Please read the entire article before sending me nasty notes. At the end of this piece, you may actually agree with me.
It’s a pretty inflammatory statement.
But I mean it. Just not in the way you may think.
Stupid Is As Stupid Does. It is probably worth starting with the background on which my perspective is based. I have about thirty years professional experience cycling through the relevant environmental buzzwords of the times: environmental compliance in the mid-80s, environmental management and value in the 90s, environmental risk and sustainability after the turn of the century, and now corporate responsibility and supply chain sustainability for this decade.
In 1994 I was fortunate to obtain a pre-print copy of Michael Porter’s and Claas van der Linde’s seminal work Toward a New Conception of the Environment-Competitiveness Relationship, (Journal of Economic Perspectives (1995), Vol. 9, No. 4, pp. 97-118). The work was essentially reproduced in Green and Competitive: Ending the Stalemate (Harvard Business Review, September – October 1995). As cliché as this sounds, the article truly changed my career as I began seeking economic-environmental linkages with projects, clients and as in-house environmental staff at a Fortune 150 manufacturer.
I have read hundreds of research papers, articles, studies and analyses that, in a nutshell, attempted to link environmental or social responsibility performance to economic gains of some type. Others tied “intangibles” to financial benefits, defining/creating value, and valuing risk reduction. I have pored over texts on traditional cost reduction, cost accounting, marketing, strategy, etc., even completing executive education on these topics.
And yes, much of this has been put into practice (or at least attempted). I have been through a couple McKinsey exercises and a misguided and inappropriate implementation of Economic Value Added (EVA)1. I helped develop internal environmental performance metrics and reporting and attempted to create in-house sustainability initiatives. I served as a team member for sustainability and LCA tool development in GEMI, AIChE and on the US SubTAG to ISO for the Environmental Performance Evaluation standard. For clients, I have developed and reviewed sustainability criteria, performance metrics and calculated the economic benefits; developed environmental risk assessment and valuation criteria leveraging traditional risk management/insurance models; and quantified the value of environmental risk avoidance investments/activities.
You get the idea. My point is that I am fairly competent on the subject, if not a relative old-timer with an appropriately receding (or altogether non-existent) hairline. I don’t claim know every aspect of sustainability, but can speak credibly to the issue.
What’s Stupid About Sustainability? Really, it isn’t sustainability that is stupid – it’s how sustainability is “sold” to business, including:
- The lack of a consistent, reasonable and/or actionable definition
- The flood of (mis)information, articles and studies about sustainability that are highly divergent in approach and results – due in part to the lack of a consistent, reasonable and/or actionable definition
- The inherent bias of sustainability media and practitioners that identify inappropriate or inconclusive linkages between economic value/financial returns to sustainability practices.
- Ignoring customer perceptions of performance tradeoffs for sustainable products
Consistent Inconsistency. About the only thing everyone can agree on about the word “sustainability” is that in its English form, it has six syllables. There are even disagreements about capitalization – should the “S” be capitalized to signify some importance of the word or not?
Readers can likely offer at least three different definitions of the word. I have no intention of listing various definitions here – it isn’t necessary. If you think about it, sustainability is not about doing more, it’s about doing less – spending less, wasting less, reducing resource use. Probably not everyone will agree on that either, but that is really the point – how can a company take on an initiative that can’t even be defined? And even if there is internal agreement, not all stakeholders will concur.
Buried Alive. How do you go about establishing a definition from which to work? One answer is look to sustainability subject matter experts, studies, articles and white papers. This sounds straightforward (if not tedious), but the amount of available information is completely overwhelming, only increasing confusion. Just for fun, I did a simple test by doing an Internet search on the word “sustainability” and a few other very popular corporate buzzwords. The results speak for themselves.
* Search conducted April 9, 2015
Think about this for a moment – some of the most popular (and ridiculed) Buzzword Bingo lingo rank significantly lower than sustainability in terms of Google results. I was actually surprised by this.
Clearly, this isn’t the answer.
Stupid Money. As sustainability professionals, our knowledge creates biases that can turn into obstacles – forcing a sustainability solution where one may not exist, or may not be appropriate. This is where many sustainability professionals go wrong – and get stupid. A major myth stemming from the sustainability bias is that sustainability performance is financially material. We wrote back in 2011 –
A myriad of studies completed dating back to the late 1980s attempt to demonstrate “environmental value”. Most of these studies have shown rather tenuous linkages or used meaningless metrics. Interestingly, most of these studies link to equity markets – i.e., stock prices. Maybe because stock prices grab headlines, are tied to compensation or are the target to which Boards and senior executive generally manage.
The thought is still on point2. More interesting, however, is the thought we expressed that sustainability value is more appropriately viewed in the context of bonds rather than equities (long term versus short term). Today, that is proving true as demonstrated by the global growth of clean energy financing through bonds which according to Bloomberg New Energy Finance, rose 16% last year to a record $310 billion, boosted by commitments to sustainability investments from Deutsche Bank, Citigroup, Barclays, Bank of American, Credit Agricole, Goldman Sachs and BlackRock.
As we said in 2011, “Given … the lackluster historical success of valuation of environmental/sustainability matters in the context of stock prices – perhaps it is time to redirect our efforts at finding relevant and credible metrics.”
