Where are we going with this sustainability thing?
Two findings from two research surveys over the past week speak to a common frustration among companies working towards a more sustainable business model. The Tomorrows Value Rating identified a striking lack of targets and objectives among the best regarded corporate sustainability practitioners. McKinsey's latest survey of company executives found that many still have not been able to identify a core business driver associated with best practice in sustainability.
Both of these findings speak to the difficulty companies are having in identifying a place for sustainability within the overall business direction.
Consider the sustainability landscape for a major company. Some aspects will be "no-brainers:" New green products that have customer appeal, energy efficiency investments with payoff timescales of less than five years, control mechanisms for clear risks such as safety and ethics, regulatory compliance, and so on. For these aspects, there is a clear rationale for investment and strategic planning. As a result, goal-setting is relatively straightforward.
However, there are a host of issues within the sustainability agenda that do not present a clear "win-win" scenario to the business. Some issues do not present a clear return on investment, even when assessed against broader benefits such as employee retention or reputation.
Many "beyond compliance" issues fall into this category, like proactive community engagement (especially free, prior and informed consent approaches) or "zero environmental harm" approaches to operations.
The big issues, like climate change and human rights, are similarly difficult. Not only is the amount of influence a company can and should have unclear, the return on investment is also difficult to establish and any investment tends to benefit competitors as well as the company itself.
Take the example of the major energy companies. There are a variety of reasons to invest in alternate energies, such as hedging against future trends, generating reputation benefits or where the alternate energy is competitive against traditional fuels. But these reasons begin to fail when looking at major shifts towards alternate energies by a single company.
In these cases, where the business case is unclear or the value to stakeholders is difficult to measure, it is clear that companies are having a difficult time setting a rational path forward with meaningful targets or milestones along the way.
Presumably, the lack of targets reflects the inability of these companies to assign a specific value to be achieved for a given issue. Some suggest that, perhaps, these sustainability issues need a price tag to properly weigh them in the corporate mindset.
Different constituents value
Different constituents value different things in different ways.
Most of the ecological and social ills that fall under the general concern of sustainability arise from the fact that (in general) people value affordable consumption, convenience and independence more than they value a potential reversal of environmental degradation, climate changes or social injustices.
Corporate management being a subset of those people also have a moral (and legal) obligation to create value for their shareholders. Capitalism and consumerism are two aspects of the same religion it seems.
It isn't hard to convince management that their customers would prefer more affordable consumption, convenience and independence, but delivered in a manner perceived to be more sustainable. So, the only thing left is to convince management that there are ways to do this that are also likely to create shareholder value. After doing things to use less energy or water or produce less waste that do not require new investment, only changes in practices, you enter the zone of confusion.
Payback periods are not a proper way to judge if an incremental investment is value-creating or not. IRR hurdle rates are going to be different for different companies. Then, there is the expected impact of future growth rates. Also, there is some evidence that shareholder value can be created via a lowered investor discount rate associated with more sustainable approaches. It's complex. But the definition of expected value to shareholders is specific and quantifiable. It is not broad.
Valuing entire ecosystems sounds great, but is kind of fuzzy, at best. Valuing the socio-economic impacts of failures like Bhopal in 1984 or Deepwater Horizon in 2010 may resonate within those industries, but may not play well in boardrooms in other industries.
You can affect corporate targets with the priorities of their customers and the broader society if you can show them how it connects to the value proposition for their main constituency, their shareholders.