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…a new mindset to SUSTAINABILITY (video) combo

 

Three ways to change our mindset

Perhaps the biggest challenge for the 21st century is how to build a sustainable society. Overcoming this challenge means letting go of the rather negative vision of sustainability that concentrates mainly on what has gone wrong with our economic development model. Instead, we need to adopt a new mindset highlighting all the options and possibilities that a systemic approach to sustainability offers us.

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In order to tackle the enormous social, economic and environmental isses on the horizon, we can no longer afford to continue with “business as usual” – we are already using 50% more resources than the planet can provide and will need the resources of three planets to sustain our growing population by 2050. In reality, even the organizations that are at the forefront of the corporate sustainability movement have only managed to put on the brakes and slow down the rate of social and environmental damage. What the world needs now are more enlightened organizations that are willing to turn their businesses around and embark on truly restorative sustainability journeys.

Why all businesses should embrace sustainability

Some top companies are leading the way

Knut Haanaes

By Professor Knut Haanaes
Sustainability is becoming more important for all companies, across all industries. 62% of executives consider a sustainability strategy necessary to be competitive today, and another 22% think it will be in the future.Simply put, sustainability is a business approach to creating long-term value by taking into consideration how a given organization operates in the ecological, social and economic environment. Sustainability is built on the assumption that developing such strategies foster company longevity.As the expectations on corporate responsibility increase, and as transparency becomes more prevalent, companies are recognizing the need to act on sustainability. Professional communications and good intentions are no longer enough.The following industry leaders illustrate what sustainability initiatives look like:

  • Nike and Adidas have both stepped up seriously. Nike has focused on reducing waste and minimizing its footprint, whereas Adidas has created a greener supply chain and targeted specific issues like dyeing and eliminating plastic bags.
  • Unilever and Nestlé have both taken on major commitments; Unilever notably on organic palm oil and its overall waste and resource footprint, and Nestlé in areas such as product life cycle, climate, water efficiency and waste.
  • Walmart, IKEA and H&M have moved toward more sustainable retailing, largely by leading collaboration across their supply chains to reduce waste, increase resource productivity and optimize material usage. It also has taken steps to address local labour conditions with suppliers from emerging markets.
  • Pepsi and Coca-Cola have both developed ambitious agendas, such as increasing focus on water stewardship and setting targets on water replenishment.
  • In biopharma, Biogen and Novo Nordisk have both worked toward energy efficiency, waste reduction, and other ecological measures. They have also focused on social impact via partner initiatives in the areas of health and safety.
  • In financial services we see how banks like ANZ and Westpac in Australia both advance local communities with good sustainability practices and by embedding sustainability in their business processes and culture.
  • Car manufacturers like BMW and Toyota have made strides on energy efficiency and pollution reduction, not to mention Tesla as an outsider really challenging the industry’s overall footprint.

These firms have all made strong commitments to sustainability, in large part through transparency and addressing material issues. They are embarking on a more sustainable journey, and all firms should follow suit over the next decade.

Two gaps to beware of

In order to address sustainability appropriately companies need to bridge two critical gaps:

  • “The knowing – doing gap”: A study that I participated in by BCG/MIT finds that whereas 90% of executives find sustainability to be important, only 60% of companies incorporate sustainability in their strategy, and merely 25% have sustainability incorporated in their business model.
  • “The compliance – competitive advantage gap”: More companies are seeing sustainability as an area of competitive advantage, but it is still a minority – only 24%. However, all companies need to be compliant. Management should address these topics separately – not mesh them together. Compliance is holistic, a “must do”. For competitive advantage, only a few material issues count.

Companies that stand out in the area of sustainability address both gaps. They have evolved from knowing to doing and from compliance to competitive advantage. They also know the risk of getting this wrong. For instance promising and not delivering, or addressing material issues without being solid on compliance.

Some practical recommendations

Just like with overall strategy there is no “one right solution” on sustainability. The best solution depends on the ambitions and stakes at each company. Here are a few useful actions for all management teams to improve sustainability practices.

1]    Align strategy and sustainability: Management needs to make sure that the strategy of the company and the sustainability efforts are aligned. Often we see divergence, which of course makes the sustainability efforts fragile, lacking real commitment and prioritization. There are many good examples. Take Unilever’s “Sustainable Living” which has the ambition to decouple growth and output as well as reduce its resource footprint by focusing on waste reduction, resource efficiency, sustainability innovation and ecological sourcing (like in organic palm oil). Similarly, Toyota is well known for innovation in hybrid engines, but less so for reducing their dependence of rare earth minerals. These minerals were required for hybrid and electric engines. But by developing alternative motor technologies Toyota reduced its import dependence and operational risk, and in doing so reduced its financial risks in case of price increases.

