I recently attended several sustainability conferences here in West Michigan and was amazed that a great deal of the introductory discussion still centered on the meaning of sustainability. Yes, sustainability still means many things to many people. One question a CEO raised was whether sustainability meant the use of 100% renewable energy? Another question raised was whether sustainability meant transparency and accountability? Others equate sustainability only with the environment and protecting and restoring our planet. Are all of these perspectives right? Is one viewpoint better than the others? Continue reading
Today, businesses and companies alike rely upon financial capital as the main resource for ensuring stability and driving business growth. The primary metrics for evaluating financial performance include measuring cash flow and determining profit on a monthly and yearly basis. Digging a little deeper there are a number of other specific key business performance indicators (KPIs) that companies can select from to monitor and track financial performance. Forbes previously provided a number of financial KPIs for consideration including cash flow from operations, inventory turns, receivables growth vs. sales growth, productivity, on-time deliveries, employee retention, back log, interest rate coverage, and gross margin (1). The Harvard Business Review (HBR) discussed return on assets (ROA), return on equity (ROE), and debt leverage as the leading means to determine business performance (2). Small Business reviewed profitability, liquidity, debt, and activity as the primary measurements for business performance (3). So as can be seen, companies and businesses have a number of financial KPIs available to measure business performance. The key is to determine which metrics work best for your organization. Continue reading
Did you know that in 2014, there was over $21 trillion (T) in global sustainability assets under management worldwide (1)? The amount of these investments has increased rapidly and now surpasses the debt levels of the United States! Moreover, were you aware that $1 out of every $6 invested in the U.S. during 2014 was placed in sustainable investment strategies? These expenditures now total $6.57T according to the Forum for Sustainable and Responsible Investment (2). Also, these tracked investments were 75% greater than in 2012 which totaled $3.74T. The growth of sustainable investing is being driven by the increasing demand for organizations to address environmental, social, and governance (ESG) criteria, as well as the overall desire for improved sustainability performance by shareholders and stakeholders alike. Today investors are also looking to divest specific assets because of sub-par performance. Additionally, investors are shifting to sustainable investment strategies to generate tangible value and growth. The track record of sustainable investing now substantiates their belief! Continue reading
All sectors including public, private, service, and academic organizations, are trying to address systemic sustainability issues and concerns within their own area and span of control. Many leaders of these organizations are asking why more collective progress that addresses these issues has not been achieved to date? The reasons are numerous and many times the feedback focuses on silo thinking and not interacting with others that can provide critical input and feedback. We are now at a tipping point with the realization that business, government, NGOs, and academia all need to work together to address and solve our most challenging problems and concerns. The solutions are there with the use of sustainable development best practices, but if we do not work together significant collective progress and impact will not be made. Continue reading
Companies, organizations, and institutions alike across the private, public, and academic sectors, in many regions such as West Michigan, have all been on a sustainability journey for a number of years. The sustainability journey has gone through various phases including: creating awareness about sustainability; generating understanding about the meaning of sustainability; using the guiding principles and best practices of sustainability in key application areas; determining progress through sustainability reporting; and creating long term value and collective impact for sustainability. Continue reading
Recently, Pure Strategies issued a report entitled, Advancing – On the Path to Product Sustainability. This 2015 report determined the benefits of product sustainability efforts from phone interviews with 152 companies with sales greater than $250MM. The report also included feedback and comments from Walmart, Clorox, Johnson and Johnson, Hewlett Packard, North Face and others. As evidenced, the survey covered a broad base of industry sectors including clothing, healthcare, food, etc. Continue reading
The question of how to get the “biggest bang for the buck” regarding sustainability has been an ongoing discussion among business leaders for quite some time. Today, it is safe to say that sustainability best practices are not considered to be a management fad or flavor of the day. These best practices continue to be implemented by large and small companies and organizations alike, for both short-term efficiencies, as well as long-term value through avoided costs, reduced costs, and improved decision making. However, the most difficult question to answer is how best to effectively and successfully embed applied sustainability best practices into an organization or business to ensure short and long term superior performance for employees, shareholders, and stakeholders.
