A recent BCG/MIT study showed that although 62 percent of companies have a sustainability strategy, only 32 percent saw their actions on sustainability positively impacting their profit, 32 percent said it was a wash and 11 percent said that it subtracted from profit. The rest reported that they didn't know.
Although champions say that sustainability has enormous potential to create value for companies, these findings suggest something is going wrong here. Based on my work over the past several years with a range of large corporate clients, I have identified two common problems that explain why so many companies are struggling to realize the potential of their sustainability strategies.
1. The sustainability strategy is not focused on the right things
The sustainability strategies that create real business value are the ones that meaningfully address the fundamental challenges that sustainability poses to the near and long-term success of the company.
Development of a sustainability strategy that will drive real value must begin with the question, "What matters most for our business over the next two to 20-plus years?" The answer is not always straightforward, but several tools can help.
Life cycle analysis can provide data-driven insight into the most significant environmental impacts and identify "hot spots," which always need to be considered in the context of the business's overall strategy. The LCA insight that most of the environmental impact of its products occurred in the "consumer use" phase of life prompted Procter & Gamble to create Future Friendly and a product line that aimed to reduce that impact, benefitting both P&G and consumers.
Another tool that more companies are relying on is Materiality Assessment, which provides a robust understanding of what matters by engaging a range of internal and external stakeholders to assess and rank environmental, social and economic issues. Increasing use of Materiality Assessments is prompting not just increased reporting of certain risks but also greater action by companies. U.K.-based retailer Marks & Spencer shares the results of their 2013 materiality assessment in their 2013 Plan A report (PDF) and how those results have shaped prioritization of key issues and informed the bold goals that they are developing.
One emerging tool, Natural Capital Accounting, gives companies greater insight into their environmental risks and opportunities by determining the financial value of a company's depletion of nonrenewable resources, and its emissions into the air, water and soil. The best-known example to date is Puma's work to create an EP&L that revealed the 'true' cost of doing business. Other companies are using Natural Capital Accounting to hone in on areas of vulnerability in their supply chains and gain insight into hidden costs which they may someday be responsible for.
These tools all provide well-grounded inputs that can inform the development of the sustainability strategy itself — which must then further consider other relevant inputs such as the company's near- and long-term strategic priorities, significant risks and opportunities the company is facing, and the unique abilities that company has to drive change.
On the flip side, companies who approach their work on sustainability as a marketing opportunity or a philanthropic add-on rather than a substantive business challenge are likely to be disappointed with the value their effort creates. While sharing your company's sustainability story can be a powerful way to connect with consumers, it is not a value creation strategy in itself.
In fact, over-touting your sustainability accomplishments actually creates a real risk of backlash from consumers who see it as greenwashing. And while philanthropic efforts can be a potent complement to sustainable business initiatives, they are not a viable substitute for them.
2. The organizational model is not aligned with today's needs
The past 20 years have seen a significant evolution in the governance of sustainability issues within companies. It wasn't until 2004 that Linda Fisher, first Chief Sustainability Officer, was appointed to a U.S. publicly traded company (DuPont). Since then, many companies have followed suit: By 2012, 283 companies had a full-time sustainability manager.
But the debate about the appropriate governance for sustainability rages on. While many would agree that there is value in having sustainability as a C-suite priority, others argue that a highly centralized sustainability function actually impedes the degree to which sustainability gets incorporated into the business, where it can best contribute to creating real value.
From what I have seen with my clients, sustainability governance should evolve as the company becomes more sophisticated in its ability to address the challenges and opportunities of sustainability.
Companies in the first phase of their journey often benefit from a high-visibility, more centralized sustainability function. Think of this as a learning period during which the company deepens its understanding of what sustainability means for its business and how it should be incorporated throughout. One oil industry client of mine embraced this model at the beginning of their journey. Sustainability was a CEO priority and each member of the senior leadership team contributed to the development of the company's sustainability strategy. The Sustainability lead then owned the work of guiding the organization to better understand the risks and opportunities presented by sustainability and how the company would address them, with continued "shepherding" support from a central sustainability function.
Companies further down the sustainability path — as many are today are — should consider moving to an embedded model, in which the ownership of day-to-day sustainability decision-making resides with the business. With the embedded model, you may still have some dedicated sustainability staff to support cross-functional coordination and reporting, provide subject-matter expertise and manage special projects, but you will not see a large Sustainability Office doing the heavy lifting for the business.
One consumer goods company has done an effective job embedding sustainability in the business by focusing on three things: making expectations and responsibilities explicit; providing both general and specialized training to support employees with this responsibility; and ensuring that sustainability is built into decision-making processes along with all of the other relevant considerations. In this way, sustainability simply becomes the way business is done.
Regardless of which organizational model is in place, it is essential that the accountability for execution of the sustainability strategy be crystal clear.
Companies who build sustainability into their core business strategy and embed sustainability into every employee's job will not be disappointed in the value that their sustainability strategy creates. Rather, they will be rewarded with increased resilience, innovation and long-term sustainable growth.
Key image by Sergio Stakhnyk via Shutterstock