What is Sustainability? (2019)
This blog explains What is Sustainability with examples and case studies. Sustainability is a journey rather than a destination in itself. It starts with the decision to explore issues like energy consumption, recycling, finding ways to minimize risk.
Some companies move past these to the less obvious opportunities, such as product innovations.
Other leading companies will take the less traveled routes and make discoveries which will put them ahead of the pack. Sustainability for business is always changing and evolving.
Managers often think that once they have put a strategy in place, they have reached their destination. But there is no final destination, it is the journey that counts.
To take your sustainability journey, it is important to understand where you currently stand and where you want to go. Whether you are just starting out, or you have already begun to explore sustainability issues, your journey will be different depending on the needs of your company.
However, there are some common stages that companies might find themselves along the way.
1. Reject sustainability. Rejection may occur because a company is unaware of sustainability, or believes it has nothing to do with their business.
In some cases, it may be because a company is involved in illegal activities – either through ignorance or inaction, or deliberate actions. Others will see what they can get away with, and think that even if they get caught they can still get around it.
2. Bare minimum. Companies are compliant, but barely so, and not necessarily on everything. They have no sustainability strategy, and at this level, a company is doing the absolute minimum required to stay in business.
Typically, they only act when a situation occurs that forces them to react. If they do anything beyond the bare minimum, they often expect to be rewarded for it.
3. Seen as a cost. Some companies see sustainability as a philanthropic activity that is just a cost. There may be other smaller initiatives or individuals across the company who are interested in sustainability, but nothing is coordinated.
4. Cutting costs. Companies begin exploring the opportunity to cut costs by reducing consumption. This usually starts with office-greening projects coordinated by inspired employees. It can then progress to finding ways to save costs across the operations.
5. Risk management. At this stage, companies begin to see that governance structures – including policies, performance standards, management systems, reporting, assurance processes, and sustainability tools – allow them to better manage their risks.
6. Indirect benefits. Companies now begin looking beyond just saving costs and managing risks, to identify the opportunities that sustainability can present. They are also beginning to recognize how it can have a benefit across the business, such as the internal benefits of recruiting better employees and suppliers.
7. Opportunities. Companies are now actively engaged on multiple fronts, exploring opportunities across the business in the form of new products, exploring new markets, and partnerships with outside organizations.
8. Strategic approach. Beyond significant levels of activity on new opportunities, companies begin to look at these individual activities across the organization with the goal of bringing them together as part of an overall strategy.
Upper management is fully involved and reinforces these messages in communications internally and externally. Sustainability reporting is adopted throughout the organization. Efforts have become cohesive, moving the whole company in a common direction.
9. Integrating. Sustainability begins to be really integrated into the way that everyone at every level does business. It is part of people’s job descriptions and is incorporated into compensation, rewards, and performance evaluations. All departments are involved in doing their part to move the agenda forward.
10. Continuous improvement. A company works with other businesses to really push these issues forward, raising the bar throughout the areas in which they operate.
At this stage, companies continually revisit their processes to make them stronger and to acknowledge and work on their weak spots.
Some points to keep in mind when trying to assess where you currently stand:
Different initiatives will be at different points along this journey.
The inherent complexity of organizations means that a company or an organization will have many different departments, projects, and activities that are at different signposts on the sustainability journey. Use the above model to see where different parts of the business stand, and also for the company as a whole.
Sustainability is a complex area that is continually changing and growing. Everyone is still learning and the bar is constantly being raised. Therefore, it is not just about whether or not you are involved in the debate, but at what level. Are you:
Saying you are when you aren’t really? (Greenwashing)
Doing just enough?
Doing the same as other companies in your industry? In other industries? In your country?
Doing better than other companies in your industry? In other industries? In your country?
Doing the same as other companies internationally?
Doing better than other companies internationally?
A leader in this area?
How to move from one level to the next. There are many drivers that push companies to move from one level to the next. Most often this will be a passionate CEO or manager, or engaged employees.
It could be a negative event that forces a company to react. Anything in the business case can be a driver to change. Ultimately, a company can only reach higher levels with senior management involvement, and where sustainability is part of a cohesive strategy.
Remember, this all takes time. Sustainability isn’t a light switch that you turn on and off. Implementing a sustainability strategy takes time, energy, resources, real commitment, and often a cultural change within your company. However, done properly, the paybacks more than justify the investment.
Where to find leading sustainable companies
One way to identify which companies are doing interesting work is by looking at the annual awards and rankings. There are now countless awards given at the local, national, and international levels, many of which are mentioned throughout this blog.
Companies take their position on some of these lists very seriously and will often use this in their communication material if they are ranked highly, and respond by making changes in their organization when lower down on the lists. A few examples of international rankings include:
Business Ethics magazine and KLD Research
Some tips for navigating the different rankings and awards lists:
Look at the scope of the award. Is the award being given to companies who are part of a particular industry? Is it about one particular element of their strategy, such as their approach to supply chain management, or does it cover the full company and all its activities?
Look at which companies are up for the award. Awards don’t always invite all companies to enter a given award or ranking. More often than not, rankings and lists focus on larger, international companies, or only those who choose to nominate themselves. Does it include both public and private companies? Is it looking at both big and small ones?
Look at who is giving the award. Is the ranking or award is given by a consulting firm, the media, consumers, international organizations, an NGO? Is it being given by a recognized organization?
Look at what kind of data they are measuring. Companies often tend to use data that are readily and inexpensively available. Do companies submit the information themselves?
Is it collected through questionnaires, media and stakeholder reports, publicly available information, interviews directly with the company? Is the awarding organization doing its own independent research?
Look at the criteria and weightings. What are the criteria for the award? Every ranking or award will have a different set of criteria to determine the winners. These criteria should be transparent and easily accessible in order to give some insight into how the awardees are being chosen.
Step by step
In the same way that there are no simple checklists on what to do to create a successful business, there is also no single way for a company to incorporate sustainability into its operations. But the good news is that employees and managers can get involved in sustainability without becoming experts in this area.
Employees at all levels are coming up with an incredible variety of very different ways to bring sustainability into their employer’s strategy and operations.
For instance, some test out sustainability tools on a small scale – with a particular product, site, or service – while others choose to embed it across the whole business.
Every organization will develop these issues in widely different ways and needs to find a way that works best for their particular situation, location, client base, or strategy. The following list provides a guideline for getting started.
Understand where you are
Engage others and now gather support
Find out what is happening
Put your plan in place around you and make it happen
Decide where you want to
Keep it going go and why
1. Understand where you are now. Start by taking some time to think about what kind of company you work for. How is your organization impacted by society? How does it impact society?
What are the issues that are important to you? Explore what is currently happening and whether you could build on from initiatives already taking place in the company or whether to start a new one.
Where do you currently stand? Does your company reject sustainability, is it non-responsive because of a lack of awareness?
Is it interested but not sure where to start? Has it already. Today, employees in organizations of all sizes and in all sectors are applying sustainability strategies to their work and are increasingly outspoken about the benefits.
Those who are successful are building a business case for sustainability that suits the unique needs of their project, their initiative, their division, or even their whole company.
