Today’s sustainability investment options are extensive and broad ranging, including relatively straightforward efforts (e.g., energy conservation projects) to multi-year/multi-stakeholder initiatives (like those that target social and environmental improvements deep within an organization’s supply-chain). While doing any or all of these could yield significant benefits, it is often unclear which will generate the greatest, most enduring value. Faced with this dilemma, leaders often struggle to understand which choices are best and how they should evaluate the many alternatives to ensure the most effective, efficient and sustainable decisions are made.
One way to improve would be to encourage better, more quantitative analyses that examine the full costs and benefits associated each investment in sustainability, combined with an analysis of which could make the greatest contribution for the business, the environment and society simultaneously.
When the Economics Work, the Social and Environmental Benefits Will Last
While most understand that “when the economics work, the social and environmental benefits last,” many barriers remain for those wishing to accelerate the pace and effectiveness at which sustainability initiatives are funded and implemented, including:
- the lack of a demonstrated link between sustainability and business value;
- failure to communicate the strategic potential of such efforts in a way investment decision-makers can understand and appreciate; and
- not leveraging proven, familiar processes (that other company functions have applied) to accelerate decision-making and scale solution implementation.
Accenture’s 2013 CEO survey (UN-Global Compact – Accenture CEO Study 2013: Sustainable business and the pace of change) seems to agree, reporting that 37% of 1,000 top executives feel that the lack of a clear link to business value is a critical factor in deterring them from taking faster action on sustainability. It should be noted that this percentage is increasing: in 2007, just 18% reported a failure to trace such a link and in 2010, this figure rose to 30%.
Our experience confirms this trend, as we regularly note good projects that do not receive sufficient (or any) investment as these initiatives are perceived as failing to deliver competitive business value.
From our vantage point, there are two principal challenges that need to be overcome for sustainability to be viewed as a more critical contributor:
First, the “equations” for presenting business cases do not sufficiently include all the benefits of investing in sustainability – specifically, these efforts should include an accounting of potential contributions such investments could make in terms of:
- Offsetting of risk (brand risk, reputation risk, supply/commodity risk, regulatory risk, etc.);
- Delivering efficiency gains; and/or
- Adding revenue/market share (via innovation and/or building brand/reputational equity).
Without accounting for and quantifying all these dimensions, sustainability investments risk appearing less important than other business investments and hence are perceived as not carrying as much “strategic weight.”
Second, sustainability departments are generally not equipped to build and pitch multi-dimensional business cases – this requires a combination of strategic, financial and political skills rarely found among these practitioners. Challenging questions are being posed, and few confident answers are being provided:
- Are we realizing value expected from existing, funded sustainability initiatives?
- We have many sustainability investment choices, but which ones are the best for our business?
- How confident are we that our actions will yield the tangible and intangible benefits promised by the business case?
- Do we understand the true business impact and cost of doing nothing?
- How do we increase the reliability and credibility of our business case analyses, and therein, how can we increase the confidence of our sustainability investment decision-making?
Value Creation = Business + Sustainability
Linking sustainability to value creation is becoming a new imperative for business leaders. As such, investments in sustainability must be more connected to both business and societal benefits, improving management of risks/costs and stimulating growth and/or innovation, while simultaneously helping companies better meet societal and environmental expectations and obligations. When building the case, leading organizations are increasingly articulating associated sustainability benefits within a clear and simple framework, one that illustrates how these investments can better protect, strengthen, and/or advance the business.
Frequently, benefits of this sort are intangible, uncertain and generally difficult to quantify in ways that are credible and agreeable to all decision-makers. Determining the appropriate level of analysis, who must be engaged, what input is required, etc., is often a challenge requiring innovative, clever leadership, clear process and strong cross functional engagement to ensure success. Commonly, those that pursue such efforts ensure they always ask:
- Am I using the right vernacular, do I understand, and more importantly, use terminology and methods familiar to financial and other decision-makers, or am I only talking in “sustainability speak?”
- Have I considered all relevant costs or benefits (tangible or intangible) in my analysis?
- Have I engaged the appropriate internal domain or functional experts to gather data, experience and methods needed to build a credible, monetized investment analysis?
- Have I accommodated and considered future variability and other possibilities that could impact decisions or outcomes?
Innovators are Creating the Business Case for Sustainability Today
Ultimately, value-adding sustainability investments protect, strengthen and/or advance business endeavors while simultaneously improving the environment and society’s well-being. Clearer demonstration of such value creation capability is becoming more common as innovative organizations repurpose standard management and strategic tools to deliver a more compelling case for sustainable investment and action.
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