A client coaching session last week focussed on investment appraisal and how it can block sustainability progress – in this case investment in renewables. As we dug deeper and deeper into the company's systems, we realised that the process did not account for direct carbon costs as these were apportioned to a regulatory budget. Simply factoring this into the benefits of investing in renewables could change a difficult decision into a very simple one.
Total Cost Accounting is the concept of apportioning all costs, fixed and variable, to their proper place. This sounds obvious, but simply being aware of all the costs involved is a challenge in itself. This is where a coach comes in handy, as they (I!) can ask the apparently stupid questions which uncover uncomfortable truths hiding in plain sight.
My client now has the task of trying to change the criteria to factor in carbon costs. In theory this shouldn't be too difficult as it will lead to better decisions from a financial point of view as well as a sustainability aspect, but in practice, changing processes in a very large company is never easy. But once it is done, all low carbon options will compete on a level playing field on costs at least.
Of course there are many other benefits of renewables which should be factored in – PR, customer satisfaction, employee engagement, energy security, risk reduction – but getting the £, $, €, ¥ right is an important step in the right direction.
Yesterday at a kids party, a neighbour of mine asked me "You must be even more furious about the EU referendum result than I am?" She was quite surprised when I told her I was "sanguine" about it, despite having actively campaigned for an 'IN' vote.
Why? The most pivotal moment since the momentous result was the outgoing Prime Minister David Cameron refusing to pull the trigger on 'Article 50' which would start the Brexit process. This means that whoever takes over from him would have to actively pitch the country into the unknown. A poisoned chalice indeed.
If that is a Remainer Tory PM, what incentive is there to press the button and risk long term damage to our country? If it's the current favourite, Brexiter Boris Johnson, he's already signalled that there is "no rush", that initial negotiations with the EU should be "informal" and that he wants to maintain a close relationship with Europe – a statement which has been interpreted as swift back-pedalling. If a new PM went to the polls, there's a strong chance of a change of Government and the possibility of a party standing on a Remain ticket forming part of the Government. The EU referendum result is only advisory in law and could be trumped by an electoral mandate.
So there is no Brexit plan and no enthusiasm from anyone to make one. And my prediction is that, as the cold light of reality shines on the implications of walking away from the EU, Brexit will slowly but surely become Fudgit.
OK, but if I'm wrong, and we suddenly find ourselves on our own, what are the implications for Sustainability in the UK?
Well all existing EU environmental directives are enshrined in UK law during the implementation phase, so a post Brexit Government would have to actively dismantle what is there. Future directives would at least partly have to be adopted by UK companies to maintain trading links – and may be imposed as a condition of staying in the single market. The biggest downside of Brexit from this point of view would be our lack of a seat at the table when such directives are drawn up.
Also, we are a global economy. So if we want to sell to, say, Walmart, P&G or Unilever, our industry would be required to comply with their supply chain targets. These will only ever get more ambitious.
So, while I believe Brexit is the wrong path for our country, I'm not convinced that it will happen, or indeed that the drivers for sustainable business will diminish much if it did.
Here are some of the excuses I've heard over the last couple of years not to move forward on a Sustainability project or strategy:
We're selling part/all of the business
We're buying a new business
We're in financial difficulty
The boss has been sacked
I've got a new boss, don't know what his position on this is
We're writing our annual sustainability report
It's not a good time to ask the boss
I'm too busy
Now, I'm not knocking any of these reasons – they're all pressures we all feel at different times. But given the overwhelming evidence to link strong Sustainability performance with strong business performance (eg here), why wouldn't you prioritise Sustainability?
The problem is the annoyingly persistent old mindset of "Sustainability costs you more" when we should be thinking "Sustainability is an engine of growth." Change the mindset and the problem becomes a solution.
Years ago I was at a regional sustainability workshop and the facilitators made the mistake of giving each table a blank flipchart to list our priorities.* One lady in our group from a conservation group promptly slammed a fat file of newspaper clippings and internet print-outs on the table and commenced a lengthy rant against wind turbines, oblivious and impervious to all attempts to change the subject.