While the details of the sustainability strategy adopted by each business will vary, here are some compelling reasons why businesses are incorporating sustainability concepts into their day-to-day operations:
To reduce costs
To satisfy customer needs
To preserve resources
To meet stakeholder
To comply with legislation expectations
To enhance reputation
To attract capital investment
To capitalize on new
To attract quality opportunities employees
To increase transparency
1. Reduce costs. All companies have an interest in keeping costs in check. Sustainability provides a mechanism to reduce costs by focusing on using fewer resources (e.g., raw materials, energy, hazardous materials, people, and water), making processes more efficient, and minimizing or eliminating waste.
Often these kinds of changes are referred to as ‘low-hanging fruit’ or ‘easy wins’ because, at least initially, small changes can have a big impact.
However, larger structural changes that can be more complicated and take a longer time to implement can also have the greatest impact in the long run. Procter & Gamble’s program to ‘Design manufacturing waste out,’ for example, has saved the company over US$500 million and eliminated 2 million tonnes of waste.
Preserve resources. A key element of sustainable business practices is the preservation of the resource base. Companies are realizing that the raw materials they depend on to produce their products are being threatened.
For example, Brazil-based Natura has a program to sustainably use locally available raw materials that form the basis of their range of cosmetic products.
Natura works closely with certifiers to guarantee the proper sourcing of its resources and to promote conservation through compliance with environmental and social guidelines.
Comply with legislation. There is an increasing number of control mechanisms, regulations, and standards being put in place that companies must follow.
These cover a wide range of areas, including the discharge of pollution, worker safety, product content, technical performance, labeling, requirements for reusing and recycling, and ecosystem protection.
Some of these, such as the Global Reporting Initiative, is currently voluntary but will increasingly be considered industry standards.
Others are mandatory, such as the European WEEE initiative or ‘take back’ laws, which require manufacturers to take back all vehicles and electronics equipment sold in a particular country and recycle or dispose of them safely after use.
It is likely that regulations and ‘voluntary’ standards will increase, both in number and stringency. In addition, the costs or consequences of not conforming, or leaving it to the last minute to confirm, need to be considered in a business case.
Enhance reputation. As Warren Buffett puts it, ‘it takes twenty years to build a reputation and five minutes to ruin it.’ Today, those five minutes may feel more like 30 seconds.
Petrobras, Brazil’s national energy company, stunned by a series of catastrophic oil spills and other accidents around the turn of the century, realized it would have to fundamentally change to protect its business and reputation.
The company launched the biggest environmental and operational safety program in Brazil’s history, overhauled its operations, and pushed cultural change from the top down.
Environmental and social performance is now central to the firm’s strategy and Petrobras is recognized as a global leader in the oil and gas sector, led actively by its CEO.
5. Differentiate. Being seen as sustainable can help differentiate your business. This can increase income by securing the loyalty of current customers and attract new ones, resulting in increased market share.
Businesses can grow revenue from new markets for sustainable products and services, and they can also grow market share through better-quality products that benefit the customer.
In a market replete with low-cost rivals, MAS differentiated itself based on its exemplary employment practices (called ‘Women Go Beyond’), its green plant, and organic and fair trade products. This persuaded several western firms to choose it as a strategic partner.
Attract quality employees. The former CEO of IKEA, Anders Dahlvig, said that the pressure to be ‘green’ is ‘now coming from underneath, from our co-workers themselves who expect us as a company to do more, faster.’
Employees are more likely to feel proud of working for employers who take their responsibilities to society seriously.
More businesses are realizing this, and are prioritizing these issues in order to maximize their capacity to attract and retain skilled and talented employees, which in turn increases their ability to innovate and compete.
Satisfy customer needs. Public expectations of what is possible are ever increasing. The eco-conscious consumer is a growing population who expects the brands they buy to meet their green standards while also meeting their product needs.
Many organizations are getting involved in sustainability because their customers, clients, or business partners are asking them to. People are increasingly looking to do business with companies that share their level of commitment.
8. Meet stakeholder expectations. In 2005 the then CEO of WalMart, Lee Scott, recognized that the time when CEOs could sit in their towers and make decisions without consulting stakeholders was over.
‘We thought we could sit in Bentonville, take care of customers, take care of associates – and the world would leave us alone.
It doesn’t work that way anymore. Companies need to earn their ‘license to operate.’ They kicked off an environmental initiative to improve their environmental stewardship reputation and increase their bottom line.
Conversely, constant failure to address the concerns and expectations of these groups will reduce investor confidence in the firm’s stock, impacting the cost of financing and thus profit-making opportunities.
Attract capital investment. Just as consumers are becoming more aware of the importance of sustainability issues, so are investors and shareholders.
So far 83 million US dollars have been granted, with an on-time payment rate of more than 99%. The program has expanded to over 100 centers across Mexico and South America.
Increase transparency. Customers, investors, and businesses are asking for more and more information about what a company is doing in sustainability, not just in terms of its own operations but also those of their suppliers and sometimes even the suppliers of their suppliers.
They are being asked to share this information publicly, both good and bad, on their websites, in annual reports, and increasingly it is required for the growing number of ratings and awards that categorize companies based on their efforts and the sustainability aspects of their products.
While the previous list shows some of the reasons you should consider adopting a sustainability strategy for your business, the actual reasons why managers are getting involved in the sustainability debate can vary widely.
For some, involvement occurs as part of a personal journey, a realization that what they do today will affect their children and families, and the desire to contribute in a meaningful way.
Others are forced into reacting as a result of a public relations scandal or accident, or because customers, regulations, or other employees are asking for action on these issues. Regardless of how it starts, there are some points to keep in mind:
Sustainability is already a part of how you do business.
For most businesses, this does not mean starting from scratch. Sustainability is about making the business more efficient and can be built into the way that companies already operate.
It doesn’ t matter how or why you begin . . . Exploring sustainability in a company can begin in the smallest way, such as through a recycling program or offering employees a subsidy for taking public transportation to work.
Simple, small things can make an impact over time. . . . what matters is how you continue. The benefits you get from particular decisions or choices to start exploring these issues, or the reasons that you continue to develop them further might be quite different from the original reasons you chose to get involved.
The potentially high cost of inaction for both the business and society. Even if an organization can find no obvious opportunities to cut costs or increase revenues through sustainability initiatives, inaction in this area can lead to increased costs and loss of revenue.
Multiple benefits. A positive change in one area can also result in positive changes in others. For example, applying eco-design principles to a product can not only result in a superior product but also save money, give access to new markets and new customers, and inspire and engage employees and stakeholders.
The impact is strongest when it is embedded in strategy and culture. Virtually every sustainability expert will tell you the same thing – a company will experience some benefits of sustainability, but will not maximize these until it is mainstreamed into the way that the company does business. Look for truly sustainable solutions that make sense for both business and society.
The CEO must be on board. The leading companies in this area all have programs that were started by, or actively driven and pushed by, their upper management, in particular, their CEOs.
But employees are key. Without employees engaged and active in sustainability, a sustainability strategy will go nowhere.
These are some of the primary reasons why adopting sustainable business practices makes good business sense. You will find more details on the business case as it applies to each core discipline throughout the blog.
The sustainability sales pitch
Proper presentation of sustainability-related projects and strategies is crucial in gathering initial and continued support. To do so, consider the following advice:
1. Be informed. Collect all the information you can about what is happening in your own company, in other companies (not just your competitors), work being done by NGOs, and current issues relating to the work you want to do.
