Making the Business Case for Sustainability

Most companies agree that sustainability is a megatrend, but many are concerned about how they should assess this type of qualitative information accurately. A report that interviewed 3000 business executives and managers from organizations around the world by the Mit Sloan Management Review uncover this news. The report states that 60% of the companies surveyed increased their sustainable action investments in 2010 (Berns, et.al., 5), which is up from 25% investing of the year prior. The biggest obstacle felt by 64% of the companies rated is quantifying and valuing effects of sustainability-related strategies. Yet, all industries surveyed agreed that acting on sustainability is essential to their remaining competitive - even though this requires an openness to considering intangibles, and accepting pay-back’s that often run long-term.

Similar to lean manufacturing, the downturned economy has offered companies an opportunity to sharpen their focus on areas in which sustainability can deliver a competitive edge. As a company investigates new modes of thinking on how to economize, systems are revamped, and new capital investments are made. Johnson & Johnson spend $187 million in capital investments over a four year span and gleamed a rate of return at 19% (Berns, et.al., 8). They directly attributed this to sustainable design.

So sometimes quantifying the success of sustainable pathways is achievable , it’s clear that being branded for social responsibility attracts high-potential employees as well. This is the fifth largest concern, behind the top four profit-only concerns (Berns, et.al., 23). Half of sustainable oriented companies say that they highlight this in their recruitment of potential employees. One third of American workers said that they are willing to give up pay to work for an environmentally friendly company (Miller).

These kinds of statistics capture that attention of many companies, yet 93% of CEO’s who value this importance are not sure how to incorporate sustainability into their company (Lacy, et.al, 2010). There are a variety of sustainability rating methods including: Global Reporting Initiative (GRI), Pacific Sustainability Index, Dow Jones Sustainability Index, Environmental Performance Indicators, UNEP scoring, the Deloitte Touche Tohmatsu scoring system and the Davis-Walling and Batterman scoring system (Morhardt, 161). Yet some companies will opt to produce their reports with self-designed criteria (Morhardt, 213).

The more popular system is GRI. This rating system is used as a stand-alone, or to accompany other reports such as the Social Investment Forum association, or the Standard and Poor’s 500 index. This method has increased in use rapidly over the last few years, and not only in the European Union (GRI) where it was initiated.


Europe, Asia, Latin America and the USA have all had increased submissions of GRI reports. Most of the growth rate in the USA though, has been over the last five years:


Of the Global 500 companies, 37 have chosen to use the GRI reporting method in 2010 alone. These include: Alcoa, Allstate, AT&T, Bristol-Myers Squibb, Chevron, Cisco, Citigroup, Coca-Cola, Dell, Delta Airlines, Dow Chemical, DuPont, Exxon Mobil, Fluor, Ford Motor, General Electric, Hess Corporation, Hewlett Packard, IBM, Intel, Johnson & Johnson, Johnson Controls, JPMorgan Chase, Kimberly-Clark, Marathon Oil, Microsoft, Motorola, Nike, PepsiCo, Procter & Gamble Global, Sunco, Target, Tyson Foods, U.S. Postal Service, and UPS.

Some of the GRI reporters filed the report for one year and then dropped out:

2004 IBM
2005 Gap, Merck USA
2006 Deloitte
2008 Autodesk, American Express, US Army
2009 H.J. Heinz, Monsanto, Walt Disney

There were two corporations that started reporting then stopped:

2002 McDonald's
2007 Nike
2009 McDonald's
2010 Nike

Mostly, companies started using the GRI method and then stuck with it. There are four companies reported from GRI inception as shown below:


It is also very clear that many more corporations are jumping on the sustainability pathway. Newcomers last year include: Campbell Soup, Carnival Cruise Lines, Clorox, Eastman Kodak, HDR, Hershey’s, JP Morgan Chase, Kellogg, Owens Corning, Procter & Gamble, Southwest Airlines, Symantec, United Airlines, the U.S. Postal Service and others.

The trend is that more companies are finding that there is an advantage to utilizing a standard system to track and report qualitative sustainable indicators such as what GRI provides. One of the challenges is that there is a level of transparency with using any reporting method, and this does take some psychological adjusting to alter past corporate cognitive behaviors. Benefits to this includes wanting to do better due to the increased exposure, or bringing into focus unseen issues that should be addressed. Quantitative data does show that it is important to trust that there is a rapid change in business practices coming, even though it may not be clearly defined. How businesses sustainably align with society and the environment, as well as economic goals is no longer just a happy hour hot topic for a good idea. Sustainability in business is today vital to competing in a competitive world.





