Over the past month, we’ve discussed some of the key barriers that prevent companies from truly integrating sustainability considerations into their long-term strategies. Countless companies across the world struggle with these obstacles, such as: capital budgeting processes that fail to account for sustainability initiatives’ benefits; financial teams whose goals don’t align with those of the sustainability teams; and uncertainty about how to implement metrics that properly account for external environmental costs.
A handful of companies, however, are starting to identify effective ways to break these barriers down. Johnson & Johnson now allocates $40 million a year to a special fund that directs capital to greenhouse gas reduction projects, helping to lighten its environmental footprint while proving these projects generate good returns. AkzoNobel and Alcoa have elevated the role of the Chief Sustainability Officer in capital budgeting decisions to ensure the company is spending money to achieve financial and environmental results. And Natura is accounting for the environmental impacts of its suppliers and including those costs in its supplier selection process.
Achieving Financial Benefits through Environmental Sustainability
Aligning Profit and Environmental Sustainability Blog Series
Read other installments of our five-part blog series, "Aligning Profit and Environmental Sustainability."
Companies that are adopting these forward-looking practices are accruing benefits now. Alcoa has found that its sustainability track record gives it better access to large markets such as Brazil, where a positive environmental track record is becoming a more important component in selecting products. Alcoa, AkzoNobel, Siemens, and Grief have found that by focusing on new products that help customers reduce their emissions, they are growing revenue and capturing new market shares. Companies are setting aggressive sustainability goals – in the case of Mars, for example, to reduce 100 percent of fossil fuel use and greenhouse gas emissions from its operations by 2040 – and achieving business growth at the same time.
These examples show that profit can be aligned with environmental sustainability. But while these examples are encouraging, they represent the few rather than the many. We’ve got a long way to go to mainstream these best practices.
4 Ways Companies Can Embed Sustainability into Long-Term Business Strategy
Set goals that integrate environmental considerations into core business decision-making. This can be achieved by reflecting environmental benefits in required payback periods or hurdle rates for projects that provide the company with important experience with low-carbon technologies and process changes. UPS, for example, relaxes the “hurdle rate” – or minimum rate of return required by the company – on certain vehicles it tests as part of its “rolling laboratory” for its fleet. These vehicles have the potential to reduce fuel use and costs over time.
Implement internal mechanisms that ensure environmental sustainability is valued and support public policies that put a stable price on externalities like GHG emissions and other environmental risks. For example, Greif took a lifecycle GHG view of its business operations to identify how new business growth could be achieved while reducing lifecycle GHG emissions. Other companies have joined coalitions like the U.S. Climate Action Partnership, which strongly call for public policies to address climate change.
Vest the Chief Sustainability Officer with greater authority over capital budget decisions and engage the sustainability team early in project planning. Giving the CSO some authority over financial planning—as Alcoa and AkzoNobel have done—can help ensure that the aspirations to improve environmental performance—which are often only enshrined in a company’s sustainability goals—are integrated into how the company invests its money.
Establish and manage metrics that comprehensively indicate risks and opportunities across the corporate value chain. For example, understanding supply chains’ cost to society—as Natura does through its supplier engagement program—can help companies choose suppliers that mitigate environmental risk and provide value. Companies that do not measure the environmental impact of their actions across the value chain may be missing important risks that should be mitigated, as well as opportunities to improve their environmental performance and save money.
The good news is that we’re already learning from the examples of business leaders who are aligning profit goals with environmental sustainability. Mainstreaming their best practices—and innovating new ones—can help put the world on a trajectory for a truly environmentally sustainable economy.
If your company has a best practice that shows how profit and environmental sustainability can co-exist, we’d like to hear about it. Leave a comment below, or email Samantha Putt del Pino at email@example.com to share your story.