Seven habits of highly sustainable companies
Sustainability is often confused with “going green,” but while environmental improvement is part of the picture, sustainability is bigger than that. It’s a strategy for individuals and organizations to thrive for the long term. Operating sustainably ensures an efficient, resilient and innovative organization that not only does less harm to people and the environment, but also does more good and makes a profit in the process. Because as many have pointed out, a business that loses money won’t be around to do anything very long. To achieve success in a sustainable way, there are seven fundamental disciplines and behaviors that are common among those leading the way.
1. Risk management
Unnecessary financial, legal and public relations risks — including raw material shortages, production interruptions, brand damage and increased costs from compliance, litigation, insurance and financing — can arise from poor understanding or sloppy management of sustainability-related issues. On the other hand, high awareness and attention to sustainability can eliminate or mitigate these risks.
For example, resource scarcity can raise costs and cause conflicts that increase risk for both ongoing operations and long-term brands. To mitigate water-related risks in certain communities of operation, PepsiCo and Coca-Cola have both reduced their water footprints globally and engaged with local communities in water-stressed areas to improve water quality and availability.
2. Leadership vision
While rank-and-file employees typically succeed by mastering a specialized skill and maintaining a laser focus on achieving immediate results, strategic leadership requires a different skill set and a broader, more long-term focus. Leaders must not only manage their own productivity, but also work for the good of the larger organization in both the short- and long-term. Business sustainability requires the same kind of strategic approach: seeing, planning and acting beyond what we call the “me, here and now.”
Sustainability leadership recognizes that no company is an island; every company is embedded in an environmental system and a community, on which its license to exist — and grow — ultimately depends. Effective strategic leaders also consider impacts beyond their company’s four walls, often including communities of operation and the supply chain, because these can impact the business. They also stay ahead of both customers and competitors by considering future impacts and opportunities, with an attention to long-term stewardship and growth of the business, and their legacy. Through sustainability, leaders can leave not only their company, but also the world better off than when they found it.
More and more mainstream business leaders are weaving sustainability into their strategic visions for their companies. For example, Unilever CEO Paul Polman frames it simply: “Business has to decide what role it wants to play. Does it sit on the sidelines [or] start addressing these issues? In Unilever, we believe that business must be part of the solution. … We believe that in [the] future this will become the only acceptable model of business. If people feel that the system … does not work for them, they will rebel against it. And if we continue to consume key inputs like water, food, land and energy without thought as to their long-term sustainability, then none of us will prosper.”
3. Employee relationships
Employees in the 21st century are increasingly interested in working for companies whose values align with their own — measuring success not only in terms of the bottom line, but also in the positive impact the organization makes on communities and the environment. As Bob Willard and others have convincingly demonstrated, employees who are invited to apply sustainability at work are happier, more productive, less likely to quit and more likely to become ambassadors for the company.
Savvy companies also recognize that sustainability is an indicator of high leadership potential. Employees who care about sustainability also are more likely to think strategically, assume responsibility beyond themselves and collaborate and innovate to drive outcomes that benefit people, the planet and the bottom line.
As Ingersoll Rand and others have discovered, employees taught to channel and focus sustainability can deliver business benefit. In a recent talent development program, hundreds of Ingersoll Rand employees around the world worked through the process of creating a culture of sustainability. As a result, employee engagement scores improved, and dozens of cost-saving and quality-improvement projects were launched on two continents.
4. Process and resource efficiency
As many companies have already learned, applying sustainability to manufacturing, packaging and distribution processes can reduce costs by driving resource and process efficiency. Retailers and their suppliers have saved millions of dollars through energy efficiency, waste reduction and other initiatives, with many millions more remaining to be captured by those willing to look. As one executive remarked to us recently, “We thought we were pretty good. We had no idea how much potential there was until we really started looking.” Another executive echoed, “This isn’t even low-hanging fruit. This is fruit lying on the ground.”
