Sustainability programs not only provide environmental and brand benefits but offer value to the stakeholders in a company.
Managers not directly involved in overseeing social and environmental sustainability initiatives at their company often have too narrow an understanding of how much value it brings to their corporation. Focus is often put on the cost of the initiative and less attention is given to the full value. As with any major business decision, management must consider the ramifications to the major stake holders as they debate the impact on the bottom line. Will this decision lead to a higher share price for investors? Will this decision lead to new or happier customers? Will a decision make employees more likely to stay at a company? How will it impact how regulators view the firm? These are just a few of the many stakeholder concerns that management must consider when reviewing a new strategy.
The good news is that the impact of a company’s sustainability improvements on stakeholders is generally beneficial. In this article, we look at each of a business’s major stakeholders – investors, customers, employees, and regulators – and describe how environmental initiatives in particular deliver value to each.
The priority of an investor is maximizing the return on their investment. With this in mind, an increasing number of investors are realizing that the environmental performance of their investments is a real contributor to better returns. A key component to any environmental program is delivering energy and resource efficiency improvements, simply doing the same or more with less. This reduces costs,increases profits, and ultimately drives shareholder value.
Savvy investors also care deeply about a company’s ability to mitigate long term risks, including market and regulatory risks. Many companies are working hard to manage these risks and the environment and investors are benefiting. Take for example United Parcel Service, the largest shipping company in the work, with 92,734 package cars, vans, tractors, and motorcycles – they analyzed and automated the routes their delivery trucks take in order to reduce fuel consumption. In 2007, UPS estimated they saved 3 million gallons of gasoline and 30 million miles traveled. This not only reduced their greenhouse gas emissions, reduced fuel costs, and improved delivery times, but also lessened the severity of the market risk of rising oil prices.
Another strong indication that environmental performance is becoming increasingly important to investors is the growth of socially responsible investing (SRI). According to the US SIF, in the United States alone, socially responsible investment funds account for US $3 trillion of assets. Additionally, many of the largest financial institutions are implementing green underwriting standards and joining industry alliances promoting environmental and social underwriting such as the Equator Principles. These changes are being driven in large part by investor demand for companies to actively manage their sustainability performance as part of their overall performance.
Just as more investors are taking into account environmental impact when investing money, more customers are considering the environmental footprint of various products when making a purchase. A well know Indonesian example is the consumer product giants Unilever and P&G, which have begun a process to procure only certified sustainable palm oil based on growing consumer awareness of product impact and pressure to begin minimizing them.
The world’s largest retailer, Walmart is pushing its suppliers to adopt sustainable practices through its Walmart Sustainability Index. While many have criticized this action as an unfair abuse of power by the large retailer, it is undeniable that it is forcing suppliers to reduce the impact of their operations. The resulting cost savings are passed on to Walmart and consumers. These gigantic corporations are driving green innovations in order to gain even more market share. It will be necessary for other businesses, suppliers and direct competitors, to adapt or be left behind.
Often overlooked is the value that employees place on working for a sustainable company. Many see it as a source of moral pride that they are contributing to an organization that has a positive impact on the planet. Sustainability can help attract talented new hires as well. A survey conducted in the United States by Harris Interactive National Quorum found that 63% of individuals believe a company’s environmental impact is vital when evaluating a new workplace. This strong preference may not yet be as high in Indonesia; still sustainability can be a positive differentiator to help your company attract top talent.
In addition to the recruiting and retention advantages, a greener workplace has tangible health benefits for employees. Numerous studies have concluded that a company can increase the productivity of its workforce by providing a green work environment. A 2010 study supported by the US Green Building Council found that improved indoor environmental quality “contributed to reductions in perceived absenteeism and work hours affected by asthma, respiratory allergies, depression, and stress and to self reported improvements in productivity.” For many industries, employee salary is the largest cost category and improved employee attendance and productivity will contribute directly to the company’s bottom line.
Policymakers and Regulators
Policymakers and regulators at all levels of government are giving increasing priority to environmental protection as they hear from scientists about growing threats to our natural systems and get calls from citizens asking their governments to take more action. This is exemplified by President Susilo Bambang Yudhoyono pledge to reduce greenhouse gas emissions by 26% by 2020 and 41% with international support. Government officials know that they will need to partner with the private sector to achieve national and international sustainability goals. Governments are looking to promote corporate leaders and pressure laggards. Ministries now have awards for environmental and social corporate standard-setters. At the same time, regulators are assessing record penalties for environmental misdeeds as dramatically evident in the $20 Billion settlement BP was required to pay for the 2010 Gulf of Mexico oil spill. In this regard, when companies compete for government awards, i.e. infrastructure contracts, subsidies, loan guarantees, wireless spectrum, etc. it can only increase a company’s chances if they are in good standing with regulators.
Now knowing that virtually everyone important to a company cares about the company’s sustainability performance, how do we make sure all these stakeholders know what that is? The following are a few recommended tips:
- Engage stakeholders sooner rather than later to ensure you have the latitude to develop an effective strategy and you develop a reputation for transparency.
- Nobody and no company is perfect, you will develop more trust with stakeholders if you share the bad with the good.
- Your strategy to engage stakeholders should include a range of channels including: ubiquitous but informal social media, face to face direct meetings, and detailed protocol-based reporting that makes the full story available to anyone interested in looking at your performance at any time.