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Perspective: Making the Sustainability Business Case
One data point in particular stands out for me in The Business of Sustainability report (produced by MIT Sloan Management Review and The Boston Consulting Group) that we reported on last month. It's not that 92% of the more than 1500 executives surveyed said their company was "addressing sustainability in some way." It's not that nearly 75% say they have not reduced sustainability investment due to the recession.
It's this: "More than 70 percent of respondents said their company had not developed a business case for sustainability."
In fact, "the majority of sustainability actions undertaken to date appear to be those limited to those necessary for meeting regulatory requirements." - which is far from a business case, and about as exciting - or as strategic - as flossing your teeth. It's a good thing to do, a good defensive move, but hardly a path to adding value and enriching your life. Or your business.
Most companies won't move without understanding the business case. And sadly, most people - whether in business, government, or NGOs - still assume that sustainability, environmental performance and social responsibility will inevitably cost money. The more optimistic assume it will at least cost money "in the short term", while potentially adding value in the "long term".
There are several problems with this perspective:
- It's mired in the short term thinking that plagues modern business.
- It sees "sustainability" only as a cost, not an investment.
- It demands higher hurdle rates from sustainability investments than other investments.
- Like many assumptions, it blinds people to the facts. (I've had countless interactions where people literally couldn't see the attractive ROIs on the page because they were so convinced that environmental improvement had to cost money.)
Also: it's fundamentally wrong.
In our experience - based on Natural Logic's strategic work with dozens of leading companies, efficiency assessments of hundreds of facilities, and tracking the work of other companies and practitioners - there simply is no necessary conflict between sustainability performance and economic performance. In fact they often go hand in hand. As we say on the cover of The Truth About Green Business, "You don't have to choose between making money and making sense."
Why else would Henry Kravis, co-founder of private equity giant Kohlberg, Kravis Roberts & Co. (KKR), say, "The business case for environmental management has never been stronger"? (In fact, KKR just announced that it's expanding its Green Portfolio Program to cover 20 percent of the companies in its portfolio.)
If you believe sustainability is a cost, a rational CFO will delay this investment as long as possible, and do only what is required by regulators. If you believe sustainability can add value, a rational CFO will accelerate this investment, and accelerate the harvest of value.
As I wrote in 2004 in Risk, CFOs, and the Sustainability Business Case, Dupont CFO Gary Pfeiffer understood this well, and thought that Wall Street did too:
Wall Street's legendary focus on the short term... is more precisely a focus on discounted future cash flows. Wall Street is happy if a company will (a) make more money in the future; (b) make money sooner rather than later; and (c) face less risk that could reduce or delay the money they might make....
A and B argue for using sustainability perspectives to guide the invention of better products and services - ones that can profitably meet present and anticipated market needs, meet them sooner than the competition, and turn them profitable faster than the competition...
The third element, C, demands reducing the risks that could weaken that cash flow - barriers to market entry from future regulatory hurdles, missing shifting market expectations or competitor innovations, facing unanticipated calamities like Bhopal or fully anticipated ones like rising sea levels - is equally subject to management's ability to see into that landscape.
Making the business case has to include three elements, in three dimensions. It has to: provide a good return on investment of money, time and brand; generate more value than other potential uses of that time and money; and do this in financial, operational and strategic dimensions.
"Indirect" returns, though not always easy to measure, can be worth more than tangible ones like energy savings. These include impacts on productivity and quality; on intangibles like brand (which can itself be worth much more than the book value of a company), employee perceptions (which impact recruitment and retention), customer and analyst perceptions, and a host of other factors typically left out of financials. They may hard to monetize, but smart companies rarely make decisions only on the numbers, so at least list the intangibles, and include them in strategic discussions.
It's critical to consider risk as well as benefit. Volatile times demand that companies "factor the future" into these assessments, with explicit consideration of risk in the sustainability business case. For example, the prospect of rising energy prices should be an explicit factor in considering the risk and determining the net present value (NPV) on any investment. Do you expect oil prices to hover around $70/barrel, drop significantly, or settle above $100 -- or even $200 -- per barrel? What could be the impacts on your cost structure - or supply chain - of dramatic changes in energy prices, or even availability? How can you design a portfolio of strategies that "future-proof the company" by diversifying your risk going forward?
What other "inevitable surprises" await? Changing regulations - or customer expectations -- at home or aboard? Financial crises? Rising sea levels? Competitive innovation eating your lunch? You can't predict "the" future, but you had better be prepared for possible futures.
Adequate consideration of these risks is part the fiduciary duty of business leadership, and directors and executives at many companies (as we argued in the Wall Street Journal in 2005) are needlessly exposed - especially since these avoidable risk often hold significant business opportunities, not just cost avoidance.
But here's a deeper question about the "business case". How do you use it? To determine what you should do? Or how to do it?
The numbers can't tell you what you should do. They can only tell you how well you're doing it - and perhaps help you make and defend the case, and sometimes help you recognize and evaluate opportunities.
As to what you should do, you already know the answer: You should look to your core purposes, your reason for being, and do what you -- and your business -- are really here to do. (But that's a matter for a future article.)
A "business case" is not substitute for insight, leadership and courage. "If you try to anticipate every possible use for new business models," says Creative Commons CEO Joi Ito, "it won't work. You have to allow for applications that are hard to predict, locally driven, and full of weirdness." And you have to make decisions, commit capital and sometimes bet the farm on worlds that are still coming into being, and futures that no-one can predict.
The question is not "Can you find a viable business case for the carbon-constrained world that is rapidly heading your way?" The question is "How can you create one?" Because you will find one, create one, or die.
