How a Broader Definition of 'Value' Opens the Door to Sustainability

How a Broader Definition of 'Value' Opens the Door to Sustainability

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.

The poster child for this argument is the Deepwater Horizon accident -- if BP and partners had properly valued ecosystem damage potential, they would have invested more in prevention and containment capacity. But this approach is merely a translation -- from the value of stakeholders to the value of the company -- and translations are imperfect.

How would we translate the value of an employee's life to validate investment in health and safety? How to value return from greenhouse gas emissions reductions of an individual company to global ecosystems?

As companies grapple with these questions, we are left in a void of direction. The tangible result of this void is a set of targets presented in sustainability reports that are weak, meaningless, or absent.

It is frustrating to the audience of these reports to read about corporate commitments to "participate in dialogue," or "roll out a new plan" or "investigate alternatives." These targets are not responsive to either shareholders or the broader stakeholder community.

So what to do?

The first step is to broaden our concept of "value" to accept that value is defined in sometimes incomparable ways. A neighbor to a mining operation may value silence just for the sake of silence -- with no priority on the impact that noise might have on the value of their home. The group advocating for community rights might have a secondary value of gathering cause-related contributions.

So the first step is to get very specific about "what is the value that we want to achieve?" That value is going to be defined by multiple parties and sometimes in incomparable terms. Nevertheless, when the specific value to be achieved is known, we can move toward setting targets -- some for that will make sense to the company, some for stakeholders and some a hybrid.

Setting corporate targets based on someone else's priorities is counterintuitive to some and courageous in the face of critics. Nevertheless, we are approaching a plateau of sustainability where the low-hanging fruit has been identified (if not already picked) and we will need to re-invent our understanding of value to break the gridlock and fill the prevalent lack of direction on the big hairy issues.

Stock board photo via Shutterstock.