Recently, SustainAbility completed a report, Sustainability Incorporated – How to Integrate Sustainability into Business! These sustainability integration best practices were developed from discussions and case studies with many global business leaders from a variety of industry and market sectors including; Unilever, Interface, BASF, Ford Motor, Novartis, Iron Mountain, Timberland, Novelis, Nedbank, Campbell Soup, Axzo Nobel, Sasol, and others. Five pathways for successful integration of applied sustainability best practices were identified. Without a doubt, there is the need for top management leadership, support, and commitment to sustainability as a key business function. Sustainability cannot act as a “silo” business operation and it must be connected to all business functions and organizational departments.
- “Employ Business Model Thinking” – Sustainability should not be viewed as just a collection of business related activities and programs. Using business model thinking at the outset enables sustainability to be strategically viewed within all business operations. Mapping the entire supply chain for sustainability best practices is a great first step. Conducting an in-depth sustainability assessment, as well as SWOT analysis will help identify organizational capabilities, gaps, issue areas, opportunities, as well as define competencies which can be leveraged for future growth. Recently, Dow Chemical and DuPont announced a proposed merger based on business model thinking. Both companies have strengths in biomaterials, agricultural chemical businesses, as well as new clean disruptive technology platforms.
- “Putting Materiality to Use” – Most companies today are conducting materiality assessments for their supply chain and raw material purchasing requirements. This type of assessment is being implemented to determine if any hazardous or harmful raw materials or products are being consumed or used within business operations. Many times companies are raising the bar on their own, along with other industry partners, rather than waiting for compliance or regulatory policies to be put in place. The furniture industry is a great example of an industry that has worked in conjunction with the EPA and others in determining a list of 55 chemicals of concern not to use during manufacturing or production. Today, the furniture industry is shifting to the use of sustainable and green chemistry and engineering, being promulgated by the American Chemical Society and others. Other industry sectors are also addressing conflict minerals as well in supply chain operations.
- “Applying a Sustainability Lens to Products and Services” – Today, many industry leaders from businesses, cities and municipalities, to colleges and universities are applying the “triple bottom line” (TBL) lens of improved environmental, social, and economic impact for their goods and services used. There are many sustainability processes that can be used to assist in this development including Design Thinking, Design for the Environment (DfE), Life Cycle Analysis (LCA), and Lean Manufacturing. Cascade Engineering, the City of Grand Rapids, higher education, and many others including members of West Michigan Sustainable Business Forum and Local First are applying the “lens of sustainability” to their business operations.
- “Tapping into Culture” – Many times we forget that to fully embed and successfully integrate sustainability, it will be necessary to go beyond just the use of TBL sustainability best practices within an organization or business enterprise. There is a critical 4th leg of sustainability – culture or a sense of place. Drawing upon corporate or organizational culture is most important to achieve leadership and excellence in sustainability. Keys to success include personal engagement, continuous improvement, open innovation, empowerment, and superior communications. Brewery Vivant is one of the most recognized companies that embrace sustainability through their pursuit of Benefit Corporation Certification (B Corp) status. Kris and Jason Spaulding, as owners, have achieved exemplary performance in sustainability and have been well recognized in the community.
- “Leveraging Transparency” – Just like business reporting is important to shareholders, employees, and stakeholders, so is sustaining reporting as well, especially to the community in which organizations operate. Some of the best reports will have key performance indicators that measure economic, environmental, governance, and social impact areas. There are many templates that can be used to track and monitor sustainability performance. Amway issues an annual Corporate Citizenship Report that highlights their corporate responsibility, citizenship, and sustainability efforts on a global basis. Each year Amway has added additional areas to transparently report their global performance. The Kellogg Company also issues an annual Corporate Responsibility Report, highlighting their global initiatives.
