The big business of sustainability
Sustainability initiatives have not formed many successful partnerships. While operating a business sustainably is of higher priority and importance with the media, regulators, and the end users of the products and services ultimately produced, the business case for such initiatives has always been a sticking point.
Recent developments, specifically since the BP oil spill in 2010 and the financial crisis of 2008, have elevated the conversation about the links between sustainability and business success.
The question has usually been phrased as “What is the business case for sustainability?” The answer is that there is a large and comprehensive case for it. While organisations such as Tesla, the maker of electric-powered cars and rechargeable battery packs for home use, may grab the majority of the headlines, numerous organisations are building multibillion-dollar business lines oriented to operating sustainably.
More US companies are aligning sustainability disclosure with global standards through the Global Reporting Initiative (GRI) framework, according to a 2015 report by The Conference Board. The number of S&P 500 companies making reference to GRI guidelines in sustainability reports increased from 25% in 2013 to 31% in 2014. The report also found that a small but growing number of companies are linking environmental, social, and governance (ESG) performance to long-term incentive pay for executives. Non-traditional reporting by US companies follows the standards set in countries such as South Africa, where companies on the Johannesburg Stock Exchange have been required to report on integrated sustainability and governance metrics since 2010.
General Electric is internationally recognised as a leading organisation in engineering and infrastructure development. With the continuous slimming down of GE Capital, the finance and investment division of General Electric, the company continues to pivot back towards its industrial roots, and sustainability has played a key role in this shift. Beginning in 2005, upper management tasked leaders of the energy and infrastructure division to integrate environmentally oriented measures into industrial projects and equipment. While the objectives, namely reducing greenhouse gas emissions and water consumption, have resulted in a 31% reduction in greenhouse gas and a 42% reduction in water consumption, there has also been a substantial financial payoff, according to the company.
In 2014, the revenue for Ecomagination, the sustainability-focused division of General Electric, topped $25 billion for the year, and $200 billion since its inception. The division is also aligned with the organisational shift towards the Internet of Things, in terms of how the industrial equipment is actually performing. There must be a business case for sustainability, and linking it directly to operations is an excellent way to establish such a connection.
Coca-Cola has also integrated sustainability practices into current operations. Water plays an essential role in the production of flagship brands and other beverages, such as energy drinks. Perhaps the company’s most high-profile goal, 100% replenishment of all water used in production, which builds on the Water Stewardship initiative previously embarked upon, was on track to be met by the end of 2015, according to the company. Coca-Cola says it has also invested over $1 billion in wastewater treatment initiatives.
By linking sustainability initiatives related to packaging, recycling, and water replenishment, the organisation has been able to articulate the environmental and business case for sustainability. Bringing together business performance and environmental initiatives appears to be a key concept in elevating sustainability to the level of senior leadership, and accounting professionals must be willing to integrate those themes into practice.
Building reports, analysing data, and transforming operational data into financial information for senior management decision-making are core accounting functions. Reporting on sustainable business practices can increase the finance professional’s value and improve the company’s bottom line.
The concepts of sustainability are perhaps more applicable to small and medium-size businesses. Straightforward exercises such as conducting a review of utility bills and costs, setting up recycling opportunities for employees, and taking advantage of tax credits and other funding for solar panels and environmentally oriented projects are among a handful of ways that accountants can scale down sustainability for organisations of any size. Presenting such ideas is a critical step for accounting professionals seeking to embrace a more strategic role and increase the value of their organisations.
—Sean Stein Smith (ssteinsmith@yahoo.com) is a financial analyst–Joint Ventures at Hackensack University Medical Center in Hackensack, N.J. He is an adjunct professor at Fairleigh Dickinson University in Teaneck, N.J., and Montclair State University in Montclair, N.J.