This weekend, as we celebrate the 33rd annual Earth Day on Sunday, April 22, MSP reflects on how far we’ve come as a society by integrating sustainability to unlock real value in business. While the last year of social movements is more indicative of the foundation of Earth Day, today we have better tools, standards, and performance metrics that pave the way for further adoption of sustainability practices.
The following is a condensed version of a mini-series written by MSP Consultant Nate Springer on his blog, bizplusustain.tumblr.com.
The First Sustainability in Business Leaders
Sustainability in modern business started with those early innovators who asked themselves whether it was possible to make money and make a difference at the same time. Patagonia represents many in the field: founded by a leader passionate about a category and the natural environment it supported. The company made performance climbing gear and donated 1% of its sales to environmental groups as a co-founder of 1% for the planet.
Soon, green leaders emerged in other product categories. Seventh Generation popped up to bring consumers greener products to the cleaning products category which was eventually followed by Method. Ben and Jerry’s ice cream transformed one category of dairy, Stonyfield Farms transformed another. Honest Tea showed it was possible to make great organic tea by working with tea growers at a reasonable cost. Whole Foods realized it could sell this growing category of products that were healthier for people and the planet.
Then, established companies took note. Ray Anderson, president and CEO of $1B carpet manufacturer Interface set out in 1994 to begin the ascent of what he called Mt. Sustainability according to Anderson’s TED Talk. Interface is now #1 in the industry and they cut their greenhouse gas emissions 82% while doubling profits since sustainability became a goal of the company.
Nike tied sustainability to its innovation process and discovered it could drive significant breakthroughs and performance benefits. GE’s Ecomagination program claims $18B of its revenues are generated from the eco-friendly portfolio. Coke and Pepsi discovered a new form of competition in sustainability and tried to outdo each other with greener products and waste, carbon, and energy reductions. Manufacturing behemoths Alcoa and Dow plowed full steam into reducing carbon, energy, and water intensity of their products and Ford built the largest green manufacturing facility of its time.
Why it Matters and How Business is Responding
Almost every ecological indicator we track shows a global natural system is in decline. One of the largest attempts to measure the impact, the Millennium Ecosystem Assessment, was a four year undertaking that combined the contributions of more than 1,360 scientists from 95 countries. The research found that 60% of ecosystem services – benefits provided by nature such as pollination, climate regulation, and water filtration – that were studied were degraded or used at a non-renewable rate.
Another more recent approach examined control variables within seven global ecological subsystems and found that two were already outside the Safe Operating Space for Humans. Finally, the World Wildlife Fund publishes a Living Planet Report every few years to measure humanity’s demand on natural resources, our “ecological footprint”. The 2010 study concludes that annual resource consumption exceeds the planet’s ability to regenerate by an estimated 50%.
The disruption of the plant’s ecosystems has become a factor in damaging our economy. An Erb Institute for Global Sustainable Enterprise and KPMG analysis of global trends such as resource scarcity and urbanization estimates that costs will double every 14 years. Last fall, McKinsey and Company showed that constrained natural resources are increasing commodity prices and volatility. Insurers Munich Re and Swiss Re report the cost of increasingly frequent and severe weather-related natural disasters, which cannot be directly linked with climate change though are consistent with anticipated impacts, is rising.
Emerging standards are enabling companies to adapt and take advantage of sustainability. The Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP) are quickly becoming sustainability’s tracking and reporting standards for business. Now in its third generation, the GRI offers guidelines to collect and disclose material environmental impacts such as enterprise energy and water emissions, labor and human rights. It describes a set of core and optional indicators for each of these categories and provides additional industry-specific guidance for numerous industries.
The CDP takes a financial performance perspective to reporting. It represents 551 investors with assets of $71 trillion and sends an annual questionnaire to companies asking them to measure and report carbon emissions and climate risk as it relates to business risk for the company. It recently added scope 3 carbon emissions and a CDP Water Disclosure program to its reporting. In 2011, 81% of Global 500 companies that received the questionnaire responded and CDP claims companies in its Carbon Performance Leadership Index perform better in both carbon management and financial performance.
These better standards and tools are facilitating widespread adoption of sustainability in business. Reports by KPMG, BCG, and Accenture show that more than 2/3 of mainstream companies are adopting sustainability practices. Most Fortune 500 companies now have at least one Manager that is tasked full time with sustainability. A select few, 20% of the market according to McKinsey, lead the field integrating sustainability into the business unit, functional, and business process level.
These early adopters are reaping rewards. Last year, three Harvard Business School researchers published a study of 180 companies for 18 years and found that environmentally and socially responsible businesses outperformed their peers. Even more recently, another analysis suggests that greenhouse gas disclosures produce positive shareholder returns when announced, as much as an additional $10 billion for the 84 companies reviewed. AT Kearney and Goldman Sachs show similar performance results related to sustainability management.