Engagement with sustainability offers many perks to a company: It improves brand reputation, it helps raise prices, it maintains one’s position in the market long term and it can open doors to better investment packages. Signals are one way that companies communicate that sustainability is vital to their corporate strategy and brand development. Through sustainability signals a company builds confidence in its actions, demonstrates that it is better managed and sets itself apart from the competition.
But what are signals? The concept of market signals and signalling was initially introduced in 1973 by Michael Spence, the famous American economist and recipient of the Nobel Memorial Prize in 2001. Spence developed the signalling model for the job-market industry. Briefly, the model indicates that employees signal their particular talents to prospective employers by obtaining a specific education degree. In order to get the degree there is a certain cost involved, which the employee has to pay.
Signals, when applied in the context of a corporation, are distinctive attributes linked to the quality of corporate strategy. They are actions, which reveal a company’s ‘true nature’ and intentions. Corporate decisions about sustainability are communicated through signals to various stakeholders — including the public.
When it comes to sustainability signals the challenge is to ensure that they do their job effectively. They should clearly communicate specific qualities and intentions. Yet, despite growing emphasis on sustainability, we see differences in how companies choose to signal it. Some signal their engagement more openly; others less so. The companies that use signalling effectively to leverage the benefits of sustainability seem to have three things in common:
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They understand and define their stakeholders: Sustainability strategy is designed around the perspectives of stakeholders. When stakeholders are diverse, the strategy becomes diverse, too. Signalling sustainability then follows the same divergent pattern. In order to avoid an array of signals, it is vital to understand first who your stakeholders are, and then design a meaningful signalling strategy to which they can respond. Nike’s sustainability portal, for example, reflects a well-thought signalling strategy.
They fully incorporate sustainability into their corporate strategy: Building legitimacy around sustainability strategy is essential prior to sending any signals. This means getting deeply involved in solutions or streamlining one’s accreditation systems prior to saying anything at all. An example is the luxury retailer Stella McCartney, as sustainability for them starts from the product offering: They use no leather or exotic skins for any of their products, and this is the first thing they will tell you.
They understand that the processes of building up a credible corporate profile, can be slow, difficult and costly: Sustainability is a complex affair, especially for a corporation that has only recently engaged in it. The steps to turn around operations have real time and cost implications. Likewise, signalling sustainability becomes expensive. M&S' Plan A is an example of a strategy that has kept evolving since its rollout in 2007, as it increased its initial 100 commitments to 180 to be met by 2015.
Signalling sustainability can add value when it is designed and implemented in a strategic manner. Despite the challenging and costly nature of sending effective signals, sustainability simultaneously presents many opportunities. Engagement in sustainability can improve operations, give us new products and open up new markets. “Shouting” about your company’s engagement, through appropriate signals, can endorse the reputational benefits. But, as our research shows, this investment needs to be embedded in corporate strategy, and the signals that are sent out need to be carefully crafted around the needs and knowledge of multiple audiences.