These sustainability integration strategies can be applied by any business, organization, or enterprise. The marketplace now has well accepted sustainability best practice tools and processes that can be used to help you integrate sustainability successfully across all business functions to help achieve improved overall performance.
Director, Office of Sustainability Practices
Grand Valley State University
Author, Sustainability Demystified
Recently, the Babson Social Innovation Lab issued a report entitled Project ROI – Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability. The report provides additional supportive documentation that corporate responsibility and sustainability best practices can generate significant financial returns and bottom line benefits. In their report, corporate responsibility has a broad and inclusive definition. It embraces several terms and concepts including “sustainability;” “environmental, social, and governance;” “corporate responsibility;” and “corporate social responsibility.” In essence, corporate responsibility refers to an organization’s or enterprise’s capabilities to:
- Reduce its “corporate footprint” through positive economic, social, environmental, and governance impact.
- Expand its “corporate handprint” through a variety of sustainability best practices that are developed to improve social, environmental, economic, and governance impact in a harmonious unified approach.
- Improve corporate responsibility performance and reporting through transparent disclosure and accountability with employees, shareholders, and stakeholders.
What then are some key “corporate responsibility” and sustainability best practices that companies and enterprises can pursue and achieve improved performance? Are there potential target values that can be attributed to the use of these best practices?
The Babson Lab reviewed several major corporations and their corporate responsibility best practices, including Pirelli Tire, CVS Health, Lockheed Martin, Unilever, and IBM. These corporations are industry leaders and represent a variety of business and market sectors.
The potential targets for improved financial performance for large publicly traded companies include:
- Reducing systemic risks by 5% and protecting as much as 10% of the company’s value by ensuring the enterprise’s license to operate in various countries and community locations. Addressing sustainability risks is a key overall strategy including: environmental, social, community, financial, legal, supply chain, and other risk factors. Ensuring sustainability and environmentally preferred purchasing policies are in place also improves risk profiles.
- Improving customer satisfaction by up to 10%. A key strategy is to engage customers, employees, suppliers, and stakeholders in various corporate responsibility activities wherever possible. Acting as a corporate citizen with other local organizations in addressing systemic community issues is a significant first step.
- Increasing revenues and price premiums by over 10% and improving corporate responsibility and brand recognition and value by up to 10%. One key sustainability strategy is to ensure that products and services meet sustainability standards and certifications. Another strategy is to use Life Cycle Analysis and Design for the Environment protocols for product development, along with sustainable manufacturing processes. Employing sustainability and green purchasing policies across the supply chain is another key strategy. Open and transparent reporting of sustainability progress and performance helps support brand loyalty.
- Reducing company staff turnover by over 25%; increasing employee productivity by up to 15%; and increasing employee engagement by up to 10%. Providing sustainability skillset and leadership training is a critical success factor. Having top management directly engaged in corporate responsibility activities provides internal visibility and program support. Tying volunteer and donations to company social responsibility and citizenship roles enables the company to broaden its influence on community development for the areas where they operate.
Even though these opportunities were developed for large publicly traded companies, the same sustainability value opportunities hold true for small to medium size enterprises as well. Those companies in the furniture, automotive, food, and construction industries may have already begun to see these strategies being employed within their sustainable supply chain management programs.
Source: Project ROI – Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability, Babson Social Innovation Lab
Norman Christopher is Director, Office of Sustainability Practices, Grand Valley State University and Author of Sustainability Demystified
The Ellen MacArthur Foundation has been spearheading the evolution of the Circular Economy in Europe. Today, many large global companies are beginning to embrace the principles of the Circular Economy as a resource efficient model that generates economic progress and improves innovation, while doing “more with less” compared to our current traditional incremental “wasteful” economy mindset. Why are companies attracted to these new business and economic principles? What makes these principles work and why? In this article we will look at the 3 guiding principles and how companies, organizations, and even cities, are developing new strategies around the Circular Economy to address systemic sustainability issues and establish transformational change. From a European perspective, did you know?
- For Mobility Systems, the typical European car is parked 92% of the time, with greater than 95% of all accidents from human error.
