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Sustainability Management Can Create Competitive Advantage

by Alyssa Farrell, http://www.sas.comTuesday, April 7, 2009

All organizations are called to become better stewards of our natural resources, embrace environmentally friendly practices, and adopt fair trade policies. The urgency to implement “sustainability strategies” has shifted from a small but vocal number of advocates to broad majorities of consumers and governments worldwide. Issues such as climate change, energy consumption, labor practices, food safety, pollution, and waste management are strong factors in the impressions that companies make with stakeholders such as consumers, investors, regulators and watchdogs.

In late 2008, a study by the Economist Intelligence Unit explored the hypothesis that corporate citizenship can help to improve the bottom line. Seventy-four percent of respondents to the survey conducted for this report say that corporate citizenship can help to increase profits at their company. In an economic downturn, it can be a vital competitive advantage. Seventy-one percent of respondents say that business sustainability depends on effective corporate citizenship. When times are bad, companies typically spend less, and an effective strategy can save money.

A separate study sponsored by SAS identifies a trend toward globally focused sustainability programs.  In the study results, sixty percent of companies with a regional focus on sustainability management expect to change to a global one.

Costs and benefits of adopting the Triple Bottom Line

As companies begin assessing the costs, benefits and advantages of the initiatives that markets, industry consortia and government agencies are demanding, it’s a good idea to look at the roots of this concept. Sustainability first appeared on the world agenda when the United Nations applied the term and later founded the Commission on Sustainable Development. Initially, the UN defined sustainable development as development that “meets the needs of the present generation without compromising the ability of future generations to meet their own needs.” Practitioners have now expanded this definition to encompass environmental, economic and socio-political aspects.

The Triple Bottom Line—or People, Planet, Profit—is an important term related to sustainability that was promulgated by the UN. The Triple Bottom Line conceptually expands the traditional financial framework to encompass rigorous reporting on the organization’s performance on sustainability issues such as the carbon footprint, hiring practices and dozens of other metrics. The unifying principle of the Triple Bottom Line that advocates continually underscore is that, regardless of company size, managing for sustainability aligns with greater efficiency and improved corporate performance.

Ways Sustainability is Paying Off

It is true that regulatory and market demands can create significant frameworks that, undeniably, add non-product overhead to the costs of running the business. Even so, properly directed, the efforts that companies devote to improving their sustainability posture can pay substantial returns in the forms of lower costs, an enhanced competitive position, improved product quality and a more appealing corporate image.
           
Dozens of examples are found in the book “Green to Gold.”  Its authors, Daniel Esty and Andrew Winston, identify companies that have put sustainability at the top of their agenda and achieved meaningful results and tangible and intangible advantages:

IKEA – The legendary maker of assemble-it-yourself furnishings achieved lower supply-chain costs by dramatically reducing the environmental impact and financial costs of its product distribution. The company strives for “flat packaging” that squeezes every cubic inch out of every box. That lets IKEA pack its trucks and trains much more compactly and increase its fill rate as much as 50 percent. The result: decreases in fuel consumption by as much as 15 percent. In one instance, the company trimmed 3 cm from a box for a sofa, enabling it to fit four more sofas on a trailer.

Hewlett-Packard – Customers of the dominant printer manufacturer were increasingly reluctant (or unable) to dispose of old toner cartridges for its acclaimed laser printers. Nimble competitors selling reconditioned cartridges were also eroding the lucrative after-market of a key HP business. In response, HP launched “Planet Partners,” a high-margin, $100-million recycling and remanufacturing business that recycles 11 million cartridges each year.

General Electric – As part of its groundbreaking “ecoimagination” campaign, GE set forth an ambitious list of goals: reducing greenhouse gas emissions, ramping up R&D investments in environmental technologies, and more. The company monitored its campaign using scorecards to assess the environmental strengths and weaknesses of 17 key products it concluded were the best candidates to improve customer operating and environmental performance – from jet engines to solar panels. As Esty and Winston note, “With a focus on specific products, ecoimagination is as much a product play as a committed effort to go green: GE wants to sell those jet engines, not just have environmentalists admire them.”

Citigroup – In 2004, the financial services leader conducted a simple test in a small subset of its offices. It bought 30-percent-recycled paper for printers and made double-sided copies its default standard. The simple test reduced paper consumption by 10 tons and $100,000. The energy saved in the paper-making process reduced greenhouse gas production by 28 tons. A simple initiative like this gets the attention of the entire organization.

Sustaining the Movement

This December, representatives from 170 countries will meet in Copenhagen to discuss emissions reductions targets and the Kyoto Protocol.  This is the last set of global meetings before the Protocol needs to be renewed in 2012. Meanwhile, increasing country-specific regulations will increase regulatory complexity for global companies, many of whom have expanded outside their home country for competitive advantage in new markets.

At SAS, we are expanding our commitment to sustainable development by proactively creating an inventory of business practices in order to measure their impact on our financial, human and natural resources. Our scope of evaluation is guided by the Global Reporting Initiative framework for sustainability reporting.  SAS recently announced the completion of a one-megawatt solar farm , located at our campus headquarters in Cary, NC.  For this, and other efforts in 2008, SAS was named North Carolina Green Company of the Year.

About the Author

Alyssa Farrell has responsibility for SAS’ Sustainability Solutions and works with SAS customers around the world to understand best practices and solutions for managing their business with environmental responsibility in mind. She participates in environmental industry groups and supports the SAS Executive Sustainability Council, the leadership team that governs SAS’ sustainable business practices.  Farrell regularly speaks with trade associations, analysts and the press about the opportunities organizations have to effectively manage a sustainable strategy and drive healthy economic growth.

Prior to joining SAS, Farrell was a senior consultant in the Deloitte Public Sector practice. She is a graduate of the Eller College of Management at the University of Arizona, where she earned her MBA degree with a concentration in Management Information Systems. She also holds a Bachelor of Arts degree from Duke University.

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