If you know what you are talking about, it will make answering questions and getting people on board a lot easier.
2. Create a coalition. Engage other people who share your viewpoint or who are also interested. Focus on getting key people on board who can really help move these issues forward.
3. Pick your moment carefully. Different individuals, teams, departments, or whole companies will be ready at different times to put some of these tools into action. Focus on doing things right the first time, rather than finding a quick fix.
4. Package that information appropriately. People react to information in different ways, so knowing what kind of information to present to a specific decision-making person is key.
An HR manager will be interested in employee motivation and hiring better people, while a CEO will be interested in reputation, brand, and financial impact.
5. Choose who will give the information. Whether rightly or wrongly, people tend to believe information when it comes from certain sources. For example, many are skeptical when NGOs tell business what they should do, as they are seen as outsiders.
Find the right people to present the information, people who are well respected in the organization – even the converted skeptic – and you can make your case more compelling.
6. Think of the reasons why not. In bringing these issues to your team or your organization, make sure you think carefully about the objections your company might raise to doing this.
Consider the different perspectives around the table, the roles they play in the organization, their backgrounds, and personalities, and you can gain a critical understanding of why people may be unwilling to move on certain issues, as well as ideas on how your interests could converge.
7. Make a strong case. Have a strong case for why people should be interested in moving forward on these ideas. Make sure you outline all the potential benefits, both the direct ones and the indirect ones.
Just as important, describe what would happen if the organization doesn’t move forward, such as missed opportunities or negative PR.
8. Offer a vision. Offer a vision of where you want to go in the short, medium, and long-term, and concrete ideas on how to get there. Use stories, pictures, and videos along with hard facts to make your case. Build excitement about being part of something bigger. Think big.
9. Present the underlying problem rather than your solution. Don’t just show up at your team meeting proposing your solution. Instead, discuss the original problem that needs solving. This helps an organization or team gather around an issue and work together to solve it.
10. If calling it Sustainability or CSR won’t work, then don’t. In marketing, a product is often more successful if it’s marketed as high-performing rather than solely as an environmentally or socially friendly product.
In this same way, if a business is skeptical of sustainability, present it as what it is, good business sense, as ways to cut costs, generate revenue, and make production more efficient.
11. Make it straightforward. Where possible, integrate new thinking and requirement into existing processes, which enables others to more easily revise their thinking about existing company resources. Make it easy and straightforward for people to start. Link projects to the company’s ambitions, values, culture, and history.
12. Be patient. Even though you may be ready, for others this may represent a change in mindset and it will take them longer to come on board. started? What kind of expertise is currently in the company in this area? Are there any projects that already exist to build on?
How is your organization impacted by society and the environment? What issues affect your company ’s operations? Climate change? Water? Human rights? What issues do your stakeholders think are important for you to consider? What issues affect your competitors?
What impact does your organization have on society and the environment? How do your operations impact society in positive ways? What about negative ways? Are you releasing pollutants? Generating waste?
What issues are important to you? To your stakeholders? What about to your employees, your customers, your business partners?
What kind of culture does your company have? Is your company open to exploring new opportunities? Is it fast or slow to respond? Is it innovative? Does it have employees who would be keen to explore these issues?
Find out what is happening around you. Once you understand what is happening inside your organization and the issues that affect you, take a look at what is happening around you in terms of regulations, best practices, and interesting initiatives that others are doing.
What regulations affect you? Understand which regulations and industry standards affect you and your operations now and how they could impact you in the future. Above all, make sure you are compliant with the regulations that affect you.
What voluntary mechanisms are out there? Which standards, certification systems, and eco-labels are relevant to your business? Are your competitors using them? Are your customers and stakeholders asking for them? Are they becoming widely accepted industry standards?
What is the rest of the industry doing? What are your competitors doing? What about the organizations in your supply chain, your customers, your suppliers? What about other industries?
Look at the ‘best practices.’ What are the leaders doing in this area in your sector? What about in other sectors? What challenges have they encountered and what lessons have they learned that you can apply?
3. Decide where you want to go and why. Once you understand what is happening around you and how that affects you now and may affect you in the future, determine how you are going to proceed.
What are your drivers? Why are you looking at these issues? Is it because of a passionate CEO? Are your employees asking for it? Your customers? What pressures are pushing you to do this? Are you looking to strengthen your brand, or grow revenue or market share?
What is the business case? Translate the drivers into business reasons. What is the business case? What are the costs? What are the benefits? Will it increase employee retention?
Will it serve to build better products or increase market share? What impact could it have on your reputation and brand? On your relationship with your stakeholders?
What frameworks and tools work for you? An organization can choose a sustainability framework (or create a hybrid) to develop a vision for sustainability. Is it one offered by an NGO (such as the Natural Step)?
Is it the Triple Bottom Line? Is it a framework offered in a blog or through a consulting firm? Is it your own? Use these as a starting point.
What is your baseline? Conduct audits and assessment in order to identify where your strengths and weaknesses lie, to create a baseline to better understand your business and products and track progress toward your goals.
What is the best point of entry? Does your organization want to focus on a particular issue, such as water or climate change? Create new or improved products and services?
Does it want to start small with a particular product or process, or does it want to start big? Are you looking to enter new markets? Do you have any ‘unsus-tainable’ products that you want to remove from the marketplace?
At what scale? Look at individual processes or groups of processes (i.e., production line), a system (lighting or packaging), a product or product line, a facility, department, or location, by regional or geographical groups of departments or facilities, or for the entire company.
What is the budget? What resources are you willing to put toward your plan? How many employees, how much of their time? Will you have a whole team looking at these issues or just a few people?
4. Engage others and gather support. Experience shows that in order for sustainability to be successfully mainstreamed into operation or business, employees, the CEO, and other stakeholders must be fully engaged.
Engagement requires building active relationships not only with customers and suppliers but also with local communities, social groups, governments, citizens, and employees.
Each has the power to welcome the company with open arms and help it achieve its goals or to block, disrupt, and make its life difficult.
Confirm CEO/management commitment. If the CEO or management is not on board, sustainability activities will remain of secondary importance. CEOs must assign clear responsibility, resources, and authority and communicate these messages consistently.
Build cooperation internally. Involve people from across departments and from all levels of the company. Employees are also a valuable sounding board, they often sense a problem before management acknowledges it.
Engage business partners. Involve suppliers, joint venture partners, contractors, shareholders, and customers in carrying out sustainability strategy. Begin implementing sustainability screens in purchasing decisions.
Identify and engage stakeholders. This includes all groups that are directly affected by your operations, including shareholders, investors, employees, client companies, consumers, local community groups, and supplier companies.
Although this can be a challenging and time-consuming exercise, stakeholder engagement can help identify potential problems before they arise and help a company understand the wider context in which it operates, and where opportunities and threats might come from.
Outside networks. A business can choose to take part in any number of different business and sustainability networks avail-able locally, national, regionally, and internationally, which share best practices.
Engage your customers. Leverage the unprecedented power of consumers to share information about companies, products, and services to promote sustainable products, usage, consumption, and lifestyles.
