Profitable sustainability: show me the money
In our experience, most organisations think that sustainability is all about compliance or keeping up with competitors in a race to be the most ‘eco’-friendly. Consequently, many sustainability teams and projects are given limited budgets and little management attention.
This is the wrong way to think about sustainability. Over the last 16 years, I have found that a good sustainability approach can increase company profits, with lower risks and a higher return than most other company investments (e.g. new products or new plants).
In over 60 sustainability projects, my colleagues and I have consistently found five areas of tangible value that can be unlocked from a more sustainable approach to business:
- Efficiency improvements: Reduced use of materials, energy, and water all bring low risk savings. More efficient processes also reduce waste – saving inputs including labour as well as landfill/recycling costs. Asset utilisation is a new efficiency field that is developing, for example in the consumer space through car sharing schemes like Smartcar and in the manufacturing sector through innovations like toll manufacturing.
- Supply chain savings: Thinking about efficiency along the supply chain (i.e. beyond your factory) often unlocks substantial savings. The most famous example of this is Walkers crisps, which found that its practice of paying potato farmers per tonne was leading the farmers to spend time and energy increasing water content – which then cost Walkers 10 per cent of their energy to remove it in their first process step.
- Risk and volatility reduction: Uncertainty about input prices can be addressed through more sustainable sourcing strategies that work with suppliers to help them to improve their efficiency, increase the reliability of supply, share cost saving, and lock in longer term contracts which eliminate the highs and lows of the commodity cycle.
- Growth opportunities: Changing customer requirements, regulations, and a changing environment are creating growth opportunities for companies who are able to respond. Pilkington, for example, have created substantial businesses supplying glass for solar panels and low emissivity (i.e. highly insulating) glass to help users to reduce their energy bills.
- Cleantech investment opportunities: Those companies who adopt new, more sustainable technologies into their business operations are capturing the financial benefits. Such technologies include variable speed drives, LED lighting, voltage optimisation, and cogeneration. Beyond use in their businesses, many companies are investing in the technologies themselves (and companies that provide them) to participate in these new sectors.
Beyond these are the less tangible benefits such as brand value and staff motivation.
It would be great to hear of any other types of value that you are seeing in your work so that we can add to this list.
Next month we will explore why most companies are failing to capture this new value.