Once little more than a CSR issue, sustainability has developed rapidly to generate real business cost savings. Jan Chmiel and Martin Baxter of IEMA, Dr Paul Pritchard of RSA and Jonathan Garrett of Balfour Beatty debate the third wave of sustainability change and how their organisations have taken the long view of their supply chains.
From management to accounting, the learning acquired by business disciplines becomes more complex. By comparison with these established sectors, sustainability is young and little-understood - there's no Art of War for executives to thumb through and its Luca Pacioli figure has not yet arrived.
However, one of the most exciting aspects of sustainability is the potential to discover and develop new methodologies. Where once reputation was the motive behind good environmental practice, the recession has forced sustainability executives to prove their worth by creating efficiencies. Now the time pressures of peak oil, climate change and population growth have created a third wave: constraint.
Jan Chmiel, head of the UK's Institute of Environmental Management and Assessment (IEMA) says that, in the long term, resource management will become a make-or-break area for global business. "Sustainability now is about moving beyond the ethical discussion. It's a big issue, not because we can save some money through emissions and fuel consumption, but because business operates through the environment, and that's starting to constrain our ability to work."
Martin Baxter, IEMA's executive head of policy, points out that the forecast is bleak. It is estimated that, around the year 2030, the global population will have climbed from 6.8 billion people, today's count, to nine billion.
"A 30% increase in the number of people creates a corresponding increase in the demands for energy, water and other natural resources, at the same time that the climate is changing rapidly," he says. "For a business, as for a nation, being able to plan how you will secure resources is vital, now."
Cause for concern
Growing economies have shown a marked concern for constraints on growth; for instance, China's strong buying interest in metals. Chmiel adds that, for the moment, it seems as if this aspect most affects water-dependent FMCG companies and retailers, but he anticipates that other industries will wake up to the challenge soon, especially if it affects reputation.
Chmiel mentions Andy Wales, head of sustainable development at SAB Miller, who brought forward a dual concern over water resources: declining rates of production, from a supplier's point of view, and a reputational issue from the consumer's point of view. His company found it took staggering amounts of water to produce its beer - a water-to-beer ratio of 180:1 in Tanzania - and embarked on a range of efficient irrigation projects with its suppliers.
The third wave of sustainability thinking carries its preceding concerns with it. Conflict over resources will be as much of a reputational concern as an oil spill or a sweatshop, and forecasting constraint will reduce financial risk if not delivering cost savings.
One IEMA member who understands risk is Dr Paul Pritchard, UK head of corporate responsibility at RSA. He says that identifying, understanding and managing risk comes naturally to his colleagues at the insurance group, partly because of company culture and partly because he believes sustainability is a technical discipline: "It fits well for us; data collection, management and analysis is very much part of how we operate."
Pritchard joined the organisation in an environmental risk assessment post, but now holds a more traditional role within the CSR function. His department has two major facets: it oversees challenges for the RSA group and directs the company within the CSR framework. Pritchard also manages group objectives within the UK business, and works directly with under-writing, procurement, property services and product development.
Hidden costs
"All business should be concerned about resource efficiency, but the real challenge is for those CEOs in businesses where water, waste or energy costs are not terribly visible," Pritchard says. "If you look at a number of businesses, particularly in the financial services industry, energy doesn't show up as one of the big costs. How do you develop a good and meaningful sustainability programme in those businesses?"
He cites the example of RSA's commission to Kyocera. The company refined the tender process to focus on quantifiable measures of reduced consumption, and based its decisions on the sustainability and innovation clients offered. "It was very clear that there was a gradation in these responses which aligned closely with other criteria, such as the financial aspect," says Pritchard.
"For a new tender, it was incredibly useful to have that sustainability information upfront, and have it recognised by the tenders. To a degree it's probably about the alignment of philosophies. It's not us asking or telling them to do it - if people understand us, it's because they do the same thing as us."
