Green Business

Green Business

September 18, 2014

Ensuring Sustainability by Shifting Environmental Concerns from CSR to Core Corporate Value

In its 7th annual State of Green Business report, 2014, GreenBiz Group Inc. highlights the various environmental impacts of the emerging green economy and discusses the possible roles playable by businesses towards mitigation of such issues. Through its top 10 trends of sustainability trends of 2014, the report discusses how air pollution, water scarcity and other manners of ecosystem degradation have changed the role of traditional corporate social responsibility from a “nice to do” instrument to a core corporate value.

The prevailing perception of doing business was companies maximizing profit, taking no heed of the social impacts they had. However, the trend has evolved over the past decade. Thanks to the development of concepts as over encompassing as the Triple Bottom Line Approach, companies can no longer carry on their operations and turn a blind eye to the consequences their activities have on the earth. Developed nations are gradually paving the way for greater social responsibility in a bid to set anexample to be emulated by companies operating in other developed and developing countries alike.

01: COLLABORATION

CollaborationAs the name suggests, this involves implementation to the full extent of the word in context. In recent times, cooperation with third parties is no longer considered to be a “delusion” but has become a pragmatic approach to finding the key to many puzzles that have before remain unlocked or even unexplored simply because companies were reluctant to move beyond their corporate “egos” and work alongside others to maintain sustainable practices.

Every company has its own drivers and challenges when it comes to sustainability. It may involve working hand in hand with the customers themselves, especially B-to-B or large institutional purchasers, while in some cases it involves attracting and retaining the best talent for “innovation” purposes, which has proved an acute solution time and again. This is so because corporate sustainability is rarely a “one-size-fits-all” approach due to the scale of diversity. It is precisely what has led even rivals to work together in finding solutions. To name a few, the partnership of GM with Honda in developing hydrogen fuel cells, and Nestle with Coca-Cola, Danone, Nike, P&G and Unilever to form Bioplastics Feedstock Alliance.

However, as with all things, collaboration only works so far. Without proper leadership, vision, and governance structure it would be unfeasible. More so, it requires patience and lots of communication before the results can materialize. Even so, this is reshaping the landscape for greater sustainability.

02: CHEMICAL TRANSPARENCY

It is surprising how profoundly daily use items are seriously debilitating sustainability as they are often sources of “toxic substances” or “chemicals of concern,” as is more commonly known. For years pharmaceutical and other product companies could hide behind the “veil of proprietary nondisclosure,” and professed competitive pressure as their excuse. But not anymore.

In the milieu of growing awareness among consumers, advocacy groups, government regulators and health professionals, are stepping up the pressure on such companies, compelling them to disclose the ingredients of products.

Sellers such as Walmart now require manufacturers to disclose the ingredients in their products and to remove any trace of hazardous chemicals. Walmart was not the first. Target partnered with UL’s GoodGuide to ratify sustainability standard for some 7,500 products. These combined with other initiatives are driving manufacturers to generate greater transparency in their products, supply chains and even buildings to safeguard against hazardous usage and move for a “greener” chemistry in their products.

While maintaining such standards promotes company goodwill, the time it takes for manufacturers to comply with such mandates can be a serious constraint. USA alone hosts above 85,000 chemicals and it would require high degree of patience and perseverance before such initiatives bear fruit.

03: WATER RISK

Presently, economies worldwide are faced with a new crisis over “the new carbon,” which we all know as water. Though surprising, it has undoubtedly become an area of contention for the years to come.

The factors for this water crisis can be many, ranging from climate change causing droughts or floods, to factors as simple as increased consumption of water for daily usage. The result: water is becoming a “chokepoint” for many industries, without which activities are “curtailed,” or even stopped as seen in case of power plants where water shortages can cause chaos.

Water has become the “lifeblood” of many industries for whom “no water means no business.” As such, it is not shocking to find companies competing with farmers and even households for water supply. As per the 9th Global Risk Report, water has become one of the highest global risks.