- For Food Systems, 31% of food produced is either lost or wasted, 95% of fertilizers do not provide nutrients to the human body, and greater than 50% of the European population is overweight.
- For the Built Environment, 10-15% of building material is wasted during construction, 60% of European offices are not used even during working hours, 20-40% of energy used in existing buildings can be profitably conserved, and >50% of demolition materials are landfilled.
These are European statistics, but I wonder if a US comparison in mobility, food, and the built environment systems would look any different? Waste is still a major issue everywhere, and will be for some time. The real question is what companies and organizations are leading the charge with disruptive innovation in their industry sector to combat these issues? What industries and markets have the biggest opportunities?
Let’s start with the 3 guiding principles of the Circular Economy that cover suppliers, manufacturers, customers, consumers, and service providers.
- Principle 1: To preserve and enhance the natural capital by controlling finite existing resources and materials, and shifting the balance to renewable resources.
- Principle 2: To optimize resource yields by circulating all materials used at their highest utilization rates in both the technical and biological cycles of use patterns.
- Principle 3: To catalyze the total system effectiveness by determining and designing out negative impacts.
Disruptive innovation connected with the Circular Economy is already ongoing globally, and those companies connected with the supply chain in specific industry sectors are already beginning to feel the effects. The Circular Economy model has developed a platform to follow and combat these issues called the RESOLVE framework – Regenerate, Share, Optimize, Loop, Virtualize, and Exchange. By using the RESOLVE framework there are significant economic and business opportunities for aligned industry sectors. What industries and market segments have the greatest potential for positive change?
- Regenerate strategies offer the opportunity to shift to the use of renewable energy and materials with the capabilities to recover, reclaim, retain, restore, and return to the natural environment. The manufacture and supply of wood products, furniture, textiles and apparel, water, mining materials, and power generation all have significant potential impact with this strategy. A good example is the utility industry and the move toward the use of renewable energy technologies, both for established and distributed grid applications. •
- Share strategies deal with the maximum utility of products through durable design, shared use, reuse, and extended life through maintenance and service. Industries including real estate, lodging, mobility and transportation, and construction all have great upside opportunities. An example in Grand Rapids is Airbnb which now has over 1 MM rental opportunities in 34,000 cities worldwide, across 190 countries. Another example is bike sharing programs such as with Spokefly locally in Grand Rapids.
- Optimize or enabling strategies improve the overall efficiency and effectiveness of product performance through lean processes, as well as reducing waste throughout the supply chain from sourcing to end-oflife. These strategies do not necessitate changing the product technology. Nearly all industry and market sectors can benefit by implementing these strategies. The automotive and furniture industry in Michigan are examples where optimization is a key strategy. Also, the City of Grand Rapids has implemented lean and green processes as evidenced in the City Sustainability Plan, including asset management practices.
- Loop strategies ensure products and materials continue to flow within a closed loop system including recycling and remanufacture. Industrial products and services such as transport equipment, electronics, machinery, rubber and plastics, mining, as well as food and beverage are attractive industries to pursue this strategy. Louis Padnos Iron and Metal and Kellogg are examples of local companies pursuing loop strategies.
- Virtualize strategies can be seen everywhere in the market today, from online marketing and selling of products and services to the digital delivery of content information. Industry sectors currently embracing this strategy include education, online shopping, arts and entertainment including books, music, newsprint etc. Local examples include Office Depot, the Grand Rapids Press, and many others. In the future can we all imagine the driverless car?
- Exchange strategies are directed towards the replacement of older outdated materials and components with the use of multi-purpose products and services, as well as the use of new disruptive clean and innovative technologies such as 3D printing. Industry sectors that could gain from these strategies are automotive, construction, furniture, plastic and rubber. Ford Motor and GM in the automotive industry, as well as the furniture industry suppliers, are all pursuing the use of these disruptive new technologies.