5. Put your plan in place and make it happen. Develop a road-map, revisit it regularly, and build it with clear objectives and goals to help the company go where it wants to go. Consider short-, medium-, and long-term perspectives when putting together a strategy.
Create realistic targets and objectives. Define actions and set targets that are SMART (Specific, Measurable, Achievable, Realistic, and Time-Specific).
Break down sustainability targets and objectives in order to make them meaningful for individuals, subsidiaries, divisions, and departments. Select appropriate indicators and metrics to help you keep track of your progress.
Prioritize. Determine what the most important issues are. Be selective and look at prioritizing based on both importance and difficulty. Where do you want to be in 1, 5, 20 years? What do you have to do to get there?
Create a structure. Choose a structure that will enable your strategy to be a success. Will you have a sustainability coordinator? Task forces? A chief sustainability officer? Will it be incorporated into individual jobs? Who will have overall responsibility?
Create pilot projects. Pilot projects and prototypes are a good opportunity to test ideas and show others the impact they can have and learn some important lessons.
Align business systems. Look at ways to embed sustainability goals across all functions of business; whether it is revisiting incentive systems to align them with sustainability goals in the HR department or exploring eco-efficiency and waste minimization opportunities in the production lines.
Also, look at budgeting and training. Depending on the strategy you choose, certain systems and processes may need to be modified to ensure that day-to-day activities are performed in a manner consistent with these objectives.
Give people the tools. Include sustainability targets and objectives in performance appraisal so they have the right incentives. Run workshops to train staff, ensuring that sustainability is the responsibility of everyone in the organization and not just of a specific department.
Keep it going. It doesn’t stop once you have started implementing your sustainability plan. With a strategy in place that engages internal and external groups, and activities starting up, continue to monitor the progress of your strategies and the impact they have on your business both directly and indirectly, and revise as needed.
Successful strategies take time and effort to implement and should be continually revisited.
Communicate internally. Do other employees know what the sustainability strategy is? Do they know what their role is? Communicate continually internally about status, the successes, what needs more work, and so on.
Communicate externally. Publish reports at least annually that detail your sustainability impacts, goals, and progress, and disseminate information to your stakeholders. Use websites and other communication media to tell others about what you are doing.
Monitor. Use status checks and regular audits to monitor how you are doing and communicate that to all relevant parties.
Scaling up. Review what has worked and what hasn’t before increasing the scale of the effort. What lessons have been learned? Can they be applied to other parts of the business?
Look for continuous improvement. Put the plan into action, with a focus on achieving continuous improvement rather than trying to reach a goal and then stop. Keep revisiting the process. A sustainability strategy should complement and build on existing programs and initiatives.
The following will help you, and those around you, to get past the most common excuses.
‘I have no time.’ Do an audit of your time. This often shows that you spend a lot of time on tasks that do not actually benefit your work. At the same time, the audit can reveal that many of the things you currently do are already related to sustainability issues.
‘It’s not my job.’ Imagine if everybody said this – nothing would ever get done! If your job is to help your business be or continue to be successful, then yes, some of the ideas introduced in this blog are and increasingly will be part of your job.
‘I want to make money, not give it away.’ Look at sustainability as being a tool to reduce costs and increase revenue. Revenue minus costs equal to profit. Even if you don’t make money by doing the right thing, you can certainly lose money if you do the wrong thing.
‘I’m not important enough.’ If you were hired then it is because you play a role. There is always something you can do regardless of what position you have within your organization.
‘It’s all too complicated.’ There are a growing number of resources out there to help individuals and companies explore these issues. Find those things that make sense to you and start with them first.
‘No one else around me is doing it.’ If no one else is doing it, then you have an even better opportunity; in addition to the business benefits to your organization, it will give you a way to differentiate yourself and get ahead of the pack.
‘My company isn’t interested.’ Your company is made up of many different individuals, some will be interested, some won’t. Your company may not be interested, but other employees might be. By connecting with them and creating a group, you may be able to influence your company.
‘My company really isn’t interested.’ You may find rare instances where these issues are important to you but not to the company you work for. Remember how many companies there are, and how many of them can use your skills – it may be time to move on to one of those.
‘It costs too much.’ This all depends on how you approach it. Pursuing sustainability strategies that make sense to your business can involve upfront costs with less than hoped for short-term results.
Find the ‘low-hanging fruit,’ where simple changes to sourcing or processes can make a big difference. And remember, middle- and long-term results consistently show both business and societal benefits.
‘All this sustainability stuff will pass.’ Whether you like it or not, this represents the new business reality.
‘I’m not creative.’ Getting involved in sustainability requires a commitment to more than creativity. If you really have no ideas at all, even after reading this blog, then support other people who do have good ideas.
‘It isn’t important in our industry.’ All industries are getting involved in these issues. Make sure you’re not left behind. Take the opportunity to be an industry leader.
‘We don’t really impact the environment.’ Although the impacts may not always be obvious, every company and every individual impacts the natural and social environment around them in some way.
‘We can’t make a difference.’ Companies of all sizes and individuals in all sectors are making a difference. Some of the leaders are individuals and small companies.
Why is it important?
The rules of the game are changing. Creating long-term sustainable stakeholder value is slowly replacing maximizing shareholder return as the prevailing paradigm.
More people are asking for sustainability information.
Stakeholders are increasingly asking for better, more consistent information to understand how a company is performing.
Governments and the business sector are putting forward voluntary and mandatory disclosure and reporting standards that can significantly impact business.
Accountants need to be able to understand this information in order to report on and comply with requirements.
What gets measured gets managed . . . and what gets managed gets done, as the saying goes. One decisive element of any sustainability strategy is the development of measurable objectives and targets. Accounting has an important role in collecting data to support the decision-making process and to measure the results and improvements.
Better decision-making. Accounting for environmental and social costs and allocating them to the appropriate processes, products, or systems allows a company to make better decisions in relation to strategic planning, projects, material choices, prod-uct pricing, and product mix.
The accounting perspective not only enables a better understanding of the business but also helps to identify possible cost reductions or elimination, and exploration of potential revenue opportunities.
Recognizing opportunities. Identifying and gathering the right kinds of information also permits an organization to anticipate and adapt to a rapidly changing world, including identifying new business opportunities and managing risks.
Getting ahead of the game. Companies will fall behind if they do not stay up to date and active in this area, in particular in the current debates, for example around climate change.
The efforts in climate change are increasingly leading to disclosure requirements in other areas such as water, energy usage, and emissions.
Economic instruments. Accountants need to understand how business may be affected by the increasing number of economic and market-based instruments associated with sustainability issues such as permits, liabilities, charges, and taxes.
Increased demand. Companies are receiving an increasing number of surveys and requests for information in this area, which is leading them to disclose more information publicly.
Full or true cost accounting
One of the roles of the management accountant is to measure the full costs of a firm’s products and services and to correctly assign them to the appropriate parts of the business.
This is important in order to better understand the profitability of their products, prod-uct lines, departments, and customers and to make more informed decisions.
Many would argue that clearer identification of those environmental issues which actually drive costs (i.e., activity-based costing) will reduce costs, squeeze out inefficiencies, and improve margins.
However, many significant environmental and social costs that could affect these decisions are currently not being identified or measured.
