Sustainability & ‘Profits’ – Part 2

So with all the festivities a week has turned into a month, but here is the second part of my blog on the practical application of sustainability values in order to support profitable business strategies. I’ve packed it with lots of examples to make up for the delay in getting to you!

In the last blog I described some of my findings with regard to businesses working more coherently towards common goals, bound by commonly held values. I also looked at the ways in which some companies were able to take a longer term approach to value generation, potentially delivering more resilient, less risky results.

Here I am going to look at three more sustainability-supporting values-inspired business strategies that can also lead to positive financial results and long-term business success.

The How: Broadening the corporate view of value

The main thing to point out from the start, is that ‘profiting’ from sustainability-driven values (indeed from any effort that a corporation makes) depends on what the company is spending money on, why, and when it expects a return. There is a difference between a measure resulting in a company profiting so owners can extract wealth from the company, and a company profiting from a measure in so far as it makes the company more resilient and able to continue about its purpose of business. Nonetheless, it is clear that a company profits from more than just its sales.

It is well known that there are intangible factors that affect the perception of a company. These in turn can affect its monetary worth, determined by, for example, the quality of its staff, or brand loyalty from customers. It is also widely accepted, that a narrow view of value can lead to catastrophic costs to a business (BP anyone?).

Broadening the corporate view of value allows a business to consider investing in activities that protect the business into the future, as well as resulting in indirect profits to the company. Cisco CEO John Chambers has said that “giving back to society brings benefits that far exceed any costs – whether it’s in terms of employee morale, or strengthening the brand name.”[1]

Sustainability can deliver more than just the oft-touted benefits of efficiency and reputation however. When private equity house Doughty Hanson decided to bring a sustainability competence in-house the function was placed within the ‘value enhancement group’, specifically to search out value creation opportunities in the portfolio. Getting the ball rolling on long-term challenges still generates ‘profit’ as future-preparedness, de-risking and opportunity exploration carry value when it comes to selling a company.

More and more, companies and investors are beginning to understand that corporate ‘profits’ might be no more than illusions, as so often businesses are only profitable because of the things that they don’t have to include on their balance sheets. Unilever’s Paul Polman argues that it is pointless trying to make a business case for sustainability – “How would you make the case that not doing this could help society and mankind? For proper long-term planning, you’ve got to take your externalities into account.”[2]

Society and governments can change their views rapidly – both Toyota and Interface reported taking action that they knew to be unprofitable at the time, but they predicted future scenarios where early action would pay off.

The driver for early action need not be legislation. Café Direct is a big believer in eschewing short-term fixes in favour of upfront costs in return for long-term benefits, both to themselves as well as their suppliers. Vitsœ doesn’t bother to measure success financially, concentrating instead on planting the seeds for the future success and safety of the business. This might mean investing in a customised customer relationship management system rather than taking profits, or devoting time to cooperating with academic institutions (an activity also mentioned as being important by Interface, Adnams and Toyota).

In order to succeed as a business you need to have some fundamental things in place, many of which can be classified as ‘intangible assets’. These include corporate credibility, trust in the company and its products/services and, these days, responsible long-term strategies rather than thinly concealed shallow short-term fixes. Toyota argued that the relationship that they had built up with their US customers was largely responsible for keeping the damage caused by the accusations that led to the recalls a few years ago to a minimum.

So, there are plenty of areas in which values beyond profit-creation can contribute to the resilience of an organisation. But it is also important to remember that some sustainability values may well go directly against profit. Values have financial limits: companies cannot support their values in the face of indefinitely continuing costs.

The How: Values-fuelled innovation

Companies with core sustainability values innovate in order to protect their values. These innovations go beyond mere product tweaks, occurring across all business functions, from marketing to accounting to corporate structure.

Well known examples include: Interface’s work on its journey up ‘Mount Sustainability’ and towards its ‘Mission Zero’ goal, constantly innovating to reduce the impact of its products and operations, or; Patagonia’s contribution to the creation of the organic cotton market. Toyota’s work on future products was brought to the attention of the public with the launch of the Prius (but this was the culmination of 30 years’ work). All three believe that setting big hairy audacious goals allows the whole company to push itself up, facilitating progress that everyone can buy into.

Adnams explained how innovations were most likely to be successful when they combined the requirements all parts of the business eco-system, from product development, to supplier or retailer and consumer demands. This can be pushed even further in order to have an effect beyond the business eco-system. Patagonia’s Footprint Chronicles and Puma’s EP&L have both thrown a gauntlet down within their industries – now Patagonia and Puma’s competitors cannot avoid being compared against these new ways of doing and measuring business. Other non-product innovations that companies are using to promote or protect their values include amending the very nature of their incorporation, using new legal structures such as the Benefit Corporation in the US, or the Social Enterprise in the UK legally to enshrine their values.

Nonetheless, many innovations are only ‘possible’ because the companies are willing to apply a long and broad enough lens to deem the extent and timeframe of return acceptable. In the absence of strong values, there might not be the conviction to lead or challenge the status quo. Instead, the sustainability leaders, taking into account their values and own measurements of what is important and constitutes success, are content that the responsible direction will eventually be a profitable one and in line with their sustainability values too.

The How: The extension of sustainability into the wider corporate ecosystem

No company is an island. In order achieve meaningful sustainability improvements, companies must extend their influence to their wider ecosystem of suppliers and customers. Sustainability is indeed “the mother of all collaborations”. Education was consistently emphasised by the companies interviewed as vital to their work to spread their responsible and sustainably profitable approach to business. Chipotle for instance, is utterly reliant on suppliers to provide it with the ‘Food with Integrity’ that it wishes to sell. A large part of its sustainability agenda is therefore educating current and potential suppliers. They take this education a step further to include customer education – Chipotle needs people to buy Food with Integrity too. The Chipotle Cultivate Foundation, amongst other things, educates the public about food, nutrition and sustainable agriculture. Chipotle’s marketing goal, in short, is to educate: as Sustainability Coordinator Caitlin Leibert says “Using purchasing power isn’t enough – you have to educate and empower, speak their language and help them see how joining us on the journey could benefit them too”.

For sustainability improvements to take hold in large multinationals, the inside of the company must be treated as an ecosystem in itself. Key individuals influence the culture within their ‘megasystems’. Large companies often emphasise the importance of finding sustainability ‘ambassadors’: these individuals need to be sought out and supported in their efforts to move their networks within these multinationals towards more responsible frameworks of business. Once there is a critical mass of people who are aware of these more responsible business frameworks, long term needs (financial, social and environmental), are easier to see and consider. Interface has a formal education programme for Ambassadors; the HR department at Coca Cola Enterprises actively seeks individuals out who have the talent and desire to take on this extra responsibility; and Cisco has found it far easier to find internal leadership support for sustainability since it embarked on its Circular Economy journey – switching to the language of business rather than environmental protection is helping to develop an organisational understanding of sustainability.

In the next blog, I will examine the role that sustainability values play in supporting incremental change in multi-national companies, and the importance of such innovation and progress alongside the far sexier concept of ‘radical innovation’.