(33) Sustainability

Sustainability for All: Jonathon Porritt at TEDxExeter

Making an Impact through Sustainability

S33

Sustainability by Organizational Function

Senior Management:

How to Lead the Sustainability Effort

Senior management acts as the antennae of the organization, sensing and making sense of changes in the world. They must foresee both continuous and discontinuous change and then develop strategies to steer around looming problems.

Sustainability can be a particularly useful tool for top management to organize their thinking and explore issues that are currently off their radar screen. Because sustainability is rooted in long-term worldwide trends and science, it can make strategic planning more tangible and urgent.

According to PricewaterhouseCoopers’ sixth annual survey of 1000 chief executive officers (CEOs) from 43 countries, 79 per cent of these executives agreed that ‘sustainability is vital to the profitability of any company’, 71 per cent said they would consider sacrificing short-term profitability, if needed, in exchange for long-term shareholder value when implementing a sustainability programme and 67 per cent thought that sustainability was not just a public relations issue. Most were driven by a desire to enhance their brand, attract employees and provide improved shareholder value. Some of the most commonly mentioned practices they were putting into place included writing codes of conduct, evaluating environmental impacts of their operations and working on the sustainability performance of their entire supply chain.

Top management must juggle the competing interests of different stakeholder groups: customers who want good value, shareholders who want quarterly profits, employees who want meaningful work and regulators who want safety for employees and the environment. Sustainability can help management come up with creative strategies that meet multiple needs, turning ‘ors’ into ‘ands’.

There are so many issues that demand executive attention: new regulations, climate change, corporate ethics, diversity, quality and customer service, financial return, globalization, and fair wages are among them. Don’t think of sustainability as something to add to this list. Think of it as a way to integrate them. We helped one of our clients see how sustainability could enable employee empowerment, lean manufacturing and corporate social responsibility programmes while also adding a new, needed perspective to get ahead of the curve rather than reacting to each issue as it arrived.

One misconception that prevents many executives from pursuing sustainability is the assumption that it will end up costing more. In fact, as long as you filter ideas through a normal ‘does this make sense for us to do now?’ decision process, the sustainable action often saves money, yielding unanticipated benefits as well.

Consider the following:

• Green buildings can now be constructed at about the same cost as traditionally constructed buildings but save over 30 per cent in operating costs.

• Organizations that adopt a zero waste strategy usually find lucrative markets for their ‘residual products’.

• The Domini 400 Social Index, a stock index of socially responsible companies, has performed as well or better than the Standard and Poors, a broad market index, for many time periods.

• A recent award-winning study concluded that organizations that focus on the concepts of eco-efficiency increase their market valuation as well as financial performance.

In addition, and perhaps even more important, sustainability can help you manage risk to your operation and your image.

Consider that:

• The number of corporate social responsibility (CSR) shareholder resolutions in the US leapt to around 800 in 2002 and was expected to increase by 20 per cent in 2003.

• Six European countries (the UK, France, Sweden, German, The Netherlands and Switzerland) have adopted laws requiring pension funds to consider the environmental, ethical and social performance of companies they want to invest in.

• NGO and activist groups now number over 28,000 worldwide.

If your company is publicly traded, you want to be in the good graces of important stakeholders.

In a recent survey by The Economist magazine, a majority of executives (57 per cent) indicated that the benefits of sustainable practices outweighed the costs, although most had modest expectations for its ability to affect profits directly. The main benefits were associated with reducing costs (especially energy), opening up new markets and protecting the company’s reputation.

But this point of view is already being seen as Sustainability 1.0, a narrow view of the benefits of sustainability. Many are now speaking of Sustainability 2.0 where it is seen as a core source of competitive advantage and innovation. Bank of America, for example, has earmarked $20 billion for sustainability-related investments that combat climate change and save resources. ‘Our $20 billion initiative isn’t charity by any stretch. We expect an attractive risk-adjusted return on this capital’, Kenneth Lewis, CEO, explains. ‘[Financing the green economy] represents the future, and a tremendous business opportunity. We believe it’s what our customers and clients need us to do to support them.’

It’s true that sometimes taking the more sustainable option costs more but it can still bring other benefits. McDonald’s UK now says that cost is no longer the overriding concern when purchasing supplies. CEO Steve Easterbrook quotes a survey showing that

70 per cent of customers consider green issues when eating out. He said, ‘Customers are looking increasingly at issues like food provenance, welfare and the impact it has on the environment.’ So they are now sourcing more agricultural products from nearby, well managed farms. All their eggs are from free-range chickens and they are working with farmers to improve the lives of livestock. They even promote British farmers on the sides of their trucks. Adding costs can still pay out on the bottom line. For example, McDonald’s reports that their switch to fair trade coffee has increased sales by 15 per cent.

In addition to using sustainability to scope out threats and opportunities, senior management may also want to use sustainability to imbue its mission with more meaning.

As Collins and Porras assert in Built to Last, the difference between highly successful companies and their peers is often a strong, shared set of guiding values: Contrary to business school doctrine, ‘maximizing shareholder wealth’ or ‘profit maximization’ has not been the dominant driving force or primary objective through the history of visionary companies. Visionary companies pursue a cluster of objectives, of which making money is only one – and not necessarily the primary one. Yes, they seek profits, but they’re guided by a core ideology, values and a sense of purpose beyond just making money. Yet, paradoxically, the visionary companies make more money than the more purely profit-driving comparison companies.

