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March 17, 2010
Companies That Aggressively Pursue Sustainability Are Reaping Benefits
    by Robert Kropp

A report from the MIT Sloan Management Review and the Boston Consulting Group finds that while the majority of companies view sustainability as a response to external pressures, some are finding profitability in its practice.


Launched in 2008, the Sustainability Initiative is a collaboration of the MIT Sloan Management Review and the Boston Consulting Group (BCG). The Initiative, which studies the impact of sustainability on business management, recently completed the first of what is projected to be an annual series of reports on sustainable business, based on its survey of business leaders.

The report, entitled The Business of Sustainability, found that while a vast majority of respondents described their companies as addressing sustainability in some way, relatively few had as yet developed a business case for sustainability. Especially among respondents with less expertise on the subject, sustainability was most often viewed as an obligatory response to legislative or regulatory pressure. However, the report found, the few companies that are aggressively pursuing sustainability are finding significant opportunities for profitability and competitive advantage.

SocialFunds.com spoke with Maurice Berns, a partner at BCG, and an author of the report, about the Sustainability Initiative and the findings of its survey.

"We launched the initiative because we found there was a lot of activity in the sustainability space, but there seemed to be a lack of a business perspective on it," Berns said.

The findings of the survey suggest that a clear definition of sustainability is itself a work in progress, which evolves as experience with sustainability grows. Novices tended to define the concept in terms of environmental or regulatory factors, and the benefits of sustainability as primarily related to such factors as brand enhancement. According to the report, a significant number of novices defined sustainability as "maintaining business viability."

Those with greater expertise, on the other hand, viewed sustainability more expansively, and as an integral part of value creation. Most self-defined experts on sustainability also underscored the importance of extending sustainability criteria to supply chains.

Asked for a working definition of sustainability that the Initiative itself would employ, Berns said, "The definition of sustainability that we chose to adopt was the Brundtland definition. It's broad enough to include a lot of stakeholders."

Published in 1987, the Brundtland Report, also known as Our Common Future, defined sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

On the basis of the findings of the Initiative's survey, Berns observed, "What we found was that the people who knew the most about sustainability had a bias toward the Brundtland definition."

"Because our emphasis is on being pragmatic and not dogmatic, we're thinking very carefully now about what the definition means for businesses," he continued.

Another definition cited by self-defined sustainability experts was the triple bottom line philosophy, which expands the goals of the corporation beyond financial considerations to include social and environmental factors as well.

A significant finding of the report was that while the vast majority of respondents have yet to commit aggressively to sustainability, those that have acted decisively are deriving benefits from doing so. Berns said of such companies, "They were emphatic that sustainability is going to have an impact on their business going forward. It was easy to see how they should comply with legislation, but how do you profit from it or promote it?"

Berns provided some examples of companies that have profited from aggressive action on the sustainability front.

"At GE, they developed the Ecomagination product line," he said. "Going deeper, Nike actually eliminated a lot of waste in its value chain and saved $700 million over the course of a year. At the next level, Walmart takes its supply chain and is actually driving sustainability savings in supply chains other than theirs."

Given the high profile of such successes as those related above, what are some of the barriers to companies adopting effective sustainability strategies of their own? Barriers cited by the report include lack of information, the challenge of defining a business case for value creation, and flawed execution.

The report provides a framework for the majority of respondents who reported struggling to develop a business case for sustainable value creation. In the short term, companies can—and in some instances, must—take such minimal steps as regulatory compliance and cost efficiencies. Following these steps, but also short-term considerations, are such activities as transparency and reporting.

In the long term, companies can reframe their organizational priorities to differentiate themselves competitively by such steps as product innovation. Eventually, new economic models and improved relations with stakeholders will help imbed sustainability in the corporate culture.

"What should companies actually do?" Berns asked. "Engagement by senior leadership will help lead to clear vision and targets. What I'd like to see is a holistic vision of sustainability across the entire company, but we need to find a way to measure it. Clear metrics tracking is critical."

"Thinking of sustainability as a burden to comply with needs to change," Berns said. "We need to create at the board level an attitude of outlining the opportunities."

"We have to re-orient our thinking as to how business can profit from sustainability," he continued.

 

 
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