"Finding the business case" is the holy grail of corporate sustainability professionals. For over a decade they've set out to demonstrate the commercial benefits of social and environmental initiatives. So why is it so hard to find?
A number of recent reports and surveys -- from MIT Sloan/Boston Consulting Group (pdf) and Boston College/McKinsey (requires registration) and Cranfield (pdf) -- show that sustainability professions find the business case difficult. Over the last few years, I've turned my accounting background to help companies profit from making sustainability -- from climate change and resource shortages to poverty or child labor -- issues for their business strategy, rather than the CSR plan.
This first post of three covers why the business case is so difficult and some lessons I've learnt on the front line. Subsequent posts cover how to create a virtuous cycle and how to turn qualitative arguments into quantitative results.
1. There is no "one size fits all" business case. Each company has different drivers of shareholder value and different material sustainability issues. The senior decision-makers will have different hot buttons. Not surprisingly, different companies have different business cases for sustainability too. Cadbury went Fairtrade to secure the future of its supply chain and engage the consumer. Engineering and construction firm Balfour Beatty realizes that its long-term success requires alignment between market demands, healthy communities and environmental limits.
Lesson: Focus on finding only your company's business case.
2. The "societal case" doesn't automatically make a business case. There is a growing acceptance of the need for action on sustainability issues like climate change and chronic under-development. Unfortunately, this "societal case" does not automatically make a business case for every company. There are still plenty ways of making profit today that are unsustainable in the medium term, like gas-guzzlers and bottled water. Over time, we can expect greater overlap between the societal case and the business case, as there are changes in regulation, consumer behaviour, investor expectations and more.
Lesson: Don't expect a business case to exist now for all the things the company needs to do.
3. Opportunity trumps responsibility. Often corporate responsibility means improving the current business so it is good enough for legislation or stakeholder expectations. Companies get into a "compliance mentality" that resent the costs, and are blind to the benefits. Plus there are other ways of improving the current business -- if your best argument is "it motivates staff" then be prepared for someone finding a cheaper way of raising their spirits.
On the other hand, senior business people love the idea of opportunity and hate the idea of missing out. Fundamentally, corporate sustainability is about exploring the next way your company will be successful, because almost all the things you currently rely on -- energy, supply chain, consumers, investors, regulation -- are going to change. Ecomagination is about inventing a new future for GE, not improving its energy efficiency.
Lesson: Frame sustainability as a way of unlocking opportunity for the company now and into the long term.
4. The more you look, the more you find. The evidence is that "once companies being to act aggressively, they tend to unearth more opportunities, not less" (to quote the MIT Sloan Review report). For instance, in January 2007 Marks & Spencer planned to invest £200m over five years in Plan A -- by 2009, two years into the initiative, it has already become cost positive.
Lesson: Plan to explore how to make sustainability commercial and how to keep improving your company's business case.
5. Sustainability professionals and finance professionals speak different languages. One side tends to make a case in qualitative terms, talking about how it will benefit society first and then the company. The other is primarily interested in the direct, provable benefits to the company in financial, quantitative terms. (Guess which is which.) Fundamentally, accounting is the language of business, and finance directors call the shots. So, the sustainability change agents have to learn "accountant."
Lesson: Frame the case for sustainability in terms your finance director will understand, ideally in drivers of shareholder value (this will be subject of a subsequent post).
6. The "no business case, no permission" vicious cycle. Often sustainability professionals need permission from the finance department to get the resources they need to find a business case. But the finance function will not give permission without a business case. Everyone is stuck in a vicious cycle.
Lesson: Plan small steps to iteratively create a virtuous circle of permission and results.
In my next post I will go through the steps to a virtuous circle that I have seen be successful. Then, I will go through the technical aspects of turning qualitative business case arguments into credible financial figures.
David Bent is head of Business Strategies at Forum for the Future, a nonprofit sustainable development organization based in the United Kingdom.
Image CC licensed by Flickr user ^@^ina {back from Africa}