Back in the 1970s Nobel Prize-winning economist Milton Friedman stated that the exclusive purpose of business is to increase its returns to stakeholders. He argued that companies adopting CSR would be faced with more binding constraints than companies that did not, making them less competitive. He concluded that acting responsibly risks reducing profits or forgoing revenue in the name of social good1.
More than 40 years later, the business world seems to believe otherwise with a new generation of billion dollar “Green Giants” emerging into the market. The term Green Giants refers to businesses with a billion U.S. dollar or more in annual revenue that can be directly attributed to a product, service or line of business with sustainability or social good at its core2. Companies like Chipotle (valued at US$4.1 billion), Unilever (valued at US$ 52.27 billion), Whole Foods Market (valued at US$14.19 billion), Natura (valued at US$2.65 billion) and Tesla (valued at US$3.2 billion) are examples of modern-day Green Giants2. Their success proves sustainability not only does not contradict with profits, but it is the driving force of their business that generates value socially, environmentally and economically.
So how do these so called, Green Giants, differ from others? And how have they successfully turned CSR, something viewed as an expenditure, into profit? For these companies, sustainability is not just a department within the organisation that looks for energy saving solutions around the office and produces a sustainability report each year. Instead, they integrate sustainability as part of their business vision and mission. It is a part of every facet of their business, it is essentially the culture of the company.
One fundamental thing they have in common is they have a workable and profitable sustainability strategy3. Whilst some companies claim they implement a sustainability strategy, often times it is just a short-term plan with incremental environmental or social goals or compliance with regulations and industry standards. For more advanced companies, their sustainability strategy is linked to their overall business strategy, encompassing both supply chain and customers. For companies like the Green Giants, their sustainability strategy is their business strategy.
Although the approach of the Green Giants may not seem possible for all companies, an incremental approach towards a more sustainable business strategy is still beneficial from a business perspective. Addressing sustainability issues can reduce operating costs and identify risks (especially along the supply chain). Through these actions companies will eventually develop loyalty from employees and customers who support and believe in the sustainable actions put in place. For this reason, companies who build a solid business case with a true sustainability strategy are more likely to see payoffs.
What are some of the key considerations to keep in mind when developing and implementing a sustainability strategy?
- Every company operates differently, has a unique organizational structure, supply chain, employee base and geographic footprint, therefore sustainability strategies must be catered to each company in its own unique way as no two companies are the same3. References can be made to other companies in the industry or region, but it is important to remember that what works for someone else might not work for you.
- Identify and prioritise material issues to focus resources. Companies with successful sustainability strategies connect their sustainability efforts with issues and activities that are material to the business3.
- Develop a sustainability strategy that will create value for the company and communicate that to shareholders. A major hurdle for many companies is crafting an approach that improves the environmental and social impacts of their operations while simultaneously producing business value3. Demonstrating that the strategy can create value from a business perspective is the key to getting support from shareholders. This is also the bridge that links sustainability to profit instead of cost.
- Engage and consult with middle management. Middle management is often an important but under-represented group when developing and implementing a sustainability strategy, failure to engage them can doom a sustainability effort. This group often times ends up doing the heavy lifting to implement the strategy, which is why they are most likely to resist. Communication, patience and persistence is essential to get middle management onboard3.
- Establish KPIs tied to important tangible goals with clear assignment of responsibilities. This is important for managing and monitoring sustainability progress, without it, efforts will founder3. Consideration should be given for establishing a separate function in the company to conduct this task.
Sustainability issues were not considered material back in the 1970s and climate change was not something people considered as a foreseeable threat to future generations, so it is not surprising that Friedman’s theory became one of the core business model at the time. Nowadays, with the proven success of the Green Giants it is clear there is a trend and demand for businesses to incorporate aspects of sustainability into their business model. It is time for companies to understand that having a sustainability strategy is necessary in order for them to be competitive and corporate sustainability is no longer a marginal or money-losing set of activities3.
1. The Social Responsibility of Business is to Increase its Profits by Milton Friedman (http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html)
3. Corporate Sustainability at a Crossroads – Progress Towards Our Common Future in Uncertain Times (http://sloanreview.mit.edu/projects/corporate-sustainability-at-a-crossroads/?utm_medium=email&utm_source=enews&utm_campaign=susrpt17)