization and aquifer depletion are compromising our crop yields.
Management involves attending to bottlenecks and limits. These pressures are showing up in commodity costs. Oil, right now, is close to $100 a barrel; grains and milk have gone up considerably in just the past year (2007), as have metals and minerals. Population growth and lifestyle improvements in places like China and India are driving world markets. If natural resources, not people, are our biggest constraint, then our policies and management practices should switch from ones that reward getting more from fewer people (eg lay-offs and depreciation schedules) to ones that reward getting more from less material (eg resource efficiencies including the use of energy, water, wood products, agricultural and marine resources, and mined minerals and metals).
In the last century, we used technology and innovation to achieve a tremendous increase in human productivity. Now we need to apply that same know-how to resource productivity. Unlike previous corporate social responsibility programmes, sustainability acknowledges the finite limits of nature and the need to neutralize our wastes and emissions, to produce renewable resources and to maintain other critical ecosystem services.
Environmental issues are becoming global
Years ago, most environmental problems were relatively isolated: a tanker runs aground, a train filled with chemicals derails, a plant explodes, a company mishandles hazardous waste. But now, the biggest environmental problems are global – global warming, acid rain, the ozone hole, species extinctions, the destruction of rainforest, the dying of coral reefs – and it’s not clear who to turn to in order to correct them. The impacts of these problems affect people everywhere. You can’t just move on to the next frontier, the next fishing ground, the next forest. There is nowhere else to go. Since the publication of Rachel Carson’s Silent Spring in 1962 and the first Earth Day in 1970, the public has become far more aware and concerned about these issues. And thanks in part to the work of the Intergovernmental Panel on Climate Change and Al Gore’s movie, An Inconvenient Truth; climate change is on everyone’s mind lately.
Health concerns are rising
Studies conducted around the globe have revealed that humans everywhere are carrying a number of synthetic chemicals in their blood and even breast milk: wood preservatives, industrial solvents, pesticides, fire retardants and so on. Some of these are known carcinogens; some, called endocrine disruptors or ‘gender benders’, mimic hormones and can cause birth defects as well as reproductive abnormalities that don’t become apparent until our offspring reach childbearing age. Certain natural and synthetic substances accumulate in body tissue and their concentrations increase as they move up the food chain. For example, the US Food and Drug Administration recently issued warnings about mercury levels in certain types of fish. (Coal-fired power plants are a significant source of mercury and China is bringing more online at a break-neck pace.) This is not just a matter of fouling your own nest. The west coast of the US regularly gets pulses of air pollution from China. Many indigenous people in remote arctic regions have in their bodies high levels of pesticides used near the equator; they are being advised not to breastfeed their babies. The effects of pollution circulate around the globe.
Social, environmental, and economic factors are entangling, creating instability
Environmental concerns such as the loss of natural resources, coupled with social issues like the explosive growth of population in developing countries, are combining in a bubbling cauldron. Coltan, a metal ore mined in the Congo, has contributed to the decline of the mountain gorilla and has funded conflicts in the country as well as the genocide in Rwanda. International fishing fleets have depleted African fisheries, causing a flood of illegal immigrants into Europe. In some areas, we see a backlash against globalization and Westernization (what some now call ‘Westoxification’). The rise in terrorism can be seen in this light. Thomas Friedman, a Pulitzer Prize-winning foreign affairs columnist for The New York Times, who has long studied the Arab world, states:
If we’ve learned one thing since 9/11, it’s that terrorism is not produced by the poverty of money. It’s produced by the poverty of dignity. It is about young middleclass Arabs and Muslims feeling trapped in countries with too few good jobs and too few opportunities to realize their potential or shape their own future – and blaming America for it.12
The US Central Intelligence Agency has been warning that environmental degradation will increasingly become a source of political instability. They cite fresh water and climate change as particularly critical issues.13 Political instability leads to economic collapse, which in turn leads to human misery. Once again, the environment, social and economic elements are intertwined. Sustainability can help you foresee how these global issues might play out and what you should do now in response.
Energy supplies are a significant threat
One arena where these factors are converging is that of energy supply. Based on the best estimates, worldwide production of oil is likely to peak sometime in the next decade, if it hasn’t already. The disruption caused in the US when domestic production peaked in the 1970s – people lining up around the block to get petrol, subsequent recession – may serve as a warning here. Natural gas sources are being depleted much faster than originally thought, so fuel-switching isn’t much of an option. Renewable tend not to provide the same net energy so experts are saying that the world will need to learn to live on less energy, just as its population is expected to increase by 50 per cent and China’s demand is growing.
