September 3, 2012
Leveraging Sustainability For Economic Profit
More and more organizations see the importance of sustainable business practices. They have recognized that there are very substantial financial benefits to be obtained by integrating sustainability thinking and practices into all their business processes. Once you take into account the wider, longer-term, and often hidden costs, the financial benefits of good, practical, sustainable, working practices are enormous.
Moreover, studies indicate the valuation differential between the most and least eco-efficient companies increase’s over time. It is therefore important to note: poor environmental performance could suggest a sign of operational inefficiency. And, with ESG (Environmental, Social and Governance) being increasingly integrated into investment portfolio management, professional investment managers begin to view embedded sustainability as a proxy for how effectively a business is managed.
With this in mind; support needs to be garnered from the CFO and their team, who have a unique vantage of operations, seeing it from a purely financial paradigm. This makes the process of tracking interdependent environmental, social and economic costs and benefits across the organization and value chain easier, reducing risk to the balance sheet. Notwithstanding risk mitigation against the failure to disclose environmental and social risk, leading to protection against reputation damage, poor peer rankings in investor research and hobbled future value.
And, as CFOs become more engaged with sustainability, they must connect with energy management and sustainability teams, touching all critical business functions, to deliver assurance of current and future energy and resource project savings claims. Indeed, with ‘green’ technology being looked upon as a key to eco-efficiency, to optimize use, the procurement of such technologies must be coupled to the sustainability strategy; linking organizational processes and behaviors to these new technologies, since eco-efficiency spans energy intensity and energy efficiency, as well as the durability and recyclability of a product life cycle.
This can be illustrated through life cycle analysis. This allows companies to include all energy and material input to the life cycle of a product or service to create a meaningful metric for the footprint and materiality of that product and service. And, by performing regular benchmarks determine which factors render least impact, so developing a sensitive understanding of where material can be reused and recycled back into another life cycle process creating new revenue streams. Indeed, the Ellen McArthur Foundation has estimated $380bn is the net potential material cost saving opportunity in the EU from the adoption of such circular business practices.
Furthermore, for CEOs, the passport of sustainability delivers clear environmental, social and economic governance. As such, assists in the protection against economic vulnerability through the momentum of changing market forces and mandatory reporting. Not that the mere fact of environmental compliance allows a company to distinguish itself from its competitors, since most intra-industry peers are affected by compliance in a similar way. In point of fact, real benefits to organizations will come from more rigorous forms of environmental and social performance. As such, decision makers must take themselves on the illuminating journey of sustainability, creating experiences which help them instinctively grasp the mis-matches that may exist between what the new strategy requires and the actions and behaviour that have brought success up to this point.
And, by connecting the board, senior managers and employees, there is a support base for all influencers to feel connected to the strategy and create a positive halo for the brand amongst staff. Developing the right experience, chemistry and attitudes. It creates the right spirit with which customers are engaged. Additionally, a framework of robust and contextualized reporting can be used to refine sustainability messages supporting brand and reputation to meet with the new customer and wider stakeholder demands and expectations. In fact, with reputation being viewed as a strategic asset, leveraged correctly, sustainability will aid gaining competitive advantage. After all, is it not the firm’s responsibility for the image projected to customers, suppliers, investors and other societal stakeholders? To engender trust. And, society does render legitimacy for the organization to exist.
Similarly, experience is showing, as highly qualified eco-boomers come to the work market from university, they are choosing whom to work for with more consideration as to the values of the employer, making sustainability a major factor in decision-making. In response, business has to adapt to the changing requirements and needs of the workforce and its ability to attract best talent as people revise their goals, priorities and expectations as they look to make efficiencies in how and where to live and work. Moreover, with such talent there is a natural progression toward evolving products and services to reduce customer impact and building further the bonds of trust and legitimacy to operate, delivering long-term, sustained, cost reduction and value creation.
Furthermore, sustainability helps protect against the vulnerability of employee instability. For example: unequal and disengaged employees foster discontent. And would this not be expected to have a negative affect on productivity? Therefore, sustainability requires focus on economic performance, employee development and cohesion; ensuring that goods, services, labour, resource productivity and financial capital are allocated in the most productive manner; to deliver technological readiness, business sophistication, and innovation – representing both short and long-term drivers for competitiveness.
In conclusion, repeated evidence suggests a positive relationship between sustainability performance and higher value. As a strategy, it’s about optimizing the allocation and use of resource and exposing hidden costs and risks. Additionally, an excellent reputation gives an organization character, which is a strategic asset. Leveraged properly, delivers competitive advantage. And, a company driving eco-efficient products and services lowers the negative impact and burden on its customers, the environment and society: making it more attractive to do business with – to reap positional advantage in a highly charged, cost conscious, highly competitive market place.
© Christopher Gleadle 2012
Author : Christopher Gleadle