Back to basics – 5 reasons to invest in sustainability

by Phil Cumming on March 1, 2016

We’re two months into 2016 and there’s no doubt that it’s tough out there in is this old complex and uncertain world of ours.

The global economy is just about limping along, the global food system is close to meltdown, many businesses are struggling to find skilled employees and millions around the world are unemployed, social inequality has hit record levels, the international community is facing a leadership crisis as we see the revival of nationalism, we’ve breached the 1°C temperature threshold and our natural environment remains seriously under threat. It’s pretty scary thinking about these global challenges, let alone facing up to them.

That said, against this depressing backdrop, 2015 gave us some cause for hope. We saw Barack Obama and the Pope wade into the sustainability debate, fossil fuel divestments go viral, the transparency agenda gathered momentum snaring VW and Exxon in its wake, and we saw the rise of the B Corp movement in the UK and Europe. And of course we saw the culmination of two long processes – the adoption of the UN Sustainable Development Goals and the Paris climate agreement.

So if 2015 was the year to make unprecedented resolutions then 2016 is surely the year where the stage needs to be set to ensure that they are kept. Governments can’t do this alone. The size and complexity of most sustainability and societal issues means they cannot be addressed by any one solution or any one organisation. We don’t have a world government and most, if not all, of these issues transcend national borders. There is a real pressing need for concerted, collaborative effort involving civil society, government, and business – a ‘civil public private partnership’ if you will. If we are to achieve positive and lasting change at a global scale and rapid pace we need an absolute step change. And it’s certainly not going to be driven by consumers (see my earlier blog on this).

To quote Marga Hoek from her new book New Economy Business: The economy is there for the world, the world is not here for the economy.’

You’d think by now that the business case for investing in sustainability was ‘done and dusted’? If only…

In recent months I’ve had a number of conversations on the ‘whys and wherefores’ of sustainability which suggests that this is far from being the case. There’s no shortage of reasons why you should invest in sustainability – it’s one of those topics where everyone has a view. Whilst this might well seem like going over old ground I thought what the heck and set out my own top 5 reasons to invest.

First though, let’s get something out of the way. I often hear people say one of two things about sustainability – it will cost you money or it will make you money. In actual fact it’s both – some actions will cost you money (and perhaps always will) and some will save you money and may even drive additional revenues. What you’re ultimately looking to achieve in the round is a net overall benefit.

Research carried out by Accenture, Business in the Community and M&S argued that the size of the sustainability opportunity for UK plc was £100bn each year.

M&S leverages this opportunity well and were the first business to attempt to measure it – their Plan A has generated a net benefit of £625m since it was launched in 2007. They’ve even published a document which sets out what they learnt about the business case for sustainability during the first five years of Plan A.

Whilst we didn’t calculate the net benefit, even in LOCOG we were able to simply tot up our major sustainability wins and found our interventions had delivered in excess of £32m in costs savings and additional revenues. Interestingly, in May 2013 when LOCOG finally wound up its affairs it reported a £30m surplus in its final set of accounts…

In striving to be more sustainable though, what you’re aiming for is to not just focus on where the business is today, but on where it needs to be tomorrow. There’s no clear answer to how you do this, but here’s 5 reasons to start trying:

1. It will help you maintain your licence to operate and help protect your reputation

Consumers are increasingly aware of their personal impact on the world (although granted this can be overplayed a little) and trust is hard earned and easily lost. Breaches of legislation or being seen to not ‘do the right thing’ can undo the best of companies – small or large.

From the Rana Plaza building collapse, Europe’s horse meat scandal, BP’s Deepwater Horizon oil spill, through to GSK’s Chinese bribery scandal, the Foxconn suicides, corporate tax avoidance, and delayed payments to suppliers there’s a growing number of examples where organisations have been well and truly caught out. Of course in 2015 we had ExxonMobil being forced to admit it knew about climate change as early as 1981 (7 years before it became a public issue) and for nearly 30 years they spent millions promoting climate denial. And literally days later the VW diesel-gate scandal emerged…

I don’t think any company or sector should feel immune from scrutiny these days. Transparency and the inter-connectedness of everything are only going one way.

Compliance with the law and responsible business conduct (e.g. taking appropriate steps to meet generally accepted ethical standards) are step one on the path towards improving your sustainability performance. They form a baseline against which you should be looking to exceed in the majority of instances.

These ‘hygiene factors’ together with basic business efficiency measures (see below) form what I call the ‘Brilliant Basics’. They are not, in my view, about being sustainable (not in their own right anyway). These are basic things that any good company should be doing. The difference is that those companies who have committed to be more sustainable should be aiming to do them brilliantly.