More recently we've had the big debate about climate change vs local air quality – I'm one of those who went diesel in the drive to cut carbon emissions, but at the expense of other pollutants. Of course the anti-climate change brigade have jumped on this as an example of 'green idiocy'.
And I'm sure we've all come across minds which are fixed in the concrete of "sustainability = reduced profits" despite all evidence to the contrary.
In all three cases, progress gets stuck on the spike of a false 'OR'. We can have renewable energy AND protect the countryside, we can tackle climate change AND local air quality, we can be sustainable AND turn a healthy profit. But those ORs must swap to ANDs or we'll be stuck on the start line.
The latest edition of Ask Gareth considers the relationship between Sustainability and the bottom line – and explains why a change of mindset is required to get the most environmental and economic benefit out of Sustainability.
Ask Gareth depends on a steady stream of killer sustainability/CSR questions, so please tell me what's bugging you about sustainability (click here) and I'll do my best to help.
Go beyond compliance, but don't neglect compliance.
As the fall out from the VW emissions cheat continues, the car behemoth has set aside an initial $7.3 billion to cover the costs of the scandal, 30% has been wiped off the company's value and criminal investigations have begun. But the wider damage to the brand's reputation (which was built on dependability, after all) is much, much bigger. As one board member put it "The damage done cannot be measured."
Compliance underpins sustainability. If you get compliance wrong, it doesn't matter what absolutely fantastic things you do, the whole pyramid comes tumbling down. As my schoolteacher (and no doubt yours too) used to put it "You're only cheating yourself."
I'm working on an employee engagement project for a major client which requires a quite detailed literature review. While I endeavour to keep up to date with the latest thinking in practical terms, it is rare that I get to plunge into the murky depths of the academic literature. While ploughing through the peer-reviewed papers, it struck me that they tend to fall into two camps:
Those that conclude that employee engagement is vital to the success of sustainability performance;
Those that find that sustainability is a great way of getting employees engaged in a more general way with their employer with consequent financial benefits (some quote 18% more productive employees and 12% more customer loyalty).
These two form a nice virtuous circle – the more you engage, the better your sustainability programme, which gives you more opportunities to engage etc.
It also opens up a new case for employee engagement for sustainability. Instead of saying "I need £X,000 to engage our employees to meet our sustainability targets." you can say "Invest in £X,000 in our sustainability engagement and I will give you much more productive, effective employees, better business performance – and progress towards our sustainability targets."
For those of you struggling to persuade senior management to loosen the purse strings, this kind of argument might just tip the balance.
Update: As I read on, I've come across a third nexus between employee engagement and sustainability/CSR – those who see having engaged (read: happy) employees as a CSR goal in its own right. Interesting...
Industries fail. Big brands hit the rocks. Governments fall. Change is as inevitable as the sun rising in the morning.
The winners are those who can read the writing on the wall and embrace the new realities. The losers are those who sit tight and pin their faith in crossed fingers.
With climate change at the top of the agenda, resource prices remaining stubbornly at an historic high and environmental legislation tightening, sustainability pressures are building. On the other hand clean technology evolves, synergies emerge and business opportunities open up.
Change brings with it risk, yes, sure, but what people are less attuned to is the risk of 'do nothing'. A powerful 'Green Jujitsu' lever is to communicate 'business as usual' as the bigger risk - to tap into people's risk aversion to push them towards sustainability, not away from it. That takes a clever piece of reframing, but it does work when you get it right.
I'm delighted to announce that Building a Sustainable Supply Chain, my second DōShort eBook/short book, goes on sale this week. If you haven't come across DōShorts before, the idea is to give readers a 90 minute high-impact read on critical sustainability issues.
And what could be more critical than the supply chain? It's where much, if not most, of the impact of your organisation lies, you have only indirect control of those impacts, you often have precious little visibility and, if an issue blows up in the supply chain, it is the big brand at the top that gets it in the neck either through reputational damage or soaring costs.
What I have set out to do in BASS-C is to show how building a sustainable supply chain requires going way beyond the plethora of frameworks that have sprung up to embed sustainability in purchasing decision making, and link it to strategic business planning - corporate philosophy, business model, product design etc. After all it is those functions that determine the shape of the supply chain.
