Sustainability is now hard economics

“TRUE business leaders have the ability to think differently,” wrote Richard Branson on Twitter recently.

He was referring to Steve Jobs after learning about the death of the former head of Apple. Both men have been pioneers in their respective fields, turning traditional thinking on its head to help their businesses flourish.

Interestingly they have also both been keen advocates of sustainability in business. Jobs drove through plans at Apple to encourage sustainability throughout all aspects of the technology giant’s business. This will extend to the supply chain, a strategy also being adopted by Microsoft. Economic factors are strong drivers for this strategy but both Branson and Jobs also recognised that there are sound business ethics at the core.

Sustainability is no longer about throw away words such as “green” and “environmentally friendly” – the sustainability industry has grown up and moved into hard economics. In many respects, carbon is a new form of currency – many companies already use a proprietary carbon price to discover the cost and risk associated with a given project, such as fuel efficiency, lighting replacement, retrofitting, video conferencing, or staff behaviour change.

Carbon is easily converted into hard currency, and the gains can be calculated. In the current economy every company is looking to drive efficiency and cut costs. Sustainability programmes have to be considered in this context. Some sustainability programmes have proven to return investment in hours, not days or weeks. This is a ratio any FD can work with, surely.

We can no longer lump sustainability into the “too hard” box – there are many billions of dollars of savings out there that could not only drive efficiency but also stimulate new tech, green consulting and innovation. The big question of course is how you can sell the concept to the board?

Using a weighted average cost of capital (or in this case carbon) model, the FD can commoditise the gains that are made and sell into the board as a pure business case, with investment and ROI. The residual benefits discussed above can also be mentioned, in so far as many of them are residual and not immediately quantifiable.

DHL Express Asia-Pacific has achieved a 19% improvement in carbon efficiency year-on-year, reducing CO2 emissions by 13 million kilograms and saving €10m in overall energy and road vehicle fuel costs.

DHL’s global sustainability programme aims to improve carbon efficiency by 30% by 2020, which will result in more savings, as well as game changing environmental stewardship and reputation.

Similarly, supply chain scorecards are an imperative for any company with upstream supply chains. The concept is simple; buyers encourage suppliers to score themselves using commonly accepted principles in carbon, energy, waste and water.

Rather than pay more for products or services, buyers can insist suppliers transform their own sustainability strategy, and reap the benefits of efficiency before attempting to negotiate a better deal. Since this has little or no capital outlay, and very high aggregated returns, it is already on the boardroom table of most of the top organisations worldwide.

Sustainability in many circles has a reputation for being “worthy” or somehow an activity for charities or NGOs. The business cases described here, and the hard economics associated with savings and success, can now be employed to completely transform this perception. Even small companies will experience cost savings as a result of electricity, fuel, travel and waste policies, for example, being put into place.

One of the most economically attractive models is behaviour change but it can be difficult to quantify in terms of success, because these models are by nature unscientific. An FD may be able to approximate the savings from an Ecodrive program, for example using benchmarks from similar successful programs.

Ecodriving involves lessons which are delivered either in classroom or digitally, encouraging staff to understand speed, harsh braking and acceleration, maintenance, air conditioning and other specific and practical areas.

However, it is vital to employ CEO level buy-in, publicity, incentives (some companies use vouchers and others bonuses) and other measures to ensure results of up to 15% efficiency.

The key here is avoid apathy and re-bounding to old habits. For FDs, sustainability is ultimately an opportunity to save money, something which any boardroom would surely welcome.

Robert Clarke is CEO of Ecodesk

10 reasons why sustainability should be at the heart of an FD’s agenda

• Reduced consumption of energy, carbon emissions, water, waste or raw materials can be easily measured for economic impact
• Improved logistics and supply chain efficiency can save on fuel use but also offers increased efficiency of delivery
• Early-adopters are better placed to adopt new regulations and adapt to new landscapes in the economy and global business, which are evolving all the time
• Organisations that develop sustainability reports and communicate them correctly can benefit from a higher sense of self-awareness than those that do not
• Self-awareness allows companies to reduce risk by achieving higher levels of regulatory and voluntary compliance and by reducing exposure to serious situations which could entail potential legal action
• Saving money by insuring against fines, violations, litigation, and legal fees impacts the bottom line, and also helps avoid negative press and tainted reputation
• Producing a sustainability report is a strategy to demonstrate leadership. It shows stakeholders that the organisation holds itself to a higher standard of excellence
• Reports that display all successful and failed business goals and strategies serve to increase transparency, build consumer confidence and develop a strong positive public reputation
• Having a reputation as an organisation that conducts business responsibly offers competitive advantage
• Sustainability reporting boosts employee productivity, through inclusiveness and additional motivation to work for an employer that is bright, sensible and forward thinking