Thinking of bringing your business to a more sustainable place?
The best starting place for any business leader to embrace sustainability is to shift away from looking at sustainability in terms of how much it will cost, and towards assessing the returns it will generate.
Consider the phenomenon known as the Cost of Poor Quality (COPQ) which emerged in the field of quality management in the late 1980s. COPQ can be thought of as follows: by neglecting the importance of quality, an organization literally pays to generate waste and other problems, often in the form of scraps, reworks, recalls, rejects, reworks, service calls, warranty claims and more. Similarly, in the realm of corporate social responsibility (CSR) and sustainability of environmental, social and economic responsibility, organizations essentially commit capital to generate waste. Not a great investment, especially when sustainability actually presents a ton of revenue-generating opportunities.
Since the purview of sustainable development is so vast and comprehensive, the ROI of sustainability initiatives manifests in myriad ways, some direct (basic cost savings through curbing resource consumption and waste) and some indirect (risk mitigation and avoidance).
Some examples of direct and indirect impacts of sustainability on financial performance include:
- Resource Conservation and Waste Reduction: Minimizing your consumption of water, energy and resources (anything from essential office supplies like paper to raw materials for manufacturing) by implementing conservation policies and tracking sustainability key performance indicators generates the obvious, direct effect of cost savings: by consuming fewer materials either in operations or production, you’ll save money associated with the acquisition of materials. However, you must remember the old management adage about measuring what you want to manage.
- Penalty Aversion and Regulatory Compliance: Any organization committed to sustainable development and reporting on its progress in achieving its sustainability goals will be required to track essential environmental, social and economic metrics including, for example, air emissions and wastewater discharge. If you’re committed to tracking, analyzing and reporting on air emissions data, you’ll be better prepared to avoid the costly fines of notices of violations associated with exceeding permitted air emissions and wastewater tolerances.
- Brand Image: Though boosting environmental, social and economic performance should be the crux of any sustainability strategy, the marketing and publicity aspects and opportunities are not to be diminished as ROI-generating facets of sustainable development. By leveraging a proven commitment to social responsibility and environmental responsibility, an organization stands to place in high-profile rankings on CSR performance, attract and retain top-tier talent, gain media attention and public respect, and improve sales by enticing more high-level, global clients.
- Customer and Consumer Relations: Wal-Mart’s recent initiative to green its supply chain represents a great example of how one company’s sustainability initiatives can affect thousands of other businesses. America’s largest retailer has been on a mission to green it massive supply chain, recently announcing it plans to cut 20 million metric tons of greenhouse gas from its supply chain by 2015. Wal-Mart’s initiatives affect thousands of other companies around the globe and represent an emerging cause-effect relationship between suppliers and big corporations. As one organization seeks to achieve and report on a certain level of social and environmental performance, it demands the same standard of performance and transparency across its vendor base and supply chain. Also, from a consumer standpoint, end users will increasingly demand sustainable products. Businesses will simply have to meet certain standards of sustainable development in order to retain clients and grow their business.
Though the essential financial benefits of conserving resources, for example, can be easily quantified and tracked, it is more difficult to pull tangible ROI statistics from the cost- and risk-aversion factors, as well as customer retention factors, associated with some of the above points, except on a case-by-case basis. However, proactive corporate strategies beat trial-and-error approaches as the best recipe for optimizing returns on sustainability investments.