Thus, the typical management accountant has an incomplete understanding of the true costs the business faces.
This can lead to an inaccurate understanding of the true costs associated with a particular product or process and can lead managers to miss opportunities to make their products and processes better and more efficient.
Understanding the true cost is not only important for strategic decision-making but also for determining how a product should be priced.
While consumers buy a product based on a price (among other factors), the price often does not fully reflect the real cost of that product to society.
Better incorporation of true costs into products can result in better pricing that allows customers to make purchasing decisions based on information regarding the costs to society of a product and let them know that these costs have been paid for.
Typically, accounting systems classify costs as direct materials and labor, manufacturing or factory overhead, general overhead, and research and development.
Conventional environmental expenses may be classified in any or all of these categories.
Several tools aim at trying to take the environmental expense out of these categories so that they can be understood independently. For example, a particular product may need certain chemicals in its production.
The product price may only include the cost of buying those chemicals but may not include other costs connected with their use, such as training employees to handle them safely, storing them, and ensuring against damage caused by possible spills.
Even if the product price includes all the costs paid by the business, it often does not include the social and environmental costs associated with the use of those chemicals, such as the eventual damage of a spill on the health of local people, animals, and plants.
Government legislation has been working to internalize environmental costs through the use of taxes and fines to ensure that these costs are being adequately passed on to the firm and thereby more effectively allocating them to particular products and processes.
Conventional operating costs such as the use of raw materials, utilities, and waste can be identified and quantified. However, other costs can be much more difficult to identify and quantify. These include:
Hidden and overhead costs. Certain types of environmental costs may be hidden from managers because they are buried in overhead accounts, rather than being allocated to the particular project or process to which they relate.
This affects the actual and perceived viability of such activities. These costs can include:
Initial costs relating to R&D, eco-design, qualification of suppliers, and evaluation of alternative pollution control.
Regulatory and voluntary environmental costs such as monitoring.
Back-end environmental costs that will occur at some point in the future; for example, the costs of decommissioning an old laboratory, waste disposal costs, closing a landfill, or complying with future regulations.
Costs incurred because of past pollution, including clean-up of closed or existing sites, in order to mitigate current pollution and prevent future health and environmental risks.
Contingent or liability costs. These are costs that might be incurred at some point in the future. These are usually estimated based on the probability of occurrence.
Examples include the costs of remedying and compensating for future accidental releases of contaminants into the environment (e.g., an oil spill), or fines, and penalties for future regulatory infraction.
Intangible costs. These are costs that go into one element of the business but that have consequences for other parts of the business.
For example, a company that cuts its sustainability program because they want to save money may experience a drop in the company’s reputation, less motivated staff, decreased productivity, and increased worker absenteeism.
Societal costs. These represent the costs of a business’s impact on the environment and society for which the business is not legally accountable. For example, the cost of delivering goods includes petrol, but not the emissions of air particulates which have an impact on human health.
According to the US Environmental Protection Agency (EPA), ‘the success of environmental accounting does not depend on “correctly” classifying all the costs a firm incurs. Rather, its goal is to ensure that relevant information is made available to those who need or can use it.’
Key performance indicators
Having the right kind of information at the right time, and in the hands of the right people, ultimately allows for more effective decision-making.
Once environmental, social, and economic goals and targets are identified, key performance indicators (KPIs) are used by organizations to measure their progress against these goals.
Before choosing KPIs, many organizations think they know how they are doing, however, they’re often surprised when they start collecting real numbers.
In order to be meaningful and effective, a company should select KPIs in context with the organization and its industry, so that they make sense for their business and its stakeholders.
While there is no agreement on which indicators to use or how to construct them, there is plenty of guidance. The Global Reporting Initiative, for example, provides guidance for indicators on economic performance, environmental, human rights, labor, product responsibility, and society. It also provides sector-specific guidance.
KPIs can be used to measure progress on anything from how an office greening program is going (e.g., the percentage of paper recycled) to something much larger, such as measuring the impact of certification programs. For example, Danone’s KPIs on projects always include environmental measures.
The company incorporates monthly carbon footprint data at an individual product level in its group financial management systems.
They also introduced a new capital expenditure category, Green CAPEX, which allows for investing in new projects that show a high environmental interest but have a longer financial payback period. Changes are incentivized by, for example, the inclusion of carbon as a KPI in the calculation of management bonuses.
Whatever KPIs are chosen, care must be taken to present them clearly. Many indicators start out as absolute numbers of whatever is easiest to measure. Since these metrics measure basic data (such as total energy use), it becomes all too easy to draw false conclusions from this information.
For example, a fall in emissions could be due to a downturn in business rather than efficiency gains. Therefore, relative/normalized measures such as ratios can be more useful in understanding a company’s performance (e.g., energy use per unit of output). Some pointers to keep in mind when choosing metrics:
Make sure the metrics are related to the goals and objectives of the company. As simple as it may sound, it is important to make sure that indicators are providing information that is useful to the company and provide data on progress toward the company’s goals.
Choose driving metrics. Metrics should drive performance rather than just measure outputs.
For example, a company trying to improve its compliance record with regulators should develop metrics that identify and measure the root causes of non-compliance, rather than simply track the number of occurrences of non-compliance.
Choose leading metrics. Metrics should not just measure things that occurred in the past, such as energy use, but also capture a vision for the future (e.g., size and quantity of cleantech investments).
Leaders are using not just quantitative measures but qualitative as well. Explore using KPIs to measure areas that may not be as simple to quantify, such as intangibles like reputation with customers.
Who is the audience for your metrics? Is it management, government, voluntary business initiatives, investors, employees, consumers? The indicators selected should be relevant to the audience, give the information needed by or of interest to these parties, and be easy to understand and use.
It doesn’ t have to be perfect. A certain level of inaccuracy is inevitable. The key point is to collect information that is useful in moving forward. Indicators should allow you to understand and measure progress. It is better to estimate what you can’t measure, rather than leave it out altogether.
It doesn’ t have to be overly complex. Avoid using too many indicators. Limit the number of metrics that need attention at any one time. A lot of the data needed may already be available within the company.
Measuring social impact
Organizations often try to positively influence the communities in which they operate. In order to do this, they must be able to define the social proposition they are offering and measure the impacts of their activities on the local environment.
This is important in order to improve the effectiveness of programs, increase understanding of the impact of their work, and communicate the value of that work to their stakeholders.
Indicators are used to measure the impact of businesses’ activities on society. According to the Foundation of Social Return on Investment, there are four main elements needed to measure social value creation:
Inputs are the resources you need in order to make something happen. They are measured as a cost (e.g., cost of the program, the value of time contributed).
Outputs are the direct result of your business objectives or program goals (e.g., number of people trained or trees planted).
Outcomes are changes that occur over the longer term as a result of the activity (e.g., new jobs, increased incomes, improved stability of life as a result of programs).
Impacts are the outcomes less an estimate of what would have happened in the absence of your program.
Tools such as Social Return on Investment are used in order to explain the social value in monetary terms. Return on Investment (ROI) is a tool used to understand financial value creation.
If you invest one dollar in a project and more than a dollar is returned, then the project is probably worth further consideration. Social Return on Investment (SROI) works in the same way.
