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A Vision of Real Corporate Leadership on Sustainability

The basics of sustainability excellence are fairly well known by now:  reduce your footprint, create products and services that help customers do the same, drive employee engagement, think value chain, track data and enable transparency, and on and on.   But real leaders will go further and address the scale of the sustainability challenges we face by fundamentally remaking their companies.  Here’s what I envision in a few key areas:


Chris Laszlo and Andrew Winston, as editors of this month’s forum, have laid out a framework for true sustainability leadership to help shape the discussion.  Each of them are also providing a deeper dive on one half of their two-by-two matrix, with Andrew taking the “external” side of leadership and Chris the “internal.”  The external discussion focuses mainly on (a) how a company responds to global sustainability pressures and (b) how it does business in a way that’s visible to the outside world…its products, processes, relationships, and so on.


Science-Based Goals

Footprint reduction targets are important, but if the goals are not based on what scientists tell us – i.e., we need an 80% reduction in absolute greenhouse gas emissions – they’re not good enough.  Sony and a few others have targeted zero impact by 2050.  This level of commitment needs to become the norm, and then a few brave souls can go beyond reducing harm (even to zero) and set goals to build restorative enterprises.

Policy

While uncommon today, the basic level of performance on policy should be to make lobbying efforts consistent with core business strategy and public messaging (for example, are you proudly launching products that use less energy, yet lobbying hard against higher efficiency standards?).  Real leaders go much further and lobby for stricter standards and aggressive action on climate.  CEOs can demonstrate their external leadership by promoting this agenda with corporate peers and government leaders.  Some companies are on track, committing to the recent “2 Degree Challenge Communiqué” or joining groups like BICEP (led by Ceres, Nike, and others) which demand strong climate policy action.

Product and Service Innovation

Reducing the customer’s footprint will need to be the core aim of all innovation efforts and all product lines (not just a sliver of the portfolio as it is today).  Sustainability innovators will open up their creativity process, inviting customers and partners to offer innovative solutions (GE’s Ecomagination Challenge is a good example).  Innovators will embrace disruption and heresy (which I’ve written about before) by helping customers use less of their products. For a glimpse of the future, see Unilever’s campaigns to get customers to reduce water use and Patagonia’s Common Threads, which offers a grand bargain: “We make useful gear that lasts a long time…You don’t buy what you don’t need.”

Valuation and Investments: Financial and Operational Metrics

Leaders such as P&G and GE have set aggressive revenue targets for their greener products.  A few companies put a price on carbon for internal capital allocation decisions or, like DuPont and Owens Corning, set aside a percentage of capex for eco-efficiency investments.  These actions help correct the inherent flaws of ROI decision-making by valuing sustainability more explicitly.  The next step is fully incorporating intangible value – employee engagement, customer loyalty, brand value, and the like – as well as measuring and including all externalized costs in investment decisions.  Two trendsetters, Puma and Dow, have begun this important journey.

Investor Relations

I believe that the relentless pursuit of short-term, quarterly profit goals to please Wall Street analysts is bad for companies – great enterprises very rarely seek profit alone – and certainly isn’t good for the planet.  Like Unilever’s CEO Paul Polman, the real leaders will stop providing quarterly guidance and ask managers to focus on the real measures of success: making great products, serving customer needs, creating good jobs, and driving both cash flow and long-term profitability.  The most sustainable companies will become “benefit companies” or “B Corps”, with a broader charter than just pursuing shareholder value.  Seek greatness and sustainability, and the money will follow.

Resources Dedicated

Most companies give their sustainability execs woefully inadequate resources to do their stated jobs, let alone transform their companies.  A truly committed organization will allocate resources equal to the challenge and will give the sustainability function real power.   I suggest creating a “skunk works” team run by sustainability, along with perhaps corporate strategy and R&D, to question everything and challenge the core business model (e.g., What if the product were a service? What if we used no fossil fuels?).  This is how companies can systematize heretical innovation.

