Even as the issue of sustainability continues to garner more attention, the business implications of it merit greater scrutiny. Will sustainability change the competitive landscape, and if so, how? Are executives and other stakeholders worried about sustainability’s impact on the corporate bottom line? And what are companies doing to position themselves competitively along these lines?
To begin to answer these questions, researchers conducted in-depth interviews with more than 50 global thought leaders and surveyed more than 1,500 executives and managers about their perspectives on the intersection of sustainability and business strategies, including how their companies are currently acting on sustainability threats or opportunities.
The survey revealed that managers and executives had no single established definition for sustainability. Some companies define it by focusing solely on environmental impact. Others include economic, societal and personal implications. Yet companies are almost completely united in thinking that sustainability is something that will determine the way businesses think, act, manage and compete. More than 92% of respondents said their company was already addressing sustainability in some way.
Sustainability doesn’t appear to be an ephemeral concern. Despite the pressures of the economic downturn, fewer than one-fourth of the survey respondents said their companies have pulled back their commitments to sustainability. In fact, a number of those surveyed believe that the downturn has created a greater corporate focus on sustainability -- particularly toward those actions that could immediately impact the bottom line.
People agree on the overarching question of sustainability’s impact on business, but their opinions diverge regarding particular aspects of sustainability. Whereas 50% of the experts said their companies had compelling business cases for sustainability, only 10% of the novices said the same. Experts also believed more strongly in engaging suppliers across their value chains. Sixty-two percent considered it necessary to hold suppliers to specific sustainability criteria. Only 25% of the novices felt the same way.
Simply put, the more people knew about sustainability, the more thoughtfully they could evaluate it and the more opportunity they saw in it.
While most companies have yet to commit aggressively to sustainability, the survey and interviews confirmed that there are notable exceptions. Survey respondents identified so-called first-class companies in sustainability, noting those often highlighted in business articles, reports, books and sustainability indexes. They cited GE, Toyota, IBM, Shell and Wal-Mart. They also mentioned some lesser names, such as Rio Tinto, Better Place and International Watch Co. In aggregate, these companies demonstrate that sustainability strategies can yield results.
So why are most companies not acting decisively? More than 60% of the respondents said their companies were building awareness of their sustainability agendas, but most also appeared to lack an overall plan to deliver results. Instead, companies had a variety of disconnected initiatives focused on products, facilities, employees and the greater community. While these may be impressive efforts at certain levels, they also only represent incremental changes to business.
Clearly, companies can do more to connect their stated intent in sustainability with business impact -- and they can do it in ways that maintain explicit links to the bottom line both over the short and the long term. So why aren’t they, given they believe sustainability will materially affect their businesses?
The survey uncovered three main challenges. The first is forecasting and planning beyond the typical one-to-five-year time horizon. It’s easy to say sustainability is about taking the long-term view, but in practice calculating its costs and benefits over long time frames can be difficult. It is further exacerbated by analysts and investors expecting short-term performance.
The second challenge is gauging the systemwide effects of sustainability investments. Companies find it difficult enough to identify, measure and control the tangible facets of their business systems. So often they don’t even attempt to model intangibles or externalities such as the environmental and societal costs and benefits of their current activities or potential moves into sustainability. That hinders their ability to truly measure the value of their sustainability investments.
The third challenge is planning amid high uncertainty. There are potential changes in regulation and customer preferences. Most strategic planning is deductive -- companies use standard gauges to predict where the market is heading and then base their strategies on those calculations. But sustainability drivers aren’t predictable, which means companies may have to adopt new concepts and frameworks.
Many of the thought leaders and survey respondents experienced with sustainability believe that the most effective way to accelerate decisive corporate actions is to clarify the business case for sustainability. To do that, companies must overcome organizational skepticism. They then must figure out how to institutionalize the sustainability agenda throughout the corporation. Finally, they must come up with ways to measure, track and report sustainability efforts.
This article is adapted from “Survey: The Business of Sustainability: What It Means to Managers Now,” by Maurice Berns, Andrew Townend, Zayna Khayat, Balu Balagopal, Martin Reeves, Michael S. Hopkins and Nina Kruschwitz, which appeared in the Fall 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.