In one example of hundreds in the retail supplier universe, Procter & Gamble has established a team to reduce waste at manufacturing plants and distribution centers. The team creates value from waste by finding external partners who can turn waste and nonperforming inventory into something useful. As P&G notes, “In [one] year alone, this small group of garbage gurus has diverted tens of thousands of tons from landfills, and has delivered tens of millions of dollars in cost recovery to the company by selling or donating materials to others who can reuse the materials.”
5. Enhanced value for customers and consumers
Approaching product design from a sustainability perspective can improve the quality of products and services, creating additional value for customers, consumers and the business. This enhanced quality can take many forms: fresher food, products that feel more authentic to consumers, inherently safer chemicals, products that require less energy and other inputs to operate, more reliable and durable products, less wasteful packaging and components, and so on. The added benefits this delivers to consumers can be especially valuable in categories driving toward commodification.
To determine whether sustainability would benefit your market positioning, ask yourself, “Are the customers we want tomorrow likely to care more or less about sustainability than the customers we have today?” Many business leaders have discovered sustainability to be an important differentiator to appeal to customers — and consumers — of the future, not just those of the past.
For example, Nike, Puma and Timberland, whose brands are all built to some degree on the attribute of innovation, have all recognized the value of being seen as forward-thinking and proactive on sustainability as a key element of product innovation. Nike explains that sustainability is “not just about getting better at what we do — addressing impacts throughout our supply chain — it’s about striving for the best, creating value for the business and innovating for a better world.” Puma says, “We are committed to working in ways that contribute to the world … by staying true to the values of being fair, honest, positive and creative in decisions made and actions taken.” And Timberland calls out its “constant pursuit of both bottom-line business value and social justice. Our commitment to sustainability [is rooted in our] core belief that business can create positive impact in the world.”
6. Supply chain transparency and collaboration
Creating more transparent, ethical and sustainable supply chains can not only reduce procurement costs, but also improve quality, consistency and reliability of supply. Because knowledge and power are so widely distributed in many product value chains, this is one of the most challenging aspects of business sustainability. Starting early can deliver competitive advantage that’s hard to duplicate, however.
For example, Safeway has analyzed its seafood sourcing practices in an effort to improve the quality, reliability and consumer appeal of its products, while creating industrywide norms that improve standards for the entire market. To achieve this, the company collaborated with outside experts to assess the company’s seafood supply chain and establish priorities for vendors and Safeway’s own operations. Safeway now communicates regularly with all of its suppliers to discuss its commitment to sustainability, share recommendations to improve production practices and explore ways to establish traceability for all products.
7. External stakeholder relationships
A powerful but often misunderstood mechanism to add value to business is through engagement with key external stakeholders — not employees or shareholders — on sustainability issues. We divide these external stakeholders into three large buckets: authorizers, opinion shapers and advisers.
Authorizers are typically government bodies with the power to enable, block and set the conditions and costs of business operation. This group includes international and national regulatory agencies, local zoning authorities and everything in between.
Opinion shapers influence the context in which business operates — less formally than government, but powerfully nevertheless. They include members of the traditional media, bloggers and other commentators, and activist organizations like Greenpeace and Not For Sale, which alter the landscape by raising and focusing public consciousness on public interest issues like environmental destruction or human trafficking.
Advisers are experts outside the company who can help improve understanding of critical issues, help develop strategy and serve as an external sensing mechanism for issues that may become future flashpoints, as well as opportunities to build competitive advantage. They include researchers and other subject matter experts, who can often be found in local universities, consulting groups or nongovernment organizations that collaborate with business, like the World Wildlife Fund or Social Accountability International.
Engaging authorizers and opinion shapers is not a new concept in the business world; many companies have government relations and public relations professionals dedicated to the purpose. However, few companies appreciate the latent untapped value of building a collaborative relationship with advisers. In just one example among many, companies working with the Environmental Defense Fund have uncovered hundreds of millions of dollars of savings while improving their sustainability performance.