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Seizing the Reins on Sustainability

berns hopkinsWhile most executives realize that sustainability could have vast implications for their business, our research reveals that few companies are acting meaningfully on that insight. To the contrary, most firms to date have made only token moves regarding sustainability, and most of those moves have been driven by regulatory pressure rather than any self-imposed urgency. In short, most companies are approaching sustainability reactively rather than proactively and from a strategic perspective.

To a degree, this is understandable. Companies’ corporate agendas are already full, especially given the added burdens imposed by the downturn. But executives and managers should be wary of using this as an excuse to delay engaging with top management on the firm’s sustainability stance and initiatives. Our research indicates that sustainability offers companies significant opportunities for creating value and competitive advantage—and that these opportunities could, in effect, address some of the very challenges that risk crowding the sustainability debate out of the corporate boardroom.

In addition, the regulatory burden on companies will only intensify going forward, and firms that stay in purely defensive mode stand to get whipsawed. Far better, from a planning perspective, for firms to acknowledge realities and chart their own course—that is, map out a comprehensive sustainability campaign, one that positions them at the front of the curve and leaves them largely immune to regulatory surprises.

Change will also be imposed on laggards by other outside parties. Supply-chain partners may start to demand more green-friendly practices and performance (witness, for example, Wal-Mart’s imposition of green standards on its suppliers); consumer groups may become more active in targeting firms whose practices are deemed green-hostile (or even green-neutral); and capital markets may weigh in if they believe that management’s green policies are putting the company at a competitive disadvantage. Hence costs, revenues, brand strength, and market value all stand to be increasingly tied to a company’s green agenda—or lack thereof. All of which argues for moving sooner, not later, on sustainability.

Not Just Threats But Opportunities

But pushing sustainability toward the top of the corporate agenda is about more than mitigating threats. It is about seizing opportunities. A green agenda translates into more-efficient use of resources and energy—and hence a strengthened bottom line. It also increases a company’s ability to attract top talent and motivate staff, resulting in enhanced productivity. These are particularly relevant considerations in the current slow- to no-growth economic environment, which some forecasters expect to prevail for some time.

Acting early can also give a company first-mover advantage and the opportunity to reframe its industry’s model—or even invent an entirely new industry. Better Place, one of the world’s leading suppliers of services to the electric-vehicle industry, is a case in point. The company strategized, picked its markets wisely, got in early, and has secured a strong competitive foothold. It has also emerged as a driver and shaper of policy, ensuring itself a voice in the industry’s development.

Finally, jumping on the sustainability bus early means gaining experience that much more rapidly. The value of this should not be underestimated, as our research indicates that the more a company knows about sustainability, the more broadly it defines it—and the more potential it sees for using sustainability to generate competitive advantage and create value. It is worth noting that virtually all of sustainability’s leading players have been in the game for some time. Experience matters and can be a differentiator.

Modeling the Leaders

The leading lights — the GEs, Nikes, Unilevers, and BPs of the world — share more than the fact that they moved early. They also have a common lens through which they view sustainability and common sets of organizational attributes. Specifically:

They understand and articulate sustainability’s impact on their organization. Leaders in sustainability gather the full set of facts and incorporate this knowledge into how they frame and define sustainability strategically and economically. They also adopt a systemwide view in understanding the relevant issues and needs of all their stakeholders. For example, they push suppliers to be better stewards of sustainability—often even selecting them on that basis. And they form partnerships and alliances with critical influencer groups (such as regulators, NGOs, experts, and sometimes even competitors) so that they can learn about and jointly develop innovative solutions.

They create a thorough and compelling business case for investing in sustainability. In developing the financial case for sustainability, first-class companies speak the language of business: value creation. They assess their sustainability strategies as they would any other investment, systematically evaluating each value-creation lever. (In contrast, more than 70 percent of the 1,500-plus corporate executives and managers we recently surveyed on the topic said that their company had not yet developed a clear business case for sustainability.)

These companies also bring the same long-term mindset to sustainability investment decisions that they bring to other long-term bets. They take into account all external factors and system effects when analyzing the business case for sustainability, assessing the full set of costs and benefits. With a grounding in the facts and a solid business case, they publicly commit to ambitious goals that they measure and report—and they demonstrate that sustainability investments produce real business results.

They holistically integrate their sustainability strategy throughout the business. Leading companies believe that sustainability is a source of value creation rather than merely a legal imperative. They therefore work to integrate it deeply into their culture and embed it holistically into their strategy and all relevant aspects of their operations, while supporting it through strong, top-down commitment from the executive leadership team.

Simply put, we would tell executives to do three things regarding sustainability: make it a priority; think holistically about ways in which sustainability could generate competitive advantage; and begin to take concrete action. The rewards will be tangible and well worth the effort and investment.

Maurice Berns is a partner in the London office of The Boston Consulting Group. Michael Hopkins is the editor in chief of MIT Sloan Management Review.

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