Employee Engagement

Educating all employees on sustainability principles and creating green teams are good first steps.  Tying all executive compensation directly, and substantially, to sustainability goals is even better.  But real leaders should work to convince those hostile to change throughout the organization…or eliminate them.  In the words of Jim Collins in Good to Great, “get the right people on (and off) the bus.”  Leaders will also help employees pursue sustainability in their own lives and communities and provide an outlet for organizing campaigns, such as the awareness-raising “climate ride” conducted by apparel company Eileen Fisher.  If the workplace is appropriate for United Way drives, why not for climate action?

In short, I’m imagining a very different kind of company. The overwhelming challenges we face demand profound shifts.  Of course, much more than I’ve mentioned will need to change – on the social side of the equation for sure – so please let me know what you would add to my vision of true leadership.

Comments

Getting Comfortable with Discomfort

Here, here, gentlemen. Andrew and Matt, It's exciting to be getting to the point where more leaders, whether at the helm of a multinational as is Paul Polman, or an individual with her/his own network of influence, are willing to stand up and acknowledge that the only way to get beyond the discomfort of today is to march through it. Those who come to grips with this soonest, finding co-creators on the front edge of the line, are the ones who will be carving a place for themselves in the new order of things as it unfolds. Thank goodness for our community of sustainable brand leaders who are brave enough to be pushing the envelope as fast as possible in acknowledgement of the very real imperatives demanding us to do so.

Toby, thanks for pointing to Umair's latest treaties on "Economics for Humans". I encourage all to download it here: http://hbr.org/product/betterness-economics-for-humans/an/11135-PDF-ENG
Its a quick, and well worthwhile read..

For many years I’ve been

For many years I’ve been frustrated watching sustainable business consultants stay within the existing paradigm, position every potential green decision as narrowly dependent on whether “it meets the business case,” avoid asking the big questions (or even acknowledging there are any), and show no awareness that they—and their clients—live on, and have a stake in, (endangered) planet Earth.  They may quietly have known this, but were careful not to show it.  But I’m happy to detect considerable progress in the past few years, particularly in the last 1 ½ years, from a growing number of them. 

But “…questioning everything and challenging the core business model…;” and “systematizing heretical innovations!”  With this piece, Andrew is threatening to become the U.S. version of Europe’s Jem Bendell—far ahead of everyone else.  Fortunately, he has some competition (or in the sustainability-adapted sense: coopetition) for that role from a few other consultants.

Andrew covers more of the right bases than I’ve ever seen in any one place before.  We’re way past the “X Simple Things” stage here.  But since he asks for “what (he) could add to (his) vision of true leadership,” I’ll comply. 

First, some of what could be added he already has, but could be more explicit.  He could add that all metrics should be informed by the current understanding of environmental limits—not just carbon emissions.  While knowing and reporting on externalities is pioneering, he should mention the company’s impact on biodiversity, in particular.  He comes very close, but doesn’t quite say that leading businesses must seek “transformation,” as incremental improvements, what we do 99% of the time, are necessary but insufficient.  While a dedicated skunk works for sustainability is great, the message should be that the entire company culture must be set up to learn, question, and innovate.  I’d also like to see a legitimized internal “provocateuring” function to, among things, point out when the culture isn’t living up to the charge.

He acknowledges that “much more” is needed “on the social side” as well.  While the social and environmental are often intertwined, I’ll add two areas I’ve rarely seen done, and one I haven’t seen at all yet.  These are: respectively, adaption of the international Millennium Development Goals in the company’s goal-setting, finding a CSR-compatible way to accept the Occupy Wall Street’s agenda, and supporting campaign finance reform, in particular.

Finally, as an overarching ethic, I’d like to see a lot less expression (except perhaps by companies new to it) that sustainable business practices are OK as long as they’re good for the bottom line; and a lot more widespread recognition that the prosperity of the business is intimately tied to the success of the larger society and the health of the planet.

