Part II of III Executives need to think differently about their company’s impact. Customers are now demanding it and it will mean the difference between success and failure in the future. In Part I, I discussed a number of companies (e.g. Nike and Walmart) that made a number of major mistakes. I also revealed five mission-critical principles from companies that are capturing real shareholder value from social and environmental issues right now. The most significant principle was framing sustainability in a business context to capture shareholder value.
But how do you do this and what does it actually mean? Framing sustainability in the context of your business means asking “standard” business questions but using a different perspective to answer them. The following nine major questions will help you do just this to define what sustainability could mean in the context of your business:
Your Return on Invested Capital
1. Can you market the environmental and social attributes of your products and company to capture additional value? Successful companies quantify and proactively use the social and environmental qualities of their products to charge more or beat their competition. The sales team at these companies know when and how to talk about environmental or social benefits to get a new contract or customer over the line. An example would be creating “green” products at a premium price or highlighting the “green” aspects that differentiate your business during sales.
2. Can you work with your suppliers to reduce their environmental impact and improve their social impact to capture additional value? Successful companies set suppliers environmental and social targets and track supply chain impacts. They partner with suppliers to come up with creative ways to reduce resource footprints (such as reducing energy, waste, material, water, etc.) and improve social impact (such as education programs). They build long-term relationships (that they can lean on) by co-investing in supplier improvements or fixes and split the benefits. These relationships and on-going conversations create a virtuous cycle whereby new innovations occur, creating even larger competitive advantages for all involved.
3. Can you use less resources or improve your social impact to make more money? Answers to this question can be the starting point for many companies. It’s simple to look for cash savings by using less resources (e.g. energy, carbon, raw materials, etc.). These opportunities are easy to explain and tend to offer very fast returns, oftentimes within as little as a few months. The most successful companies build resource efficiency and social impact assessment into everyday practice by integrating the concepts into budgeting, capital allocation, people development, etc.
Developing Growth Opportunities
4. How can environmental and social issues impact the mix of products you currently sell? Successful companies understand how a range of new issues will affect their future sales. These issues may include, but aren’t limited to, current and future raw material requirements and scarcity, population shifts, new energy mixes and technology, carbon issues, and local labour practices. Companies identify and measure these issues and take action to protect against weaknesses. For example, businesses may sell off brands or lines of business that are still profitable before they collapse or buy a new line of business to tap into growth areas or bolster an existing a strength.
5. How can you innovate your current products, including packaging, to capture value from environmental and social trends? Successful companies are obsessed with understanding the latest environmental and social trends to actively innovate and meet new needs. They constantly reduce their products’ resource footprints to lower costs, as well as look for ways to capture value from a product’s end-of-life. They also consider business model innovation to suit new global trends (such as leasing or renting vs. purchasing) before someone else does. They partner widely with NGOs, schools and other groups, both on a local and global scale, to stay savvy and ahead of trends. For example, look at The Ellen MacArthur foundation which was focused on creating a circular economy.
6. How can you tap into new market segments or geographies based on major social or environmental shifts? Successful companies are constantly trying to understand new local resource constraints and new global and local societal needs that they can be fulfilled with their existing products. Significant trends can include local production and consumption, farmer direct, ‘ugly’ products and energy neutrality. These companies see social businesses, which are businesses that invest all profits for a social good, as a way to gain a new foothold in a market or geography to grow their brand in ways that a traditional business structure will not allow. They even then take the learnings from this new market back to their ‘normal’ business to save real money.
Turning sustainability-related risk into opportunities -
7. Are you actively managing your reputation and turning risks into opportunities? Successful companies master their internal and external stakeholder environment. They use frameworks like the Global Reporting Initiative (GRI) to focus on the most important issues for their most important stakeholders. They partner widely and strategically to build trust-based relationships with sometimes unlikely bedfellows, like oppositional NGOs, competitors and academic institutions (who give them the benefit of the doubt when issues do arise). These relationships help them to proactively tackle tough social and environmental issues head on, rather than be attacked at a later time for being passive or accidently misstepping.
8. Are you turning potential social and environmental regulatory issues to your advantage? The most successful companies have a clear social and environmental regulatory strategy and then actively work with the government to shape these issues. They keep their ears to the ground to pre-empt what could be, then aim to become the best in this area. They may then even push for the legislation to catch others by surprise! These companies take an active role in shaping potential regulatory outcomes, such as through standard setting, and help politicians understand the importance of their industry and their impact as a company.
9. Are you properly managing your set of new environmental and social operational risks? Successful companies identify, quantify and plan to become resilient to a new set of risks. These can be environmental (e.g. flooding / extreme weather, climate change changes on land and clean water availability), supply chain disruptions (e.g. lynch-pin suppliers, disease, resource scarcity and cross-industry impacts) and external ‘attacks’ (e.g. NGO, community, academic articles and competitive attacks). These companies build and put concrete action plans in place if the risk strikes. They may even, in some instances, build new business lines to help others manage these risks
How do I apply all of this?
Many of these questions are ‘business as usual’. The key is seeing and assessing your business through this new lens - the lens of sustainability – and then pick three or four areas that matter most in the context of your strategy, stakeholders and industry. This is what will make you successful (and sustainable) from 2016 and beyond. To do this, you need to tap into experts who can help. This person will help you and your executive team frame and aspire to what’s possible in your company and business context. They’ll also help you consider a relevant set of case-example companies as inspiration to stretch your thinking of what’s possible. Finally, they will help you prioritise the major opportunities and actions for your situation that will allow you to pursue profitability AND sustainability.
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