Challenging enough for you? If not, let me remind you of Bill Gates' astute observation: "If you can show me the business case, you're too late."
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What We Offer
To learn more about how Natural Logic can help your company build -- and deliver on -- its sustainability business case, please visit our web site to review the services and benefits which best match
your needs.
You'll find a clear description of our Full Cycle Sustainability™
program. This comprehensive engagement is suitable for an organization,
in any sector, that is open to taking a deep and unflinching look at
itself -- its strengths and weaknesses, its risks and opportunities,
its concerns and commitments -- and to taking the systemic approach to
strategy, implementation and measurement that a viable sustainability
strategy demands.
You'll also find step by step approaches
for organizations not yet ready to engage the Full Cycle
Sustainability™ process: Executive Briefings, Strategic Coaching, and
our Rapid Diagnostics services -- now enhanced by our strategic
alliance with Trucost (see sidebar) -- and Training programs.
Here's a sampling:
Executive briefings. Is your leadership grappling with the "sustainability business case"? With as little as one week's notice, our CEO and Senior Associates will conduct a customized, confidential briefing (half-day to full-day) for your executive team on key trends and emerging issues. Results: A clear picture of the strategic landscape you face; identification of your immediate and emerging risks and opportunities; and a preliminary evaluation of your current capacities to exploit them.
Strategic coaching. For sustainability executives and managers ready to accelerate company and personal progress. You'll get a couple of substantive, confidential conversations per month with CEO Gil Friend or the Senior Associate of your choosing, plus on-call access by phone or email, for less than the cost of one day's consulting. Results: Clarify and advance both your company and career sustainability goals. Satisfaction guaranteed: you'll pay at the end of each month, only if you're satisfied that we have delivered real value. How can we be so confidant? 75% of the people who've used this service in the past gained substantial promotions.
Please contact us today to discuss which of these programs is right for you.
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Natural Logic designs, implements and measures profitable sustainability strategies.
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News
Strategic Alliance with Trucost plc. We're pleased to formally announce our new strategic alliance with Trucost plc, a global provider of environmental impact data and analytics. The partnership will enable Natural Logic and Trucost to offer clients comprehensive and measurable sustainability strategies that combine Trucost's modeling of corporate environmental, social and governance (ESG) data with Natural Logic's strategic advisory services.
Trucost's database includes information on over 700 environmental impacts, including carbon and other greenhouse gases, water, waste and chemical usage, from more than 4500 companies across more than 400 industries. Natural Logic will embed Trucost data and tools in the portfolio of products and services we offer clients, including our Rapid Diagnostics carbon footprinting services and our Business Metabolics™ sustainability performance dashboards. Additionally, Trucost will offer Natural Logic strategic consulting services to TruCost clients, extending Natural Logic's advisory services to the growing environmental risk assessment and rating market.
Strategic partnership with Antenna Communications
We've also formed a strategic alliance with Antenna Group, a strategic communications company focused on energy, efficiency and sustainability. Antenna will help us sharpen -- and extend the reach of -- Natural Logic's communications. Natural Logic will help Antenna further extend its services to the sustainability market.
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Projects
Print vs. Pixel
Last year, Hewlett-Packard asked Natural Logic to critically evaluate the environmental impacts of printed documents and electronic communications. We'll release our findings and recommendations in March, both as a white paper and a series of articles distilled from the white paper.
We think this will be of interest to anyone who makes, sells or uses paper or electronic products. Watch for the release announcement next month.
eLearning The Truth About Green BusinessWe've completed the first pilot module of the eLearning version of The Truth About Green Business, and are moving rapidly on completing the others. Please contact us if you'd be interested in evaluating this program from licensing by yiour company -- or in ordering custom versions of the book for your staff or supply chain.
Advanced Development PartnershipsWe still have a few openings for companies interested in working closely with us on the further development of our Business Metabolics sustainability performance dashboard and RetrofitOptimizer green building tool. Contact us for details. |
Events
Upcoming keynotes:
Sustainable Enterprise Conference, May 7, Sonoma
Sustainable Brands, June 8, Monterey
Association of Energy Engineers, Sep 8, Downey
California Resource Recovery Association (CRRA) , Aug 8, Sacramento
Other upcoming events:
University of Oregon, TBD
Measuring What Matters, Presidio Executive Education program, April 9 & May 7, San Francisco
Recent presentations:
Design MBA, California College of the Arts, San Francisco
The Great Deli Debate (with Michael Pollan), Berkeley
Sustainability Integration, San Francisco
Our kickoff webinar on "sustainability and innovation" for the Sustainable Brands Boot Camp -- as well as the rest of this 13 week series -- is available on demand.
As always, check our complete speaking schedule regularly; we update the page as events break.
Contact us any time for speakers for your next event. (Need some persuasion? Check out this video of CEO Gil Friend's recent speeches to the Commonwealth Club and the Clean Tech Open. You'll find many others on our video pages at YouTube, FaceBook and Natural Logic.)
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If you've appreciated this newsletter, please:
- Consider that your colleagues might find it valuable too. Just use the
link at the bottom of this email to forward it to them, and invite them
to subscribe.
- Keep us posted about your organization's sustainability initiatives (and conserve electrons by not including this entire newsletter in your reply)
- Read -- and subscribe to -- my (more or less weekly) blog. And follow me (more or less daily on Twitter!
And give us a shout if there is any way we can help your organization with:
Strategy -- Charting your course,
Feedback -- Reading the signs, and
Implementation -- Making it go.
With best wishes, on behalf of the entire Natural Logic team.
Gil Friend, President & CEO
Natural Logic
Email: gfriend@natlogic.com
Phone: 1-510-248-4940
Web: http://www.natlogic.com |
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