Business Intelligence Network - The Vision for BI and Beyond

What was once a clichéd portrait of the unbleached-cotton-wearing socially conscious consumer carefully separating recyclables into reusable canvas totes is now increasingly becoming a large, growing and demanding demographic that reaches around the world. And that means – when it comes to socially responsible operations – global businesses may have reached the tipping point.

For years, “green” products were targeted to little more than specialty market niches. Environmentally sensitive components, ingredients, products, or production processes translated into added costs that meant those goods were purchased by only the most eco-committed consumers willing to pay the premium. Today, however, it’s a different story.

Over the past generation, the calls for virtually all organizations to become better stewards of our natural resources, embrace environmentally friendly practices, adopt fair trade policies, and implement “sustainability strategies” have shifted from a small but vocal number of advocates to broad majorities of consumers and governments worldwide. Today, issues such as climate change, energy consumption, labor practices, food safety, pollution and waste management are strong factors in the impressions that companies make with consumers, investors, regulators, watchdogs and other stakeholders.

In its 2007 survey on social trends, the research firm GlobeScan found that the No. 1 factor shaping consumer opinion about a company’s social-responsibility profile was whether it harmed the environment. Furthermore, consumers take that issue seriously: 55% of those surveyed in North America said they have punished companies that they find irresponsible. In the U.S., those growing numbers of discriminating consumers have helped create a $306 billion “green” market – one that market-watcher think can reach $850 billion in five years.

From an investment perspective, the world’s financial markets are showing interest in the heightened role that sustainability and, more broadly, corporate social responsibility are playing. In the May 2007 McKinsey Quarterly, Al Gore and David Blood (formerly the head of Goldman Sachs Asset Management) make the compelling case that investing in sustainability is not merely a “feel-good” measure for the Birkenstock set but a savvy strategy that can deliver above-average returns.

Assessing the Costs and Benefits of Adopting the Triple Bottom Line

As sustainability moves from the margins to the mainstream and companies turn their attention to assessing the costs, benefits, and advantages of the initiatives that markets, industry consortia, and government agencies are demanding, it’s a good idea to look at the roots of this concept. Sustainability first appeared on the world agenda when the United Nations applied the term and later founded the Commission on Sustainable Development. Initially, the UN defined sustainable development as development that “meets the needs of the present generation without compromising the ability of future generations to meet their own needs.” More recently, practitioners have expanded this definition to encompass environmental, economic and socio-political aspects.

The UN also promulgated an important term related to sustainability: the Triple Bottom Line – or People, Planet, Profit. The Triple Bottom Line conceptually expands the traditional financial framework to encompass rigorous reporting on the organization’s performance on sustainability issues such as the carbon footprint, hiring practices, and dozens of other metrics. The unifying principle of the Triple Bottom Line that advocates continually underscore is that managing for sustainability aligns with greater efficiency and improved corporate performance regardless of company size.

Sustainability Can Pay Substantial Returns

We’ve seen in other areas how new regulatory and market demands create significant frameworks that, undeniably, add non-product overhead to the costs of running the business. Simply put: properly directed, the efforts that companies devote to improving their sustainability posture can pay substantial returns in the forms of lower costs, an enhanced competitive position, improved product quality, and more appealing corporate image.
 
In their book Green to Gold, authors Daniel Esty and Andrew Winston identify dozens of examples of companies that have put sustainability at the top of their agenda – and achieved meaningful results and tangible and intangible advantages:

IKEA – The legendary maker of assemble-it-yourself furnishings achieved lower supply-chain costs by dramatically reducing the environmental impact and financial costs of its product distribution. The company strives for “flat packaging” that squeezes every cubic inch out of every box. That lets IKEA pack its trucks and trains much more compactly and increase its fill rate as much as 50%. The result: decreases in fuel consumption by as much as 15%. In one instance, the company trimmed 3 cm from a box for a sofa, enabling it to fit four more sofas on a trailer.

Hewlett-Packard – Customers of the dominant printer manufacturer were increasingly reluctant (or unable) to dispose of old toner cartridges for its acclaimed laser printers. Nimble competitors selling reconditioned cartridges were also eroding the lucrative after-market of a key HP business. In response, HP launched “Planet Partners,” a high-margin, $100 million recycling and remanufacturing business that recycles 11 million cartridges each year.

General Electric – As part of its groundbreaking “ecoimagination” campaign, GE set forth an ambitious list of goals: reducing greenhouse gas emissions, ramping up R&D investments in environmental technologies, and more. The company monitored its campaign using scorecards to assess the environmental strengths and weaknesses of 17 key products it concluded were the best candidates to improve customer operating and environmental performance – from jet engines to solar panels. As Esty and Winston note, “With a focus on specific products, ecoimagination is as much a product play as a committed effort to go green: GE wants to sell those jet engines, not just have environmentalists admire them.”

Citigroup – In 2004, the financial services leader conducted a simple test in a small subset of its offices. It bought 30-percent-recycled paper for printers and made double-sided copies its default standard. The simple test reduced paper consumption by 10 tons and $100,000. The energy saved in the paper-making process reduced greenhouse gas production by 28 tons. A simple initiative like this gets the attention of the entire organization.

New Sustainability Targets

The December 2007 Bali conference on Climate Change set a course for negotiating new sustainability targets by 2009. Meanwhile, independently expanding country-specific regulations will challenge global organizations, many of whom have expanded outside their home country for competitive advantage in new markets. In the coming years, steadfast focus on aligning the elements of the Triple Bottom Line will be a necessary guiding principle for virtually every organization.

At SAS, we are expanding our commitment to sustainable development by proactively creating an inventory of business practices in order to measure their impact on our financial, human, and natural resources. Our scope of evaluation is guided by the Global Reporting Initiative framework for sustainability reporting. Can any organization afford not to invest in socially responsible operations?