It is a tool used to understand the environmental, social, and economic value being created by organizations. Value is something that cannot always be measured specifically, but SROI tries to provide an approximate value.
‘The essential rationale for calculating SROI separately from financial returns is because the market’s valuation of social benefits is imperfect. In cases where it is perfect, there would be no need for an SROI analysis.’
SROI analysis should include both positive and negative impacts on the assessment and should only include impacts that are clearly and directly attributable to the company’s activities.
SROI analysis takes organizational time and resources. However, when done properly, it can be an effective tool to improve your programs and communicate the value of the work you are doing, whether you are a commercial company or a not-for-profit one.
Several organizations have developed systems to better understand social impact.
Anglo American created the Socio-Economic Assessment Toolbox in order to better understand whether its operations were living up to the company’s stated goal of making a contribution to the economic, social, and educational well-being of the communities associated with its operations.
The International Finance Corporation uses a Development Outcome Tracking System in order to track the development results of its activities to assess whether or not it is achieving its mission.
Despite all the work that is happening in the area of sustainability and accounting, there are still several challenges.
Awareness. Many accountants simply don’t see sustainability as relevant to their jobs. The first step is to raise awareness about their crucial role and provide them with further resources and training at all levels to allow them to incorporate these issues into their work.
Quantifying the qualitative. There are many difficulties in estimating the costs of environmental and social issues across the full lifecycle of a product or process.
Moving from costs to revenues. There is a need to move beyond seeing environmental initiatives and values as just costs to be suffered (through legislative imperative) or costs to be reduced at the first possible opportunity.
Companies need to identify the business benefits, and ultimately profits, that correspond to the costs that must be incurred for better environmental and social performance.
Consumers. Responsible companies have competitors who often price their goods below their true cost, discounting the social and environmental costs. In some cases managers who price their goods and services based on full social and environmental costs will suffer until consumers recognize this in their purchasing decisions.
Traditional accounting systems were not designed to enable environmental data to be separately identified or evaluated – such as data on waste management, compliance with laws, insurance. There is a need for more robust information, data, methodologies, and collection systems to allow for more integration of these factors into decision-making.
Assets versus costs. Using traditional accounting methods, end-of-pipe technologies to reduce environmental impacts are accounted for as assets, while attempts to eliminate sources of pollution at the source appear as costs.
Similarly, investments in training and development are recorded as costs, while the collective knowledge and experience this creates are not recorded as an asset.
Short-term versus long-term. There is a need to shift the mentality and accounting practices to look more at the long-term effects, as opposed to simply short-term implications of decisions.
The challenge is to incorporate longer-term, less tangible environmental and social costs into the balance sheet rather than just measuring short-term tangible metrics.
Information not tracked adequately or not available.
Available information is often not sufficiently accurate or detailed for decision-making purposes.
Sometimes the information is collected but stays within different divisions of the company, where the accountants may never even become aware of its existence.
These divisions will often have different goals, perspectives, and even language with regard to sustainability and inconsistencies may arise in how information is communicated.
Comparability of data. Company disclosures on sustainability issues are often inconsistent and difficult to compare across a single industry. Several sustainability threads are common to all sectors (e.g., energy and water consumption, greenhouse gas emissions) and should be reported consistently across industries.
Bringing it all together
Until now the accounting profession has dealt with economic, environmental, and social issues in relative isolation from each other. However, increasing attempts are being made to bring these together in recognition that conventional accounting numbers do not always tell the ‘full story’ of how businesses impact the environment in which they work.
An example includes work being done by an initiative called Accounting for Sustainability around ‘integrated thinking,’ which looks at new approaches to accounting that will enable organizations in business, investment, and the public sector to better understand, and where appropriate value, ‘externalities’ and incorporate these into decision-making processes.
The International Integrated Reporting Council also looks at integrated thinking, the ability of an organization to understand the relationships between its various operating and functional units and the capitals the organization uses and effects.
Integrated thinking leads to integrated decision-making and actions that focus on the creation of long-term, as well as short- and medium-term, value.
All companies rely on a variety of different forms of capital for their success, including financial (funds), manufactured (physical objects), human (skills and experience), intellectual (intangibles), natural (inputs to the production of goods), and social and relationships capital (links between stakeholders).
Value is created or destroyed as a result of the use of, impact on, and the interplay between the capitals caused by the organization's activities (Integrated Reporting).
The key role of accountants is in measuring and communicating information used both internally and externally in decision-making.
One of the key requirements for moving sustainability forward at the organizational and societal levels is better and more complete information.
Several international initiatives are underway to increase the level of information available and make it comparable across or between industries.
The Carbon Disclosure Project is one example, which collects data and disseminates information on a range of environmental issues from the world’s largest companies and makes it available to a group of institutional investors with a combined US$87 trillion of assets under management.
It holds a database on corporate climate change and water use information on companies around the world. There is also a growing push toward mandatory carbon disclosures; for example, all companies listed on the main London Stock Exchange are now required to report their greenhouse gas emissions.
Recognizing unrecognized assets
Accountants are in an ideal position to uncover where potential revenue-generation opportunities lie and how to take advantage of them.
One example is selling waste for profit, thereby transforming it from a cost into an asset. The protection of natural resources can provide in some instances a credit in market-based regulatory systems that can be sold or traded. It also gives a company a ‘license to operate’ in a given community.
Alternative trading systems
Other models exist where goods and services are traded without money, also referred to as Local Exchange Trading Systems. Members earn credit by providing a good or service that they can later use to pay someone else from the network to provide them with a different good or service.
Transactions are recorded in a central location that all members have access to. These are being used to support local businesses and strengthen communities.
The bank is owned and managed by the community and offers loans for productive activity to stimulate local enterprise and consumer credit, including a local Palmacard credit card, for products and services produced inside the community.
Their intention is to create a local financial system based on a network of producers and consumers.
SMEs in many cases are leading the way in sustainability. Because of their small size, they are often more nimble and able to adapt quickly to sustainability practices. There is a major need for new, innovative business ideas and services and often SMEs are better positioned than larger companies to provide these.
In addition to SMEs, there are a growing number of entrepreneurs both outside and within organizations, who have the ability to identify underserved markets and come up with innovative ideas to provide new sustainable products and services, either for profit or not for profit.
Why is it important?
Innovation. There are opportunities and demand for a growing number of new more sustainable products, services, and technologies. SMEs and entrepreneurs are in an ideal position to explore and develop these opportunities.
Building a stronger business. Many of the points introduced in the business case introduction are just as relevant to SMEs as they are too large companies, perhaps even more so.
Sustainability policies and practices can help a small company identify and manage risks, cut costs, explore new revenue-generating opportunities, find, retain, and have more productive staff, and increase efficiency.
Business partners are asking for it. For those SMEs that supply, or want to supply, larger companies, these larger companies are increasingly looking to work with companies that share their social and environmental values. Failing to take these issues seriously can result in a loss of business opportunities.
No longer invisible. Gone are the days when SMEs could slip under the radar. Laws and regulations that once mostly affected larger companies are starting to apply to smaller ones as well.
Flexibility. SMEs are able to respond to the changing business environment with greater speed and flexibility, meaning they will be able to integrate sustainability directly into their business plans more efficiently.