2. It will help you be more resilient, effective and drive new revenue streams

There’s no doubt that you can deliver operational improvements by looking at how you do business through the lens of sustainability. For example, Unilever has reported that since 2008 cumulative costs avoided through more efficient production has exceeded €400m.

At its most basic this could just mean being more efficient with how you use or manage water, energy and waste. There are likely to be loads of quick wins and just challenging the norm and say turning something off that doesn’t necessarily need to be on could save you thousands. Again this arguably is what any business should be looking to achieve (see ‘Brilliant Basics’ above).

Where it gets more interesting though is when you identify opportunities to achieve greater savings from harder to reach but more lucrative areas or generate new revenue streams altogether.

Amazon’s ‘Frustration Free Packaging’ initiative is a great example of where they’ve encouraged easy-to-open recyclable packaging and gives their customers a better shopping experience. They’ve engaged their value chain and now offer over 200,000 products in Frustration Free Packaging, have eliminated tens of thousands of tonnes in excess packaging materials and have significantly lowered their handling and packaging costs.

If you think about the true cost of waste, it’s at least ten times your disposal bill as you’ve already invested in these discarded items. And if that wasn’t enough the waste contractor is almost certainly going to try and sell this material on the secondary materials market. It doesn’t necessarily have to be this way though. For example, when I was at LOCOG we negotiated a revenue sharing arrangement with our waste contractor generating in excess of £150,000 in recycling rebates.

Debuted at the London 2012 Games, Nike’s Flyknit Racer pioneered new technology to deliver a peak performance lightweight running shoe that has 80% less waste in the upper than a traditional profile running shoe. A desirable product, a premium price point and reduced raw material costs have contributed towards boosting Nike’s net income by over 20%.

Of course the ultimate goal is to take a long-term view of the resources you rely on and ensure you’ve done as much as possible to protect yourself from an increasingly volatile commodities market.

3. It will help you create a positive culture and engage and motivate people across the business

We’re in intangibles territory now. There’s little doubt that people are your most important asset – without them you have no business. To illustrate this point, Peter Drucker famously said: The most valuable assets of a 20th-century company were its production equipment’ he then went on to say ‘The most valuable asset of a 21st-century institution, whether business or non-business, will be its knowledge workers and their productivity.’ Investment banking firm Ocean Tomo publishes an Annual Study of Intangible Asset Market Value and in 1975 they estimated that more than 80% of the S&P 500 comprised tangible assets such as land, plant and equipment. Some 40 years later there’s been a flip and they estimate over 84% of value now consists of intangible assets – typically comprising human, intellectual and social capital.

Social purpose and shared value are hot topics at the moment. Shared value and sustainability are not an either-or proposition. If done properly, sustainability could be the ultimate form of shared value.

It all comes down to leadership though. A recent report published by Burson-Marsteller and IMD on ‘authentic corporate purpose’ suggests that leadership accounts for 50% of the variance in perceptions of authenticity. ‘Keeping it real’ is essential to communicating and building trust.

Your core purpose should be your ‘reason for being’ – it should be the single underlying thing that unifies everyone. At its heart sustainability is a values-based proposition and it can help you do this.

There is also evidence to suggest that people working for a purpose-driven company are more motivated, engaged and productive. In a workforce market that is increasingly competitive and highly variable in terms of quality, purpose-driven companies may even find it easier to attract talented individuals than many of their peers.

A survey carried out by Deloitte in 2014 found that 73% of employees who say they work at a purpose-driven company are engaged, compared to just 23% of those who don’t.

In 2012, Net Impact carried out a nationwide study with Rutgers University in the US and found that employees who said they can make an impact while on the job report higher satisfaction levels than those who can’t – by a 2:1 ratio.

Does this mean that those who said they couldn’t make an impact genuinely mean that they can’t? Or is it more likely that they just don’t know or fully appreciate the impact they can have? After all, sustainability can be quite abstract and generally it makes a world of difference when you show people how it relates to their day job.

I often find that there’s a bit of a re-branding exercise you go through when you roll out a new sustainability programme. For example, things that have been done for years and taken for granted are often seen in a completely new light (wellbeing or diversity and inclusion initiatives for instance).

This is not just about your employees though. Think about all the people your business depends on – suppliers for instance. A few years M&S ago introduced a framework for their food suppliers to work through and improve their sustainability performance over time and recognise and reward those who are making great progress. As a result, they’ve seen strengthened relationships, actively motivated workers and better products. Indeed, organisations with a strong sense of purpose are more likely to have a reputation for delivering high quality products and services.