As challenging as the risks pose, this also provides companies the opportunity to demonstrate their innovativeness. Hence H&M partnering with WWF to find better water management means in even Bangladesh and China is becoming news. Others who are in the lead include Coca-Cola, PepsiCo and Nestle. Coca-Cola’s Replenish initiative aims to returns to nature the amount of water it uses in it commodities by 2020. Other initiatives include water offsets aimed at reviving water that cannot be used through efficiency measures. However, these strategies have limited scope and are applicable only once recycling measures have been exhausted. A more pragmatic solution involves calling for a “collective action” that involves more than the companies and invites consumers and even governments to actively participate in tackling this growing crisis. After all, one company no matter how big “can’t do it alone.”

04: SHADOW PRICING

Stuart miles

Nothing that cannot be measured in monetary terms has value. Such is the convention of this era, which makes it incredibly difficult to value natural capital. However, a growing number of companies are placing a “shadow” price tag on carbon, water, and other forms of natural capital in a bid to ensure more responsible usage of such resources and avoid any misuse since they are so limited in supply.

By definition, “shadow pricing” is “the estimated price of a good or service for which no market price exists or where the market price doesn’t reflect the full replacement cost.” This shadow pricing which is being extended over other areas including land conservation, and air quality is valued by at least 30 companies that set an internal price for them ranging from $6 to $60. Giants such as GM, Exxon, Google, Microsoft and Walmart treat this as part of their long-term risk management. The parts of the company that can show cost savings are later rewarded.

The main constraint remains however. The absence of any fixed standard to value natural resources makes it increasingly challenging to allocate an appropriate value. Nonetheless, as the financial executives are realizing, “just because something is difficult doesn’t mean you shouldn’t do it.” Success or not, shadow pricing is promoting greater responsible usage of natural resources.

05: PEOPLE/ SUSTAINABILITY

hint255“Sustainability” entails 3 dimensions: environmental, economic and social issues. Over the years however, the word has grown into a misnomer since individuals associate it with only the first dimension while completely disregarding the latter two. Hence, numerous “sustainable” initiatives undertaken reflect only environmental aspects and while the other 2 dimensions are left in the dark. The ultimate form of this misconception has precipitated in the form of Rana Plaza in Bangladesh and other places namely the South Asian region of the globe where Human Rights are blatantly ignored and any CSR initiative focuses on the environmental consequences of company operations.

The meaning of being a “responsible” company goes beyond just “doing the right thing” or “doing well by doing good.” It is about creating value for not only shareholders, but customers, employees and the community as a whole. In doing so it ensures business opportunities. Don’t believe that? Look at Uniliver’s Living Plan which aims to improve hygiene and drinking water to the poorest citizens. This serves the dual function of being corporate citizen and also improving peoples’ lives. The message is simple: “to prosper by improving lives.” Companies must learn to see the “big picture.” Integrating social dimensions into sustainability is critical to generating future returns by creating “a just and sustainable world.”

06: FOOD SUSTAINABILITY

After water crisis, food shortage is the area of enormous contention.

Around 40% of earth’s land mass is used for growing our means of daily sustenance. At the same time producing food is intensifying issues such as air, water and soil. Unprecedented population growth combined with rising incomes resulted in greater consumptions of food, implying even greater production of energy and waste. Moreover, the trend has shifted as more consumers are entering cities, resulting in greater land being used for roads and leaving little left for agriculture.

The gradual decline in resources available and the surge in food prices over the past decade alone has driven 110 million people into poverty and added 44 million to the undernourished, as per the 2009 UNEP report.

As the debate between the Cornucopians and Malthusians swings between the need for greater innovation and optimism, some pragmatic solutions have been identified.

First, reduction in the colossal volumes of food is a necessity. The amount of global food wastage equates to the GDP of Switzerland, as evidenced by UNFAO. This was extended to include alternative food sources including aquaculture, protein rich insects, and algae-based oils. Secondly, technology plays an instrumental role in mitigating this problem as GM crops have made more food available, albeit stark criticism from anti-GM groups.

Whether this new hurdle can be solved or not, it is too soon to say. Nevertheless, this would be a hot topic on the table here forth.