Acknowledgments:


Berns, Maurice; Bussey, Keith; Murray, Sarah; Vismans, Diederick (2011). “Sustainability: The ‘Embracers’ Seize Advantage.” The Mit Sloan Management Review and The Boston Consulting Group, Winter.

GRI (2011). “GRI Reports: Who is Reporting?” Global Reporting Initiative, http://www.globalreporting.org/ReportServices/GRIReportsList/.

Lacy, Peter; Cooper,Tim; Hayward, Rob; Neuberger, Lisa, (2010). “A New Era of Sustainability: UN Global Compact-Accenture CEO Study 2010, June.

Miller Perkins, Kathleen (2010). “5 Reasons Why Small Businesses Should Care about Sustainability.” Green Biz, October 13. http://www.greenbiz.com/blog/2010/10/13/5-reasons-why-small-businesses-should-care-about-sustainability#ixzz1EdML6LVJ.

Morhardt, J. Emil (2002). “clean, green & read all over.” Quality Press, Milwaukee, WI.

Sustainability in practice means that companies:

* Pinpoint their organizational readiness to pursue sustainability as a commercial theme,
* That they map the untapped commercial potential for fulfilling sustainability strategies – now and in the future,
* That they benchmark processes and the existing team
* That they develop their leaders to excel at sustainability leadership, and
* That they attract external candidates who demonstrably possess the experience and competencies to create exceptional business value through sustainability.

The Attraction of Corporate Social Responsibility

In the early part of the century, garnished from the national railroad epoch (1), steel tycoon Andrew Carnegie’s philosophy was that the capitalism was a system that allowed great wealth to be individually amassed. In 1901 he was the richest man in the world and he felt that it was the responsibility of those that had to wealth to disperse it, as “stewards,” to the common man for social equity(2).During this time the government did not regulate businesses, and consequently there was a great deal of labor exploitation. The theory and actions of this early philanthropist eased some of that tension.

Seventy years after Carnegie gave away a record $350 million and forty years ago, author Milton Friedman made a statement about charitable giving from a corporate standpoint. In his article, “The Social Responsibility of Business is to Increase its Profits,” he elaborates about the purpose of a free-enterprise, private-property system is to “…make as much money as possible(3) [for the owner]. His conclusion is that the owner can then give the money as they wish, but the corporation legally cannot. Friedman implies that corporate managers that give are “schizophrenic...shortsighted...[And] suicidal,” which is why the article probably received so much attention. His view is however, in alignment with the ways that things are today, so why then do corporations give away a percentage of their profits?

Today’s businesses do have government stipulated regulations, and one example is the tax benefit for charitable giving. The government has determined that giving enhances the quality of life, such as cleaner, safer, better educated, and culturally enhanced communities. History has proven this to be the case as community attributes create a more profound sense of cultural identity. An individual that feels more included in a community is more committed to giving back, whether this is as an employee, parent, or other part of the community web, thus creating social cohesion and stability.

Another consideration for corporate giving is to enhance the reputation of a firm. The identity, or branding, can take years to build, but can diminish rapidly with at-fault perceptions. An example is the company McMillian-Bloedel that overnight lost 5% of stock value due to a major customer that canceled all orders due to environmental news of misconduct(4). It’s been shown by a national marketing company, the AMP Agency, that 83% of people will trust a company more if it has been socially and environmentally responsible(5). Other benefits of the actions of the corporate philanthropy are the creation of new business opportunities, employee loyalty, and preferential government and regulatory treatment(6).

Friedmans suggestion that corporate giving is comparable to business insanity is not an appropriate implication. Perhaps his views eased the minds of the prior investors who felt guilty for not giving just a little bit back to the system. The savvier stakeholder will be considering charity, but terming it as the more popular title of Corporate Social Responsibility (CSR). This implies that the end goal for corporations has risen above simply selling a product or service. CSR is evolving, not only as a driver of innovation, but to significantly improve a brand’s image externally by being centered on people, planet, and profits. This modern concept that fuses business with the concerns of society would have made Carnegie, an unpretentious man, proud.