Senior executives at more and more companies are starting to make sustainability a top agenda item. And although different motivations are driving companies to make this move (for example, consumer interest, pending legislation, rising commodity prices, and retailer demands), many of them are facing similar challenges. In particular, how can they ensure that their sustainability efforts are going to deliver shareholder value?
The article offers nine “pitfalls” for companies to consider in their sustainability journey to shareholder value:
1) Confusion From the Start
Sustainability needs to be clearly defined so that all employees understand what it means – and does not mean – to their organization. Increasingly, accepted definitions reference the Triple Bottom Line – where companies focus on the intersection between environmental, social, and economic factors.
2) The Missing Link – Organizational DNA
In addition to a definition, a Sustainability Vision Statement must also be developed that is closely aligned with the company’s Mission Statement. This serves as a guide for strategic decision making, engages employees and stakeholders more deeply, and begins to embed sustainability into the company culture.
3) Pursuing Without Priorities
Because sustainability can impact multiple areas of a company, developing clear priorities is key. Failure to do so can dilute sustainability efforts or confuse various stakeholders. Companies should analyze operational inputs and outputs, consider stakeholder priorities, and remember the social impacts of their various business activities when establishing priorities.
4) Baseless Progress
Although 85 percent of leading consumer businesses have pursued some sort of sustainability-related initiative, many are lacking baselines against which yearly benefits can be measured. It’s one thing to say $5 million was invested in energy-saving technology, but it’s far more powerful to say that waste was reduced by 45% since 1998.
5) Lifecycle Analysis Paralysis
Lifecycle assessments can be a powerful tool, but may not be ideal for companies lacking time, resources, or technical expertise. A good alternative is to create an internal “sustainability index” to evaluate each product line based on its sustainability attributes and overall value to the company. And because different criteria have differing impacts on the firm’s sustainability achievements, the criteria should be weighted according to the company’s sustainability strategic priorities.
6) The Lone Rider
Tackling sustainability issues alone can be arduous, if not impossible. Companies should collaborate with external organizations – non-profits, NGO’s, and academic or industry groups – in order to navigate the ever-changing sustainability landscape. This will help them keep up with changing technologies, environmental and social impacts of operations, and innovative tactics to engage relevant stakeholders.
7) Lacking Leadership
As with most other major strategic issues, sustainability requires a senior executive to drive accountability, evaluate risks, overcome organizational barriers, and speak persuasively to investors and other stakeholders. Indeed, high-performing companies put a much greater emphasis on environmental and social concerns at the board level, while poorly-performing firms are more likely to have nobody in charge of sustainability issues.
8) Communicating Too Early or Not at All
When a company makes some sustainability strides, it’s tempting to want to broadcast its success to the world. But it’s critical to assess the true benefits of a company’s sustainability initiatives, products, and/or services – before announcing progress publicly – in order to prevent the risk of being accused of communicating unsubstantiated claims.
9) Betting on the Consumer
Surveys show that a growing number of consumers are becoming aware of sustainability issues and are modifying their purchasing decisions accordingly. Factors that they may consider include organic development, eco-friendly ingredients or packaging, and fair treatment of employees and suppliers. However, many consumers are also skeptical about green product claims, and it is unclear to what extent consumers will sacrifice convenience or price for sustainability. Even so, sustainability can certainly drive competitive advantage when targeting the right consumer segment.
Creating a “Pitfall-Free” Foundation
Doing the right things at the right time is critical to building a proper foundation and avoiding the above pitfalls. Building this foundation should occur in four steps:
A) Strategic Intent. First, develop a sustainability definition and link it with the organization’s mission to create a sustainability vision statement. Further, assess how sustainability will impact the enterprise’s competitive advantage and identify top priority areas.
B) Operational Strategy. Next, establish operational baselines to identify key metrics and targets as well as to compare yearly progress. Consumer products companies should analyze product portfolios with an sustainability index to identify which products support the sustainability strategy and which should be rethought. Finally, leverage external collaboration opportunities to drive more innovation in solutions.
C) Governance & Infrastructure. Identify clear roles and responsibilities, including an executive sponsor to ensure sustainability progress. He or she should establish communication protocols for both internal and external audiences, as well as tools with which to review proposed initiatives.
D) Operational Integrity. Once the previous steps are in place, employees will be equipped to generate innovative solutions that fulfill the organization’s sustainability aspirations. These initiatives should generally drive one of these five things: 1) Cost and Efficiency, 2) Revenue Enhancement, 3) Stakeholder Engagement, 4) Risk Management, and 5) Regulatory Compliance. And each strategic driver should be aligned with the proper personnel and tactics. For instance, a revenue enhancement initiative should include marketing, sales, and R&D personnel and should be designed to meet a consumer need related to sustainability.
Applicability to All-Sized Businesses
The companies that carefully build this foundation – and avoid the all-too-common pitfalls mentioned above – are the ones who will succeed in realizing environmental and social benefits while delivering shareholder value. And while this article is directed mainly at large companies, all of these guidelines apply to small and medium businesses as well – in spirit, even if not always in letter.
For example, a medium-sized business may not have a large or complex governance structure, but it’s still important for a leader, or the leader, to commit to the sustainability agenda if it’s going to succeed. Likewise, creating sustainability indexes for product portfolios may not be applicable to smaller organizations, but they should nevertheless try to establish some applicable metrics with which they can evaluate various processes and outputs in terms of their overall importance and their impact on the organization’s sustainability progress.