2]     Compliance first, then competitive advantage: First and foremost companies need to address compliance, which often relates to regulations in waste management, pollution and energy efficiency as well as human rights and labour responsibility. Compliance is also an issue that concerns investors. Recent BCG/MIT data shows that investors increasingly shy away from compliance risks. A full 44% of investors say that they divest from companies with poor sustainability performance.

3]     Reactive to proactive: Many of today’s leading companies in sustainability, like Nike, Coca-Cola, Telenor, IKEA, Siemens and Nestlé have stepped up largely as a consequence of a crisis. For example, Nike faced boycotts and public anger for abusive labor practices in places like Indonesia throughout the 90s, but turned the tide around. In 2005, it became a pioneer in establishing transparency by publishing a complete list of the factories it contracts with and a detailed 108-page report revealing conditions and pay in its factories. It also acknowledged widespread issues, particularly in its south Asian factories. By recognizing the impact of sustainability in a crisis these companies have all developed more proactive sustainability strategies.

4]     Quantify, including the business case: All companies struggle with quantifying the return on their sustainability investments. With regards to compliance this is a straight forward issue. With regards to areas of competitive advantage, however, companies need to link sustainability to a business case. But the ones that actually do form a relatively small group.

5]     Transparency is a pre-condition for assessing and improving sustainability practices. You cannot judge without transparency, simple as that. Transparency builds on the idea that an open environment in the company as well as with the community will improve performance. The only way for companies to accomplish transparency is through open communications with all key stakeholders built on high levels of information disclosure, clarity, and accuracy – as well as an openness to recognizing faults and improving practices.

6]     Engage the Board: A full 86% of respondents in a recent survey by MIT/BCG agree that boards should play an active and strong role in sustainability. But, only 42% report that their boards are substantially engaged. Boards are often critical in collaborations with key stakeholders such as NGOs, governments and international Organizations.

7]     Engage your ecosystem: We see that collaboration is critical for efficient sustainability practices, in particular in solving crises and in shaping broader solutions. The MIT/BCG data shows that 67% of executives see sustainability as an area where collaboration is necessary to succeed.

8]     Finally – and most importantly – engage the organization broadly: One example of engagement is Salesforce.com which through their “1/1/1” philanthropy program contributes to each employees’ personal ability to engage with environmental organizations and initiatives that support local communities. Another good example is Nespresso, responding to the debate over the sustainability of its capsules, the company has embedded sustainability into the DNA of every part of its business. Nespresso’s very purpose is linked to the so called “Positive Cup” campaign. Sustainability is considered during every decision made at Nespresso. The company seems sincere about reducing its impact and is even looking at its aluminum sourcing.

In sum, sustainability is a major challenge, one that matters beyond individual companies. But reassuringly a number of large companies are developing forward-thinking sustainability policies. It is really becoming clear that sustainability is a megatrend that simply isn’t going away!

Knut Haanaes is a Professor of Strategy and International Management at IMD.

Research sources

Sustainability Nears a Tipping Point

Sustainability: Collaboration and Leadership for Sustainability

Five capabilities for a greener supply chain

Preparing your organization to compete on environmental sustainability

Ralf W. Seifert

By Professor Ralf W. Seifert

As concerns over sustainability rise, corporations are extending their efforts to improve their environmental performance. For more than a decade, standards such as the ISO 14000 series request action on a broad number of issues ranging from life cycle assessment and greenhouse gas emissions to labelling and communications for product design.

Adding to these challenging external standards, companies leading in environmental sustainability are proactively setting targets that are even more daring. By doing so, these measures ensure their long-term development and may lead to a significant competitive advantage. However, at the same time, many companies still struggle to comply with even basic environmental standards. To find out why, we investigated the internal and external capabilities of firms that are most influential in the journey towards sustainable products and supply chains.

Interestingly enough, in line with studies in the field of strategic management, it turns out that there is no need to think too far outside of the box for greener supply chains: management skills and how leaders behave are the key capabilities needed to run successful sustainability initiatives.

Nestlé, the 2013 industry leader in the Dow Jones Sustainability Index is a prime example of this. One of their major initiatives, a sustainability program around ‘Zero waste to disposal’ for factories, showed that the actions and policies of top-management were the main success factors of its effectiveness, with the exception of some countries where legislation is strict. One main implementation challenge remains due to the cultural differences in the countries where it operates. Nestlé overcomes this by explicitly describing the broader objective of sustainability initiatives internally and providing incentives and training for their employees.

Despite its global operations, Nestlé managers are able to identify local solutions in the markets it operates in. For example, factories work with neighboring farms and communities for recycling and reuse of production by-products. Moreover, communication platforms and regular meetings with internal stakeholders help identify and reduce common resource inefficiencies. As a result, markets reap the benefits of decentralization by learning and implementing solutions faster. Finally, Nestlé’s continuous improvement program provides methodologies that can be used to track progress.