This inevitably brings up uncomfortable questions about the future evolution of capitalism and even the fundamental role of business.  And these, in turn, bring up what happens when “the right thing to do” doesn’t appear consistent with the bottom line; or, even when there isn’t a great moral issue at stake, what to do when a proposed green initiative just doesn’t seem to get there.  How does the company aiming for leadership ponder and develop solutions to these conundrums, while constructively contributing to the broader societal debate?

That’s why we need more sustainable business consultants and clients to get comfortable with discomfort; admit when they don’t know the answers, which probably is not easy for a consultant; and get on with creatively figuring these out.  I’ll add one more thing: tell the rest of us what you’ve learned. 

Playing it safe just isn’t going to cut it for sustainable business consultants anymore.

Re: For many years i've been

Matt,

Thank you so much for your thoughts.  These are great additions.  I wholeheartedly agree with the point about MDGs and about the Occupy movement.  If we don't get money out of politics (which I think is one of the core points of OWS, even if they don't lay it out that clearly), none of the rest of this agenda will get done.  It's all very closely tied to the point I did include about not focusing on quarterly profits only...

Thanks again.

Andrew

Great! But let's include suppliers

This article gets to the heart of the innovation needed for real sustainability. We need to get beyond incremental improvement. Incremental improvement doesn't really do anything because the increment is on a per product basis and we're always making and consuming more products.

Let's add supply chain dialog to the mix. Often our suppliers have solutions that will reduce our footprint, but if we don't openly discuss our needs with them, they can't help us. SABIC Innovative Plastics (formerly part of GE) has an engineering team that will work with their customers to improve the end product. The team originally focused on product performance, but they've added LCA to the mix so they include environmental performance in the evaluation.

As an example, they designed a car door part that reduced the weight of the door using one of their alternative materials. Since every ounce of weight reduction multiplies itself through the car design (a lighter body requires a smaller engine to move it, etc.) this is a real step forward in the car's efficiency and environmental performance. But without the in depth material knowledge, the auto manufacturer doesn't have the tools to go find this solution on their own.

Opening up a dialog up and down the supply chain will help us make the quantum leaps that are needed to get to that 80% reduction in emissions. Without our suppliers, we're not going to get as far.

sustainability leadership

These are some great points for consideration. We are potentially on the cusp of a massive transformation in how businesses can operate and create value. I believe that we have to start working towards creating restorative enterprises now, not merely sustainable ones.

We also have to look at a wider spectrum of values when we're talking about what a company generates. Companies need to start actually making a difference in their communities.

For a great blueprint of what a new economy might look like, search out the book/essay called Betterness: Economics for Humans by Umair Haque. You won't be disappointed!

Great editorial! Couldn't

Great editorial! Couldn't agree more! I teach at the Smith School of Business and often talk about a new type of company in the future as well. The Center for Social Value Creation's mission is simple - to create a better world through business principles. Our vision is to develop business leaders who go beyond simply responding but rather seek out opportunities to affect real change through industrious career paths and social innovation broadly defined.

Andrew - we are hosting our 4th Annual Social Enterprise Symposium for University of Maryland students on March 1. Would you be interested in speaking to 600+ students on campus?

Sustainability Teams Unleashed

Andrew, Yes! Your article shows great incite into the many complex issues corporations face today. Most companies do not yet realize the power their Sustainability Organization has to transform their future, corporate vision, products and profit margins. These teams need to be unleashed and given resources to create and recreate with the opportunity to question everything. Internal Sustainability Teams that have creative license just like independent marketing agencies have are some of the new creative geniuses of the modern corporation, and it's all organic growth native to the corporation.

David Podmayersky
Sustainability Director
EarthColor


Andrew Winston is a globally recognized expert on how companies can navigate and profit from the world’s biggest environmental and social challenges. His first book, Green to Gold, sold over 100,000 copies in seven languages. Inc Magazine included Green to… [Read more about Andrew Winston]


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