Sustainability is Good for Business
Sustainability is moving beyond compliance. It can create new opportunities through innovation to gain competitive advantage while also driving cost reduction programmes. The starting point for many organisations is to first clearly establish how sustainable they are today: they can then plan and implement a more effective and cost efficient transformation programme to become a truly sustainable organisation.
To succeed sustainability must be embedded within the very DNA of an organisation and embrace everyone from employees and clients through to suppliers, partners and investors. A new framework for decision-making is needed where ecological and social concerns also become key success criteria for business operations.
Despite the economic downturn, change drivers are continuing to keep sustainability as a priority on the agenda for businesses. The four key sustainability drivers influence costs, revenue enhancement, risk reduction and competitive advantage, all of which are the top priorities for businesses in turbulent market conditions.
The need to display sound sustainability credentials to influence customer buying patterns; improve brand positioning; attract and retain high potential employees are just a few of the factors that drive the business significance of sound sustainability credentials.
Beyond the obvious cost saving derived from using less energy and doing more with less, additional benefits can include: changing behaviours leading to increased productivity; improved morale; streamlined business processes; creative innovations and better use of technology.
Scientists across the globe now agree that the effects of climate change will become increasingly evident over the next 20 years. Organisations that provide products and services that are more sustainable – providing products and services at a lower environmental and social cost – will succeed, while organisations that do not will be sidelined.
The world is changing and legislation will demand the inevitable shift to a low-carbon world economy. The UK Government has now committed to cut greenhouse gas emissions by 80% by 2050. The Carbon Reduction Commitment affects all medium and large UK companies and will tax, as well as publicly name and shame, all those who fail to clean up their operations.
Organisations that recognise and embrace the key drivers for sustainability will reap the eventual rewards of market opportunities and efficient business operations. Research has shown that companies with more mature sustainability programmes enjoy higher profit margins. In the current economic climate, companies with sound sustainability programmes are looking better positioned to stay the course. These organisations are starting to realise operational efficiencies, increased customer value, strengthened supply chains and reduced business risk as a result of their sustainability efforts.
The Five Capitals Framework, developed by Forum for the Future, is a benefits analysis framework that sets out all the elements of sustainability into five capital areas of natural, social, human/intellectual, manufactured/technological and financial, providing a useful structure for understanding direct and indirect benefits associated with a more sustainable approach.
Sustainable development is the most sensible way to manage the capital assets in the long-term. It is the dynamic process through which organisations can begin to achieve a balance of activities. A trend we saw emerge last year is that many organisations are moving from a defensive to offensive strategy to achieving a balance across their sustainability objectives environmental, social and economic initiatives.
The shift from defensive to offensive strategies has been characterised by four stages of evolution. The first being compliance, when initiatives are completed simply because they must. The second is operational efficiency when the key driver is cost cutting. The third, known as leverage, is when sustainability goes beyond the organisation to ensure that the same principles apply to suppliers and partners. Finally, the fourth phase is value-based leadership when sustainability is at the centre of the organisation’s strategy and business.
These offensive strategies can provide stronger customer messages, develop long-term synergies between stakeholders and optimise competitive advantage through differentiation and innovation, while enhancing the integrated dimensions of people, planet and profit.
How Sustainable is Your Organisation?
Board
Culture
People
Processes
Technology
Infrastructure
To become more sustainable, your organisation first needs to establish where it is on the sustainability maturity curve and where you want to be in three years’ time. Only through accurate measurement of your sustainability initiatives will the decision-makers gain this knowledge and be able to identify what is working and what is failing.
Sustainable production management (SPM) is emerging as a key tool to enable an organisation to do this. It baselines, tracks and monitors the initiatives which are providing the best return on investment and those that have not yielded the desired results. A robust and integrated SPM process will provide decision-makers with information from various perspectives, tangible and intangible, in order to obtain an holistic overview of performance of sustainability initiatives to achieve greater sustainability.
The key challenge is how to conduct monitoring in the most effective manner, what to measure and codification of the planning and reporting requirements. Monitoring is made more complex by the vague and fast changing nature of the data that needs to be captured from a variety of sources across the organisation, and to pan this river of data for the golden nuggets of information.
Reporting needs to contain the golden nuggets of data for the decision-makers, identifying areas of shortfall against targets. It also needs to be transparent, auditable and accountable so that it can be shared with stakeholders as required by regulation. Only through ‘drill-down’ within the data analysis will a decision-maker be able to identify what the parameters are that drive the optimal output. Without this measurement capability, organisations would be making changes in the dark, not knowing if the investment has led to the desired benefits or where further additional efficiencies can be gained.
Effective SPM, intelligently embedded and integrated throughout the organisations’ divisions, leads to tailored reporting, ensuring improvements are communicated internally as well as to the market place. While all the major business intelligence (BI) and enterprise resource planning (ERP) providers have tools capable of enabling SPM, some are more flexible and adaptable than others: equally the method of embedding the tool within the organisation, the codification and how the results are then used to drive decision-making is an important part of the implementation SPM allows the decision-maker to identify the parameters that drive optimum output.
Increased customer awareness in sustainability means the suppliers, retailer or service provider need to be seen, and believed, to be sustainable.
Working in partnership with suppliers can lead to the products and services being better aligned to the ‘value’ perceived by the end customer. For example, a customer may perceive a product that lasts for longer, is easier to maintain or has less impact on the environment to be of higher value. Through co-operative frameworks, up and down the value chain, organisations can gain a better insight into how to design, build and deliver products and services that are sustainable and that also result in improved customer loyalty, greater innovation and reduced costs.
As the pressures from the macro economic drivers grow, for example increased demand on finite natural resources, so will the demands to source in a more sustainable way. Product design will need to embrace sustainability factors in choice of materials, energy consumption, transport and end-use and disposal of the product.
Pension funds and informed shareholders are increasingly valuing companies that are leaders in sustainability measurement. Institute of Chartered Accountants in England and Wales, Association of Chartered Certified Accountants and Chartered Institute of Management Accountants, along with The Prince of Wales’s Accounting For Sustainability Project, are all developing techniques to help businesses integrate sustainability risks and opportunities into mainstream business processes.
Innovation is fundamental to gaining competitive advantage in the ever-increasing competitive global market. Innovative concepts, such as industrial ecology and biomimicry, are already helping organisations to innovate and develop higher value products while becoming more sustainable and saving costs.
As the Prince of Wales’s Accounting for Sustainability Project points out, fundamental to embedding sustainability and measuring it effectively is Board commitment and demonstrable leadership. This is nothing less than the CEO, in both external and internal actions, showing urgency to ‘walk the talk’. Commitment and sense of purpose should be built into all levels by making sustainability part of your company DNA.
Sustainability is the single biggest business opportunity of the 21st Century and will be the next source of competitive advantage. Industrial giants who have failed to recognise the powerful demands of sustainability are already failing, while organisations that recognise and embrace the key drivers for sustainability will prove to be the eventual winners. Increased regulation and legislation will demand change and organisations will need tools to assess and measure the performance of their sustainability initiatives.
The coming year provides a good opportunity to understand how best to align sustainability objectives with your organisation’s needs and goals. Prioritisation and correct implementation of offensive sustainability initiatives will lead to competitive advantage ahead of the global agreement. Do not miss this opportunity to get your organisation ready for Climate Change Act in 2010 and beyond.
Change is coming – stay ahead of the game and gain the competitive advantage that being a sustainable organisation will bring.