To get some fresh case studies and perspectives, I carried out a number of interviews with leading sustainability practitioners, extracts of which I've been posting up here on the blog over the last few weeks (there's a couple more in the pipeline). As usual these uncovered some real gems, worth the cover price alone.
Here's the five pieces of advice with which I conclude the book:
Make sure you are dealing with the big issues in your supply chain – nobody will thank you for tinkering around the edges;
Be ambitious. Incremental targets lead only to incremental improvements; stretch targets lead to breakthrough solutions;
You won’t solve these problems on your own: bring everybody concerned with an issue on board, get them thinking in the right direction and ask for their help in generating solutions;
Be prepared to get tough. If a supplier won’t play ball, find another supplier;
Relish the challenge. If you’re not failing, you’re not trying hard enough. Perseverance is the key to success.
Do you need to know more? Then what you need to do is sign up to The Low Carbon Agenda, as on Thursday readers will get a smorgasbord of extracts, offers and insights.
Precious metals giant Johnson Matthey plc is one of those huge companies you may never have heard of, but if you have a conventional car then there's a one in three chance you own one of their catalytic convertors. The company is listed on the FTSE100, has 11,000 employees spread across 30 countries, and is one of Terra Infirma's clients. Here I interview Global Sustainability Director Sean Axon about his views on corporate sustainability in general, and supply chain management and employee engagement in particular.
How did you personally get involved in the sustainability agenda?
It goes back a long way. As a kid I was very interested in chemistry and what science could do, but equally realised the potential downside to ecology from industry. I got a book with my Thomas Salter Chemistry set about industrial ecology and the effect of chemicals on the environment which was very influential. Later, at a key point in my career I got interested in green technologies – solutions that would provide answers to some problems such as greenhouse gases etc. So I started pursuing that as an area specific research interest in the company.
Once Johnson Matthey started developing some early thinking on sustainability, I got my foot in the door and said I’d be interested in contributing to the discussion. After about a year of that thinking evolving, there was a recognition that it needed some full time dedicated resource so I was invited by one of our Executive Committee members to take on the role and lead on sustainability. In our organisation, the fit of a technologist moving into the sustainability lead role was crucial. I’m not sure that somebody from a non-technical background would be the right fit for Johnson Matthey.
What is the business case for sustainability from your Johnson Matthey's point of view?
Lots. There is a financial benefit, clearly.
There is also a real sense around the legacy of our company, its founders and their attitude to ethical and moral behaviour. Our history is in assaying metals. The act of taking somebody’s precious metals and determining the composition for them is predicated on trust. So trust in assay and metal management is in-built in Johnson Matthey and our customers value that.
The other part was the recognition that the world was changing – governance practices, legislation and stakeholders taking more and more of an acute interest in this. And we’re seeing that ever more strongly, for example in the investor community and amongst our customers. Many of our products have arisen because of environmental legislation – they have been developed to help our customers meet tighter standards.
Security of supply is a part of the business case. Anticipating and planning for changes in the supply of materials has an impact on the products we make and their formulation. That also drives innovation in R&D in how we formulate or reformulate products.
Sustainability is not an add-on or an adjunct to our business – we really believe that it is at the core of our business. Our sustainability targets are the metrics by which we will judge the success of the business. Read the rest of this entry »
I recently carried out a number of interviews with top CSR/Sustainability Managers for a couple of book projects I am working on. As I am only lifting short quotes for the books from each one, I thought I would share longer versions here over the next few weeks.
First up is Stephen Weldon, CSR Manager of British high street bakery Greggs plc, a FTSE100 company.
So Stephen, how did you personally get involved in the sustainability agenda?
Purely by accident! I joined a public transport company called The Go Ahead Group as a graduate trainee. One of the hot topics at the time was air pollution in urban areas and we were an urban transport company. So we starting researching technologies to reduce urban pollution air emissions and presented that at the Labour Party conference.