Reach and opportunities. SMEs and entrepreneurs may be able to identify and reach markets and groups that are currently not being effectively reached, resulting in new opportunities. This is especially true with the growing number of active social entrepreneurs working around the world.
Influence. SMEs can have an important impact on larger companies. There are many examples now where SMEs with a strong sustainability culture have been bought by larger companies who are interested in capturing and diffusing their approach to sustainability.
The key concepts
SMEs have a potentially large impact because of their sheer numbers. As there are so many different types of SMEs, there are several different ways these groups are having an impact and can benefit from sustainability.
While the key concepts presented below are all important for SMEs, it is worth noting that the other blogs in this blog are equally applicable.
Although the definitions of what exactly constitutes a social entrepreneur vary, the term ‘social entrepreneur’ is used to refer to people who create businesses, both big and small, where social and environmental issues are at the core of their business offerings.
According to the Skoll Foundation, social entrepreneurs ‘seize opportunities that challenge and change forever established but fundamentally inequitable systems.’ The Schwab Foundation refers to a social entrepreneur as a leader or pragmatic visionary who:
Achieves large-scale, systemic, and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these.
Focuses first and foremost on the social and/or ecological value creation and then tries to optimize the financial value creation. Innovates by finding a new product, a new service, or a new approach to a social problem.
According to the Skoll Foundation, the difference between standard and social entrepreneurship does not come down to motivation – with entrepreneurs spurred on by money and social entrepreneurs driven by altruism.
‘The truth is that entrepreneurs are rarely motivated by the prospect of financial gain because the odds of making lots of money are clearly stacked against them.
Instead, both the entrepreneur and the social entrepreneur are strongly motivated by the opportunity they identify, pursuing that vision relentlessly, and deriving considerable psychic reward from the process of realizing their ideas.’ Instead, they say the real difference lies in the value proposition itself.
Social entrepreneurs aim for value in the form of large-scale, transformational benefit that accrues either to a significant segment of society or to society at large.
There are many examples of social enterprises working around the world. Another is Riders for Health, created by the Grand Prix motorcycle racing community. This enterprise looks to tackle a simple yet critical element of the African healthcare system: transportation.
By providing motorbikes and maintenance support services, Riders for Health have extended the reach of healthcare providers to 11 million Africans. The founder of SammaaN, a rickshaw company in India, found that over 90% of rickshaw drivers were illiterate, unable to purchase their rickshaws, and made very low salaries.
The new rickshaw company has worked to improve the lives of its drivers by redesigning the rickshaws to include, among other things, a mobile shop that stocks newspapers, water, and mobile recharge coupons to increase the revenue opportunities of the drivers.
Drivers are provided with free uniforms, a savings bank account, free insurance, and even free evening classes for drivers and their children.
The Power of Unreasonable People notes that successful social entrepreneurs:
Try to shrug off the constraints of ideology or discipline.
Identify and apply practical solutions to social problems, combining innovation, resourcefulness, and opportunity.
Innovate by finding a new product, a new service, or a new approach to a social problem.
Focus – first and foremost – on social value creation and, in that spirit, are willing to share their innovations and insights for others to replicate.
Jump in before ensuring they are fully resourced.
Have an unwavering belief in everyone’s innate capacity, often regardless of education, to contribute meaningfully to economic and social development.
Show a dogged determination that pushes them to take risks that others wouldn’t dare.
Balance their position for change with a zeal to measure and monitor their impact.
Have a great deal to teach change-makers in other sectors.
Display a healthy impatience (e.g., they don’t do well in bureaucracies, which can raise succession issues as their organizations grow – and almost inevitably become more bureaucratic).
Exploring new business models
A number of companies are exploring completely different ways of doing business to be more sustainable, reinventing the business model, and looking at how business can do what it does differently.
Throughout the blog, we look at quite a few examples of this, for example, product service systems, which looks at turning a product into a service or companies that take garbage and turn it into new products.
Many SMEs are in a perfect position to question the way we currently do business and to come up with innovative new ways of doing business. The Soap Dispensary in Vancouver, Canada, has eliminated all packaging and invites customers to instead bring their own or buy containers that can be filled with a variety of soaps, household cleaners, and other ingredients.
Guayaki, while market-ing yerba mate as an alternative to coffee in the US market, is enabling the reforestation of the Atlantic Forest in Paraguay, Argentina, and Brazil, which has been largely cut down over the past 30 years.
Guayaki’s business model is that they partner with local communities, paying them for the sustainable harvest of shade-grown yerba mate.
In return, the farmers must repopulate their rainforest with native hardwood trees. Since the income provided by yerba mate is higher than that from cattle, there is an incentive for local communities to protect and reforest the area.
Rethinking the business model is not just happening with small companies. There are a growing number of larger companies that are also exploring alternative business models as a way to deliver their services, including incorporating aspects of social and environmental ventures.
Cemex, a global leader in the building materials industry, created a program in Mexico called ‘blockeras comunitarias,’ where people who want to build a home can use Cemex cement and a block-making machine to produce bricks.
One out of every two bricks goes to the person producing it; the other is taken by Cemex to be sold, which enables the project to remain economically sustainable. The program is so well accepted that people often need to wait up to two months to use the machine.
This model is now being replicated in other countries that the company operates in. Another example is a partnership between two organizations, Grameen Bank and Danone Foods.
They paired up to create a unique community-based joint venture in Bangladesh, which is based on social and environmental concerns and operates in parallel but independently from the rest of the company.
In 2006 they launched a yogurt product called Shoktidoi designed to provide for the nutritional needs of Bangladeshi children at an affordable price that can be bought by even the poorest families.
The plant hires local workers and relies on developing micro farms which supply raw materials used to produce the yogurt. The business provides income to more than 1600 people within a radius of 30 km around the plant.
The plant has a rainwater recovery system and the yogurt pots are made of a material that is entirely biodegradable. Profits are reinvested in the initiative.
Different countries are exploring new alternatives to register companies that consider themselves social/environmental ventures.
Slovenia recently passed a Social Entrepreneurship Act which gives special status to social enterprises that employ at least two employees and generate at least 50% of their total revenues from social entrepreneurship activities, or a business where at least one-third of all employees come from the most vulnerable groups in the labor market.
Making changes from within
Entrepreneurs are not just individuals working outside an organization to develop new ideas. Individuals can also become entrepreneurs from within a company or organization, an idea referred to as intrapreneurship.
Intrapreneurs develop and promote practical solutions to environmental and social challenges within the organization they work for, regardless of size.
Companies, in particular, larger ones, although often slow to change, can bring about significant weight when they do change.
Employees working for these companies are in a unique position to push for change as they have a good understanding of the inner workings of the company. Working from within can give them access to resources, such as people and finances, to make a difference.
It also enables them to incubate their social idea at lower risk than if they were to go at it on their own. If the idea becomes successful, they have helped drive the future success of the company.
This whole blog provides a range of tools for individuals within businesses and organizations to develop new ideas and see how they can apply sustainability to their own businesses and be an intrapreneur.
Companies are finding that promoting and supporting intrapreneurship from within can bring about potentially substantial advantages. Because of this, they are looking at ways to encourage intrapreneurship by providing employees with space, time, and resources to test out new ideas, empowering individuals to make decisions and making risk-taking and failure acceptable.
