The bottom line benefits of sustainability

Sustainability initiatives can lead to cost savings for organisations, but employees sometimes fail to see the business imperative because they are given few incentives to act sustainably or are not held accountable for sustainability goals.

A new survey by global consulting firm Bain & Company sheds light on the issue: Only 2% of corporate sustainability programmes achieve or exceed their goals, compared with 12% of other corporate transformation initiatives.

Investors and other stakeholders, including potential employees, are paying attention to corporate sustainability. An earlier Bain survey showed that 70% of workers had a growing concern for sustainable practices, and 15% said they had taken a pay cut to work for a sustainable company.

Sixty per cent of investment firm board members say they are willing to divest from companies with a poor sustainability footprint, and nearly half of investors say they won’t invest in a company with a poor sustainability record, according to a 2016 report compiled by Boston Consulting Group and MIT Sloan Management Review.

Beyond anonymous responses in surveys, investment firms are taking steps to illustrate their concerns publicly. For instance, State Street Global Advisors, which manages more than $2 trillion in assets, sent a letter to boards of directors in January emphasising the importance of sustainability in building long-term value.

In the letter, State Street defined sustainability as a broad range of environment, social, and governance (ESG) issues, including effective independent board leadership and board composition, diversity and talent development, safety issues, and climate change.

“Over the long term, these issues can have a material impact on a company’s ability to generate returns,” the letter said. “As one of the largest index managers in the world, our size, global scale, and long-term ownership provide a unique, top-down vantage point across industries and countries on the ESG risks and opportunities confronting companies and their shareholders.”

The Bain report offers four tips for how companies can stay the course and deliver long-term gains in sustainability:

• Make a public commitment. While some executives fear the repercussions of falling short of public goals, companies should announce efforts and stick with them. The public commitment can galvanise an organisation’s drive to hit ambitious targets and create a new level of internal discipline.
• CEOs must lead by example. The report cites the example of global food retailer Delhaize Group, where middle managers were reluctant to implement tougher supplier requirements. CEO Frans Muller intervened, according to the report, “demonstrating top-level commitment to real change.” In the survey, leadership support was the most cited factor in the success of a company’s sustainability programme.
• Highlight the business case. Walmart has improved the fuel efficiency of its trucking fleet, for instance, saving nearly $1 billion and eliminating nearly 650,000 metric tonnes of greenhouse gases in 2015, according to its most recent sustainability report.
• Hardwire change through incentives and processes. Delhaize previously had sustainability-related bonus structures in place for a small percentage of leaders, but now all corporate officers have incentives tied to sustainability performance, which the report said improved alignment to sustainability goals. Regarding processes, the Bain report cited a lack of investment or resources as the obstacle most likely to threaten a company’s sustainability initiatives.

—Neil Amato (Neil.Amato@aicpa-cima.com) is a CGMA Magazine senior editor.