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Six Business Benefits of Sustainability
July 6, 2010
I am still amazed at the number of people who cling to the notion that sustainability is optional. Despite the strong evidence that companies are maintaining their long-term focus during the current economic crisis, critics still question whether or not sustainability is a fad that will be abandoned at the first sign of tight budgets.
I understand that for anyone to accept the premise that social responsibility is a business strategy we must be able to define and quantify the business benefits that can be derived from adopting this model. This is so that success can be measured, just as with any other business strategy.
License to Operate (speed to market)
In business, the old adage "time is money" takes on new meaning. Every delay, whether it be in permitting, construction, recruiting or training employees has an associated cost in lost revenue, particularly in a competitive situation when the preferred company can use the time advantage to establish itself in the market, cherry pick the local talent pool and build relationships with customers and suppliers.
Each day that a store remains vacant or a commercial lot lies undeveloped is a day of lost sales revenue for the company. The community does not realize the benefits of having those goods or services available, workers are denied employment, and the community cannot collect sales and income taxes.
A company that has a positive reputation has a competitive advantage. While communities may not actively facilitate approval of a permit, myriad of examples exist where community opposition has resulted in substantial delays and requiring a greater investment of time and money. In short, the community needs to ‘buy' you before you get a chance to sell them anything.
This is a lesson that some sometimes more clearly demonstrated by its failure. "We recognize that we need a 'license' to operate in any community that we enter," says David Weidman, President and CEO of Celanse Corp. in NYSE Magazine's August/September 2006 issue. "Some of those licenses have been lost because of social irresponsibility on the part of some companies within our industry. So this license to operate demands that we be actively involved in the community."
Whether you define it as enhanced goodwill or reduced opposition, sustainability programs that position the company as a positive corporate citizen can impact the speed with which the company enters or grows within a market.
Cost Reduction or Avoidance
Most businesses know the importance of investing in preventive maintenance to keep equipment in good working order. In fact, these ‘expenses' are not considered optional. Those who do not invest in this manner are considered foolish and viewed with contempt. But there are other, direct ways that businesses can save money through a longer-term approach.
Brand Reputation is arguably the most important asset a company has over the long term. Jack Welch talked about ‘walking the talk' but the concept goes back to the very dawn of democracy and the concept of an empowered populace. Socrates said that "the way to gain a good reputation is to endeavor to be what you desire to appear." It is important to note that he acknowledges that people attribute values based on acting in accordance with aspirations. In other words, people judge based on the impact of actions, and not intentions. And it is unlikely that anyone (individual or company) can truly achieve perfection. The best case is that when outlying behavior or actions take place, they are more likely to be viewed as aberrations rather than symptomatic of a greater and negative truth.
The lessons for corporations are clearly transferable. A company that is viewed as a positive and favorable member of the community is likely to have less opposition, and when - as is almost inevitable - a misstep does occur; it is less likely to be perceived negatively. Like any other business expense, a clear case can be made that "reputational" capital, is an investment, built over time and as a long-term strategy.
One of the often-overlooked stakeholder groups is a company's employees. Beyond the "feel good" aspect that is often cited as one of the softer (less business focused) benefits of sustainability, employee morale and culture are linked to productivity, recruitment and retention. While many companies talk about how their employees are their most valuable assets but those that consider employees as integral partners in the organization's future and success recognize the power of true employee engagement. Employees who are passionate about the company and its products are the best advocates and can counteract threats to brand image simply by talking to their neighbors and friends.
Robert Lawless, Chairman, President and CEO, McCormick & Co. Inc. explains in the same NYSE Magazine article that "being socially responsible allows you to attract talent, because good people will align with the company that really cares about employees and communities. We link social responsibility to talent retention."
A failure to consider employees as vital in the organization's overall success can compromise a company's competitive position. One company discovered that employees who had not been informed of the corporate strategy of maintaining a visible presence their market through the routine upkeep of idle equipment were unwittingly compromising the effort by publicly complaining about the "stupid" manager forcing them to paint a non-working production facility. This unintentional sabotage of the company strategy demonstrates the importance of engaging employees in the strategy and the power that they have to impact the success - or failure - of its efforts.
This failure to include employees results in behavior that can damage profitability directly. Poor morale can lead to passive sabotage in the form of reduced productivity, shoddy workmanship and quality control and increased absenteeism. At its worst, unhappy employees can and do engage in behavior that deliberately hurts the company, such as an employee who shares information about a corporate problem. This can result in damage to corporate image, credibility and the bottom line ranging from lost sales to increased costs due to fines and penalties.
Seize the Innovation High Ground
Companies that are looking for ways to be more environmentally, socially and economically responsible are driving innovations in products, services and sourcing as well as financial acumen. In six years the number of hybrid (gas-electric) passenger vehicles sold in the United States rose from 9,367 to over 246,642 - a 2,533 percent increase - according to the Electric Drive Transportation Association. Sales of compact fluorescents initially faltered due to the color of the light emitted. Today's bulb not only provide the same light spectrum as classic incandescent bulbs, they use 75% or 80% less electricity to do so - paying for themselves in about half a year in energy savings. Recently Wal-Mart, the world's largest retailer, announced plans to sell one bulb to every consumer in its 100 million customers. Not only does the planet benefit from the reduction in energy use, but companies like General Electric that produce the bulbs also benefit from increased sales (and reputation). Companies that are seen as innovative tend to attract innovative employees, and the cycle accelerates. And that is good for business.
In the area of reputation and brand management, companies that source their products from supplier that engage in sustainable business practices are protected from damage to their brand and reputation from issues such as child labor and living wages. And they are helping prevent these practices by providing a financial incentive - their business - for acting in a socially responsible manner.
Access to Investment Capital
One out of every nine dollars under professional management in the Unites States in involved in socially responsible investing. That $2.16 trillion represents a huge pool of money that is being invested in companies that have been found to be sustainable.
When the world imposed economic sanctions against the Apartheid government of South Africa, that nation lost access to capital. The Calvert Group was the first mutual fund to leave South Africa when apartheid was instituted but also the first to return after Nelson Mandela was elected and asked the world to reinvest in the country. Businesses can find themselves in the same situation.
From 1995 to 2003 assets involved in social investing have grown 40 percent faster than all professionally managed investment assets in the U.S. Investment portfolios involved in SRI grew by more than 240 percent from 1995 to 2003, compared with the 174 percent growth of the overall universe of assets under professional management over the same time period.
And it is worth pointing out that the current finanical mess stems directly from people chasing the 'fast buck' and not concentrating on sustainable growth.