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It’s just numbers: A ROSI view of corporate sustainability

Just before the coronavirus clampdown, NYU’s Stern Center for Sustainable Business hosted its third annual practice forum. Once again, the forum’s focus was the Return on Sustainability Investment (ROSI) framework. Judging by the increased turnout (more than twice as many attended as last year), there’s significant interest in alternative approaches to justifying sustainability investments.

The ROSI approach is a five-step process to identify and translate the qualitative business benefits of planned sustainability efforts into dollars and cents. It’s not the intent here to dig into the process itself; you can find a detailed description of it and a few case studies here. What’s important is the philosophy behind ROSI, that qualitative business benefits which often can seem squishy at first glance can be clearly enumerated and monetized.

To get to monetization, the analysis of business drivers needs to get very granular, decomposing areas of the business into discreet actions and activities that can mitigate risk or capitalize on opportunities. The ROSI framework provides a playbook for drilling down into these topics, where something such as operational efficiencies gained from a sustainability initiative can be evaluated from many perspectives. These might be viewed in terms of decreases in resource requirements and emissions or the ability to add production capacity, to name just a few.

In the examples shared throughout the day, one common theme became clear. The companies that have adopted the ROSI framework have had the additional benefit of leveraging NYU’s research capabilities and the resources available from the Stern Center for Sustainable Business to help justify the quantification of the qualitative factors these firms have identified.

To get to monetization, the analysis of business drivers needs to get very granular.
For example, it can be difficult to justify investing in the development of more sustainable consumer products when sustainable products appear to command a small share of the overall market and there’s a common perception that consumers resist paying more for sustainability. Stern’s Randi Kronthal-Sacco shared research conducted in partnership with IRI, a market research company focused on the consumer packaged-goods industry. IRI’s research shows that while sustainability-marketed products accounted for only 16.6 percent share of the market by revenue, these same products accounted for 50.1 percent of market growth over a five-year period, from 2013 to 2018.

That’s an argument that can excite product managers and CEOs, especially as they can view these trends by specific product categories. Future research promises to dig in even deeper.

Economics matter

There were other examples, from energy companies assessing early decarbonization to automotive firms rethinking manufacturing operations. Universities can be a particularly good resource to help quantify these benefits. Literature reviews are helpful in collecting, evaluating and analyzing publications (such as books and journal articles) that relate to a specific research question. Universities also provide a conduit to graduate students looking for real-life projects where they can apply the ROSI framework.

All of the research and the quantification of benefits is useful only if two important prerequisites are met. Tensie Whelan, founding director of Stern’s Center for Sustainable Business, opened the conference by noting that sustainability has to acknowledge that economics matter and business executives must realize that sustainability intangibles can be monetized.

That called to mind an event several years ago.

In my day job, I lead the GreenBiz Executive Network, a member-based, peer-to-peer learning forum for sustainability professionals. Nine times a year, we hold meetings at a member’s headquarters. At one point in each meeting, we like to invite into the room a corporate officer from the host company who is not directly responsible for the company’s sustainability efforts.

Several years ago, we heard from the CFO of a large manufacturer whose comments surprised some of our members. When asked how the company justified a particular sustainability project, he replied, "It’s just numbers, you can make them say anything you want."

That’s true as long as everybody’s speaking the same language. Partnering with the CFO’s organization and the functional areas where change will occur is critical to any program’s success. The ROSI framework and the ability to tap into deep research can then help translate sustainability into business value.

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