Overall, the RESOLVE framework allows many industries, market segments, and suppliers to follow and pursue the Circular Economy for both competitive and growth positioning. Significant opportunities are in the food, construction, and mobility sectors, as these industries make up a significant amount of everyday household budgets.
Recently, a business report was commissioned concerning the top 5 global sustainability risks and opportunities facing organizations today. The report was developed through surveys and panels conducted among 6,160 management professionals with varying degrees of responsibility within the manufacturing, financial, government, and service sectors. (1) The top identified risks included:
- Extreme weather and natural disasters that severely affect crops and populations in vulnerable regions
- Lack of fresh water access that threatens health and food systems, while imposing social impact constraints
- Unsustainable urbanization as people migrate to larger cities generating additional congestion, health, and economic prosperity issues
- Non-communicable diseases such as heart disease, chronic lung disease, diabetes, and cancer that cause significant threats to individual livelihoods while restraining community development
- Dependency on fossil fuels where reliability on petroleum based fuel sources can inhibit further reduction of GHG emissions and the use of alternative energy technologies
Using this report and risk information concerning the environment as background, how then does the compliance and insurance community view their responsibilities for ensuring that companies and organizations meet compliance, risk, and insurance requirements? Ethical Corporation conducted a benchmarking study of compliance and risk among over 250 executives who work in the compliance and insurance industry in the US and Europe. (2) A few interesting statistics showed that nearly 85% of the respondents indicated that putting customers first was their number one business priority for this year. At the same time, over 55% of the participants indicated that the role of the compliance officer was changing. Furthermore, over 85% of the professionals interviewed felt that creating a risk and compliance culture that satisfies regulatory requirements is tantamount to success and preventing environmental risks and issues from occurring. So what then are the highest priorities for businesses to address both risk and opportunities? The key strategies are:
- Staying ahead of regulatory change and requirements. Being reactive or just meeting regulatory compliance is not enough for marketplace competitiveness. Leadership requires raising the bar on your own through continuous improvement that will set your company and industry apart from others. A good example is the Sustainable Packaging Coalition (sustainablepackaging.org) that provides design guidelines, metrics, and reporting for sustainable packaging initiatives.
- Ensuring that your organization establishes a culture of compliance and reaches out to shareholders and stakeholders. This strategy tells the good news where recognition can easily be given, as well as the lessons learned and takeaways when an incident or sub-standard performance has taken place. It is important to make compliance and performance a priority and requirement for good corporate conduct and decision making. A whitepaper on a government, compliance, and risk management framework is available at metricstream.com.
- Developing effective compliance programs does not mean that just having a compliance program is satisfactory or good enough. It is not about the compliance process itself that is critical and important, but more about the effectiveness and the results of the compliance program. This strategy may require developing collaborations and partnerships with service providers and customers, as well as employees. Steps to building an effective compliance program for your organization can be accessed at corporatecomplianceinsights.com.
In order to achieve the desired results, the Insurance Culture Benchmarking Study goes on to report the critical compliance area priorities including: resource spending, changing organizational models, improving technology development, supporting “front line” management, conducting more in-depth and effective risk programs, and ensuring customer care.
Potential sustainability risks can be seen on the horizon in many areas from the threat of weather and natural disasters, to the access of natural resources and materials, as well as health and wellness, and urbanization issues. The question for business is how to address these concerns moving forward?
As the studies indicate, compliance and risk management is undergoing change, from organizational structure, to function and job responsibility, as well as to the creation of new and more effective compliance programs focused on the customer. To be an effective compliance leader often requires raising the bar internally first, setting new course changes and directions for your business, and monitoring results and performance along the way with new metrics. Cost savings can be achieved and potential risks avoided, and with improved performance your insurance premiums might even be lowered!
I wish you the best on your sustainability journey!
Norman Christopher is Director of the Office of Sustainability Practices at Grand Valley State University. He is the author of the book Sustainability Demystified.
- Global Opportunity Report, globalopportunitynetwork.org
- Insurance Culture Benchmarking Report 2015, Ethical Corporation