There was a time when “corporate sustainability” was synonymous with reducing a company’s environmental impact, such as its reliance on fossil fuels. But today, sustainability’s footprint extends far beyond the issue of carbon emissions, and companies that fail to get in step risk missing out on many exciting possibilities.
Companies now realize that sustainability improvements can have an immediate impact on the bottom line, not to mention propelling growth by spurring innovation and the creation of new products and services. What was once seen as a cost mandated by regulatory requirements in now seen as an investment opportunity. A full 60% of U.S. CFOs, for example, now see sustainability as a key driver of financial results, according to a recent Deloitte survey, and nearly 70% report being involved in sustainability efforts at their companies. That kind of C-level involvement can help companies develop a more holistic assessment of their sustainability efforts, a key step toward maximizing the full impact of what are often disparate, disconnected efforts.
“Sustainability” has always been a difficult term to define, and often companies do more in this area than they realize. For example, with tablets and smartphones ubiquitous, many companies can now claim actual progress toward going paperless, yet executives may not regard such efforts as having anything to do with sustainability. Others incent employees to get themselves to work in an energy-efficient manner (for example, by mass transit or bicycle) but may regard these incentives as a perk designed to attract and retain employees, rather than as a sustainability initiative.
But when companies make a concerted effort to embed sustainability into a business strategy, it can have benefits that extend far beyond any particular project. “The way that companies can really drive value creation is to recognize that some of this non-traditional, non-financial information can provide insights and internal benefits about how they’re operating,” says Eric Hespenheide, a partner within Deloitte’s U.S. sustainability practice.
At the broadest level, companies could conceivably create entirely new lines of business based on sustainability. Mark Vachon, who leads GE ecomagination, which was launched eight years ago, says that, “We define it in terms of natural resource efficiency — water, wind, sun and fuels — and (in terms of) helping our clients with being ever more productive with those natural resources.” Defined this way, Vachon says, the market can be measured not in millions or even billions of dollars, but at well over $1 trillion.
On a more tactical, project level, something as simple as the installation of an energy management system that tracks lighting and electricity usage across various facilities can provide a several different kinds of payback. While the main goal for such a system would be to control and reduce energy consumption, such data could also provide a window into who is working overtime or pulling extra shifts to meet manufacturing quotas. Tracking energy data carefully is also essential to pinpointing new areas of savings, often in ways that might seem insignificant to the naked eye. The Climate Savers Computing Initiative calculates that companies could save $60 per year per desktop computer simply by enforcing a “turn-it-off-at-night” policy – but that fewer than 20% actually do so.
When the National Bank of Arizona sought a way to put a lid on rising energy costs several years ago, in fact, lining up the data was the cornerstone of the effort, says Dennis Calik, SVP and corporate property manager for the 70-plus branch, $4.5 billion (in assets) bank. To do so, he engaged a consultancy, Ecova, to pay all the utility bills for each property and to aggregate the data on a website so that he could easily pull down reports by building, city, or region. That enabled Calik to identify buildings that were using the most energy and target specific measures toward them, such as replacing the air conditioning systems and allowing them to be controlled by timers. Three years later, he estimates the bank is using an average 20% less energy across all its branches, a big help as electricity prices have shot up 50% over that time.
Executives who want to lead sustainability efforts at their companies often find that a little research can have an enormous payoff. Calik leveraged tax incentives and utility rebates to have solar panels installed on some properties at a deep discount. The upfront cost of one solar project was $1.5 million, he says, but netted out to $373,000 after various incentives were factored in. He expects them to pay for themselves in less than four years.
For consumer-goods and other manufacturing companies there are even more options to consider. There are now more ways to use recycled materials to lower costs, and more leeway to pass any increased costs on to end customers. A recent Accenture study found that one-third of businesses are racing to keep up with the demand for “green” products from their customers; 60% say they charge more for these goods, adding a premium of up to 25%.
Almost no business is immune from this trend. Luxury fashion retailer Gucci, for example, has recently launched biodegradable sunglasses and shoes to help fashionistas cut down on their contributions to landfills. At Cybex, the $1.4 billion maker of exercise equipment, it made sense to invest in technology that would help reduce the materials used in (and the waste that resulted from) the manufacturing process when it built a new plant five years ago, says Cybex COO Art Hicks, Jr. “We have adopted lean manufacturing practices, and we find that they go hand in hand with sustainability efforts, particularly when you’re talking about eliminating excess materials and reducing hazardous materials,” he notes.
A desire to respond to customers’ increasing emphasis on sustainability still drives many such efforts, according to Ernst & Young’s survey of executives (for more, see “Six Growing Trends in Corporate Sustainability.”
Coming in second, however, is another influential group: employees. While formal research is currently limited, executives offer plenty of anecdotal evidence that having a commitment to sustainability provides a clear edge in recruiting and retaining employees.
Indeed, 10 years from now, as a generation of leaders steeped in the value of sustainability assumes leadership at companies large and small, it will become a cornerstone of corporate strategy. That’s why today’s leaders should plant the seed, by taking a close look at the many forms of — and benefits derived from — sustainability efforts. Or, put another way, to the mantra of “reduce, reuse, recycle,” add one more: “reimagine.”
BUILDING THE STRATEGIC CFO
Chapters in the CFO action series presented by Build and GE Capital:
Chapter 1: Own the Big Picture
Chapter 2: Create More Time
Chapter 3: Build a Better Team
Chapter 4: The Great Communicator
Chapter 5: Big Data, Big Results
Chapter 6: Think and Act Sustainably
Chapter 7: The Leading Edge
Chapter 8: Think Global, Whether You Are or Not
Chapter 9: Building a Risk-Intelligent Culture
Chapter 10: How to Win the War for Talent
Chapter 11: Technology & You
Chapter 12: The Art of Strategic Influence
Chapter 13: Building the Customer-Centric Organization