In their latest blog we hear from Jim Fava and John Heckman on the Golden Rules for Sustainable business, moving beyond compliance to creating business value.
It is undeniable that sustainability is good for business. With the founding of Five Winds International back in 1998, some thought we were crazy to establish an international consultancy that focused on helping companies make money through product sustainability. At that time, environmental compliance was the primary driver for businesses to take action, and moving “beyond compliance” was sometimes like pushing a rope. Obviously in the early days, there were a few leaders, but today more than ever sustainability is moving mainstream. More and more companies are realizing business value by operating sustainability through practical changes in their organization – e.g., integrating sustainability criteria into their innovation process, into their supply chain, and into how they aim to add value to their customers. It’s been an exciting journey, and one that continues!
Reflecting on these changes, there are innumerable lessons we’ve learned. However, several lessons surface over and over again when companies are asking the questions – what should my company’s strategy be related to sustainability, why is it important, and how do I realize value from it?
We’ve distilled these down to what we’re calling our Golden Rules of Sustainable Business.
- Bring your customer in: It is natural in today’s businesses to think in terms of value chains. However, for decades, companies have focused their environmental and social performance actions on operations that were directly under their control – e.g. their own faculties – and a lot of firms still keep the lion’s share of their attention there. For good reason by the way, since your operations is where a lot of your costs and risks lie. However, when a company shifts focus to their customer, amazing opportunities surface. A customer focus requires looking at the full range of potential impacts along the entire value chain. Some steps in the chain are under direct control, others can only be influenced. Examples of upstream opportunities include building up better alliances, access to limited resources, stability of supply. Similar examples of downstream opportunities include customer satisfaction, and loyalty, improved brand image and reputation. We generally use the term “life cycle thinking” to describe this perspective. It is the concept that underlies the formal process of Life Cycle Assessment, but it also the thinking that drives sustainable materials management, resource efficiency and circular economy as well. Companies who intentionally bring customer focus into their sustainability strategy are better positioned to create and gain greater business value from their efforts.
- Success requires focus and action. As we move beyond our own operations which we can easily control, it can become difficult to have a clear understanding and knowledge of sustainability priorities that are most important to the company, your products, customers, supply chain, and other stakeholders. In other words, what are your “hot spots”? There are many methods available for identifying hotspots. From materiality assessment, life cycle studies, ISO 14001-style significant aspects and impacts, TSC toolkits, UNEP hot spots analysis mapping and methodological framework, to name a few. Using one or more of these proven methods that resonate with your company, your stakeholders, and to build the priorities for your organization. Once you have identified your “hot spots” you must then continue to address and work on them; choosing the right issues is critical, but progress is where business value is created.
- The value is in more than just tightening your belt. Companies must make an explicit choice regarding their sustainability strategy. Is the plan to only be in compliance with laws and regulations in jurisdictions in which they operate, with no additional efforts beyond compliance? Or, are there specific drivers in your market that demand response, but not an opportunity to differentiate yourself? Are those market drivers substantial enough that an engaged strategy will drive additional value related to brand enhancement or risk mitigation? Or, is there an opportunity to shape the future of your market, with commensurate additional revenue growth expectations attached? There are rational reasons for choosing any of these strategies, and there are organizational implementation ramifications that need to be considered as well. The bottom line is that cost savings is always a great business value, but it’s a safe bet that there are competitors who are seeing more of an opportunity and moving beyond compliance and cost savings. Perhaps they know something you don’t?
- If you don’t know your destination, any tool will get you there. We all love tools — they are core to who we are as humans – and the sustainability world is rife with tools. Take Life Cycle Assessment as an example. We first were asked questions about use of LCA in the early days of its development in the early 1990s. Even in those days, there was a sense that the value of the tool depended on how it fit into the organization. In response and with the help of our Product Sustainability Roundtable members, we developed a sustainability implementation framework to facilitate discussion on what drives success. Tools need to be based on good data which is tied into the flow of the business, but they also need to fit into programs and process intended to address the critical issues of the company. Those programs need to be embedded into the management structure both at the day to day operational level and at a higher strategic direction. All of this needs to be oriented towards contributing to the core business strategy of the company. We are often asked to help a company develop a decision support tool or which decision support tool is best for me. Our first questions are how will the results be used; how does it align to your sustainability strategy. Often the answer is not sure. If you don’t know where you are going, any tool will get you there.
- Without a seat, three legs of a stool are useless. We have often used a three legged tool analogy, each leg of a stool representing sustainability performance from an environmental, social and economic perspectives. It’s still a solid metaphor and is borne out by the 1000s of reports we see from companies all the time. As we peruse the results in those reports, we see some of these companies who are able to show improvement year over year. The companies making regular improvement are ones who also have a governance system which recognizes and incentivizes that sustainability performance. We’ve worked with many of these leaders and the value of that governance is palpable. Interestingly, this is the value that external investors are looking for and are using sustainability performance metrics as proxies as they make investment decisions. Sustainability is a core market aspect for all organizations to manage, and those who do it well, do it in alignment with all of the other aspects they manage.
Recently in Japan, I heard a speech by a leading investment management company’s CEO. He spoke to the excellent performance of companies who have truly integrated sustainability into their business operations and are realizing business value. However, we discussed afterwards, since these examples are real, why isn’t everyone doing it? Obviously these successes are just the tip of the iceberg – much more work needs to be done to inform business leaders in companies around the world – in their language – that operating sustainably is also good for their business. We look forward to continuing to be catalysts for accelerating the speed of this transformation.
If you would like to speak to us about the “Golden Rules of Sustainability” or how your business can move beyond compliance and truly embed sustainability into your business please contact Jim Fava or John Heckman.