Strong sustainability strategies pay off. A recent study that compared companies that adopted environmental and social policies with companies that didn’t showed that the “high sustainability” companies performed better than the other companies over an 18 year time period in the stock market, return on assets and return on equity. Given these results, what company wouldn’t want to explore how sustainability strategies can support their long-term success? Yet we hear daily of companies that are either ignoring the trends or struggling to address them. Our recent global study How to Become a Sustainable Companypublished in the summer issue of the Sloan Management Review answers some of the questions that companies are asking about what they can do to succeed in becoming sustainable organizations. Based on our research that compared sustainable companies with traditional companies, we have found some specific organizational factors that differentiate the two groups.
First, the sustainable companies tend to reframe their identities through leaders at the top who are truly committed to drive the process. They take long-term views for building company success and they are willing to tolerate more risk in pursuit of sustainability than are the traditional companies. They have a strong business case for pursuing sustainable strategies and they integrate sustainability considerations into their decision-making.
A second way that these companies build a new identity is by reaching out across traditional boundaries to external stakeholders such as competitors, customers, NGOs and suppliers. In the words of Rob Frederick, V.P. of Corporate Responsibility at Brown-Forman, one of the largest American-owned companies in the spirits and wine industry, “We embrace the unusual suspects.” Rather than selecting suppliers solely based on cost considerations and then holding them at arm’s length, companies such as PepsiCo and Wal-Mart work closely with their strategic suppliers. David Walker, former senior director of beverage productivity at PepsiCo, said that they bring suppliers together to share best practices and engage in joint planning sessions. David Basson, the former CEO of organic apparel manufacturer Greensource Organic Clothing Company, says that they have supplied organic cotton products to big-box stores like Wal-Mart for the past 17 years. Basson says his customers want to achieve their sustainability goals without price increases that will affect the consumer. To achieve the price point its customers expect, Greensource must work closely and creatively across the supply chain to increase efficiencies, collaborating with its big-box customers as well as its own suppliers, such as the farm cooperatives. To be successful, Basson notes that players across the supply chain must plan together for the long term.