Are Customers Stupid? About twenty years ago I wrote a thought piece on sustainability and circulated it to a small group of colleagues. My basic premise was that sustainable products are a luxury for those able to afford the price differential or willing to accept certain trade-offs. For example, alternative fuel vehicles cost more than comparable gasoline powered cars, so alternative fuel vehicles were not likely to be economically successful in low-income populations. On the flip side, those able to pay more for the sustainability attributes of alternative fuel vehicles had to accept trade-offs in vehicle size, performance and selection.
This premise remains valid today, although the situation has improved. We now have more options for electric/hybrid vehicles and prices have come down for many makes/models, so trade-offs have been reduced in this instance. But other sustainable products still cost more, and the perception of performance trade offs still exists.
Four years ago, we wrote about a study undertaken by professors of marketing at William & Mary, Ohio State and the University of Texas. The study results were presented in The Sustainability Liability: Potential Negative Effects of Ethicality on Product Preference. Briefly, the authors’ study demonstrated that customers frequently feel that improving ethical aspects of a product reduces the ability of the product to fully perform its expected function. In addition, the authors demonstrated the impact of bias on the part of customers when they are being observed (such as in a survey scenario) versus when they aren’t observed (or don’t know it). Connect the dots – customers being observed as part of new product research aren’t likely to show their true concerns about sustainable products and may not buy them when they are available 3.
Going back to automobiles, Tesla has done a good job of battling perceptions of driving performance (such as creating an Insane driving mode that rivals traditional supercars in 0-60 times) and range limits. Few other companies or products seem to have attacked the trade-off perceptions in a similar manner.
To sum it up, you need to understand your customers’ key buying criteria, and how their perceptions of sustainability impact their decisions.
Don’t be Stupid. Approach internal decision makers in their terms and you keep their attention with a higher likelihood of success. Or ignore that and emphasize ill-defined, unproven or irrelevant pie-in-the-sky sustainability concepts and see where that gets you.
To begin, you need to understand the company, how it operates and why it exists. Act as though you are the VP of Operations, Marketing, Communications, Supply Chain, Product Development and HR. Pretend you are working on a case study at Harvard Business School. Learn as much as you can, such as:
- What does the company make or offer? What need does it fill? Why does that need exist in the first place?
- What are key internal words, phrases, programs and initiatives?
- What are the manufacturing processes involved?
- What is the manufacturing capacity and efficiency?
- How does the company make money?
- What are the most critical aspects of revenue generation and profitability?
- What are the direct and indirect cost drivers with the biggest impact?
- Why are certain suppliers used? What are your company’s key buying criteria?
- Why do customers buy from your company? What are your customers’ key buying criteria?
- What is important in a new product? How is the market analyzed and demand predicted?
- Who are the most important audiences for the company’s external communications?
- Why do employees work at the company? What is important to them?
- What are the different relevant compensation programs, metrics and triggers?
After learning “the business” you can then put on your other hat and identify where sustainability initiatives may make sense. Where you find a potential project, your pitch should be about the relevant business benefits using the appropriate business words. The word “relevant” is emphasized. Unless specifically prompted by management, don’t use the word sustainability until near the end of any conversation: “Oh, and we also get to highlight this as a sustainability success, too.”
What? Why de-emphasize the sustainability aspects? Your audience is likely to be focused on traditional drivers/metrics of the company’s financial performance. Capital is limited, revenues need to increase, costs need to decrease, the stock price is too low and competitors are gaining market share. Cynical management only needs one reason to pull the plug and divert attention/funding away from the sustainability initiative. Remember your audience and what your ultimate goal is.
Conclusion. I don’t actually believe sustainability is stupid – quite the contrary. But I do think that the concept is too frequently portrayed in a stupid manner in publications, by service providers and around corporate conference room tables. Being smart about it is easy as long as you can temporarily disconnect your sustainability expertise/bias and focus on your company’s business fundamentals.
Of course there are exceptions to this; numerous companies have embedded sustainability into their corporate culture and don’t operate as I described. The wide-ranging definition of sustainability also creates a broad (perhaps overly broad) set of examples. All of these will be waved under my nose as examples of how wrong I am. Yes, it is right that I am wrong in those instances, but those companies are very much in the minority. As sustainability professionals, we need to create opportunities for that silent majority so they can reap the real rewards of sustainability.
We just have to be smart about doing that.
1 EVA is intended to evaluate capital expenditure opportunities, but in this instance, each staff member had to demonstrate our own personal economic value added by applying the methodology to our everyday activities. That is why I call it inappropriate and misguided.
2 In contrast, perhaps the best examples we have seen that in our view comes the closest in realistically linking sustainability and equities valuation are (a) the April 17, 2015 letter from Ceres to the SEC on climate disclosure. Technically, the letter is about disclosure of climate risk as material information to investors, discussing the matter in terms of asset risk, materiality of future pricing/demand scenarios and long-term capital expenditure plans/assumptions for oil and gas companies; and (b) a recent study from Harvard Business School Corporate Sustainability: First Evidence on Materiality. This paper isn’t necessarily easy to understand, but the authors performed a number of tests to validate their findings. One possible weakness is that the authors relied on materiality guidance and data from the Sustainability Accounting Standards Board (SASB) for determining what sustainability matters are considered material, rather than independently confirming that assumption, or developing their own materiality benchmarks. We are not aware if SASB guidance and methodologies have been independently validated.
3 We recently brought these concepts forward to a major consumer products company who was looking to develop a marketing campaign based on sustainability attributes of a new product. After evaluating the matter further, the company put that campaign on hold.