By Five Ways Sustainability is Good for Business
Most people are familiar with this one, and it makes sense: use less, spend less. Whether water, energy, paper, waste, or something else, the case studies are endless and come in all shapes and sizes. Shaklee saved $52k a year by cutting back on water. ING saved $500k on paper supplies by printing on both sides. Illumina, a genetic research and health company, saved $500k a year by finding and implementing energy efficiency methods.
But what’s beyond the “green team” stuff? Probably a lot more savings, especially if you’re willing to make an up-front investment in great payback — something businesses do every day. For example, Dell’s packaging reduction redesign saved over $50 million. Unilever’s eco-factories project saves $230 million per year by reducing waste in its facilities around the world. Sprint’s buyback-and-refurbishment program saves them the $1 billion cost of making millions of brand new smartphones. Walmart has saved $1.5 billion since 2005 by doubling the fuel efficiency of transportation in its supply chain.
Risk is everywhere, especially in value chains you don’t control. Even putting aside environmental regulators, safety hazards, or human rights debacles, a changing planet creates uncertainty. But it often takes getting outside your normal domain to see it. A sustainability lens is a great way to see risks coming your way.
Let’s say you’re a procurement manager at General Mills and you read an article naming 8 foods that might go away because of climate change. You will probably want to look into that. You investigate and find out that you control only 1% of the water in your products. The other 99% is upstream in your supply chain — in the 60 watersheds around the world that feed your agricultural suppliers. Not only that, but one of those watersheds is the El Bajio watershed in Mexico, which has an aquifer declining more than 6 feet annually. Is it climate? Is it overuse? It’s complex, but you better come up with a strategy, and it should probably involve more than insurance and lawyers.
The good news is that you don’t have to do it alone. Trade-facing associations like The Sustainability Consortium can help you spot and deal with supply chain risk. Companies like Trucost can help you measure your sustainability outcomes, and tie them to financial risk, reward, and investability. In the example above, General Mills is working with The Nature Conservancy, local communities, local government, and local NGOs to generate a stewardship plan that helps everyone sustain.
And by the way, investors are watching. From SASB to CDP, investors want to know if you’re dealing with the financial realities of the planet’s reality. For example, the SEC now protects investors by requiring companies to disclose business risks from climate change. Not only that, but the SEC is also actively investigating Exxon Mobil for how it might be mis-valuing its assets in a carbon constrained future. Bet you didn’t know that.
We all know it’s true. But how do you measure the ROI (return on investment) for sustainability and your brand? It’s always tough. A Project ROI study suggests that sustainability and corporate responsibility efforts can create a reputation asset worth up to 11% of the firm. Another study says 3-15%. That is, as long as you’re not greenwashing.
Nobody knows more about brand value than Unilever, with over 400 brands under management globally. In 2014, Unilever brands with a larger purpose (other than profit) grew twice as fast as its other brands — a full 50% of Unilever’s overall growth. These brands also had better core operating margins. By now, it’s also well established that consumers are willing to pay up to 20% more for sustainable products. As a result, Unilever is on a search for ways to authentically embed purpose throughout all of the brands under its umbrella.
Just like with brands, workplaces that provide meaning greater than self-interest attract and motivate better employees. Corporate Social Responsibility programs that engage employees in large, publicly traded companies can increase productivity by an average of 13%, and reduce turnover by up to 50%, with companies saving up to 200% of a retained employee’s salary. In a particularly stark example, participants in IBM’s Corporate ServiceCorps program, which lets employees use their skills in a developing country, had a employee turnover rate of 1%, compared to the 12% rate posted by employees not in the program. IBM estimates an accompanying $400M net financial return on ServiceCorps — equivalent to 300% ROI.
The business case holds within the social link to sustainability as well. A McKinsey study last year found that gender diverse companies are 15% more likely to outperform non-gender diverse companies — the margin grows to 35% for ethnic diversity. A recent study by Georgia State and Lehigh University researchers found that companies with women on the board experienced higher accounting returns than those without. And while we’re not exactly clear on causation, in a hyper-competitive global economy, companies like Cisco are definitely looking to turn this knowledge into an advantage.
I saved the best for last. All of the above evidence leads to a larger point: sustainability drives meaningful innovation — from new market discovery, to product and service development, to operational excellence. And done right, meaningful innovation drives revenue. Nothing future-proofs your company like connecting a long-term outlook to a search for improvement in the short term.
We’ve been aware of the outlines of this for awhile now. In a world where natural capital is increasingly scarce relative to human capital, sustainability and innovation increasingly go hand in hand. In 2013, Daniel Aronson and his team at Deloitte found that companies that are sustainability leaders are 400% more likely to be perceived as innovation leaders. Here’s a list of examples showing how it works. At Presidio Graduate School, our students come up with dozens of new product ideas every year.
The importance of the connection between sustainability and innovation is key because that means sustainability can be meaningfully and profitably integrated within the core goals and functions of a business, not just relegated to CSR reporting, marketing, or philanthropic departments.
I don’t mean to lionize all the companies mentioned. Every company is different and complicated, and our markets have a long way to go before we can declare business the savior of people and planet. But for sure, opportunities to become more sustainable are all around us, and business can be part of the solution. The more people and firms working on these solutions, day by day, the closer we get to happy tipping points that we hope for, but can’t yet imagine.
Feeling inspired to drive innovation at your organization, lower costs, and strengthen your brand overall? I invite you to explore our MBA program in sustainable management, now also available fully online.
Ryan Cabinte teaches Market Failures and the Regulatory Environment for both MBA and MPA degree programs. His academic areas of interest include innovations in corporate structure, law and governance as well as novel approaches to moving capital to mission-driven organizations. The Aspen Institute named Ryan one of its 2014 "Faculty Pioneers," recognizing curriculum and scholarship that deeply examines the relationships between capital markets, firms, and the public good. Ryan is a graduate of Yale University, Boston University School of Law, and Presidio Graduate School. He also serves on the Board of the Trust for Conservation Innovation.