Developing a Business Case for Sustainability
The number of large and small global companies refocusing their businesses to more sustainable strategies, operations and products has increased dramatically. These companies often share public concern about the environment, the greening of consumer preferences, and take a pragmatic view of the potential business benefits of sustainability.
DuPont, for example, committed itself to reducing its greenhouse gases (GHG) by 65 percent from 1990 to 2010, to raise revenues six percent per year from 2000 to 2010 with no increase in energy use. And by 2010, the company committed itself to sourcing 10 percent of its energy and 25 percent of its feedstocks from renewable sources. The company announced these goals in the name of increasing “shareholder and societal value.”
Since then, by employing improved process control, new energy-efficient technologies, use of alternative energy sources (e.g., landfill methane), and improved yields from manufacturing processes, DuPont has lowered energy use and increased production by 30 percent. Globally, DuPont’s GHG emissions are down 72 percent, energy use is six percent below 1990 levels, and the company is on track with its renewable energy targets. DuPont estimates that this program has already saved the company $3 billion.
Just as many major global institutions have found it profitable to make sustainability program investments, many smaller companies are exploring the benefits of programs to reduce GHG emissions. Companies of all sizes that reduce GHG emissions in the context of a broader whole-system corporate sustainability strategy (reduced solid waste and use of natural resources; enhanced employee safety and well-being; enhanced public relations; etc.), will achieve multiple benefits for shareholders.
A Climate Protection Model for Cities, identifies additional corporate benefits that often include:
- Enhanced financial performance from energy and materials cost savings: operations, facilities design and management, fleet management;
- Enhanced core business value: sector performance leadership; greater access to capital; first mover advantage; improved corporate governance; the ability to drive innovation and retain competitive advantage; enhanced reputation and brand development; market share capture and product differentiation; ability to attract and retain the best talent; increased employee productivity and health; improved communication, creativity and morale in the workplace; improved value chain management; and better stakeholder relations; and
- Reduced risk: insurance access and cost containment; legal compliance; ability to manage exposure to increased carbon regulations; reduced shareholder activism; and reduced risks of exposure to higher carbon prices.
Sustained high energy costs and the anticipated adverse effects of the changing environment will no doubt have significant impacts on U.S. businesses, ranging from unexpected drops in earnings, increased operating and regulatory compliance costs, and greater than expected management costs due to understated or undisclosed liabilities. Swiss Re, the second largest re-insurance firm, has estimated that costs of adapting to the changing environment will amount to $44 billion to $156 billion annually (view article). Investors now routinely evaluate corporations on the basis of their preparedness for associated risks and opportunities of climate-related business effects.
Carbon footprint and energy use reductions have the potential to offer companies substantial advantages. These advantages have grown dramatically in value as energy prices have increased. Research shows, however, that most companies surveyed lack an energy strategy or even someone identified within their organizations responsible for an energy strategy. A 2007 study of 420 senior officers of Fortune 1000 companies in the U.S., U.K., Canada and China by Hill & Knowlton Inc. found that, while the overwhelming majority looks to the CEO to own the issue, 70 percent of those polled said no one within their organizations is tasked with defining the company's energy strategy. Although a majority of senior technology leaders (82 percent) from around the globe closely monitor the issue of global warming, most (65 percent) do not yet have a defined energy strategy to deal with it. (view 2007 study)
As more and more companies develop effective energy and GHG emissions reduction strategies, the focus of the debate is shifting from the downsides to the opportunities associated with transitioning to a low-carbon economy. Driving this change are rising energy costs and the shared positive experiences of early adopters – like DuPont, BP, Dow, Lockheed Martin, Sony and several AMI member companies.
Building a strong business case that incorporates real-life examples is the cornerstone to this process. A complete business case can inform strategic decision making, while elements of it can guide business units and help employees understand how sustainability issues impact on their area of responsibility. It helps to:
- Identify the range of current triple-bottom-line impacts; potential improvements and cost savings; and likely risks and business opportunities for the selected sustainability strategies;
- Secure sufficient top-level management understanding and commitment to integrate sustainability and stakeholder engagement into core business processes and decision-making;
- Formulate the company’s long-term sustainability mission, vision and operating principles and a high-level strategy that supports them;
- Formulate tactical short-term action plans to support the strategies and how these link to the overall business plan;
- Identify employee training/development needs;
- Raise awareness of sustainability issues and opportunities, foster employee creativity and participation in the sustainability effort; and
- Provide a benchmark to measure against going forward.
Although every business case, by definition, is unique to a given company, there are several key steps that are common to the process of business case development, according to Project Sigma’s business case tool for sustainability:
- Understand your company’s specific impacts: The first Six Sigma step is to examine your company’s significant impacts on the environment, society and the economy, and what opportunities and risks they represent. There are many tools and experts available to help with this appraisal. The most obvious impacts, detailed in existing information, may well be the most significant and a good starting point, however a systematic assessment across the full range of organizational activities provides greater confidence that all impacts will be identified. Identify the potential business opportunities of specific sustainability actions and potential risks of pursuing these changes. Use this information to develop strategic plans to deliver the company’s vision and address its key sustainability issues.
- Identify key stakeholders’ issues: The management of stakeholder perceptions tends to be as important as the management of actual impacts, and will influence an organization’s ability to maximize the opportunities and minimize the risks. Six Sigma suggests that consulting stakeholders (including employees) on what they consider to be the key sustainability impacts of an organization will significantly strengthen the business case.
- Make it relevant: Link the opportunities and risks identified in steps 1 and 2 to the strategic framework of the business. Map the issues and impacts to each element of the existing corporate business plan or key strategic objectives. Significant risks and opportunities may not always be reflected in the priorities detailed in the business plan or strategic objectives. Where significant challenges and inconsistencies with current strategies exist, highlight these so improvements can be considered. Six Sigma concludes that to ensure usability in mainstream business planning, sustainability issues and headings must be translated through the use of familiar language, style and formats that can be easily understood by senior managers and other users of the business case.
- Back it up: Provide examples, data, and supporting information for each opportunity or risk, both from outside and inside the company, according to Six Sigma. In particular, wherever financial costs and benefits can be calculated or are available, include them.
- Keep it dynamic and updated: Ensure the business case is dynamic and develops as organizational priorities, sustainability understanding, and best practices change. Incorporate internal feedback loops to monitor progress against stated values, strategies, and performance objectives. A considered and up-to-date business case, like the one described here by Six Sigma, helps communicate and raise awareness of the strengths and weaknesses of strategies, and keeps it relevant for its intended audiences.