Companies Need to Institutionalize Climate Solutions in Every Department

Businesses are on notice. Corporations’ excessive exploitation of Earth’s resources and degradation of its carrying capacity are continuing unabated in the second decade of the 21st century.

The United Nations Global Compact warns that “despite progress made in many areas, we are not on track to deliver on the [Sustainable Development Goals] by 2030. All companies must define a new level of ambition to deliver on the SDGs by 2030.” U.N. Secretary-General António Guterres has called on the world’s leading companies to embrace ambitious benchmarks and advance the integration of the SDGs into core business management processes and systems.

Despite sustainability rhetoric and limited actions, most corporations remain committed to Milton Friedman’s age-old principle that they exist to deliver shareholder value. Consolidation of global markets and capital assets, and centralized control of increasingly larger and more complex financial and business enterprises with minimal government oversight, have resulted in insufficient systemic strategies for environmental health as well as inequality of opportunity by race, gender, and ethnicity — harming human development and well-being globally.

Corporations should dismantle their corporate social responsibility (CSR) departments. There is no “profitability department,” so why should there be a sustainability department? All operational units of a company including marketing, R&D, manufacturing, operations, finance, human resources, legal, finance, and others have key performance indicators (KPIs) that are directly or indirectly aimed at supporting the profitability and shareholder-value growth strategy of the company.

Likewise, every department needs to have KPIs for climate restoration and social justice.

Despite sustainability rhetoric and limited actions, most corporations remain committed to Milton Friedman’s age-old principle that they exist to deliver shareholder value.

Setting climate action KPIs in every department changes the company culture, minimizes the need for CEO intervention, and empowers the lowest level of the organization to innovate in a new space of opportunity for creating solutions for mitigation of global warming, adaptation to climate change threats, and reducing inequity.

To realize the great economic, social, and ecological benefits of solving the climate and social injustice crises, corporations need to make tackling the challenge central to the management of every building block of their organization as described below.

Leadership: Corporate leadership’s role is critical in establishing the sustainability vision, by promoting a culture supportive of the triple-bottom-line performance. The well-being of the local and global communities impacted by corporate operations should be expected norms and mores at all levels of the organization — starting at the top. “Sustainability leaders are system thinkers, have open minds, are deeply reflective and adaptive thinkers, are self-aware with deep empathy and compassion for the well-being of others, and finally they have a collaborative and strategic drive to create and implement new pathways to sustainable development,” wrote Pamela Matson and her colleagues in “Pursuing Sustainability.”

Decision making: The inclusion of economic, environmental, and social costs/benefits in both space and time requires systems thinking and dynamic system analysis. This system includes not only the traditional elements such as technology, marketing, operations and finance, but also the ecological and social systems. As such, the traditional cost/benefit analysis techniques that measure everything in dollars are not adequate and worst yet lead to misleading decisions. This is a major shortcoming of the prevalent decision-making approach, which is an outcome of the neoclassical economic system making financialization of all harms and benefits the accepted norms. As a result, the value of natural resources, human life, and well-being are represented by money. It’s critical to implement multivariate decision optimization methodologies and tools (not measured solely in dollars), to lead to successful triple-bottom line outcomes.

Strategy: Corporate strategies should be established using a systems-thinking approach and be consistently implemented across all company operational units globally. Furthermore, companies need to have a clear strategy in developing and sharing intellectual property (IP) pertaining to sustainability. Traditional strategies for protection of IP through patents and trade secrets should be amended. Technologies and know-how that reduce harmful environmental and health impacts of products and operations must be freely shared with customers, suppliers, and even with competitors and players in adjacent markets for rapid proliferation of desired outcomes.

The most effective corporate strategies integrate three outcomes: prosperous business; climate change mitigation and adaptation and support for the ecological systems; and contribution to consumer well-being and social justice.

Setting climate action KPIs in every department changes the company culture, minimizes the need for CEO intervention and empowers the lowest level of the organization to innovate.

These considerations need to be within the global economic and social systems where business resides. That is, go beyond the immediate concerns of the business to consider its interconnectedness and leverage factors on a global scale and multi-generational time scale.

Marketing: Marketing, which often plays a central role in market development and branding, can use choice influencing to inform customers about the sustainability advantages and create demand for sustainable products. Choice influencing is using marketing communication prowess to enhance customer awareness, shape their mindset, and encourage them to choose sustainable products and services and use less. Patagonia is exemplary in this practice.

In sustainable product management, product marketing should play an additional role that is not traditionally practiced. This new role is taking responsibility for the end-of-life (EOL) management of the product. Often, products are treated as waste and sent to landfill after first use, instead of being collected by the producer. We need to divert the products from landfills at their end of life and market them as feedstock for manufacturing of other products inside and outside the company. This process — which is referred to as by-product-synergy (BPS)—enables recycling and reuse, and can be pivotal to creating a circular economy.