Balfour Beatty is another organisation whose sustainability team is facing up to the challenge of constraint. Jonathan Garrett, group head of sustainability at the engineering and construction giant, has just helped design a group-wide roadmap for 2012. The project was launched in 2008, when the sustainability function asked Balfour's 28 operators to define sustainability.
"One of the key things was measuring the baseline," Garrett says. "Certain parts of the business had measured the data before, but the US and Dubai never had." Its Hong Kong business, Gammon Construction, led the way - the operating company's innovative work on the Hong Kong underground led Garrett to realise that customers would reward sustainable tenders.
Since then, it has tested this principle in the UK several times In a winning tender to run all of Coventry's street lighting, Balfour suggested that dimming the lights in the low-traffic hours of the night could save them up to 40% on their electricity bills.
On another occasion, construction of a bypass in Liverpool shaved £250,000 off the customer's budget by using a mix of concrete and sandstone. Elsewhere, one of Balfour's operators in the US came up with a cheaper and more durable alternative to wood for building a railway bridge - plastic.
Garrett says that Mike Peasland, CEO of Balfour's UK Construction Services and director of the sustainability roadmap, has been the key to the success of the initiative: "Mike took a personal interest - he wasn't just the sponsor, he understood the project and made a lot of quick decisions on it."
He emphasises Peasland's background in the company - he has worked his way up from managing director roles at Balfour's operating companies to its head of UK business and sustainability. "He is respected throughout the business," Garrett explains. "On the roadshow he knew the audience, and the culture."
Fresh perspective
By contrast, Garrett was new to Balfour and hit the ground running when he joined, but says he felt he had no baggage in the business and brought a fresh perspective to his post.
Peasland's quick decision-making, access to the COO and chief executive, and knowledge of the business are the three main reasons that he's so successful, according to Garrett: "I can go to Mike and say, 'we should do this', and he puts his weight behind it. He's a very active leader and a fantastic boss to work for - in my opinion he's made the single biggest difference to sustainability at Balfour."
Strong chief executives are often put in place by their understanding of contemporary market trends, and the next two or three decades will be no different. After the Second World War, businesses started to focus on manufacture, and the most successful CEOs were those who understood economies of scale and operational growth.
During the 60s and 70s, sales and marketing nous was the currency at C-level, and many of the most widely-admired CEOs such as Jack Welsh came from a sales background. In the past two decades, business got so big that the way to create value was through mergers and acquisitions, and finance became the ideal background for a headline-making chief executive.
Jan Chmiel anticipates that in five to ten years' time sustainability executives will be the ones holding the reins: "The chief executive sets the context and provides the space in an organisation to make a change. To me, it's a cultural thing - unless you can see that the environment's going to impact the budget then the CEO won't take on this kind of agenda.
"I think the only way to create additional sources of value to shareholders is by really understanding how the whole global environmental picture impacts on the bottom line - not just from the point of view of constraint but also of opportunity."
Luckily, Chmiel says, sustainability is a popular cause throughout businesses: "It's a massive task and I think everyone plays a role - it can't be just a bunch of people in head office who monitor carbon emissions. Everyone wants to join a sustainability group, so the challenge for sustainability executives is to ask everybody in their organisation to become a champion for the cause. That's the only way to imbed top-down issues."
Indeed, the 2010 UN Global Compact report 'A New Era of Sustainability' found that 93% of CEOs it surveyed saw sustainability as important to future success. The subject has everybody onboard - but it's still finding its way.
As Paul Pritchard remarks: "Over the past year, there has been great progress in getting agreement on technical requirements and scopes and establishing international standards.
"We're not there yet but, if you make a parallel with accounting, we've taken centuries, from Renaissance Italy until the present day, to build accounting standards. Corporate sustainability has only been around ten or 15 years, and I think we've made progress."
A good reputation for CSR sets a brand apart in the market place, and resource efficiency gives it an advantage over its competitors, but constraint is an issue that CEOs can't avoid.