07: EMPLOYEE ENGAGEMENT

At the heart of any organization are its employees. The same source also provides the best means of sustainability improvement through innovations that generate customer loyalty and revenues. Doing so requires active participation on part of the employees as Unilever stated in its 2011 Sustainable Living Plan, “we can’t do it unless everyone involved.”

Employee role has shifted from “nice-to-do” to a strategic one as evidenced by research studies from Harvard Business School and MIT Sloan School of Management. As observed from Caesar’s CodeGreen program, employee loyalty and satisfaction has subsequently improved, indicating greater ROI from employee management.

From an HR perspective, a 2013 study of employees from Brazil, China, India, Germany and US revealed two thirds based their career choices on sustainability factors. Hence this is clear evidence that companies need to capitalize on involving their employees in sustainability improvements as doing so raises productivity of even the employees not engaged in the program.

But THE critical necessity is that everyone in the organization must be involved before results can be realized.

08: ENERGY STORAGE

Danilo Rizutti Freedigitalphotos.netEnergy storage has e become a prime area of sustainability over the decade. What was once simple battery stored energy, has evolved into large-scale batteries that generate enough power to supply entire grids. As of 2014, this is the new vogue of energy, as global interest grew in energy to store both renewable and non-renewable forms of energy.

Combined with 29 new technologies, cost effective storage of energy is the “game-changer,” transforming the energy climate by immense proportions. The existence of LEED recognized buildings is sheer proof that in future buildings with their own battery storage will be able to demand higher premiums and it is only logical that economies globally are trying to get into the fray, with Asia taking the lead.

The advent of energy storage facilities has reshaped the traditional trends which is why how traditional electricity utilities will be affected is a concern. Since buildings will be able to generate their own power and that too at competitive rates, it is dubious what role the conventional powerhouses will serve in future. The last two trends are perhaps the most ambiguous of them all.

09: CITIES

With globalization, cities have undergone an evolution from traditional habitats to full scale synergies that elevate the benefits of sustainability. To begin with, the state now functions in accordance to the inhabitants and businesses and cooperation between all groups has led to innovation which has multiplied the benefits of such synergies. As Al-Shawaf from SustainAbility posits, 70% of world population will have moved into cities by mid century, up from 50%. Innovation will ultimately improve lives and reduce environmental constraints.

Big Data or data explosion will have an invariable impact on innovations, as cities store more and more quantities of digital information. Two noteworthy precipitations of this are parking and lighting.

Known to be “the bane of many citizens’ urban experience,” parking in cities can be improved via smart parking programs. Best example of this would be Hollywood, where migrants can order parking spots by paying directly through their phones.

The other source, lighting, can be implemented, as in case of New York where, 250,000 streetlights have been converted into LEDs, a move that will save up enormous volumes of tax payers’ dollars. Though not obvious in its early stages, these moves can lay the foundations of healthier communities for businesses. Be it congested streets or polluted air, innovations will turn things around to usher more sustainable environments.

10: NET POSITIVE

Think zero pollution. Zero carbon emission. Zero hunger. Zero poverty.

What if a simple mantra made all the difference?

That is exactly what this concept entails and this is more like a movement. To begin with, consider the example of “green buildings” aiming at “net zero” use of energy, water and waste. Since all green buildings are built on the basis of reducing harm, this concept gives a direction as to where the goals of constraint minimization are to be headed.

However, a typical problem of the net-zero approach is it risks creating more problems than it solves. As such, it was evolved into the “net positive” concept, which goes beyond minimizing deteriorating effects to include positive effects. Typical proponents if this concept are Coca-Cola and Pepsico operating in India. As a Pepsico executive put it, they were able to give back more water to the society than what they had used to manufacture their products.

Speaking of products, these are gradually claiming positivity too. Think of Kingfisher implementing its 2012 Net Positive strategy, to contribute specifically in four areas: timber, energy, innovation and communities. More so, it has joined forces with giants like Coca-Cola Enterprises as well as several NGOs to carry out its own “net-positive” goals.

Whether this “net-positive” trend would actually turn out to be a positive one cannot be said just yet and requires further speculation.

Bottomline, companies that account for the impact their activities will fair far better in terms of long term profitability as they successfully generate a positive image of themselves as responsible first voyagers in the field of sustainability.

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