Part I of III
Learn From the Mistakes of Others
When customers discovered in 1996 that their shoes were manufactured using child labour, Nike’s stock price collapsed by 58% in 19 months. This shock began Nike’s deep interest in the social impact of their business and has since landed them at the top of the Dow Jones Sustainability Index (DJSI). For Walmart, it was the public backlash in the early ‘00s against their labour relations and ambitious expansion plans (not to mention a 31% stock price decline) that triggered their interest in social and environmental impact. For companies that don’t proactively ask the right questions about their impact, it typically takes a nasty shock to start the conversation. For many companies, this shock is less visible. Perhaps it’s industrial action by an employee group, discovery that you’ve been polluting local groundwater or local community complaints that escalate. Why wait for a shock? Why let these things happen to your company?
Creating Real Shareholder Value
There is another path. Some Australian companies are being proactive right now and have already unlocked a significant upside, creating clear shareholder value. According to the Dow Jones Sustainability Index (DJSI), the sustainability practices of GPT, Westpac and Woolworths both capture value and lead the world for their respective industries. GPT delivers asset portfolio value by building outstanding stakeholder relationships in communities where they have developments. They also plan for potential environmental issues, incorporate social inclusion and healthy living into planning and focus on reducing their buildings’ water and energy footprints – all easing approval pathways and enhancing sales. Westpac delivers shareholder value by focusing on employee development (such as the number of women in leadership) as well as dedicating portions of their utilities and infrastructure financing exclusively to renewables and CleanTech. Woolworths focuses on building healthy food options and incorporating environmental priorities into supply chain management to deliver numerous packaging and sustainable food initiatives – cutting costs and attractive new customers. These three companies have figured out how to capture real value from sustainability. Numerous offshore examples exist as well. Danone’s efforts to tap new markets by starting a social business in Bangladesh yielded millions of new customers and new operational efficiencies that were then applied across the rest of the company. Siemens’ growth strategy, based in sustainability, has allowed them to pre-emptively capture market leadership in healthcare, energy and efficient and alternative transportation technologies. There are many more examples of companies capturing value from sustainability by tapping into the areas that matter most to their business.
What Do These Companies Have in Common?
Companies can learn from the mistakes from others. Five critical principles can guide your company to help prepare it for the next generation of business:
1. Start by framing sustainability in the context of your business
Frame sustainability with a focus on capturing real shareholder value – not just “doing good.” Said slightly differently, your business comes first – if you make widgets, you need to determine what’s best for a widget maker to do to improve its social & environmental impact. Framing this way will keep you grounded and help you pick the things that matter most for your business – it will also help stakeholders buy-in as well. To do this, you’ll have to ask business questions, but use a different perspective to answer them, focusing on environmental and social angles. Part II of this article will explore this topic further.
2. Be honest about your business’s impacts and successes
Start with a real baseline (both the good and the bad) of your business’ social and environmental impacts. Only once you know how you’re performing can you have the honest (and sometimes difficult) conversations to help reveal new growth pathways, new opportunities to improve return on capital invested and new ways to reduce (and often times capture value from) a new set of risks.
3. Identify and pursue the most relevant areas that deliver an “and,” not an “or”
You need to pick, innovate in and be leaders in just a few critical sustainability areas that are most relevant to your business. It is not effective to take a blanket approach to respond to all stakeholders. In picking, you need to remember that when done well, sustainability means tackling the challenges your company is facing to increase shareholder returns, whilst also yielding benefits for the global society and the environment. These opportunities should ultimately reinforce and bolster your long-term business, not sacrifice it.
4. Ensure you communicate to show this isn’t just a ‘greenie’ or social agenda
You need to win over your internal and external stakeholders and many of them are not going to have a social or environmental agenda. You need to demonstrate and communicate real value creation over the long-term. Moreover, you need to recognise that success is more than Corporate Social Responsibility (CSR) or just GRI reporting.
5. Focus on success built through collaboration and taking a long-term perspective
Sustainability is not a quarterly results game. It may require impact measurement on what can be up to 40-year time horizon, and may require tough business decisions. To effectively deliver results, teams will have to truly collaborate on problems that require multi-disciplinary solutions and cross-cutting approaches – this may even require building relationships with some unlikely bed-fellows – but more on that to come in Part II What else can we learn from these successful companies? How did they determine the best social and environmental areas to pursue? Stay tuned for Part II.