We all know the jargon: Sustainability. CSR. Shared value. Triple bottom line. Green. They all land somewhere between ephemeral concepts and a color. How did we manage to detach something so important from its twin value propositions of risk mitigation and cost reduction? More puzzling still is how the value of sustainability got so turned around at a time when regulation, investor pressure and consumer demand for accountability and transparency are more real and impactful than ever.
The answer is we’ve been misled into thinking sustainability—the idea of managing risk and resources well—is something new. Pundits and insiders have told us sustainability requires special knowledge, new “Key Performance Indicators” and exotic practices. Naturally, these remain inaccessible to the average executive and squarely in the domain of consultants, academics and innovators who are only too happy to share their insights for a “modest” (read large) fee. This is wrong.
So what’s right?
“Sustainability” breaks down to three things:
- Waste is a competitive disadvantage.
- Businesses are on the hook for the (bad) actions of their suppliers and business partners.
- Investors and consumers are voting with their pocket books while governments regulate with their gavels.
These are not new issues. They’re just far more salient now. When energy was cheap, we could afford to consume more per widget manufactured—the marginal cost was inconsequential. But the Arab Oil Embargo exposed that the marginal cost of energy was, well, not so marginal. When a few large corporations used child labor in far away mainland Asia, it seemed to be a cost-effective, locally acceptable way to deliver better value to Western consumers. It turned out
Asia wasn’t so far away and Western consumers expected the same labor practices to apply no matter the provenance of their sunglasses or TVs. The outcry and ongoing criticism toward supply chain tragedies such as the Rana Plaza collapse in Bangladesh and worker suicides at Foxconn are contemporary examples of this. When the President of the United States announced aggressive new carbon emissions limits for coal-fired power plants and used Executive authority to implement his policy, we officially entered a context where “voluntary” action and disclosure are becoming everything but. Today’s world is one where externalities are no longer external, they’re material and consequential. Governments, consumers and investors get this and want companies to “get it” as well.
The 1, 2, 3 of sustainability best practice
If we agree resource conservation and risk mitigation are smart business practices, the question becomes how to make them easy and profitable to perform? To do this, I suggest approaching sustainability the same way an athlete gears up for his or her first match:
- Report: Ask any top-performing athlete the secret to their success and they’ll cite practice. Sustainability reporting is no different. Before you ever walk onto the court of public opinion, it’s best to shoot a few free throws in the local gym. It may seem counter intuitive to put reporting first amongst these three steps, however I’m not referring to public disclosure through CDP, GRI or GRESB just yet. Instead, start by issuing internal reports only, then socialize the results with your investors and stakeholders. Only then will you have the confidence and skills needed to go public. By disclosing sustainability or “non-financial” performance, you can identify the material impacts of and risks inherent in your business, and in so doing develop fluency in social, environmental and governance indicators that will help you perform at the top of your game.
- Assess: With a few practices under your belt it’s time to test your game in a friendly scrimmage. Do this by benchmarking your performance relative to peers. This helps you understand industry-specific, seasonal or regional differences in performance that can then be managed to improve competitiveness, just as financial metrics like gross profit, cost of goods or IRR help you mange cash flow or production lines. These “scrimmages” help you test and improve your game plan in anticipation of prime time.
- Improve: By now you understand your competitive advantages and disadvantages and have taken action to improve before the real match. Policies can be tightened to avoid risk from bribery, manufacturing processes optimized to reduce resource consumption, and capital invested to take advantage of otherwise hidden opportunities. Now that you’re out under the arena’s bright lights, you know the rules, the referees and the competition, and can give your best performance.
Missing 100% of shots not taken…
Just as fear of failure keeps many people off the court entirely, many companies are hesitant to disclose sustainability performance for fear of unfavorable results or that the resources needed (financial or human) are beyond their reach. Hence the prevailing wisdom that disclosing sustainability performance requires tremendous time, expense and specialized expertise becomes a self-fulfilling prophecy: companies onboard specialized staff or outsource their sustainability program to “experts” and the expense and resource burden of sustainability compliance means they don’t realize its full cost‐savings or risk reduction benefits. As a result, they often fail to generate significant or sustained ROI from sustainability, leaving them sour on the entire concept.
Out-of-the-box solutions
Our approach to and philosophy on (1) reporting sustainability performance, (2) making sense of the data uncovered and (3) taking action to improve is that by using technology we can make sustainability easy, accessible and safe, and this makes it affordable and effective. Our guided, step-by-step approach to reporting lowers the barriers to sustainability disclosure so it’s something any company can do regardless of size or level of expertise. Paired with our analytics and engagement tools, we make it easy to benchmark performance and show companies not only the areas in need of improvement, but guide them through exactly how to implement those changes. In short, we’re building a platform to make the 1, 2, 3 of sustainability possible, affordable and effective for all organizations, democratizing sustainability and empowering change. We’ll dedicate our next three columns to exploring the 1, 2, 3 of sustainability best practice in detail and invite other thought leaders to share their favorite practice-makes-perfect tips.