Building Sustainable Businesses
Sustainability is a complex concept for business leaders, around which there is both limited consensus on its exact meaning and increasing agreement on its importance for firms, customers and our shared community. Gradually, sustainability has moved from a peripheral “green” issue to a business approach. Ultimately, a sustainable enterprise is one that balances economic viability with social and environmental responsibility as core operating assumptions. In other words, such firms balance the desire for profitability with the need to care for the earth and society through principled strategies. This has generally become known as the triple bottom line of people, planet and profit. Knowing and
doing, however, are two different verbs.
How do leaders move beyond rhetoric to reinventing product, processes and business models to become sustainable enterprises? Some companies start broadly by comparing their current operations to the United Nation’s Sustainable Development Goals (SDG) and developing strategies to move toward goal accomplishment. The SDG, developed in 2015, are 15 objectives set by countries over a 15-year planning horizon to end poverty, protect the planet and ensure prosperity for all. This is good for a big-picture view and a commendable place to start thinking differently about the role of firms in society, but what strategies are available for firms to become truly sustainable?
THE DART PRINCIPLE
Becoming a sustainable enterprise requires leaders to co-create value based on DART principles: Dialogue, Access, Risk Management and Transparency (Prahalad & Ramaswamy, 2004). Employing these principles means businesses must establish multiple programs and communication channels for active engagement with customers and other relevant stakeholders. Putting this into practice begins with open conversations (dialogue) among consumers – current and potential – about what they value in ongoing relationships. Just as in our personal lives, having deep conversations requires access to truthful, timely information about our partners. Naturally, such open sharing creates risk for both parties. Thus, firms engaging in open dialogue must establish clear rules of engagement and adhere to them. This ultimately leads to transparency among partners resulting in sustainable shared value. While this all sounds great in theory, you may ask if anyone successfully puts this into practice while attending to the triple bottom line. Consider Patagonia’s Worn Wear program as an example of how listening to customers improves brand value while reducing the environmental impact of products. Patagonia, knowing its customers are avid adventurists and environmentalists, countered trends of fast-fashion (wearing clothes for short periods of time and throwing them away) by encouraging owners to keep their current clothes – preferably forever. The company encouraged owners to mend their clothes and share the stories of the wear-and-tear that caused the need for repair. This created a community of brand loyalists who shared how and why they use the company’s product. Beyond the story- sharing blogs, the company’s online platform gives instructions on how to fix common issues and advice on recycling products to avoid contributing to landfills.
A local organization with a unique approach to sustainability and shared value is downtown CREDO. With four locations across Orlando, CREDO sees coffee as an “opportunity to reject apathy and impact the world” by knowing and connecting with the coffee growers on a personal level and compensating them appropriately for their work and product. To motivate consumers to engage in a dialogue about the impact their individual coffee purchase has on the global coffee supply chain, CREDO uses a “suggested price” model through which consumers can truly decide the value of the coffee growing process and product. Clearly this pricing model brings risk for CREDO because, like most businesses, there are costs to cover, but by engaging the consumer in a personally-valued transaction and personalizing the grower relationship, transparency is achieved. The fact that the coffee is really good doesn’t hurt much either.
SUBSTANTIATING THE CLAIM
This all sounds good, but business leaders are hard-wired to quantify success and, unfortunately, the measurement tools to report financial results have far out-numbered and out- performed those for social or environmental impact. The good news is that the imbalance is changing and through innovation we are seeing increased measurement sophistication of firm performance on all three elements of the triple bottom line. For example, the social return on investment (SROI) approach values and monetizes social aspects (created community wealth, job satisfaction, employee development) when considering total corporate value.
We’ve also seen two parallel developments in assessing and reporting sustainability initiatives. First, firms have increasingly adopted external reporting standards (e.g., Global Reporting Initiative in 2000, Greenhouse Gas Protocol in 2001, and Integrated Reporting Framework in 2013). Second, companies have consistently improved their internal management accounting systems for non-financial information (NFI). These combined initiatives truly enable a company to measure performance on all elements of the triple bottom line.
In summary, the sustainable enterprise movement is growing and strategies are increasingly being developed to implement and measure tactics that can lead to success.