Like It Or Not, Sustainability Is Now Core to Your Business

int_brand_983_sa_grlwteacher_hr

 

 

What used to be considered green virtue has now morphed into a crucial competitive tool.

 

That business has a role to play in improving the environment and dealing with climate change is certain. What is much less so is how to do that, and for some, whether to try. After all, companies feel comfortable doing business as usual, and few want to threaten their competitiveness in favor of green virtue.

Our point is that this is not an either or question. A growing number of examples—from diverse industries—show that sustainable business practices can be good for business from the bottom-line up. For example, Unilever (UN -1.70%) has developed washing-up fluids that use less water—and sales are growing fast, particularly in water-scarce markets. And most everyone can name a favorite product or two whose brand is intimately associated with its green credentials. My point is that sustainability can be much more—that it has a role in any and all sectors.

Here are a few examples that McKinsey has been involved with that prove the point. (For confidentiality reasons, we cannot use the company names).

 

⦁ A major brewer identified some 150 possible improvements that could reduce GHG emissions—while saving $200 million over five years.

⦁ When a water utility benchmarked its performance against that of other utilities, it figured out where the biggest opportunities were—in this case energy and chemicals. After four years, the results were in: less leakage, fewer customer complaints—and $178 million in savings—a 25 percent reduction in operating costs.

⦁ A state-owned industrial company in China increased the energy yield of its coal significantly simply by tracking it better, making sure the first mined was the first used. That improved energy efficiency as well as carbon intensity, while reducing costs 13 percent.

The nitty-gritty of sustainability programs can get complicated. But the principles are actually pretty simple—and should be familiar to executives. First, and most important, is to acknowledge that sustainability is serious. The case is not that difficult to make. In a McKinsey survey of 340 executives, more than 90 percent said risk management—whether from consumers, regulators, or the market (for example, high resource prices)—was an important factor in pushing them toward sustainability initiatives, check  chiropractic techniques.
Once the decision is taken, define priorities, set measurable targets, evaluate costs and benefits, and create consistent incentives, including those related to executive compensation. For example, Nike (NKE -2.05%) tracks its suppliers on a range of metrics, including quality, timeliness, cost—and sustainability. Falter for long on any of these, and the consequence is fewer orders. Result: many more suppliers are hitting their sustainability mark. DuPont (DD -1.22%) has no trouble justifying its sustainability initiatives to shareholders: it is generating billions in revenue from products that reduce emissions. Intel (INTC -0.32%) has a dedicated finance analyst whose job is to calculate the value of its sustainability efforts. To reduce emissions and improve other environmental metrics in its food chain, Wal-Mart (WMT -1.48%) tracks not only GHG output, but also yield, water use, and other factors per ton of food produced. In addition to achieving environmental improvements, it cut the price of food and vegetables in the United States by $3.5 billion.

It is important to define targets that are both specific and achievable; it’s better to say “Eliminate X million pounds of packaging,” than the vague “Reduce the footprint of our packaging.” As of August 2014, though, a McKinsey analysis found that only one in five companies in the business marketing 500 had explicit, long-term sustainability goals, even though more than a third (36 percent) said sustainability was a top-three priority.

The larger point is this. Real sustainability efforts are core business efforts; because they are not always easy, they can help a company to raise its game and perform better in all kinds of ways. In mid-2014, McKinsey did a study that found a strong correlation between resource efficiency and financial performance; the companies with the most advanced sustainability strategies did best of all. In a study for the Harvard Business School that drew similar conclusions (higher return on equity and assets for higher-sustainability companies), the authors concluded, “developing a corporate culture of sustainability may be a source of competitive advantage in the long run.”

To think of sustainability as a niche gets it wrong. To do it right, companies need to be rigorous, goal-oriented, and accountable. The evidence is building not only that sustainability initiatives work, but that they are an important factor in creating long-term value.

 

Jeremy Oppenheim is a director of McKinsey & Company, based in London and a global leader in the Sustainability & Resource Productivity network. In 2014, he served as program director for the Global Commission on the Economy and Climate. Martin Stuchtey is Director of the McKinsey Center for Business & Environment and is based in Munich.

Share

3BL for the People, Planet, & Profit

 

 

By Mary Stokes

Despite it’s catchy name, 3BL isn’t the newest craze in boy bands.  3BL , also known as The Triple Bottom Line, was a phrase first coined by John Elkington in his 1994 book, Cannibals With Forks.  He identified it as a method of reporting profit that considers a business’s impact on the environment and society, in addition to its regular bottom line.  Its foundation – sustainability of people, the planet, and profit – is just as applicable today as it was 22 years ago.

Clients and employees alike pay more attention to businesses if they are committed to people and the environment.  Utilization of 3BL positively affects a business’s publicity by creating accountability to the public concerning societal and ecological bottom lines.

Clients want to purchase products and services that come from responsible businesses; in fact, in the Cone Communications 2015 consumer study, “91% of global consumers expect companies to do more than make a profit but also operate responsibly to address social and environmental issues.”

Employees are more engaged when they feel their employing business has the same values they do.  3BL also encourages businesses to give back to their communities through charity, volunteering, and other means.  Implementing 3BL also has the benefit of both short-term and long-term profitability, just as other formats of sustainability do.

The key is that 3BL is more than just sustainable practices with regard to environmental impact; it’s about a balanced approach to business.  While actual measurements for 3BL can be tricky, it is vital to study the interactions of each bottom line and understand how they affect one another.  As a business begins to equalize each bottom line, profit does not decrease in importance. However, as each area becomes a focal point, the overall profit shifts from financial value alone to societal and ecologic value combined.

Some notables that have embraced 3BL are Patagonia, Southwest Airlines, and Seventh Generation.  While these companies are somewhat larger, there is a movement within smaller businesses to utilize 3BL as well.  Though they are not always as visible with regard to societal and ecological impact, there are similar benefits to implementing the practices of 3BL for smaller businesses, including “increased employee engagement, improved standing in the local community and the building of a sustainable business model.”

3BL is an invaluable system for evaluating your business’s profits on several levels.  As Mitch Tyson, Chief Executive Officer of Advanced Electron Beams puts it, 

“You can rationalize that the triple bottom line will make your company more successful, which it will, or you could pursue it because it reflects your values as a person. . . .  The triple bottom line and sustainability aren’t new management techniques.  They aren’t the latest management fads. They are concepts that challenge each of us to balance the way we successfully run our business and the world that our children’s children will inherit from us.  3BL is about creating a future for your business-a future in which it is financially, ecologically, and societally prosperous.”

 

Mary Stokes is a technical and creative writer based in Minneapolis, MN. Photo Credit: “Hands” by stokpic, licensed through C.C. by 2.0

 

Sponsored by SES, Inc.

SES image

 

 

 

 

Share