"It is not the pursuit of sustainability that drives efficiency, but rather the business processes engaged in that effort"
I find it almost an instinct to associate the image of trees and whales in every environmental conversation. Somehow, they have become synonymous with our commitment to protect the environment.
I recently read an article about whales and how they store large amounts of carbon in their bodies. Their excrement fertilizes the ocean producing CO2-absorbing phytoplankton, which in turn stores 40 per cent of all carbon produced. It is estimated that a 1 per cent increase in phytoplankton productivity is equivalent to 2 billion mature trees. During their lifespan, whales accumulate an average of 33 tons of CO2. Trees, in comparison, only absorb about 48 lbs. of CO2 per year.
While this makes for interesting trivia, environmental and sustainability pursuits are about much more than saving whales and trees.
So, what exactly is sustainability?
In Romeo and Juliet, Shakespeare’s Juliet said “What’s in a name? That which we call a rose, by any other name would smell as sweet.” The gist of the line is that the most important thing is not the name we use but rather what we name. When it comes to sustainability, other names come to mind: environmental, social and governance (ESG) and corporate social responsibility (CSR). In the end, it all supports the idea from Elkington’s framework that companies not only need to be sustainable long term, but also socially and environmentally responsible. As a result, it is about striking a balance on a triple bottom line (3BL) of people, planet, and profits.
Moving sustainability beyond table talk
Today, many companies look at performance across multiple constructs: not only financially, but also environmentally and socially. Themes like diversity, inclusion, race, and many others not only drive corporate attitudes and behaviours, but also inform product development, financial investments, customer response and brand perception. In the field of supply chain management, sustainability is so important that the term Sustainable Supply Chain Management (SSCM) has been adopted as a theme. Supplier selection based on capabilities to support the hiring firm's sustainability drive is key, and supplier certification, safety performance and continuous evaluation are essential to this process.
Nevertheless, even when the philanthropic aspect is clear, companies sometimes struggle with recognizing the business value of sustainability. One obstacle to obtaining corporate buy-in is that sustainability champions and finance often speak different languages. Despite the difficulty of quantifying all dimensions of the 3BL using similar metrics, it is critical to articulate sustainability outcomes in the language of finance: EBITDA, ROI, ROA, market share, sales, and revenue.
The ROI of sustainability
It is not the pursuit of sustainability that drives efficiency, but rather the business processes engaged in that effort. Lean manufacturing, for instance, can help the environment due to a more efficient use of resources and subsequent reduction of emissions. Companies that do not link sustainability to their core operations and strategic objectives do not realize a healthy return on their sustainability investment.
While stakeholder approval can influence a firm’s sustainability efforts, the benefits are beyond a noble pursuit. Share price volatility can be reduced by 2-10% and market value can increase by 4-6 per cent. It is not just about doing the right thing from a sales and revenue perspective, sustainability makes business sense because customers expect and value it. Involving them in the effort builds trust and drives retention. As a result, revenue and price premiums can increase by up to 20 per cent.
Customer commitment also increases by 20 – 60 per cent and overall, sustainability can account for as much as 11 per cent of a firm’s brand value; all having a direct impact on the bottom line.
Human resources are another area that directly benefit from sustainability efforts. Turnover can decline by up to 50 per cent, productivity increases by up to 13 per cent and employee engagement by up to 7.5 per cent. Most employees, particularly millennials, value working for an employer that adds social and environmental value and acts responsibly.
Driving for sustainable results
Despite the potential for ESG and business performance benefits, these outcomes are only achieved when the sustainability strategy is embedded into the entire organization and aligned with its corporate mission and overall business strategy.
It is critical for leadership to effectively articulate the organizational commitment to sustainability objectives, as well as the motives and expected outcomes, including those related to business performance and how it underpins the company’s business strategy. Similarly, it is important to set up quantifiable KPIs that track progress and continuously drive authentic engagement. Transitioning from a good cause dialogue to one of core business outcomes facilitates the success of the program and, depending on its scope, can even potentially help us save some trees and whales.
Sources:
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