Green is tough, even for the motivated.*
It’s becoming increasingly clear that businesses are one of the biggest levers to solving the environmental crisis. Indeed, of the 100 largest economies in the world a decade ago, 51 of them were corporations (IPS). And in a world where profit is ultimately linked to the availability of dwindling natural resources, and the threat of climate change has the potential to affect virtually every business on the planet, sustainability is rising in importance on the corporate agenda.
The low hanging fruit has, for the most part, been picked. We’re now on the cusp of transformational change, and the roadmap is not 100% clear. But one thing that IS clear is that information technology can play a significant role in helping organizations achieve all three aspects of sustainability: environmental, social and economic.
Last week, I had the good fortunate to attend a roundtable in NYC with Marilyn Pratt of SCN. The topic was appropriate for Earth Day eve: sustainability. More specifically, the conversation focused around sustainability as part of the corporate strategy agenda. In addition to touching on the TechniData acquisition which augments SAP’s software sustainability suite, the primary goal of the meeting was to discuss the business case for sustainability – because without a positive economic impact, sustainability is not sustainable.
Hosted by SAP, the guest panel included:
- Dr. Stephen Stokes, representing AMR
- Betsy Atkins, CEO of Baja Ventures, an independent venture capital firm (and former CEO of Clear Standards)
- Rob Farris, Hitachi Consulting
Our own Chief Sustainability Officer, Peter Graf, joined via tele-presence from Germany, having been stranded due to the volcano in Iceland. (As an aside, the set-up in BT’s tele-presence facility in the NY Times building was really impressive. It’s a great way to hold a meeting.)
Additional coverage of this event can be found in Learning about Sustainability as a Corporate Strategy, Andrew Nusca’s SmartPlanet article SAP’s Peter Graf: ‘Sustainability is about making money’, and Katherine Tweed’s Greentech article Sustainability Gets Sophisticated.
(*This is a quote from Auden Schendler, in his book “Getting Green Done”)
The Business Case For Sustainability
Peter Graf kicked off the event, indicating that sustainability is “nothing less than the biggest transformation we’ve seen in business since the arrival of the Internet“.
He pointed out that there is a strong business case for organizations to address sustainability, which includes these five key drivers:
- Regulatory requirements and expectations from customers, which force organizations to change how they operate. Automated processes reduce both the cost and the risk of running the operation, i.e. operational risk management. As an example, one SAP customer saves $2M per year by automating compliance to a large extent.
- Resource productivity, a significant opportunity to drive cost out of the business. Volatility in the price of primary resources means that increased efficiency results in more cost saved. Graf cited a customer which saves $140M per year on efficiencies in their refineries from using IT.
- Sustainable consumption, i.e. green product line offerings which generate new revenue streams.
- Sustainable workforce, i.e. employee security and diversity, which impacts an organization’s ability to serve the markets in which it operates and will operate. Solutions such as EH&S, Human Capital Management and analytics can support these objectives.
- Sustaining the business model, i.e. maintaining the social license to operate, is the strongest driver but hardest to quantify in financial terms.
This business case is grounded in the fact that there’s money to be made and saved, and that’s why companies need to engage. As Stokes later pointed out, companies with strong sustainability strategies show healthier performance on the S&P. Graf is urging organizations to implement strategies for sustainability now – before additional compliance requirements reduce the potential for competitive differentiation.
Sustainability Wake? Or Sustainability Wake-Up?
Dr. Stephen Stokes highlighted the findings of a recent AMR research report, which was designed to get a pulse on whether, in the wake of the financial crisis, sustainability is still a factor in the manufacturing sector’s corporate strategy agenda. The conclusion: sustainability is definitely not going away. Instead, it’s moving from a side discussion to something much more central and business critical. Rather than seeing a sustainability wake, we are witnessing a sustainability wake-up.
AMR found that the three most important drivers for enterprise sustainability initiatives are:
- Business value (revenue enhancement or cost saving): 28%
- Compliance to regulatory requirements: 27%
- Competitive advantage / brand: 12%
In comparison, the results in 2008 placed the same three drivers at the top, but the order has changed. While the importance of “business value” has remained relatively stable (29% in 2008 vs. 28% in 2010), competitive advantage plummeted from 33% to 12%, while compliance shot up from 11% to 27%. Given that the survey respondents were US corporations, this result reflects the new EPA Mandatory Reporting of Greenhouse Gases (GHG) rule instituted in January 2010.
Despite the increasing importance of compliance, over half of the respondents said that they are not yet reporting on carbon, and another 38% indicated that they are reporting but finding it difficult. There is a proliferation of niche bolt-on software for measuring and managing carbon, but the #1 solution today is a combination of manual processes and Excel (which might explain why only 7% of organizations surveyed responded that they are reporting on carbon AND finding it easy).
Stokes went on to say that information and IT are becoming central elements in the new economy. Where sustainability software is concerned, the long-term solution is a movement towards embedding sustainability into the organization’s IT backbone (the ERP system).
The video footage of Marilyn Pratt’s one-on-one interview with Dr. Stokes can be found Learning about Sustainability as a Corporate Strategy.
The Board Is On Board
As the CEO of an independent venture capital firm, Betsy Atkins sits on the Boards of several US public companies, and confirmed that sustainability is absolutely discussed around the boardroom table, and not simply because of increasing regulatory requirements.
According to Atkins, anything that couples compliance and risk mitigation with cost savings gets the attention of the Board – and sustainability initiatives cover all these bases.
All Hands On Deck
In order to solve a set of challenges of this magnitude, companies need to help one another to learn and transform. Best practices need to be shared, and transparency around results and pitfalls should be encouraged.
Like SAP, Hitachi has adopted an Exemplar / Enabler approach – working to be as green as possible, and helping other organizations to do so as well. As Rob Farris described, Hitachi has established aggressive sustainability targets and action plans to green the company and their products. Hitachi Consulting now shares Hitachi’s key learnings with clients, and makes money in the process. Hitachi is an SAP sustainability partner with service offerings such as life cycle analysis, which helps organizations determine priority focus areas by identifying the biggest impact opportunities. Hitachi Consulting is also a customer of SAP Carbon Impact.
Most companies have already done the “easy stuff”, yet Dr. Stokes commented that there is a lot of efficiency gain remaining, if we look at things with a different lens. That’s encouraging. And perhaps I’m biased, but I do believe that technology – and particularly information technology – can help us find a way through many of these challenges.