Marketing is responsible to change the basis of competition away from lowest cost-per-feature for the consumer and highest shareholder value to contribution of the product to equitable social value. Marketing should shy away from promoting consumerism and consumption as a means of achieving happiness and self-actualization.

Research and Development (R&D) and Engineering: R&D and engineering should have KPIs for developing sustainable technologies and products following the design-for-sustainability guidelines including both ecological and societal sustainability. Companies need to use systems analysis and Life Cycle Analysis (LCA) methodologies to make holistic assessment of economic, social, and environmental impacts of alternate technologies and product designs. The technologists and engineers should go beyond mere compliance to market requirements specification and assume responsibility for the sustainability of their invention and design. They must be citizen engineers who care about the social and environmental impact of their creation (see “The Responsible Company: What We’ve Learned from Patagonia’s First 40 Years“).

Manufacturing and Operations: Design-for-sustainability KPIs need to be established for the designers of manufacturing processes. For example, the desired manufacturing process is efficient and has zero waste and effluents to air, water, and land, and uses safe chemicals based on the green chemistry principles. Furthermore, manufacturing processes should be designed for closed-loop and zero-waste operations where the waste from one cycle is used as feedstock of other manufacturing cycles. The zero-waste, reuse and recyclability principles should apply to the packaging design, too. The facilities managers need to run an efficient operation and deploy sustainable resources such as renewable energy and recycled water.

Supply Chain: The COVID-19 pandemic has revealed how fragile the prevalent lengthy, complex supply chains can be. Short and local supply loops are resilient and contribute to local economies near to where the production and consumption occurs. The supply-loop approach should be adopted to replace the traditional linear supply chains where virgin materials are extracted from the earth. In the supply-loop design, designers and manufacturing seek to reuse materials and components, and purchase recycled materials to enable a circular economy. Supplies also should be sourced locally. Suppliers must be treated ethically and with equitable compensation. Buyers must not take advantage of their market power to push prices down at the detriment of safety and well-being of the workers at their suppliers, particularly in poor countries where local labor laws are lax or not enforced. Companies benefit by assuming responsibility for the environmental and social impact of their product over its entire lifecycle — holding supply-chain management to KPIs for triple-bottom-line principles applied throughout the supply loop.

Legal department: Often the environmental, health and safety (EHS) regulations set by local governments are the minimum requirements (the floor) for the companies to protect the safety of users and workers and to minimize environment pollution. Furthermore, EHS regulations are uneven among various countries or even the regions of the same country. Responsible companies are the leaders on the sustainability maturity index (SMI), as discussed in my book “Sustainable Product Innovation — Entrepreneurship for Human Well-being.” They exceed governmental EHS regulations and practice the most stringent requirements homogeneously across the globe irrespective of local lax regulatory regimes.

The corporate legal department should lobby for policies that focus on climate change mitigation and adaptation actions such as the Paris Agreement of 2015, zero-emission vehicles, tax on carbon and transition to non-fossil fuel energy for electricity, heating and transportation. The leading companies consider these policies at the same level of importance as customer demands and investor requirements. The potential adverse impact of these policies on the company’s operational units can be managed by changing product designs, operational strategies, market priorities, and business models.

The building blocks of sustainability represented by all of the departments and operational units of the company are interlinked, and it is not possible to fully achieve the objectives of any block without the contributions of the other blocks.

Management System: The organizational units and individual employees will not adopt sustainability strategies and practice sustainability principles without an enforcing management system. The management system includes the tools and methodologies of performance management plus a supportive corporate culture that helps institutionalize and operationalize sustainable practices. The management system should institute KPIs and tools for achieving sustainability goals across the company and at every function. The management system needs to comprise both individual and team KPIs and rewards for attaining sustainability results.

It is important to note that the building blocks of sustainability represented by all of the departments and operational units of the company are interlinked, and it is not possible to fully achieve the objectives of any block without the contributions of the other blocks. In other words, the company should practice sustainability at every organizational unit with orchestral harmony.

Business efficiency in every department

Business efficiency is an important enabler of sustainable development. Efficiency means accomplishing the desired benefit with fewer resources, such as materials and energy. Efficient products are cheaper to make, deliver and use.

Aiming to reduce carbon emissions to mitigate global warming and the high risks of climate change, eliminating hazardous chemicals, reducing social inequality and improving the well-being of everyone provides many opportunities for technology and business innovation. Creating KPIs for these aims at each company department will answer the U.N.’s call for companies to “define a new level of ambition to deliver on the SDGs by 2030.”

The path to the urgently needed new economy and corporate business model is not straightforward, and obstacles are abundant. Only a steadfast optimistic outlook, creative imagination and a deep love and care for others and for nature can energize the pursuit of sustainable development.

If you’re ready to help your own organization institutionalize climate solutions and sustainable business practices, consider earning an MBA in Sustainable Solutions at Presidio Graduate School.

A version of this post was originally published on GreenBiz in our “Thinking in Systems” column on October 9, 2020.