On the back of this, the Deputy Chief Executive decided it was about time we had our own standalone report, so we ended up doing an environmental report for the Go Ahead Group. I was at Go Ahead for another 13 years and did all of their CSR reporting.
What is the business case for sustainability from your company’s point of view?
It’s done because it is the right thing to do. It stems back to Ian Gregg’s view that a successful business has a responsibility to put something back into local communities that helped it grow. That’s the angle that Greggs originally came at SR from – giving something back to local communities, initially via charitable grants which is how the Greggs Foundation came into existence.- It has become a deeply engrained part of the culture of the company.
On the back of that, as SR has moved on in the wider industry, the environmental element has come in. Greggs is a big user of energy as we have over 1600 shops, each of which is in effect a mini production facility that burns electricity in the form of cooking, heating, cooling, lighting, tills, computers etc. We also have central production facilities and we operate our own distribution fleet, all of which require energy. The rising price of energy and fuel brings cost control into the SR mix, as well as the responsibility to local communities. Read the rest of this entry »
But more often there is a slow evolution up to a tipping point and, then, BOOM.
This can be in a niche area, such as the almost complete replacement of virgin glycerol by biodiesel byproducts. Or it can be on a massive scale, such as the high street meltdown caused by internet shopping and the associated shift to digital entertainment - MP3s, eBooks, movies on demand etc.
But with the big buyers - the big retailers and the public sector - shifting from low impact suppliers to high impact suppliers, some companies are going to see huge opportunities and others existential threats.
So are you ready to bloom in the new green economy, or are you just going to fade away with the old?
Today the Confederation of British Industry has revealed that 95% of its members are concerned about energy prices. This follows an EEF survey which showed 80% of senior manufacturing executives thought limited access to raw materials was already a business risk - for one in three it was their top risk and two of the executives I interviewed for my forthcoming Greening the Supply Chain ebook flagged security of supply of raw materials as amongst their key sustainability risks.
This is interesting as, when I interviewed 18 senior sustainability executives for The Green Executive about 3 years ago, security of supply didn't come up and I only mentioned it in passing under 'rising costs'. For the record, the biggest concern was brand protection/competitiveness in the market place. Likewise, shareholder pressure wasn't an issue during those interviews, but it has moved up the agenda in the meantime.
I have come to the conclusion that the business case for sustainability is constantly changing, but not in a zero-sum-game/squeezing-a-balloon type way where some drivers rise and others fall. No, drivers like legislation and customer demand are still there, still important and in many cases getting more important, it's just the other factors have emerged and grown.
I've struggled all morning for a suitable analogy and the only thing I can think of is one of those early schlock horror movies like The Blob, where the 'monster' just keeps growing and pushing its tendrils out and into every corner. Like in those movies, the drivers for sustainability will catch up with you no matter what you do or where you try to hide. Some companies stand there screaming like a horror movie victim and get engulfed, but the heroes see the creature as a chance to prove their worth, show some leadership, ingenuity and bravery, and live to save the day.
Here's the latest in the Green Business Confidential podcast series. It's called "We've Got the Certificate, What More Do You Want?" and it's given by our occasional guest presenter Hugh Jim Pakt of DirtyCorp Ltd.
Yesterday I was perusing The ENDS Report (possibly my last edition, but that's a different matter) when I saw this from Tom Burke:
Nearly a third of profit warnings by FTSE 350 companies in 2011 were attributed to rising resource prices. An EEF survey found 80% of senior manufacturing executives thought limited access to raw materials was already a business risk. For one in three it was their top risk.
That is shocking - particularly in light of the need to rebalance the economy towards manufacturing.
Added to this is the energy situation (data taken from the EIA). The spike in oil prices probably burst the debt bubble in 2013 and, according to the EIA, the continuing high oil prices (three times what they were 10 years ago) are crushing economic recovery. Shale gas might be giving some light relief in the USA, but is clearly having little impact on global oil prices - the two usually relate. Unconventional sources rely on high prices on conventional reserves to make them viable, so we are very unlikely to go back to the days of cheap energy.
