Business Benefits of Sustainability
For anyone to accept the premise that social responsibility is a business strategy, we must be able to define and quantify the business benefits that can be derived from adopting this model. This is so that success can be measured, just as with any business strategy.
License to Operate (speed to market)
In business, time is money and each delay in permitting, construction, recruiting and training employees has an associated cost in lost revenue, particularly in a competitive situation when the preferred company can use the time advantage to establish itself in the market, cherry pick the local talent pool and build relationships with customers and suppliers. A company that has a positive reputation has an advantage. While the community may not actively facilitate approval of a permit, community opposition often results in substantial delays and requiring a greater investment of time and money with contentious public hearings and town hall meetings at the minimum to protesting and boycotting that adversely impact hiring and even discourage customers. In short, the community needs to ‘buy’ you before you get a chance to sell them anything.
Each day that a store remains vacant or a commercial lot lies undeveloped is a day of lost sales revenue for the company. The community does not realize the benefits of having those goods or services available, workers are denied employment, and the community cannot collect sales and income taxes.
Whether you define it as enhanced goodwill or reduced opposition, sustainability programs that position the company as a positive corporate citizen can impact the speed with which the company enters or grows within a market. A PR program that fosters trust by engaging the community stakeholders is an essential element to building that dialogue.
Cost Reduction or Avoidance
Most businesses know the importance of investing in preventive maintenance to keep equipment in good working order. In fact, these “expenses” are not considered optional. Those who do not invest in this manner are considered foolish and viewed with contempt. But there are other, direct ways that businesses can save money through a longer-term approach.
Brand Reputation is arguably the most important asset a company has over the long term. Jack Welch talked about “walking the talk” but the concept goes back to the very dawn of democracy and the concept of an empowered populace. Socrates said that “the way to gain a good reputation is to endeavor to be what you desire to appear.” It is important to note that he acknowledges that people attribute values based on acting in accordance with aspirations. In other words, people judge based on the impact of actions, and not intentions. And it is unlikely that anyone (individual or company) can truly achieve perfection. The best case is that when outlying behavior or actions take place, they are more likely to be viewed as aberrations rather than symptomatic of a greater and negative truth.
The lessons for corporations are clearly transferable. A company that is viewed as a positive and favorable member of the community is likely to have less opposition, and when – as is almost inevitable – a misstep does occur; it is less likely to be perceived negatively. Like any other business expense, a clear case can be made that “reputational” capital, is an investment, built over time and as a long-term strategy.
In kind donations can be used to demonstrate the value of products to a community, and the skills of employees showcased. Volunteering with a group of valued customers helps build the relationship around the shared value of helping the community and gives the customer the opportunity to work with your company’s products and people. And, in fact, doing this leverages a product demonstration into a public relations opportunity.
Beyond the “feel good” aspect that is often cited as one of the softer (less business focused) benefits of sustainability, employee morale and culture are linked to recruitment, productivity and retention of talent.
One of the often-overlooked stakeholder groups is a company’s employees. While many companies talk about how their employees are their most valuable assets but those that consider employees as integral partners in the organization’s future and success recognize the power of true employee engagement. Employees who are passionate about the company and its products are the best advocates and can counteract threats to brand image simply by talking to their neighbors and friends.
This failure to include employees results in behavior that can damage profitability directly. Poor morale can lead to passive sabotage in the form of reduced productivity, shoddy workmanship and quality control and increased absenteeism. At its worst, unhappy employees can and do engage in behavior that deliberately hurts the company, such as an employee who shares information about a corporate problem. This can result in damage to corporate image, credibility and the bottom line ranging from lost sales to increased costs due to fines and penalties.
Failure to include employees in the development and implementation of programs can result in them circumventing the effort (and compromising the results) in a manner that is deliberate but unintended. In the late 1990s I observed efforts by a small trade association to reduce energy use and lower utility costs. Rather than having the entire building heated and cooled whenever anyone was present, they initially began announcing that the HVAC system would turn off at a certain time and over the weekends. This did not take into consideration several departments that were required to work longer hours at certain times of the year (such as finance and accounting during reporting periods, the conference and meeting planning department during the run up to the annual meeting, etc.) Employees responded by purchasing space heaters and cooling fans to regulate the temperature in their individual spaces. This resulted in higher electricity bills (as well as the cost of the space heaters and cooling fans that managers purchased for their teams). At great expense, the organization took the next step - installing zoned temperature controls in order to avoid running the HVAC system in the entire building when only a few areas are occupied – but they failed to empower employees to control their own temperature settings (often by putting the thermostats in locked plastic ‘cages’). One enterprising employee discovered – and promptly shared with the rest of the organization) that by placing cups of ice or hot water in proximity to the sensors it would trick the units into triggering the system based on an erroneous temperature reading. In this case employees were not setting out to hamper the environmental effort or to increase the organization’s costs – they were merely trying to be comfortable in their work spaces.
Seize the Innovation High Ground
Companies that are looking for ways to be more environmentally, socially and economically responsible are driving innovations in products, services and sourcing as well as financial acumen. In six years the number of hybrid (gas-electric) passenger vehicles sold in the United States rose from 9,367 to over 246,642 – a 2,533 percent increase - according to the Electric Drive Transportation Association. Sales of compact fluorescents initially faltered due to the color of the light emitted. Today’s bulb not only provide the same light spectrum as classic incandescent bulbs, they use 75% or 80% less electricity to do so – paying for themselves in about half a year in energy savings. Recently Wal-Mart, the world’s largest retailer, announced plans to sell one bulb to every consumer in its 100 million customers. Not only does the planet benefit from the reduction in energy use, but companies like General Electric that produce the bulbs also benefit from increased sales (and reputation). Companies that are seen as innovative tend to attract innovative employees, and the cycle accelerates. And that is good for business.
In the area of reputation and brand management, companies that source their products from supplier that engage in sustainable business practices are protected from damage to their brand and reputation from issues such as child labor and living wages. And they are helping prevent these practices by providing a financial incentive – their business – for acting in a socially responsible manner.
Gain Access to Investment Capital
Today nearly one out of every eight dollars under professional management in the United States is invested in some strategy of socially responsible and sustainable investing. Since 2005, SRI assets have increased more than 34 percent compared to 3 percent for other professionally managed assets. By the end of 2009 total assets involved in sustainable and socially responsible investing exceeded $3.07 trillion.
The rapid growth of SRI in recent years is the best evidence that sustainable and responsible investing yields competitive returns. Over the past 20 years, the total dollars invested in SRI has grown exponentially, as has the number of institutional, professional, and individual investors involved in the field.
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John Friedman, an award-winning communications professional and recognized sustainability expert with more than 20 years of experience, is co-founder and vice chair of the board for the Sustainable Business Network of Washington (SBNOW).
Friedman has served as both an external and internal sustainability leader, helping companies, ranging from small companies to leading global enterprises, turn their values into successful business models by integrating their environmental, social, and economic aspirations into their cultures and business practices.
His insights on sustainability issues and strategy are a regular feature on Huffington Post.
Friedman authored the e-publication The New PR which outlines how companies must modify the way they communicate to meet stakeholders' changing expectations through five proven keys for developing programs that replace "spin" with transparency and unlock the full potential of a sustainability program to build reputational capital. Friedman is currently working on a new book Your Backyard Is My Front Yard.