Likewise, leading companies such as Adidas, BMW, and Unilever are working on improving their environmental sustainability performance through developing management skills and integration. For example, Adidas was the leader in the textile industry in the 2015 Global 100 Index, which measures the most sustainable corporations in the world. In their 2015 report, Adidas sites senior manager commitment and horizontal integration as success factors for having embedded sustainability management in their core business functions and daily decisions.

BMW has also set personal sustainability targets for managers, who subsequently receive performance-based remuneration. In their 2015 report, they state that “Environmental improvements that have been effective at one location are implemented at other locations wherever possible.”

Five key capabilities

There are major challenges to overcome if firms are to operate sustainably where they produce a zero or positive net impact on the environment. As seen in the examples above, companies can effectively and proactively transform towards environmental sustainability and gain competitive advantage though management practices. To do so, here are the key capabilities managers should drive for in their organizations.

  • Communicate your purpose internally, follow up on progress and increase motivation by rewarding success with incentives and recognition for implementation success. Companies that clearly communicate to their internal and external stakeholders why they are launching sustainability initiatives are more likely to be successful. Some channels include the firm’s mission, policies, targets and internal standards.
  • No single solution fits all: identify and standardize routines that enable learning and communication. Depending on your company structure, seize the opportunities to prototype or replicate solutions. For decentralized companies, encourage markets to share their success stories and replicate solutions elsewhere based on the market, safety and quality conditions.
  • Be proactive. Keep a close eye on changing environmental regulations and shape competition for the future. Identify and implement initiatives that maximize the gains in environmental performance. Update your internal routines, company structure and partnerships should they no longer provide competitiveness.
  • Improve your internal capabilities before changing trusted suppliers. Countless companies and scientific studies focus on sustainable sourcing as a means of improving environmental performance, yet supply and collaboration in the supply chain are only one part of the equation: the behavior of any supply chain entity is governed by its internal routines and processes.
  • A supply chain is only as strong as its weakest link: consider your supply chain partners in the firm’s environmental mission and vision.

We live in an era where companies are competing on their environmental sustainability performance. The world’s leading companies are taking great steps on the long road to sustainable supply chains and products through management skills. Their top managers have the skills to embed environmental sustainability in their core business, and drive commitment within their organizations. If others are to compete, investments for developing top management skills are crucial.

Ralf W. Seifert is Professor of Operations Management at IMD and he directs the Leading the Global Supply Chain (LGSC) program.

Mervegül Kırcı is a doctoral researcher at the Chair of Technology and Operations Management at EPFL. She holds a M.Sc. Degree in Environmental Engineering and Management of Technology from EPFL, and a B. Sc. Degree in Civil Engineering from METU in Turkey. She previously worked at Nestlé in the area of Sustainable Supply Chain Management.
References

Mervegül Kırcı and Ralf W. Seifert, 2015. Dynamic Capabilities in Sustainable Supply Chain Management: A Theoretical Framework. Supply Chain Forum: An International Journal 16(4), 2-15.

BOOK JANUARY 2015

Thriving in the Future

A Responsible Leader’s Guide to Sustainability

By Allen J. Morrison and Heidi Strebel
Sustainability and responsible leadership are more than hot boardroom topics. They are the key to a successful future for every company, large or small, across the globe. But do the enormous technical and psychological challenges of transforming your organization into a sustainable poster-child fill you with frustration, skepticism or feelings of helplessness? Do you feel overwhelmed? Confused? Burned by expensive attempts to lead your organization onto sustainable paths that failed to result in “triple wins” for your business, society and the planet?Let global leadership guru Professor Allen Morrison and sustainability expert Dr Heidi Strebel of IMD’s Global CEO Center guide you into a future in which your company will not only survive but thrive. You have the power to change the world. Thriving in the Future: A Responsible Leader’s Guide to Sustainability will show you how. Morrison and Strebel offer responsible leaders a practical, step-by-step, transformative path forward to a sustainable future developed from their extensive research and in-depth interviews with game-changing innovators like Herman Miller, Tata Motors, Philips, Nestlé, Natura, Tupperware, LEGO and many others. Their success can be your success.
IMD Publishing, 2015 ● Paperback ● ISBN 9782940485116
Buy hard copy or Kindle eBook

…Beyond sustainability as ‘less’

The notion of “sustainability as less” – fewer people, resources and production together with less consumption and pollution – is actually not enough. On one hand, we absolutely need to do all of these things if we are going to give our children anything like the planet that we inherited, but it needs to be complemented by another approach that leverages the growth imperative that got us in this mess in the first place.

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WHAT’S STOPPING YOUR SUSTAINABILITY SCHEMES?

Lack of interest from investors is a key factor. So too is inconsistent customer demand. But some of the biggest barriers facing companies that are trying to roll out sustainability strategies come not from outside, but from within their own business. These internal obstacles take the form of knowledge gaps, fixed and short-term mindsets, and an absence of incentives for managers to change behaviors.

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