The implications for the world economy, international conflict, the environment, and social disruption are deeply disturbing.14
These problems are uncovering new opportunities
Yet all is not gloom and doom. Yes, there are serious problems, but these also represent interesting opportunities. Many of the practices we will need to correct these challenges are already in existence. Organic agriculture can build instead of deplete soil. Smart growth and green building practices show cities how to plan urban environments that reduce the need for automobiles and also improve livability and the health of their inhabitants.
Marine sanctuaries have been found an effective way to rebuild fish stocks. Timber companies have developed a set of sustainable forest practices. So called clean-tech industries are getting a lot of attention by venture capitalists and Wall Street. Wind power, organic produce, green building, and socially responsible investing are all on a steep growth trend. According to a study by Morgan Stanley, sales from clean energy alone could reach $1 trillion by 2030. As a basis of comparison, the entire US GDP was $13 trillion in 2006, so this is a staggering sum.15
In many cases, we know what we need to do. Through some combination of resource conservation and new technologies, we might be able to have a soft landing. But the longer we wait, the more constrained our options. The only question is whether you have a handle on the issues relevant to your organization, can envision a better future, and can muster the leadership to take the next steps. You can either start experimenting with these more sustainable methods or get left behind.
Sustainability tends to produce multiple, unintended benefits
Many sustainability actions yield unanticipated benefits. When architects design a green building to maximize natural light, the occupant saves on energy bills; companies operating in premises so designed also enjoy reduced absenteeism, improved productivity and increased employee satisfaction. In retail environments, ‘day lighting’ as it is called has been shown to increase sales dramatically; in schools, it improves learning; in nursing homes, it helps the elderly sleep well at night.
When C&A Floor coverings set out to find a way to recycle old carpet into new carpet, they developed a product that performed better and cost less to produce. When Portland State University decided to emphasize sustainability in their urban planning programme, they experienced a significant increase in enrolments. When the City of Santa Monica wanted to reduce their use of pesticides and rodenticides, their integrated pest management system also improved the energy efficiency of their buildings since they sealed the holes where the creatures were getting in. When DesignTex wanted to find a way to eliminate hazardous waste from the production and dyeing of their upholstery fabric, they ended up creating a new fabric that performed better, produced a new product from the fabric selvages, and won international recognition for their efforts.16
When Hot Lips Pizza, a three-restaurant enterprise in Portland, Oregon, chose to pursue sustainability because of the owner’s personal values, they began to attract a much higher quality employee. Aspen Skiing Company credits retrofitting the lighting in their parking garage (done to save money) with improved security. DuPont has reduced their greenhouse gases by 65 per cent since 1990, far beyond the Kyoto Protocol, saving hundreds of millions of dollars in the process. Michael Northrop of the Climate Group says of organizations that try to reduce their climate impact, ‘It’s impossible to find a company that has acted and has not found benefits.’17
Sometimes the changes are so simple and obvious; you want to slap your forehead in a why-didn’t-I-think-of-that gesture. Transportation giant UPS saved 3 million gallons of fuel by eliminating most left (cross-traffic) turns. A sophisticated information technology application that plans their routes has saved fuel, improved delivery times, and probably also improved public safety.
One of the common unintended side effects of pursuing sustainability is employee commitment. Making any organizational change is bound to bring out the nay-sawyers, but most organizations have found sustainability unleashes a wave of excitement, creativity, and loyalty not associated with many other change efforts. As Ken Hopper, general manager for one of the Scandic Hotels in northern Europe says:
I’ve been involved in Scandic for ten years. We’ve had all kinds of different campaigns or processes. Nothing has ever been close to creating as much excitement as this environmental campaign. It was just huge. You did not have anyone who didn’t feel something. It was incredible that people got so involved in this that they are willing to make some sacrifices and put in some energy and effort to get involved. It brought people together in a way we’ve never ever been able to bring our staff together before, and we haven’t since. Nothing we’ve done has mobilized a force that’s created such unison.18
For all these reasons, sustainability is now clearly a strategic issue. It helps organizations make sense of current trends, examine their threats and opportunities, and see relationships between them. From a practical, day-to-day perspective, sustainability helps you spark innovative ideas. As long as you put those ideas through normal business filters to determine whether they make sense as things to do now, you can’t go wrong. If you don’t begin the learning curve, you are at risk of being left behind.