It is often not about creating intrapreneurs as they surely already exist in the organization, but about finding them and helping them. Some companies have created more structured ways of empowering intrapreneurs:
Provide space (time and resources) for employees to test out new ideas . . . Google allocates 20% of employee time to innovate and the remaining 80% to work on improving existing projects.
Create more structured roles in the company for intrapreneurs . . . Companies such as Dell have formalized the role of the intrapreneurs with official positions such as ‘Entrepreneur in Residence’ or ‘Chief Innovation Officer.’
Have internal competitions . . . At a movie company, Dreamworks staff are trained on how to pitch new ideas, whether it involves creative input for a new film or adding a new food choice to the cafeteria.
Encourage collaborations across departments . . . 3M allows employees to use 15% of their time as ‘innovation’ time. The condition is that they need to share their insights with others across the company.
Create an in-house venture capital pool or grant program to help fund intrapreneurial ideas . . . LinkedIn launched ‘InCubator,’ which is an internal startup incubator where engineers get 30–90 days away from their regular work to develop ideas for their own products.
The program is highly structured, with rounds of judging including a final round with the CEO to filter ideas for the most viable and potentially profitable new products.
Celebrate and reward intrapreneurial behavior . . . through a range of mechanisms including awards, recognition, and/or financial incentives such as profit sharing.
Companies are also looking for entrepreneurs outside the company and giving them the opportunity to work with and within the company. This can be by acquiring new companies or by creating a space for internal initiatives to grow on with some or a lot of independence.
Many companies have discovered the advantages of having teams, also known as ‘skunk works,’ working apart from the main, bureaucratic engine of the company on new projects.
This freedom allows them to be creative in ways they could not from within the company’s mainstream structures. Companies have explored several different ways of fostering new enterprise development from within their organizations:
Islands. This involves initiatives being incubated away from the mainstream business so that they can enjoy a degree of freedom. One of the best ways to do this is to work from a separate building.
Bridges. Some projects will have clear but relatively loose links to the host company, often enjoying more freedom than traditional business units.
Shell ’s wind division in the North Sea was physically located outside corporate headquarters but with access to Shell’s capital and other resources. Their companies and brand give them access to resources they wouldn’t enjoy as a traditional entrepreneur.
Symbiosis. Intrapreneurs that incubate their initiatives right inside the host organization. Unilever’s Shakti program looks at increasing market share in rural villages in India by providing women with training in selling, commercial knowledge, and blog-keeping.
These women can then choose to set up their own business or become Shakti distributors. This department sits at the center of Hindustan Unilever’s sales department and is completely integrated into the business.
Small businesses usually think about how to reach new markets before anyone else does, and typically move faster. So how do they find their inspiration? Entrepreneurs need to ensure that they are targeting real opportunities. Some tips on identifying these include:
Put sustainability at the center right from the start. Taza Chocolate in the USA makes chocolate from all organic and fair trade-sourced ingredients. They make their chocolate in small batches using traditional stoneground techniques and have incorporated sustainability into all aspects of the business, from sourcing to operations.
Put a sustainable spin on something that currently exists.
See something that you think can be done better. Sometimes the idea already exists, but with some tweaks, it can be reinvented to make it much better.
Identify a need that can be better fulfilled. Many entrepreneurs simply see a need for something and come up with innovative ideas on how to better fill that need. The founder of Adventerra Games saw a need for fun activities to get kids and their families excited about saving the Earth.
The result is a small company that invents, produces, and distributes board games in four different languages that help children and their families learn about the planet and how they can make a difference by changing their behaviors and habits.
Operate in a sustainable way. The business does not sell ‘green’ products per se, yet as part of its mission is working in the field of sustainability. UKOS, an office equipment supplier in the UK, was initially skeptical about sustainability.
They started by joining a local network that looked at resource efficiency to see if there were ways they could save on resources like gas and electricity. This led to realizing that they could differentiate themselves from their competitors by being more environmentally friendly.
Understand environmental laws, regulations, and standards as drivers. Current regulations on pollution, safety, product content and performance, labeling, reusing and recycling, and protection of endangered habitats and species can all present substantial business opportunities for those who know how to identify and assess them.
The lengthy time it takes for these to come into effect often presents a window of opportunity during which time entrepreneurs can judge whether a profitable business will result.
Exploit new demand for sustainable technology. Reducing the volume and toxicity of waste and developing products made from secondary materials, also known as clean tech, have become big business.
Change the way a product is presented. Several entrepreneurs have chosen to sell their food from mobile trucks rather than restaurants.
Gmonkey, a 100% vegetarian food truck in the USA, uses resources directly from local farms in its products while Organic Falafel food truck Liba uses leftover cooking oil as bio-diesel fuel for traveling.
Create an environment for others to be more sustainable.
GreenEarth Cleaning, founded in 1999, is now the world’s largest solution provider for environmentally friendly dry cleaning. Customers have the choice to use environmentally safe dry cleaning processes.
It is now used by quality dry cleaners operating more than 1 500 stores worldwide and works with companies such as P&G, GE, and Sanyo.
Identify a resource that is currently being underutilized.
Several companies are identifying resources that aren’t being fully utilized and turning those into new business opportunities. In France, old refrigerators are collected, fixed, and resold by disadvantaged youth, a business that took 4 years to become profitable but is now doing well.
Whip Car is a company where individuals with cars they don’t use often can register their cars online and others who are looking to rent a car for an hour or even a few days can connect and rent those cars directly from the owners.
Merging and selling
As the number of companies focused on sustainability continues to grow, these same companies are becoming more powerful and visible because of an increase in mergers and sales deals.
We are seeing sustainability-focused companies coming together to create larger companies that are starting to be able to compete against the mainstream companies.
For example, Ecover, a leading environmental cleaning company in Europe, and Method, a leading environmental cleaning company in North America, merged to create the largest environmental cleaning company in the world.
Founders of SMEs focused on sustainability are also seeing the opportunity to sell sometimes very young companies too much larger companies. Some larger companies interested in green business are choosing to buy green companies rather than reinvent the wheel.
When Danone took over Stonyfield Farm, the CEO of Stonyfield Farm said he accepted the deal because he wanted to change Danone from inside in order to have greater leverage on the food market.
While Danone took an 80% share in Stonyfield Farm, they left him in complete control. Coca-Cola bought a 58% stake in Innocent fruit juice company, hoping to learn more about its sustainability approach.
This not only gave Innocent access to Coca Cola’s network but also enabled it to scale up its sustainability operations.
Microbusinesses are small businesses that can easily be replicated by following proven marketing and operational concepts. These can sell for anything between US$25 and US$6 000.
For example, The HealthStore Foundation, based in the USA, gives healthcare workers in Kenya microloans to open their own for-profit Child and Family Wellness shops that distribute medical products and services to remote communities in Kenya.
Applying the basic principles of successful franchising, the foundation then trains the franchisees in uniform procedures, carefully selects locations and conducts regular inspections to ensure quality and consistency. The franchise can also exploit economies of scale to obtain safe and effective drugs at low costs.
The group also offers the farmers a stable and year-round market for their honey by agreeing to buy their honey at a guaranteed and mutually acceptable price for a period of 2 years or more, allowing farmers to plan ahead.