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Good Business Meets the Common Good

Oct. 30, 2008
How to structure corporate sustainability to drive long-term business success.

With scores of "green" and "socially responsible" corporate initiatives announced each day-from Wal-Mart's packaging scorecard to Google's renewable energy project -- you know intuitively that your organization must embrace sustainability.

However, when it comes to tackling issues as vast as global warming and world poverty, it can be difficult to know where to start. Under pressure to act swiftly, your company may have already initiated some sustainability efforts, and may now be struggling to figure out how sustainability can deliver more value.

Indeed, while over 90% of Fortune 500 companies have launched a sustainability initiative in some form, fewer than 50% have developed a sustainability strategy to drive business success. Based on our experience developing strategies for leading Consumer Packaged Goods companies, Archstone Consulting recommends the following approach to launch, formalize, or further develop a sustainability program.

1. Understand How Sustainability Fits Into Your Market

The definition of sustainability -- development that meets the needs of the present without compromising the ability of future generations to meet their own needs -- is a broad and often impractical guideline. To understand how social, environmental, and economic issues intersect with your business, determine how and where these issues are relevant in your company's marketplace

a. Assess Stakeholder Values

Stakeholders, from NGOs to investors, are demanding increasing accountability from corporations. Considering the values and agendas of various stakeholders is essential to shaping your company's sustainability program.

    Addressing Demands for Accountability

    Valuing Stakeholders' perspectives can support success; strategic partnerships add scientific expertise and credibility to its initiatives:

  • McDonald's collaborated with Environmental Defense to eliminate Styrofoam packaging in favor of paper wraps in 1990; recently, McDonald's partnered with UC Berkeley and Conservation International to investigate and improve fishery standards and practices.
  • Non-Governmental Organizations (NGOs): NGOs have a deep understanding of various social and environmental issues and may work with corporations to identify business impacts and opportunities for improvement.
  • Customers, including businesses and consumers: Increasingly values-driven buyers are making decisions based on factors that include a company's business practices. Nearly 50% of consumers said that concern for the environment influences their buying decisions. Almost 60% said that they are willing to spend more on 'green' products.
  • Employees: Nearly one-third of job-seekers said that working for a "green" company would be a factor in choosing a job. Especially as Generation Y -- a group known to seek deepened meaning in the workplace -- penetrates the workforce, socially and environmentally responsible business practices will play a key role in recruiting and retaining top talent.

Staying Ahead of Regulations

  • Pacific Gas & Electric (PG&E) shifted attention to incubate innovative renewable energy technologies. PG&E now has a stake in a range of renewable energy sources including solar power, wave energy farms, and even biogas, a fuel produced from cow manure.
  • Office Depot made a significant investment to retrofit its retail stores, warehouses, and offices; this resulted in a ten percent reduction in carbon dioxide emissions (Office Depot Press Release, August 2007)
  • b. Examine Regulatory Environment

    For years, many organizations viewed social and environmental responsibility as a component of compliance. While mindsets have progressed, regulations still play a key role in corporate sustainability. Companies must anticipate such regulations when defining sustainable business strategies.

    c. Consider Natural Resources Dependencies and Impact

    As resources including fossil fuels, water, and land are depleted, costs rise. Companies looking to lower exposure to such costs are reducing dependence on fossil fuels and redesigning processes to require less water and generate less waste.

    2. Define Company-specific Sustainability Goals and Supporting Structure

    The scope of sustainability should be limited to activities that offset your company's own impacts or positively affect its own stakeholders. For example, a food and beverage company would focus on activities relevant to the manufacturing and consumption of its products. "Sustainability" should not simply be defined as anything that benefits the common good; it must be consistent with the company's mission and vision.

    Often businesses organize sustainability via a Corporate Social Responsibility (CSR) department or Sustainability Program Management Office that champions sustainability companywide and support functional efforts to integrate socially and environmentally responsible practices. As reporting is a key factor in program success, it is important to structure the program logically so that results can be reported efficiently.

