“What’s happened across the industrialized world is the governments are feeling poor these days,” says David Victor at the University of California, San Diego. “So they are a lot less willing to put money into loan guarantees, production tax credits and feed-in tariffs and other policies that have historically been the big drivers of very low-emission technologies like nuclear and wind.” 1 That mindset translates to business organizations as well. It seems the eyes of CEOs sometimes glaze over at that thought of changing their business to be more green. The problem with the thought boils down to prioritizing its strategic importance in the grand scheme of things, especially with daily pressing issues needing immediate attention and a slowly recovering economy that keeps CEOs feeling skittish. Perhaps there is a lack of understanding about what corporate sustainability means to the top and bottom lines of the business. In fact, CEOs understanding and embracing corporate sustainability may well be one of the most decisive factors in determining the long-term viability of their companies.
Corporate sustainability is about business survival and well-being, recognizing that every raw material utilized by any organization, either directly or indirectly, comes from our natural environment. Integrating sustainability into strategic initiatives goes far beyond regulatory compliance, public perception and reputation management. Looking beyond the obvious eco-friendly and employee retention aspects of this topic, let’s explore other top-line and bottom-line factors that make corporate sustainability so vital to leaders of today’s organizations.
Planning and investment in sustainably makes business sense and effects all aspects of the value chain, regardless of the size of the organization. Sustainability is important to ensure that we have and will continue to have the water, materials and other critical resources to supply our businesses. Likewise, products, the materials that they are made from, their energy intensity and how they are acquired and distributed all effect costs. By making more product with fewer resources, environmental goals conveniently align with business objectives and lead to bottom-line savings.
A sustainability mindset is therefore needed and required in the strategic planning process. All businesses belong to a fragile global business ecosystem that can be roiled by natural disasters, geo-political events and tremors in the financially linked global economy. Our planet’s most basic raw materials fuel our businesses, and price volatility of these resources along with supply disruptions of any sort can have major consequences to our entire value-chain.
Just consider how oil prices impact our businesses. Even though supply may not be the issue at hand today, the nature and complexity of global commodities markets have massive impacts on the cost of this essential raw material. Commodities trading on global markets, in the form of futures and derivatives, can create extreme price volatility. That is because on any given day, the number of “virtual” barrels of oil traded on global exchanges exceeds the number of real barrels by a ratio of 30 to 1 according to some estimates.2 This “market effect,” enabled by the global commodities trading grid, amplifies any market tendencies. Regardless of your organization’s size, don’t for a minute think that increases to the price of oil will not effect your value chain in some way.
Focusing on sustainability helps protect shareholder’s investments by reducing waste, saving energy, developing green products and retaining and motivating employees. A common approach is investment in programs that optimize resource usage, helping companies capture value through improved return on capital.
For example, UPS was able to increase the miles per gallon (MPG) of their U.S. Domestic Package segment by 7.4 percent during the past decade by leveraging Telematics data that indicated changing driving behavior in a certain way would improve fuel conservation for more than 100,000 UPS drivers. The company also saved 2% on fuel costs simply by implementing plan delivery routing software to optimize scheduling and reduce the number of left turns required on deliveries.
Sustainability From The Product Perspective
We’ve thus far looked at sustainability in terms of the corporate bottom-line, but what about revenue considerations? By creating green products that are innovative, inspirational and in demand – environmental goals can align with consumers’ personal goals and lead to top-line growth for businesses.
Clorox, for example, captured 40% of the U.S. natural-cleaning-products market within the first quarter of launching its Green Works line. Despite surveys showing that 74% of consumers say that green products are too expensive, Clorox’s Green Works line of products is priced anywhere from 30%-50% lower than the price of other natural products currently available.3 In fact, Clorox increased the size of the overall category substantially, while offering a suite of products that were less expensive than other natural products and the line is generating margins 20 to 25 percent higher than the company’s average.
Another innovative and inspirational green product success is the hybrid-electric-motor technology car. Toyota Prius, which accounts for half of U.S. hybrid sales, is the world’s best-selling alternative powertrain car. Even with shortages and delivery delays last year as a result of Japan’s earthquake and tsunami, Toyota is on track to meet a goal of 220,000 Prius sales in the U.S. this year, up from 136,463 in 2011.
CEO Action Items
There are many places to start down the sustainability path. The following are a few initial recommendations for CEOs to consider in regard to their own organizations:
- Embrace Sustainability: In order to instigate progress in sustainability, it must become one of the organization’s strategic pillars and be a part of the corporate strategic planning process. In addition to the the identification of strategic sustainability programs, the process should factor in additional scenarios during planning to address potential supply-chain resource constraints and raw material price volatility. Understanding potential future risks and planning for those scenarios will enhance sustainability.
- Get Help: If outsider objectivity is needed get help from a firm that specializes in assessing corporate sustainability across the business. There are many good firms that focus on this particular niche. (Google “sustainability consulting firms”)
- Identify Champions: Sustainability requires corporate leaders to devise a vision which must then be adopted by staff members and ultimately put into action. Within the framework of the sustainability strategy, enable leaders in the organization to innovate creative resource-usage solutions to reduce waste and implement product development programs to address market needs with green products and services.
- Generate Wins: It is easy for an organization to get discouraged if executives and employees are seeing little benefit early on. It is therefore important to break the sustainability changes down into stages and motivate employees to reach milestones along the way. Keep momentum going, looking for sure-fire projects that can be successfully carried out, and preferably, pick projects that are inexpensive to implement. Finally, clearly reward those who are meeting the initial goals and celebrate those successful changes.
1 – Countries Losing Steam On Climate Change Initiatives, Richard Harris – NPR
2 – Pricing the planet, Mckinsey & Company June 2010 • Peter Bisson, Elizabeth Stephenson, and S. Patrick Viguerie
3 – Green Works: Accessible, Affordable and Effective, The Sierra Club