I've said it before and I'll say it again - the choice is not "green or growth" but "green or stagnation". We must reframe every argument in this way to meet this challenge head on. Lip service and/or burying our heads in the sand will get us nowhere.
A recent survey has suggested that while 96% of FTSE100 companies see sustainability as essential to their business, the number drops to 56% when it comes to Small & Medium Sized Enterprises. Both figures came of something of a shock to me - impressed with the FTSE100 results and depressed by the SMEs.
In my experience many SMEs compete for work in a B2B environment where the big corporations and the public sector are pushing sustainability down into their supply chains. So the SMEs have more to lose as the buyers generally have a choice.
Mulling on this lead me to another question: who is better placed to embrace sustainability? Here's a simple comparison:
Capital investment is easier come by;
Resources can be brought to bear on issues with little impact on the rest of the organisation.
Buying power gives corporations the opportunity to build the supply chain and/or technology they want/need.
Lobbying power can help get things done in the wider business/political eco-system.
Visibility - assessments can be done very quickly and large impacts are usually obvious.
Agility - change can be implemented very quickly due to the size of the organisation, its smaller asset lists and short reporting chains.
Responsiveness - a small change can have a large impact - e.g. upgrading the sole boiler in the company.
Innovation - new ideas are less likely to get lost in internal politics and committees, but can tried, assessed and dropped if necessary.
I have particular scorn for those who assume SMEs struggle with sustainability - many of my favourite case studies feature forward thinking SMEs. Whether a business is big or small, fundamentally it comes down to the mentality of its leadership.
Whether I'm working with the board members of a FTSE100 company or be-overalled shop floor operatives, I usually start my workshops by asking why the business should be interested in sustainability? I then shut up and wait, flip chart marker in hand, for the first answer.
'Saving money' is usually up first, followed by 'legislation', 'customer demand' and 'keeping employees happy' in roughly that order. But my killer question is then "which is the most important?"
Getting the answer to that one right is essential to building a sustainability strategy. And the correct answer for most companies is 'customer demand' (or brand enhancement or marketplace differentiation) as companies who follow this approach tend to benefit from being more competitive and keeping employees happy and saving costs and avoiding compliance problems. Exclusively pursuing cost savings won't do much for the brand which in turn won't win you any new business or give your employees a warm feeling.
It is extremely important to get a crystal clear understanding of your specific business case for sustainability communicated to all your influential executives. If it is not nailed down, then, particularly in these straightened times, the cost cutting imperative will rise and the strategy will be degraded to a tactical plan that won't deliver the real benefits of being a more sustainable business. Vagueness is lethal to your strategy.
I made the short presentation on the business case for sustainability above two and half years ago and it is the most popular on the Terra Infirma YouTube channel by a country mile. If I was recording it now I would sneak a few more nuances in, but the core message remains the same - "Go Green Save Money is for Amateurs."
I'm increasingly educating myself more about organisational development than sustainability per se because I believe very strongly that implementation is much more important than theorising.
So one of my New Year's Resolutions this year is to read more of the late Peter Drucker as he is regarded as the management gurus' guru and there was a Drucker-sized gap on my bookshelf. So I bought 'The Essential Drucker' as a jumping off point as this is a Greatest Hits selection of chapters from his other books from 1942 to 1999.
You would have thought that a 1974 chapter on Purpose and Objectives of a Business would have little relevance to a sustainability change agent in 2013, but Drucker puts social responsibility on a par with marketing, innovation and resources:
Lessons we have learned from the rise of consumerism, or from the attacks on industry for the destruction of the environment, are expensive ways for us to realize that business needs to think through its impacts and its responsibilities for both.
He goes on:
That [social responsibility] objectives need to be built into the strategy of a business, rather than merely be statements of good intentions, needs to stressed here. These are objectives that are needed not because the manager has a responsibility to society. They are needed because the manager has a responsibility to the enterprise.
This 38 year old statement, given Drucker's influence, begs the question why on earth are mainstream companies only now starting to embed social and environmental objectives into their core business strategy? When I wrote The Green Executive, I thought this was cutting edge thinking, but it appears that it's almost 40 years old!