Leadership
Emerging Markets Much Quicker to Embrace, Integrate Sustainability Into Business

More and more companies are realizing the universal importance of sustainability in business strategy. However, the examples that are usually trotted out — companies such as Walmart, 3M, Toyota or Johnson & Johnson — are almost always western companies (usually large multinationals) headquartered in the US, Europe or Japan. Even well-informed observers could easily form the impression that sustainability is relevant primarily for well-resourced businesses in advanced economies.

In fact, while it is not widely known, many businesses in developing economies are designing and running sustainability initiatives that are just as sophisticated as many of those in the west. This should not be surprising: They have as much reason as their western counterparts to seek business value in resource efficiency, innovative products and clean production as their western counterparts.

This is important not just because it says something about the competence of businesses in developing countries — which is widely underestimated — but because it says something about sustainability. Very few businesses in these economies have the luxury of making non-essential investments of time and resources. The fact that these companies are making sustainability a priorities says that it is not an option but a necessity, even in economies with low levels of wealth and income.

We recently spent several months talking with businesses in India to find out how sustainability fits into their thinking. Here are just a few examples of what we found:

Mumbai–based Godrej and Boyce is more than 100 years old; today it makes a wide variety of products ranging from air conditioners and washing machines to furniture and interior decoration. Its “Good and Green” initiative has 3 goals: (1) reducing the environmental impact of its operations, (2) deriving 1/3 of revenues from products that are environmentally superior or "address a critical social issue,” and (3) training one million people under 25 for skilled employment. Godrej’s air conditioners are some of the most energy efficient in the world, and it is on the forefront of commercializing the most environment-friendly refrigerants available (in addition to not harming the ozone layer, they have far less global-warming impact than other alternatives).

The Tata Group, widely respected for its management (it is often credited with bringing Jaguar back from the dead) gives points for sustainability in the system it uses to assess each of its many component companies. What is most noteworthy is that it did not create a new sustainability criterion; rather, it built the ethos into existing criteria such as leadership, strategic planning and measurement.

Tata and Godrej are very large, successful and highly visible concerns, so some might consider them outliers. More representative of Indian industry might be Kirloskar Brothers, which makes industrial pumps. Kirloskar treats sustainability as a strategic priority, integrating it into its corporate accountability system to reduce its carbon footprint, and cut water and material waste. But it does not stop within its own plant gates; since pumping water consumes a great deal of energy, it has developed highly efficient pumps and offers energy audits to its customers.

These are not isolated examples. Leading Indian sustainability consultants estimate that 50 to 100 corporations have robust initiatives that address multiple aspects of sustainability in an integrated way, with others focusing more narrowly on issues such as energy efficiency. India’s large business associations — particularly the Confederation of Indian Industry — actively promote sustainability among their members. CII has two “centres of excellence” devoted to sustainability and is piloting a rating system for facilities to use for benchmarking.

Even small businesses deal with issues of sustainability, even if they don’t use the terminology. Basic management improvements such as lean manufacturing are increasingly penetrating smaller factories, with better resource utilization a common result. For example, Tej Industries, a small manufacturer of auto parts in Ahmednagar, went through training in an International Labor Organization program called “Sustaining Competitive and Responsible Enterprises” (SCORE); in addition to improving its production layout and improving customer responsiveness, it looked at resource efficiency — finding ways to cut energy waste from compressors by 75% and recapturing coolant for reuse.

What is driving these companies? Many of the drivers are the same as those that western businesses confront: rising energy costs, water shortages, cost savings through waste reuse, consumer demand. Other factors are uniquely Indian. For example, because power outages are common most Indian manufacturers have to maintain backup generators — further driving up the cost of energy and increasing carbon emissions. Material costs are a much higher percentage of the total product price than in the west, meaning that strategies for avoiding wasted inputs have a higher payoff. Economically vulnerable villages are an essential part of the supply chain for some companies, motivating efforts to keep them viable by upgrading water supplies and providing better connection from farmer to market.

Government policy is also a motivating factor in India. In 2011, the Ministry of Corporate Affairs issued “National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business”; the largest 100 companies will now be required to publicly report sustainability results. India's Bureau of Energy Efficiency has launched an energy-efficiency cap and trade program for energy-intensive sectors. And a new overhaul of India’s corporate law will require large businesses to devote 2% of their profits to CSR.

There is a strong emphasis on social matters in India, because of the country’s massive societal problems and tradition of corporate social responsibility. Assistance to communities is common, and education is a recurring theme. On the other hand, investors and financial institutions play a smaller role in India than in the west; interest in socially responsible investments has not yet caught on.

India's economy is going through some tough times; its growth rate has slowed and manufacturing output is stagnant. This will be a testing period for sustainability efforts in Indian industry, and some may not survive. The experience of the west between 2008 and 2010, however, suggests that most will continue in some form. The mere existence of internally designed, robust sustainability efforts in a country such as India is a signal that they are not just a luxury for wealthy countries but an economic necessity in most parts of the world.