By Dave Johnson, Phylmar Group newsletter editor
A U.S. industrial automation company with 23,000 employees and more than $6 billion in annual revenue recently expanded its corporate sustainability team and function. The vice president for sustainability oversees cross-functional workstreams focused on all areas of sustainability. Key team members include the company’s director of environment, health and safety and a sustainability strategy and technology leader. The team of sustainability professionals reports to the company’s senior vice president for people and legal affairs.
This company is ahead of the corporate curve. Sustainability emerged as a business issue in the 1980s, and today 98 percent of top revenue firms in the U.S. issue sustainability reports. But the systemic integration of sustainability into the day-to-day operations of corporations is in its infancy. The role of the chief sustainability officer (CSO) or board Sustainability Committee is still very much evolving.
If companies don’t make sustainable decision-making part of their strategy, they risk losing trust of their stakeholders. Consumers will support ESG-driven companies and avoid ones that are not keeping pace. In a 2018 global survey by Accenture of 30,000 consumers in 35 countries, 62% want companies to take a stand on current and broadly relevant issues, including sustainability; 42% of consumers walk away from brands frustrated the company doesn’t align with customer beliefs.
Between 2013-2019 companies with consistently high ESG performance enjoyed 4.7X higher operating margins and lower volatility than low ESG performers over same period, according to the UN Global Compact and Accenture.
Based on a review of current sustainability literature (articles, case studies, surveys, etc.) here are four suggestions for making environmental sustainability decisions:
1) Identify and prioritize “material” issues.
Understanding major issues of strategic importance must be the first step in sustainability decision-making. Successful goals and objectives can only be set if material issues have been identified and prioritized. Materiality assessments are formal exercises aimed at engaging stakeholders (internal and external to the company) to find out how important specific environmental, social and governance (ESG) issues are to them.
To get the best results, materiality assessments should be formal, structured engagements with stakeholders. For the most critical stakeholders, do the assessment in person to capture nuances that a traditional survey cannot. For other stakeholders, use a traditional survey format to make it easy for them to complete and easy for you to analyze results. Ask stakeholders to rate the importance and impact of each indicator you’ve identified on a numerical scale, such as 1-5 or 1-10. This will give you quantitative data that can be analyzed and explained visually.
Share your results and insights with stakeholders. This can be the foundation for your sustainability story — typically told in a formal sustainability report and shared more widely through other channels, such as the company website or media releases. Sharing your materiality assessment results can serve as a starting point for continuing the conversation and maintaining engagement with your sustainability initiatives.
2) Operationalize sustainability.
Organizations should have a chief sustainability officer (CSO) and support team, such as the industrial automation company recently announced. The CSO needs to be in board meetings and other meetings where the long-term health of the company is considered. CSOs are a bridge between technologists and business strategists
Sustainability goes beyond regulatory compliance and pollution control. It’s more than tallying up the costs of inputs, such as increased spending on pollution controls or salaries of hiring sustainability specialists. Decisions must account for factors such as the value creation of sustainability initiatives; the rate of return on an investment that generates heat more efficiently; and the economic multiplier effect of creating more jobs. You must have accurate data – a “digital, data-driven boardroom” — to understand current product position, enable progress to be monitored, and to test different scenarios to find the most viable option.
For example, a paper company is building a more holistic view of the forest, water cycles and biodiversity that intersects with its supply chain using Google Cloud, Google Earth Engine for satellite imagery and artificial intelligence. The company will have a better big picture of the ecosystems connected to its supply chain and a better mechanism to detect deforestation. This creates greater accountability and prioritizes critical areas of forests and habitats in need of protection.
Perhaps greatest challenge to sustainable decision-making arises in publicly-traded companies listed in U.S. markets where current U.S. corporate financial disclosure regulations create strong financial disincentives for company C-suites and boards to adopt longer-term perspectives that could sustain strong economic performance.
3) Set realistic targets based on reliable data.
One of the biggest barriers to strong sustainability decision-making is that sustainability is commonly viewed in aspirational terms – a hope or ambition of achieving environmental stewardship and social responsibility. Don’t go for conflict-free easy “wins” such as using “green” office products. Set realistic and measurable targets such as:
- Reduce emissions and solid waste generation
- Increase the use of sustainable materials
- Lower water and energy usage
- Decrease business travel to reduce travel-related environmental impacts
Targeted decision-making requires an accurate data set. For a company to set realistic targets for improvement, it is imperative to know their baseline for important metrics. Decisions need answers to questions such as:
- How many products currently use environmentally-friendly materials?
- What percentage of energy comes from a green supplier?
- What is our baseline for greenhouse gas emissions?
- How much is the current plastic packaging cost per unit?
- How much waste does the organization create?
- What impact does waste generation have on the local community?
Sustainability decisions in recent years have become more data-intensive. Consider the breadth of metrics needed by an auto manufacturer planning for all global manufacturing plants to use 100% renewable energy by 2035. Or the unique data points needed by an ice cream company’s “Caring Dairy” program to help farms adopt sustainable practices for raising cows without growth hormones.
4) Empower the workforce through engagement and learning.
Training and education are needed, customized to different levels and departments in an organization. All employees need fundamental sustainability awareness. Training must engage employees and seek their input on sustainability priorities, ideas for possible projects and any challenges they foresee. This builds buy-in, ownership and provides valuable insights.
One company’s sustainable decision-making model supports employees in learning how to engage in more sustainable personal and professional behavior. A global bank has an ambitious program for employees, encouraging them to act as environmental advocates everywhere they can. An ice cream company engages employees in social change work. Sustainable decision-making muscles become part of everybody’s responsibility — a skill that can change people’s approach to making choices at work.
Department managers need schooling on how to collaborate with other managers to propose and execute on initiatives to “green” operations within each department.
The C-suite and board must understand the risks and rewards of environment, social and governance (ESG) scoring systems. Rankings can affect reputations, valuations, investor and customer perceptions, and access to pools of ESG capital. More investors in 2021 look to put money into companies with strong ESG performance.
Publishing glossy annual sustainability reports is typical and superficial; making hard decisions affecting core operations across the entire enterprise and supply chain with long-term impacts is hard. It requires organization-wide buy-in that sustainability is a business imperative today.
Phylmar Academy’s goal is to assist companies intending to maximize their sustainability efforts. This means offering training to managers in how best to shape the sustainability endeavors and to employees in best practices in carrying them out.