Community initiatives also provide a focus for engaging with employees, suppliers or customers. Research carried out by the RSA and B&Q, suggested that customers who knew that B&Q contributes to their community spend on average double that of others. The more closely aligned community initiatives are to your business objectives the more successful they are likely to be too.

4. It will help you foster a culture of innovation

Research from Deloitte suggests that sustainability is strongly tied to the ability of a company to innovate.

Innovation is one of those words you hear a lot these days and it seems everything is innovative or disruptive or disruptively innovative…

Clearly not all innovation is about addressing sustainability – and some may even be at odds with what sustainability is all about.

Fundamentally, in a sustainability context innovation is about doing something that is new, original or much improved to solve a problem to achieve positive and lasting change. It is about taking this fresh thinking forward, not the thinking itself. And good ideas can come from absolutely anywhere.

It isn’t just about R&D or developing new products and services. A significant amount of innovation is in business processes and practices too.

The size of the opportunity is considerable. As  highlighted previously, the Fortune Favours the Brave research alone identified that key areas such as shared value, circular economy, transparency and customer engagement represented a £100bn opportunity in innovation and sustainable growth for UK plc. For example, Unilever reported cost savings of over €200m in 2014 resulting from innovation in products and packaging.

Sustainability should push you to re-think how you do things and challenge the status quo.

It provides a different lens for thinking. For example, shifting from selling products to a service-based solution such as Philips ‘Pay Per Lux’ (selling light as a service solution) or Interface FLOR selling ‘flooring services’ through their evergreen lease option. It can also help drive innovation by placing limitations on what can and can’t be done. For example, prohibiting the use of certain materials, stipulating where items should be sourced or made, specifying particular performance standards, and so on.

There is no such thing as a stupid question in my book. I often find that simply asking something that’s seemingly never been asked (or at least not for a while) or challenging something that’s always been done a certain way can yield interesting results.

5. It will help you create value through collaborative relationships

The final reason to invest is collaboration – and is arguably the most important one of all.

For many the majority of sustainability and societal issues lie outside of their core business operations within their wider value chain. The size and complexity of these issues mean they cannot be addressed by any one solution or organisation. Many organisations though are still focussed on activities and processes within their boundaries and under their control or influence.

Over the last decade or so there has been a growing realisation that building interventions based on the classic management systems rule of ‘control and influence’ is no longer good enough. We need to work outside of organisational boundaries to help drive innovation and positive and lasting change.

A GlobeScan SustainAbility survey in late 2012 found that despite a poor track record by governments, experts believe that the most effective way that companies can advance sustainability is by working collaboratively. An article in Harvard Business Review in 2013 sums it up well by saying ‘collaboration is the new competition’.

Any organisation serious about improving its sustainability performance will need outside knowledge and expertise to help it understand what changes are required and how best to achieve them.

Working with different organisations, each with varying motivations, cultures and requirements, can prove challenging and take time to reap rewards. Your organisation’s internal culture also needs to be able to support and embrace it too. Internal silos, lack of transparency or willingness to share information, and competition between different business units and departments can all happen and be very real and frustrating barriers.

The success of any collaborative programme is built on developing mutual trust, effective communication and a shared vision and purpose – this applies internally and externally. Knowing when to take the lead in a collaborative relationship versus playing a more supporting role is also very important.

Sustainability collaborations come in various shapes and guises. They range from supplier capacity building programmes (like the M&S food suppliers framework highlighted previously), working with an NGO to tackle single topics (e.g. M&S’s long-standing partnership with WWF), industry collaborations (e.g. Sustainable Apparel Coalition, Sustainable Seafood Coalition, Electronic Industry Citizenship Coalition, etc), through to multi-industry collaborations (e.g. Coca-Cola working with Ford and Heinz to utilise its PlantBottle™ technology beyond packaging applications) and multi-stakeholder initiatives (e.g. Better Cotton Initiative, Ethical Trading Initiative, and Forest Stewardship Council, etc).

We’re even seeing the emergence of rival firms in the same industry joining forces to achieve common goals. For example, Coca-Cola and Pepsi Co and Unilever and P&G working together to develop more sustainable refrigeration,

Finally, collaboration and innovation are not an either-or proposition – one drives (and potentially turbo charges) the other. Collaboration needs to be the underlying philosophy of how to approach sustainability, if treated as an add-on it will surely fail. Sharing of knowledge and know-how and leveraging value from unlikely relationships are prerequisites to scaling up new and more sustainable ways of working.

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