Sustainability can be a powerful framework for harnessing employee commitment and energy. Saving nature for future generations, solving social problems people care about - these are issues that get people’s blood flowing. Even employees, who flip burgers, make pizza or pour coffee for a living can feel they are saving the world through their actions. It may be hard to quantify the impact on productivity but many organizations have anecdotally reported that adopting sustainability has meant that they now attract a higher quality of employee and that morale and retention have improved.

It’s not only important for organizations to adopt sustainability as a strategy; they must also execute the strategy artfully. Companies that try to implement sustainability but do it poorly can find themselves no better off. Monsanto is probably the best-known example.

Monsanto was one of the first companies to publicize sustainability in the management literature. In a 1997 Harvard Business Review article entitled ‘Growth through Global Sustainability’, CEO Robert Shapiro explained how sustainability was a key strategic issue that should be examined during strategic planning: Years ago, we would approach strategic planning by considering ‘the environment’ – that is, the economic, technological and competitive context of the business – and we’d forecast how it would change over the planning horizon ... extrapolating recent trends. So we almost never predicted the critical discontinuities in which the real money was made and lost ... But every consumer marketer knows that you can rely on demographics. Many market discontinuities were predictable and future ones can still be predicted – based on observable, incontrovertible facts ... Sustainable development is one of those discontinuities. Far from being a soft issue grounded in emotion or ethics, sustainable development involves cold, rational business logic.

However, their execution of this strategy, with an emphasis on genetically modified organisms, brought them even more bad press. The public was not impressed with Monsanto’s new genetically modified soya beans that could be nuked with even more Round-Up. People were further concerned about embedding Bt, a natural pesticide, in a wind-pollinated crop, and were outraged when Monsanto sued a small farmer for patent infringement because his rapeseed plants (canola) became infected with their GM seeds. By Monsanto’s own admission, they have at least failed the public relations effort:

We’ve learned that there is often a very fine line between scientific confidence, on the one hand, and corporate arrogance, on the other … It was natural for us to see this as a scientific issue. We didn’t listen very well to people who insisted there were relevant ethical, religious, cultural, social and economic issues as well.

STRATEGIES YOU CAN USE

So what should the management team be doing vis-à-vis sustainability? We break the task down into five elements:

1. Assessing threats, opportunities and constraints;

  1. Choosing frameworks and terms;

3. Devising an implementation strategy and enlisting support;

4. Aligning business systems; and

5. Providing for transparency and stakeholder involvement.

These are some of the tasks of managers as a matter of course, but here we explore how they are used in the context of sustainability.

To do this, you would want to provide a briefing on sustainability and then facilitate a discussion based on the potential implications. A number of organizational leaders, including Ray Anderson of Interface, have had an epiphany after being asked to speak on their environmental or sustainability policy, so invite one of the organizational leaders to research the topic and come prepared to speak. It can also help to bring in other industry leaders who are pursuing sustainability. As part of the strategic planning process, force executives to examine how certain seemingly irrelevant trends (eg HIV in Africa, freshwater supplies or global warming) could affect their organization – such conversations can often uncover important interdependencies.

Scenario planning

Scenario planning involves creating discrete future scenarios and examining how the organization might fare in each. You could present a scenario where sustainability was becoming the dominant organizational model. Or you can use the three scenarios created by the World Business Council on Sustainable Development: FROG (First Raise Our Growth, basically business as usual), Geopolity (using international agreements) and Jazz

(Improvised voluntary actions). The UN Environmental Programme also laid out four discrete scenarios – market first, security first, policy first and sustainability first - providing an abundance of data on their likely effects.

 RESOURCES

Speth, James Gustave (2004) Red Sky at Morning: America and the Crisis on the Global Environment. New Haven, CT: Yale University Press.

Global Environment Outlook, www.unep.org/GEO/geo4/

World Business Council on Sustainable Development, www.wbcsd.ch.

Schwartz, Peter (1991) The Art of the Long View. New York: Doubleday Currency.

Stakeholder management

All organizations are buffeted by the competing needs of their various stakeholders. Businesses must address the concerns of owners, employees, customers, suppliers, regulators and NGOs. Governments must address the needs of taxpayers and other citizens, legislators, other governmental bodies, special interest groups and NGOs. So it is no surprise that stakeholder management has emerged as one way to deal with these relationships. This usually involves determining who your stakeholders are, learning more about their interests and expectations, engaging them in productive dialogues and keeping the channels of communication open.

This same framework can incorporate sustainability. Often the simplest way is just to add in any missing stakeholders (the environment, the world community, NGOs, future generations, etc.).

Another approach is to develop systematic audits of each of your stakeholders. The Body Shop has spearheaded this approach; detailed information about their methods can be found in The Stakeholder Corporation by David Wheeler and Maria Sillanpaa.

It is important in this process to assess the constraints each stakeholder places on you.

Will your customers respond well to your involvement with sustainability, or, like Home Depot, do you want to keep your efforts off-stage? Will you raise red flags for some of your stakeholders? For example, when the AES Corporation stated that having fun was one of their core values, the Securities and Exchange Commission made them list their values as a potential risk factor in their annual reports! These points of view do not have to prevent your pursuing sustainability, but they may guide how you frame your efforts or determine whether you emphasize them publicly.

 

 

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