Sunday, February 13, 2011
Sustainability for Profit: How to Build a Business Case for Sustainability in your Company.
Literally every company is engaged in some activities around sustainability. But barring some, others have not been able to make it an integral part of their business. For many it is confined to philanthropy. As the relevance to bottom-line is unclear, many companies treat Sustainability as sort of 'Extra-curricular'. Its something which is left to discretion of CXO. They are the ones who have championed it in their organisations. It has been a top down approach till date and rest of the management hardly pushes for any sustainability initiatives. Though they would nod in agreement that it is something which they ought to do but they just don't have the business case around it to support it. Its the perception of intangibility and soft benefits which needs to be overcome to nail down the hard benefits. Lets explore Sustainability strictly from 'Bottom-line' point of view keeping the soft-benefits aside.
(I have used real-life examples to drive home the point for an abstract concept like Sustainability)
Market Differentiation: Sustainability awareness has been growing among consumers and now they care. Given a choice, they would always prefer a product which is environment and society friendly.
- A Swedish hotel chain was able to differentiate in market through its commitment to environment.
- A US Builder received nation-wide recognition because of its Green Buildings.
There are several examples where such market differentiation has translated into more revenues either by more volume sales or by a price premium.
Companies can demonstrate their commitment by Eco-labels. There are 369 eco-labels developed for different geographies and industries which guide organisations to sustainability practices and give them the seal for marking their product..
Improved Product & Process Design: An environment friendly product and process design goes a long way in improving overall performance while reducing the cost.
- A chemical company applied the principles of bio-chemistry to reduce the process waste and increase the yield by 30%.
- Under pressure to recycle old carpet, a company discovered that it can make better carpets at reduced cost.
- A woods product manufacturer saved money by putting the waste back into the product.
- A aerodynamic fairing in front of a truck lowers the fuel consumption.
- Using Bio-mimicry, many innovative products are on anvil which would perform much better while consuming less resources.
- A company decided to measures carbon footprint of its Supply Chain and instantly identified areas of improvement. By reducing the carbon footprint it also saved much in energy costs.
The list would go on and on. Carbon Footprinting, Recycling Waste, Collaborative Research, Partnering for Closed Loop Manufacturing are some means by which company can get started to leverage sustainability to improve the bottom line.
Reduced Legal & Image Risks: In todays connected world in which bad news travels as fast as light, spreads like a viral and in a form which can adversely impact consumer perception of a product, brand or company.
- Activist used the popular and viral Dove Evolution campaign to attack the company for palm trees destruction. Dove had to go in damage control mode and started sourcing from sustainable forests.
- A footwear company suffered a big dent in its image due to sourcing from 'Sweat Shops' in China.
- A semi-conductor company got lower insurance rate because it eliminated toxic chemicals from its process.
- A gaming product got banned in Netherlands due to high cadmium content in their cables which led to severe revenue loss for the consumer electronics company.
- A Swiss textile co. was smart enough to see a legislation coming and proactively switched to being chemicals from toxic chemicals.
- WEEE, RoHS, CRC are some of the regulatory compliance which companies will have to adhere to be eligible to sell in the market.
The impact can be measured in ways of avoided legal cost, potential loss of revenues or reduced insurance cost. Though putting the numbers might be subjective here, one can always fall back on real life examples of above to drive home the impact on bottom-line.
New Revenue Sources: A focus on sustainability can open up unexpected new sources of revenue.
- A photocopier producer realized that it can sell off the waste ink to paint companies and packaging to home furnishing companies.
- An Indian company on its focus on Bottom of Pyramid, invented a cheap way of refrigeration and a new ice cream offer to open up a new market for itself.
- Advent of mobile banking had expanded the consumer base for many companies while bringing better standard of living to secluded communities.
For companies, a new consumer base in this competitive world is far valuable than usual revenue projections. A re-look in reverse supply chain which is often considered a burden can open up new revenue opportunities.
Above are just pointers to how Bottom-line can benefit from Sustainability. Add to it, the other intangible benefits and our responsibility to progeny and posterity and we have a compelling case.
A top down approach may not suffice. Participation from other levels of management is key to tightly integrate sustainability with business.