    3. Adopt Current Initiatives into the Structure and Select Reporting Guidelines

    With goals as a charter and an organizational structure in place, incorporate relevant ongoing activities. Initiatives underway are likely, if unwittingly, working to reduce your company's social or environmental footprint. For example, a supply chain initiative originally designed to save on packaging costs may also minimize waste. Companies must take inventory of these projects and determine where they fit into the overall structure of the desired sustainability program.

    After incorporating current initiatives into the structure, look for opportunities to further achieve sustainability benefits. Assessing and challenging current practices across the enterprise's value chain will yield additional opportunities to drive profits through sustainability efforts.

    The following areas of opportunity within the supply chain detail cost reduction and sustainability impact opportunities.

    • Sustainability can be integrated into the full life cycle of the supply chain

    • Product Design & Sourcing -- Eurofresh Farms developed packaging standards for tomatoes to help eliminate container waste as well as environmental contaminants
    • End-to End Product Loss -- Frito-Lay recovers millions of pounds of starch, significantly reducing the waste load discharged to wastewater treatment facilities. The recovered starch is ultimately sold to industrial manufacturers
    • Transportation & Logistics -- UPS has developed planning and delivery tools (Package Flow Technologies) to establish more efficient route engineering, reducing total system mileage, emissions, and fuel use
    • Disposal -- Snack businesses in Europe and India repurpose packaging waste into plastic pellets or briquettes that are used to create non-food products
    • Raw Material Sourcing
      As cost of goods sold increase as a result of rising commodity costs, companies can identify savings by re-evaluating current procurement policies.
    • Continuous Improvement of Labor and Manufacturing Efficiency
      Labor and manufacturing initiatives such as LEAN principles can improve operational performance while also reducing costs and decreasing emissions associated with manufacturing.
    • Minimize End-to-End Production Loss
      An ongoing process waste measurement system can significantly reduce process loss, lower disposal costs, and reduce waste.
    • Optimize Distribution and Disposal
      By working with key stakeholders to develop customer order guidelines, an organization can identify and address key customer behaviors that lead to improved distribution efficiency and minimized environmental impact.
    • Product Innovation & Supplier Collaboration
      In addition to cost savings, sustainable supply chain initiatives can foster innovation. Several airlines have lowered both fuel costs and emissions by collaborating with manufacturers and third party maintenance providers to retrofit airplanes with winglets to reduce wing drag.
    Avoiding Greenwashing

    Greenwashing occurs when companies falsely or incompletely report or exaggerate green initiatives.

    To avoid greenwashing:
    • Communicate Net Impact -- RECs and carbon offsetting programs should not fuel climate-saving assertions without real efforts to reduce current impact
    • Give Up Green Spin -- Disingenuous attempts to make "green" products that are "less bad" -- though not by much -- may backfire
    • Show Proof -- Use third-party endorsements validate claims and solidify value proposition
    • Do It for the Right Reasons -- Many customers view green product labels as a sales tactic and are reluctant to pay for such products. Similarly, companies that label routine cost-cutting initiatives "sustainability" may be targets of criticism
    Manage risk by being as transparent as possible
    4. Communicate Progress

    Stakeholders expect transparency in reporting progress and tracking results. Publicizing news (even unfavorable) is better than silence. Share your company's established goals and progress to date via a sustainability report. Be certain to report on relevant standardized guidelines. Avoid greenwashing [see sidebar] and be aware that just about any claim of "doing good" is subject to criticism.

    Today, sustainability is a "must-have" that can drive significant value. However, hasty execution can spawn sustainability efforts that actually detract from traditional business goals. In addition, companies must engage in sustainable business initiatives for the "right" reasons, as consumers and employees alike will see through superficial efforts. A successful sustainability program is contained within a relevant, measurable framework and addresses social and environmental issues by working in harmony with traditional business goal.

    Michael Unger is a Principal of Archstone Consulting in the Consumer Products and Retail Practice, Andrew Csicsila is a manager in the Operations Practice and Carly Smith is an associate. Archstone Consulting is a leading independent strategy and operations and CFO advisory management consultancy, specializing in delivering strategic, operational, IT and CFO advisory services to the consumer products, retail, life sciences, manufacturing, and services sectors.

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